Jean Sini (Partech): We like to see Series A companies with traction.
25 Sep, 2020
Marcel’s long-term, versatile, and international experience in the IT, internet, and mobile industry has challenged him to take on leading technical roles in business development. Both (his own) startups and global market leaders have benefited from his expertise and dedication. Marcel holds a Ph.D. in Physics, which shapes his highly analytical way of contributing towards outstanding success stories in the industry. Before joining Speedinvest in 2012, Marcel managed the EMEA-hosted applications business and a partnership with a global operator within Microsoft. As a Partner at Speedinvest, Marcel provides hands-on cooperation and support to portfolio companies in the complex field of technology.
It was really a serendipity. When I was in university during my PhD I founded some companies. With one of them, we managed to raise quite a bit of money at the end of the 90th sooner to the 2000th. Unfortunately, that didn’t end well. We raised money and grew the company but then had to shut it down because of the market collapse. I taking jobs in telecommunications and later software industry. I worked in product roles and moved more and more to the commercial side, taking sales management and business development roles, partner management roles in software companies.
Before I joined Speedinvest I was at Microsoft for seven years. And when I was leaving Microsoft, one of my former cofounders from the U.S. reached me. He started a small venture fund with a couple of friends from Austria. They were looking for somebody to join the team. I thought this was interesting because I’ve never thought about becoming an investor, but I was looking for something else to do. Then I met the guys and we talked about how Speedinvest is structured and how they wanted to behave as investors. It was a really good fit for how I thought about things. The team was also a very good fit. I’m just lucky that this guy started a fund and they’ve asked me to join it. That’s how I got into a venture.
When I started, I moved to our U.S. Office. Speedinvest had a very unique approach. We invested money in companies and have a lot of resources to support their operations. We still support companies with a lot of business development efforts, that our partners at that time did themselves. Today we have 20 people that exclusively work with and for our startups, supporting them in marketing, sales, and HR. We always wanted to provide more than money.
That was a good opportunity for me because I didn’t have a lot of experience in investing, but I obviously had a lot of business and commercial experience. The combination of looking for something new and finding this fund with a big operational focus was a great fit for me.
We do invest quite broadly. The simplest way to summarize is to say that we invest in digital companies. We very rarely invest in hardware, biotech, and vet lab stuff. We always invest in digital and within digital, we invest very broadly. Speedinvest is the most active fintech investor in Europe. We have an industrial technology fund, a marketplace focused funds, and fintech funds. Within the main funds, we do consumer tech and SMB SaaS.
The team that I’m part of, is focused on enterprise and frontier technologies. It covers the whole spectrum when it comes to digital startups. What is specific to us, is that we invest very heavily in operational resources to support our startups. This paid out of the management fee. There are 20 people on the payroll that do that. We want to be a very active investor. We have an office in Silicon valleys since the very beginning at 2011. We also want to help European tech startups to move and break into the U.S. market and raise money there. It is quite unusual. The best example is Andreessen Horowitz, the U.S. Fund. It was unique in 2011 that fund try to be also operationally involved. Today I think there are very few funds that invest as heavily as we do in the operational capabilities.
I would probably not invest in a real fintech company. If I look at fintech I see the fin and the tech. And I can see myself investing in a tech company that sells to financial services companies. I wouldn’t personally invest in a fintech company. Speedinvest is a very active and very successful fintech investor. This is the difference between the small funds with the small partner group that are generalists and Speedinvest, which is a large fund with a large partner team where individual partners have their area of expertise. That means we can offer all these things and we can cover very credibly areas where we wouldn’t invest.
Energy is a market we don’t understand. Biotech and bio-sciences we don’t understand. What else? The industrial sector and traditional manufacturing. We have a fund that focuses specifically on that because that is the sector that is going through a tremendous transformation. You are digitizing manufacturing, design, testing, and simulation, all that stuff. That is an area we really like. We would invest in software and technology services for that industry, but not in a company that is building robots. Maybe we would invest in a company that creates a very intuitive programming environment for lots of robots or things like that. I think that energy, agriculture, and semiconductors are still difficult for us. There are a ton of opportunities and a very exciting space, but it’s not something we know much about. You really need to understand the industry dynamics, what it takes to build chips. And we don’t know that as well.
