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Friday, April 1, 2016

Estonian E-Residency to Solve European Migration Crisis

E-Residency to Be Granted to All Refugees


Tallinn, Estonia, 1 April 2016. The Estonian government announced today a revolutionary solution to the European migrant crisis. Starting today, all refugees and asylum-seekers will be granted Estonian e-residency.

"As the largest per-capita recipient of EU funding in all of the EU, we knew it was time to do our part and help solve the European migrant crisis." said Taavi Babyface, Estonia's prime minister. "Estonia, land of Skype and Transferwise, is an innovative country and we came up with an innovative solution, unlike those pesky Germans. Rather than having all these migrants travel to Europe, we'll just grant them e-residency and they can stay at home!"

The solution helped to appease some of the biggest critics of accepting refugees, like member of parliament Karl Closedmind. He commented: "The EU wanted us to take in 550 refugees to Estonia, and that's simply too much for a tiny country like Estonia. All these Middle Eastern, Muslim, Arabic-speaking immigrants will destroy Estonian culture and language. There will be kabob shops on every corner, and we'll have to make Ramadan a national holiday. Some people say that with such a small number of refugees, this won't happen, but I tell you they're wrong! Did you know there are over 600 American immigrants living in Estonia? Now look what happened! There's a McDonalds on every corner, we have a national holiday for Christmas, and all the Estonian kids are speaking English and using iPhones! Damn those Americans, why did we ever let them in!?"

Refugee problem solved! [Photo Credit]

In terms of how the e-residency program would work for refugees, Kaspar Optimist, program manager for e-residency, said: "It's simple: The applicant just needs to go to the nearest Estonian embassy to apply and show their documents, and we have one in Ankara, Turkey. The fee is only 100 euros, and Ankara is a short flight from most countries in the Middle East. In preparation for millions of applicants, we've increased embassy staffing there from 3 people to 4 people. That's a 33% increase!"

When asked what refugees can do with their e-residency card, Prime Minister Babyface beamed: "Many of these refugees are coming to Europe to work, so with e-residency, they won't need to. They can use their e-residency card to start a business online, set up a bank account, and even digitally sign documents! It's a great way for them to earn money while staying in their home country."

Some refugees spoke highly of the announcement. Mohammed Ali, a resident of Homs in Syria, said: "This is great! I can start a business using my e-residency card and earn money to support my family! My first idea was to create a website that is a social network for dogs, but I see that was already done by an Estonian company. They say the best ideas for a business come from right around you, so I decided I'm going to start a company that builds houses from empty bullet casings and used tank treads. That's pretty much all my village exists of now anyway!"

Another potential e-resident, Suleiman Al-stonia from the village of Azaz near Syria's Kurdish border, was equally excited: "This e-residency sounds great! I can start a company and sign documents online! I plan to apply as soon as electricity returns to my village and I can buy a computer. Well, I may have to wait a while as the entire village has been bombed to rubble, but I'm sure the computer store will open once the village is rebuilt. In the meantime, do you have any food? I haven't eaten in 3 days and our village is surrounded by militias."

Plans to start company online... as soon as the bombing is over.

In fact, some refugees have already obtained their e-residency cards. One young Syrian reported: "So I got my e-residency card and had big plans to head to Estonia, but the guards at the border fence in Hungary wouldn't let us through! What good is this thing?"

Hungarian border guards not fond of e-residency

Another refugee with e-residency knew better though: "I'm staying in my village here in Syria and I plan to start a business and sell cookbooks. My cookbooks will be unique as all the recipes are about making a meal for only one person. I had a family of 7, but they were all killed in the bombings except for me. The same goes for many people in my village, so this cookbook will definitely sell well. Thanks Estonia for offering me this great e-residency!"

Despite all the positive news about e-residency, the ultra-right anti-immigrant group Soldiers of Odin was not pleased. Martin Jarhead, lead soldier of the Estonian branch, said: "This is an abomination to give e-residency to all these dark-skinned, swarthy refugees! Soon, our e-stonia will be overrun with Muslim men of Middle Eastern origin. Our fair-skinned Estonian women will be afraid to surf the internet at night. It's already happening, too. I heard a rumor that one Estonian girl was e-raped by an e-refugee. He tried to insert his e-residency card into her e-card reader, and he didn't even ask her PIN code! These men are animals!"

Responding to criticism from ultra-right racist groups, Prime Minister Babyface said: "Look, we set a goal of gaining 10 million e-residents by 2025, and we're only at 10,000 so far. With our declining population, the only way to reach that goal is with immigrants. Oh, and April Fool's!"

Wednesday, March 9, 2016

Signwise : An Unwise Failure

Signwise : Nothing Wise about this Famed Estonian Startup

Signwise is dead. Long live Signwise.

Or are they? What we know is there was a bankruptcy filing in December. It was also reported the founders are no longer talking to each other. The company, which is actually comprised of three separate companies, has considerable tax debts, has been renamed 3 times in the last year.

Company 1: Cross Borders Trust Services. No tax debt. Used to receive taxpayer money since you can't get a taxpayer handout if you have tax debt.
Company 2: SW Development, now Stratford Reserve.
Company 3:Signwise, then SW Sales, now Vincent Berea.

Their website is still up, and it was reported the bankruptcy claim was withdrawn, and they moved to the UK and will have all tax debts paid, but that claim was made on February 2 and as of March 8, the tax debts are still there:

Company 2: 17,487 euros owed to the taxpayer

Company 3: 11,666 euros owed to the taxpayer

Is this a winning company? They do have wise in their name, which seems to be the latest trend with Estonian startups (see Transferwise, Shipitwise, Fundwise, Carwise, Codewise, Clockwise.. or any of the other 158 companies in Estonia with "wise" in their name, and no we're not kidding). It's a lot better than when all Estonian websites ended in “24” (Credit24, City24, Auto24), apparently to indicate that unlike all other websites that were only open 8 hours a day, their websites stayed on the entire time!

