In conversation with Icebreaker, Finland’s most active pre-seed VC

Icebreaker claims to be Finland’s most active pre-seed VC. The firm, which also invests in Estonia and Sweden, has backed 38 companies in the last three years out of its first fund, with a 65% success rate so far for companies that have been able to raise follow-on funding.

Two weeks ago, Icebreaker announced the launch of Fund II, with an initial close of €50 million. That’s more than twice the size of its first fund, which topped out at €20 million.

Its remit remains largely the same, however. The company typically invests between €150k and €800k in teams that have “deep domain expertise” and are building globally competitive tech companies according to Icebreaker co-founder and partner Riku Seppälä.

Noteworthy, this goes right to the top of the funnel and includes backing and helping to connect “pre-founders,” defined as individuals with over 5 years of work experience in their domain who are aiming to start or join a tech company. As part of this effort, Icebreaker operates an online and offline community to act as a catalyst for new companies to be founded.

Meanwhile, I’m told that Fund II was signed just as the coronavirus crisis began to take hold and includes the majority of LPs from Fund I in addition to new investors. Lead LPs are Tesi, KRR III, Varma Mutual Pension Insurance Company and Elo Mutual Pension Insurance Company, together with 41 other entities consisting of institutional investors, family offices and founders.

To find out more about Fund II and what’s it’s like to launch a new pre-seed fund at a time of such uncertainty, and to understand how Icebreaker thinks about startup life during and after lockdown, I put questions to Icebreaker co-founder and Partner Riku Seppälä.

TechCrunch: What does it feel like to close a new fund right at the start of a pandemic?

Riku Seppälä: Of course, we have been distracted by the mounting health crisis and how the world economy will recover, so the feelings are mixed.

That said, it feels great to be able to support pre-founders and founders now in these difficult times. We will be actively investing. We are certain that some of the best companies are founded during disruptions and tough times by founders with extraordinary grit. Also there are some positive side effects that we’ve seen, as customers are more reachable online and looking for better software solutions to support more digital work. We believe it will be easier than ever to build a global company as work is shifting online. We also invest in very early teams that are able to work very efficiently in a distributed setup and many of our current portfolio companies work in distributed teams anyways.

For us, it has been quite natural to work remotely as we have partly been doing that before. Our daily online coffee breaks and after work sessions have been fantastic! We also had our fund-closing party online. It was different than what we had had in mind.

The fundraising was also quite exciting; the pandemic had already been ongoing in Europe for a couple of weeks and the stock market had crashed when we were still fundraising. Instead of bailing out, most of the LPs from Fund I invested and we also still got several new LPs onboard despite the pandemic. It’s great to see them take the same view as we are; things must go on and this is a great time to start building and investing in pre-seed-stage technology companies in Europe.

How has the coronavirus crisis altered your firm’s thinking and the volume of deals you plan to make in the next 12-18 months, or the sectors you planned to invest in?

It has not really altered how we plan on making investments. We are still continuing to invest in every great team-building global winners with domain expertise and strong technology. The plans we make with the companies will be slightly different though. Companies need to be more mindful about their burn and runway.

We’re open to all sectors as well, but realize that realities in different sectors will be changing so we will be looking for founders who can find new opportunities and navigate the new reality.

Out of the first fund, you say Icebreaker invested €5.8 million in initial investments in just over three years out of €20 million. Is the rest of the cash reserved for follow-on investments and can we expect a similar ratio for Fund II?

We are targeting a similar ratio for Fund II. We are investing in such an early stage that we want to be able to support our companies across their journey and need to be able to invest quite far to deliver great returns to our LPs.

Fund II is significantly larger than the first. Why is that and does the investment remit of doing pre-seed/angel, including backing “pre-founders,” remain the same? If not, how has the remit evolved?

From the start, our aim has been to be the best at supporting pre-founders and startups in the angel/pre-seed stage and developing them to the seed stage. That focus remains the same.

We noticed that there were a large number of pre-founders and early founding teams lacking capital and development support in Sweden and Estonia as well in addition to Finland where we started. We didn’t want to change the focus of what we are doing but expand geographically instead. We have made investments in Estonia and Sweden from Fund I as well, such as Klaus, Dashbird and Prion. Now that Leo [Giertz] joined in Stockholm we are also building a team there. That said, we now have the ability to write larger initial checks as well when that is needed to get to the seed stage.

You’re focused on Finland, along with Sweden and Estonia. What do you view as the main strengths of these respective ecosystems, and are there any specific themes that tie these three countries together?

With very strong education, research and many world-leading companies coming from these countries, there is a very strong talent pool in each of these markets and it’s quite easy for people to work together and understand each other. This talent pool has not been well-utilized for startups in the past. Still 10 years ago in Finland basically no one at the main universities wanted to become an entrepreneur. We were entrepreneurs back then, experienced that and were already working on the solutions back then. Today, it’s completely different, but we still feel there’s a lot of work to be done to get the best talent founding and working for the most ambitious startups. This is why we are building our community. There’s a lot of knowledge that needs to be shared and cultural aspects that also need shifting.

The talents in these geographies are also somewhat complementary. In Finland, we are very strong in Technology, B2B and of course, gaming. Sweden is world-leading in creating brands and consumer technology. Estonia has experienced startup talent and they are skilled at building international growth from day zero.

I understand that Icebreaker runs a growth intern education program, where every two months you have five full-time interns who learn growth marketing by working for different portfolio companies together with your head of growth. What is the aim of the program and what have the learnings been so far?

We noticed a general lack of talent of all-around growth leads. It was difficult to find experienced people to experiment and drive growth from multiple channels in a systematic way. Most people tend to be siloed into the tactics they are used to and have a hard time trying something new. It would take a long time for growth hires to ramp-up.

We invest in a very early stage so usually, there is no one on the team that can dedicate enough time to lead a systematic testing process and the team could spend months or even years looking for a recipe to accelerate growth. It’s really a question of culture and processes.

The aim of the program is to quickly accelerate growth in our portfolio companies by implementing a systematic hypothesis testing process.

Interns work with the portfolio company founders as interim growth leads by weekly growth-hacking sprints for different companies, and often after the internship period they’re recruited in a company as the first member of their future growth team.

The program started late 2019 and currently, we’re running the fourth iteration of the program with excellent results; nine early-stage companies have successfully found their first scalable global lead generation channels only within a few weeks of testing, gotten their first international customers and five interns have been hired in portfolio companies to maintain and scale their growth.

We’ve had several learnings:

  • We’ve found that growth is a full-time job at every stage and cannot be a part-time job for a founder.
  • You can close deals from inbound and through digital channels in every industry, even if your experience tells you it is impossible. In one week from starting.
  • The interns working across portfolio companies and transferring learnings between them works very well.
  • Creating new ways of supporting startups can have a very big impact.