Unicorns are supposed to be rare, yet you can find two of them lurking on the CV of Taavet Hinrikus and another two in his investment portfolio.
In 2003, Hinrikus became the first employee of a little known Estonian startup trying to disrupt the telecommunications market by offering cheaper calls online. It was called Skype and, as you probably now know, the service proved quite popular. Skype quickly became Estonia’s (and the entire Nordic region’s) first so-called ‘unicorn’ startup valued at more than $1 billion.
While working at Skype, Hinrikus encountered a problem. Solving it led him to create yet another unicorn in 2011, this time as founder. He was living in London, but being paid from Estonia in euros. That meant the banks were taking a hefty cut of his paycheck through cross-border fees. His Estonian friend, Kristo Käärmann, had a similar problem in reverse. He was being paid locally in pounds, but had to send money back to Estonia to pay his mortgage. To make matters worse, they were both being told wildly different exchange rates. That spread on exchange rates is where the banks add an extra markup, which Taavet and Kristo thought was a bit sneaky.
But their two problems were each a solution to the other. Instead of paying to move money across borders, they simply exchanged the money between themselves on each side at the mid-market exchange rate.
What if more people could do this, they thought. As a result, TransferWise was born In addition to the money transfer service, the company also now offers multi-currency banking. It became a unicorn less than five years later and is now valued at more than $5 billion. This month, they announced they are hiring an additional 750 employees to support their continued phenomenal growth.
Despite a population of just 1.3 million people, Skype and TransferWise are actually now just two of FIVE unicorn startups that were born in Estonia. The others are PlayTech, Bolt, and now Pipedrive just added to the list. Hinrikus has invested in both Bolt and Pipedrive. Beyond that, Estonia has a thousand more promising startups – nearly five times the European average per capita – eager to be the next unicorn. Our northern European nation of forests, bogs, and medieval streets may seem like an unlikely startup factory though. So we asked some of the key insiders, like Hinrikus, for their perspective.
“It’s not the valuation, but the impact you’re having that matters,” explains Hinrikus.
Indeed, 9 million people and companies now use TransferWise to move their money around the world, collectively saving them more than a billion euros in just the last year compared to if they had used traditional banks and money wire services.
The success of TransferWise is attributed not just to lower fees, however, but also to its user-friendly design, transparency, and speed. These are values on which Estonia’s business environment has also been developed. The widespread use of secure digital identities to access services online has eliminated bureaucracy, lowered costs and hassle, and enabled greater trust and transparency. It also provides new opportunities for the private sector to innovate on top of this advanced digital infrastructure, such as by integrating the secure digital IDs used by customers for signing on.
“A 10x better product changes the way an industry works and thus makes possible what was not before,” Hinrikus adds.
Estonia’s next unicorns
Starship Technologies is a robotic delivery company founded in 2014 by Skype’s cofounder Janus Friis and Skype’s founding developer Ahti Heinla. They realised that the last mile is the most expensive mile of any delivery so their aim is to radically change this using a network of six wheeled delivery robots that can drastically lower costs and provide a smoother service to the customer receiving their package, whether it’s life saving medicines or perhaps just a takeaway pizza. Veriff, meanwhile, uses technology to provide remote identity verification. This enables businesses to smoothly onboard customers and reject potential fraudsters, which has been a major pain point for companies growing in the digital age.
Skype was an Estonian-born success story, but with international founders who recognised the strengths of Estonia’s welcoming and hassle-free business environment. TransferWise is a startup that owes its birth to both Estonia and the UK, but has retained an enormous presence in Estonia in order to propel its continued growth. Perhaps it is Starship Technologies, however, that best demonstrates the confidence of founders in Estonia’s business environment as a springboard for global success. Although not Estonian himself, Skype cofounder Friis chose Estonia for a second time because he recognised that Estonia’s business environment played a key role in the success of his first unicorn.
If Hinrikus is right, Friis could be on the verge of creating his second unicorn. And that’s something that Hinrikus is already an expert on doing.
If you want to invest in a startup that could be the next unicorn, step inside Estonia’s unicorn factory and meet the founders hard at work here.