Richard Murutar is the CEO of SprayPrinter. Recently SprayPrinter won the pitching competition at TechChill in Riga and as a prize got a business trip to Silicon Valley. Murutar discusses why this trip is important and sheds some light on the shortcomings of the Estonian startup scene.
How many Estonian investors does SprayPrinter currently have?
Shareholders are 21, five of them the founder members. Investors are 16, among them the Buildit accelerator, but also angel investors like Rene Tõnnisson and Kuido Lepik. There are also those for whom it’s the first time to invest in a venture capital. Several of our key partners are also involved as investors.
How have you found these investors?
From totally different places. So far we have put together three investment rounds. In the first round most of the investors came from the Buildit network. Since then more and more have come from startup events, but not exclusively. For example, last year JCI nominated me as the most prominent young Estonian and I went to the award ceremony. I didn’t get the title, but I did happen to sit at the same table with some very interesting individuals. There was the husband of one of the nominees whom I started talking to. It turned out that he is also involved with some really cool enterprises. I mentioned that we were looking for investments as well and that he should come for a visit. He did want to visit us at Tartu during the Startup Day, but being a busy person he could confirm that only two days before the event. But by then the tickets were already sold out. I managed to get him an event pass, though. I was also on the stage during the event and I invited him to listen. And so it went.
How does SprayPrinter differ from a classical startup?
First off, I would mention the team. We have a very unique mix of people on our team. They have diverse backgrounds, but strive for the same thing and are highly motivated. Also, the fact that we have built a hardware startup in Estonia. It hasn’t been an easy challenge.
How to increase this motivation?
Definitely through shared successes. Estonia has created a good community for young startups which supports their growth. For a startup it is also important to constantly show what has changed.
And now you have gone to Silicon Valley with SprayPrinter’s inventor.
Silicon Valley has a great many things that Estonia doesn’t. Firstly, there is vast experience with hardware. The knowledge how to create not only a product based on an idea, but also a community centric business, which is not so much predicated on quick growth, but on people feeling good in that community. This is extremely important. A communal feeling encourages cooperation and the kind of money flow that is immensely important for a hardware startup, but also a long term value for every client. Estonia doesn’t really have this type of experience and things take a really long time. Things will take longer for hardware startups anyway and development costs more than with an app or a software solution. Here people understand that the most important thing is to come out with a product that clients are willing to pay for. The investors in Silicon Valley have seen and done these things and know that it will take time. They don’t demand from young hardware startups that they show fast sales numbers and get thrashed by the market in the process.
Would you consider this one of the weaknesses of the Estonian startup scene?
A major advantage of Silicon Valley over Estonia is the diverse experience base. There they aren’t afraid to invest in hardware startups. If an Estonian investor has two prospecting startups at his/her door who are on equal footing in terms of their development stage and one of them is a software solution which you can take straight to the market and the other is us, the investor in Estonia will choose the safe option and go with the software startup.
Do Estonian investors see SprayPrinter’s potential?
They see it, but are scared. Just recently ESTBan put together a rather large fund and organized a syndicate. They chose 20 of Estonia’s best startups. These 20 are indeed considered the best startups in Estonia and it got quite a lot of media coverage. But out of these 20 only one is chosen. All of the fund, put together by 28 investor, is invested into this one startup.
Somehow by a lucky chance we were chosen among the 20. The process was quite rigorous. Finally, we made it to the top 5. At some point only four startups remained and from this group they made their final decision. The winner was ultimately Rebelroam which is also a hardware startup in a way. They totally deserved it and ESTBan definitely won’t crash and burn with them. But this process took us four months of raising money. Since December no ESTBan member agreed to proceed with negotiations about our current round before they knew the results of the syndicate.
This is not very encouraging to the other participants and their development…
Yes. In December we had quite many interested parties who considered joining the round. I’m convinced that without this syndicate we would have completed the round much sooner, in January or February probably, and with a much larger sum as well.
We were forced to do something which is the hardest part of all in raising funds. We had to lower our valuation. We started pretty high, but unfortunately Estonian VC funds don’t have money right now. These funds will become clear in September-October which is good, because we are still in the picture and can talk in the next rounds, but for negotiating with angel investors we had to lower our valuation. We also lowered the sum we wanted to raise. This was tied to other investments we weren’t aware of then.
The biggest obstacle in putting together the investment round was the fact that none of the angel investors could tell their decision more than three months ahead. I believe that from now on we will only talk with VC’s. We are also somewhat outgrown the classical angel investor model. They are looking for opportunities to get a rather large piece for 10 000-20 000. We won’t give a very big piece for that anymore.
An alternative would also be a crowdfunding platform like Funderbeam or Fundwise. There isn’t really enough smart money for us in Estonia right now. But we could get in San Francisco for example. There is going to be a festival soon there with investors and startups. I believe we will get some good contacts from this.
We are also going to meet with the EAS San Francisco representatives. We have already inquired about what EAS could do for us there. We have a lot of contacts with potential in the B2B and investor direction. The first VC’s were are going to meet with have already expressed their readiness. We expect a lot from this trip.
What has been the feedback from the Silicon Valley VC’s so far?
The VC’s I have talked to see major potential. They see that our technology has a wide variety of different applications in different economic sectors. This is good, because it gives us the chance to fail and experiment. This kind of technology led by this team has the capacity to succeed big time. To create the client base and market. There are all kinds of demands and our technology can’t satisfy them all just yet, but we have a vision of how to get there and are working towards that.
But what should be done to have more hardware startups in Estonia?
The Estonian startup community has made big steps to bring this about, but hardware startups usually don’t stay in Estonia. Buildit accelerator has 36 working hardware startups in their portfolio. Almost all of them operate outside Estonia. Many in USA, some in Western Europe.
Estonia is just too confined if you want to spread your wings here. You can work together from a distance, but business is still done between people. Estonia is a really exciting test market, because Estonians aren’t usually early adopters. We don’t embrace new technology that well. It’s reasonable for us to try to grow our business somewhere where our clients are and that place is the USA.
Have you any fears about Silicon Valley?
No. I have seen that I can think well in this world and talk to investors in their language. The key partners can sense this. Right now, our only option is to go big or go home.