All signs seem to point to failure. To us, the 3 separate companies is a suspicious sign. It also shows the danger of the Estonian ID card and the ability to create a company online in under 15 minutes. While all most Estonian women worry about from their heavy drinking is a one night stand with some bearded, skinny-jean-wearing hipster and doing the walk of shame home from Kalamaja past the judgmental eyes of the babushkas waiting for the tram at Balti Jaam, men have even more to worry about. Imagine coming home wasted, then waking up the next morning slumped over your keyboard, and discovering you created a social network for dogs startup company after you came home.

Then there’s our friend who left his ID card logged into the Estonian company portal (don’t we all? It’s our start page when we open our browser each morning.) while he had some friends over for a night of drinking. He woke up to discover he’s now the founder of 5 Estonian startups, including Dildo24, HipsterDating24, and MyCatsBreathSmellsLikeCatFood. Less surprisingly, 3 of his startups had already received government money from EAS.

One more drink Taavi, and you may create a startup to let people read books online.

But enough about our weekend. What the heck is a Signwise, and why would anyone want it?

The Idea

When Signwise launched in 2012, it was to great fanfare. They were the darling of the Estonian government and media. It was essentially a spin-off of the national ID card infrastructure, part of Estonia’s e-government initiative that made lives easier for all Estonians, and effectively eliminated all poverty and drug addiction in Estonia, now that they could interact with government over their computer.

Signwise was the commercial version of the ID card initiative, but just for signing. They provided a solution for a user to sign any digital document, and that signature could be digitally authenticated.

In other words, instead of printing a document, signing it, scanning it, then emailing it, you could sign it online, and the recipient could easily verify your signature was valid and you (and not someone else) actually signed it.

Her half-smile is because she's thinking about her tryst with a Kalamaja hipster, not because she likes scanning documents.

So what was the problem then? Why weren’t companies and consumers beating down the door of all 3 Signwise companies, in a rush to buy this great product?

Let’s have a look at how documents and signatures work in real life. First, let’s look at the consumer side. Generally, people don’t sign documents very often in their personal life. For big purchases like a house or a car, they are not conducting this purchase online, so they’re already at the seller’s office and can just sign in person. Besides, purchases like this are made only a few times per decade.

Will happily sell you 10 cars a year. Formerly a top salesman for Signwise.

There are other contracts people may enter into, like signing up for mobile phone service, or internet, electricity, and cable TV service when moving to a new home. These might take place more often than buying a car, but is a digital signature really necessary? Not really. A company can still take the order and have the customer agree to the terms of service online – you do this all the time when logging into Facebook or Google and they have new terms of service you must click OK to accept.

But… what if a customer signs up for electric service, then later claims when the monthly bill arrives that they didn’t do it? Won’t companies lose millions that way? Without a true digital signature, their consent to enter in the agreement can’t be verified.

In practice, this isn’t a big problem. First, the company can easily just turn off service, so at most they take a loss of one month of service. Second, that’s a lot of effort for the customer to go to just to get one month of free electric service, and it will make it difficult to resume service after that happened. We think that companies are fine with their current methods, as it’s easier for customers (no special software to install for signing), and the risk of fraud is low. (Most companies also run a credit check when you apply for service, so it would be difficult for someone to forge that also due to the information needed during the check. We left that bit out for simplicity, but that’s probably more of a validator than a signature anyway.)

If only they had Signwise...

What about companies? Wouldn’t Signwise benefit them immensely? Companies do a lot more contract signing among each other, like a company signing a contract with a new supplier or customer. A typical mid-size company may sign such contracts many times per month.

The need here revolves around trust. Digital signatures are beneficial when one party doesn’t trust or know the other party well enough to know that their normal signature (or even lack of signature – like just writing “Yes, that price is good. We’d like to order so please send an invoice.” in an email) is valid and trustworthy.

But what typically happens is that these types of relationships, like company-supplier and company-customer, are long-term relationships. Both parties know each other, and trust is built by doing business. One party sends the invoice, the other party pays it, and then the product or service is delivered.

Do you think such companies are going to bicker over if the hand-written signature or consent in an email is valid or not? In court, those will generally hold up, especially when it can be shown both parties continued the business relationship after the agreement was made.

Yes, there will inevitably be a few disputes, but somehow, business in countries without Signwise technology, like the UK and the US, seems to be going smoothly despite not having Signwise’s great technology.

Surely it sounds like a good idea to move the signing process online though, right? After all, no one likes printing a contract, signing it, scanning it, then emailing it. What if you could just pull up the document on your computer, sign it, then email it back? That would save a lot of time, hassle, and paper too!

Well it turns out just about every computer in the world already has this capability. It’s called Adobe Acrobat, and it’s the Fill & Sign option in the Tools menu. It’s included in all free versions of Acrobat.

Amazing technology, and it's free!

Yes, there are limitations to using Acrobat. You can only sign PDF files, and the signature can’t be digitally verified with a third-party authority (actually that’s an option, but most people don’t use it). But as we explained above, signature verification isn’t that necessary in reality. As for being able to sign only PDF files.. well unless you’re a celebrity or sports star, you probably don’t need to be signing photos or image files anyway.

They were so surprised anyone wanted their autograph, that they forgot to use Signwise.

In summary, Signwise is a solution that may seem good at first, but is in fact addressing a problem that isn’t much of a problem at all. Perhaps that’s why they’re basically bankrupt.

Time to Milk the Taxpayer

And now… the money!

