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Estonia pitches itself as the new Silicon place

The Valley may be cool, but we're Baltic. Sorry, Nordic

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Estonia is seeking to reinvent itself from a cheap place to source top-notch programming expertise into the Nordic* Silicon Valley and bio-tech centre.

Around 25 start-ups rubbed shoulders with entrepreneurs from the US and the Nordic countries as well as investors at the recent Latitude59 conference in Estonia. On show were firms seeking to become the next Roxio or Spotify as well as start-ups in the field of biotechnology (genome analysis and cancer research) and green technology.

Estonia takes pride in being one of the most wired-up countries on the planet, where fibre-optic enabled high-speed broadband access is ubiquitous and a full range of government services are available online to all citizens.

The small country of 1.3 million provided the tech brains behind Skype, the VoIP tech pioneer. Skype was originally created by Estonia-based developers Ahti Heinla, Priit Kasesalu and Jaan Tallinn, who have become heroic figures in Estonia. All three also worked with the business brains behind the VoIP platform - Janus Friis from Denmark and Niklas Zennström from Sweden – on Kazaa, the occasionally controversial P2P file-sharing software.

Skype helped inspire young Estonians to seek a career in technology while at the same time providing a well-spring of experience to nurture the tech scene. The Estonian developers became rich when Skype was bought by eBay, using the windfall to set up Ambient Sound Investments, the first of a range of angel investors. While those who were in at the start of Skype provided funding, those who left later are contributing much-needed experience to fledgling start-ups.

"Every second start-up has someone from Skype, if not from development then from sales and marketing," we were told.

Start-ups typically begin with three to eight people before seeking funding from local angel investors of around €20,000 – enough to prove the worth of their business idea in local markets including Sweden and Finland. The next step is seeking a second round of funding, typically in the US but sometimes in Israel. Success stories include mobile services platform firm Fortumo.

€150 and 15 minutes...

Although not home-grown, gaming software development firm Playtech employs 325 employees at its Tartu, Estonia R&D labs. Swedbank has settled its IT development division in Estonia, where it creates software for all Swedbank Group business units in Estonia, Latvia and Lithuania, making it another significant employer in the state.

Setting up a business in Estonia can be done with a minimum of fuss and red tape, online and in as little as 15 minutes for a cost of €150, according to Raido Pikkar of Technopol, an incubator and science park which was one of the main sponsors of the conference. Fledgling firms go to investors or tech incubators rather than banks because the former "know what they are talking about", explained Pikkar.

The Estonian economy is returning to health following a severe economic depression four years ago brought about by a property speculation bubble that resulted in an alarming 15 per cent drop in GDP during 2009. An austerity programme – of the type that's failing in Greece and Spain – appears to have turned things around in Estonia, at least. Its economy now has the highest GDP growth rate in Europe, although its unemployment figures are still disturbingly high.

Priit Salumaa, who started up Garage48, became an entrepreneur after losing his job during the down-turn, which he views in retrospect as a useful "reality check". He reckons the cold winter months have given Estonia a healthy work ethic. Last year the country joined the euro, something that's seen as badge of business credibility locally.

Estonian schools provide students with a strong background in physics and mathematics, a tradition that dates from the dark days of pre-independence under Soviet rule in the 1980s. This provided a well-spring of programming talent. The low development costs in Estonia pulled in inward investment, said Pikkar.

Most of the start-ups at Latitude59 were continuing along the established road of developing IT technologies (most especially software) for consumers and to a lesser extent business and government. A substantial minority of this is in mobile but the main target platforms are Android and Apple iOS. Nokia platform barely gets a look-in, despite Estonia's proximity and close cultural ties to Finland and Nokia.

Pikkar said between 60-70 per cent of Estonia start-ups were involved in ICT but he wanted to bring about a change so that "disease fighting" bio-tech firms formed the majority in a few years' time. ®

Balt-note

*Geographically, Estonia is a Baltic state, but it prefers to present itself as Nordic, as Estonians are descended from Swedes and Finns and their language is closely related to Finnish.

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