Estonian Development Fund was established few years ago. Benchmarking the Finnish SITRA model its main functions are providing economic forecast and ideas how to create growth, but also developing venture capital market in Estonia.

The fund has invested into seven companies thus far: SmartPost (a logistics company offering modern parcel sending solutions), Golitah Wind (developing next generation wind turbine), Massi Miliano (the virtual fitting room developer Fits.me), United Dogs and Cats (social network for pet owners, has failed for good recently), BiotaP (a biotech company) and GrabCAD (a CAD library provider).

Nevertheless, skeptics say the portfolio is weak and insufficient to justify the fund’s existence. Before the Estonian Development Fund started off many people thought we do not really need an extra state VC. Now these people say that the new exceptional investment round, that we are going to see, is giving the fund “a mandate for existence”, because once you already invest, you apparently have to work with the companies.

Heidi Kakko (pictured) and Andrus Oks, the investment people from Estonian Development Fund disagree with this standpoint, of course. And many people think efforts of the fund have been very valuable. It is always easier to criticize and believe me, Estonians are world champions on this.

One of the fund’s investments – United Dogs and Cats – has failed recently. Now the fund is looking for a new investor to take the company over. Two candidates are currently being heavily negotiated with. I think I know one of them (a foreign businessman living and working in Estonia), but I will not say it, because I do not want to blow this thing off.

Kuidas sinust sai ettevõtja?

See oli 1999. aastal. Lahkusin palgatöölt Nokia võrkude ettevõttest (praegune Nokia Siemens Networks), kus olin tegelenud tõeliselt vana kooli telekommunikatsiooniteenustega. Olgugi et toona oli see turg kiiresti kasvav, polnud töökeskkond üldsegi põnev. Suur organisatsioon on ääretult uimane. Ma tahtsin teha midagi muud ja lõin oma ettevõtte.

Millega tegeles sinu esimene ettevõte?

Lõin selle koos viie kolleegiga, nimeks sai Taika Technologies. Meie visioon oli, et internet on sotsiaalse suhtluse koht ning meie ehitame selleks rakendusi ja platvorme. Näiteks tahtsime teha Second Life’i tüüpi 3D-veebikeskkonna, mõtlesime mikroblogidele, reaalajas vestlustele.
Ettevõte käis läbi terve elutsükli – alates loomisest, investeeringust, klientide leidmisest ja lõpetades… sulgemisega 2002. aastal.

Miks Taika hääbus?

Sotsiaalne internet ei olnud siis veel üldse teema. Meie kliendid, välja arvatud telekommunikatsiooni- ja meediaettevõtted ei saanud meist aru. Kui internetimull sajandi alguses lõhkes, kadusid teise ringi finantseeringud sellistele ettevõtetele. See tõi meile probleeme. Firmat oli rahastanud kaks riskikapitalisti, kellest üks ei tahtnud meie käekäigust ööd ega mütsi teada, ja teine oli seda tüüpi kapitalist, kelle vastu me tegelikult võitlesime.

Kui palju raha kirjutati korstnasse?

Kokku viis miljonit eurot. Peamine finantseering oli neilt kahelt riskikapitalistilt. Aga Taikas oli ka pisut Tekese raha (riiklik tugistruktuur) ja pool miljonit eurot asutajate raha.

Olid firma juht. Mis tunne pärast ettevõtte sulgemist oli?

Toona tähendas see ettevõte minu jaoks kõike. Seda asja sai aetud palavikuliselt ja investeeritud palju isiklikku aega. Olin mitu kuud depressioonis, sest kaotasin ka üle 100 000 euro isiklikku raha.

Mida siis tegid?

Pidin väiksemasse ja odavamasse korterisse kolima. Kuna mul oli järsku rohkem aega kui varem, käisin usinalt jõusaalis ja jooksmas. Manustasin toidulisandeid, mida kiiresti liikuvad ja palju treenivad inimesed kasutavad, ning kaotasin tublisti kaalu.

Mida girlfriend kaotuse kohta ütles?

Ega ta eriti hästi sellele ei vaadanud…

Nii et said vägeva õppetunni?

Kindlasti. Mul oli suur au saada see õppetund koos väga tuntud inimestega – meil olid tiimis näiteks Soome praegune eurovolinik Olli Rehn, mitmed tuntud professorid ja USA tehnoloogiaeksperdid.

Kellelt võtsid Taikas malli?

Sotsiaalmeedia firmasid siis veel õieti polnud. Google alles alustas. Microsoft nokitses Messengeri kallal. Mängude tootjad üritasid Second Life’i tüüpi asju teha.

Mis ambitsioonid sul toona olid?

Peale selle, et tahtsime saada rikkaks ja kuulsaks, üritasime ka panna sotsiaalset interneti tärkama. Tahtsime luua oma suure online-keskkonna platvormi, aga selgus, et massid polnud selliseks asjaks veel valmis.

Kas mõtlesid pärast ebaõnnestumist, et selles vallas äri enam kunagi ei tee?

Depressioon oli igatahes väga suur. Pidin oma rahaasjad korda saama ja võlad tasuma. Läksin tööle firmasse, mis kannab nüüd Logica nime. Nad palkasid mind juhtima 50-liikmelist konsultantide tiimi. Nõustasime Nokiat ja TeliaSonerat. Aga pidasin seal vastu vaid kuus kuud. Mõistsin, et selline piiratud ja jäik keskkond mulle ei istu. Suurtes firmade ärikultuur näib olevat üles ehitatud nii, et maksimaalselt piirata teie loovust arendada uusi ärisuundi. Selle asemel peate keskenduma olemasoleva vana hoidmisele. Ma lahkusin firmast ja minust sai taas ettevõtja.

Mis siis tegid?

Logicas töötades tulid minu juurde mõned tuttavad, kes kurtsid, et serverisüsteemidega tegelev firma Fuksiini Sites on sisuliselt pankrotistumas. Kahjum oli sama suur kui müügikäive, tegevjuht ei saanud millegagi hakkama. Mind kutsuti ettevõtet saneerima. Öeldi, et sa, Taneli, oled ühest pankrotist juba läbi käinud, tead, kuidas asjad käivad, tule ja tegutse!
Oli see vast huvitav juhtum. Firma pakkus ülihead teenust, kuid oli kvaliteeti üle investeerinud. Ütlesime klientidele, et teate, nüüd kahekordistame oma hinna, muidu oleme pankrotis. Ja nad kõik olid sellega nõus, sest teenus oli tõesti hea.
Kuue kuuga firma seis paranes. Jõudsime nulli. Ja keegi ei lahkunud ettevõttest peale selle endise juhi. Siis ostis üks suur börsifirma 2003. aastal Fuksiini ära.
Mina sain pisut kapitali, maksin võlad ära.

Milline oli sinu suurim õppetund enne 2003. aastat?

See, et ei tohi olla liiga kontrolliv alluvate suhtes. Ei tohi kogu aeg alluvate tööd üle kontrollida ja vigu otsida – see tekitab neis trotsi. Keegi ei taha sellise bossi heaks töötada, motivatsioon ja loovus kaovad koos usaldusega.

Ja edasi?

Järgnevatel aastatel olin mitme ettevõtte juures. Näiteks firma StarDoll, mis müüdi hiljem briti riskikapitalistidele. Üks keskealine naine oli hakanud hobikorras pabernukke tegema. Ta lõi firma, mida juhtis tema poeg. Mina pidin ettevõtte üles töötama.
Samuti lävisin tihedamalt IRC-Galleria tegelastega. 

Miks just need ettevõtted sinu teele jäid?

Nende ühine nimetaja on tugev kontseptsioon ja võimekas tiim.

Ja nüüd?

Nüüd olen täiesti iseseisev tegelane, mul on oma valdusfirma ja osalen aktiivselt mitme idufirma arendamises. Portfellis on mul umbes 11 investeeringut, kõik tehnoloogia või internetiga seotud.

Kui palju oled oma raha idufirmadesse pannud?

Väikestes summades, kokku on minu osaluste väärtus ehk 200–300 miljonit eurot. Pigem investeerin ettevõtetesse oma teadmisi ja aega.

