Last summer, a new business angel fund, Lemonade Stand, emerged from the Estonian investment scene. Siim Teller, the leading partner, shared insights of early-stage funding.
Lemonade Stand sprang from the long-term acquaintance of Berlin-based marketer Siim Teller and well-known entrepreneur Kristjan Rahu and their growing interest in the ideas of the new economy. While Teller has over 20 years of experience in digital matters then Kristjan is bringing a traditional entrepreneur’s perspective to the team. As a technical expert, also Kaarel Rahu is involved in the investment process.
The € 5 million fund started out with no strategy, but has already invested in seven Estonian startups during its six-month existence. The ticket size is € 25,000-300,000 and the fund’s first investment was in insurance brokerage application Cachet, which recently started a three-month accelerator program for fintech startups in Barclays Accelerator Powered by Techstars in London.
In the seed phase trust is important
When Teller and Rahu decided to invest in Cachet, the startup had yet no product or income. According to Teller, investments in this such an early phase are clearly based on trusting the team. „We believed in the idea and they had already been able to reach agreements with strong platform partners such as Bolt, Yandex and Uber,“ he added. According to Teller, retail channels have become more and more expensive and reaching the end consumer and B2C business in general is becoming increasingly difficult. So, the benefits of integrating partners into the go-to-market plans are huge.
According to Teller, the team’s previous experience in banking and including sectoral advisors into the process also helped make the positive investment decision. Hedi Mardisoo, CEO of Cachet, said in commenting the deal that they had a choice between several possible investors and in the end based their choice on confidence towards the investors.
Impact comes into play
Venture capital funds typically have very high expectations towards the growth of their portfolio companies – even more than three times growth per year, which in the end will be achieved only by a small part of the portfolio. Because of the high risk most of them fail. Angel investors are more flexible. “With some investments the impact comes into play that there might be a strong environmental aspect that is worth supporting,” Teller said. For example, Lemonade Stand’s portfolio includes R8tech, which makes indoor climate monitoring and optimization software for large commercial buildings, saving up to 15% of energy for its customers.
The first question to startups is usually about their ambition, Teller noted. “There are different ambitions, but those who are already looking for investors are generally planning to go big“, he added. According to Teller, they as investors are always looking into the future. Doing an investment round they are already considering how the next round of investment would influence today’s deal. „For a Silicon Valley startup during each funding round the next one is already discussed,“ he added.
Ideal investment is saving people time and money
Teller is critical about consumer-oriented business because he sees in everyday work how difficult it is to market a product, find users and customers. „I would like to invest in companies that save you money or time, while many consumer-oriented products today are targeted at selling something extra to people or keep them on the phone for longer“, he said, adding that there are many good products, but it’s not currently the main focus of Lemonade Stand.
An ideal startup that Lemonade Stand would invest in has 2-3 founders with clear roles. Technical and sales side as well as product management must be well covered. The team must be experienced in the sector that they are doing business in already. It must be clear that they are solving an existing problem they themselves have experienced. „Because of our B2B focus, we prefer sectoral expertise in the team,“ Teller said.
Lemonade Stand invests at a very early stage, ideally in the first or second round of investment. The team also advises founders on the right balance between company valuation, round size and funding structure (equity vs. convertible loans). The investors help mitigate the risk of reduced team motivation at later stages when founders realize they have given up too much equity and don't own much of the company anymore.
At the same time, prejudice can lead to overlooking a team whose real internal fire may compensate for other shortcomings, Teller warns.
A missed opportunity
Ten years ago, Teller sat at a London co-working center next to his good friends Taavet Hinrikus and Kristo Käärmann, who had just hired the first two people to work for Transferwise in London. As Teller then worked in one of Passion Capital’s portfolio companies, they ended up comparing marketing plans. “Perhaps it would have been a good time to join their team or a good idea to invest in them. But also rooting for them and seeing many friends make a serious career there has been so cool,” Teller said.
Siim Teller has extensive experience in digital marketing from Skype, GrabCAD and several foreign companies. He currently works for a mobile performance marketing startup called Applift in Berlin and is the leading partner in Lemonade Stand. Kristjan Rahu is a long-term entrepreneur and in 2018 was named by Estonia’s leading business daily Äripäev the Entrepreneur of the Year.
Lemonade Stand is a business angel fund started in 2019 that invests in the Baltics, Eastern Europe and Scandinavia. So far, the fund has invested in seven startups: Cachet, Procurement Flow, R8tech, Digital Sputnik, Dashbird, Veriff and Montonio.