Estonian state venture capital fund manager SmartCap together with Startup Estonia will conduct an extensive study to map current issues around access to capital for Estonian startups and assess whether the existing financing solutions are sufficient to solve the discovered problems.
As a partner of the Startup Estonia program, SmartCap wants to map the areas where the input from the state and investors have the largest potential of creating additional value, and where the lack of capital is currently most critical, emphasizing the state’s role as the anchor investor.
Sille Pettai, the Member of the Management Board of SmarCap, says that most venture capital investments are shifted towards the ICT sector, while other sectors tend to struggle to secure the financing they need to grow.
“A large number of Estonian startups do not cooperate with universities and academic institutions, which shows that innovation and the emergence of science-based businesses should be much more important than it is now. Our goal is foremost to create prerequisites for attracting equity capital investments and experienced tech investors in order to bring science closer to business. Science-based companies with high international and export growth potential that provide products or services with high added value have a positive effect on Estonian economy and the society in general,” Pettai explained.
The study sets out to map the current situation on the Estonian venture capital market to find shortcomings that have an impact on the startup scene. The study will outline possibilities to improve funding options, competitiveness of Estonian startups, and increasing science-based venture capital investments.
”We want to find out what kind of problems Estonian startups in various growth stages encounter with raising capital, how those investors that are currently active in Estonia view today’s market situation and outlook for the future, and what are the main causes of weaknesses in the financing of startups. This information will enable us to analyze what financial instruments are most suitable for the market players. For instance, whether the best results can be reached by using direct investments or investment funds focused on a certain sector and/or growth stage,” Pettai said.
According to Pettai, several factors play an important part in financing science-based startups, e.g. they have a relatively high risk and longer investment horizon, and the investors should have specific knowledge and competence.
The results of the study will provide an input for SmartCap investment programs and the launch of a second business accelerator within the Startup Estonia program. In 2018, the business accelerator program launched Superangel, an early stage venture capital fund and business accelerator, and the results of the study will analyze the need for the second accelerator.
“We hope that startups and investors will actively participate in the study, as it will help us to understand the needs of market players and map the current situation for creating a plan to diversify the availability of capital offers on the Estonian venture capital market,” Pettai noted.
The study on the accessibility of capital for Estonian startups will be ready by October 2019. The study will be conducted by Civitta Eesti AS, and it is funded through the Startup Estonian program by the European Regional Development Fund. The study will include interviews with angel investors and fund managers who invest in startups, as well as an online survey among Estonian startups. Additionally, the study will include an overview of conclusions of previous studies on the accessibility of capital for Estonian startups and recommendations for creating new financial instruments or updating current ones.