Nurturing Nest for the Future Unicorns
Evita Lune, Partner for Global Digital Economy at Pedersen & Partners interviewed Marili Merendi, Associate at Karma Ventures.
Marili Merendi is an Associate at karma.vc — an early stage venture capital firm specialized in late seed and series A investments in Europe’s most promising tech startups. At karma.vc Marili covers deal sourcing, due diligence, financial valuation, and all-round portfolio management tasks.
Her previous experience is in finance and investment advisory positions at various international organizations such as: Kraft Foods, UBS Investment Bank and UBS Wealth Management in Zürich. Marili holds an MSc in Business Economics from the University of Amsterdam, complemented by the extended studies in the US, Norway, and Switzerland. She is a music fan and outdoor sports enthusiast.
Evita: Let’s start by understanding, what is your job about at Karma?
Marili: To tell you this, let me briefly introduce Karma Ventures. We are a Pan-European venture capital fund operating out of Estonia. We invest in early-stage technology companies all over Europe, and since our establishment three years ago we’ve done eleven investments, six of which are in the Baltics — one is in Riga — Sonarworks — two in Sweden, two in Finland and one in the UK. Our focus is on startups that build unique tech heavy solutions and that solve big customer problems. We’ve noticed that our preference is mostly towards B2B software startups.
I work on deal sourcing and the initial analysis of the deal and company characteristics. Once we decide to proceed with a deal, my tasks include working with my team by preparing the deal in terms of due diligence and documentation. When we have closed the deal, I continue to actively work with portfolio companies. However, while part of my job is facilitating the analytically structured process in working with startups, the other part is trying to enable the founders to leverage their own potential through collective knowledge sharing and open discussion with them.
With regard to Karma’s value add, this is a question to our portfolio companies as they are the true judges here. From practical aspects we typically focus on the business stage where there is an early evidence of product-market fit of the solution, and where the company is about to build the scaling business processes and culture for fast acceleration. What it usually means, is that we work together with the founders on business strategy and recruiting, as we believe that one can only scale by hiring great people that bring true value and know-how on scaling and making a company stronger and better. We don’t expect the founders to be experts at this, but we expect them to be able to attract the talent that have the necessary expertise.
We believe that one can only scale by hiring great people that bring true value and know-how on scaling and making a company stronger and better.
Evita: Can you share a bit more about the investments that you have made? You mentioned that there are 11 different companies, half or which are in the Baltics mainly in B2B field.
Marili: Sure. Up to date we have mostly invested in companies targeting B2B customers, but we also have a few marketplaces that bring together the supply and demand side. For example, in Lithuania we invested in CGTrader, which is a 3D model marketplace; in Estonia we invested in HR marketplace/platform MeetFrank that brings together people looking for an interesting job and companies looking for great talent while both may not explicitly state this interest. Regarding other companies in our portfolio, we have investments in developer tools such as AppGyver and Plumbr; machine intelligence based emotion recognition software provider Realeyes; in Riga we have investment in Sonarworks, which is a software for headphone sound calibration enabling music fans to hear more authentic sound; we also have big data analytics platform SpectX; cloud based automated computational fluid dynamics software provider Adaptive Simulations; legal tech leader TrademarkNow; and finally B2B as well as consumer focused non-intrusive home security provider Minut from Sweden.
Evita: What about the technology side of these deals and in general, reviewing potential investments, how do you manage to judge if this will work or not?
Marili: When we look at an opportunity, we consider several inputs, such as market trends: what is trending globally, where the consumers and the businesses are heading to and what business models are in place. Then we analyse the competition: what type of solutions the competitors provide, how many alternatives are out there for the customer to consider, the funding of the competition, etc. All this gives us a fairly good indication of where the innovation and its financing is heading to. We also conduct reference checks with the customers and business partners of the startup under evaluation, meaning that we directly ask customers how relevant certain technology is for them and how it impacts their business. We do not conduct technical due diligence in house, but rather get this input from customer references in order to build the thesis whether the startup is on a path to become a global player. We tend to take customer input seriously as it is fair to assume that before they decided to pay for a solution, they looked at various alternatives, thus providing us with a really good comparison and understanding of the provided value. Then, of course, we look at the team trying to estimate the existing skill set as well as the potential to adapt to life’s challenges that one encounters while trying to build a unicorn.
Additionally, unlike many other funds we have a tech advisory meeting with the startups, where two of the Skype founding engineers — Jaan Tallinn and Ahti Heinla — bring additional input to our decision making process. We are lucky to leverage their know-how and global experience of building and developing Skype, putting together and investing in a portfolio of global technology companies previously, and currently being active in an international scene of thriving technology innovation.
Evita: I often ask a question, how come that the Baltic states, and Estonia particularly, are able to generate such fantastic technology startups. Since you are close to this, what is your interpretation?
Marili: While this idea has been stated by many before me, I actually really believe Estonia benefited from Skype exit as not only some of the proceeds were invested back to the local startup ecosystem, but we also got access to global networks and global know-how. More importantly, I think, we got a boost in motivation and self-belief because we saw that something very big with global impact could be built in a very small country by a very small pool of talent. This really helped us understand that if you have the right mindset, are able to attract the right talent and of course, if you have a great idea anything is achievable. Today Estonia has 4 unicorns: Skype, Playtech, TransferWise and Bolt (ex-Taxify), and you can clearly see Skype roots in their workforce and in early founders. In small markets when larger exits take place, it increases the confidence in ability to do the same. Plus, because the industry is very small, you can always reach out to the person who created something on global level.
