EstFund will be the first in the region getting major co-investment from the European Investment Fund as Tallinn aims to lead the Baltic startup world
Estonia is launching a new government fund for Tallinn startups, the country’s Economy Ministry announced over the weekend. The new Fund of Funds will put cash into three venture capital pools across the country for Angels, other VCs and expansion.
The European Investment Fund (EIF) and Estonian venture hub KredEx are adding more than their two cents to the pot. EIF will manage the Estonian government’s share, €48 million, while adding its own €12 million thanks to infusions from the European Fund for Strategic Investments (EFSI). This is the first “fund of funds” in the Baltics where the EIF co-invested, something previous rules did not allow for when it helped manage funds in Latvia and Lithuania.
“The new EstFund is a first of its kind in Europe and shows how together with local risk capital funds and the Estonian authorities, EIF can help to build a strong investment ecosystem in Estonia,” EIF deputy chief Roger Havenith said in a blog post by the Estonian Ministry of Economy. “Working with KredEx and the Estonian Ministry of Economic Affairs and Communications will enable us to target our finance for SMEs effectively to deliver lasting benefits for Estonian companies.”
Welcome capital to bring in more talent
Tallinn is punching above its weight on the global startup map. Estonia already makes waves internationally for its e-residency program and Startup Compass estimates the Estonian startup ecosystem is worth about $1.2-1.45 billion. They grabbed headlines last year with big funding rounds like TransferWise’s $58 million Series C led by Andreessen Horowitz. Government investments have been consistent up until now with SmartCap, the investment arm of the government-run Estonian Development Fund, being one of the country’s most prolific investment entities. Last week, local HR tech startup Jobbatical raised $2 million. The one thing that might be hampering their growth is a dearth of talent. The new money could go a long way in helping that depending on how it’s distributed.
“What is important for Estonian SMEs to know is that more risk-financing is available to them for early-stage investment in their business ideas,” European Commission VP Jyrki Katainen said in a statement.
EstFund will focus on three separate subsidiary funds to distribute resources: the Venture Capital Fund (€30 million), Expansion Capital Fund (€15 million) and Business Angels Co-Investment Fund (€15 million). It will be a separate venture from the EIF’s region-specific investment pot that also covers Latvia and Lithuania called the Baltic Innovation Fund (BIF) that is investing €130 million across the Baltics through 2016.
“The new fund will complement the existing Baltic Innovation Fund, yet provide risk capital in an even earlier phase and in smaller amounts, using ESIF resources,” said Liisa Oviir, Estonia’s Minister of Entrepreneurship. She added the subsidiary funds are open to investment by Estonian pension funds as well. “We hope that the good collaboration to date will continue and that in the future Kredex will be able to involve the EIF in even more projects.”