Jean Sini (Partech): We like to see Series A companies with traction.
25 Sep, 2020
Alexander Kölpin is Managing Director at seed + speed Ventures. He is a preseed and seed stage startup investor, investing in software companies in Berlin and Germany. He is the Managing Director of Seed+Speed Ventures (part of the Maschmeyer Group) in Berlin, Germany. Prior to that, he was for 6 years Partner at the SeedVC WestTech Ventures, before that COO and Co-Founder of the German Startups Group, a SeedVC in Berlin.
How it happened you decided to enter the venture investment business?
It was time when I had a lot of startups coming to Berlin. I travelled – mostly to Silicon Valley, but also to other regions, – looking for interesting startups and I did found them. So I created a network of startup founders and, obviously, other VCs from all around the world. At that time I tried to develop my own startup, but I had a wish to be independent, to be a co-founder of something. And then I met a person, who became my co-founder of a VC company. So, I had a network, I had technical knowledge, knowledge about business models, etc. My partner had a very good experience as an entrepreneur, so we were a good team. We co-founded a seed VC firm in Berlin, and it was a beginning of it all.
How you select ideas to support? What are your criteria?
If you ask an early stage investor agent about his criteria, he will say: “Location, location and location.” I believe with startups it is a little bit similar. You have “Team, team, team,” or “Founders, founders, founders” as the most important things. However, if a small seed VC or pre-seed VC gets about 2,000 business plans, obviously, you have to decide very fast. Sometimes people just have an idea, you tell them: “Please, come back later.” And at the end only a fraction of the ideas remain for you to choose from. And you try to understand – very fast – what you think about the market, how it fits to the founders, whether they have some sort of traction (we sometimes invest when there is no revenue yet, but some kind of traction shows that it may be later). And the essence of it all makes us willing to meet the founders and teams to go on with the project.
So, location or team is more important?
If there is a startup that comes from a place, we don’t invest into, say, Asia, we say: “No” without even looking, because you have to stick to your own rules. In my opinion, exceptions doesn’t work there. We are not angel investors, so we don’t do it. I believe that location is not important, and you can found a successful company everywhere. We are active mostly in Germany and German speaking countries. But if a company is from Berlin or a small town in the middle of nowhere, it is not important.
And what industries you’re interested in?
As a seed VC, we have quite typical approach. Most VCs have either regional constraint (for example, invest only in German-speaking countries or Silicon Valley) or industrial one. We invest in scalable tech companies, mostly B2B, but in those areas we are agnostic regarding the industries. Founders may present us ideas in Cyber Security, HR software, Health software. We are pretty open, and we are not an exception, because the smaller you are as a fund, the more regional you need to be, and as a regional fund you cannot concentrate on only one or two verticals.
Do you support computer game developers?
There is something I don’t do and wouldn’t do, because it’s like investment in films. Computer games can make you very rich, it’s just a question how to pick the right one. You may invest into an English lady who wrote a book about a sorcerer – and get Harry Potter. It’s not because I don’t want to invest in culture, I just want to invest into scalable business model. And you cannot predict a success of a cultural thing without being a part of that industry. A successful film or game producer may invest into it, but I will invest into a startup that supports game development studios – it is predictable. You may search for gold in Alaska or sell shovels to gold diggers. I will rather sell shovels.
What a startup should have to propose to catch your attention?
Nowadays we have a lot of tools to help you to prepare your presentation – websites, YouTube, blogs, podcasts. So, prepare yourself, make a professional pitch deck and have a very clear and concise approach: this is what we do, this is the problem we solve, this is who we are, this is how much money we need. And if you did all this very peculiarly, you have already won one point in my book. I am ready to take time to read such a pitch, because I see that people who send it took time to prepare it.
What qualities you are looking for in teams?
First of all, I’m looking for teams, not single founders. In a team you may have complementary capabilities, where the one is a good sales guy, one is a good CTO and so on. It is very important at early seed stage, because a lot of the work has to be done by founding shareholders. I look for complementary business skills. But the most important thing I look for is that founders are all in and all are resilient. When you’re doing early stage investment, seed investment, you may be sure that there will always be a few pivots that will change the business model, you will have so many obstacles to overcome, you’ll probably be three times broke before you’ll get decent revenue. And resilience – wanting to be successful and to go ahead – is the most important quality in a founder team.
