Create a Startup State: What American Politicians can learn from Lithuania, Estonia, and Finland

Short Summary:

• Estonia, Lithuania, and Finland have created active startup communities and produced successful startups like Rovio, MySQL Supercell, and Skype.

• American States — the same size as these countries — have been much less successful in creating startup companies and communities.

• American state economic development officials can learn from these countries. A template exists to create a startup environment. 1. Educate students and the community. 2. Create a startup environment. 3. Lure corporations to set up locally. 4. Draw capital locally and from abroad

Economic development officials in many U.S. states look at the success of Silicon Valley with envy. They want the hundreds of millions of dollars of capital they see pouring into the region. But most have failed to replicate the ecosystem at home.

States aren’t the only governments that want what California has. Sovereign nations do too. Finland, Lithuania, and Estonia actually went out and built it. These countries — let’s just call them the Baltics even though Finland is actually Nordic — helped create household-name brands like Angry Birds, Clash of Clans, and Skype. With populations ranging from 3 million to 6 million, they’re about the size of many U.S. states.

States can do it too. A template exists and has been proven to work.

Fortunately, a template for recreating Silicon Valley’s success actually exists. It looks something like this: Start by education the public about what a career in startups can look like. Create an environment for university students and technology professionals to start companies. Lure corporations to provide influence, capital and experience. Provide initial startup capital and attract capital globally from institutions and venture capitalists. U.S. states can do it too and should look to the Baltics for good examples of policy decisions that spurred local growth.

First, create awareness for students and local community members.

The first step is creating awareness. The Estonian and Finnish governments formed as a joint project for public outreach. The project organized workshops in Estonia and the Helsinki region to bring entrepreneurs together give presentations to the local community members about how to start their own companies.

Next, form a local environment.

Next, a startup environment needs a critical mass of people to create, share, and develop ideas. For decades, Silicon Valley has filled this need with students from top universities. Many students are now starting their companies at incubators like Y Combinator. These governments have recognized that innovation occurs at the university level students and are push students through accelerators into careers in startups. One example is the Technopol incubator created by the City of Tallinn, the Tallinn University of Technology and the IT College of Tallinn. Within that incubator, Swedbank launched a startup-prototyping contest for new projects and the Estonian government now pays the way for more than 20 students every year while they train to start companies. State-chartered American universities should be doing more activities along these lines. This incubator is now home to 20 different startups.

Startup Lithuania is a very active government funded project under Enterprise Lithuania — a government institution for economic development — tasked to create initiatives to form the Startup Ecosystem. Take a look at their projects here.

Then, invite corporate partners to setup locally and jointly fund initiatives.

Another key variable in creating the environment is to attract corporate partners. Enterprise Lithuania created the Vilnius tech-park and coaxed foreign companies to move there with affordable office space and tax breaks. Within this technology park, the Lithuanian accelerator Startup Highway and the technology center of Barclays launched a startup program designed to promote and collaborate on financial technology. Though it took some time to attract entrepreneurs, in 2013 the industry blossomed with 47 new startups. There are now over 200 startups at Startup Lithuania.

There is no question that corporate influence is important in creating a startup ecosystem. In Helsinki in the mid 2000s, Nokia formed a bridge program to help its employees form startups. This environment provided the resources to let one group of game developers try 51 games before hitting it big with “Angry Birds,” the popular game from the company now called Rovio.

Finally, draw capital locally and from international venture capitalists.

With the right environment and community in place, the next step is to draw capital. The government can be a good resource for initial funding. Startup Estonia — formed by the government — funds €20 million annually to incubators and startups via grants. There are several other incubators in Tallinn including a games incubator GameFounders, the hardware-focused BuildIT, a life-sciences accelerator called Accelerlace Life, and Garage48.

But government capital is not enough to ignite a startup ecosystem. Startups need real venture capital funding. To allure capital, these countries created energy by marketing them to the world. Each country invited successful startups to tell their stories to the local communities and also spread the word about their startups globally.

Last October, Enterprise Lithuania invited Silicon Valley to the Baltics by hosting the SV2Baltics conference. Over 3,000 people attended to hear from companies including Uber, HP, Yelp, Facebook, and 500 startups. The excitement is growing and local companies are committed to making it successful, said Vinted CEO Justas Janauskus, who is trying to build Lithuania’s first $1 billion startup. And just in the last 5 years, Helsinki’s tech conference Slush has grown to over 15,000 people,and is now Europe’s largest technology conference.

Bonus points — Go one step further. Create an entire startup state.

Estonia may be the best marketer of these three countries. They are creating a self-professed Startup Nation. The government actively recruits startups from abroad and recently created an e-citizenship program, giving anyone the right to become a virtual citizen and start companies there. Estonia has done a fantastic job creating hype and excitement around the startup scene says Toivo Annus, co-founder of Skype and angel investor. Estonia’s investments have paid off. They are home to many promising new companies such as Transferwise, Pipedrive, Erply, Bondora, and Deltabid.

And the government drinks the technology Kool-aid as well by being the most progressive government IT system in the world. Led by Taavi Kotka, Government Chief Information Officer, Estonia has built personal digital signatures, mobile ID for secure bank transactions and voting, and digital health records. This investment ultimately leads to innovation in the private sector to support the demands of the government.

Take a look at Taavi’s blog.

Ben Horowitz writes more about Estonia.

It is slowly happening in the US but needs a boost from local governments.

Motivated entrepreneurs are starting companies across the U.S. on their own. Some examples include a moving service in Tennessee that recently raised $6.5 million from new VC Binary Capital, a new drivers license mobile app in Iowa, and a mobile money service in Kansas. These locations offer affordable rents and lower salaries for companies than starting in the Bay Area. But startup environments won’t flourish without some extra help. Local economic development boards need to fund, nurture and promote them.

There is little doubt the U.S. is falling behind China in terms of new innovation and technology. Without more investment across the rest of the U.S, we will even fall behind these small Baltic nations.

Co-Editor: Josh Wein

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