Investment strategy

The Development Fund’s investment strategy is comprised of two parts: making direct investments in technology companies focused on innovation, and investments in business accelerator funds, which in turn invest the funds that are raised in technology companies focused on innovation.

Direct Investments

The Development Fund’s subsidiary AS SmartCap makes venture capital investments in new start-ups that are in the seed or start-up phase, along with private investors and on an equal basis. AS SmartCap invests in companies that have global ambitions. Even more, SmartCap encourages the Estonian startups to move out – closer to the market and clients from the very beginning. Nevertheless, please note that the company needs to be registered in Estonia for SmartCap to be able to make the initial investment.

It is assumed that the investment period is five years, and the investment will be phased according to the achievement of agreed upon intermediate objectives. The co-investor and the fund, participate actively in the Supervisory Council of the company that is invested in; thereby supporting the company’s development. However, when making the investment, a minority holding is always taken as a start-up company’s greatest asset is its founders. When making the investments, we are open to considering the best start-up entrepreneurs in all fields of activity and branches of industry.

The SmartCap team will counsel and manage the Development Fund’s Early Fund I investment portfolio and the closed-end contractual investment fund, Early Fund II. SmartCap is the manager of the venture capital fund that operates on the basis of the Investment Funds Act under the supervision of the Financial Supervision Authority.

The usual process for making investments, starting with receiving the initial information until the money transfer, can take three to nine months; depending significantly on the company’s performance and investor readiness. Making the investment involves the following steps: the initial analysis of the business project; agreement on the initial investment terms (term sheet); supplementary analysis and evaluation (incl. due diligence), final negotiations related to the investment terms; final compilation of the documents (incl. SHA); transfer of the investment.

Investments in Business Accelerator Funds

Based on the new investment direction, the Development Fund is investing capital in business accelerator funds operating in the pre-seed and seed phase. These in turn, will invest the allocated resources in technology companies focused on innovation. The Development Fund’s investment strategy prescribes the precise principles for the investments in business accelerator funds. This strategy includes: the preferred business sectors, minimum percentage of the private investor investment, the principles for the supervision of the investments, the limits for the fees paid to the managers of the business accelerator funds, and the principles for the division of the income between the fund managers and the investors.

The Development Fund’s new investment direction is closely related to Startup Estonia, designed to ensure that Estonia is well-known and attractive as a target country for start-up companies in Europe and would become one of the leading attractor of start-ups. The objective of Startup Estonia is to develop an integrated and functioning start-up ecosystem that promotes the growth and the development of start-ups.