So you did not support a one-person project in your practice?
Obviously, I did. The exception is always there. If a single founder is very talented, if she or he is able to pull it off, if you trust this person, you say: “Ok, despite all rules, I’m giving up, I trust this person.” Yes, I did it, I invested in single founder startups and will do it again. I wouldn’t say that having a team is a dealbraker. You have to decide all pros and cons to have or not to have a team in any specific project. I won’t turn off a single founder startup basing on only this parameter. But, as a VC my opinion: a team is about spreading risks, spreading possibilities. And the risks are higher when it is just one person, because during the first years this person is not replaceable.
With who you would prefer to work as founders – Jobs or Wozniak?
I don’t know them that well, but I’m pretty sure, that despite I would love to work with Wozniak, from the possibility to scale a company it still would be more predictable to work with Steve Jobs.
How many startup projects do you review per year?
Companies like ours receive more than 2000 pitches per year. I don’t review every one of them, but most of them. As you understand, most of them are those that you open an email and immediately see that it is either a wrong geography or something else you cannot follow up. Generally I read and analyse a couple of hundreds pitches a year.
How startup team usually find you? What are the sources of all those projects?
Most of them come from our website. Then we have a lot of plans sent to us because one of us was a jury member in an event or just attended an event. And another source is our portfolio, which other VCs refer to. Usually these projects are the most interesting ones, because they have already passed some sort of test, met somebody to forward their email, someone had already taken time to approach us. This is some kind of a sign of quality.
How big is a check you usually issue?
It can range from 50,000 Euro to 500,000 Euro to the first check, but mostly it is between 2000 and 5000 Euro at the first seed round. Usually we invest in the next or two next rounds as well, and it makes 2 or 3 times of that initial check.
Have you ever support a Kickstarter/Indigogo projects?
Yes, we – and I – have companies in other portfolios of companies that did that. I think, you should do it, if you need a pre-financing of your product. However, we invest rather in software companies, while most of KickStarter projects have some tangible products, something you can buy, and we don’t do this kind of investments. If you are referring about crowd investment companies, when several investors unite to invest into some project, it is a little bit more difficult. In this case I need to check very carefully how the proprietary rights are shared.
What is your due diligence procedure and how long does the process take?
At the very early stages due diligence is not so easy to conduct as in private equity investments. There are just not many things to be checked yet – not many revenues, not many products, not 3+ years of numbers. Of course, we check typical staff – legal, financial, whatever you have. For us it is also checking up the team and customers or users of the product. That’s why it takes time for us, because we want to meet founders several times, we want to talk to users or buyers of the software to understand the market. We look at competitors. We exchange opinions with shareholders or potential shareholders or co-investors. It can be very fast, if you have some advantage and know the market or founding team, but usually it takes 2 to 4 months from the first meeting till investment.
How long does it take you to cover the whole way from the first meeting with founders to contact and check signing?
The startups usually need to be at the game for half a year before they get the first money. It’s not because I, as investor, need them to live that long. So, for us 2 months is quick, half a year is long, but it is not always depend on us. Sometimes founders take time to consider opportunities, so you meet a lot, you talk a lot. This process is often interrupted. My recommendation is to consider 6 months as a normal period. The checking of the books or a product may take a couple of days, it’s an easy part, because there is not much there to take a longer time. For me, the real due diligence consists of analysis of the team, the market; you need to look for the lot of staff yourself there, you cannot delegate it to some hired manager.
And what are your red flags?
To be honest, one important red flag is a bad gut feeling, either about the founders, or the market. The real red flag is when you see some sort of dishonesty in your conversations with a founding team. You cannot get rid of this, because it is based on trust. I understand, that it is not comfortable for founders to be completely open, because you are selling something to a VC, but there is a strong line between selling and cheating. If there is something not right in what I was told, I stay hands off.
Had you ever rejected a cooperation proposal and then regret it? Accepted and regret?