A great e-solution like this was bound to get government money to promote e-stonia on it’s e-quest for e-world e-domination. Of course it did.

First there was 323,566 euros in taxpayer money from Enterprise Estonia:

Because once is not enough, they got money 3 times.

Not to be outdone, the lutefisk-munching Norwegians also tossed them some taxpayer money, 254,737 euros to be exact:

Signwise is going to help "green" the European economy?

Guess how the Norwegians were conned: Signwise is a solution for the "green economy" and will help the environment. We should have applied for the same grant, and presented them a free copy of Acrobat Reader in exchange for that money!

Even taxpayer-funded Arengufond got in on the game, providing special sales training for Signwise. You can see how that worked out.

To sum that up, adding in the 3 handouts from Enterprise Estonia, and the other grant from the Norwegians, and the unpaid tax debts, Signwise has cost the taxpayer 607,456 euros.

Lessons Learned

We like computers. They make lives easier and help us with mundane tasks we'd rather not do on our own, like computing pi to 1,000 digits. However, we sometimes see a tendency in Estonia to want to digitize everything. That sounds good in principle, but first it's important to consider if the product actually solves a real problem, and if customers are willing to pay for your solution. For Signwise, it looks like it wasn't a very wise solution at all. That's fine if the situation was like in most other countries, where private investors and not the government invest in startups. In this case, Signwise wasted taxpayer money, benefiting no one except the managers of Signwise.

Is there a better way to spend that taxpayer money? The Tallinn Food Bank, which provides food to over 1,700 hungry families in Tallinn, and costs only 350,000 euros annually to run, is running short on money. The money wasted enriching the few at Signwise could have been spent feeding thousands in Tallinn.

Saturday, November 7, 2015

The Failure of Estonian Air : Flying Away with Taxpayer Money

Why Small Governments Should Not Run Airlines


Estonian Air's Tupolev Tu-134a. Photo taken back when they last made a profit. [Photo Credit]

Estonian Air is dead, long live the Taxpayer!

Based on the recent ruling by the European Commission, the near-constant handouts to the company by the Estonian government are illegal, and must be paid back. Estonian Air simply doesn't have the cash to pay it back.

How much money is involved? By some accounts, over 130 million euros of taxpayer money was supplied to Estonian Air in the form of equity and debt (loans that will never be paid back). That would be like if every man, woman, child, and rullnok in Estonia took a 100-euro banknote and burned it.

Trondheim, population 180,000. Estonian Air flies here. Popular with lutefisk-seeking tourists. All five of them.

What Went Wrong

Is there one particular bad decision that caused all these problems? Is Estonian Air the next Emirates or Singapore Air, and just needs one or two small changes to become profitable?

Blame the Planes!

It must have been the planes! Too big? Too small? Too many? Well it turns out, they tried them all.

They tried standardizing on an all Boeing 737 fleet, and realized it's hard to sell all the seats in such a big plane.

Then they got rid of those and moved to all Embraer jets, which are smaller and easier to sell all the seats.

Well it turned out those planes used too much fuel, so then they moved to all Bombardier jets.

They basically tried numerous types of planes, and nothing seemed to work. Must not be the planes that are the problem then.

It's the Management, Stupid!

Bad management?  It must have been the CEO's fault! Who was that incompetent person who doesn't know an an aileron from a wing flap?!

Well, it turns out they went through 3 different CEOs the last few years (Aljas, Taskila, Palmer), and that didn't help either. Must not be management then.

Joensuu, population 59,000. Estonian Air flew here. A popular destination for tourists who like to ride bikes on snowy sidewalks.

They Fly to the Wrong Places!

Big cities? They tried that then cancelled all flights to places like Frankfurt, London, and Dublin.

Small cities? They launched flights to places like Joensuu, Kajaani, and Tbilisi  (no, we're not making this up, they really flew there). That didn't work either -- the Kajaani flights consisted of one or two sex tourists, and the Georgians didn't like the 4am flight and a layover in Tallinn when connecting to their onwards destination.

Vacation cities? Also tried -- Dubrovnik, Simferopol, and Athens were all cancelled shortly after they started, since most Estonians book package tours on charter flights.

Transit hub for passengers coming from Asia? Agreements were signed with some Asian countries, and nothing ever happened, perhaps because Finnair already does exactly this in Helsinki.

London, population 8.5 million. Estonian Air cancelled flights due to lack of interest. Everyone wanted to go to Kajaani to meet the sex tourists instead.


Let's Be the Nation's Bicycle!

(You know the girl who is referred to as the village bicycle? That's because everyone has had a ride!)

"Coffee, Tea, or... wet lease?"

Estonian Air's most recent strategy is to whore out their planes and crew to the highest bidder, known as wet leasing in the airline industry. They basically operate flights on routes contracted by governments in other countries. These are typically flights to small cities, and they get paid directly by the government to operate the flights, on routes like Copenhagen-Orebro in Denmark, Arvidsjaur-Gallivare in Sweden, and Amsterdam-Vaxjo.

Not only is the airplane prostitution strategy not doing any good, but what is the use of an Estonian national airline if they are just flying domestic routes in other countries?

Destination : Failure

Estonian Air has not turned an annual profit in over a decade.  During this time, they've tried everything -- changing planes, changing CEOs, changing route structures, and even selling their hot plane ass on the airport tarmacs of Arvidsjaur.

Nothing worked. They've tried everything, and it failed. We think there is a structural problem -- the Estonian market is simply too small for a national airline.


Moving Forward

It's time to stop the madness. This government-owned airline hobby has cost the Estonian taxpayer 130 million euros. Meanwhile, the Estonian government, foreseeing the fate of Estonian Air, has already set up a new taxpayer-funded airline known as Nordic Aviation Group, and set aside 41 million euros of taxpayer money to fund them.