We would never invest in pornography, drugs, or cannabis. It’s unlikely we would do that. If we find the startup really unusual we probably wouldn’t do it.
We have in the list European investment fund as an LP. We have some restrictions like Iran and North Korea. You know, there are some complicated countries. We have some restrictions on how much we can invest outside of Europe. For all practical purposes, we can invest pretty much anywhere but we cannot invest the whole fund in South America. We have a limit to how much we can invest outside of Europe. We don’t focus anywhere outside of Europe, that is our target region. We have offices in Vienna, Berlin, Munich, and London. There is somebody in Paris. We try to be close to where the action is in Europe. That is our focus.
Realistically, we don’t spend a lot of time in Eastern Europe and post-soviet countries. Although we have some investments there. To be honest, if we were to invest in the Russian team then we want it to be either a UK limited or a US company. It could be any EU country, in the U.S. it’s usually Delaware. It doesn’t really matter if it’s the UK, US or Germany. The UK is good because it is a very established corporate law. Germany could also be good. The US is also fine. We have under 180 portfolio companies in 24 countries. For us, it doesn’t matter. By now we have 20 companies that have flipped to become US companies as well. We are comfortable with US law too. It doesn’t really matter. It’s about what is practical. A lot of CIS originating companies have a preference for the UK, but some go to the US which is also fine.
We’ve invested in a company called Flavio Obedient Background. Single founder at the time ran a bar in Bouglion. He was selling really high-end spirits, very, rare whiskeys and stuff like that. And he wanted to take this online. We decided to invest, it was a big bed but he did it. He took the business online. He got a second co-founder. A very experienced eCommerce guy and now they are the largest global spirits retailer and the largest membership community. They moved to San Francisco. Now they are in New York and started acquiring competitors. It’s been one of our more successful companies and this is literally one guy running a bar in Louisiana. They overcome huge challenges, which is a big achievement on its own. That’s a great story.
There is another fair recent story. We’ve invested in founders that are taking on a very huge, problem. These are very young guys, super ambitious, very stubborn, and unique team. It could be a tremendous success or maybe not. Time will tell. It’s unusual because it’s one of the very few times we really invested in an RnD efforts. If you asked «What would you not invest in?», we would not invest in pure RnD efforts. We need to see half-product or initial version of a product, some PLCs with customers. In this case, we went in very early, we evaluate and talk about tech stories. We invested in a company that is pivoted, intuitive to use, generated software logic, and is crazy successful in tremendous growth.
These are unusual things. I think that companies which we invested in are not so unusual, but a lot of things can happen along the way. Companies very often need to change direction, look for different markets, and different types of customers. The company that you invest in is probably very different from the company five years ago.
We are seed investors, which means we typically invest around a million in the company. Sometimes a bit more, sometimes a bit less. We are always looking for about 10-15% ownership in the company. We have a pre-seed team. We depreciate investments to 150K.
Certain criteria for investment are very locked. If we invest in a marketplace or eCommerce business, we really try to move quite close to the metrics. Maybe this company has been in operation for six months or so, and we can see a certain amount of growth. We can see a certain level of adoption. We have quite a lot of details. How users interact with this marketplace.
If we invest in a technology company that starting enterprises you don’t have that. In that case, we typically invest in at a point in time where there is the first version of a product, an MVP, and when the company has a few proofs of concepts or pilot customers. Let’s say 3-5. Ideally, those customers pay for the pilot, but sometimes they don’t. There is a very early version of a product and some customers that are ready to test it. Then, before that company actually starts to make revenue and the deals will be around a hundred K plus per year, that’s going to take another year probably.