Mis teeb sinu jaoks idufirma huvitavaks?

Kui tal on teostatav ja arendatav idee. Paljud ideed on teostamatud või lihtsalt nii-öelda „tore oleks”. Näiteks kord tutvustati mulle ideed, teha tarkvara, mis teeks Twitteri sõnumitest väikese video koos graafikaga. Aga mis mõte sellel oleks? Tore oleks lihtsalt.

Mis on sinu arvates kuum teema aasta-paari pärast?

Mina üritan vaadata, mis asjadega tulevad suured tehnoloogiafirmad Google, Apple ja Microsoft välja ning panen selle kokku inimeste psühholoogiaga – mida on inimestel tõeliselt  vaja. Näiteks kuum teema on LED-valgustus – varem või hiljem minnakse sellele täielikult üle.

Sotsiaalmeedial tuleb konkureerida õlle, grillvorstide, tüdruksõbra ja telekaga. Kui ta suudab mehe kõikidest nendest asjadest eemale meelitada, siis ajab ta õiget asja. Facebook võib olla küll ülivõimas, kuid paljud inimesed pole siiani näinud vajadust selle järele. Kuidas see vajaduse barjäär lõhkuda?

Nii et märksõna on meelelahutus?

Jah. Kuna ilma selleta läheb elu ilmselt igavaks. 

Kuidas noortesse ettevõtlikkust süstida?

Seda on raske väljastpoolt teha. Ettevõtja peab igaüks iseenda seest leidma. Peaksime mõtlema, mida tegelikult saavutada tahame. Palgatööl suures firmas tahetakse meilt ainult ühte konkreetset asja, sest laev liigub ühes konkreetses suunas. Kui leiame endast soovi teha ägedaid asju väikeses tiimis kiiresti ja ebaõnnestumisi kartmata, olemegi endast ettevõtja leidnud.

Kes on Taneli Tikka?

• Soome aktiivne ettevõtlustegelane, riskikapitalist, sariinvestor (diilitegija) ja blogija – vt veebist tane.li.
• Olulisemad exit’id ehk müügid: Dynamoid ehk IRC-Galleria.net (mis müüdi 2007. aastal 12,5 miljoni euro eest börsifirmale Sulake Corporation), Magenta (2006), MobileCRM (2003) ja Fuksiini Sites (2003).
• Juhtinud ridamisi mitmesuguseid ettevõtteid, nagu näiteks Wisdom Like Silence, RunToShop, Dynamoid, Magenta, MobileCRM, Taika Technologies. Lisaks olnud juhtivas rollis ettevõtetes nagu Dopplr, Ruukki Group, Kemppi, Logica jt. Nõustanud firmasid ja organisatsioone nagu Vigo Programme, Umbra Software, Brain Alliance, Capital Idea, TEKES jt, Netcycler, StarDoll jt.
• Magistrikraad Helsingi Majanduskõrgkoolist, bakalaureusekraad Laurea Polütehnikumist arhitektuuri ja ehitusinseneri erialal.

Lugu ilmus ajakirja HEI aprillinumbris.  

Aastal 1988, kui kõlavad isamaalised laulud ning digitaalmaailm on kauge tulevik, tutvuvad Tallinna Tehnikaülikoolis kaks noort küberneetikut – Märt Saarepera (praegu 46, ülemisel pildil) ja Ahto Buldas (43, alumisel pildil).

Mõni aasta hiljem sõidab Saarepera Moskva kaudu vahetusüliõpilasena Tokyosse, kuhu jääb üheksaks aastaks. Ta omandab kiiresti jaapani keele. Sukeldub rakendusliku infoturbe ning krüptograafia keerulisse maailma ning avaldab mitmeid teadusartikleid.

Buldas nokitseb Tallinnas digitaalallkirja teema kallal, mis on siis popp üle ilma.

Kaks olulist sõbrunemist 

Tokyo Tehnoloogiainstituudis ristuvad Saarepera teed kahe olulise tegelasega, kellest kujunevad Guardtime’i võtmeisikud. Esmalt sõbruneb eestlane iirlasest koolivenna Mike Gaultiga, kes õpib tuumafüüsikuks.

Seejärel leiab Saarepera ühised huvid tuntud Jaapani riskikapitalisti, tehnoloogiaguru, DJ, reivi- ja kirjamehe Joichi Itoga. Jaapani esimese veebisaidi asutanud Ito kutsub Saarepera tööle oma äriinkubaatorisse Neoteny Labs. Tuntud firmadesse Last.fm, Technorati ja Flickr jt investeerinud Ito avab eestlasele mitmed uksed.

1990ndate teises pooles haub duo Saarepera ja Buldas väga suuri plaane. Nad arutavad üleilmse infoturbe süsteemi peensusi. Süsteemi arendustöö võtab aega aastaid.

Nad otsivad arendamiseks raha. Tutvustavad tehnoloogiat ­Allan Martinsonile, kes leiab aga, et asi on liialt toores. Küll aga huvituvad Skype’i eestlastest asutajad, kes paigutavad ettevõtmisse koos partneritega üle 15 miljoni krooni.

Ito vormistab pisikese investeeringu

Sügisel 2007 käib Ito Tallinnas, et vormistada isiklik investeering Guardtime’i. Ta paneb veebi üles enam-vähem ainsad fotod, mis ujedast duost Saarepera-Buldas tehtud on, külastab Skype’i mehi eesotsas Toivo Annusega ning postitab oma blogisse sissekande, kus kiidab eestlasi ja Tallinna tasuta wifit, mille kvaliteet ületavat pikalt Frankfurdi lennujaama, jäävat vaid alla tema Tokyo kontori omale.

Nüüd saab Guardtime hoo sisse. Itost kujuneb firmas oluline suunanäitaja.

Ettevõtet aitab Skype’i endine personaliboss Riina Einberg. Turvaküsimustes nõustab idufirmat ilmselt üks edukamaid väliseestlasest ärinaisi – Ciscos töötanud ning USAs oma firma Double Shot Security asutanud arvutivõrkude spets Merike Käo (Kaeo).

Peagi leitakse müügimehed ja avatakse kontorid Tokyos ja Singapuris. Insenerid murravad pead algoritmide ja protokollide kallal. Vaja on panna üles serverid Šveitsis, Saksamaal ja Suurbritannias. Algsest ideest püstitada serverid üle maailma loobutakse, sest andmed ei liigu ühest maailma otsast teise piisavalt kiiresti.

Päeval, mil toatäis arvutikraami peaks lennukiga Tallinnast Lääne-Euroopasse lendama, selgub, et see ei mahu kulleriauto peale. Kogu Guardtime’i tiim jookseb Tallinna Rävala puiesteele kokku, et serverid ümber pakkida.

Maagilisel kuupäeval 07.07.07 käivitatakse serverite kell ja algab Guardtime’i ajalugu. Nüüd saab väljastada ja kontrollida ajatempleid.

Põhitegija hoiab väga madalat profiili

Viimased kuud olen üritanud Märt Saareperaga kontakti saada ja kui see lõpuks õnnestub, suunab ta kõik küsimused iirlasele Gaultile.

“Ööl ja päeval pole vahet, olen kogu aeg unine,” ütleb Gault. Ta lendab iga nädal Tallinna ja Singapuri vahet, veetes tunde lennujaamades. “Cathay Pacificus (Aasia lennukompanii) on mul kindlasti miljon lennumiili juba täis!”

Märtsi keskel kohtub Gault USAs Silicon Valleys küberkaitsekonverentsil kaitseminister Jaak Aaviksooga. Mõni nädal varem on iirlane saatnud Jaapani visiidil peaminister Andrus Ansipit.

“Eesti tipp-poliitikud on start­up’ide suhtes väga sõbralikud, kliima on alustava ettevõtte jaoks hea,” tunnistab Gault. “USAs oleks mõeldamatu niisama lihtsalt ministri jutule pääseda,” ütleb Gault.

Sel nädalal saab Guardtime lõplikult kaua oodatud rahasüsti. Punt investoreid paigutab firmasse kokku 8 miljonit dollarit (92,8 miljonit krooni).

