Cross Ocean Ventures, a new early-stage investment fund for international founders with global ambitions, has established its operational hub in Estonia in 2023. The fund invests in and helps European startups expand to the US market. Cross Ocean Ventures’ strength is finding and helping companies in a position to raise Series A funding, mainly through US investors over 12–24 months.
Serhat Pala, the fund’s CEO and founder of multiple high-growth tech companies in the US, explains his decision to choose Estonia for one of the hubs in Europe.
Why does Cross Ocean Ventures focus on European countries and why did you choose Estonia as a financial hub?
After my most recent successful exit, I transitioned from creating my own companies to guiding other founders. This career pivot gave me my first real opportunity to engage with entrepreneurs outside of the US. As an immigrant entrepreneur in the US with successful exits under my belt, I began engaging more with European founders who aspired to expand their companies or product lines to the US market.
While Europe has made significant strides in fostering a more conducive startup ecosystem and facilitating access to early-stage funding, challenges persist for many companies. These challenges are particularly pronounced for those hailing from small to medium-sized European countries with more niche operations and smaller total addressable markets (TAMs).
As for choosing Estonia as our hub, it goes beyond the favourable legal and regulatory environment. Estonia has swiftly established itself as a burgeoning “startup and entrepreneurial nation”, evident from its rankings in the Global Entrepreneurship Index (#11 in 2023), Startup Genome Global Startup Ecosystem (#18 in 2022), and World Bank’s Doing Business (#16 in 2023). These rankings, though impressive for a small country, only hint at the opportunities the nation presents for investors, particularly in the tech domain.
Estonia’s size may appear disadvantageous on the surface, but it conceals significant benefits. For example, the restricted local market means that from inception, startups must strategise for international expansion. This reality fuels an international growth mindset among both entrepreneurs and governmental entities, transforming Estonia into a testing ground for strategies to be replicated elsewhere.
The intimacy of the market allows founders and startups to easily connect with their first potential clients for solution validation, speeding up the feedback and adaptation cycle.
Serhat Pala together with his wife and business partner Zeynep Ilgaz
A definite benefit of Estonia is the close-knit entrepreneurial community which means founders are never more than one or two degrees of separation away from a successful entrepreneur or even a ‘unicorn’ founder, who can serve as a mentor or role model.
Also the relatively small and less diversified local public stock markets play as an advantage for us – it inspires investors to back seed and early Series A funding rounds more willingly, along with the observable high returns from early-stage startup investments.
In comparing Estonia to other developed regions such as Benelux, the Nordics, and Central Europe, I believe Estonia holds a significant edge due to its trifecta of positive mindsets, akin to those found in the US and Israeli ecosystems:
The ‘grow big, grow fast’ founder mindset.
An investor mentality focused on a startup’s future potential, encouraging founders to learn from their mistakes rapidly to expedite growth.
The understanding among regulators and government officials that their role is to facilitate enterprise growth and innovation, ensuring they remain accessible.
How does Cross Ocean Ventures help European startups get better at competing with their US counterparts?
The cross-border venture funds like ours that operate at the earlier stages (pre-Series A) play a positive role in helping the European ecosystem indeed. I am encouraged to see more funds like our Cross Ocean Ventures come, invest and then help early-stage startups to expand to the US market, get more US investor attention and support. By doing that we will end up not only having more connections between US investors and European startups but also expose European investors to the inner workings of US investment mindset.
And at the end, with more successful companies of more diverse sizes will expose the European Investor to value-creating exits. As a result, there will be more appetite and support from EU investors to have their portfolio companies go faster and take risks in order to scale.
What are the main obstacles and mistakes made when European startups are entering the US market?
At Cross Ocean Ventures, we really “dig in” before we decide to invest in a company. We not only need to believe in the team and their solution, but also be confident that they’re open to guidance, and that we can aid in planning and executing a successful US expansion. Our focus is on B2B SaaS companies that are raising seed funding in Europe and are on a solid path to securing Series A in the US. We’ve put together a robust set of resources on this topic, many of which are freely available online for founders.
Some of the common hurdles and mistakes founders often encounter when breaking into the US market are about product market fit or market selection, meaning that just because something works in European markets doesn’t automatically mean it will be successful in the US. Also, when it comes to entering the US market, it’s an all-or-nothing game. US expansion can’t just be a side project; it has to be a top priority. It is also crucial to bring US investors on board from early on and start building a US-based team.
Finally, there are many other less obvious but equally important factors to consider, such as the founders’ immigration status and the potential impact of a founder’s move on the rest of the team. As a fund, our biggest contribution to our portfolio companies isn’t just the investment we provide, but the guidance we offer to help them successfully establish themselves in the US market.
If you want to contribute to a more diverse future and invest in Estonia, book a time via our e-Consulting and get started!
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