ASI Spins Off VC Unit

Ambient Sound Investments, an investment firm of four Estonians who built Skype, has spun out its venture arm into a new firm Karma Ventures, where ASI is one of the key investors alongside pension funds, family offices, and European Investment Fund.

Karma, which has raised over 40 million euros for its European venture fund, plans to make around 25 investments from the fund. It will be run by Margus Uudam and Kristjan Laanemaa previously from ASI, as well as Tommi Uhari, former STMicro and Nokia executive.

Ambient Sound Investments built a global portfolio in the period 2006 to 2011 and the team has a number of successful exits under their belt. For example, the firm was an early investor in European health and beauty marketplace Wahanda, which was sold at a valuation of over 200 million dollars last year.

“The co-operation with Ambient Sound Investments will be very tight, in the way that they’re the cornerstone investors in the fund and they take most of the European VC exposure from the fund”, Uudam said in an interview, adding that Jaan Tallinn and Ahti Heinla will be exclusive advisors to the fund.

Tommi Uhari, Margus Uudam, Marili Merendi and Kristjan Laanemaa

“We want to make it an optimal size for investing into A rounds and also, through Kristjan and Margus’s experience, we are taking all the learning from the past, both in terms of choosing – let’s say focusing mostly on software and technical differentiation –and then taking the geographic focus as one point in it,” said Uhari.

Karma will look first and foremost at startups which can claim to have technological edge. “We look for startups that really have a technology differentiator in their offering or in their service, so I think we’re very competitive in terms of being able to validate if the technology has value. I guess most of the investments we will do will have a strong technology component in them and of course will be addressable for global markets,” Uudam said.

When I ask about the most promising sectors the team is looking at the moment, the list grows quickly: Internet of Things (IoT); fintech; health technology; education technology; security; and B2B vertical, helping bigger corporations do some of the things they are doing better.

Are there enough of them out there with new money pouring into European startups from different directions? “The number of startups is only increasing and more and more people are moving from corporates or from universities to startups. Looking at the European scene, the number of opportunities is clearly higher than the supply of capital. There are more and more European startups who deserve an A round. In that sense, we feel very comfortable with the pipeline and what we see now,” Uudam said.

“Maybe in the early days there were more people who were only tech orientated or founders of mostly tech teams. Increasingly now we see more people coming out of certain business verticals who have all the business understanding, business networks, funding, a technical co-founder and with more tips in their offering to their verticals,“ he said.

But with increasing amounts of money coming in, how much of a valuation bubble are we seeing in Europe?

“In Europe less so. I would say most of the seed A and B round valuations in Europe have stayed pretty flat. Most of it has been in the U.S. and in Asia and later rounds. I think this cycle – this economic cycle – is reflecting the lessons learned. If you look at the statistics for example, the U.S. gets something like 20 billion investments in startups, Asia 13 billion, Europe 3.5 billion and New York 2 billion. The whole of Europe has substantial potential in terms of the funding of startups. In terms of valuation, there might be a slight correction, but we haven’t seen any bubble in the earlier phase,” Uudam said.

How will the team measure Karma’s success?

“I’d say that of course you need to find the companies and teams that have potential and then work hard with them to make them successful. In five years we won’t have exited the investments we have made, but we need to feel that we are on a good track,” said Uhari. “In that sense, our portfolio really can make us happy. We have found the right companies who are able to make an impact on a global level. That is a very good fit between the fund and the teams. We have really a good gut feeling that most of the portfolio companies are doing really well and heading in the right direction. I think this is the key expectation that we have in mind.”

“It’s not like we wouldn’t make mistakes. In five years we will have also admitted some of the mistakes we have made: focussed on the ones that have the potential of going forward and given up on some of them. It’s a necessary part of the game. Success is always a combination of right and wrong decisions,” said Uudam.