Process & participation
What is Fstage about
Mikk Orglaan, the founding partner, was interviewed by Andreas Munk Holm EU.VC
Watch the interview to get answers to your questions like why was it founded and why it’s disrupting, to whom should it serve, what are the key findings from onboarding, OKR meetings and validation, what are the expected outcomes and exit strategies.
Should you want to talk to us in person?
Let’s have a meeting via meet or zoom.
Overview of our unique risk mitigating process.
- Startups scouting, pre-screening and signing the Warrant
Scouting and pre-screening is being done by FStage administrator. Startups may sign up themselves. Mentors and investors may suggest startups to administrator also. Startups have to meet Fstage criteria – MVP ready, core team onboard, runway 4 months or more, revenue 0 – €10k.
Startup has to sign with Warrant before getting into the FREE 2 month validation process. We discuss investing terms as part of the negotiation and get-to-know process before we get into fine details.
- Onboarding startups, kick-off OKR meeting
After pre-screening we have OKR meetings with 3–4 mentors/investors to discover startup’s business and talk about existing challenges. Mentors/investors help to identify what metrics could we monitor for 2 upcoming months that produce strong enough evidence that will convince other investors to invest. And, to ensure we do not miss the market opportunity. Founders might not be able to identify and/or solve challenges that take the startup from pre-seed to seed stage. This is where external experienced mentors join to help. Once we are convinced that there’s market pull, it’s a painkiller, founders understand challenges and know how to solve them, investors believe founders are capable of solving challenges and are trustworthy – then it would be stupid not to get onboard early enough, with small ticket enough and invest.
- FREE 2-month validation process
The ultimate task is to get to know the startup business, its founders, to discover and solve (theoretically) challenges that hold back the growth and takes the startup from pre-seed to seed stage. If we are unable to figure it out then it makes no sense to invest in such startup. Over 2 months 2 lead mentors will read startups weekly reports about previous week achievements and next week plans. Lead mentors may reach out to founders and other investors and ask for little contributions to help startups ease the processes, if needed. Founders get to talk to all mentors as well. Mentoring and creating a first-hand relationship is how you can significantly amplify every euro you invest, however small or big your investment is.
Working side by side for 2 months with common problem is usually enough to identify bad apples and possible upsides.
- Investing decision
After 2-month validation process will startup have last pitching session, to all investors. Everyone gets to ask questions. 2 lead-mentors, who worked with the startup, reveal their hard and soft evidence with other findings why they invest or not. FStage publishes investment memo. Discussing and analysing startups before making an investment decision is the vital part of FStage process. That is to mitigate risks, educate investors and build a more detailed picture of potential target object. Then after investors indicate their investing preferences minimum €5k. Fstage collects investing decisions and funds into SPV.
FStage aims to pick only problems its investors want to solve. It’s a conscious deliberate choice, based on data, insights and belief. We appreciate experience and expertise together with funds. To avoid stupid money we count investors votes, not ticket sizes when evaluating. Yet eventually money talks.
*In 2022 we had a cohort of 13 startups and its investing decision meeting happened on December 19-th in Tallinn on-site and online.
*In 2023 we onboard startups 1 by 1, the process full duration is up to 4 months with fundraising and investing.
- Investing execution & paid mentoring
FStage aims to invest in €50-100k via equity based deal or convertible note and maintains investments thereafter 1-10 years.
Due diligence has to reveal no surprises, we might amend changes in investing terms. Mentorship agreement is to be signed together with investmet agreement. FStage obliges to carry out a paid mentoring service for up 18 months. Mentors get paid directly by startups in cash or equity. FStage gets minutes of monthly meetings for free.
Exit strategy: VCs or M&A at late A or early B round (successful partial or full exit; or bankruptcy), FStage pays back loan principal and proceeds to investors, as described in the loan agreement. Partial exits are an option also, once mathematically reasonable.
- Raising fund
FStage raises funds using loan agreements with variable interest to SPV, from legal entities only. Funds are to be transferred after voting and before investing in startup. We accept tickets €5k to €100k from investors.
FStage investor’s profile is ex-founder, business owner / generalist. Specific skills are highly valuable, mainly as short term injections, called out by 18 months mentors. Investors should bring some unique skills to the table and be interested in mentoring if a need arises.”
We acknowledge that startups is a risky asset class and if we receive any proceeds it is already a miracle. Yet we like brain picking and solving challenges, so do everything in our power to make significant returns on our investment.
Why do it in a joint form?
Bigger & smarter together
Investing is a group sport, doing angel investing on your own means shortcuts in quality, processes and analysis depth, lesser value to startup founders, also bigger risk to any angel investor as red flags remain undiscovered and evaluated.