Imemees ja filantroop omanikeringis

Asutajate, Joichi Ito  ja Skype’i meeste kõrval on Guardtime’i omanikeringis nüüd ligi 200 miljardi kroonise varandusega Li ­Ka-shingi erafond Horizon Capital, Singapuri riiklik investeerimisfirma Infocomm Investments, Jaapani riskikapitalisti Yukihiro Kayama firma Fit One Capital ning investeerimisfond Elorfas Investments.

Li Ka-shing on maailma rikkuselt 16. inimene, kellele kuulub kuuendik Hongkongi börsi varadest ning kes on investeerinud kõikjale, interneti valdkonnas näiteks Facebooki ja Spotifysse.

Kayamat tuntakse imemehena, kel on paarikümnest investeeringust aia taha läinud vaid üks. 36aastase karjääri jooksul Mitsubishi Corporationis paigutas ta sellistesse alustavatesse ettevõtetesse nagu VeriSign, Net One Systems, Piri jt kokku alla kümne miljoni dollari ning kontsern teenis neilt üle kahe miljardi dollari.

2010. aasta alguses külastab Kayama Eestit. Teda tutvustatakse Guardtime’i presidendina. Kayama veedab Tallinnas ülitiheda nädala ning annab Arengufondi üritusel Eesti ettevõtjatele sütitava loengu, kus võrdleb Eestit Iisraeliga ning rõhutab, et tehnoloogiaid tuleb osata müüa. Tegemist on suurima osavõtjate arvuga Arengufondi üritusega.

Mitteseksikas toode, mille olemasolust on parem mitte teada

Guardtime arendab digitaalse ajatempli teenust, millega saab tagantjärele tõestada digitaalsete andmete ehtsust. Teenus on nähtamatu, lõpptarbijad sellega otseselt kokku ei puutu ega tunneta vajadust selle järele.

Guardtime’i inimestel on isegi kodustele oma tööpõldu raske seletada, sest eesti keeles puudub selleks sõnavara.

“Tegemist on väga igava ja mitteseksika tootega. Meie unistus on, et lõpptarbija ei teakski, et see olemas on,” ütleb Guardtime’i turvainsener Risto Laanoja.

Lihtne näide: oled teinud digi­kaameraga foto ja pannud selle veebi üles. Kuidas tõestada, et sina oled selle teinud? Kui failil on küljes ajatempel, kinnitab see, et foto oli teatud ajahetkel sinu valduses.

Teenus on ühest küljest väga keeruline, teisest küljest imelihtne. Buldas ja Saarepera on aastaid uurinud mitmesuguseid andmete turvalahendusi (üks neist näiteks Eesti digiallkirja süsteem), kuid leidnud, et need pole piisavalt head.

Mida tehakse täna andmetega, kui neid tahetakse turvaliselt hoida? Nad lukustatakse serveritesse, mida kaitsevad “virtuaalsed võtmed” (tulemüürid, rauduksed, salasõnad jms).

Buldas: “Meie püüdsime süsteemi ülesehitamisel hoiduda saladustest ja andmete luku taga hoidmisest. Meile ei meeldinud eeldus, et keegi ütleb: ausõna, ma hoian infot luku taga. Guardtime’i tehnoloogia puhul võivad turvatavad andmed olla avalikud ning nende ehtsust saab kontrollida iga kell, isegi Guardtime’ist sõltumatult.”

Failidega kaasas olev ajatempel on failiandmetest kokku pandud krüptoloogiline kood ehk räsi, mis sisaldab nulle ja ühtesid ning on veidi lühem kui SMSi maksimaalmaht (160 tähemärki). Kui failis muuta kas või üht silpi, muutub räsi ning ajatempel ei vasta enam originaalile.

Kas eestlastel õnnestub revolutsiooni teha?

Buldas ütleb, et nüüd alles tõeline töö algab. Tiim unistab teha Guardtime’i tehnoloogiast üleilmse standardi, et kõiki digitaal­seid andmeid hakataks selle abil arhiveerima.

Põhiküsimus on, kuidas tehnoloogia klientidele maha müüa. Turgu, kuhu tahetakse minna, pole veel olemaski, see tuleb ise luua. Sisendada potentsiaalsetele klientidele finants-, meditsiini-, militaar- jt valdkondades, et teenus pole mitte lihtsalt tore ja uus, vaid neil on seda hädasti vaja.

Riskikapitalist Allan Martinson võrdleb Guardtime’i teenust salvestava turvakaameraga või eksklusiivse kindlustustootega – enamik inimesi arvab, et saavad nendeta suurepäraselt hakkama.

Martinson leiab, et Guardtime’i teenuse müümine on väga ­raske. Pealegi on mitmesugused ajatempli tehnoloogiad turul juba olemas – kas neid peab veel kümme korda kindlamaks muutma? “Aga kui neil on kord klient kätte saadud, siis suure tõenäosusega tähendab see stabiilset käivet aastateks, mis on investorite jaoks eriti seksikas ärimudel.”

Lugu ilmus algselt Eesti Ekspressis. Fotod Joi Ito.

He speaks about what sort of mitakes this VC company has made and what sort of lessons learned. And how have they invested their assets.

Uudam also gives his opinion about the sectors that are over-invested and the ones becoming hot.

Some of my readers have wondered why Ambient Sound Investments hasn’t made any new investments in Estonia recently, why they have focused on Asia, when and how they will plan their exits etc.

Here’s what Uudam has to say about this and many other interesting issues.

I am going to post second part of the interview this Friday so stay tuned.

Last year Estonian venture capital firms joined forces by founding the Estonian Ventur Capital Association (EstVCA). Who are the players on the market today?

Here’s a short overview which shows that:

• the Estonian venture capital market is expanding, VC culture is developing
• there are several new investors who have transferred from the field of real estate and are now looking for potential growth companies in the Baltic and eastern European countries
• there are no women as VC’s in Estonia, all men
• some of the VC’s are yet to set their pipelines and ways, they have made no significant investments yet
• money is no problem in Estonia, instead there’s lack of ideas and projects

So who are the Estonian VC’s?

Ambient Sound Investments is the investment firm of Toivo Annus, Ahti Heinla, Priit Kasesalu and Jaan Tallinn (three of them pictured, photo by Joi Ito), the co-founders of Skype and today’s business angels. Their firm actively searches for early-stage technology firms with excellent growth potential that operate anywhere in the world.

The firm’s portfolio includes several Estonian businesses – such as MarkIT, United Dogs & Cats, Evikon, Oskando, Celecure etc – as well as Asian and American companies. There have been no new investments in Estonia in recent years, but the company has been active in China and the UK.

Askembla Asset Management is a Swedish private equity firm that invests in growth companies in Central and Eastern Europe. Their portfolio includes such well-known Estonian companies like Tallegg, Aeroc, Microlink, Eesti Eine, Sportland, and more.

In 14 years Askembla has invested more than one hundred million euros (1.5 billion EEK) in the Baltic countries. Presently, the firm is establishing the new Askembla III fund for attractive investments in the Baltic region in the next few years. One of the firm’s key investors is partner Hanno Riismaa.

Astrec Invest is an investment firm founded last year by business angel and former racing driver Marek Kiisa. The firm focuses on investment projects in telecommunications and the media.

To date, the firm has invested in industrial and media firms. Last year Kiisa and his partners purchased the Baltic car portals Motors24 from Alma Media, the Finnish media tycoon.

BaltCap, which has been operating since 1995, is one of the oldest venture capital and private equity investors in the Baltic countries. It provides private equity funding for growth companies.

So far, it has made 38 investments and has exited 24 of the investments. In Estonia, the more well-known investments have been into Quattromed HTI, Tallinna Pesumaja, Neoqi and the e-school project. Investment  banker Peeter Saks is a key partner in the company.

Cresco is an investment banking and venture capital firm established in 1995 and owned by Tõnu Laak and Olev Schults. The firm funds companies operating in fast-growing sectors in Estonia and the other Baltic countries. Cresco’s most well-known investment has been in Estonian Air and the firm prefers not to exit the investment.