So, it really depends on is it a marketplace or an enterprise software company, is it a fintech or industrial technology company where sales cycles and the adoption also take longer. It depends on the market, product, or specific to an industry.
Our largest check is probably 1.5 million euro and the smallest is 150K. That is the initial investment. I invest out of 190 to 1 million funds. We look to invest more than 8 or even 10 million in the companies that are most successful in the course of multiple rounds. We make the initial investment and then we try to protect our equity stake by contributing to the next round.
Like I said before, it really depends on the type of company. We look at an eCommerce company differently than at a security company, which is selling to enterprise customers. We look at a SMB SaaS company differently than at a direct to consumer company. The requirements are very different and specific to the types of companies.
Beyond that, there are a few things that you do look for that are the same across all companies. And it probably has to do more with the team and the founders, their personalities and if there is a fit on a personal level. Is there a nice balance in the team, technical versus commercial? Do they have a track record: maybe a serial founder, maybe they understand the market very well? You look at some of those things for every company. Then you look for a big market opportunity. This is probably the same for every business we look at.
We do pre-seed investments or these 150K sized investments. Our company is not so ownership sensitive but we do pre-seed investment, let’s say a million, we are quite an ownership sensitive. We really try to get at least 10%. That’s the minimum. 15% is more ideal. It’s our targets. And if we have to invest a little bit more to get to that 15%, that’s something that we will move for.
The lifetime of the funds is about 10 years. This is pretty average for VC funds. It’s getting a bit shorter in general. But it’s clear for any investor that if you invest in a company and the company is doing well and continues to grow and valuation continues to grow, you are going to stay on board. If you think the future still looks positive you’re probably not in a hurry to sell. The best and most valuable companies and the companies that have returned most capital to our investors are 6-7 years old. You could see, it’s a game of patience. Your funds might look good on paper but it might take a while before you’ll actually see money in the bank. We should get 3-4 three times multiplication with the first fund this year. In the second fund, we’re starting to get there. On the other funds, it’s too early to say, because it takes a long time before you get out of the J curve. So, we are good at 3-4X.
You can’t aim for 10X because this is unrealistic. You can try, but the chances that you won’t get there and that you actually will lose money for investors, become proportionally higher. You need to have a balanced approach. For every individual company that we invest in, we go for 10-100X. We need to see that 100 X opportunity otherwise, we won’t invest. The reality is that you invest in 20 companies where you think a 100 X opportunity is. It turns out that for many reasons it will not actually become a 100 X company. But what you want is that one of them become successful and becomes a 100 X companies. If you can do that, you probably are going to do quite well as a fund, but you need also a little bit of a balance. Some investments are riskier than others. And you do it still because you think the upside is potential.
As partners, we want to do better because we get paid more in the day we do it. If we can do more we will because we have a personal incentive to do it. And our LPs will benefit from that. There is no investor who will say: «I’ve got 3X, then I’m going to sell the company and go home». They’ll say anything or whatever. No investor would do that, I think.
It really varies by type of company. If it’s a marketplace then it’s something you can build fairly quickly from a technical perspective. If it’s an eCommerce thing, it’s typically something you can build the first version pretty quickly and capital efficiently. If we invest in an eCommerce startup, they will probably have the ability to build a website or a shop, do some marketing, and show some metrics. If you’re looking into a company that is using AI to predict its chemical reactions, the sales cycles are 6-12 months, and then the products have taken a lot longer to develop to reasonable standards when an enterprise will be ready to deploy it in their data center. The product requirements are lower for an enterprise company comparing to an eCommerce company, simply because it takes more time and money to build an enterprise product.
The big factor is what investments are required to build a product that customers can get value from. If It’s an enterprise solution that needs to be integrated with a ton of things, it’s going to take a lot longer. If it’s a website selling packaging material, you could build the first version really quickly. And it doesn’t cost you a million to build it. If you want to build an AI-based security solution for enterprise customers, it’s going to take you quite a bit of time and money to get customers to pay you a 100K to use it.
