Tera Ventures is an early-stage fund headquartered in Tallinn, Estonia with offices in Helsinki and Los Angeles. It actively invests from the second fund and seeks exceptional founders with the foresight and ability to build future category leaders.
Apart from financing, their founder-friendly approach offers time, effort, experience, as well as access to the global network to create truly exceptional companies. The Tera Ventures team has made the journey from inception to exit in several born-global technology companies with many top international investors joining along the way.
Geography: Estonia, Denmark, Sweden, Finland, Latvia, Lithuania, Poland, Czech Republic
Preferred industries: industry agnostic
Investment ticket: early-stage 200K EUR – 1.5M EUR with a substantial reserve for follow-on rounds
Company stage: seed
Product type: agnostic
Product stage: all stages
Revenues: pre-revenue is accepted
What are the 5 main things you look for in a startup?
Fundamentally, it comes down to the founders. I am particularly interested in their vision of the future, and how their company helps create this vision. This includes their personal and inner motivation. Building a start-up is hard, and the idea is to be on this intense journey together, so we also observe how our relationship evolves throughout our initial discussions, and we discover if we can collaborate constructively.
There are widely known, general criteria which start-ups need to fulfil to qualify for venture capital: team, opportunity, competitive advantage, etc. We obviously consider each category, but we do not necessarily think that any of these criteria are carved in stone, as issues can be fixed, companies can be repositioned, pivoted, etc. In most cases, the real insight comes from observing the quality of the conversations, along with how they push back or make use of my suggestions. Great founders deliver great results – their drive and capability can be tested during the pre-investment conversations as well. Great founders often deliver surprising and unique insights which exceed expectations.
What disqualifies a startup as your potential investment target?
The most common reason not to invest is a lack of excitement about the opportunity. This can be a tricky one as even if the start-up fits within the investment focus and checks every box overall, it may still lack something that would make it special and cool. Many start-ups qualify for an investment - the ones that do get the money need to stand out. Beyond the obvious one - the salesmanship of the founders - this cool factor can come from various sources like compelling introductions. It may also be achieved by personalising the approach to this specific investor. For example, it can be done by relating this opportunity to the investor’s previous successful portfolio companies.
What in your opinion differentiates the best founders from the rest?
Among the top-tier founders, key characteristics can vary wildly, but they all have a few things in common which can be seen and tested during initial conversations, like raw intellect and a drive to get things done. Then again, first impressions are important, but they can be biased. For instance, the first time I met an outstanding founder, I thought he was physically unwell, based on how he talked and carried himself. When he got to the part when he explained his current circumstances, it became clear that the start-up was going through a hyper-growth phase. He struggled both with the related challenges, and also clearly enjoyed this experience of being able to scale his efforts to help the customers at this rate. In general, I think the personal attachment to the customer’s pain, and the drive to address it is probably the key predictor of a successful founder. Also, as in the example above, and as is often the case, some of the founders’ traits can seem weird and initially off-putting, so it makes sense to check for potential negative bias.
What startups should take into account before making a deal with a VC fund?
Fit should indeed be assessed from the perspective of both sides. It starts from general basic aspects like what the approach of the fund is: are they hands-on or not, do they support portfolio companies in the follow-on rounds, do they have specific value-adds that may be relevant for the start-up. The fund’s individual team members can also have quite different styles and capabilities, so it could be useful to look into this aspect as well. It is also advisable to talk to the founders of the investor’s previous portfolio companies. The fact that founders are doing a proper background check on me as an investor can be quite a positive indication of how thorough they are.
What is your approach to startup valuation and preferable share in the company?
As we have this focused, high conviction and hands-on approach, we also target significant shareholding with our initial ticket, and try to retain it by investing in the early follow-on rounds as well. As syndication is a big part of our strategy, and we believe the founders and the key team members should be mostly motivated by their shareholding, we also try to make sure that they retain a significant stake till the eventual exit. Syndication with top international VCs is a large part of our strategy. We take it into account when structuring our deals. A too high valuation can be a concern from various perspectives, but it is not the reason for us to stay away, if the other aspects of the strategy can be implemented.