The Estonian Development Fund is a national venture capital fund that monitors development and invests in seed-stage and start-up stage Estonian companies with global growth potential.

The organisation’s mission is to develop the Estonian venture capital market; therefore, investments are always made jointly with co-investors. So far, the fund has invested in six projects, with one of the more promising companies in the portfolio being Heikki Haldre’s company Massi Miliano (Fits.me), which is developing a virtual fitting room.

Hanseatic Capital Estonia is one of the few Estonian firms providing mezzanine-type (subordinated debt) funding. It focuses on Baltic and Polish growth companies with positive cash flows.

Among others, the firm has funded such well-known companies as Eskaro, Olerex, Väätsa Agro, Ortodontiakeskus and Sunorek. Hanseatic Capital belongs to the Arco Capital investment group, which has headquarters in Puerto Rico!

MTVP is the investment firm of Allan Martinson (pictured). The company prefers leading companies in the fields of technology, media and telecommunications that operate in Russia, the Baltic countries, and Eastern and Central Europe.

For example, the firm has financed the “invasion” of Rate.ee clones in Europe, and has exited the investment in the MTV Baltic music channel.

IPC Investment Group is an investment firm that started with property investments in Romania, and has also funded growth companies in Estonia, the Netherlands and Romania. Several of the early property investments in Romania have now been successfully exited.

The firm (and its local partners) tried to launch an information line service in Romania and are now developing a contemporary carwash chain covering entire Romania. IPC is owned by Indrek Elhi and the Romanian Ciprian Lopata. One of the founders, Peep Aaviksoo, is no longer a partner in the firm.

Pioneer Engineering Group is the firm of Andres Soojärv, Ivo Tahk and Urmas Peiker and is dedicated to marketing outsourced production in the metal-working and mechanical engineering industries. The firm looks for growth companies in which to invest. The company also looks for export customers from Germany, Norway, Sweden and Finland for its members (seven at the moment).

Redgate Capital is an investment banking and asset management firm that focuses on the Baltic countries, Russia and the CIS countries. The key executive in the firm is Veikko Maripuu and the investors are Armin Kõomägi, Indrek Prants and Sven Mansberg, and Ambient Sound Investments.

Unitree Group is an investment firm owned by Aivar Brock and Kaspar Jänes that operates in the Baltic countries and Central and Eastern Europe. Their goal is to help early stage businesses to grow, in order to attract strategic investors. The firm also has business interests in the fields of vehicle auctioning and mystery shopping.

WNB Project is the investment firm of business angels Ivar Siimar and Guido Kundla and has developed from their property development business. The firm invests in technology companies in the early stage. For example, the firm has funded the Goliath Wind, SmartPost and Ilmarine companies, in co-operation with the Estonian Development Fund and other investors. In the past, WNB has also been connected with an online library project for visual advertising, the establishment of a top-class restaurant in Ukraine, and real estate projects in Brazil.

What is EstVCA?

EstVCA, founded in 2009, is the umbrella organisation for Estonian venture capitalists, private equity funds, business angels, and the providers of related support services.

The mission of the association is to vigorously boost the Estonian private equity and venture capital industry and promote a culture of ambitious enterprise, only just emerging in Estonia.

In addition to 15 full members, the organisation has 15 supporting members. The latter include larger law firms and auditing firms, Kredex, NASDAX OMX Tallinn, several incubators and technology parks, and companies connected with Yrjö Ojasaar, Endel Siff, Rainer Nõlvak, and others. The head of EstVCA is Kristjan Kalda.

Membership is open to any legal entity or individual whose primary activity (or a significant part of it) is the professional management of an investment portfolio that includes unlisted companies where it has a direct or indirect holding.

The supporting members may be any private and legal entities who are operating in the field of private equity and venture capital, and who wish to contribute to the development of activities related to private equity and venture capital investments.

The biotechnology company EGeen, which mostly carries out clinical trials in Central and Eastern Europe, has demonstrated stable growth. CEO Kalev Kask (pictured) says in the interview that nowadays pharmaceutical industry has made progress and most illnesses are at least to an extent treatable and he predicts that the prices of medications will fall considerably in the future.

Kalev Kask lives in the Silicon Valley in the US, where the headquarters of EGeen are located. He manages the international business of EGeen – clinical trials – on the European front, ranging from Finland to Turkey. Estonians mostly know the company as a major financial backer of the “national gene bank” Geenivaramu.

Kask is in his element when dealing with the pharmaceutical industry and venture capitalists. He acknowledges that the keys to the company’s success have been active communication, sales work and staying focused on its core business. Although the first half of 2009 was slow in the US pharmaceutical market due to the financial crisis, it started to pick up in the second half of the year.

What is needed for pharmaceutical research?

Patients with an appropriate group of diseases are certainly necessary. For example, there is a region in Ukraine which is twice the size of Estonia. There is a hospital there which is the size of all the Estonian hospitals put together. We provide medication to these people and research the effects. For example, we determine whether there is any pain and what kind of pain.

What are the phases of clinical trials and which ones in particular are EGeen involved with?

In the so-called Phase I clinical trials determine whether the medication is safe. Such trials are usually carried out in the USA or Great Britain, and we do not carry them out.

In the Phase II trials, we identify whether the medication has efficacy, in addition to considering safety. Such research is well suited for us and we do quite a lot of these kinds of studies. We also carry out Phase III research, where a larger group of patients is used to ensure that the medication does not have surprising side effects.

No product is as tightly regulated as medicines before they are released onto the market, and therefore drug trials may last a very long time. For instance, in the case of cancer medications, for those which are efficacious, the quality of life of patients is studied and their overall survival is measured. This means that research lasts for years. One of our largest prostate cancer studies took three years.

So you write reports on the impact of medication?

Yes, exactly. With biotechnology companies, research results are the main stock exchange news. The data comes out and, depending on whether it is good or bad news, the stock prices of companies move up or down.

We have many customers – if something should happen to one, the others will still be there. Some of those are also listed on the stock exchange.

What is your field of work most dependent on – the financing of clinical trials?

It depends on how much money is circulating overall. There is always spending on health care because, just as people want to eat and have shelter, they want to live good and healthy lives.

At the moment, the investment climate in the pharmaceutical sector is very good, because large pharmaceutical companies have not made much of an effort, but there is a great need for new drugs.

Until now, the medications and sales have been good. Pharmaceutical companies have grown indulgent due to the large volume of sales of many drugs, such as for example cholesterol-reducing drugs and drugs for rheumatism. Starting this year, their exclusive patents are starting to run out, which means that generic equivalents of expensive drugs will come onto the market.

Those are the same drugs but manufactured by someone else and sold without the price of the patent, which means 90 per cent cheaper.

This is a positive trend mostly for those countries that don’t have a lot of funds to purchase drugs. But the situation is catastrophic for those large pharmaceutical companies who have built their business models exclusively on patents. As they themselves do not work on drug development, they have started to buy up biotechnology companies, often paying much more than they’re worth.

This does not mean that we have it easy. We have to continue working and looking for export opportunities. EGeen has also a representative in Paris who deals with European pharmaceutical companies.

What kinds of drugs have you studied recently?

For example, we ran large Phase III trials on a drug for multiple sclerosis, as well as on a drug for ulcerative colitis.

Currently a large trial for a drug to treat Parkinson’s disease is underway.

You once said that Parkinson’s disease does not have a sufficiently large market value for capitalists, that it kills “only” 500,000 people a year in the United States!

Compared to the number of people suffering from depression, Parkinson’s is indeed marginal. But there is a trend in the US pharmaceutical market for companies that have realised that the time when one drug earned 10 billion dollars are gone forever. They have to find something new, more specific drugs for smaller groups of people.

Pharmaceutical companies have to make more of an effort to benefit more diverse sets of patients.

Some time ago, EGeen expanded to Poland and Turkey. What was the aim of that expansion?

In the case of larger trials, we used to cooperate with US partners. We do not carry out trials in the USA ourselves because the environment for starting is more competitive, very bureaucratic and the business is not that good there. We try to stay with what we know and we know the medical system of Eastern Europe.

