Estonia: Small, smart and outward-bound

Estonia's start-ups eyeing South-east Asian markets

Its population is just 1.3 million, but this tiny Baltic nation is making waves worldwide in the tech-driven new frontiers.

Growing up in Soviet-era Estonia, entrepreneur Karoli Hindriks felt isolated from the rest of the world. Citizens were not allowed to travel out of the country easily, and the government also limited access to information.

Naturally, when the country regained independence in 1991, she leapt at the chance to venture abroad, travelling to countries as far-flung as the United States and Malaysia.

A stint at a Silicon Valley think-tank on one such trip inspired her to set up Jobbatical, a Tallinn-based global headhunting platform that opened its Asia-Pacific headquarters in Singapore this year.

"I thought, 'What if we collect knowledgeable and experienced people who are ready to move somewhere, and send them to places with teams that need their skills? Could we create Silicon Valleys anywhere in the world?'" said Ms Hindriks, 35, who founded Jobbatical in 2014.

Jobbatical is among a group of Estonian start-ups looking beyond their home country and Europe to South-east Asia, enticed by the region's burgeoning markets and ease of doing business.

More could join their ranks, as Estonia continues to gain global recognition for its vibrant start-up scene. Its 550 start-ups have raised about €300 million (S$471 million) as of September this year. Last year, total funding reached €272 million, almost tripling from 2016, according to crowd-sourced data compiled by start-up event organiser Garage48.

SKYPE'S PIONEERING ROLE

The event that ignited the Baltic nation's start-up boom was the 2011 sale of telecommunications giant Skype for US$8.5 billion (S$11.6 billion) to Microsoft, said founders and experts.

Ms Hindriks said: "These Estonian guys built a product that changed a whole industry from their laptops. It gave confidence to others that they could actually change the world like that.

"The Skype founders also got very wealthy after (the sale of) Skype, so they reinvested that money back into the start-ups here. This helped to grow the ecosystem."

SUPPORTIVE ENVIRONMENT

We saw that the Singapore Government is very supportive of start-ups and fintech, and has an open-minded regulator, so that was many preferred ticks in various boxes.

SMARTLY CO-FOUNDER ARTUR LUHAAAR

Estonia has the third highest number of start-ups per capita in Europe, according to a 2017 investment report by start-up trading platform Funderbeam.

Government agency Startup Estonia also reported that the start-ups employed 4,300 people, including 1,300 people working in their offices overseas last year.

These start-ups brought in €270 million in revenue last year and contributed €37 million in employment taxes, up 30 per cent from 2016.

ASIAN APPEAL

At least 10 Estonian start-ups have set up global and regional headquarters in South-east Asia over the past few years, or are actively developing their products to tap into new opportunities in countries like Singapore, Malaysia and Indonesia.

Jobbatical moved to set up shop in South-east Asia when it learnt that many Malaysian companies were on hiring sprees. Its data also showed that Singapore was the top South-east Asian destination searched for by the 250,000 users on its platform, who are mostly from the United States and India.

  • What is Smartly?

  • The robo-advisory firm has an automated platform that analyses a user's profile by asking him seven questions that help to determine his risk appetite, before helping him to build a diversified portfolio of exchange-traded funds. It has been based in Singapore since 2015.

The headhunter has some 3,000 client companies - a third of which are from South-east Asia, said Ms Hindriks.

"The job market in South-east Asia is growing much faster than in Europe, so I think we will see a lot more movement there," she added.

Financial services firms, in particular, have gained a foothold in South-east Asia.

London-based online remittance platform TransferWise, which was founded by Estonians, has also been expanding in the region. Last September, it opened its Asia-Pacific headquarters in Singapore. The company helps users avoid the high cross-border transaction fees imposed by banks.

Robo-advisory firm Smartly is another financial start-up that has been based in Singapore since 2015. Its automated platform, which went live last year, analyses a user's profile by asking him seven questions that help to determine his risk appetite, before helping him to build a diversified portfolio of exchange-traded funds.

MORE MARKET POTENTIAL

The job market in South-east Asia is growing much faster than in Europe, so I think we will see a lot more movement there.

JOBBATICAL FOUNDER KAROLI HINDRIKS 

Smartly's founders chose South-east Asia for its rapid growth, cultural vibrancy and untapped opportunities, said co-founder Artur Luhaaar, 25.

He and Mr Keir Veskivali, Smartly's other co-founder, initially considered basing the company at home. However, they wanted to venture out of their comfort zone, and had always dreamed of living and doing business in Asia.

"It's a melting pot of so many different cultures, and we found this very exciting. At the same time, we saw that the Singapore Government is very supportive of start-ups and fintech, and has an open-minded regulator, so that was many preferred ticks in various boxes," he said.

Smartly provides its digital advisory service to VCG Partners, a Monetary

  • What is Jobbatical?

  • The Tallinn-based global headhunting platform, founded in 2014, opened its Asia-Pacific headquarters in Singapore this year. It has some 3,000 client companies - a third of which are from South-east Asia.

Authority of Singapore-regulated fund manager owned by Vietnam's VinaCapital Group.

