#169 Andrus Oks, Tera VC and Martin Gorosko, EstBAN & Tehnopol - Latitude59

0:01Hi, and welcome back to the European VC. The go-to podcast for everything European VC. If you love the show, share it with your friends and join our newsletter at eu.vc. Today, we have a very special episode brought to you by Latitude 59, the flagship startup and tech event of the world's first digital society taking place in Tallinn, Estonia, from the 24th to the 26th of May. Latitude 59, in collaboration with the Syndicate by Estonia Business Angels Network and TerraVC, is looking for bold and promising startups that are shifting paradigms and changing the world for the better, to compete for 1 million euros in 2023.

0:44The application deadline is April 9th, so make sure not to miss it. And on that note, we are happy to welcome Andrus, founding partner of TerraVC, and Martin, Head of Business Development at Technopol, member of S-Ban and co-lead of the 1 million euro investment during Latitude 59 conference. If you enjoy our content, do support us by hitting the follow button, giving us a review and following the European VC on LinkedIn.

1:21Martin Andrews, welcome to the European VC. I'm so happy that we made it to make this happen in all, you know, I'd say with all sirens blazing out because we had to schedule this just yesterday for the recording today and then we'll publish tomorrow. So I think we've never done anything as rushed as this. So I'm super happy that you guys made it to clear out your calendar for it. Yeah, happy to be here. Likewise, I am. And guys, I always ask our guests to introduce themselves first. And you two come from two different backgrounds, one being representative of a VC firm, Terra, as you just heard in the intro, and Martin on behalf of the local business angel network.

2:00So, Andrus, tell us what is Terra VC and why are you amazing? Yeah, thank you very much. So, yeah, I'm a previous founder myself, and during financial crisis, I thought that probably it's better to sit actually on the other side of the table. And now I'm a founding partner of Terra Ventures, Talent-Based Seed Funds. We're currently investing from our 45 million euro second fund. Estonia is a whole market, but we actually cover new products as well. So why are we special? Yeah, as I said, we've been doing this for quite some time, and all three Terra partners are previous founders as well. So we have this high conviction hands-on vote.

2:46We really enjoy helping portfolio companies. And during the 14 years we've been investing, we have built pretty big capability to actually help. So, yeah, when we started, the main goal was to get the very best international investors into our portfolio companies. And we succeeded initially with U.S. VCs, the best and brightest East Coast investors have invested after us. And then we thought, OK, well, why would we stop there? And we obviously expanded the syndicate to other European countries. We've also done several deals with Japanese investors. And when we raised this current fund, we thought, OK, maybe we can help even more.

3:28And we actually succeeded getting all pretty much global LPs and also strategic LPs in the fund. So we are three from the U.S., two from Japan. And the strategic ones are actually interested to see deals through us. So they are interested in direct investments and commercial collaboration as well. So if you think about it, the value of that for startups is pretty special because this kind of help they actually really need. So this commercial collaboration, which is quite unique, at least in our region, this is like a soft landing partnership opportunity in the U.S. and actually Asia as well. there.

4:10Our audience knows this. We love discussing LP basis and how you built your fund around that and how you get them into the fund in the beginning. Unfortunately, that's not going to be the focus of today's conversation, but I think that that sounds like there's something for many emerging managers to reach out to Andres to hear a bit about there, because I think that nailing the LP value prop so that it's more than just returns in 10 or 12 years is something that not everyone is capable of. And it sounds like it's something that you guys have done in a quite good way. But Martin, let's shift the attention to you.

4:44Tell us a bit about yourself, how you ended up becoming an angel and as involved as you are now with the Estban. Yeah, sure. My entrepreneurship career ended, I guess, back in 2005-2006 when I had a small-scale exit from one advertising agency I helped to manage and build. And after that, I have actually been involved with Tallinn Science Park Tenopol activity. So it has been already like 17 years. And Tenopol is a really nice environment that supports the growth of tech companies in the politics, mostly and foremost in Estonia. And we are working with startup companies, scaling companies, but also corporations and providing them like access to financing and capital and investments, but also access to markets, support in product development and so on.

