We recently had the chance to interview Ari Korhonen. He is one of Europe’s most successful angel investors, venture capitalist and the founder of Lagoon Capital investment Company. Ari is based in Helsinki and has been a successful technology entrepreneur for 20 years and a business angel for more than 10 years. So far he did angel investments in over 30 companies, with about 100 investment rounds in total. These include MariaDB, DealDash, Surveypal, Sympa, Miradore, In4mo, FlashNode, Thirdpresence and 360 Cities. From these, he already had four successful exits; including Severa, Paytrail and The Switch. Enjoy the interview:
From an entrepreneur to an 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 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 to 34 startups with four successful exits! You have also invested to nine venture capital funds, 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, constant tracking of your own finance and adjusting where necessary.
- Reserve a certain percentage of your capital for investments in follow on rounds or buying secondary shares to avoid being diluted.
- Treat everyone as an equal. Always respect entrepreneurs and give a pitch 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 loosing momentum.
- You need great deal flow, good reputation, hard work and good luck to be successful.
What do you look for in a startup as you evaluate it for a potential investment?
- Innovativeness: If the business model can be replicated and has a global scope
- Scalability: Is there ready market for the business and is it scalable?
- Team e.g Professional backgrounds of the founders and if it matches the expertise requirement of the undertaking and their competence/A team with a B product better than B team with 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 / how well you know it
- Barrier to entry to competitors
- Business model
- What the company does, how and to 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 founders.
What do you want to see in an investor pitch?
- Team and Skills, 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, scalability
- Barrier to entry for competitors
- Funding plan
- Path to exit
The team behind the company and if their professional backgrounds match the required expertise / skill set and expertise level is the most important thing.
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 than money rich and time poor angel investor
- Capital to participate / lead follow on rounds
As a co-founder of FiBAN – Finnish Business Angels Network, how supportive do you think it is to the Finnish startup ecosystem?
FiBAN provides a platform to share my experience in Nordic and European startup ecosphere as entrepreneur and investor. It has increased funding possibilities for startups and created jobs thus boosts the country’s economy, facilitates syndicated investments and matches angel investors and entrepreneurs.
Please tell us more about your investment firm Lagoon Capital and its investment focus.
Lagoon Capital is my investment company. I am doing investment as a private person or from Lagoon Capital. My firm invests in technology companies: Software / SaaS, FinTech, AdTech, e-Commerce, AI, IoT, VR/AR, Content, Games.
What are the services offered to them?
Typically I serve in company boards as a member or chairman, or be a senior adviser to the company. Sometimes I help in fund-raising through my contacts or be very active in exit phase.
As a winner of the Lifetime Achievement Award by EBAN and Business angel of the year in 2014 in Finland, 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 other’s mistakes rather than your own. Always do your own investment decisions, do not follow other’s 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 (BAN’s) of which the benefits are huge in terms. As an angel investor you should definitely be a member of your local BAN.