The Murky World of Defining an Estonian Company

Taking Credit Where It's Not Always Due : What is an Estonian Company?

Does Vladimir Putin celebrate the success of Google?

Is Paypal a South African success story?

Is Youtube the pride of Taiwan?

Is Instagram a triumph of the Brazilian "startup mafia"?


If you follow the logic of  the cheerleaders of Estonian startups, the answer is Yes.

Google founder Sergey Brin was born in Moscow; Paypal founder Elon Musk hails from South Africa; Youtube founder Steve Chen is from Taiwan; and Instagram founder Mike Krieger is Brazilian.

Most people would call the companies listed above American, and so would we.

So what gets us confused is when companies with even the most tenuous of ties to Estonia are still classified as Estonian startups. Let's take the example of Transferwise, since they were in the news lately:

 

If you just read the information above, you'd assume this is an Estonian company, right? Actually, they're a UK company. A recent interview with the founders, who are Estonians, confirms that they are based in the Shoreditch area of London. Further confirming this, they were listed as one of the top 20 tech startups in East London, and were listed on the top 100 list of UK startups.

Some in the Estonian startup community seem really desperate to claim this company as their own. Last week, Transferwise was even given the award for Estonia's Best E-service!

(Astute readers will note the EU logo in the background. Yes, taxpayer money was used to run an awards program.)

Our critics will point out that Transferwise does have a subsidiary in Estonia. That is correct, however according to public records, that was founded almost a year after the UK company was founded.

So given all this confusion, we thought we'd do our own research and come up with our own decisions about which "Estonian" companies are really Estonian. We picked a few companies that have been prominently featured lately.

In some ways, it's difficult to classify a company as Estonian or not, especially when they have offices in both Estonia and abroad. We looked at several factors when making our determination, including company addresses, employee locations, and how the company represents itself.

Realeyes

 

In an article about the investment mentioned above, it states: "Realeyes, a Boston, Massachusetts-based technology company" and later the same article states that, as part of the new investment: "The cash will go towards the company’s relocation from Boston to New York City, and to quadruple its sales force."

Here's what else we found:

• Official corporate filing documents show the company is registered in Massachusetts.
• The company's own website only lists addresses in the US and the UK.
• The company's website states they are London-based.
• EAS records show the company has an Estonian division that received over half a million euros in taxpayer funding, some as recently as a few months ago.
• Of the company's open positions, 7 are in Hungary, 1 in London, 0 in Estonia or the US.
• Of their entire management team (click on each country), 2 out of 7 appear to be Estonian, and both have UK phone numbers listed.
• 5 of the 7 members of the management team are listed as part of the London tem.

There's some conflicting information here, but most of it seems to point to the company being UK-based, especially when added weight is given to statements on the company's own website.

Our Verdict: RealEyes is a UK company.

Click and Grow

Here's what we found:

• The Kickstarter page created by the company lists them as being a Palo Alto, California-based company.
• The company's Twitter profile lists their location as Estonia.
• Their company webpage lists both US and Estonia addresses, however, the US address is the same address as a law firm and Silicon Vikings. We think this is not an office for the company, but rather just an address for legal purposes.

Again we see conflicting information, but we think the Kickstarter page lists them as a US company because Kickstarter is only open to US and UK companies, so they listed it that way in order to be eligible to raise money.

Our Verdict: Click and Grow is an Estonian company.

Zerply

 

Our findings:

• Company's Crunchbase profile lists them as a US company.
• Company's Twitter profile lists them as a US company.
• Recent article on the company, based on an interview with the Swedish CEO, states that "operations are based in San Francisco, its core team and engineers are in Tallinn"
• The company's two open positions are based in Tallinn.
• According to the profile pages of the 6 core team members, 3 are based in San Francisco, 2 in Tallinn, and 1 in Sweden.

Based on how the company represents itself, as well as statements about their operations, it looks like San Francisco is their main base of operations.

Our Verdict: Zerply is an American company.

Fits.Me

 

Here's what we found:

• Recent TechCrunch article refers to the company as "Estonian startup, which is based in London"
• Company's Twitter profile lists them as being based in London, New York, Tallinn
• Company's contact page lists addresses in the UK, France, and Germany only.
• Of the 5 members of the executive team, 3 appear to be based in the UK, and 2 in Estonia.

