TopTech 2023 shows robust health of the Estonian tech sector in spite of tough times

Indrek Uudeküll

Partner at Prudentia Tallinn

TopTech 2023, the ranking of Estonian technology companies, shows that in spite of financing problems, the local tech ecosystem remains in good health. The global financing crisis is not yet reflected in the value of companies, and the interest of foreign investment funds in Estonian tech companies continues to be high. This is the third TopTech ranking compiled by Prudentia Tallinn and Siena Secondary Fund.

While in recent months both Estonian and international media have been making headlines of the how the startup sector has been affected in the biggest crisis of a decade, the TopTech 2023 ranking proves that we have actually returned from the temporary bubble to the old reality. At the same time such a ranking is characterized by a retrospective view and historical data. As changes taking place in the tech sector are rapid, the value of companies can also change very rapidly. In many cases, only time will tell whether tech companies that are struggling today will be able to overcome the difficulties or whether they will disappear from our business landscape. Compared to 2022, the total value of the top 30 most valuable technology companies in Estonia was of the same order of magnitude, falling only by 2%. However, this time the threshold value of a tech company to get into the TopTech ranking had to be a few million euros higher than last year.

The list of Estonian tech top companies is long

There were significant changes in the ranking with 5 new operators making their entry and give strong players from last year being relegated. This shows that the backbone of the sector is strong and there are new players stepping to the limelight. Newcomers in the ranking are defense industry manufacturer Milrem Robotics (140 million euros), cybersecurity training platform RangeForce (85 million euros), cybersecurity tool that provides a state-of- the-art digital forensics solution Binalyze (90 million euros), developer of hydrogen technology Elcogen (224 million euros) and platform for automated trading in cryptocurrencies Bitsgap (128 million euros).Bitsgap and Binalyze extended the list of companies with foreign founders, which also includes Glia and Yolo.

At the very top of the ranking you will can familiar names such as Wise and Bolt, but they have now switched places compared to 2022. Because of lack of public financial data, some companies such as Pipedrive which is headquartered in the US, were excluded from the 2023 ranking. Some other companies may share their fate in the coming years. 

Next year, we suggest to monitor closely such global hot topics like AI and computing. In Estonia, the leading user of AI is Pactum, while also other big players such as Bolt or Starship are increasingly integrating artificial intelligence in their services.

There is more local funding on the market

In 2023, the endless cash inflow in the startup sector dried out – globally uncertain times and rising key interest took the air out of the post-corona bubble and forced investors to tighten the grip on their purses. But the fact is that we are no back to the old reality, after the dizzying boom of previous years.

At first glance, the fact that investments in Estonian tech companies decreased by 85% in 2023 compared to 2022 seems shocking. However, when one analysis the numbers in more detail, the picture is not all that bad. In the previous two years, the money raised by Bolt accounted for about 50% of the total investment in the Estonian tech sector – in 2023, however, Bolt has not raised any money.

Several other Estonian startups also included record amounts in 2022 just before this year`s decline. Thus, despite this year's modest investment volumes, the sector as a whole has a sufficient buffer to survive the scarce times.

Local funds are increasingly investing in later funding rounds (ie, onwards from the A-round). Market gaps are filled by public funds that invest in new areas such as green turnaround or deep tech. Another question is whether state support and intervention in the startup sector is necessary or justified.

As a new trend, an increasing number of mergers and acquisitions (M & A) can also be observed in the tech sector. The expansion of companies through M & A transactions has also been a growing trend in Estonia over the past few years. In 2023, Estonian startup sector saw an impressive number of exits (although not in monetary terms), i.e. exits of founders and original investors through the sale of holdings in companies. It is good to know that the money earned from these successful exits is being increasingly reinvested in Estonia. For example, the founder of Milrem Robotics promised to reinvest the millions earned from the sale of the company in the Estonian economy and has already publicly discussed his first startup investments. Over the past two years, there has also been growing interest of foreign funds in acquiring Estonian tech companies.

The success of local startups creates a snowball effect (or should we way the Skype or Wise effect), which is clear proof of the maturity of the Estonian startup sector. The more there is local capital to finance companies in successive funding rounds, the more such generated value will remain in Estonia and the bigger the hotbed for our unicorns will be in the future.

To visit the Estonia 2023 TopTech ranking click here: https://top101.ee/tech