Supporters of this move will say it's necessary to ensure Estonia has good air connections to other cities. We agree that air connections are vital, but Estonian Air has already proven they can't provide air connections to major European cities like Frankfurt and London. Instead, foreign airlines have stepped in to fill the gap, and they've done a good job. Overall passenger traffic at Tallinn Airport has grown by over 100% in the last decade, meanwhile Estonian Air's share of passenger traffic at the airport went down from 55% to 27% during that same period. At the same time, Latvian carrier Air Baltic has announced plans to operate direct flights from Tallinn to 11 other European cities -- many of the same cities Estonian Air offers direct flights to.

Yes, we're sad to see Estonian Air go. We've been flying them for years, even during their days of the rickety Saab planes operated by the Estonian Air Regional spin-off, and have taken the legendary twice-daily London flights that made it possible to fly to London in the morning for meetings, and fly back the same evening (and head directly to Decolte from the airport). Nonetheless, just like Decolte, it's time to shut it down and move on. There are better uses for 41 million euros. How about ensuring all children have access to nursery school?

Best Estonian Air ad ever. 

Wednesday, April 1, 2015

.ee Bubble Receives Funding from Enterprise Estonia

.ee Bubble and EAS Announce Project to Create an Incubator for Incubators


Tallinn, Estonia, 1 April 2015. The .ee Bubble and Enterprise Estonia (EAS) are pleased to announce a new collaboration project. EAS will provide 2 million euros in funding to the Bubble, to start an Incubator for Incubators. The new incubator for incubators will focus on providing services and training to help new incubators in Estonia get started.

"We were doing an analysis of incubators in Estonia, and found that there is a 1-to-1 ratio of taxpayer-funded incubators to startup companies." said the .ee Bubble. "We thought this was way too high, and reported our findings to EAS. You know what they told us? They said it was too low and they wanted more incubators!"

"In Estonia, we need more incubators." said Andrus Mullisepp, chairman of the board of EAS. "Other than the Räpina Incubation Center, Viljandi Creative Incubator, Startup WiseGuys, GameFounders, Tallinn Tehnopol, Tallinn Creative Incubator, EBS Business Incubator, Roosna-Alliku Incubator, Mäo Incubator, Narva Eagle Nest Incubator, Läänemaa Incubator, Sillamäe Free Zone Incubator, Startup Estonia, Founder Institute, Võrumaa Technology Incubator, Tallinn Incubator, Ülemiste Incubator, Kopli Incubator, BuildIT, Mektory, Prototron, European Innovation Academy, Start Smart, SummerCamp4Startups, Startup Garage, Ideelabor, Protolab, Biomed Incubator, Seiku Social Entrepreneurship Incubator, Ajujaht, Tartu Creative Incubator, Tartu Science Park, and the Pärnu Incubator, we really don't have that many incubators in Estonia. For example, let's say you live in Abja-Paluoja and have started a new online dating service -- Tinder for Inbreeds, if you will. You'd have to drive all the way to Pärnu to find the nearest incubator. That's a 20-minute drive if it's a busy day!"

On the reason for the funding, the .ee Bubble said, "Look, we really don't know why they gave us money. We thought they hated us! We heard there were only two proposals they received, one was from us and the other was written by a bunch of monkeys randomly typing on their computers. They were going to give the contract to the monkeys, but there's some EU regulation against awarding contracts to circus animals."

When it was pointed out to EAS that places like Silicon Valley have a much lower startup-to-incubator ratio, and none of those incubators receive taxpayer funding, Mullisepp from EAS said: "I'm tired of everyone comparing great Estonia that that economic wasteland that is Silicon Valley. Other than Facebook, Google, Apple, Oracle, Intel, Cisco, Twitter, Uber, eBay, Paypal, and Adobe, what has Silicon Valley provided to the world? In Estonia, we have amazing innovative companies like Fits.Me, United Dogs and Cats, and Jobbatical!"

When asked why EAS is giving 2 million euros to the .ee Bubble for this project, Mullisepp said: "Actually, 2 million euros isn't that much if you think.... ahh.. it appears I've just been asked to resign because my wife's brother's company got funding from EAS last year. You'll have to ask my successor about that."

Jaanus Mullitaja, the new chairman of EAS, continued: "Two million euros isn't that much, if you consider how much we've been giving to the incubators themselves. We gave 2.7 million euros to just the incubators in smaller cities in Estonia, and you can see how well that's working out. The Roosna-Alliku incubator doesn't even have a webpage! I'd also like to add that... ahh... it seems I'm being asked to resign because my consulting company received funding from EAS last week."

Tarmo Mullipää, the third new chairman of EAS in the last hour, added: "We think incubators are the key to success for startups in Estonia. Our goal is that every startup will go through at least three incubators, and we'll have incubators in every city and village in Estonia. Ideally, startups will just permanently remain in incubators and never actually start doing business."

When asked about when the startups will start making money, Mullipää said: "Look, do you really think we care about profit? Hell, we gave a few hundred thousand euros to some rich British pop singer so he could make a DVD of his concert and keep all the revenues. The way we consider our efforts a success is if we've given away all the taxpayer money that was given to us."

Mullipää was also questioned about his qualifications to be chairman of EAS and he responded: "It's quite simple actually. Nearly everyone in Estonia has either received money from EAS, or has a friend or relative who received money, so that disqualifies them from being on the EAS board. I, on the other hand, am an orphan, virgin, childless, and I have no friends and no relatives. I'm perfectly qualified for the job because I have no conflicts of interest. Now if you'll excuse me, I need to go take my hourly dosage of antidepressants."

