5-Minute Interview with Rando Rannus, Siena Secondary Fund
Dr. Dorothy Kelso
Managing Director, SuperReturn | Board Chair | Emerging Manager Champion
In this series of 5-minute interviews, I shine the spotlight on up-and-coming fund managers in private markets across the globe. All geographies. All strategies. All sectors.
Here's my conversation with Rando Rannus, General Partner at Siena Secondary Fund.
Quick facts about Siena Secondary Fund:
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Q: What’s Siena Secondary Fund’s investment strategy?
A: We provide liquidity for early investors, founders and employees of high growth startups like Bolt, Veriff and Kry. We target companies which are usually post series A, have solid business models and are still in a high growth phase.?
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Q: How do you source these secondary deals?
A:?Our team members are active startup community members, being part of angel networks, VC associations and the Estonian Founders Society. This gives us an opportunity to talk to the prospective sellers and startup founders well before the actual need for secondaries becomes evident.
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Q: What hands-on expertise do you have??
A: Before launching the secondary fund, we were active business angels and also executed a few standalone syndicated secondary transactions. This experience proved to us that there is a demand and supply available and the market is ready for this type of specialised fund.?
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Q: Talking of demand and supply, what’s behind the growth in VC secondaries?
A: Over the years, the exit horizon for VC backed startups have become longer. In the noughties it was 6-8 years on average, nowadays it’s 12-15 years. This itself creates the need for some kind of liquidity for the founders, early employees and early investors. Even if the company is doing great, it makes sense to diversify a bit once you have done 100x return on the investment.
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On the other hand, for the LPs, it makes sense to invest into a secondary fund because it shortens the fund lifecycle from 10 years to 7 years, provides accelerated?cash returns and has a lower risk-return profile. The lower risk-return profile is because the fund has similar returns to early-stage funds, but has less risk as the companies we invest in are solid businesses and so the risk of default is much lower.
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Q: What’s the size of the market opportunity in the region??
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A: It is estimated that secondary market size could annually amount to 2-4% of the total market cap of startups. If we just look at Estonia, Latvia, Lithuania which have combined €30b plus market cap, then we are talking about €0.6-1.2bn market opportunity annually. We are just scratching the surface of this with our first fund. Hopefully there will be more LPs who will acknowledge this and help us to make a bigger impact for the ecosystem.
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Q: What your team’s history??
A: I have been a consultant at PwC and have also had a full lifecycle as a startup founder with a successful exit. My partners have 25+ years of corporate finance experience and, along the way, have made investments into startups and tech-enabled companies. My personal founder journey and broad network in the startup community combined with the M&A experience of my partners gives us a unique combination of skills that are needed in successfully executing secondary transactions.
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Q: How do you see your business scaling?
A: Our scalability is dependent on the overall startup ecosystem development. Once there are a decent amount of scaleups in a country there will be a need for a secondary fund like us. In that context we see that fund II, which we plan to open at the end of 2023, would cover more broadly CEE countries which are following the lead that Estonia and other New Nordic countries have shown. We believe that being first in the region to focus on this area helps us to scale the firm further.
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Q: What is your secret sauce?
A:?Our success is dependent on the success of startups. Estonia has been a clear role model in this case, having the most unicorns per capita in Europe. Without the hard work of the founders and teams we wouldn't be here and talk about secondaries as a separate VC strategy.
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Q: What valuable lesson have you learnt that helps drive your approach??
A: Having been a startup founder and now an emerging manager, I can say that these two roles have a lot in common. In my view, launching a fund is like creating a startup – you start small, create traction, then go and fundraise from bigger investors and then you grow again. So having the same personal qualities, like grit, helps you to succeed both in your founder and fund manager journey.
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Q: What advice would you like to share with our readers?
A: Basketball is easy - keep your eyes on the ball and the scoreboard will take care of itself!