How Estonia transformed into Europe’s tech and startup powerhouse in the post-Soviet era

Tallinn, Estonia’s capital on the Baltic Sea

In Estonian folklore, the Old Man of Lake Ülemiste emerges during autumn’s long nights.

Legend has it that if one runs into him, he’s almost certain to ask: “Is Tallinn (Estonia’s capital) ready?” If one replies, “Yes,” it is believed that the old man summons the waters of the lake to flood the city. To avert disaster, one must always answer, “No, there’s much to do.”

Estonia, situated in the northeastern Baltic Sea, spans 45,339 sq km with a population of 1.3 million. It has among others been invaded by the Nazis and the Soviet Union, and in the aftermath of the breakup of the Communist bloc in late 1991, joined the European Union in 2004. (From 1918 to 1940 and from 1991 to now, Estonia has functioned as an independent state).

Lake Ülemiste, Tallinn's largest lake and a major water source, lies at the eastern shore of the airport, which probably evokes this story for passengers every time a flight takes off or lands.

It’s the first story I heard when I got off my plane at the Lennart Meri Tallinn Airport, which bills itself as "the world's cosiest airport".

Lake Ulemiste. Photo credit: Mapcarta.com

In a modern twist to the tale, Tallinn continues  to outsmart the old man with its tech innovations, evolving into a thriving hub for startups.

But that's not at the cost of its historic charm, from cobbled streets to soaring church spires blending seamlessly with romantic cafes and cutting-edge establishments.

Also, read: Digital republic Estonia looks to partner with India on cybersecurity

Focus on tech

After regaining independence in 1991, the Baltic nation placed its bets on technology. Estonia prioritised tech entrepreneurship education for children and embraced the online culture, transforming from a Soviet state to an innovation hub.

View of Tallinn from the Estonian Prime Minister’s office

In 1996 Estonia launched the Tiger Leap programme to invest in computer and networking infrastructure for education. In 2012, the country introduced ProgeTiger, integrating technology subjects such as programming and robotics into the school curriculum.

Declaring internet a basic human right in 2000, Estonia conducted the world’s first online elections in 2005. It is now planning to conduct elections through smartphones. “First, you need to build trust in public services. For 20 years, we have kept e-elections through computers safe,” said Tiit Riisalo, Estonia's minister of economic affairs and information technology.

“Mobile devices can be used for voting in local elections in 2025. We have had discussions with Google and Apple on this matter, allowing citizens to cast votes through mobile phones via sophisticated apps on the Apple App Store and Google Play Store.”

Known as a digital republic, 99 percent of government services in Estonia are now digital. With claims of allowing the setting up of a company online in 15 minutes and filing taxes in three minutes, Estonian officials say e-governance initiatives like digital signatures, online health records, etc., help reduce corruption and improve efficiency.

99 percent of government services in Estonia are now digital

The 12th edition of Latitude59, a global startup and technology conference, brought together over 3,500 people, including over 900 startup representatives and 20 national delegations from around the globe. Held in Tallinn from May 23 to 24, the conference featured opening remarks by Estonian President Alar Karis, who said, "Estonia's thriving startup sector signals the resilience of our economic environment and the possibility of a brighter future."

Speaking to Moneycontrol on the sidelines of the e-governance conference on 'Unlocking Digital Success', Anna-Greta Tsahkna, founder and CEO of lumber-industry-focused tech platform Timbeter said, “Estonia has been built by the private sector, not the government, so private-public participation is very important.”

Reflecting on the aftermath of the Soviet era, Tsahkna, who is also the vice-president of the Estonian Association of Information Technology and Telecommunications, said, “We witnessed a major economic collapse post Soviet rule which led to many reforms including digitisation. Fortunately, we had strong political leadership that prioritised digital transformation, laying the groundwork for economic restructuring and the emergence of new startups."

“But a positive outcome of the Soviet era was the emphasis on STEM education and high female participation in education.” she said.