Estonia's president, Toomas Hendrik Ilves also had good words to say about the new project, in this exclusive interview:

Interviewer: Mr. Ilves, what do you think of today's announcement?

President Ilves: Today is a great day for glorious Estonia! [Ilves pauses to tweet] I've always said that we need more [another tweet] incubators, and today we have [1 tweet, 2 retweets] the solution. An incubator for incubators [tweet, tweet, tweet].

Interviewer: How do you think this will help startup companies?

President Ilves: The reason it's good is that [tweet] [tweet] [retweet].. hey, I have some important work to do right now. I'm in a Twitter flame-war with two 12 year old boys in Chelyabinsk who are not convinced that Estonia is the greatest nation on earth. It's my job as president to convince them otherwise. My wife, First Lady Evelin Ilves is right here [tweet] [tweet]. You can talk to her.

Interviewer: Good day, Mrs. Ilves. It was quite an announcement today. Can you tell us what you think of Yoga...

First Lady Ilves: What!?!! I was told there would be no questions about my personal life! I go to yoga twice a day as a hobby! I don't meet any swarthy men there, and I'm definitely not kissing them! How dare you ask such a question! [storms off]

Interviewer: Ahh... I was just just asking your opinion on Yoga Intelligence, the startup that closed up then reopened under a similar name to avoid their tax debt.

An incubator for incubators has not been tried before, and the .ee Bubble provided more information on this novel concept: "This will be like a teach the teachers program. We'll teach our courses to incubators, and they can teach this to the startups in their incubator."

An initial course listing has also been provided:
  • Government Funding in a Matter of Minutes. How to use your Estonian ID card to create a company in 20 minutes, then apply for EAS funding on the 21st minute.
  • Techniques for Auditor Seduction. Your biggest enemy is the EAS auditor who wants to see how you're spending their money. This course will provide seduction techniques so the auditor's attention will be focused on something other than numbers. Special sessions in how to give compliments how to buy flowers will be provided.
  • How to Get Government Money from Two Governments at Once: A case study of Publification.
  • Time Management : How to Attend as Many Startup Networking Events as Possible and Still Have Time to Sleep. A good Estonian startup founder should be spending 80% of their waking hours at startup networking events, so they can meet the same people over and over and talk about "working together". This course will provide effective methods for time management and how to avoid double-booking.
  • How to Siphon Money through an Estonian Company, Never Pay Taxes and Have the Government Still Love You. A case study of ComPlus Consulting.
  • Techniques for Being a Small Five-Person Company and Still Getting Millions in Taxpayer Money. A case study of Meratel
  • Choosing Your Next Incubator. Techniques for choosing which incubator to move to next. This course will show how to evaluate if the weekend social events are good, how much free food and drink is provided, and also provide tips for determining if the people who run the incubator are single and promiscuous.

Commenting on the budget, the .ee Bubble said: "It may seem like 2 million euros is a lot of money, but really it's not. We plan to run things like our idol, the taxpayer-funded Estonian Development Fund (Eesti Arengufond), so we'll need to get the most expensive office space in Tallinn. We'll also spend lavishly on alcohol. In addition, we've set aside 10% of our budget for hookers and blow.

Summarizing the project, Mullipää of EAS said: "We hope this will be the beginning of a great cooperation project with the .ee Bubble. If things go well, then our next project with them will be Mullimaa. It's an amusement park for startups, kind of like taxpayer-funded Lottemaa, but each of the "rides" will just be a government-funded incubator where startups can sit down and receive taxpayer money. We'll also have rides for the taxpayer. They can come and sit in a locked cage for 8 hours and watch all the fun everyone else is having with their money!"

Oh, and April Fool's!

Tuesday, February 24, 2015

Meratel : MagicSIM or MagicSCAM?

Our Adventures with the #EstonianMafia

Like a TV reality show in its third season, it's time for something different. This time, instead of talking about the taxpayer money last, we're going to get to that first:

Whenever it starts with "The project of", you know it's going to be good.

That's right, 2,360,500 euros of taxpayer money to a company called Meratel for a "MagicSIM" project.

Ever heard of them? We haven't either. But for a company to receive this much money, they must be a big company with lots of employees, doing life-changing work.

Who is this great Meratel, with magic powers to take millions in taxpayer money? Information on their website was scarce. We had to know more. Time for a roadtrip!

Taking the Road Less Traveled

Records show Meratel is located in the Mustamäe section of Tallinn, so it was time to pay them a visit. Our first task was to figure out how to get there from our secretive lair under a bridge in central Tallinn (that's where trolls live, right?).

We decided to take a taxi, and now we were faced with a tough decision. Which taxpayer-funded taxi company should we take?

We thought of taking TaxiPal, recipient of 48,731 euros of taxpayer money, but got concerned about if they were still in business. Their founder seems to be employed as IT manager at Eesti Loto for the last four years.

Then we thought we'd try Taxify, recipient of 8,780 euros of taxpayer money, but we were worried reports of their EstonianMafia-style tactics might have rubbed off on their drivers, and we weren't in the mood for a battle.

Finally, we settled on the latest upstart in the taxi business, Pedobeartakso:

No taxpayer funding here!

Our ride arrived promptly, and the driver was nice enough to share his vodka with us on the ride over to Meratel. He did rush off rather quickly after he dropped us off though -- something about needing to head to the playground.

Our Visit to Meratel

We were overwhelmed with excitement. Finally, we get to visit the headquarters of Meratel, the recipients of millions in taxpayer money, and learn about their cutting-edge "MagicSIM" technology! Could this be the cure for cancer?

World headquarters of Meratel located within.

We rushed into the building, and headed straight for their offices... only to find the door locked and no one there:

Yes, we actually did visit their offices. And yes, this really was the highlight of our week.