Then there was a need to carry out larger research on our own. We needed more hospitals and patients. We considered Russia as an alternative, but we would have had to send people over there in order to guarantee the quality of the trials, and the transportation costs would have been too high. Russia also lacks roads and the planes do not fly reliably. For economic and legal reasons, we decided in favour of Turkey, although there are problems there as well. For example, in some cases we cannot present questionnaires to patients as they are illiterate.

How many hospitals do you work with?

There are at least 30. In the past, we cooperated with as many as 150 hospitals. The equipment in East European hospitals is comparable to that in the States, which is important in pharmaceutical research.

What is the benefit of trials for patients and hospitals?

For hospitals, trials mean money and the experience of clinical research.
Patients receive innovative treatment, which is often paid for. One Estonian doctor said that a clinical trial is the time when patients receive the most attention. Unfortunately, this is often true.

How big is the business of EGeen?

Our turnover is under 10 million dollars annually, which does not even put us in the top fifty in the States. The turnover of bigger companies is 2-3 billion dollars. But we have our own niche and this is the third year we’ve shown a profit.

During the last year we have even considered buying out some competitors. Those who manage to survive difficult times will have some good opportunities.

By your “own niche”, do you mean Eastern Europe?

Yes. We have been offered the opportunity to expand into Latin America. But imagine someone telling you to go and work as a journalist in Columbia? What can you do? You fly there, but you have no idea who to talk to.

That’s the same with us. We know how things work in Eastern Europe. We know how to do business in the States as well, although lawyers have made things too complicated there: when you do this, there are certain dangers, when you do that, they are such and such – the patient will die before they manage to read the contract to them.

How many pharmaceutical researchers like EGeen are out there?

Very many. At first we had trouble getting clients. Now we have a client base and references and this keeps us going. Larger pharmaceutical companies are making people redundant, as they cannot afford to pay the salaries of such great armies. So they just keep top management and marketing – the rest gets spun off into companies like ours.

What is your opinion of the current swine flu panic?

Panic is the right word. In the USA, it started in the spring. Now they have found that normal seasonal flu kills about 30,000 people a year, while only 4,000 have died of the swine flu, and in many cases the real reason is other illnesses. The panic is now almost over in the US.

A common conspiracy theory has it that the panic was created by pharmaceutical companies to serve their business interests…

The truth is that pharmaceutical companies could not have predicted that people would be so ignorant. Swine flu is not that different from seasonal flu: it is not some horribly severe illness.

Yet countries are equipping themselves with millions of vaccination doses!

In democratic countries, the governments would have been blamed for deaths if they had not ordered the vaccine. For example, in Ukraine they are starting to quarantine hospitals, which is foolish, as patients with other illnesses cannot get medical help. But they are due to have presidential elections and the opposition is already blaming the government for the deaths.

In the States, it has been the elderly who have scrambled to get the vaccine, breaking their legs in the process. The damage to their health on the way to get the vaccine is worse than the complications of the illness against which they are vaccinated. Healthy diet, eating vitamins and washing your hands are better than the vaccine.

Skeptics also say that the longer term impact of vaccines is unclear.

Many diseases, such as polio, smallpox and mumps, which devastated previous generations, have been completely eliminated due to vaccines.

You have claimed that there is a medication for practically all illnesses, but that drugs with a higher “market value” are developed faster.

I am not aware of a real medication for Alzheimer’s. They are working on it, but the mechanism of this illness is still unclear. It is easier to treat illnesses where the cause and spread of the illness are known.

The best example of the power of the pharmaceutical industry is medication for HIV. This virus, which makes one’s immune system break down, was discovered about 25 years ago. Then they studied the virus, investigating the elements of its life cycle. They found three or four proteins which are unique to it and the structures of those proteins were broken down with X-ray spectroscopy.

On that basis, drugs were designed which block the spread of the virus. These days you take one tablet per day and HIV is under control. The treatment is relatively expensive, but nonetheless it exists.

In general if you produce a drug which delays the death of very ill people by three months, you already have a market in the United States. The American Medical Association dictates 70 per cent of this business. Americans practically pay for the pharmaceutical development of the rest of the world.

So cancer is curable, and HIV can be kept under control – for patients, it is just a question of money?

Yes, it depends on whether the patient or the state is able to pay for it. The best approach, of course, is to prevent disease. The fact that the HIV medication exists does not mean that you can now do anything. You have to exercise! Personally I keep my cholesterol level low.

What is the trend in the pharmaceutical industry today?

The trend is clear and it originated in Europe. Up until now, medications have constantly been improved, but have also become more expensive. As Europe is a bit poorer than the USA and not that much treatment is paid for, good drugs must now become cheaper and there must be more of them.

The market has already started to stabilise the prices of medication. Producers have to make more of an effort for clients to buy their products. That has a positive impact on the patient’s wallet.

When will our GPs start to analyse our gene data and identify potential illnesses?

I think there is no business at the moment in genetics.

The Icelandic gene technology company Decode spent billions of dollars but recently went bankrupt. The company 23andme, which is linked to Google, and where you can buy a genome card for five hundred dollars, recently sacked its staff. Their genome card only tells you that you are a white and a man. But that is pretty obvious, although perhaps not always in San Fransisco. There are definitely easier ways to make sure than to pay a hefty sum to sequence your genome.

EGeen unites US venture capitalists and Estonian businessmen

• EGeen is a company founded in 2001 which carries out clinical trials in areas such as cancer, urology, neurology and several internal diseases.
• The headquarters are located in California, with sub-branches in Estonia, Latvia, Lithuania, Romania, Ukraine, Poland and Turkey.
• The owners of EGeen include the risk funds Draper Fisher Jurvetson (one of the owners is the Estonian-origin Steve Jürvetson), Oxford Bioscience Partners, New Markets Fund, Baltcap and Biobank Technology Ventures.
• Via LHV, several Estonian businessmen, including Andres Liinat, Rain Lõhmus, Neinar Seli, Urmas Sõõrumaa, Tarmo Sumberg and Koit Uus, have a stake in the company.
• EGeen’s mother company from 2001 to 2004 was the owner and main financial backer of Eesti Geenivaramu.
• By 2004, the data of 10,000 Estonian gene donors was in the bank, but there was no agreement between the owners and management of Geenivaramu about what to do with the data. EGeen left the project.
• EGeen’s customers are mostly US and European biotechnology companies. Currently, four clinical trials are underway.
• Kalev Kask, Ph.D., completed his graduate degree with Prof. Tamas Bartfai at Stockholm University, and his post-doctoral training with Prof. Peter Seeburg at the Max-Planck Institute for Medical Research in Heidelberg.
• He then joined the neurogenomics company AGY Therapeutics of South San Francisco as a senior scientist, followed by research at Stanford University and advisory work with Asper Biotech and Toshiba, prior to founding EGeen. Dr. Kask has authored numerous scientific publications and has patented genomics-derived drug and diagnostic targets.

This interview) was first published in the quarterly magazine Life in Estonia Winter 2009/2010 edition. 

I have published a somewhat more entertaining interview with Kalev Kask last year. Read it from here.

But lo and behold, upon closer inspection, there are several valuable “gems” in this field currently being polished.

Estonian science is on a good international level and provides a favourable environment for scientific activity – several spin-off companies with strong international potential in their niche have grown out of the University of Tartu and the Tallinn University of Technology.

Providers of diagnostic services and companies linked to the research and treatment of cancer, among others, stand out, having developed a network of global partners and customers.

Celecure starts clinical trials for a new cancer drug

In 2002 Professors Priit Kogerman and Andres Valkna of the Tallinn University of Technology made a deal with the venture capitalist Rainer Nõlvak, and the company Celecure was born.

The first project of the company turned out to be quite scandalous, as they started working on a discovery of a Russian scientist who had worked for the military industry of the Soviet Union: preparation CC0101, which kills cancer cells.

“It was a cancer drug candidate which consisted of one protein and a cytotoxin, and which took a certain kind of cancer cells into apoptosis, or programmed cell death,” says Tarmo Kivi, Manager of Celecure. “However, nothing came of this development work. It remained incomplete, as producing the animal protein needed for the preparation was too complicated and costly due to the existing conditions set on medical preparations in the Western world.”