On the association’s role, Tsahkna explained, “We facilitate strong relationships between companies and the government. We also raise awareness about cybersecurity and offer assistance to our members in the event of cyberattacks.”

Skype success story a launchpad for new ventures

Estonia's journey to being a hotbed of startups with unicorn status began in the early 2000s when Estonian engineers Ahti Heinla, Priit Kasesalu and Jaan Tallinn co-founded Skype, a peer-to-peer communication platform. Launched in 2003, Skype revolutionised global communication and was acquired by eBay for $2.6 billion in 2005.

Skype's triumph inspired a wave of innovation and entrepreneurship in Estonia, which encouraged the government and private sector to collaborate and create a startup-friendly ecosystem. Since then, the country has seen an exponential surge in startups and tech developments. It now has around 1,500 startups.

Liina-Maria Lepik, member of the management board at Enterprise Estonia, told Moneycontrol, “Skype was among the first to sow seeds in the startup ecosystem in Estonia. Many of those involved with Skype started their startups, and this trend has continued to grow.”

Estonia also has an impressive track record in unicorn creation, with 10 unicorns so far: Skype in 2005, Playtech in 2007, Wise in 2015, Bolt in 2018, Pipedrive in 2020, Zego, ID.me and Gelato in 2021, and Veriff and Glia in 2022.

Often referred to as the ‘Nordic Silicon Valley’, Estonia has been a pioneer in unicorns and the startup ecosystem. “The startup ecosystem in Estonia is vibrant and supportive. We also welcome foreign talent, which is why the government launched the Start-Up Visa programme designed to facilitate the hiring of non-EU talent for growing Estonian companies. In terms of per capita unicorns, Estonia ranks first in Europe and second in the world, after Israel,” Lepik said.

Lepik acknowledged that due to limited capacity at Tallinn's airport, they rely on Riga and Helsinki airports in Latvia and Finland, respectively, for long-haul flights. “We are situated between these two air hubs and are dependent on neighbouring countries for long-haul flights. However, the distance from these airports to Tallinn is very short, around two hours.”

Wooing foreign talent

To attract foreign talent and relocate startups, Estonia launched three programmes: e-residency, Startup Visa, and Digital Nomad Visa.

Since 2014, the e-residency programme has drawn over 100,000 applicants from more than 170 countries, generating €12 billion in revenue from 25,000 companies. This initiative allows foreigners to access benefits like business registration and government e-services.

The Startup Visa Programme launched in 2017 has helped nearly 6,000 individuals leverage Estonia's prime business environment.

Introduced in 2020, the Digital Nomad Visa programme allows remote workers to reside in Estonia for up to a year while employed by foreign entities.

Tallinn airport

Officials said Estonia’s robust digital infrastructure, supportive policies and strategic EU market location make it a preferred destination for tech startups.

Estonia's IT minister Riisalo said, “For top technology firms with global ambitions, Estonia is the easiest and quickest way to enter the EU market. For instance, Ericsson last year decided to invest around €200 million in a 6G research and development centre and a manufacturing facility next to Tallinn Airport. This is important to us because it involves cutting-edge technology and will create an ecosystem around it, given its high research capacity. It will also serve as a platform for our technical university students to collaborate with global companies.”

An Indian restaurant located in Tallinn's Old Town

There are an estimated 1,800 Indian tech professionals in Estonia. Marko Mihkelson, chairman of the Foreign Affairs Committee of the Estonian Parliament, told Moneycontrol, “There has been an influx of tech professionals from countries like India and Turkey for the past few years. Skype was our biggest startup success story. Young people are hungry for success, and there is a helpful mentality and a good ecosystem in Estonia for businesses to grow.”

I didn’t run into the mythical old man in the streets of the Old Town or near Lake Ülemiste during my visit. I was prepared to disappoint him.

(This correspondent was in Tallinn on the invitation of the Government of Estonia.)