Investment Process

SmartCap invests in global growth with Estonian roots.

To create a strong and modern Estonian economy, SmartCap invests directly in companies and private funds that align with our mission and investment criteria. Whether through private funds or with our direct investment, we aim to impact innovative, research and technology-focused companies from Estonia.

We have two main methods for sourcing potential funds and companies.

The first is our investment selections, whichcan be ongoing with longer-term submission opportunities. The other method is a competitive selection process, which has a shorter submission term with a set deadline. In this case, investments are usually focused on a specific objective.

In both cases, you can expect our investment process to follow through these main milestones:

01
Investment sourcing

We mainly source investments through our ongoing mandates or by holding Calls for Expressions of Interest with a fixed deadline. Once our mandate or Call is active, we review the inbound investment offers and conduct active outreach to source potential targets. We screen targets against our qualification criteria to determine their eligibility.

02
Analysis

Each investment case is assessed and thoroughly evaluated. When evaluating the investment proposal, we also consider relevant aspects like team composition, business plans, track record, etc. This process results in either an initial investment decision (for applicants to ongoing mandates) or the creation of a shortlist of best investment cases. All positive cases go through due diligence before final decisions are made.

03
Negotiation and execution

For cases determined to be investment-ready, we review the legal documentation and may require negotiations to agree on the terms and conditions of the investment. Documentation is signed after a successful legal review and negotiations. At this point, we either carry out the investment or establish an investment commitment, depending on the previously negotiated agreement.

04
Monitoring and review

Expect active monitoring and evaluation with regular reporting to investors during the life cycle of the investment.

05
Exit

Fund investments: we expect the fund to exit its investment positions within the fund term and to return the proceeds as agreed.

Direct investments: we act as a patient investor and look for exit opportunities once the investment achieves its set strategic objective.

Responsible Investing 

Achieving our investment goals cannot come at the expense of a sustainable future. Responsibility for environmental, social, and governance (ESG) issues is always considered in parallel with economic growth ambitions. We believe that applying high sustainability standards improves the overall long-term performance of our investments and increases competitiveness by reducing ESG risks and creating a positive impact.

Sustainability is incorporated into our investment activities through responsible investing practices. Our approach to responsible investing is twofold:

  • ESG integration: incorporating sustainability risks and positive ESG-related impacts into the investment decision-making process
  • Active ownership: improving investees’ ESG performance

ESG integration

ESG integration means systematically considering sustainability risks when analyzing investments and making investment decisions. Should an investment case have an excessive ESG risk or otherwise fail to meet our minimum sustainability standards (for example, SmartCap ESG Exclusion List), we are willing to exclude the investment from our deal flow.

In addition to risk mitigation, ESG integration can serve the purpose of making investments with positive ESG impact. If our investment fund has a sustainability objective, these objectives are realized by integrating relevant ESG criteria into our analysis and decision-making process.

Active ownership

Impact has ripple effects; so, we’re not counting on only our actions. We want our investees to make their own impact. This is where active ownership comes into play.

With active ownership, we encourage and support our investees in improving their ESG management systems and adopting more sustainable business practices. This may include agreeing on specific actions to address relevant ESG shortcomings, regularly reviewing progress, and engaging in ongoing dialogue to enhance the overall sustainability approach and performance.

Reporting

We don’t promote sustainability for image; we do it for impact. That means we need to track and report our progress. We are committed to reporting our sustainability results to our stakeholders and the public. We publish annual ESG reports showcasing the sustainability performance of our investment activities and organizational practices.

We are counting on our investees to help us foster this kind of transparency and accountability. We also expect our portfolio funds and companies to report their ESG performance. Specific expectations on sustainability reporting are included in our relevant investment agreements.

Article 4 of the EU Sustainable Finance Disclosure Regulation (SFDR)

Sustainability is an integral part of SmartCap’s values, which is why we consider ESG criteria in our responsible investment practices. We firmly believe that taking sustainability factors into account when making investments is a vital part of not only ensuring a sustainable future but also creating a competitive advantage and achieving better returns on our investments.

However, in our approach, we do not consider the adverse impacts of investment decisions on sustainability factors within the meaning of Article 4 of the EU Sustainable Finance Disclosure Regulation (SFDR) at this time. Due to the nature of venture capital investments, it is unreasonable or, in some cases, impossible to request the kind of data required under the SFDR from startup companies and early-stage investment funds.