The preparation has a US patent, but the development is more or less stuck away in a drawer. The scandal, however, had to do with critics enquiring whether Celecure was developing a biological weapon at the request of a foreign state. The Estonian Defence Police ran an investigation and disproved all the conspiracy theories.

Today Celecure is in its fourth year of developing a new cancer drug. The goal is to start clinical trials in 2011 and to sell the license of the product to a large pharmaceutical company. Initial negotiations with several companies are underway.

The angiogenesis inhibitor is primarily meant for cancer treatment, but it may turn out to be of use in the treatment of certain eye and skin diseases. These include adult blindness and macular degeneration caused by the inflammation of the eye retina due to diabetes, as well as psoriasis and various chronic conditions.

Animal tests have shown that administering the drug stops the development of blood vessels in cancerous cells, which in turn means that the cancer cells have no opportunity to get the nutrients and oxygen they need to survive.

Tarmo Kivi says that a couple of drugs which work on the same principle are already successfully on the market, one of which is Avastin, which generates several billion dollars in revenue each year. The drug developed by Celecure should bring better results due to its new and more effective mechanism, as this drug has a direct influence on cells which lead to the formation of new blood vessels in tumour tissue. Celecure will be able to bring its product onto the market in five years, at the earliest.

If everything goes according to plan, the Celecure cancer drug could become the grandest business project of Estonian biotechnology to date. The pharmaceutical industry is growing – people live longer and suffer more from cancer, heart and coronary diseases and other health problems related to age. There is a constant demand for new and better medication with fewer side effects, even when similar products already exist in the market.

The intellectual property which forms the basis for Celecure’s development work has been developed by the scientists who founded the company in cooperation with Swedish scientists. The key figure in Celecure is the biochemistry doctor Andres Valkna, who received his PhD at the University of Tartu and has worked as a visiting researcher at the University of Stockholm and the Scripps Research Institute in the USA.

Estonian researchers collaborating with big Pharma

In addition to drug development, Estonian scientists are working on the diagnostics of different diseases, including cancer. It is well known that detection of a disease, including cancer, at an early stage will result in the best treatment results.

Professor Toomas Neuman of the Tallinn University of Technology has ambitions in this field. The network of companies linked to him works on biomedical research and the development of diagnostic systems for early detection, prognostics and treatment monitoring of several diseases. The most well known of such enterprises is Protobios.

Neuman’s team is working more closely on biomarkers and is conducting several clinical trials to validate the clinical significance of discovered biomarkers. Biomarkers are molecular indicators which characterise the condition of the human body. For example, the presence of specific antibodies or a certain insulin level can be biomarkers. The scientist claims that there are as many biomarkers as one is able to measure.

Kaia Palm, Managing CEO of Protobios, explains that the company investigates which markers characterise specific illnesses. They try to find opportunities to improve on cancer diagnostics – whether to make an early diagnosis or to monitor the course of the disease and the efficiency of the treatment.

Understanding cancer at the molecular level is complicated, since there are numerous intracellular molecular networks involved in different cancer types. Basically, each patient’s cancer is unique and a self-contained illness for which there is no standard treatment.

Neuman’s research group is studying the human immune system to identify its responses to disease and to identify immune system related biomarkers that can be used in clinical diagnostics. The immune system responds to diseases by developing specific antibodies and T cells that recognize diseased cells and disease-related molecules. The obtained information concerning immune system response to molecular events related to disease can be used to develop a variety of diagnostic systems.

“Scientists still have a really hazy idea of what happens inside cells. We know what a human being is made up of – what kind of genes and proteins are there and which gene encodes which protein, but how all 25,000 genes work inside a cell—which is ten to fifty microns in size and hence invisible to the human eye—in a coordinated way, still needs to be clarified,” explains the cell biologist.

Neuman says that clinical trials are underway in Estonia and elsewhere. Researchers are pinning their hopes on faster success in trials which are taking place in two US cancer treatment centres at the University of Pittsburgh and the MD Anderson Cancer Centre in Houston. These centres have good biospecimen collections and this research focuses on lung cancer. Together with the Oncology Centre of the North Estonia Medical Centre, Protobios’s team is working on creating the methodology for diagnosing breast cancer. This is a future-orientated study, the results of which will be seen in years to come.

There are eight patents and several patent applications for using biomarkers registered in Neuman’s name. “There is no point in leaving your house without a patent; you will immediately be outmanoeuvred. There are thousands of people in the world working with biomarkers. This applies in every field – you have to be on the ball and keep an eye on what others are doing,” he says.

This activity has a clear business aim as people strive to create their own products. What is unique is an approach involving the development of a system of biomarkers, using existing techniques, which can be applied to get results. Neuman promises that in a couple of years it may be possible to diagnose cancer on the basis of a drop of blood.

Neuman admits that, as medicine is also a kind of business, he hopes for a breakthrough in the large and solvent US market, as well as in the developing markets of India and China. “With our partners in the US, we have licensed a set of biomarkers discovered by Protobios to a large international pharmaceutical corporation and will co-develop a lung cancer test for worldwide use.

Neuman, who worked for sixteen years in the USA, was already fascinated by science, especially biology, as a schoolboy when he came across the book Guide to the Century of Biology. His interest took him to the University of Tartu to study cell and developmental biology. His interest in business was born in 2000, when he and his colleague Kaia Palm founded a company in the US.

An US stock exchange company acquired the Estonian business

Estonian science is on a decent international level and the price of research and development as a service is cheaper than in the USA or other European countries.

The chemical industry conglomerate Cambrex Corporation—listed on the New York Stock Exchange, with a 450 million dollar turnover and 800 workers—realised this and bought Prosyntest (now Cambrex Tallinn), a spin-off company of the Tallinn University of Technology.

Cambrex is a leading supplier of products and services to Life Science Industry. Products include Active Pharmaceutical Ingredients (API’s) and
advanced intermediates for the synthesis of API’s, as well as biologically active compounds. Services include the development of synthesis, analysis and technology platforms needed for product development and production.

The Managing Director of Cambrex Tallinn, Kaarel Siirde, says that the company offers research and development services in the field of custom organic synthesis. It develops and introduces various chemical technologies and works in the field of producing chemical products and test productions.

Last year one of the leading Estonian biomedical companies, Icosagen (formerly Quattromed), sold its diagnostic division (Quattromed HTI Laboratories OÜ) to the investment company BaltCap Private Equity Fund. This diagnostic division provided molecular and conventional diagnostic services to Estonian hospitals and now plans to expand its business considerably. The biotechnology division of Icosagen AS (Icosagen Cell Factory OÜ) is involved in the development, production and sales of biochemical, molecular- and cell biological products and technologies to different customers. Icosagen AS has created a network of dignified customers and partners, including such well-known corporations as Bayer HealthCare and Sanofi-Pasteur.

The development work of Icosagen takes place in immunoanalysis, biochemistry and microbiology laboratories in Tartu. They work on creating technologies for the production of therapeutic proteins, antibodies and cellular tests. The company’s product catalogue has a wide choice of molecular biology products: monoclonal and polyclonal antibodies, enzymes, DNA & RNA cleaning kits, etc. Under the trademark of FITkit®, they offer natural rubber latex (NRL) to detect allergens in rubber materials and produce the necessary reagents for determining allergens.

The antibodies of Icosagen have been used in the development of the HIV vaccine for over a decade. These reagents are available from major distributors in Europe and the US, as well as directly from Icosagen AS.

There are also first-rate companies in the field of genetic testing, for example Genorama, which is linked to the biotechnology entrepreneur Indrek Kask.
Genorama was founded in 2008 with the aim of bringing Genorama QuattroImager, the four-colour microarray detector designed for arrayed primer extension (APEX) based genotyping, onto the market. This is an appliance costing approximately 50,000 Euro, which to date has been purchased by twenty-five leading genetics labs all over the world. Six instruments have been sold in 2009.