5:32So we are basically a support organization that works with hundreds of tech companies daily-based. And I had a nice chance to build up the acceleration or incubation program at the Science Park. So basically for six years, I worked rather hands-on with early-stage startup companies, which mostly originated from, again, from politics, but also from the neighboring countries outside that. and then we had like a track record of working with around 280 up to 300 companies basically at that very time and the main goal and target of this program was all designed around fundraising so this investor interaction especially in angels investment stages it was like rather natural work for me which i encountered in daily based and then yeah right now i have made some shifts in terms of my assignments here at Technopol.

6:27But the nice thing happened and I joined in the ESPAN, the Estonian Business Angels Network. And I have been quite an active member there for like past four years now. And which I found really astonishing was that you can actually like participate in the success stories of those companies that you support normally as a mentor. So ESPAN kind of gave me this perspective and I could easily join in the syndicated investments that S-Bund is conducting. And ever since, I have been quite active as an angel as well. And right now, I'm holding the portfolio of around 10 companies where I have been invested and with whom I'm working quite hands-on till today as well.

7:09But in terms of S-Bund, then yes, syndicates are rather obvious thing for us to do. And this time, I'm really glad to lead the syndicate because the volumes of S-PAN, they have like grown significantly. We already have like 280 members. And last year, S-PAN actually invested around 15 million euros to early stage companies in Estonia, which is quite an astonishing number there as well. And syndicates are something that angels are especially looking for because I guess like 50 % out of those investments are syndicated ones. This time we are putting together like a dedicated syndicate under the S-PAN roof and wish to invest that to the very best company during the Latitude 59 conference.

7:54Yes. And we are going to talk much more about Latitude 59 because you are a bit, I'd say, I'm living life vicariously through you now because I am unfortunately will not be able to attend the conference. I just want to hear from you guys exactly why it is that I should be crying about every night that I won't be able to attend. So could you share me a bit first about the conference and why you see it and why it has grown to be such a pillar in the community as it has? And then after that, also tell me a bit about that one million euro syndicate that you guys have put together, because I think that that's definitely a good trend that we're seeing from the tech conferences that they're putting money behind the winners.

8:30But let's start on Latitude 59. Why is it that I should be crying myself to bet tonight as I think, fuck, I won't be able to make it? So you shouldn't just be crying, you should be preparing yourself. How can you explain this to your grandchildren that you had a chance to win this 1 million euro investment? And it's not just this investment. Well, Estonia is the unicorn factory of the world. Obviously, you could have built a unicorn using this 1 million euros, and you didn't. So it's like, it's weird. Lisi and I, the CEO of Latitude, we have a longstanding campaign against the local airline services that they are not flying direct from the close airport for me so that I could have made it in time maybe for my commitment that I have the day after.

9:18But guys, tell me a bit about because Latitude 59 is not like most other tech conferences in the sense that it's actually a little bit smaller, but that's a strength of the conference I find rather than a weakness. Could you share me a bit your views on that? Right now, I guess it's going to be 11th time and we are going to have this Latitude 59 conference here. And it all started with rather limited pool of people attending that. And right now, I guess we have kept the number of participants to up to 3 ,000 people. And this is the main reason why the conference is as exclusive as it is. But in the bottom line, Latitude 59, I guess for me, it kind of represents the awesome opportunity where actually the early stage investors and also like vertical specific companies can meet and discuss actually around the fundraising itself.

10:10So it's narrowed down to a very specific focus. So it's all about the interaction between the companies, let's say, in health, deep tech, green technologies, digital technologies as well. And it brings together like very decent pool of international investors who are especially active in those verticals and those areas. The topics are very much related to the verticals of the companies that participate, but each and every time we see the increasing interest from startups, but also from VCs who want to attend the conference. And I guess this year we are going to have the maximum seats sold, so we're expecting to have 3K participants at least in Tally.

10:50One more thing to add up here is that as Latitude is clearly competing with big conferences like slush and things like that happening in the Nordics in general, which bring together thousands and thousands of people, then in my perspective, I kind of love this intimacy. You have the chance to really meet the people you want to meet and get the awesome experience through the hand-picked speakers that are there on the stage. Each and every time the conference has a specific topic as well. This year, it's going to be mostly around impact, impact investing, and the companies who are going to make the impact in the next decade.

