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Bracing for new wins — how Estonian tech ecosystem faces 2025

Estonia's tech ecosystem holds strong: €1B in dry powder ready for investment, and founders shifting focus to market growth.

2024 turned out to be not the easiest year for the global tech ecosystem, with a clear echo of that turbulence being heard in Estonia. Yet the country remains at the top for per capita unicorn and startup creation and emerges as a safe haven for AI boom.

Staged upon this background, the fifth annual Estonian Startup Ecosystem Fireside Chat gathered key ecosystem players at Von Krahl in Tallinn last week, revealing an updated picture of the country’s startup landscape. While some metrics showed a decline, industry leaders expressed cautious optimism about the ecosystem’s resilience and prospects.

The discussion, hosted by EstVCA, brought together representatives from EstBAN, Estonian Founders Society, EstVCA, Invest Estonia, and was moderated by Vaido Mikheim, Head of Startup Estonia.

Where capital goes

Kaari Kink from EstVCA reported significant available capital: “A roughly billion euros — an all-time record — in dry powder is currently available for investments in the Estonian ecosystem.” She noted that Estonian funds have tripled their commitment to the local market since 2019, investing roughly €70M into local startups last year.

Hedi Mardisoo, a board member of the Estonian Founder Society, presented a picture of the ecosystem’s health. The society now represents 241 members, who contribute significantly to the sector’s impact. “Our members bring in more than 67% of the revenues and employ around a bit more than 50% of the staff in the startup sector,” Mardisoo stated. The consolidated revenue of Estonian tech companies reached €5.5B, though growth has slowed compared to previous years.

 

A notable shift in startup concerns emerged from the discussion. For the first time, fundraising has been displaced as the primary concern among founders, with go-to-market and customer acquisition taking precedence. This change reflects a broader transformation in the ecosystem’s maturity and focus. Yet Estonian founders seem to be well-equipped to face this reality — a rather small local market has been a blessing in disguise, forcing companies to think globally from day one.

Industry leaders acknowledged a decline in several key metrics, including a five-year low in investment numbers and deal flow. Lauri Antalainen, president of Estonian Business Angels Network (EstBAN), offered a historical perspective, poiting to a market correction: “Let’s go back to 2021. A lot of startups or companies claiming to be startups got funded when they should not have been funded. This is not happening anymore.”

Future prospects

The current investment climate shows increased scrutiny, but first-class founders still should not face immense problems. As Kink observed, “We see that there is so much demand for certain rounds. When it’s really high-quality founders coming to the market, building moonshots, there’s so much capital out there; we really have to fight for those deals.”

Joonas Vänto, Head of Invest Estonia, brought positive news on the investment deal flow despite the challenges: “2023 was a record-breaking year for Estonia in that regard, but you can’t set new records every year,” he said. “The results for 2024 being more modest is pretty much what everyone expected. Sure, there were setbacks during the year, but there’s still a lot of interest among investors looking to come here. In fact, we have a few potential €100-million-plus investment projects in the pipeline at the moment. I’m sure we’ll be hearing good news from the investment scene in 2025.”

 

For the reference, in 2023, Invest Estonia almost mirrored its record-breaking performance from the previous year by securing €336M in foreign investments, and facilitating the creation of over 1,000 high-paying jobs across several strategic projects. This year, as pointed by Vänto, Invest Estonia takes on a new role — the agency is now tasked with not only bringing FDI to the country, but assisting local companies in their investment projects at home and abroad.

Looking ahead to 2025, all participants unanimously agreed that the Estonian startup ecosystem needs new exits — successful sales of startups — as these would recirculate capital back into the market, benefiting both funds and founders.

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