Indrek Kask says that QuattroImager stands out from competing appliances in terms of its favourable price and high technological flexibility which makes it possible to develop specific genetic tests for any illness.
“In the near future we would like to get diagnostic accreditation for the appliance, as well as for the first products. Following this, we will market the Genorama platform, as one of the best genetic testing solutions, more actively to genetics laboratories,” says Kask.

QuattroImager is another good example of an Estonian product that has been successful in the global market. Kask believes that promoting active business development and sales are the most important aspects of development. “As more quality products which are produced in Estonia reach the market, awareness of our existence grows and turns into more proactive interest from the market in what is going on here,” he says.

Asper, globally leading DNA tester of eye disease

One of the most successful biotech companies based on Estonian capital is Asper Biotech, which, with its eye disease tests, is the leading global producer of corresponding genetic analyses. The company has over four hundred clients in fifty countries and its leading position has opened quite a few doors. Asper is also a participant in the Development Centre of Reproductive Medicine, which started activities this year and which provides access to the newest knowledge on problems related to infertility. It is an example of the general product development strategy of the company: to cooperate with the best in its field from Estonia and abroad.

The company’s Marketing and PR Manager Terje Behrs says that they provide the service of DNA testing and have, together with their partners, developed over thirty DNA tests, and this number is growing. In 2008 Asper Biotech laboratories conducted genetic analysis of thousands of people.

Twelve DNA tests related to hereditary eye disease have been gathered together under the internationally known brand name Asper Opthalmics, which belongs to the company. Asper is the only company in the world able to test different genetic eye diseases in such quantity.

In addition to ophthalmological tests, the company works in branches of oncology and reproductive medicine in cooperation with practicing doctors.

Behrs claims that the main markets of the company are North America and Western Europe. The customers include genetic scientists, medical geneticists and a growing number of practicing doctors. As a new service, there are plans to provide some genetic tests directly to private clients.

Clients worth mentioning are the universities of Stanford, Columbia and Pennsylvania, as well as the International Cancer Research Centre and Baylor Medical College, the University College of London and Regensburg University.

The research and development work at Asper is bearing fruit. “In the last year, we have developed several tests which help to determine the causes of infertility in individuals, which is a very important research area throughout the world. Starting this year, we will offer the service of genetic testing for colorectal cancer,” says Behrs.

In the future, the primary emphasis will be on developing the test portfolios of oncogenetics and reprogenetics, and on increasing turnover and the number of services available, thereby providing new jobs in Estonia for people with higher education, and encouraging doctors to use genetic tests as a normal part of medical diagnostics.

Behrs: “Genetic tests are nothing superhuman – they are simply new and very effective ways of reducing and preventing damage which may be caused by genetic illnesses.”

A productive exporter in the field of Estonian biotechnology is the company Solis BioDyne, which produces, develops and sells reagents for DNA research, mainly DNA polymerases and linked products, to research centres and private companies. In 2008, their products were sold to 26 countries.

“Our competitive edge is the quality and price of the products, and stability at room temperature – our products can be stored for weeks at room temperature, as opposed to those of competitors who transport and use their products on dry ice,” says Member of the Board Olev Kahre. The company intends to secure related intellectual property to facilitate its global competitiveness.

Solis BioDyne has had a representation in the USA since 2007, and it has the task of finding new customers and interacting with existing clientele.
“We’ve been guided by a well-known Estonian proverb: ’A bold start is half the victory’, or persist and you’ll succeed,” says Kahre.

How Solis Biodyne solved the “cold chain” problem of Bill Gates’ HIV mission in Africa, read from here.

This story was first published in the quarterly magazine Life in Estonia Winter 2009/2010 edition. I’d like to thank my mom, Hille Tänavsuu for helping me with this post!

But how about start-ups? Fortumo, Edicy and UDC stand out as most promising ones.

Let’s take a look at these companies and compare them in a subjective way. 

	Fortumo   Answers by the Marketing Manager Martin Koppel (pictured below)	Edicy   Answers by the Executive Director Tõnu Runnel (pictured below)	United Dogs & Cats    Answers by the Executive Director Ragnar Sass (pictured below)
Date of establishment	June 5th 2007	November 8th 2007	December 15th 2006
Seed capital	EUR 3 000!	A small sum	EUR 12 780
The founding members	Rain Rannu, Veljo Otsason, company Mobi Solutions	Tõnu Runnel, Priit Haamer, Toivo Annus, Märt Kelder	Ragnar Sass, Martin Tajur, Lauri Laineste, Jarko Pedaste
How was the company created?	Fortumo grew out of the Mobi Solutions Estonia service “Everyone’s M-business”. It seemed that this could succeed outside of Estonia. With the support from Enterprise Estonia a new service platform was developed and the brand renewed	Tõnu and Priit had worked in the online business for 10 years and had determined a way of making web building and management clear to people. Toivo and Märt got excited about the idea and joined them	Ragnar had had the idea for years.When he described it to some people he knew well, they liked it. In March 2007 the first demo was released.
The business model	A service, enabling  small and medium-sized internet businesses and private individuals to create new SMS services (SMS voting, SMS campaigns and SMS chat) with ease and make a profit from itService creation and management is free of charge to the client	A tool that anyone can use to create a webpage easily – without outside assistance, straight off the internet, and within minutes. The service includes everything that is needed: design, content management, hosting, software updates and user support, and is available in about twenty different languages.	United Dogs and United Cats are environments connecting dog and cat lovers all over the world, and which allow them to create profiles for their pets. The “Cat and Dog Facebook” aims to interweave social networking, niche journalism and private info management systems.
Major competitors	International M-payment providers like Zong, Boku, etc.	Weebly, Yola, Jimdo, Webnode, Squarespace, Webs, Google Sites.	Dogster.com (USA), Petside.com (USA), Deine-Tierwelt.de (Saksamaa).
What beats the competition?	Openness, more different types of service for the client, and an opportunity to earn money.A focus on opening up Eastern European and Asian markets (Fortumo is already available in 17 different languages).	Unprecedented simplicity, a wide range of supported languages, high-quality design, and the option to use random designs.	A scaled platform that  now exists in 14 languages. The competition works in only one language. Work is underway to enable the software solution to stand out even more from the competition.
Where are the clients located?	Western Europe (including Great Britain, Germany, Spain and France), Northern Europe (Scandinavia and the Baltic region), Central and Eastern Europe (including Poland, the Czech Republic and the Balkan States). Asia and Oceania (China, Malaysia, Taiwan, Hong Kong and Australia)	Most paying clients are in Estonia,  USA, France, Spain and Canada.Free users are mostly in China	Italy, France, Spain, Estonia, Lithuania, Chile and Argentina
Number of clients	28,000	100,000 users, of whom less than 10% are active	320,000
Annual growth in the number of clients	180%	approx. 500%	100%
Growth goal for the next 5 years	The goal is not to have the most clients, but the best quality clients	10 million users, with 20% of them active	3.9 million users by 2013
Paying clients	200-300	Less than 10% of the users	Less than 10,000
What is generating profit?	Revenue by dividing the profits from the services consumed and paid for by the end users. 90% of Fortumo profits will come from outside Estonia	Design work for major Edicy websites	Ad sales and pay  services for users
Turnover and profit/loss (EUR) 2008	turnover: 223 000 loss: 64 000	turnover: 100 000 loss: 10 000	turnover: 38 400 loss: 236 600
Forecasted turnover (EUR) 2009-2010	2009: 300-400% growth in turnover.  Beyond that, healthy profits for the firm –annual growth of 200-300%.	2009: 290 000 2010: 640 000(profit: 192 000)	undisclosed
Number of employees	10 full-time employees. Besides Estonians also Polish, Romanian, Bulgarian, Serbian and Taiwanese	8 enthusiastic employees	15 + 1 dog (an Estonian Hound). Plus over 100 volunteer moderators. Besides Estonians,the team also includes people from Italy, Venezuela and France
Average age of employees	25	25	25
Family: how many children do the employees have?	3	1, soon to be 2	5 children + 4 dogs + 5 cats
Employees work in Estonia	75%	100%	90% of the moderators are located outside Estonia
Ambitious plans for the next 5-10 years	To set up a successful and profitable international company that could be sold in 3-6 years for a good price to a bigger company	To become a key industry player globally by keeping many steps ahead of the constant changes in the technology sector	To become the largest pet portal by 2013 with 3.9 million pet profiles and an annual turnover of EUR 10 million
Capital raised	About EUR 200 000 from Mobi Solutions	A bit of seed capital	EUR 800 000 from Ambient Sound Investments and Raivo Hein’s investment firm 220 Volti.
Funny things happened along the way	In the spring, our Taiwanese employee Po Han went for a walk in Narva.  While walking alone along the river he was stopped by the Estonian border patrol who suspected him of entering the country illegally.  Unfortunately he had left his ID card at home, so he was taken to the Migration Agency for a “brief conversation”. Luckily it didn’t take very long, however. Po Han took the whole adventure as  good humour because it’s not every day that you get to ride in the border patrol jeep	Fun is our trade secret.Any amusing events that could give rise to public criticism cannot be mentioned	The name of our website makes people assume that we breed and sell dogs. When the Estonian Development Fund’s  infomation day was held at the Estonian Parliament (Riigikogu), our dog Riki the Estonian Hound was granted official permission by the Riigikogu board to visit the parliament.Riki is probably the only animal the board has ever allowed to do this
Most important lessons learned	In the first year we hoped to see a linear connection between the money invested and results. The reality turned out to be more complicated than that, and a considerable part of our marketing budget was paid out as “school fees”.When we made a loss at the beginning, and most needed money, no one wanted to invest in us. An entrepreneur who has been looking for funds for a long time can be tempted to accept offers of money, even if the terms are brutal. Searching for ages for a deal and then turning one down was the hardest but most correct decision we made during the year	Don’t employ someone who is more interested in the hype than the actual product	To succeed outside of Estonia you have to have people in the team who are familiar with local conditions – personnel is the deciding factor in everything
The company’s biggest miscalculation	We started expanding into Scandinavia, hoping that our rich northern neighbours would grab the opportunity we were offering. In reality, things only began to develop when we moved into the Eastern European countries	When we launched, in the summer of 2008, we were confident that we would get 100,000 accounts (sites created by clients) by January 2009. In fact we did not reach that goal until October 2009	We tried to market the company in English in Southern Europe
Why does this business work so well?	Mobile payments and services are a rapidly growing sector and we enjoy being part of this growth	We offer tens of thousands of people a convenient website creation service and friendly user support	Our solution can educate pet owners, which improves the pets’ lives.  What is enormously motivating is the direct user feedback, which is usually highly positive.
Executive Director’s business slogan	- If you do things you enjoy, the hope is that someone else will enjoy them too, and this is the road to success. - A good product/service is of no use to anyone if it is not known (marketing and sales is not done)	None	“The sky’s the limit”
Sceptics say that you can expand your business all over the world through the internet but to make money from it is complicated, because no one wants to pay for anything online!How do you respond to this?	Lots of internet businesses are built on a model that presumes many visitors will be found first; only then do they think about how to profit from them. Fortumo is different. We earn revenue from every user transaction right away, from the division of the SMS profit	Let the numbers speak for themselves.Today’s Edicy subscription statistics: 5 payments from 3 countries – some of these are advance payments for 24 months.Edicy is only 14 months old. We have only just started up	Our biggest competitor – Dogster – became profitable several years ago
Pride: the company’s prizes and awards	- 2005: Fortumo predecessor Igaühe M-Äri took first place in the e-business category in the qualifying rounds of the World Summit Awards- 2008: Fortumo was named Best Nordic Mobile Start-Up Company at the Nordic Mobile Media conference- 2009: Fortumo was selected as one of the 20 most promising mobile start-up companies in the world at the Mobile Monday Peer Awards	- 2008: We were one of the finalists in the LeWeb start-up company competition - 2009: Gold at the Estonian Internet Awards competition	- 2007: Ambient Sounds Investments’ angel investment- 2009: Estonian Development Fund’s investment- 2009: The best project in the Pro Bono category at the Estonian Internet Awards competition.
Company’s community activities: campaigns, sponsorships, etc.	We support charitable activities by offering free services	We offer many free or below net value websites and do design work for Estonian NGOs	- We supported the Estonian Society for the Protection of Animals in 2007 in gathering over 50,000 signatures to amend the animal protection policy.- We launched a campaign entitled “Stop Killing Dogs” in the summer of 2009 to direct attention to animal torture in South Korea