11:28So I'm really excited about the main team and topics as well. You're doing a 1 million euro syndicate to back the best founder of the, or best founding team of the conference. And I'm always curious to hear how, what's the story behind that? How did it come together? Because we're all seeing them behind every tech conference right about now. So I'm curious to hear what was the process there? Where did it come from and where do you see it going? Andres, maybe I can jump in with that by describing what has happened before and why we are extremely proud to have such money at the table right now. So Estpan has actually been working with Latitude 59 throughout these 10 years of existence, basically.

12:10And each and every time, Estpan has put together the syndicate among the angels. and normally those syndicates reach up to 300k that has been like invested to the winner of pitch competition and this is where it all like started off and i guess this is the drill that is still ongoing in terms of collaborating with latitude 59 but this time we kind of had the ambition to like seize the opportunity and actually extend the size of the investment and we very heavily like started to look out for additional opportunities like where can we bring in additional interested investors. And basically, this is where we found Andrews.

12:50And as an angel, as a lead angel, I have never worked together with a VC. And this is going to be, I guess, the new one for both of us. But Andrews maybe can elaborate a bit more on the fact like why they decided as a VC to jump on with this initiative. Yeah, from our perspective, We've been actually supporting Latitude from the very beginning as well. So there was actually another name of the event even before it became Latitude. We've been always close to the process and actually part of the jury as well. So it was kind of a natural evolution to actually put our money on the table as well, because we know this quality of the deal flow.

13:35And we certainly believe that larger tickets now actually attracts more and better deal flow as well. So we're not just, I don't know, this is not a lottery ticket for us. We are running our own investment process in the background. And this is a real investment for us as well. So we will obviously be continuously supporting this team that we invest in going forward. it's going to be rather challenging for us as well because we basically want to like align the due diligence process with the VC fund and our angels used to do that so it's going to be a completely new thing to do for us but yeah I totally agree with Andres this one million is is something that we are targeting mostly because like deep tech companies mostly are in demand of higher financing grounds the valuations of the companies might be higher so at least through that syndication, we have the opportunity to invest in a wider scope of companies, basically.

14:31There's multiple parts in this that I want to unpack because I think the very first thing is, and you touched on it, is the due diligence process. I'm curious to hear, and I can ask this question in the provocative manner and also in a less provocative manner. Being a media guy, I'll of course choose the provocative manner. So I'll ask you, how do you avoid creating another the Slush game? Yeah, I mean, as I said, we are running our usual investment process as Terra. So it was actually kind of even inspiring this Slush situation because I think it is possible to run it properly. So we are not really concerned about this.

15:11Procedure-wise, we expect to have something maybe close to 500 applications from the companies eventually. We are strictly relying on the due diligence processes that we have like established already and then Terra VC has the awesome one and ESPAN has a quite a track record of conducting due diligence as well but in this conference case there are going to be like different layers where very many people can like screen those companies so it all starts off with like evaluating the online applications narrowing it down to top 40 companies having the pitching sessions with all those companies after that we select around like 10 companies who are going to proceed.

15:50And there again, preliminary due diligence meetings are going to be held with each and every companies and so on. So basically the screening process itself, it's rather complete, rather precise. So we expect to like see those red flags in the very beginning. And what is also very awesome is that in the angel syndicates, we see around 30 to 40 people actually participating in the syndicated round from Estpan. And we can engage all those people to screen through the T-Flow together with us. And this is kind of more than like 30 extra eyes who are basically screening the T-Flow. And I guess this is enough to make sure that nothing bad slips through.

16:37And I imagine, Martin, that that is actually also a very cool process for you as Estban to have running, meaning building an angel community is community building. So in that sense, I imagine it's a cool joint effort for you to have, which you don't normally have in the same way, right? So am I right in saying that it's a project that for you as your band has made a lot of sense to get involved in for that reason as well? Yeah, absolutely. The process itself, I guess what I can proudly say is that Estban has a very like decent track record already in syndicating investments and as an organization estpan is participating those syndicates as well and i guess uh we have proved those syndications for estpan we have invested in 12 13 companies which all have proven to be rather successful ones and i guess the one reason why the success has been like achieved is definitely because you can work with such a wide of set of experiences such a wide set of people representing those experiences and engage them if the need occurs right so they can validate the assumptions hypothesis you can play around with the ideas and everything so it's definitely a really supportive community i totally like encourage everybody to participate those like syndicates because it gives you like very good first-hand experience like how to conduct all those processes before the investment and make the investment happen and the main goal there is to actually build an extra layer of new lead investors as well who can take the lead role in those syndicates.