Sometimes we could see how complicated things have been developed from side projects. But mostly, I’d say 80%, we see enterprise companies that developing an enterprise-ready product for a long period. If you have a pricing optimization tool for Walmart, it’s got to take some time for Walmart to actually start to deploy it. Because they need to be absolutely sure this is actually working. The barriers to entry are a lot higher than opening a quick web shop to see if people are interested to buy cat food. If you, build a successful cat food company, it’s probably not very reliant on the quality of your website per se. It has to be good and your marketing has to be spot on, but the investment in the actual website is probably going to be fairly limited in terms of capital. You’ve got to invest a lot more in marketing and in the product itself.
There’s a couple of things that will stand out for the team. If you have founders that come from a specific industry that they are trying to sell into, if we have serial founders or entrepreneurs that have built a company, had an exit, and grew a company before, they will have a lot of experience. They will avoid making a lot of mistakes. Those are Interesting founders.
And if we have a team and they are trying to sell a new chip design to other hardware manufacturers, but they don’t have any background in the semiconductor industry, that’s going to be difficult. They are going to learn a lot and it doesn’t mean it’s impossible. If you are having a founder that had spent 10 years in the chip or semiconductor industry, he will know his way around and he will look forward to making a lot of mistakes. It’s a founder experience in the industry.
Very often, to be frank, we see first-time founders with a technical background. Obviously, they need to know their technology. But I always try to look for founders who are curious, have shown some history outside of their comfort zone, and are successful in doing something very different from what they studied in a university or what they did for their main job. For example, there is a computers student that spent some time at McKinsey, then spent an internship with us at some technology company, relatively unrelated. Such a person is able to be comfortable and successful in different environments, is not scared to step into a new environment of out his comfort zone. It shows that these people are curious and not afraid to pick up their bags and move. I think that level of curiosity and adaptability is important because a lot of things will happen and a lot of change is going to happen as well when you’re a founder. Being able to deal with that is going to be important.
Yes, we have, but not often. We like to invest in teams, but ever now and then you come across founders where you just can’t say no. They are so convincing that you can’t resist. It worked out well in some cases but in some cases that didn’t. Good solo founders if they’re successful usually are quite good at attracting good people and building a good team around them. Even if they started the company alone, they quickly build a very strong team around them. So, being able to hire is important. Usually, they come with a very early business, product, and traction
It varies and can be a few weeks if it’s a convertible note, a bit of a small investment, the founder is a serial founder with great track records. It’s a space we’ve been looking at. If we understand the market things can go really fast. If it’s a competitive deal, we are also forced to be fast. In some cases, we talk to founders for months. When founders reach out they don’t say: Hey, we want to raise 1 million. There is a valuation. This is the process. They reach out to get feedback. Sometimes we start this conversation, you talk to the company for the first time and make recommendations: you should really do this and this before we can invest. That process is more like a dialogue and a conversation rather than a true fundraising process. And it can take months. If somebody is fundraising, they are reaching out six weeks before we make a decision, on average. Then it takes another month to get all the documents signed. And that death can be a pretty lengthy process too. So, realistically from the first conversation to money in the bank – three months to sign up.
It all comes with experience. If you’ve never gone out fundraising and don’t know a lot of people around you, that have been fundraising and who can give you and advise then the process might take a bit longer. As an investor, you want to ask for certain types of information. An experienced founder can anticipate that and will already have all the things you want to see. Whereas a first-time founder maybe doesn’t realize, what an investor needs to see and what needs to be done as part of the due diligence. And when you come with a question, it might take a week for the founder to prepare some financial plan. Then it could take a little bit longer.
My preference for everybody is a process that goes quickly and smoothly. And when you have the questions to ask the founder has the answers available very quickly. That is the ideal place.
We actually just did a tweet about that. Last year we did 7,000 and we are on track to look at 10,000 deals this year. So, 10,000 new deals, then we have a formal process, where we go to 1,000 pretty quickly. Then, 1,000 to 100 and then end up at 20. We make 20 investments per year.