Columnist Yrjö Ojasaar (pictured) continues to analyze the biggest mistakes start-ups are often making.  This time he points out the typical financing related failures.

Assuming that VC money is for you

VC money is not the right financing tool for everyone. Your start-up may be profitable and growing, but if the company can’t rapidly scale, apply an innovative business model and the total addressable market is under $100 million, then VC money is probably not the appropriate growth vehicle for your business.

VC investment historically has flowed to the IT sector (mainly software and hardware) which has accounted for ca 60%, and healthcare (mainly pharmaceuticals and medical devices) ca 25% of all venture investments. These fields have shown to be able to yield unique concepts and products that were rapidly scaled internationally (the cost to manufacture and sell each additional copy of proprietary software or medication is near zero after initial big development costs). Clean/Greentech sector investments have also shown strong growth over the past 5 years.

A stern look in the mirror should fix this dilemma – founders, for obvious reasons, often have difficulty with assessing their company impartially. Entrepreneurs often overvalue their strategic chances for growth, ability to monetize their product/service and their advantage over the competition. Finally, most founders are not prepared to live the stressful life of high-stakes technology gambles, regular formal reporting, and trying to meet the hyper-growth expectations of VC investors. If you think you qualify, put your game-face on and start fundraising.

Assuming that a higher valuation is always a good thing

Insisting on an unrealistically high company valuation will usually come back to haunt the founders. In exchange for the high valuations VC’s will demand that their “standard” provisions be included in your SHA and SPA documentation (high liquidation preferences, participation rights, cumulative dividends, tranche payments and other risk allocation tools).

Overvaluation in the initial round may come to bite you in the next round as you pushed your projects buy-in price out of range (beyond the investment profile) for the smaller or less liquid funds (beyond the investment profile). So if you are located in the Baltics, your list of potential investors just got a whole lot shorter.

To maker things worse, if the company cannot then raise the next round with an even higher valuation, the founders will face drastic dilution due to the VC’s anti-dilution clauses in the agreements (including the infamous “full ratchet”). The founders that insisted on a $10 million pre-money valuation begin to realize that they may be just be expected to deliver a $50 million exit only 5 short years later. Of course undervaluing the company is also a sin – as you are basically stealing from yourself and your co-founders.

Doing your homework helps to get a realistic valuation: find out how the VCs have valued similar companies within the past few years and research the acquisitions pricing of M&A deals (Best free place to find this info is the SEC filings of the acquiring companies, as they are often listed and thus obligated to make disclosures) or if the company has significant revenues for over a period of years start looking at revenue multiples (How did the acquirers rate the target’s value in relation to revenues?).

Looking for financing only in your home town

Unless you are in a location like Silicon Valley, Boston, New York, Seattle, London, Paris or Stockholm your start-up will probably have trouble finding sufficient local financing even with a super team and a very cool prototype.

If you need to raise several multi-million dollar rounds from “smart money” funds, you pretty much have to fundraise in the top ten VC capitals.

Moreover, each VC has its own specialized investment region, if you are not in the region – you better be a short non-stop flight away (more reasons to think about the full implications of the future of the aptly named Lennart Meri Tallinn Airport).

To get financing from UK and US you should expect as a pre-condition for financing – establishing an entity with key IP and management in the VC’s region. I know – it’s not fair, but location does matter – the traditional investment meccas, in addition to VC money and experience, also have top-notch IP lawyers, accountants, scientists, universities, programmers and other professionals. Many start-up are getting wise to this, and have upgraded their game for international fundraising by refining their pitches, recruiting more broadly, establishing real corporate governance regimes, and getting professional about IP creation and protection. This dynamic may eventually start to pull all of the choice IP and technology toward those investment capitals, which in turn will require local VCs and angel investors to work extra hard to fund the better deals.

Read also other Yrjö’s columns on the mistakes start-ups are making from here