The evolving startup funding landscape: Navigating uncertainty and opportunity  

For over two years, the startup ecosystem has faced challenges shaped by geopolitical, economic, and market uncertainties. On November 28, as part of the Demo Day, the Tehnopol Startup Incubator and the Estonian Business Angels Network (EstBAN) hosted a panel to explore how investors and fund managers are navigating this environment and adapting to the uncertain future.

The panelists included Kaari Kink from Superangel, Tera Ventures’ founding partner Andrus Oks, and Mait Sooaru, an angel investor from EstBAN, with Tehnopol mentor Tarmo Virki moderating the discussion.  

Investors expressed caution about predicting the end of the market slowdown. “Startups struggle to fundraise from funds because those funds struggle to raise from LPs. Nobody knows how long this will last,” said Andrus Oks.  

Despite the challenges, early-stage investments, serial entrepreneurs, and defence startups have sparked optimism. The rise of unproven AI startups with high valuations also highlights investor interest in niche opportunities. Kaari Kink noted that standout founding teams with strong traction still attract investment.  

For investors, the downturn presents opportunities to invest in high-quality startups at more favourable valuations. “For investors, it’s the best time: valuations are down, and investable startups are available,” said Mait Sooaru.  

Although recovery may take time, the fundamentals of the ecosystem remain strong. Founders who demonstrate adaptability, execution, and resilience can still secure funding.  

The potential of defence startups in Estonia  

Amid security concerns following Russia’s invasion of Ukraine, interest in defence startups has grown. However, as Kaari Kink pointed out, many Estonian funds face restrictions on investing in lethal technologies. Emerging funds are shifting focus to observation, intelligence, and non-lethal solutions, creating opportunities for scalable defence technologies.  

Drawing parallels to Israel, Andrus Oks highlighted the importance of cybersecurity and critical infrastructure protection in Estonia. Startups that develop “dual-use” technologies—solutions with civilian and defence applications—may have broader growth potential. Promising areas include observation tech and security platforms, which could produce future unicorns if they align with market demands.  

Scaling remains a significant challenge, and government collaboration is key. International investors often view government adoption as a marker of legitimacy and market validation. “Selling to governments requires expertise, and this must be mastered to achieve unicorn potential,” said Kink.  

Building a thriving defence tech ecosystem  

To support defence startups, a strong community and government backing are essential. Local meetups and initiatives help startups connect with investors, government agencies, and stakeholders. Programs like NATO’s DIANA initiative and the NATO DIANA Accelerator at Tehnopol Startup Incubator also provide global exposure and resources.  

However, uncertainty persists regarding the Estonian government’s role in adopting local technologies, a crucial step for validating startups in defence sectors.  

While the funding environment remains selective, early-stage funding opportunities and investor interest in high-quality founders offer hope. Navigating these challenges will require resilience and adaptability from entrepreneurs and investors alike as the ecosystem continues to evolve.