This was a tough one, but the company clearly is representing itself as being in the UK more than Tallinn, to the point of not even listing an Estonian address on their contact page.

Our Verdict: Fits.Me is a UK company.

GrabCAD

 

(Side note to our friends at EAS: It's Grab not Crab. Remember that next time you send out a press release in response to our blog, where you justify wasting taxpayer money.)

This one was easy:

• Interview with their CEO explaining why he moved the company from Estonia to Boston.
• Company's website states their headquarters is in Boston.

Our Verdict: GrabCad is an American company. Crabs are tasty.

Erply

 

What we found:

• A recent TechCrunch article, where the CEO was interviewed, states: "New York City-based Erply"
• The company's Twitter profile lists them as being based in "New York - Tallinn"
• The company's website states: "Headquarters in New York, London and Tallinn". Isn't the point of a headquarters that you have only one?
• The company is hiring for 3 positions: 1 in New York, 2 in Tallinn
• The company's addresses are listed as New York, London, Tallinn, Sydney, in that order.
• The company's LinkedIn page lists headquarters as New York.

The predominance of information, particularly the most recent TechCrunch article, indicate New York.

Our Verdict: Erply is an American company.

ZeroTurnaround

 

Our findings:

• From the company's website: "The company’s commercial heart beats in Boston, Massachusetts, while our development feet are firmly planted (and rapidly growing) in Estonia"
• Around half of the entire company's workforce is based in Boston, based on this article stating there were around 40 employees in Boston, and a company press release stating the company has just over 80 employees.
• The company's contact page lists the Boston address as their North American Headquarters, and the Tartu address as their European Headquarters.
• The company's Twitter profile states they are based in USA, Estonia, Czech Republic.

We'll admit it. This was the toughest decision of all the companies. It looks like the Boston office has a slightly higher number of workers than any other locations, and it's indeed a key location for company operations, based on this video from ERR where they visited the Boston office. We're going to decide in favor of Boston on this one, as the company's website states it's their commercial center.

Our Verdict: ZeroTurnaround is an American company.

Does it Matter?

Some may say that the misrepresentation of companies as Estonian when they're not is OK. After all, what harm does it cause?

We think there are three problems with this.

First, we often see the Estonian startup cheerleaders pointing out the many great benefits to the startup nation that is Estonia. That's misleading, if many of these companies are moving abroad to be successful. We don't blame these companies for setting up outside Estonia or moving their operations from Estonia to other countries. They are doing what they feel is best for their companies, and it appears that often their best path to success is outside Estonia.

However, what that shows is these companies are taking advantage of what makes these other countries great for startups, whether it be the talent pool, availability of financing, proximity to customers, or any other factor. As we said, we don't blame the companies for doing this, but it just makes the claim that Estonia is a great place for startups quite weak.

Second, a number of the companies listed above received some support in the form of taxpayer money, from EAS and/or the Estonian Development Fund. Taxpayer funding, unlike typical private equity funding, is usually made with some specific societal goals. These funds are intended to promote and improve the economy within Estonia, as well as create jobs in Estonia. A number of the companies that received funding later moved outside of Estonia. So not only is taxpayer money being potentially wasted on companies that may not need the funding, but it's not even helping the economy and people of Estonia.

Finally, these companies outside Estonia provide most of their economic benefits outside of Estonia as well. They create jobs there, have investors there, and pay various taxes there. These companies should not be celebrated as Estonian companies when their operations are predominantly outside Estonia, and their benefits are being provided predominantly outside Estonia.


It's looking to us like the trend is that startups with only minor links to Estonia are being lauded as great Estonian success stories when these companies aren't really Estonian to begin with. A company based outside Estonia, with a founder or two who are Estonian, does not qualify to us as an Estonian company.

Russians don't celebrate the success of Google as a Russian company, but instead focus on companies that are real Russian success stories, like Kaspersky Labs. It's unfortunate that Estonians can't focus on their own home-grown successes in the same manner.