Estonia is seeking to revamp its venture capital industry to quicken the development of startup technology companies and help build “a second Skype” in the Baltic nation.
The country plans a new fund with 60 million euros ($81 million) for which government agency KredEx plans to use European Union support and a further 20 million euros ($27 million) coming from private investors, Andrus Treier, the head of KredEx, said in an interview in Tallinn on Nov. 5. The so-called fund of funds will be created next year and replace financing from state-owned Eesti Arengufond, which directly invests in companies, he said.
“If there’s a single big success story, a second Skype, it will probably be enough to highlight Estonia for the next decade,” Treier said. The fund “will help build venture capital infrastructure, the ecosystem for entrepreneurs.”
The newest euro area member is struggling to revive its capital market which was hit by one of the worst recessions globally after the 2008 collapse of Lehman Brothers Holdings Inc. The country needs to build on the case of Skype Technologies SA, which was developed in Estonia a decade ago and sold before becoming the most popular Web-calling service, Treier said.
Four Estonian engineers co-founded Skype with venture capitalists Niklas Zennstrom and Janus Friis. The engineers’ Ambient Sound Investments sold its minority stake in Skype to online-auctions provider EBay Inc. in 2005. Microsoft Corp. bought Skype from a consortium that included Zennstrom for $8.5 billion in 2011.
Startups founded by Estonians, including GrabCad, Erply and TransferWise, have raised more than 20 million euros in financing since last year, with one sixth of the funds coming from Estonia, according to data from Arengufond. London-based tech incubator Seedcamp Ltd. has 19 percent of its investments in companies created by Estonians, according to Arengufond.
The new venture capital fund will invest in three to four privately managed sub-funds, Treier said. KredEx will cooperate with the European Investment Fund to pick fund managers, he added.
“On top of financing startups, our goal is to educate fund managers who in the long term would themselves be able to attract new funding from private investors,” Treier said. “Hopefully, we’ll also spark interest among stronger global fund managers.”