Margus Uudam, founding partner at Karma Ventures, suggests great startups can’t only focus on small markets, so can’t VCs. Luckily though, he believes Baltic companies are known have global mindsets and considers the lack of capital to be an advantage. Mr. Uudam shares more insights in an interview.

Hello Mr. Uudam, good to see you on Startuplithuania.com. So how does the global venture capital market look today?

Margus Uudam: It’s getting challenging again, as the capital always comes and goes in cycles. Even though there have been a lot of new funds coming up globally, in parallel, the number of great new startups is definitely outpacing the increased supply of capital. Europe will be a little less affected as we have not seen the signs of real bubble over here. Funds who have started lately will not pull the plug and will surely continue investing. Actually it is the best time for new deals!

What context was behind the reason to launch Karma Ventures fund in the current space of time?

Margus Uudam: We have had a vision to launch the fund for some years already. It’s hard to predict the timing usually, but we are happy to start with karma.vc not in the beginning but rather at the end of the boom. Baltic Innovation Fund – Baltic governments and EIF, behind it – has been a great help. It has really kickstarted Baltic PE/VC ecosystem.

You were quoted by Techcrunch as saying that European companies — and in turn European VCs — are a lot more global from the get-go, no longer focusing on a specific country or region. Where do Baltic startups stand when it comes to the ability to “go global”?

Margus Uudam: It’s controversial, but Baltic countries have benefited from starting in a small market with little supply of capital. Even some of us complain about it, there is no other reason why we are known for global mindsets since start. So great global investors have discovered Baltic startups, we got a very good experience working with global knowledge and it all starts to pay back. We see already serial entrepreneurs from Baltics who come back with knowledge, networks and also with seed funding for new startups! Experience is the true cornerstone of every healthy ecosystem, not capital only.

I think Europe has learnt that as great and scalable startups can’t only focus on small markets, so can’t VCs. Most governments have learnt it in a hard way. I am truly happy about the Baltic Innovation Fund that has made three Baltic countries and EIF work to together on developing not only one country, but the whole region. Let’s not stop here and aim even higher next time!

Which areas of business and innovation you believe the Baltic region is particularly good at and has the biggest growth potential?

Margus Uudam: Surprisingly, Baltic startups are very diverse regarding verticals, not a single one stands out as stronger than others. Business models tend to be more B2B, rather than B2C – we are still learning how to work with large consumer markets. There is a lot of activity in fintech, education, health-tech, IoT – very similar on where the global VC focus is.

What are the benefits and the disadvantages of EU/state-sponsored investments into startups and their ecosystem?

Margus Uudam: There is a fine line where state-sponsored investments and grants are helpful. It’s all about finding the balance. Governments are increasingly competing for startups and sometimes one of the tools is to provide more government related grants/funding. Some countries have crossed the line where too much grant funding is available and sometimes startups are looking for next grant rather than revenue from customers. It just builds a wrong incentive. Luckily it’s not the case in Baltics. We are in the course turing grants into investments, which makes a lot more sense. I think grants are helpful in very R&D heavy technologies where private funding is not sufficiently available yet. It was very helpful in our investment to R&D-heavy communication technology startup based in Estonia, that we could later successfully sell to US-based strategic partner. If government support is designed right, everybody wins!

You can meet Margus Uudam together with dozens more investors at the LOGIN Startup Fair on 5-6th of May. See you there!