Unfortunately, I’ve done both. I rejected several companies and, actually, in my plans for this year there is to review my anti-portfolio and find where I rejected a very successful company. You may learn a lot from this false positives. I can learn a lot from those companies I rejected and they became successful, because, obviously, I invested in companies that didn’t succeed. Either a team fell apart, or market didn’t work out as we thought, but you cannot do anything about this – it is a risky business. You can do your homework and do everything right, yet you still need a little bit of luck. But you can learn a lot from anti-portfolio – why you’ve said “No,” what should you analyse better. I’m very interested to this and this is in my plans for 2020.
What was the most unusual startup you ever supported?
Now we invest in some internet projects. But in my previous experience I invested in media, called LaBiotech. It is a sort of cranchbase for the biotech industry. Typically, that is something VCs don’t do, because it is not software, but a media company. But I like it, because in this company you have to work everyday, grow the audience, grow more products, etc. But if you need something crazy, I answer that I’m not an angel investor, who can just make bets. I’m a VC, I work with other people’s money, I need to be very responsible for the people I owe the money to. My investments may be risky, it’s a part of the game, yet promising, because they fulfill the conditions. Venture investments, despite what people think about it, is not a casino style betting. Early stage investment is not a science, it’s art, hunt Vegas, as we say in German, if you do it right, have right words, have experience, have the right processes, you will be profitable. At the end, this is the aim.
Can you name industries you really like, yet will never invest into?
There are startups I like, because I use the products. I’m a big fan of podcasts, I use PocketCast. When I consume news, I use Feedly. Those are both startups at the very crowded markets, but both are very successful and have excellent products. Still, if they came to me at early stage, I wouldn’t invest because of the huge competition. These two teams have done tremendous jobs and created great products.
What books, movies, blogs, events can you suggest to startup founders?
As a founder, you’d better go to some smaller conferences, because there you have higher chance to meet investors. In Germany those are Demo Days, if you get invitation. Recently I was in such Demo Day in Leipzig, and like 15% of attendance there were VCs or angel investors. So go to smaller events, regional events. For larger startups I would recommend big events like NOAH in Berlin and London as the must. About books, personally, I like Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld. It is very good and explains a lot. As a founder, if you’re good and successful, you will go through a couple of money raising rounds. This book is very easy written and explains everything. I have a very educated partner and I prefer somebody who is well-educated and on my eye-level in my discussions about business. And this book helps to be prepared to negotiations with VCs.
Can you name three most breakthrough startups in the history?
It might be a boring answer, but for me those will be companies I admire a lot. Those are Apple, Google and Facebook. Unfortunately, they are all American, not European, but they have really changed markets, changed the world and they influence my life every day. However, in order for them to succeed we had a lot of partially successful or not-successful companies, who paved way for their success. Facebook wasn’t the first social network – far from this. Numerous others had tried, found out what works and what doesn’t, and then you have somebody who took the best from those, added a few things and build a great company. So, I stick with those three.
And do you like where you are now in terms of your current business situation? Or, maybe, you would like to try something new to apply you knowledge and ideas to?
Before I took my position as a Managing director in seed + speed Ventures, I took a small sabbatical for myself, I wasn’t sure what I do and really challenged myself, what should I do – to found my own company or stay at VC business. And, honestly, seed and early stage investment is really exciting, I really like it! You need to be curious, you need to challenge yourself everyday, because you need to learn from your mistakes, you’re always at the top of developments. Honestly, I cannot think about, there is no better place right now.
What is the best share a VC can acquire from a startup to keep it stable?
When a company is young and founders are inexperienced, you can get a lot of shares from the company. I would say that if a team gives you 10 to 30% share per round, it is a good range. Most of the rounds they give around 20%. After a couple of rounds founders loose the majority, but the company becomes more valuable. So, you must be prepared to give away 20±10%. As an early stage investor, I’m interested that founders will be around for the next 1-2-5 years, and they need to have something on a stake, need to see what they are working for. Ideally, they need to have a good share of the company. But how big this stake – 20% or 80% – depends only on the value of the company and its stage.
What car brand you prefer, Mercedes or BMW?
For many years I’m a BMW person. But if you ask me about Tesla or competitors, I would say: “Ask me in several years, when infrastructure will be better, and I might give you a different answer.”