How do you support your portfolio companies?
There is a joke that the world would be perfect if VCs helped their portfolio as much as they promised. I guess ambition matters quite a bit. We certainly believe in our approach, and we have been building our capability to help our companies over more than a decade. We try to help in various ways, for instance we have had considerable success in assisting their entry to larger markets such as the US, the UK and Japan. The latter destination is quite special for early-stage start-ups from our region, we believe it is a considerable opportunity which has been underserved. I have personally spent a lot of time in Japan in recent years, and I have built quite a bit of a network there among investors and corporations. Apart from their financial resources, they can also help us to venture into Asian markets. As we are present in LA, we can also help in the US from various perspectives, specifically with connections to other investors. Several top US and international investors have invested in our portfolio companies. We have succeeded in helping portfolio companies to raise a lot of money from other funding sources as well.
What are the best-performing companies in your portfolio?
A few of our portfolio companies have already achieved a considerable scale. Cleveron reached ca 50M EUR and profitability in 2018. Their 2019 results improved substantially. Perhaps more importantly they are well-positioned to automate the last mile delivery space much further. Monese already covers the whole European market and has raised 100M+ EUR from investors like Kinnevik, Paypal, etc. Realeyes has built the best-performing technology in its market and sees great opportunities ahead, also due to the effects of the current crisis. They have also created an outstanding investor syndicate led by Draper Esprit and recently joined by Global Brain and NTT Docomo. Our Fund II companies are significantly younger but have also been able to excel with their investor syndicates. Snackable raised from Greycroft and Jaan Tallinn and Brainbase have had more investors - with top international investors joining in the latest round (soon to be published).
What are your notable lessons learned from investments that didn’t work out as expected?
Saving struggling portfolio companies usually isn’t financially rewarding. But it can make a difference and be a great learning experience. I have had some success on both sides. In general, we spend quite a bit of time with portfolio companies and thus get to learn about their industries, specifically when trying to salvage a company the attention is usually more intense and granular, so this magnifies the learning opportunity. Being closer to the operational level brings back memories from my entrepreneurial era a decade ago, and feels like a refresh for skills. It usually also accentuates the need to be compassionate towards founders. These tough situations are very revealing about how hard start-ups really are.
What are the hottest markets you currently look at as VC and where do you see the biggest hype?
The Covid-19 crisis obviously presents new challenges and opportunities which everyone is still trying to figure out. There will certainly be changes to the way we invest and how we consider certain verticals. Internally, we are excited to see what happens with our companies which were doing well before the crisis, and continue to support them as we work towards a new normal. On the flip side, other companies may need fresh funding we can also support through these tough times, which could turn out to be lucrative. The challenge is to recognise the actual ability to get back to the previous growth trajectory. In terms of geography, we continue to be bullish about Estonia, we believe our home market will outperform others in the future as well.
In your view, what are the key trends that will shape the European VC scene in coming years?
European VC has achieved quite special results in recent years. Performance is either on a par, or significantly outperforming indices for both US VC and European private equity. Capital efficiency has been a significant part of this – we achieve more with less money. Also, it has been clear for some time that great companies can come from anywhere. It has been evident in recent years that great companies can scale anywhere. This can be largely attributed to the fact that the local investor scene has evolved to the stage that we can really support our local champions here. Obviously, money is just part of the story, as the whole ecosystem matures, the knowledge about how to build and support truly disruptive born-global companies gets spread around as well. Many more people will have that playbook, and that is a great basis for long-term growth. The current Covid-19 crisis will have various effects beyond the current immediate one. Some of the seemingly painful aspects of the current shock can be viewed through a positive lens as well. For example, because of the long-lasting investment boom, resources (mostly human resources) got tied up in some companies which were actually unattractive (and got supported just because too much money was available). Now these resources can be much better allocated. Longer-term effects will be quite positive, as life will increasingly move toward online, the resulting scale and efficiency gains present great investment opportunities.
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