Having weathered the storm, Estonian tech companies are now poised for growth

Indrek Uudeküll

Partner of Prudentia Tallinn, compiler of TopTech

The TopTech ranking of Estonia's most valuable technology companies, now published for the fourth consecutive autumn, is proof of the remarkable resilience of technology companies. Having weathered the ravaging global financial crisis and adverse economic conditions, the tech sector is now prepared for future growth. Yes, the aftershocks of the financial chaos of 2023 are still felt, but the fundamentals of the Estonian technology business ecosystem are strong.

In this year’s TopTech one can find both global leaders as well as innovative startups from very different industries.

New arrivals and dropouts

Compared to 2023, the ranking no longer includes companies like Glia, Testlio, Starship, Lightyear, Ready Player Me and Veriff. This is also why the threshold for being ranked in the TOP 30 has dropped to 30 million euros. Since the head offices of these companies mentioned above are located outside Estonia, financial data is simply not available, which also makes it difficult to determine their value. Let me remind you that for companies that are ranked in TopTech, our valuation is based either on public data or data provided by the company itself.

These companies have been replaced by other and just as ambitious tech firms, including DefsecIntel Solutions (valued at 110 million euros), Threod (47 million euros), Ridango (62 million euros), Lei Register (44 million euros) and Verge Motocycles (70 million euros).

At the top of the table, once again, is Wise. Valued at 8.6 billion euros, Wise could be dethroned from the top only by one company - Bolt, which came second in this year’s ranking with a value of 5.5 billion euros. It remains to be seen if its upcoming IPO will lift Bolt to the No. 1 spot.

A sector that adapts to new conditions

While in the 2023 TopTech ranking the dominating theme was the shrinking value of the startup sector, this year’s TopTech paints a different picture. In a year, the total value of Estonia's 30 most valuable technology companies changed relatively little, falling from 20.5 billion euros in 2023 to 19.2 billion euros this year, thanks to a strong ecosystem that has adapted to a more complex fundraising environment. As of September 2024, companies have raised 313 million euros in funding or 25 percent less than in 2023. The biggest funding rounds were completed by Starship, CORE, Elcogen, Pactum and Stargate Hydrogen.

However, this year’s ranking differs from earlier rankings in important aspects: new arrivals such as Defsecintel Solutions and Therod are brilliant examples of the emergence of Estonia’s own defence technology sector. These two companies represent the future of the whole sector, attracting significant investments and demonstrating their ability to innovate and deploy cutting-edge technologies. The proceeds from the acquisition of Milrem Robotics have already led to the foundation of new companies. One that is most likely to feature in the next year’s TopTech is Frankenburg Technologies.

The war in Ukraine led to the proliferation of new companies in the defense sector and cybersecurity. New innovative solutions allow Estonian companies to enter the global defence industry market, an achievement that only a few years ago seemed totally unthinkable.

From exits to reinvestments

On a negative news, the number of exits from Estonian technology companies fell in 2024 and six M&A transactions have taken place this year so far. Of them the most significant was the acquisition of Klaus by Zendesk at the beginning of the year and, very recently, acquisition of Monese. What is important is that part of this capital is reinvested back into the Estonian economy, creating a positive growth cycle similar to that of Milrem. The eagerly awaited IPO of Bolt is also likely to give additional momentum to the succession of Estonian start-ups.

The slight decline in the global venture capital in the Estonian technology sector in 2023 has been offset by an increase in local financing. This transition shows a growing belief in the ability of Estonian technology companies to expand and compete worldwide.

The fall in the number of transactions is due to the global fall in the valuations of technology companies which are currently below the five-year average, which is no incentive for exit among local founders and business owners.

Impact on the Estonian economy  

In the first half of 2024, Estonian-based technology companies paid nearly 170 million euros in labour taxes, or almost twice as much as 4 years ago when we put together the first ranking.

Based on data from the tax authority, 44 percent of new jobs were created by the top ten Estonian technology companies. Wise, Bolt and Pipedrive, the leaders of the TopTech ranking, are not only actively hiring, but and also among the most attractive employers.

32 percent of the staff of tech companies registered in Estonia are foreigners, which emphasises the need to recruit new foreign talent to support the local ecosystem.

Sorting the wheat from the chaff

Every year, we are also witnesses to the failure of some success stories. This year it was the turn of Planet 42, whose investors should learn from the lesson and move on. Losses in this sector are inevitable also in the future.

Summary

Although the slowdown in the growth of the global technology sector has also had an impact on the Estonian technology sector, the entire sector is being driven to new growth by strong fundamentals, a supportive ecosystem and innovative and committed founders, demonstrating the resilience of entrepreneurs and their ability to move to sectors where innovation is taking place and new growth in value is emerging.