2021 was an active year in the fund investment market, with SmartCap launching its new €100 million Green Fund

Despite the ongoing coronavirus pandemic, the past year was a successful one for SmartCap, which invests in Estonian start-ups – through funds and direct investments, the investments of SmartCap Venture Capital Fund reached more than one hundred companies with a total turnover of nearly €850 million by the end of 2021.

Tallinn, Estonia

Notable developments last year included the creation of a €100 million national Green Fund, the selection of a private fund that invests in high-tech companies and the launch of health technology research accelerator.

“Last year was a productive year for Estonian start-ups and SmartCap, and growth prospects remain good,” said Management Board member of SmartCap Sille Pettai. “Optimism prevailed in the market and investor interest remained high. Estonian start-ups demonstrated outstanding figures both when raising money from investors and increasing their turnover – the total amount of money raised was almost one billion euros, which is more than twice as much as before. The total turnover of the start-up sector reached €1.4 billion, which was also almost twice as much as the year before.”

According to Sille Pettai, SmartCap’s activities in 2021 were guided by the strategic goals set by the state – to help ambitious and innovative Estonian companies grow and contribute to the creation of a suitable ecosystem, as well as to develop the Estonian capital market more broadly by offering venture capital investments.

“Last year, the investment portfolio of SmartCap Venture Capital Fund included two early-stage venture capital funds focusing on Estonia – Tera Ventures I and Superangel One,” said Pettai. “By the end of last year, the venture capital fund had invested in 116 companies through funds or direct investments. The aggregate turnover of the companies in our portfolio was €850 million in 2021, up from €400 million a year earlier – up by more than twice. The biggest contributor to turnover growth was Bolt, similar to the overall statistics for the Estonian market.”

The companies in the portfolio of SmartCap Venture Capital Fund employed nearly 2,300 people at the end of the year, up by a third from the year before. These companies paid nearly €40 million in labour taxes, 40% more than in 2020. The assets managed by the venture capital fund amounted to €70 million.

“The objective of SmartCap’s investments is to stimulate the development of innovative Estonian companies with international growth potential, thereby contributing to the Estonian economy on a broader scale as well as to the development of the local capital market,” said Sille Pettai. “Last year’s results once again prove that Estonia has companies with great potential that are able to grow with the support of venture capital, create new jobs here and cement Estonia’s image as a great environment for successful start-ups.”

One of the most important milestones of the past year was the creation of the SmartCap Green Fund in December 2021. One of the objectives of the Green Fund, set up with the support of the European Recovery and Resilience Facility, is to provide the long-term investments needed for the green transition, with investment planned to start this year.

“Our plan is to use the €100 million assigned by the Recovery and Resilience Facility to invest primarily through venture capital funds in companies that are creating green technologies to solve environmental problems and achieve a climate-neutral circular economy,” said Sille Pettai. “We want to use the Green Fund to give a boost to those companies that have potential but whose business idea needs patient funding and a long-term perspective. Private investors are also willing to come on board if we help them share the risk.”

Last year, SmartCap also prepared the groundwork for the creation of research accelerators focused on health and green technologies through Startup Estonia program. SmartCap signed the contract for the research accelerator of health technologies with the consortium led by University of Tartu in March (other members of the consortium being TalTech, Tartu Science Park and Tehnopol Science and Business Park). SmartCap’s Startup Estonia program is financed by the European Regional Development Fund within the framework of the EU60971 project.

In terms of investing, SmartCap carried out a competition for a venture capital funds targeting high-tech SMEs in 2021 in order to find a fund management company in which SmartCap will invest €15 million.

“The interest of market participants in the competition to become the manager of a high-tech investment fund was high and six teams applied to participate,” added Pettai. “As a result of the competition, we signed a management company agreement after the end of the financial year this June – SmartCap will invest €15 million in the new fund as the state’s anchor investment, in addition to which the management company will raise private capital from Superangel.”

SmartCap is a subsidiary of the joint agency of KredEx and Enterprise Estonia and a small fund management company registered with the Financial Supervision Authority, which manages the national Venture Capital Fund and the Green Fund. SmartCap offers anchor investments to private fund management companies to develop the Estonian venture capital market and enable ambitious and innovative Estonian companies to grow internationally.