Angel Investor extraordinaire and experienced tech entrepreneur,
Ari Korhonen, shares his methodology for making good
investment decisions.
ARI KORHONEN
Co-Founder of the Finnish Business Angels Network
EU-Startups recently had the chance to interview Ari Korhonen. He is among Europe’s most successful Angel Investors and venture capitalists, and is the founder of Lagoon Capital Investment Company. Ari is based in Helsinki and has been a successful technology entrepreneur for 20 years, as well as a Business Angel for over 10 years. So far he has made Angel Investments in over 30 companies, with some 100 investment rounds in total. These include MariaDB, DealDash, Surveypal, Sympa, Miradore, In4mo, FlashNode, Thirdpresence, and 360 Cities. From these, he has already had four successful exits; including Severa, Paytrail, and The Switch.
From entrepreneur to investor. How did you get involved with Angel Investing?
As a tech entrepreneur, I was leading Komartek, an Energy & Utilities software company, which I turned into an international success story and made an exit in 2004. Soon after, I started to invest in equity and share my expertise with seed and early-stage innovative companies. In no time I transitioned to an Angel Investor working in global markets.
Your portfolio is impressive – 107 Angel investments into 34 startups with four successful exits! You have also invested in nine venture capital funds and you’ve had one great exit from there too! What is your investing philosophy?
• Do not put all your eggs in one basket, create a portfolio.
• Be agile and plan smartly, constantly track your own finance and adjust where necessary.
• Reserve a certain percentage of your capital for investments in followon rounds, or for buying secondary shares to avoid being diluted.
• Treat everyone as an equal. Always respect entrepreneurs and give constructive feedback. In turn, they will put in a good word for you.
• The startup business trends evolve constantly, so be well informed. Keep up to date and avoid losing momentum.
• You need great deal flow, good reputation, hard work, and good luck to be successful.
What do you look at in a startup as you evaluate it for a potential investment?
• Innovativeness. Can the business model be replicated and does it have global scope?
• Scalability. Is there a ready market for the business and is it scalable?
• Team. The professional backgrounds of the founders. Do these match the expertise requirements of the undertaking? An A-Team with a B-product is better than a B-Team with an A-product!
• Is it a growth-oriented startup? The business idea is not so important, because it will change anyway. What is important is whether or not there is market for it. If the market is not large then it should be in high growth. Is the business model scalable?
• Market size and growth, as well as how well you know it.
• Competition.
• Barriers to entry for competitors.
• Business model.
• What the company does, how, and for whom.
• How much money the company is seeking and where it is intended to take the company.
• Path to exit.
Besides providing capital, what else do you do with the companies you back?
I will give my knowledge and networks to the benefit of the company and its founders.
What do you want to see in an investor pitch?
The most important thing is the team behind the company and whether their professional backgrounds match the required expertise level and skill set. I also look at a several other factors:
• Team skills and their track record.
• The uniqueness of a product or service and the pain that it is solving.
• Market size and growth.
• Revenue model and market validation, traction, and scalability.
• Competition.
• Barriers to entry for competitors.
• Intellectual Property.
• Funding plan.
• Path to exit.
The entrepreneur-investor relationship is quite complex. What should an entrepreneur look for in an Angel Investor?
A good match to what a company needs:
• Competence in the company’s business sector.
• Networks in the company’s business sector.
• Good chemistry with founders and other investors.
• Time to work with the company. It is better to have a money poor and time rich Angel Investor than a money rich and time poor Angel Investor.
• Capital to participate in, and preferably lead, follow-on rounds.
As a co-founder of the Finnish Business Angels Network (FiBAN) how supportive do you think it is to the Finnish startup ecosystem?
FiBAN provides a platform to share my experience in the Nordic and European startup ecosphere as an entrepreneur and investor. It facilitates syndicated investments and matches Angel Investors and entrepreneurs. It has also increased funding possibilities for startups and created jobs, thus boosting the country’s economy.
Please tell us more about your investment firm, Lagoon Capital, and its investment focus?
Lagoon Capital is my investment company. I conduct my investment activities both as a private person and from Lagoon Capital. My firm invests in technology companies: Software, SaaS, FinTech, AdTech, e-Commerce, AI, IoT, VR/AR, Content, Games.
What other services do you offer to the companies that you invest in?
Typically I serve on company boards as a member or chairman, or act as a senior adviser to the company. Sometimes I help with fundraising through my contacts, or am very active in the exit phase.
As a winner of the Lifetime Achievement Award by EBAN and Business Angel of the Year in Finland in 2014, what would your advice be to anyone who is considering becoming an Angel Investor?
Go slow, but sure. Don’t take the bull by the horns. Small ticket sizes. Build a portfolio. Co-invest with others, syndicate. Learn from others’ mistakes rather than your own. Always make your own investment decisions, do not follow others’ decisions. Be prepared to roll up your sleeves and get your hands dirty. Always be ready and prepared to rescue your house from fire.
I recommend networking with other Angels – and especially across borders – to increase syndication and to learn from each other. Through EBAN I have expanded my expertise within the Nordic, European, and global investment ecosystems. I am an official member of four different Business Angel Networks, from which the benefits are huge. As an Angel Investor you should definitely be a member of your local Business Angel Network.
The editor thanks EU-Startups and Ms Bojana Trajkovska for
granting the rights to publish this interview. The original article
is available at www.eu-startups.com.