How could this be? Surely a company that has received this much funding to develop the "MagicSIM" project would be operating on full throttle. We envisioned a lab full of engineers, laboring from morning until late in the night on the "MagicSIM." Instead, we got an empty office.

We quickly pulled out a copy of their annual financial reports, graciously provided to us by one of our readers (who is also big in the Estonian startup community -- see not all of you hate us!). Finally we had our answer -- according to their annual report, the company has only 5 employees! We must have showed up when all 5 of them were out for coffee.

We had to know more. Through careful research (ok, reading the fire escape plan that also shows building layout), we worked out they have approximately 100 square meters of office space. Not much for a company working with millions of euros.

Fifty Shades of EAS Auditors

Now we were a bit depressed, and not only because of the crappy weather. Our hopes were dashed. Meratel was actually a tiny company, that appears to take a lot of coffee breaks. No one was busy using "MagicSIM" to cure cancer.

So what happened? Here's our theory: Meratel is a telecom company, and a lot of the money they received from the taxpayer was used to purchase specialized telecom equipment (according to their 2013 annual report) -- over 1 million euros worth of it.

What does telecom equipment look like? There's the rub. This is all very specialized stuff, and only a few people will know what it is by looking at it.

Now, we don't know if Enterprise Estonia did an audit, but let's say they did. Here's what may have happened.

EAS Auditor (like most auditors, she's a single female in her 20's, from a small town in Estonia): Hi, I'm from EAS and I'm here to do an audit. According to my files, you spent 1 million euros to buy 20 Ericsson DSLAM-VOIP-THINGAMAJIG-2001 devices. Can you show me where those are so I can be sure you received them and are using them?

Meratel Guy (also a younger guy and somewhat handsome, as confirmed by a female we had doing surveillance near their offices, and no we're not kidding about this): Ehh yes.. of course... here they are [points to empty Aura 1-liter juice box on floor]... oh and did I mention how beautiful you are? Those thick glasses make your eyes look lovely. Where are you from?

EAS Auditor: [blushing] Oh, why thank you. No one has ever said something so nice to me like that before. I'm from Abja-Paluoja [tiny town of 2,000 people but with a local government with roughly as many staff as the entire Maltese government].

Meratel Guy: [blank stare] Yes.. Abja-Paluoja. They say the most beautiful women in Estonia come from there. Hey, let's skip this whole messy audit thing. How would you like to go have a coffee with me? We might even see the other 4 people in the company while we're there.

EAS Auditor: Sure! This audit doesn't matter anyway. At Enterprise Estonia, the goal is to give out as much money as possible, not to take it back, so the audits are mostly for show in case the European Commission catches us.

Now did it really happen this way? Probably not -- there are no beautiful women from Abja-Paluoja. What it does show is it can be difficult to audit projects where complex technology is involved, because no one really knows what an Ericsson DSLAM-VOIP-THINGAMAJIG-2001 device looks like, or even how to count them. Could it be that Meratel just bought fancy equipment, then sold it off? More on that later.

"MagicSIM" Saving the World, One Taxpayer at a Time

Who cares how they used the money though. The goal here was to develop the great "MagicSIM" and save the world, right? That project was funded back in 2011. What happened since then?

The project must have been a success, because then in 2013, Enterprise Estonia gives Meratel more money. Apparently 2.3 million euros was not enough for a 5-person company:

Throwing good money after bad?

Meratel got another 189,000 euros of taxpayer money, this time for product marketing for their "MagicSIM". We can only assume the "MagicSIM" was ready for the market, since they were ready to take taxpayer money to market it.

So let's have a look at what all this money bought, marketing-wise. Here is the only information on the great "MagicSIM":

What 189,000 euros of marketing budget gets you

Yes, that's right -- one webpage and a slogan, "Everywhere like at home" that's not even in proper English! This company is definitely going to be a winner!

Does the man in the image look familiar? He should -- it's a stock image that can be found on websites like this one, this one, this one, this one and about 100 other websites. We guess there wasn't enough money left from the 189,000 euros to pay a real photographer.

EstonianMafia at Work

In our opinion, "MagicSIM" was a big scam. Millions of euros to a tiny company, that seems to have produced little from the project.

How did they do it? It's complicated. We haven't figured it all out, but here's what we figured out so far. If you get bored easily, skip to the next section.

For the type of projects they received funding from Enterprise Estonia, there is a requirement that 50% of the funding come from other sources, and typically this funding comes from the company itself. Meratel is a small company, so it would be difficult for them to come up with funding equal to about 3 times their annual revenue at the time.

Instead, they did two things. First, they got around 970,000 euros from a Swiss company called Rudsteff. There's little information on this company, but it looks like at the time, Dimitry Ivanov was a board member at Rudsteff.

Then, they got about 5 million euros from an Estonian company Vivex. The board members are the same two board members as Meratel, plus one more: Andrey Ivanov. Notice the similarity in last names?

Vivex appears to be just a shell company, so to get the 5 million euros to give to Meratel, they got a 5 million euro, 10-year 0% loan from Optiroam, a Hong Kong company. The CEO of Optiroam is Andrey Ivanov.

That tells us how they got money into Meratel, so that Meratel could get money from Enterprise Estonia. We pieced this together by going over financial reports for the companies. How they got it out is more difficult to determine from financial reports because the level of detail isn't there. Here are the three possibilities we think are likely:
  1. Intangible assets. Meratel shows about 6 million euros on their balance sheet for "Concessions [goodwill], patents, licenses, trademarks", which is basically intellectual property. Since that is hard to value, and easy to trade, they could have purchased this from one of the other companies in their scheme as a way of getting money out of Meratel.
  2. Goods invoices for equipment. When they bought their million euros of equipment that was funded by Enterprise Estonia, they could have bought it from one of the connected companies, and either paid an inflated price (see our Publification post for how that works) or never actually received the goods in question.
  3. Giving goods away through debtor write-offs. Meratel shows about 2.8 million euros they are owed for unpaid invoices from customers. They also show 2.9 million euros in sales to China/Hong Kong, where Optiroam is located. They could provide goods to Optiroam, and never receive payment and write it off as bad debt. That amount represents 84% of Meratel's entire yearly sales.

