For a novice investor an angel investment is a risky way to invest money

Popularity of investment in Estonia is rising. The real estate market is setting new records, the stock market is active, investments in start-ups are showing a growing trend. At the same time, it is worthwhile for a novice investor to carefully choose where to invest. An angel investment may not be the best solution for your first investment.

“Angel investments mean that your lost bets usually come out before you win. For example, if you make ten investments as a business angel today, then in a year two of these companies will already have folded, and two or three more will be about to follow the suit. It will always take truly promising companies longer to achieve success, than it will take weaker ones to fall. If there is no success, the founder can very easily give up, and this means the beginning of the end of the company. Therefore, this type of investment is the riskiest investment for beginners”, said Lauri Antalainen, vice president and member of the management board of EstBAN, the network that brings Estonian business angels together.

He mentioned, for example, that his most successful investment so far was in a company that seemed to be in decline, the team had disbanded, and success did not appear anywhere close, however, the founder did not give up. “He pushed alone until at one point they started to do well, and recently the US company Kahoot bought them for an eight-figure sum. It was the most genuine example of perseverance and the fact that if you yourself believe that you are on the right track, then you really are,” said Antalainen.

According to Antalainen, a person who is not that familiar with entrepreneurship and who inherits 200,000-300,000 euros, could invest, for example, about 5-10% of this amount as angel investments, and rather start with syndicates: “There you can learn from experienced investors how to make choices and analyse them.”

There are many areas in which to invest, and probably there are no completely undiscovered lands left any more. Still, there are areas which are harder to invest in, and which find it more difficult to raise money, such as deep-tech. “Hardware is definitely the field in which money has been successfully raised, and investors are also looking in that direction more and more. As a rule, if the team is strong and the company already has customers who are willing to pay for the product/service, and it can be seen that the number of customers is growing rapidly, investments come quickly,” explained Antalainen.

Talking about a possible crisis in the post-coronavirus world economy and in Estonia, Antalainen says that of course the coronavirus shook the entire society and put some things to work faster, but instead of looking at it as a crisis one should look at it as a lesson. “In general, we can sense a complete phase shift, for example, in digitisation. Today, it is perfectly normal for me to be able to sign a contract with a client, do all the work and submit the invoice in a way that we never met with the client face to face. Before the coronavirus it was completely unimaginable. Now it is also normal for teams not to meet with investors before raising money. This allows you to be very efficient, because you can save a lot of valuable time at the expense of logistics. The coronavirus played a very important role in this shift, helping to speed up the whole process,” said Antalainen.

At the beginning of October, the Estonian Business Angels Network (EstBAN) which unites investors, and Prototron, founded a syndicate which creates new opportunities to raise money, especially for early-stage start-ups working on technological and hardware inventions.