Interview with Peeter Klanberg on angel investing

25.01.2014

Peeter Klanberg is a precision engineer turned project manager turned entrepreneur. He started out building electronic banking channels back when online banking was still a novelty, but claims that IT has just been an inevitable step for him. He has successfully started up 6 companies and is currently preparing an exit from one of his long-time investments, Mindware.


Peeter was interviewed by Marek Unt from JLP Communications Agency.

You have a master’s degree in precision engineering from the Dresden University of Technology. How is it related to what you’re doing today?

I think it isn’t. My studies revolved around engineering, but after my graduation there were few careers in this area in Estonia. After a short period of time as a computer engineer, I ended up in the financial sector, which was a rapidly evolving field at the time and matched very well with my passion to create and develop something new.

 

Did the turn to e-banking come naturally for you?

I would say it was more or less inevitable, since there were no easy choices at the time. I have never really been internally drawn to IT, but the sector has had a financial appeal.


You say IT has not been the first choice for you, but your portfolio has a fair share of IT-related companies. How come?

It has been the result of accumulated experience and know-how, as well as a social network that adds up after 10 years in the sector. The experience allows you to see business opportunities you otherwise wouldn’t, so you just take logical steps. I have not given up on my wish to leave IT behind, although it’s a very evolving field.

I think IT should be regarded as an enabler, supporting another disciplines. I’ve seen businesses that fall into the trap of being just an “IT company” with no business sense behind it. In a way, coming outside of IT has allowed me to see things from a distance and spot the flaws. Also, being an owner and an entrepreneur forces me to look at the bottom line – if the IT is contributing to the profit or not.


Is there any innovation in banking today?

There are no revolutionary developments anymore. These days revolutions are happening in other places, for example in the medical sector.

 

Does the current startup boom in Estonia have anything in common with the e-banking boom of the previous decades?

They probably share a state of mind – the courage to go outside and do something. However, we should accept that Estonia has come too far to just be a follower. In the early days of online banking we were looking outside of Estonia to see what’s being done. Now we’ve come to a place where we need to take the position of a leader. This requires a different kind of courage.


Does it also take courage to be an angel investor?

I think so. It takes courage and some experiences in investing. I remember feeling heavy about giving up money that has come from hard work, knowing that you may not see it anymore. After a while, if you’ve accomplished a few things and have seen that the money has made a difference, maybe even provided a return, you’ll gain some courage and the next steps won’t be that difficult.


Is there a niche in Estonia besides IT that we should be focusing on if we want to make a difference globally?

I wouldn’t put IT in the top spot. It’s not a business by itself. We have very few IT companies that are research-heavy and really move the field forward. It’s more about aggregating data and presenting it in another way.  I’d like to see more businesses where IT is an enabler, supporting or improving the efficiency of a company.

I would also like to see Estonians work on physical products and production. It has already been done in a few niche areas such as medicine.

 

Do your investment portfolio choices reflect this sympathy towards physical products?

Not really, I don’t have a portfolio company with physical products today, if we don’t consider a really embryonic startup that’s involved in the textile business. But I do have an interest to invest in this field, despite the fact that the required investments tend to be a lot bigger there than your usual angel investments. But you could always co-invest.

 

Do you have other criteria in selecting companies to your portfolio?

My investment philosophy is rather conservative. I don’t just put money in 20 companies and see what comes out. I want to believe in the idea and I want to see the business and financial side of the company making sense, so that it would be making money and providing dividends even before the exit.

Scalability is a big topic these days, but it’s not that significant for me. You can make money in every business, scalable or not. It’s much more about the return on investment and it the company doesn’t have to be valuated in billions for good ROI. The multipliers in the services sector are quite good.

 

What’s the most promising company in your portfolio today?

I’m currently in the phase of exiting Mindware, because I’ve been involved in the company for 10 years and I feel that I have exhausted my potential to contribute to it. The company has good momentum and I want to see other people taking it to the next level.

I see growth in companies such as Hansanet and OKIA, because there is a lot of innovation in the web and how to use it for sales and marketing.

I’m also involved in an m-parking project in Portugal. It’s difficult to assess how successful it will be, since there is no competition at this point, but that could change any day.

 

How much time do you spend hands-on with your portfolio companies?

Supporting, advising and developing the companies takes up around 1/3 of my time. After the exit from Mindware where I’ve also worked as an employee, I hope I will have even more time for that.

 

From your experience in assessing companies for your pipeline, how well do startups take feedback on their valuations and business models?

They take feedback well, if you explain it. I have a good example of a company that started out by asking for an investment in the area of 300,000€. We started discussing about the actual needs and split just the next step that they would need for making progress in the market. The investment came down to 50,000€. Then we dove into it even more and examined what would be necessary for the company to attain one customer in Estonia and one outside of Estonia. The same came down once more, to 10,000€. So sometimes picture of the investment ladder isn’t clear for the startup – they want to take 10 years of steps at a time, or take a step that’s too small. The latter is also a problem, since they risk failing to take the next step and falling back on the ladder.

 

Have you noticed any changes in the Estonian entrepreneurial landscape that have been influenced by the startup boom?

Firstly, the startup movement has put Estonia on the world map and a lot of investors are keeping a close watch on our emerging startup center. Secondly and more importantly, Estonian enterprises have started noticing our startup scene, even if they’re just mapping it for now. This provides our angel investors potential exit opportunities in the future. You could say that big businesses are outsourcing product development to startups and then buying businesses that are already in their feet.


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