Of course, we could be wrong about all this. Maybe Meratel is the most legitimate, honest, law-abiding company ever created. They set up this complicated structure of companies for some good reason, and "MagicSIM" is in fact a great technology used throughout the world. It's improving millions of lives and creating thousands of jobs in the Estonian economy.

It's possible, but we doubt it. It's just another "win" for the EstonianMafia of misusing taxpayer money.

Lessons Learned

Meratel, a five-person company, has received a total of 2,549,500 euros in taxpayer money. Estonia's business newspaper, Äripäev, included Meratel on a list of companies that received the most taxpayer money that year. Despite that, there was no reporting on how this was spent, nor any information on audits. Enterprise Estonia should have stringent audit requirements on all large projects, and the results of those audits should be made public.

In other news, over 20% of Estonians live in poverty. Maybe a "MagicSIM" will help?

Wednesday, November 5, 2014

Jobbatical : The Story of a Checkbox

Jobbatical : The Story of  a Checkbox

Last week it was announced that Jobbatical received funding. Before, we get into the numbers on this endeavor, let’s have a look at the idea.

"Jobbatical"? Is this some hip word the kids are using these days? We at the Dot EE Bubble try to be up on all the latest trends, but this one must have passed us by.

Actually, it passed everyone by. It’s a word the company made up. It’s intended to be a play on the real word “sabbatical.” For those not familiar with the word sabbatical, we don’t blame you – the word is about as commonly used today as “rapscallion” because they are so uncommon. A sabbatical these days is pretty much reserved for high-ranking university professors to take 6-12 months off from teaching to focus on their research. It’s estimated only 5% of US companies offer a paid sabbatical.

It's OK. He's on sabbatical.

Jobattical? Jobbattical? Jobbatttical? How many t’s and how many b’s? That’s the problem when you name a company after a made-up word, based on a word that is not commonly used. Let’s hope Google’s auto-correct works when people try to find this company online. We mis-typed their name about 100 times just writing this post!

Back to the idea. As we understand it, the jobbatical is for working professionals who want to take a break from their job and find another short-term job with a “life-changing experience”. Likewise, it would allow companies to find short-term help for projects they have, to be filled by people on a jobbatical.

Why so skeptical?

According the company’s own data, 74% of professionals would like to take a jobbatical.

Of course they would! Who doesn’t want to quit their job for a year and take a job that is more fun? According to our data, 100% of professionals would like a pay raise, 100% of professionals want more vacation time, and 100% of professionals want to work fewer hours. We wonder what else was on their scientific survey. Did they ask these professionals if they wanted 10 million euros? Did they ask them if they wanted to take a 3-month vacation on the French Riviera?

Would like a larger office space... and a jobbatical, of course!

We know many aspiring entrepreneurs read our blog, and there’s a valuable lesson here. A lot of companies use surveys of potential customers to validate their idea, but it’s important to be careful of the methodology. We’d have worded the question this way: “Would you take a jobbatical for one year if it meant taking a 15% pay cut and possibly moving to another city?” Now we just pulled the 15% number out of the bottom of an empty sauna water bucket, but it makes people really think of the possible costs of a jobbatical, and it will result in more reliable data.

It’s not crazy to assume that any jobbatical will incur costs, whether it’s taking a pay cut, moving to a new city, or simply longer commute times. A lot of people simply can’t afford any disruption or decrease in their income. Government data shows that nearly half of all Americans live from paycheck to paycheck, with few liquid assets. These aren’t the type of people who are going to take any financial risks by jumping to a short-term job, with a potential pay cut and the chance that their previous job is not there when they come back.

But let’s give the Jobbatical team the benefit of the doubt and assume there is enormous pent-up demand for jobbaticals. While among our circle of friends (and yes.. even a few rapscallions), we have never heard anyone utter “I wish I could leave my job for a year, but I know of no possible way to find another job.”, that doesn’t mean it’s not the case. We’ve often been called idiots, so it would be no surprise if our friends are idiots also.

Is the Jobbatical website going to fill this huge apparent need for people to find short-term jobs? Well, setting aside the data showing that 80% of jobs are found through networking with peers, there are still a number of websites out there where people can look for full-time, permanent jobs.

In fact, that’s just the problem! The biggest threat to Jobbatical’s success is a simple checkbox on a web page! All these existing job websites need to do is add another search option for “jobbatical” (they’ll use a more logical term of course, like a word that can be found in the dictionary), so job seekers and companies can include that in their search.

Coming soon: an additional checkbox in the Job Type section

These existing job websites already have spent years on marketing and building their brand so they already have an existing user base looking for jobs. They also have the technical resources to add a checkbox to their search forms.

So in summary, we have a company trying to solve a problem that we’re not sure exists, and if it does, the existing established players in the market can easily solve it by adding a checkbox to their search feature.

Now you know what time it is... time for the money!

Jobbatical raised a total of 260,000 euros. 130,000 euros of taxpayer money came via SmartCap. The other 130,000 euros came from various angel (their term, not ours) investors in Estonia, Finland, Latvia, Russia, and the UK. In fact, the president of the Estonian Business Angels Network (ESTBAN) was so proud of this investment that he bragged how it was the first time such an investment has been done with investors from 5 countries.

