Business angels and venture capitalists – for what do they look in startups?

For businesses, capital is like oxygen – you cannot exist without it, much less grow. The more Estonian startups are referred to as international successes, the more local investors are interested in opening their wallets for up-and-coming startups in the earliest stages.

This article is published in collaboration with Estonian ICT Demo Center and first appeared on


Leaders in investment volume

Estonian startups raised over EUR30 million in 2013. This makes Estonia one of the leading countries in capital raised per capita (and in relation to GDP). Compared with 2012, the activity of local investors has doubled in terms of money invested. The last years have shown that in addition to business angels, venture capital firms are beginning to show interest in early-stage startups.

Comparing the demand and supply of startup capital in Estonia, it’s clear that it is the latter that’s growing. “The increase in supply should eventually lead to competition in the market. Especially considering that we have more startup potential than is being realised now. More startup entrepreneurs deserve seed funding to launch their product,” says Margus Uudam, the Chairman of the Management Board of the Estonian Private Equity & Venture Capital Association (EstVCA).

Target – EUR1 billion

Over the last couple of years, the local investment landscape has witnessed some significant developments. The proof of this includes EstVCA, established in 2009, and the Estonian Business Angels Network (EstBAN), an umbrella organisation for business angels created in 2013. “Since it’s a totally new playing field for Estonia, solo investors are still cautious. Networks such as EstBAN serve as a prerequisite to create syndicated investments that are based on common interests,” says Ivar Siimar, Founder and Board Member of EstBAN.

EstVCA has envisioned growing the volume of private and venture capital investments that are being managed from Estonia to EUR1 billion by 2020. It may have sounded like an impossible mission at first, but Uudam now considers it more and more realistic after looking around at the market. “This goal points towards a trend of raising equity from the private sector, with as little as possible interference from the state.”

Regional cooperation

“The Nordics and Baltics as a combined region have sufficient reason to be a globally acknowledged power in technology. While the major markets are America and Asia, the development of technology, products and services often happen in this region,” Uudam argues.

According to Ivar Siimar, Estonian business angels invested EUR4.6 million last year, while their colleagues in Finland invested EUR11 million. Siimar says, “We aim to increase cross-border transactions and regional cooperation.”

The team comes first

Local investors search for companies with potential for growth by analysing the market. According to Uudam, during events such as Latitude 59 – a networking conference for startups and investors – 80% of their interest is determined by what goes on off the stage, not on the stage. “The main criterion is the team – it’s hard to look past a good team and their ambition,” he says.

Siimar agrees. “The earlier stage the company is in, the more important the team is. If the initial idea does not come together for some reason, a good team is able to turn the idea around and take another direction,” he says.


Success stories sometimes come from where you don’t expect them. According to Uudam, ZeroTurnaround is one of the best examples of a technologically strong team inside a company reaching an interesting technological solution and spinning it off as a separate company.

“They know their technology vertical, have a clear competitive edge and can look for fast growth outside Estonia. Also, the management team is able to mature along with the company,” Uudam describes. In this light, the March news of the company raising USD6 million does not come as a surprise.


Another example of a success story with an Estonian background is a company that grew out of a small community’s solution to a problem that had not been previously targeted anywhere in the world. “TransferWise is an example of a company that, without deep knowledge of the particular [financial] industry, managed to develop a solution to the problem they found,” Uudam comments.


Siimar’s example of a success story is GoWorkaBit, one of the top 10 business ideas in this year’s entrepreneurship contest Ajujaht (Brain Hunt). “A simple solution that connects companies that need temporary extra personnel with people who are willing to help, and that has good timing and enthusiasm behind it.”

Knowledge first, then money

According to Andrus Oks (the portfolio manager for SmartCap, which has until now enjoyed the position of the single institutional investor in early-stage startups), Estonian entrepreneurs are characterised by serious ambition, modelled after Skype.

“Changing the world is the main motivation; the majority are not inspired by regional opportunities. Although we have few entrepreneurs that have previous startup, industry or even business experience, it is not a constraint if we think of the background of people behind Google, Facebook or Whatsapp,” says Oks.

Speaking about investments, all three experts consider the know-how invested in the companies by investors to be more important than the money. If an investor has long-term experience, there is a much greater chance of a new success story being born than simply by giving handfuls of money.

Held from 28 to 29 April during the Estonian ICT Week at the Mektory building of the Tallinn University of Technology, Latitude 59 “Welcome the Light” is the next in the series of meeting events for the startup community and investors in Estonia and abroad.

Five tough questions that every founder should be prepared to answer in a pitch to VCs:

  • How will you make money (and no, advertising is not the answer)?
  • Who, specifically, is your first customer? Second? Third?
  • What is your contingency plan for when this seed round is exhausted and you are unable to raise any more?
  • What is your API/platform/partnership strategy?
  • How are you going to sell the company, and to whom, within six years?


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