Tallinn, Estonia old city view.
© FT

Population 434,000 (Estonia 1.3m)
Time required to register a business 18 minutes
Bank transfers made electronically 99%

The tiny Baltic state of Estonia revealed big ambitions last year when it allowed anyone, anywhere to become an “e-resident”, by creating a government-approved digital identity.

The case for: The e-residency initiative indicates a desire to attract international entrepreneurs and investors, digital or real.

Ever since Estonian developers gave the world Skype, the country has caught investors’ attention and inspired other entrepreneurs. The foundation for its start-up culture was laid by government support for and investment in the internet and related services and businesses: free public WiFi is available across Estonia, for instance.

Streamlined bureaucracy means setting up is fast; and corporations are taxed at a flat rate of 21 per cent, which becomes due only when dividends are paid.

The case against: The small population means a small market and small local talent pool. If you need to be close to a lot of customers, think twice. Several of the most successful start-ups to have emerged from Estonia have decided to move overseas once they reached the growth stage.

The hot company of the moment, for example, is TransferWise, the peer-to-peer international money transfer company founded by two Estonians, which recently raised a $58m funding round led by Silicon Valley VC fund Andreessen Horowitz. It has moved its headquarters to London, a flight of less than three hours away.

Local heroes: Skype may have been founded by a Swede and a Dane but its core development team were Estonian and the country considers the business its own.

GrabCad, a community for connecting engineers with CAD-related work, was founded by Estonian developers Hardi Meybaum and Indrek Narusk in 2009 and moved to the US in 2011. In 2014 it was acquired by US 3D-printing company Stratasys for a rumoured $100m.

PlayTech, the online gaming and betting software company, which is listed on the London Stock Exchange, was first formed in Estonia in 1999. Now headquartered on the Isle of Man, it employs 3,600 around the world including developers in Estonia.

Support for start-ups: Garage 48, Tehnopol and Start Up WiseGuys are the first destinations for start-ups in the city. Perched next to the Tallinn University of Technology, the science park houses more than 150 technology companies.

Garage48 is a co-working space and organiser of myriad 48-hour hackathons where start-ups, investors and sponsors can build a community.

In September it plans a hackathon to find innovative uses of the “e-residency” open ID platform.

The StartUp Wiseguys accelerator programme is open to start-ups from anywhere in the world: inviting talent in is one way to address the limitations of a relatively small talent pool. Of the September 2014 cohort of 10 start-ups, only two came from Estonia.

Richard Newton

For more cities in this series, go to ft.com/letslaunchin

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