A unicorn is a startup valued at more than $1 billion. But for American venture capitalist Tim Draper, however, it’s the valuation in bitcoin that he believes will be more important one day.
In case you are wondering, a unicorn startup would need a valuation of just over 50,000 Bitcoin based on current prices – although that can change quickly.
Draper is adept at picking winners. He was an early investor in Skype, Estonia’s first unicorn, and has developed a strong connection with Estonia since then, including by investing in more Estonian companies and even establishing a hostel for visiting entrepreneurs in the capital Tallinn as part of his project, Draper Startup House.
Elsewhere, he has shown his ability to pick unicorns by investing in companies including Hotmail, Twitter, SpaceX and Tesla. His outspoken support for Bitcoin and the benefits of decentralisation have also earned him notoriety.
Estonia, a northern European nation of forests, bogs, and medieval streets, was itself an unlikely startup success story to emerge along with Skype. Skype is now just one of FIVE unicorn startups born in Estonia, despite the country having a population of just 1.3 million people. After Skype came TransferWise, Playtech, Bolt, and now Pipedrive newly added to the list. Beyond that, Estonia has a thousand more promising startups – nearly five times the European average per capita – and they’re eager to earn this coveted title too.
How Estonia became a unicorn factory
So what factors did Draper identify as helping startups flourish here?
“Clearly, this is the Estonian government,” he replies. “Not only are they leaders in governing outside their borders, but they are technological leaders of trust and freedom.”
Estonia ranks highly for economic freedom and ease of business, and is also regarded as the world’s most digital country. The country has an advanced digital ID system that enables all citizens, residents – and even ‘e-residents’ in other countries – to securely verify their identity online and make a legal binding digital signature. This eliminates a significant portion of bureaucracy when accessing state services and also empowers the private sector to develop their own services on top of this infrastructure. As a result, tasks like starting a company, filing taxes, signing contracts, and voting can also be done in a few clicks from anywhere on Earth. Only marriage and divorce can’t be agreed online – not because Estonia doesn’t have the technology but because officials think it might be a little dangerous if those things can be done instantly at any time of the day or night.
But the positive impact of these policies and digitisation initiatives on businesses are part of the reason for why the startup scene in Estonia has flourished and produced a disproportionate number of unicorns.
“When people trust their government, they tend to be willing to work harder to build new things, like businesses,” adds Draper. “When people are free, they can use their imaginations without the imposition of regulations to stop them.”
While confidence in Bitcoin has wobbled slightly in recent years, Draper has not, and his long term predictions may still be vindicated. He sees Bitcoin, as well as blockchain technology, smart contracts and Artificial Intelligence as being the major drivers of disruption for startups to harness in the coming years.
“I expect to see transformations in banking, finance, insurance, legal, accounting, government and healthcare,” Draper explains. “I look forward to a time when I can raise a fund only in Bitcoin, can invest it totally in bitcoin, have the companies pay employees and suppliers all in bitcoin and have the whole thing automated on the blockchain and implemented on smart contracts.”
One theory floating around the internet actually attempts to prove that Bitcoin founder Satoshi Nakamoto is Estonian – or perhaps a group of Estonians. Some notable Estonians were, as it happens, among the earliest enthusiasts for blockchain technology and developing their ideas around the same time that the Bitcoin whitepaper was published. They deny inventing Bitcoin, however, and we have no reason to doubt them!
The questions Draper says he looks for when deciding to invest in the next potential unicorn include ‘Are they decentralized? Do they accept Bitcoin? Are they utilising artificial intelligence? Do they have an unique offering or are there a lot of them when you do a Google search?’
“The best measure of success is seeing the vision come to life,” he adds. “What I look for is entrepreneurs with visions that, if they work, would be extraordinary for the world. I worry less about what could go wrong than what will happen if the company is successful.”
As for which startup he is willing to predict is on course for unicorn status, he points out that his own Draper Startup House is vying for that title. The pandemic will end, he emphasises, and then “people will be itching to get together and talk startups.” Count us in, Draper.
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.