Interview with Ivo Remmelg on angel investing

20.03.2013
Entrepreneur Ivo Remmelg, one of the founding members of EstBAN, has done a double-whammy many of us can only dream of - he sold his telecom software provider Telegrupp AS in 2002 and then bought it back at a discount in 2005.

Ivo was interviewed by Tarmo Virki, editor in Forbes Estonia magazine.


Was it a good deal?

As a rule of thumb, if someone comes to you and wants to buy your company, it will be a good deal and as a rule of thumb if someone comes to you and wants to sell a company to you it tends to be a good deal.

 

Where is the 70-man Telegrupp headed now?

The nature of the business we do is very local. We just recently calculated how expensive it is to do the same service further away; the cost is 3-fold.

It's the nature of the telecoms business -- it's difficult to move further than 400 km from your home.

Our exports will grow, but not to the point where we will get the majority of our revenues from somewhere else.


It looks like a family business. Is it intentional? 

The three owners are not related but that's the culture. We are promoting the family like culture.

 

So you are not selling again?

We are not seeking a buyer, but if there is a good offer... I love working here, I would stay if the new owners agreed.

 

What were your first investments beyond Telegrupp?

Some 10 years ago I invested into some small startups in web industry and production. But these small companies are all extinct now.

 

What went wrong?

It is always a question of getting the right people and having those people really concentrate on what they are doing. Very entrepreneurial guys tend to do a million other things as well and that means their focus can get lost. The same happens with their startups.

It is very difficult to get to know people in a very short period of time. It is important to spend some time with the people needing the investment -- taking part in their meetings, coaching them, to understand their business.

 

Does that mean the classical elevator pitch would not work with you?

It works. You get some first understanding of the business. Considering my background, I'm still very much learning as an investor too.

 

Have you made any other successful investments beyond Telegrupp?

Apple shares, which I sold at the top and doubled my investment. I invested when they came out with the first iPhone. That was the thing. Before that I was wondering how Nokia could sell phones with such an awful user interface.

 

Your latest investment, Satrian, makes software-defined radio receivers for radio amateurs. How big is the market you addressing?

The target-market is many millions. So far we have sold around 50 around the world. Typically to old industrial countries. Radio amateurs are also our main competitors -  many of them are creating their own designs.

 

What about scale? How many of the $500 devices do you need to sell to make a profit?

We need to sell 20 a month of the first lot of 100. You can get receivers for much cheaper, but this is a very very high end product. We use the best components we can get and we do not save on the quality.

 

Can't Chinese rivals just copy your idea and take over the market?

Of course they can do it, but the market is not that big. We do 100 pieces at a time. It costs the same for the Chinese to make 100 pieces in China.

The design ... you can copy exactly. But if you don't use the same components the outcome is not the same. They can copy, it can take 2 months or 6 months, but during that time we keep on developing. Schemes are freely available on the Internet. Design of circuit board is a bit more complicated.

 

What's the decisive factor when you invest in a company?

First it's the people, the team. Very important is the commitment. If it's "we want your money and we have other interesting ideas," then its better to walk away. I have to understand something about the product or service they are creating, I need to have a feeling I can also benefit the team, I can give something from my side. It's very good if I have felt the need for such a product or service myself.

 

What are the biggest challenges from the state to startups and angel investors?

A startup typically consists of people. They have to get their salaries. In a startup it takes many many years before you get some profit at all. Meanwhile you pay in taxes to the government quite a huge sum. From a 1 million investment basically 500,000 goes to a taxman.

 

Should the tax system somehow benefit startups?

Yes, but what will happen: a company employing hundreds of people will turn into a company employing hundreds of companies, to save on taxes.

I think the Enterprise Estonia's style is maybe good to provide some support - taking into account the number of people working at startups etc

 

Do you prefer to invest alone or as part of a syndicate?

The idea of syndicating is really good. It reduces your risks and the company gets more advisors on board. The problem used to be that investors did not communicate with each other too much.

 

How many of our startups have grown into a major league, beyond the first interesting product?

Very, very few. Fortumo, Zero Turnaround, Creative Mobile 

 

How can we grow that number?

EstBAN can do quite a lot, but its difficult. We are only 1.5 million people. The community starts to be there, helping startups to find money and grow business.

 

How could we get more investors into EstBAN?

We need some good stories of successful startups and successful companies that generate milllions for their owners -- either through a sale or from the business. Success-stories make them attracted. Startups are not a way to get rich. It's a lot about helping and coaching, if you are lucky you may earn something.


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