Since the start of 2023, Tera Ventures has made several headlines by investing in breakthrough startups like Estonian fintech Cino, Estonian legaltech Avokaado, and Polish-founded AI Clearing. This led us to include the fund in the 19 most active Baltic VC funds in H1 2023 ranking. Furthermore, Tera Ventures plans to do another two or three deals this year, as well as a few follow-on investments.
AIN.Capital had a chat with Andrus Oks, a Founding Partner at Tera Ventures, who told us about the fund’s activities, future plans, as well as shared his insights about the state of the Baltic market in 2023.
Tell me about Tera Ventures in general. What is your focus? What are the funds under management? And what do you provide to the market?
We are a VC seed fund investing out of our €45 million 2nd Fund. We are investing from pre-seed to late seed. And we have been investing for 15 years and, essentially, from the beginning, we’ve both been a generalist investor but also developed themes. We’ve been investing in AI and Machine Learning for more than ten years. That’s our main theme.
In terms of industries, as we have this high conviction hands-on model and some of our portfolio companies mature, we get to learn about their respective industries. And that has enabled us to actually learn from the feedback quite a bit. We were the first investors in Monese, the neobank.
And learning from them has enabled us to understand this space more. We have several successful Fintech portfolio companies. And that is our main focus: we are looking for anything within digital and hardware, which is also an interesting topic for us. But yeah, the core needs to be digital.
- We cover our home market in Estonia, as most of our companies are here, but we also cover Scandinavia, rest of the Baltics, Poland, and Czech Republic.
In our 2nd Fund, we have three LPs from the US, two from Japan, most are from Scandinavia. The most notable strategic investors are Perot Jain in the US and Itochu in Japan. Because these investors are interested in direct deals, commercial collaboration, they act as softlanding partners for companies. And this is very valuable for the portfolio companies, because the need for help entering other markets is usually the primary need that we can help with.
That is also my next question. Apart from the funding, do you offer any support or expertise to the startups?
Yes. All our partners are previous founders. We’ve actually been in their shoes. We understand what their needs are. Every startup is different. We can provide many things, whatever they really need at what time.
And as I said, usually, the primary need is going to larger markets. That’s where we have focused on our value add. Notably, we have one of our partners, Eamonn Carey, actually living in London. That’s a well-positioned area to offer help from: connecting the startups to various networks and helping raise money from later stage investors.
What about the fund’s performance in 2023? How many investments have you made? Have there been any successful exits?
The public data is not actually reflective of the whole transaction history of this year. We’ve actually done several more deals that haven’t been announced yet.
Several portfolio companies have certainly exceeded our expectations, we have had 6 uprounds in recent months. And two companies raised proper Series A investments. One of them has been made public recently — AI Clearing, a US/Polish construction tech focused company.
However, the year has not ended yet, there still might be news.
It’s a tough market, but it’s actually a really good time to invest right now. In the beginning of summer, we were kind of concerned because everybody’s saying the market is really tough. And well, we thought, let’s see what portfolio companies would need to raise funds. And what would the outcome be? But it has actually been very successful. They are truly impressive.
Recently announced investments include Cino, Avokaado, and AI Clearing. Tell me more details about these deals. How did you meet the founders? Why did you decide to invest?
Yeah, so, let’s take it one by one.
- AI Clearing — I guess it’s one of the more interesting stories. They actually reached out to us. They’re an amazing team also from a promising industry, who concluded the first PoC with one of the top 10 US construction companies, PCL. Before raising the $14 million round, they had successful partnerships, rapid revenue growth, and offered very impressive innovations in general.
- In the case of Avokaado — we’ve actually known the founders for several years already. During the last year, they came up with this new product called aDoc. Instead of usual PDF-based contracts, they’ve actually built a completely new system where contracts are actually either fully digital or digitized. A year ago, Avokaado started getting customers to use this new aDoc product. All the initial feedback was very positive. So, that’s why we decided to invest in them.
- And in the case of Cino, it’s my partner Stanislav Ivanov’s company. We are their first investors, and decided to invest exactly a year ago. At the time, it was a pre-revenue deal. They launched their product in April, and it was obvious from the beginning that the users really, really loved the product. That’s why we decided to lead the next round as well.
You told us that you thought the market would be a lot tougher this year. Were there any changes in your fund’s investment strategy?
No, not really. What has really changed is that the deals are more reasonable, and round sizes are smaller, valuation expectations are lower, or more palatable for investors. There is also more time to think about the deals. If you have more time, you’re probably doing more due diligence, and making better decisions.
But the main struggle is still the same. It’s always the same. Where do you actually find those founders that are able to disrupt their industries and then become the global leaders, right? So, even though the Investment environment is currently better for investors, the challenge to find those founders is still the same.
How did you adapt to the pandemics and other crises on the market? Are there any differences or notable changes with today’s situation?
The pandemic feels like ancient history already. This current crisis actually started from the public market. And it’s harsh in a sense that many other investors pulled out of the market. Especially, in regards to later stage deals that are much more difficult to do.
From my perspective, obviously, we were concerned about this harsh market for our existing portfolio companies, can they raise the next round? But as I said, they’ve actually been very impressive. However, it’s easier for investors to do new deals.
In our initial investments, we’ve actually quite enjoyed this new situation. This is what we also heard from other investors as well. This current year may be one of the best vintage years for VCs.
Can you give any general advice for startups in CEE? What is the main thing for them to look for if they want to, for example, get financing from your fund?
It’s very easy — come and talk to us. We’re very open to talk to everybody. I don’t think you need to hack investors or learn hustle methodologies. Just come and talk about your business. That’s what we do. In case it’s in our strategy, we will invest and help you move forward.
And can you tell me about the fund’s future plans? Do you plan on launching new funds or making future investments?
Yes, we have started preparations to raise our next fund. We’ll continue with the current strategy pretty much, it will be a meaningful evolution from the current strategy. We are increasing our value-add, engaging more venture partners. We are building more substantial relationships with venture partners who are here to engage with team flow and actually help our portfolio companies.
We will do another two or three deals this year. We will also do a few follow-ons.
Did you want to share anything else with our readers?
Yeah. Regarding the current market state. I’ve heard that many people are really concerned about it. Although it is certainly tougher to convince someone to invest, you shouldn’t let the situation discourage you. I think entrepreneurial creativity is the main thing that is driving the whole economy. Great founders always find ways to keep growing or how to raise funds.
Actually, this funding environment may be different depending on the place. Even in your country or in your city, it’s difficult to grow, there are places where the situation is different.
I recently had a call with a Berlin-based seed stage investor. He said that what they are experiencing in Berlin, in Paris, and I think it’s happening in London as well, is that most of the later stage investors don’t really want to do many Series A deals. They dropped down to seed stages. This means that in the seed stages, from this investor perspective, there’s more competition. And it’s tougher for them to invest in those cities, which means that for startups, obviously, it’s easy to raise money. If you’re somewhere in Europe, you should actually consider reaching out to those Berlin and London investors. They enjoy deals from other regions where competition is lesser.
And of course, it matters about what the startup is really doing. If you’re in climate tech or in generative AI, these markets are certainly hot right now. In general, I guess, the disruption we will see from generative AI will be much bigger compared to anything coming from this challenging funding environment.
