How did you become an investor, and what was your first investment?

One of the reasons I came to Amsterdam five years ago was to join an artificial intelligence company. When I left the company with a desire to work with startups, one way to be useful was also to provide some funding.

My fiance had worked in Estonia, so when I told her about my plans, she suggested I go to Estonia, a place near and dear to her heart. I did some research, learned about Startup Mafia and Startup Estonia, and took a very pleasant and productive trip to Estonia, which involved meetings at EstBAN and Funderbeam. In fact, one of my very first angel investments was through Nordic Angel Program into the Tartu company Fractory.

Where is your main focus as an investor? Do you have a guiding principle for all your investments?

I've looked at more than 2000 companies, worked closely with about 50 companies, and invested in seven companies so far. Because I'm in Europe, I talk to a lot of European companies. But I have also invested in US-based companies as well as one Asia-based company.  

Initially, because of my background, I thought I'd invest in AI or enterprise software companies. However, it turns out none of my investments has been in those areas.

For me, startup potential boils down to three things: the team, the product, and the traction. What is the makeup of the team? Is the product a platform or a feature? Is there really a product fit? There doesn't always have to be revenue, but the product should be generating enough interest in the marketplace. These are the three things I always try to look at when talking to companies.

What’s the biggest mistake that you see startups commit when seeking investment? How to prevent that?

I think the most common mistake is not doing enough research on the investors – the type of industry they are investing in, the ticket size, their values, culture, etc. The second mistake is that when founders hear investors say "I'll give you money", they don't properly check if their values are aligned.

Certainly, you wouldn't marry the first woman or man that comes up and says: “Let's get married”. You'd want to perform due diligence to make sure the investor shares similar values and goals before deciding to sort of “getting into the bed” together.

Otherwise, I've seen some very unhappy situations – a divorce process, so to speak – where the founders are trying to buy out investors. Or founders get very stressed if they get a call from a particular investor. It's important to find investors who will support founders when they go through a tough period – when the founders need the most support – not give more grief in difficult times.

Should you rely on a gut feeling or actually conduct a structured interview with the investor to validate this mutual fit?

It could indeed be a structured interview. There are techniques and ways to dig deeper into a person, and look deeper than the surface. The other thing is a reference check. You can always ask the investors which companies they have invested in before. Getting feedback from those founders could be really helpful.

Is it always a good idea to take outside investment? Can you build a successful company without it?

My finding has been: no, it’s absolutely not a necessity. I've interviewed over 100 founders, and the majority, if not all the successfully exited founders, did not receive investment for the sake of funding. Eventually, they got VCs on board for a strategic reason – not because they needed money but because when they were ready to sell the company, it was better to have VC sell it on their behalf rather than them looking for a buyer.

It might be a myth that you need investors to grow a company. Certainly, it can help, and in many situations, it makes sense to get investment and may even be a necessity. But if you can do without investors, I think that would be the preferred approach.

Do investors always need to be mentors as well?

I think it's actually better if they're not. If the role is combined, there is going to be some conflict of interest because of the financial involvement. Of course, you can have a coach who is also invested in the company, but a good idea is to have a mentor who is not an investor to provide objective point of views. What if you need advice on investors or getting investment? I think a mentor can give more objective advice than someone wearing two different hats.

You said it's not always necessary for success to involve investors, but do you always need a mentor as a founder? And should you search for one intentionally, or does it happen accidentally?

Yes, I think it’s necessary to have a mentor. It could save a lot of time, money, and grief. In fact, it can make a difference between success and failure. I can think of many cases where startups were able to rescue themselves through mentoring or at least save a significant amount of time and resources. Or avoid catastrophic events.

In my view, it’s better to have some sort of intention of getting a mentor because then the founders would know what kind of mentor they want. Is it a mentor who provides advice or experience or a mentor who could introduce the founders to the right people? These are different types of mentors: networking mentor connecting founders to people relevant for their goals versus expertise providing mentor who shares ideas and advice. You can find mentors in accelerators, meetings, groups, and depending on what type of mentor you’re looking for, you should be looking in the right places. In the .Cocoon program, based in Tartu, they provide psychological support as part of the mentoring program and it works!

Do you need a formal structure for the mentor-founder relation?

I think it's best to have a structure and some reward, for example, a 0.5–2.0% equity, in case the founder's exit. With free mentoring, founders may feel guilty about asking questions when they need to reach out. And from the mentor’s side, it needs to be a two-way street to build a lasting relationship.

By structure I mean, let's say, a half an hour to an hour call every two weeks, so there's always a time for the connection. Additionally, maybe quarterly calls or meetings with all the advisors within the company.

Often, mentors don't have a good idea about the problems that the startup faces at any given moment. It’s therefore good to give them monthly updates about the company's accomplishments, plans, and challenges so they can introduce relevant people or focus on appropriate solutions. If there's this type of structure and monthly reports, the startup can get a lot more out of mentors compared to just ad hoc based mentorship.

Typically, a mentor-founder relationship lasts three to six months because there isn't anything to keep the bond together longer. But depending on the chemistry, it can last 20 years or longer. In my case, I’d like to think of mentorship more in terms of a lifetime friendship than anything else. Because, ultimately, what matters the most is the human relationship between people, between the mentors and the founders.

What can you learn from mentors?

In case of problems, mentors could share their previous experiences with similar problems and offer solutions to them. That doesn't mean the founders have to do what the mentor did, but they can certainly use the experience as a reference point.

For example, one situation that happens more frequently than one might expect is salary and equity-related discussions ‒ I wouldn’t call them disputes even ‒ between the founders. An objective point of view from a mentor can make it much easier to navigate such a situation and reach a beneficial conclusion for all the founders involved.

Naturally, if you have three mentors and ask everyone the same question, you might get three completely different answers. That’s where the founder has to figure out which one to listen to, whether to ignore all three, which takes wisdom. Usually, it boils down to which mentor the founder has the best chemistry with and trusts the most.

How to be a good mentor?

First of all, you need to be a good listener and understand where the founder is coming from. The chemistry and values should be aligned: I might be a great mentor to one company but a terrible one to another. Finally, communication between the two people is also important.

When the founder clearly knows he's done something wrong, it's probably not a good time to come down hard on them. Also, be aware of some cultural differences. For instance, many founders in the Netherlands ask me to be critical and challenge them, while US-based founders expect more encouragement and support. Ultimately, though, it boils down to the individual and understanding that dynamic is the key.

Coming back to investing, what is the most exciting sector where you see growth potential in the coming years?

I’m sure there are more, but I’d highlight four sectors. On top of the list is the gaming industry because I think it's overlooked. Hundreds of VCs invest in SaaS and enterprise software, but very few in gaming. Not necessarily just pure games, but gamifying for change management or other purposes could be a sleeping giant at some point.

Secondly, education, where we haven't had major disruption for over 100 years but with modern technology and societal structure, I think we're due for it soon. Then obviously, sustainability together with renewable energies and finally, AI.

What books would you recommend to someone interested in investing or business in general?

My favorite book is Factfulness by Hans Rosling, which doesn't have anything to do with startups or investing, for that matter. It’s just a very optimistic description of how the world is changing, and I believe as founders or investors, we need to understand where the world is going through facts, not what the news tells us.

Good to Great by James C. Collins describes what makes a company a great company, and Startup Culture by Alexander Nicolaus underscores the importance of a culture in a company. Finally, Multipliers: How the Best Leaders Make Everyone Smarter by Liz Wiseman is a book I've found very helpful, especially for mentors and potential investors.