18:09And I want to pick up on that encouragement for everyone to participate, but from another angle, which is, of course, we've got a lot of VCs listening in here and also angels that all have their own portfolio and are thinking, is this something that makes sense for our portfolio? First of all, I can say that we've got a couple of days left until the deadline for submission. So timing-wise, it's not out of the picture. Second thing, and that's what everyone is of course going to be thinking, is what are the terms for this? Does it come as a convertible node? Does it come as equity? And how do you think about that?

18:43How do you sort that out when you don't yet know exactly what the investment is going to be? Yeah, that's not decided up front. So it depends on the startup. It depends on the deal we can actually agree with the startup yes yeah from our end as andros mentioned we are very opened so it can mean that yes there's going to be the equity investment it can be the convertible depending on the company we are like agreeing upon this term sheet before the investment and all those terms there are going to be subject for the negotiation as well and then also like one thing that we want to definitely highlight here is that this one million in total is the money that we have syndicated, we can even select maybe more than one companies where we actually invest the money.

19:28Because some companies come with maybe lower capital demand. And in those cases, if we see a good fit there, then maybe we can even pick up two, maybe even three companies who receive the very early stage investment. But yeah, we can make... So in that sense, it's a million as a pot of money, not a million as one deal necessarily. Yeah, not necessarily, but it can be one deal as well. Are there any criteria? Because, of course, it's a pan-European conference in the sense that everyone is flying to Tallinn for this. What about for this opportunity? Is that only for Baltic or Nordic-based startups, or is it also available for everyone?

20:05Yeah, I think it is available for everybody. Yeah, sure, of course. Yeah, we don't have any geographical restrictions on that. So, yeah, everybody's welcome. And how did you think about that going into it? because, Andrew, your fund invests specifically in the Nordics, primarily at least. And Martin, I have a feeling that you've also done more Estonian-based deals than you've done deals in Portugal. So I'd love to hear, how do you think about that as the investors behind the syndicate? From TerraSite, we are limited to our region, actually. But as I said, Estban is not, so this ticket can be split.

20:39So the region is not necessarily a problem. But of course, I mean, as usually, investors are mainly focused still on nearby markets. We all have an investment strategy. Absolutely. The same thing applies to the angels as well. They love investing more to their close geographical locations, right? So, Estonia, potentially neighboring countries, Europe as well. I guess, again, like this syndicate, it represents at the very same time a good setup of angels as well, because not all the angels participating in this syndicate are Estonian ones. So meaning that there are actually angels from different other countries as well.

21:20And we just spoke about that. A couple of Danish ones have also joined in. Yeah, Danish ones, Finnish, Swedish, German, for instance. So it might give a very good perspective for other companies as well because we are always taking into account the general opinion of those angels. And if they have this international kind of background there, then we are not like ruling anything out there. So pretty flexible on the... And to be fair, the majority of the participants at Latitude 59 are always also from the Nordics Baltics region. In that sense, it's not like there's a huge disconnect in the sense that the price will most likely also go to a starter that will be coming from that region.

21:57But you said something else here that I would love to then swift to, which is a bit of a Baltic steep dive. And we've had a couple of those. We've spoken to Andrus from Change before. We've spoken to Sim as well, Simtella that many will know from the ecosystem, where we've been diving into the Baltics and trying to understand exactly where is the Baltics. And if I'm not wrong, I've also heard people say, well, Estonia is a bit of a funny one because it's in the middle between the Baltics and Scandinavia. So for that reason, some think of it as part of Scandinavia, some people think of it or the Nordics and some think of it as part of the Baltics.

22:30First, I'd love to hear your perspective on that. Is Estonia Baltics or Nordics? So we are exactly in the middle of new knowledge. And of course, we have always been having this ambition to catch up with Scandinavia or be more close to Scandinavia. And we've been, well, actually quite successful with that. So if you take any of those metrics from the capita perspective, we are at par or even we exceed Scandinavian levels. So, yeah, we're, well, our 10 unicorns mean for this 1.3 million population that we're number two after Israel, actually. We see great opportunity in the countries to dissolve from us and not just Latvia, Lithuania, but other Central Eastern European countries as well.