Good work, indeed. So why did the taxpayer need to get involved? There are plenty of private investors ready to put in their money.

In fact, the founder of Jobbatical, Karoli Hindriks, might have a few good contacts to find private investors. Her husband is Allan Martinson, who founded Martinson Trigon Venture Partners (MTVP), and is even pictured on the front page of ESTBAN's website. Does the wife of a prominent venture capitalist really need money from the taxpayer to start her latest venture? Would the wife of a founder of Benchmark Capital expect the California government to fund her startup company that is developing a website to solve the pressing need of how to manage the schedules of all your household staff?

Good household staff management tools are so hard to find!

Of course, we wish them the best wasting our taxpayer money. Maybe we’ll apply for a jobbatical at Enterprise Estonia. We’re sure they’ll be glad to have us.

Tuesday, October 14, 2014

The Truth About Estonian Startups and Taxes

The Truth about Estonian Startups and Taxes


Not sure if Estonian startup cheerleaders can handle the truth.

Last week, the Estonian tax authority (EMTA) published a list of how much each Estonian company paid in payroll (employment) taxes for August and September of this year. Shortly after that, Ragnar Sass (who readers may remember from our profile of his failed United Dogs and Cats startup that cost the taxpayer over half a million euros) published his own list showing how much Estonian startups paid from that sum. In his own words: “pure data, not some hype or bullshit bingo”

Well we over at the Dot EE Bubble also like data, so when we woke from our Viru Valge-fueled drunken stupor on Monday morning (blame Sunday’s Estonia-England match), we knew it was time to act.

Next time he should try Sovietsko and Vana Tallinn

We found it interesting that people are bragging that Estonian startup companies do what every company should be doing – paying their taxes. What’s next, a presidential parade when they submit their annual financial reports? (More on that later.)

Crowds celebrating a startup that filed their VAT declaration on time

Sadly, maybe there is reason to celebrate when an Estonian startup pays their taxes as required by law. We’ve profiled companies on this blog, like Complus Consulting that ran off with nearly 1.4 million euros of taxes owed, and Yoga Intelligence that pulled a similar trick by bankrupting the company with tax debts and starting a new one.

Anyway, back to the data. The companies on the list are probably familiar to anyone following the Estonian startup scene. These essentially represent all startup companies currently operational (with paid employees) in Estonia. In other words, this list gives us a fairly comprehensive overview of the Estonian startup environment. We sent our experienced research team to dig further into these startups, and analyze the results.

You'd also have the same look after sifting through numerous EAS funding databases.

First, the good news. A lot of Estonian startups are doing well in our book. They follow the path of startups in other countries, by using private funding to build their company and be successful, all while complying with the relevant laws and paying taxes. One example is Creative Mobile, a company we profiled last year. (Yes, we can be positive sometimes!)

Now the bad news, a bit more than half (23/45) of startups have received taxpayer money, and a lot of it:

Remember these names. They're living off your money!

Yes, you read that correct. More than HALF of the top Estonian startups have received taxpayer money.

How much? 13,318,415 euros. Yes more than 13 MILLION euros of taxpayer money.

Among startups that took taxpayer money, the average funding amount was 579,061 euros

The last column in the chart shows how many times each startup took taxpayer money. What do we learn from that? Taxpayer money is nearly as addictive as cocaine – of the startups that took government funding they received it an average of 3.7 times.

An easy choice for Estonian startups -- more taxpayer money please!

Depressed already? It gets worse. As of October 13, 7 of the companies on the overall list have a tax debt, in total worth 70,831 euros.

"Paying taxes is for chumps!"

And remember those annual reports we mentioned earlier? Five startups have not filed their 2013 annual report as they are legally required to, including Now! Innovations, Click & Grow [corrected October 15], Cherry Media, and Majandustarkvara (Erply). Two of the five, Click & Grow [corrected October 15] Now Innovations! and Sportlyzer, have direct investments from taxpayer-funded SmartCap. So SmartCap is on the board of these companies but can’t even get them to file their annual reports on time. No reason for a government-funded company to follow the government’s rules, right?

Some will say that these government handouts are good. The taxes paid by startups shows they are “giving it back”. But are they? For some startups that either pay a lot in taxes or took little government money, they pay back in taxes what they received in a month or two. Meanwhile, some, like Visitret Displays, would need to pay taxes at the current rate for 519 months – 43 YEARS – to pay the taxpayer back. Now Visitret is certainly the extreme, but the average across companies is 49.1 months – more than 4 years.

Number of months to pay back taxpayer funding -- see you in 4 years!

Lessons Learned

Is this really how things are supposed to work? Half of the top Estonian startups have received an average of more than half a million euros each of taxpayer money.

For a better way to handle things, simply look at just about every other country out there. We don't think there's one country where half of all the country's startups are funded by the government. In many free markets, like the US and UK, investing is left to private investors who are highly experienced and motivated to invest well. We've heard the argument that there is no private investor money in Estonia, but we simply don't buy that argument.  Just one quick look at EstBAN's presentation shows there is plenty of investor money available, and many private investors willing to help.

Why does Estonia need to have the government dump millions into startup companies, when every other country has successfully left this to the private market?

Footnote on Numbers

Some of the numbers include not only money from Enterprise Estonia (EAS) which typically is a handout, but also money from SmartCap which is usually in the form of an equity investment or convertible loan (and effectively a handout unless the company does well). SmartCap is the taxpayer-funded investment arm of the Estonian Development Fund (Arengufond). Despite being publicly-funded, they don’t make the numbers easily available on how much they invested in each company, so we had to go to some of our sources. If you have an issue with any of the numbers for a company, just complain in the comments (like we need to ask you!) and we’ll provide information on how we arrived at that number.