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Smart money is flowing into Estonia again

Estonian startup investor of the year Gerri Kodres says that investors have quickly recovered from the initial corona shock and smart money from investors is finding its way to Estonia again: the majority of the capital from the 30 fund raising campaigns in the first six months was received in the second quarter during the corona pandemic.

“Among the investors,” Gerri Kodres said to the technology portal DigiPRO,“The initial shock and confusion lasted for around a month at the end of the first quarter – there were virtually no new investment decisions made at the time. Then a relatively quick recovery happened and now activity has more or less been restored to the pre-corona state.”

According to Kodres, the numbers back this up: over the first six months of this year, Estonian startups made more than 30 capital raising campaigns, the majority of which, i.e. nearly two thirds, gained results in the second quarter.

“Compared to the most active period currently, which was 2019,” Kodres explained, “transaction activity this year has been almost the same. It is likely that the real activity level is even higher this year because a considerable number of so-called inside transactions, where only current investors are investing, have not been announced in public.”

On the other hand, the confusion is also long over for startups and everyone has adjusted. “If, in other sectors,” Kodres said, “almost all entrepreneurs have suffered and it is difficult to find any winners, then in startups, the situation is more complex. There are clear winners among startups involved with remote work, e-commerce, delivery services, e-education and cyber security, where demand has increased significantly.”

Additionally, there are a number of companies that have been forced to adjust their business models and cut costs, but demand and moderate growth are recovering.“ And then there are startups going through very difficult times,” Kodres admitted.

Foreign money returned to Estonia

At the same time, the climate for raising capital is quite favourable at the moment for any startup that has adjusted quickly, is moving towards profitability and is positioned in a growing segment.

“Several of those who announced lay-offs during the crisis are actually currently doing quite well,” Kodres said. “Also, the risk capital funds of Finland, the United Kingdom and Germany are looking our way and investing more.”

New smart money is also added in the early growing stages in Estonia. “For example, from the TransferWise summertime share sales,” Kodres gave an example, “a considerable amount moved to the company founders, employees and investors, and the same happened with the money from the Fortumo sales.”

According to Kodres, multiple active angel investors have been added from the founders and previous employees of such superstar companies like TransferWise, Pipedrive and Bolt, who offer experience in addition to money.

Moment of truth arrives in autumn

However, it is likely that autumn will reveal the reality. “In late autumn/early winter,” Kodres said, “the companies that received bridge financing from the current investors in the second quarter must start raising new capital and then we will see how the situation plays out.”

The startups which are in ‘more attractive’ segments or which already have strong investors among their shareholders can feel more secure.

“Restoration of travel restrictions will surely make raising capital outside Estonia more difficult,” Kodres said, “but at the same time, we can see that investors have also adapted to the ‘new normal’ and are ready to make transactions even without meeting face to face.”

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