Skin in the game
Every mentor is also investor, no empty words. Ensuring that good enough OKRs are selected for startup we give them an opportunity to prove themselves worthy of investment. Investors transfer money before startups are selected – so you get involved immediately.
Mentoring to boost
To overcome challenges at early stage might be real hard to crack. Jointly we combine huge amount of experience, expertise, but even then it might not be easy to solve challenges. Also we learn founders when supporting with light mentoring. We verify coachability and trustworthiness over the period resulting in significant growth done by startup
Due to inflation and amount of money on the market, bigger amounts open doors to better startups. Bigger checks mean bigger shares and better control over investments.
Getting onboard early enough
Getting onboard early requires less capital, allowing to gain higher returns in times, lesser in cash. Turbulence in high rounds and valuation drops in recent economics force investors to get onboard early, so the competition grows.
Missing lesser market opportunities
Combining our pool of investors as a source of high expertise in a wide range of businesses lets us acquire market opportunities sooner and faster or at all, and to be agnostic in our selections.
Investing is a group sport. Investing your money jointly creates benefits from group intelligence, noticing risks and opportunities. The risk of having a bad democracy is there and we have to acknowledge that risk at every step.
Learning by doing
It’s officially said by several BANs that 2 years learning without making any investing is OK. We believe it’s lost time/returns.
Jointly we address market opportunities new for some investors – this is how you are able to learn and gain financially from others.
The risk of losing hard earned money keeps everyone on the edge and ready to fight back to keep off from suspicious investments. Combining experience of investors, exited founders, business owners, experts and specialists – we should be able to evaluate risks better than anyone alone. Prior final investment decisions we discuss top cases jointly to identify green and red flags – to maximize our investments’ upsides, yet keeping safety as a priority.
Ideal Startup Profile
We believe there is an entry point where we are able to provide value and gain financially.
- MVP is ready.
- Core team onboarded.
- Runway left 4 months or more.
- Valuation below €3M.
- A challenge that holds them back we are able to fix cheap enough for us.
- They value mentoring besides funding.
Where do we find good startups?
- Our administrative team scouts promising startups from personal connections, partners and at events. We use our website and our investors to attract promising startups.
- Spread the news among your startup contacts and in social media channels. Mitigate your risks by suggesting startups for our 2-months validation program.
- We still have good old social media up our sleeve. We have planned to take part in various hackathons, accelerators, startup events, etc.
Our competitive advantage
We position ourselves as low hanging fruit for startups. Easy money €50k-€100k for chasing the right goals over 2 months. That’s it!
We keep up our response time as short as possible whether they qualify for our program or not.
We help to discover and solve their killer challenge that holds them back from getting to next stage.
We do not distract startups, we do not require them to go after big revenue, yet wrong money. Only thing they need to do is to define how they can convince us of market pull, their performance, their trustworthiness. Would it be signing Letter of Intents, growing traffic, raising conversion, converting pilots to paying customers, signing deals – this is up to the startup and our onboarding investors committee to agree on.
Follow-up investment strategy
- Pro-rata follow-up investments – upon joint decision.
- Keeping our % of shares – upon joint decision.
- Mostly we take pre-seed startups to seed stage.
- At seed stage or later partial exits from startups or while portfolio.
- Full exit by late round A or early round B.
- Investors lend the money to SPV.
- Startups get the investment from SPV in a form of equity or as a convertible note.
- The SPV board executes investors’ joint will.
- Returns are paid back as loan principal and variable interest, less the carry.
- Investors are to pay carry 13% from returns. Administration fee 6% is deducted from the loan amount.
- Loan agreements are signed between companies to avoid any taxation issues for SPV.
- In the investing decision process every investor has a vote, because of expertise. The voice is no louder because of the check size.
Fundraising started in August 23th 2022.
Program launched in October 10th 2022.
Program ended in December 19th 2022.
First cohort investments made by March 20th 2023.
In 2023 we operate 1 by 1 only, no cohorts.
Selling services to startups policy
- Investors/mentors, except lead investors/mentors, can offer free services up to 2h per startup during a 2-month validation program.
- It is prohibited to conduct any business activity with any startups in pre-screening process, in the 2-months program, before investing decision has not been made and in case startup has been selected as a target object and has not yet received our funding, that is to avoid any ethical or moral conflicts, or to distract startups from achieving their KPIs/OKRs at their best.
- We suggest not to provide free services in case work amounts exceed 2h. That is to keep up our reputation and service level quality, as free services tend to grow expectancy that everything is free, therefore it is not valuable or there is no countless hours of expertise and experience behind to give advice that might significantly change outcomes. We are not a charity organization.
Investors/mentors are free to sign any direct mentoring or service contracts with any startups after the validation program has ended for the startup.
Should you want to talk to us in person?
Let’s have a meeting via meet or zoom.