While European private-equity firms sit on record setting piles of “dry-powder”, local startups are searching for the most attractive financing solutions. In these circumstances co-investment funds have become increasingly popular among both private investors and startup founders. Such funds present a different approach to Venture Capital (VC) investing. “We are all about bridging the gap between the startup companies and the business angels.” says Jonas Vitkauskas – Investment analyst at Koinvesticinis fondas.

Focus

Koinvesticinis fondas (The fund) is working closely with startups and business angels. Since its start in 2017 the Fund  together with business angels has completed 11 investments into 10 companies and continues searching  for companies with disruptive potential to invest in. The fund’s current portfolio is comprised of investments ranging from artificial intelligence based radiology solutions to food-tech companies.

Average startup does not have a lot of runway, therefore fast decisions often are a matter of life and death to early stage growth companies. “Business angels together with the Fund must react quickly and make timely decisions in an extremely dynamic environment” – notes Jonas. Illustrated by the fact that usual co-investment deal takes up to 3 months to close.

The fund’s investment to medium, small or micro-enterprises is capped at EUR 800k, however the average investment is EUR 300k. Koinvesticinis fondas invests exclusively with business angels and has an average investment intensity of 60-70%.

Process

Investment deal usually begins with a startup pitch to the private investors in specialized events such as Startup Fair Vilnius, monthly Litban Pitch events or simply emailing us its business case in search of funding. Consequently, business angels from the Fund’s approved list of private investors are eligible to bring forward an investment case of their choosing to the Fund, which also evaluates the business case independently. In case of an attractive business idea, a non-binding agreement outlining the general terms & conditions of an investment (Term Sheet) is signed by all the interested parties. The final stage – deal finalisation – includes legal due diligence, signing of investors and shareholders agreements, etc.

Benefits for the business angels

Koinvesticinis fondas acts as a “silent investor”, thus business angels investing together with the fund receive a variety of non-monetary benefits such as delegation of voting rights in the company. Furthermore, the fund caps its maximum possible return at 6% compounded yearly interest with any potential surplus in case of a successful exit flowing to the investing business angels.

Criteria for the startups

In order to be successful in raising funding the startup must meet the standards set by the fund. Team’s expertise, market’s attractiveness, problem-solution fit, business model and investment readiness are the criteria most commonly used in startup’s evaluation. Startup can increase its chances of successful fund raising if it has a minimum viable product (MVP), which already has proven its market fit. Furthermore, the startup’s chances are solidified if the team has a proven track-record in the industry and presents a business idea which is scalable. After all, startups should ideally target high growth numbers in its early stage.

As we noticed, majority of successful startups follow a well beaten path of funding rounds which follow the following order: Founder’s investment, Startup accelerator investment, Business angels, VC funds.