More importantly, I think, we got a boost in motivation and self-belief because we saw that something very big with global impact could be built in a very small country by a very small pool of talent.
Evita: In terms of approach of Karma Ventures, what is the target investment size money wise and the expected exit?
Marili: Our initial investment is from half a million Euros up to three million Euros, and over total investment life cycle we can invest up to ten million per company. In every investment that we make we want to see whether it has unicorn potential, meaning it has a potential to reach a one-billion-dollar valuation one day. This expectation is coming from the Venture Capital business model where we take a minority ownership with our investments, which usually gets diluted as the company grows and takes in more funding. Therefore by the time of an exit, given our return expectation of the fund, we need to have a portfolio of high-valued companies. Therefore, when we sometimes turn down the investment opportunity, it’s usually not because something is wrong with the founder or with the business, but we might simply not see the path for them of becoming a unicorn, which is absolutely fine. Again, there is nothing wrong with the business or the founder, there just might not be compatibility with our return expectation — everyone needs to have potential to become a unicorn. And of course, having said this, we may make mistakes in our decision making as well.
Evita: You are actually providing fuel for generating unicorns within your scope of work. What about your own motivation, what drives you and your passion for this job?
Marili: While I am working at Karma, in many ways I’m actually working with all 11 companies in our portfolio, enjoying the activity of investing and being an investor. More than ten years ago when I was in high school, I developed interest towards investing and tried investing in different assets classes: listed companies, commodities, precious metals, among others. My drive, however, was the fascination of the world’s interconnectivity — financial, political and cultural. Investing gives me the possibility to be part of this by directly influencing the course of actions, even if the impact is tiny. Venture capital, however, is a unique asset class in my understanding, because in addition to technologies and investing aspects, the central and most important “asset” we invest in is the human-being itself. This brings in a totally different dimension — the difficult to grasp “soft side” of the business, which probably falls under the studies of psychology, human relationships, etc.
Evita: Investing in startups, especially in the technology field is considered unpredictable because this is so futuristic. How can you be confident about your investments?
Marili: We don’t have a crystal ball. Sometimes we get questions about the trends or the future, and honestly, we cannot claim anything with 100% confidence. This is why we are not focused on one specific technology, but rather build a portfolio of startups to decrease the risk and avoid putting all our money in one industry or vertical. We don’t know what is about to happen in the future, it’s simple as that. We definitely try to pick teams in industries where we have built a belief of having higher probability of success, but in reality we don’t know for sure. While at the University, I wrote my thesis about the fund returns — the outcome of the study was that there were only very few aspects that would correlate to the fund return at the time the investment decision was made, and more than 70% of outcome was explained simply by luck. So, go figure, we don’t know what the future brings.
Evita: What about your own career approach? You have been working abroad, do you consider yourself a global citizen?
Marili: Yes, definitely in many aspects I am a global citizen. I always enjoy exploring other cultures, people and points of view, because a homogeneous environment is, in a way, limiting by its nature compared to the environment with many different believes and world views. These of course, are more challenging to co-exist, but personally, I enjoy this more. And yes, this understanding at least partially is coming from living, studying and working abroad.
Evita: You’ve been living in Switzerland, right?
Marili: Yes, I have been living abroad for 5 years, almost 4 of which were in Switzerland. After my bachelor studies, I wanted to do an internship abroad, and there was a very good opportunity to do so with the organisation named AIESEC, which is the largest student network globally that places internships abroad. I used the opportunity and went to Switzerland. Since I had already developed interest towards investing and finances, I found my way to UBS bank, where I stayed after the internship further developing my knowledge of investing.
Evita: What is your biggest professional achievement so far?
Marili: I hope the biggest achievements are yet to come. However, I would say that it’s the ability to envision what I want to experience professionally, the skill set I aspire to acquire along the way by defining what I need from work, and being able to execute based on that plan while at the same time still keeping an open mind to the life around me. I’ve been very lucky to always have been able to say “no” to the roles and tasks that I felt had no value in my life. It does require courage to say “no” to a career step, which at first sight might seem meaningful; especially to something that seems to be a very good career building block. Some of my peers complain about the crappy jobs where they work today based on their decisions to pursue titles and high salaries in the past –short-term wins. I always felt that this approach was not a good choice for me. So, all in all I believe that if you are able to drive your own future, this is an achievement.
Everything is possible. It’s up you to define what you want. While my approach is to know when to say “no”, the most important is to keep an open mind.
Everything is possible. It’s up you to define what you want. While my approach is to know when to say “no”, the most important is to keep an open mind.
Evita: You are investing in companies all over the world and need to be aware of business trends and the latest developments in finance and technology. How do you stay up to date in your profession?
Marili: You need to read a lot, follow relevant news, portals and blogs, and be open minded. Additionally, it’s important to read different view points on the same problems. Important thing to pay attention to, especially nowadays, is the “noise” around you coming from all directions: social media, internet, TV, people chatting around you, etc.. Being able to filter what is important and what not, analyzing what you are reading and hearing and not taking everything as plain gold has become crucial. This, however, is very challenging, at least for me, because if you constantly get new information, you get exhausted and don’t have that much capacity to digest the information and understand whether it’s relevant for you or not. So, stay aware and look very carefully.
Evita: It sounds that you are quite selective about what happens to you and you are able to choose what is best for you. I would still assume, that you put a lot of effort to be up to date and to be knowledgeable to drive the development of unicorns. And this is something that requires quite a skill.
Marili: Well, I believe in the potential of our portfolio companies to become unicorns one day.