23:22So, yeah, going forward, I think this is a huge growth market. So for various reasons, actually. I can surely say that Estonian business angels are working more together with the angels in the Nordics. And it has been historically like that just because like this angel like movement and all this PAN network that we have established here. We basically take their own. We took the role model from our Finnish like neighboring PAN networks. Because of that, we are kind of like feel very convenient in working with those networks as well. but definitely like the politic countries in terms of Latvia and Lithuania they are like reaching there as well because the angel networks are becoming like more vibrant there as well so each and every time if we syndicate like those investments we see like more and more angels jumping in from those regions as well and then what I'm extremely proud of is the very fact that like five years back or so we saw like a huge margin between the the startup companies established in the Nordics or in Estonia, for instance, and compared that to Latvia or Lithuania.

24:27And right now, I guess this cap is going to be filled rather quickly as well. So we see more and more very interesting prospects coming from other politic states. And this is the reason why the angels are maybe more falling in line with those markets as well, because very many interesting prospects are actually happening there. Now, my next question would be the verticals of Estonia. Why should, because our audience is very pan-European, right? So what should our audience know Estonia for when it comes to verticals? So as I said, the foremost vertical is unicorn vertical. Well, that's a good one.

25:04Actually, I think statistically and from our own preference perspective as well, fintech is the main one. That's our main focus in terms of industries, actually. But it's not like really dominating. There are several losses which are quite substantial. And it's certainly more B2Bs and B2C. But, yeah, we are agnostic. So we're sort of very happy to look at anything, really. So it's new and emerging things and not so popular verticals as well. So smallness is still a limited ecosystem. So smallness is a benefit. You can observe everything really. Just to add up here, then I would definitely like to emphasize the switch which is happening, I guess, all over the world, but also in Estonia.

25:59Because as Andrus mentioned, these unicorns that we have, they are mostly in digital technologies. And now we kind of encounter this switch where more like the deep tech branch is appearing. and there we are talking definitely about like an extending number of green tech health tech maybe other like deep tech vertical companies and there are a couple of reasons why it's happening very fastly especially in estonia first of all there are very many like dedicated incubation acceleration programs happening right now who support the early stage deep tech kind of companies so we see this like number increasing rather rapidly and the second reason is definitely related to the direction of the venture capital.

26:40So there are a lot of different venture capital funds going to be established with the help of SmartCap, which is the governmental fund fund, which is basically initiating those private public funds initially. And those funds are going to take very deep tech or green tech focus eventually. This is, again, one of the reasons the access to the capital is going to be more accessible, more easy for the companies. So definitely it's going to change the environment or at least the verticals where the startups are operating. One thing I would mention beyond all this defense and cyber. And actually, this is one of the main topics of latitude this year as well.

27:23So it has been quite a dominant sector already. And it's obviously in this current environment, it's even more important. And importantly, this NATO acceleration initiative here as well. So NATO is playing a big part of this here in Estonia. Soon we will do an EUVC podcast dedicated to what's going on in defense tech in Europe, because I think that we're going to see a lot of both very exciting startups and funds coming up in this space. But gentlemen, let us rush to the quickfire round. Are you guys ready for it? You know the format. It's 30 to 60 seconds each for each of my questions. Are you ready?

28:04Sure, sure. First question is, what areas, technologies or sectors excite you the most that other people don't really feel that excited about? Definitely, deep tech is something that rings the bell. Like looking at the portfolio or the investments I have made like recently, they are all very R &D specific or R &D heavy companies. So definitely, green technologies, health tech, cyber defense, for instance, as a vertical, they are very intimidating for me. So I totally like believing those verticals. Yeah, so as I said, we are proudly agnostic. So we are looking into everything which may not feel sexy right now as well.

28:41So for instance, I'm currently doing a deal in legal tech, which is usually considered quite hard and difficult to monetize, but been following this for quite some time. And you can find deals in unusual places. I believe that. Next question. What are your top tips for emerging VCs across Europe who are fundraising? And I will ask Andrus to go first with the VC perspective here. And then Martin, I'll ask you, because I'm sure that you have gotten decks from VCs approaching you as an angel. So tell us afterwards, what is it that VCs should keep in mind when they reach out to people like you and your organization?