Mr Luhaaar and Mr Veskivali also believe that financial services can have a greater positive impact in South-east Asia's many emerging markets, as well as unbanked and underbanked populations.

"We looked at the core problem we were solving, and we realised that investment services in Estonia or Europe were okay. We saw that the opportunities in Europe and the problems to be solved were not as groundbreaking," said Mr Luhaaar.

An example of a start-up making positive social impact is Malaysia-based TransferFriend, an online remittance platform founded in 2013 which aims to help foreign workers in Singapore, Malaysia and Hong Kong save up to 85 per cent in cross-border transaction fees.

TIME-SAVING TECHNOLOGY

Previously at Walmart, the average waiting time to receive a parcel was 15 minutes. Now, thanks to this technology, customers receive 15 minutes of time.

CLEVERON FOUNDER ARNO KUTT 

It also provides tips and personal stories on its website to promote financial literacy among the workers, who hail from countries such as Indonesia and Nepal.

"We wanted to do something unique, so we thought about financial inclusion. We try to educate our customers on how to use smarter and cheaper ways to send money back home," said TransferFriend founder Herkki Valiste, who has been living in Malaysia for almost 10 years.

STRONG HOME MARKETS

But while some Estonian start-ups are setting their sights on Asia, many are still thriving in the more traditional markets of Europe and the US.

Ride-hailing company Taxify recently became the country's fourth unicorn - a

  • What is Cleveron?

  • The automated parcel solutions firm manufactures high-tech robots for big names such as Walmart and Zara. "Pickup Tower" machines allow customers to collect online orders in stores, reducing the need for service staff to identify and retrieve the parcels.

start-up with market value of over US$1 billion - after raising US$175 million in a funding round led by German automaker Daimler. The firm, which is also backed by Chinese ride-sharing giant Didi Chuxing, has a presence in over 40 cities in Europe and Africa.

"Overall, we see that we're challenging the local monopolies. When we look at Asia, we see that there is already quite a lot of competition," said Taxify founder Markus Villig, who founded the company in 2013, when he was only 19.

Europe has many big markets where people still hail traditional taxis, added Mr Villig. "There's still a lot of potential to bring this to the digital world."

BIG COMPETITION

Overall, we see that we're challenging the local monopolies. When we look at Asia, we see that there is already quite a lot of competition. ''

TAXIFY FOUNDER MARKUS VILLIG 

Meanwhile, automated parcel solutions firm Cleveron counts the US as its largest market. It brought in US$11 million from the US last year, and expects revenue to rise to US$40 million this year.

Based in Viljandi, a town in southern Estonia, Cleveron manufactures high-tech robots for big names such as Walmart and Zara. The bright orange "Pickup Tower" machines allow customers to collect their online orders in Walmart stores, reducing the need for service staff to identify and retrieve the parcels.

The firm also has a few similar towers in Estonia, which the public can use free of charge to deposit and pick up parcels with the help of an app.

"What Cleveron gives to the people is time. Previously at Walmart, the average waiting time to receive a parcel was 15 minutes. Now, thanks to this technology, customers receive 15 minutes of time," said founder and chief executive Arno Kutt, 48.

  • What is Taxify?

  • The ride-hailing company recently became the country's fourth unicorn - a start-up with market value of over US$1 billion - after raising US$175 million in a funding round led by German automaker Daimler. The firm has a presence in over 40 cities in Europe and Africa.

He added: "The United States wasn't originally planned to be a place for expansion, but it just happened this way."

GROWING PAINS

The country's small population of 1.3 million forces Estonian start-ups to think about global expansion from the get-go, say start-up founders.

Said Ms Hindriks: "It's kind of a pain and a privilege here, that you have to think globally. This means that from a very early stage, you become more competitive in the global market."

While start-ups used to shift their headquarters to hubs like the United Kingdom or US for better exposure, they can now gain global recognition even if they choose to be based in Estonia, she added.

"More investors are starting to get used to the fact that you don't need to have a London or US headquarters. You don't need to be in the Silicon Valley to get attention; you can now be an Estonian company," she said.

However, the country's small population has also led to a shortage of essential tech talent, which has been a problem for its start-ups. Mr Villig said: "When we compare the number of good engineers here, compared with other countries of the same population, there are more here. The problem is that we also have significantly more tech companies which demand that talent."

  • 1.3m 

    Estonia's population 

    550 

    Number of start-ups in Estonia, which have raised about €300 million (S$471 million) as of September this year.

As a result, start-ups like Taxify are looking overseas for talent. Taxify's employees come from 50 countries, and foreigners make up three quarters of the firm's total workforce. Most of them are from the ride-hailer's largest markets of South Africa, France and Nigeria.

Estonia also rolled out a new start-up visa last year, which makes it easier for Estonian start-ups to recruit people from outside the European Union. This might be good news for users on Jobbatical's platform, for example, who want to work in the Baltic state.

Ms Hindriks said: "We live in an era when people are moving more than ever before. We are just so much more globally connected."


 • Prisca Ang and Sean Loo are final-year communication studies students at NTU's Wee Kim Wee School of Communication and Information. Their reports on Estonia are part of the school's Go-Far overseas reporting programme.