It’s a mix. We get them from a web site where we have a special application form. We do scout and we have an automated tool that looks for new startups. We do some outbound outreach but the majority – 90% or more comes from inbound when founders reach out to us. Our network is very active. There are a lot of people that we know, founders that we already invested in, LPs, funds, and business angels that send us opportunities.
It’s really a good mix and it’s funny because when you look at where the companies that we ended up investing in, a lot of them come from our network. The amount of companies that come from our network is disproportionally higher than the amount of startups from other channels.
That doesn’t happen often. Sometimes somebody’s not telling the truth. That is of course a showstopper. Sometimes it’s hard to commute. It doesn’t happen a lot to be honest. When you talk to a company, you evaluate it and you do your job. You may believe that the company has an opportunity for success. As an investor, you also will form an opinion about how to get there. Often you have a conversation with the founders. They have their own plan and we maybe feel a little bit different in terms of what needs to be optimized for the success of the company. Usually, you have an open conversation about it because, at the end of the day, nobody knows. You have an opinion. The founder has an opinion. It’s not about who’s right or wrong. It’s about are you having the right conversations to optimize your chances for success. For some founders, it is hard to have this dialogue, to be open to other perspectives. That is a red flag because at the end of the day, as a fund, we have 70 people that can help this company.
If the founder does not know or does not want to use these resources, then it’s a big opportunity that they miss potentially. You need to get along with the founders on a personal level. They need to be pretty open, to be able to listen and to be stubborn and frankly. Sometimes the personal side becomes a showstopper.
If the market is very small that is a showstopper. And if the team is very clearly incomplete it can also be a showstopper. If you want to build a chip, but you have nobody in the team who knows how to build it. You have a problem. If you want to sell a solution to transportation companies, but nobody in your team has commercial expertise or expertise in the transportation industry that is difficult.
What happens a lot, is that you look at a company and decide not to invest in it. One or two months later another investor makes an investment. And you always ask yourself the question: Did we make a mistake then? For me isn’t enough to regret. It’s going to take several years before we can really see that this company can actually be successful because many companies that raise a seed round just don’t make it. We’ve seen companies where later we realized that we should invest in. But it’s hard to learn. The only thing that we consistently feel like is we didn’t take enough risk. I see a company I’m not quite sure and then they turn out to be very successful. Looking back in the rear-view mirror is a bit of an exercise.
I think it’s more important to follow the right process of evaluating because maybe you took the right decision based on the information you knew. And maybe when you passed on the investment, a few months later they hired an amazing person or amazing team, and if the team would have been there, you would have invested. But they weren’t there.
Saying No was the right decision at that time, having the information that you had. The fact, that you have regrets doesn’t mean you’ve made a mistake.
None of them. It doesn’t really matter where you go as long as you prepare super well. For me that means to book a ton of meetings in advance. Going to a big conference and just walking around or standing by your booth is not very productive. Go to a conference and have all your meetings scheduled ahead instead. I think that is very productive. Whether you are at SaaStr in Dublin, Web Summit in Lisbon, Slush in Helsinki or Led Into Then in Tallin it doesn’t really matter because you have 10 or 20 meetings and that’s all that matters.
Actually, not much. Most of what we did was to look at the existing portfolio and make sure that they had enough money in the bank to survive and potentially maintain difficult periods. We’ve slowed down investing a little bit because we were focused on the portfolio. The other thing is we raised our funds just prior to the crisis. We had completely new funds that mean we are slow. That wasn’t the reason. There are a lot of funds that are in the middle of their investment cycle and decided to slow down. We are making new investments because we want to capitalize our existing portfolio and make sure we have protected it. We didn’t really have that problem, but we had this new fund. We cannot cross-fund invest. We have pretty open playing fields and there is a surprising level of activity in the industry. Not just us, but many other funds.
