The so-called ‘Series A gap’ — that is the lack of Series A funding compared to seed — is still a much discussed topic here in Europe, and in the last few years we’ve seen a plethora of new funds aiming to plug that gap.
The latest is Estonia-based and Luxembourg-domiciled Karma Ventures, a €40 million pan-European fund managed Margus Uudam, and Kristjan Laanemaa (who previously helped run Ambient Sound Investments, the fund set up by early Skype engineers), along with Tommi Uhari.
In fact, the Ambient and Skype connection doesn’t stop there. Ambient Sound Investments is actually one of Karma’s LPs, while I understand that the new fund is being advised by founding Skype engineers, Ahti Heinla and Jaan Tallinn, who are also prominent angel investors in their own right.
In terms of the types of investments Karma plans to make, partner Margus Uudam told me during a call that in addition to being able to keep an especially keen eye on tech coming out of or with roots in Estonia, the three partners will be spending much of their time jet setting around Europe, an ecosystem that he feels has matured significantly in recent years.
In particular he noted the way European companies — and in turn European VCs — are a lot more global from the get-go, no longer focusing on a specific country or region. This he says makes for bigger potential returns and has meant that LPs in general are a lot more bullish than they were previously about investing in Europe.
Sector-wise, Uudam wouldn’t rule any particular vertical out, aside from perhaps gaming, and emphasised technology and product differentiation. When pressed, he mentioned fintech, which, despite the hype, he says is only getting started, along with edtech, cyber security, and Internet of Things (IoT).
Uudam also talked up the Skype engineering link, in that sense that having Heinla and Tallinn as ‘exclusive’ advisors means that the new VC will be able to do proper technology due diligence on its investments, something that not all VCs are so well positioned to do.
But really the emphasis here is plugging that Series A gap, which Karma sees as the “defining” round for any burgeoning startup. It also comes at a time, says Uudam, when more and more technical talent and people coming from existing industries are choosing to do a startup.
“The quality and number of opportunities has increased substantially,” he says. “The capital might come in and out in cycles, depending on the global economy and regional economies, but the trend of more talented people heading to startups as founders or employees has only increased. Of course, there are more funds in Europe now too, but if we compare Europe to the U.S. or Asia, there’s still lots of room to grow”.