In the Investor Spotlight today is Taavi Pertman – an investor, author and financial educator at RahaFoorum.ee

Why do you invest in early-stage companies as an asset class? What is your motivation?

My main goal with these investments has been education, and I would like to learn more about investing in this asset class and the startup world in general. The best way to get interested in it and learn a lot faster is by putting some money in, while obviously starting with relatively small amounts.

Are you more a trader or more an investor type? Why?

Considering the illiquidity of a given asset class, it doesn’t make much sense to be a trader. For fun and testing some ideas, I have traded a bit on Funderbeam secondary market, but my main positions are there for the long haul.

What are the three criteria by which you choose your investments?

Since I’m still learning, I don’t have any rock-solid criteria that would definitely lead to a great result. Some things I look for:

    • Idea has to be something that I like and makes sense to me. Not even the specific product, but the goal and the reasoning behind it. Businesses looking to make a quick buck on some passing trend aren’t that interesting.

    • Founders definitely play a role. If I know them, it’s easier to decide; otherwise, I rely on their track record and third-party sources. There’s not a definitive list of what to look for or avoid, but there are some things that make me want to avoid investing in even otherwise good companies.

    • It has to be a company, not only an idea. Meaning that it has to have at least some paying customers. This makes it easier to evaluate whether the idea makes sense, the market actually exists, and hints that the founders can execute, not simply dream big.

Do you consider investing in companies with solo founders or only in companies with several founders?

I have not used this as specific criteria when making decisions. Although multiple founders usually seem like a better option, it doesn’t really matter.

What are your priorities and why: team, product/ idea, total market availability, timing?

If the product/idea is something that I don’t understand or makes no sense to me, I usually won’t even look at the rest. While making the investment decision, the team becomes more important. Total market availability is important to the point that the product could be scaled enough to potentially offer a great return on investment. Whether it’s $1 billion or $100 billion has no real significance for me at this point.

Does the company need to have a unique product to draw your attention?

Not necessarily the product/ idea, but the reasoning or the “why?” behind it and the approach to trying to solve that. The products or even markets can and often do change.

Starting from which stage do you invest? Idea, MVP, pre-revenue etc

Company has to have some revenue, at least. I definitely don’t have enough knowledge or skill to pick good investments pre-revenue.

Is it essential to motivate all employees by options in the company?

There’s probably some research on the topic, but I’ve only seen some on motivation and compensation that’s not related to options specifically. Based on that, I’d lean towards it not being essential. I could be wrong, though, and it could also be essential due to another aspect besides motivation.

How many investments do you currently have? Can you name some of them?

Currently, there are seven long-term positions in the private equity space: Ampler Bikes, Barking, Bikeep, Funderbeam, Cleveron, Atom Mobility, Jeff App.

What multiplier do you expect for your investment portfolio?

Considering the risk level of most of these investments, at the time of investment, I expect them to go to 0. Hopefully, I’ll learn enough to get a return that, in the long term, will exceed stock market returns enough to justify the added risk. Based on some more experienced investors’ estimates, chasing higher multipliers also tends to increase risk. This means that higher diversification and more experience is needed to not end up with worse results. In that sense, I’m not at the higher end of this spectrum.

What are your suggestions to investors who are thinking of starting early-stage investing? What to do, not to do?

Take your time, be prepared to lose all of your investments there, study the terms and contracts and start small. Small in this case is relative since the sums needed are pretty large compared to most alternatives. Not to do is a long list, but perhaps don’t start this investing with the expectation of getting rich.

What source of information do you recommend following for others interested in early-stage investing?

Tried and tested the usual ones. Find local investors active in the space and network at different startup events. You’ll find people who know the ropes and will get access to deal-flow.