At the end of the day, it’s a negative situation when we have so many portfolio companies that are just slowed down, sometimes a lot worse than that. Sometimes they really tripled their revenues as well. There’s a lot of live streaming companies or some eCommerce companies which really doing extremely well and neglected this negative impact.
Historically if you look at funds that start in a crisis here, they tend to do a little bit better than funds that started in a peak year. In that sense, you could argue, it’s probably a good time. Time will tell.
I guess Bill Gates because we both were at Microsoft. I like him because what he’s doing now is pretty impressive. Also, Elon Musk for the same reason. There are a lot of things why you can criticize him: his company and the way he manages it and all other stuff. But what he actually achieved at the end of the day is pretty spectacular. All the criticism asides, you have to recognize him as well. Gates and Musk are two of my favourite amazing people.
I don’t consider myself. As a fund, we don’t really believe we are very good predictors of markets or consumer behaviour. We’ve looked at a company similar to Uber a long time ago. It was just felt like this is crazy, nobody will do this. In companies like Uber and Airbnb, I really admire the founders, of course, but also the investors. Because, at the time, there’s just no indication that black, the early investors. At that time there was no indication that there would be so lot of success. I admire the early investors in those companies. Maybe it’s just a matter of investing in crazy stuff because there’s a good chance. It won’t work, but if it works it might become really large. Those are two examples of startups that I really find very exciting.
There is also one from our portfolio. That is Wefox. That’s an insurance company and they really had a very interesting strategy in terms of how they wanted to disrupt insurance in a way that avoided a lot of the mistakes made in the past. It was very technology-enabled and a very collaborative way of disrupting the industry. It is so smart in terms of how they went to markets, evolve as a company, and having farming teams. There are just amazing execution capabilities beyond the fantastic strategy.
I’m happy now. We just started a new fund. So, I definitely need to ride this out. I have no plans of stopping. We also have to think about the compensation team, succession planning, and things like that. But for me, it’s actually a pretty ideal job. You get to see a lot of people and learn a lot. At the end of the day, you can help founders, you interact with them and investors. It’s just a very rich environment to work in. I have no plans to do anything else.
Let me think. For founders, I would recommend From zero to one, by Peter Thiel. It is really, good. It’s very short and very to the point. That is one of the books that had a big influence on me. In terms of venture capital, I guess reading blogs is more interesting than reading books. I haven’t read the latest Horowitz book yet but I think that would be quite good to read. Personally, I like to read a little bit more, books beyond venture. What else I enjoyed, and this is not so much relevant for me as a tech investor, – Blitzscaling – a book and the video series. In the consumer or SMB SaaS or maybe also enterprise Blitzscaling is quite impressive.
I think speed is important. I think people grossly overestimate the downsides of failure, especially if you’re a young founder. If you have an idea just go for it. Focus on it. Leave things aside and be really focused on it. If you’re making progress, keep pushing it. If you feel like you’re running into a brick wall, maybe have a look for something else. But just do it. And when you’re doing it, just, stay alive. If you start a company and manage not to die, then the success is already getting bigger by today. That means you have to adjust and figure out new things. You might end up in a company that is very different from what you wanted to start originally.
Follow the money and just not die is a key thing. Make sure you take care of your mental and physical health. There’s really no point in burning yourself out, it just gets worse and worse over time if you are not taking care of yourself. I think every founder is not getting enough rest and not taking enough exercise. You can get away with that for a while. But at the end of the day, it’s going to bite you back. So, take care of yourself in the process.
My family lives here in Austria. My kids go to school in Vienna. Sometimes I’m missing Amsterdam when you walk along the canals in the summertime or on a snowy winter night. I miss it but not so much. Vienna is the only city I really know in Austria. It’s a very nice place to move to. There’s not a lot of startup activity here, so I travel a lot to Berlin and London. We are just starting a new fund here. In the next few years I don’t see myself leaving, but maybe in five years from now. I have no idea.