Fabian Sacharowitz (EIT InnoEnergy): the energy transition is one of the most important and striking megatrends that we are seeing right now globally
18 Oct, 2021
Harry Haeck is Investment Manager at SmartFin. Before joining SmartFin, he worked for several years in the Private Equity team of BNP Paribas Fortis, where he focused on both direct and indirect investments. Before that, he participated in the Senior Talent Program of BNP Paribas Fortis where he worked on various strategic projects across different business lines of the bank. He started his career as a business lawyer at Liedekerke and Deloitte Legal (formerly Laga), focusing on banking and financial law.
Since I was young, I’ve always been fascinated by technology – both hardware and software. Nevertheless, I decided to study law and finance, and actually started my career as a business lawyer. After a few years, I decided that I wanted to be closer to the entrepreneur – rather than the legal department of a company – and went into banking. During my first years at BNP Paribas, I got to know the local technology ecosystem quite well and my interest in technology and innovation got sparked again. That’s when I decided to join the bank’s private equity team and support ambitious entrepreneurs more directly. At that moment, the private equity team was shifting from pure traditional private equity to a more diversified investment strategy, including an increased exposure towards venture capital. Given my strong personal interest in technology, I tried to be as involved as possible in the more early-stage tech deals. That’s also how I got in touch with the SmartFin team, and eventually how I got into the venture capital business. To sum up, it was a combination of early curiosity and some relevant PE experience that made it very clear for me that venture capital was the right way to go.
If I had to name one thing, it would be the abundance of available capital in the current venture capital market, as well as the amount of capital that is effectively deployed and the pace at which it happens. It is remarkable to see how much money is deployed each year in the technology space by both small and large investment funds globally. And these amounts keep increasing year over year. It doesn’t always make sense, but it definitely makes the VC job more challenging – and exciting – , of course.
We have approximately €380M assets under management across 4 different funds. We are currently actively deploying 2 funds: one second generation fund focused on more early stage deals (€52M), which was closed in 2020, and one second generation growth stage fund (€240M), which was closed in 2019.
That would be the biggest part, I think if you look at our growth fund, we intend to reserve about 70% for follow-on investments. This is the result of our entry-ticket approach: we typically invest a smaller amount in the first round and further increase our exposure over time, depending on the actual performance of the company.
I guess, many VCs answer this question in a similar way but I think SmartFin distinguishes itself on 3 levels. The first one would be the DNA of the team. We have a small team, only 7 investment professionals, that combines a very entrepreneurial DNA with broad private equity or VC experience. Being a small team allows us to be focused and avoids “spray-and- pray” strategies. We try to be highly selective and cherry-pick a limited number of portfolio companies. The second one would be related to the set-up of the fund. We have a fund structure that allows us to be long-term focused; we’re not bound by the typical 10-year fund lifetime and can theoretically stay on board of companies for 18 years, which provides flexibility and allows us to be patient; so we can help and support our portfolio companies even in more challenging times. The third one would be that we try to offer our founders some kind of private equity-like experience in a sense that we not only aim for fast organic growth, but we also support them actively on M&A, which is not always so obvious in a company that is still burning cash.
Like most funds, it is a combination of both. We have a high amount of inbound dealflow (partly explained by the notoriety of one of our founding partners): we review more than 1,000 opportunities each year. We also continue to increase our efforts on the outbound side: we try to target specific sectors in specific regions, and reach out proactively to the most promising founders.
As I said, we have 2 different investment strategies. The first is focused on early stage (SmartFin Ventures), where we need to see a product and some first commercial traction, that’s typically Seed or Series A. And then we have our growth fund (SmartFin Capital), where a company already has some international traction, a couple of millions in revenues, and is ready to scale. More Series B and onwards, I would say.
Initial tickets for the early-stage fund would be between €500K and €2M, with sweet spot around €1M. For the growth stage fund, entry tickets range anywhere between €5M and €10M, that can increase up to €25-30M per company over time.
We are focused on Europe, including the UK. As we are based in Belgium, our exposure tends to be skewed a little bit towards the Benelux.
I shouldn’t give away too much secrets, but a very general advice would be to establish a local presence and try to really get to know the ecosystem. I think it is easier to build meaningful relationships with Benelux entrepreneurs if you are physically present in the region.
We’re not active in the US, so difficult to tell. But what I can tell is that the US market is even more competitive market than Europe. The US ecosystem is also more mature, but Europe is catching up very fast, which is proven by the increasing number of US VCs investing in Europe.
We target B2B technology companies but we don’t focus on any specific verticals within that space. So we have a quite broad investment mandate, with a slightly higher preference for B2B Software companies. Despite the broad industry scope, we try to invest in companies that are active in industries where we can add some value, based on the specific skills and experience of our team members.
I personally really like B2C technology, mainly because of the huge impact some of these successful B2C companies can have on the everyday life of consumers. B2B technology is sometimes far less tangible, but remains very attractive from an investment perspective.
As long as the company offers B2B technology and shows some first commercial traction, it falls in our theoretical scope. The more specific criteria depend on the stage of the company. Metrics, for example, will be more important for the growth stage than for early stage companies. The most important criterion for us remains the team. Always go for an A team with a B product, instead of other way around. The team has to radiate passion and be able to effectively communicate the problem they are solving in a simple and concise way; the problem also has to be large enough and the solution sufficiently scalable ; ideally, they also have some sort of competitive advantage – be it the technology or a first-mover advantage. And finally, expectations on valuation have to make sense.
A good pitch is concise, simple, clear, backed by the right data or numbers and brought in a dynamics, passionate way. It shouldn’t be focused too much on numbers, but the key figures should be in there and should be correct and well understood by the team. Bad pitches are typically too long, to vague, with too much information in it. Preparation is key.
Valuation is no exact science and the approach largely depends on the stage of the company. For early stage companies with limited metrics, valuation will be mainly based on the amount of dilution founders are willing to absorb in the round. For later stage companies, looking at comparable transactions and listed peers could help as a starting point. The amount of the raise should be based on a detailed cash planning exercise and the resulting burn rate to achieve the company’s goals over the next 12 to 18 months.
We look at various metrics. The most important one would be ARR growth – how fast can the company grow its recurring revenue. A second one would be the cost to acquire a new customer and how that compares to the lifetime value of that customer. Others include gross margins, cash burn and liquidity planning – cash management is a key in venture capital – churn, retention rates.
First and foremost, I want to see fire in the entrepreneur’s eyes – there has to be passion. The founder must also show ambition and have a very clear vision, combined with strong domain expertise. They must know what they’re doing, understand the market dynamics, and know their competitors very well. Ideally, the team is highly complementary and has worked together before. They also have to be committed – their startup has to be top-of-mind – and remain humble at the same time. Arrogance can be a red flag for me.
I never met either one of them, but from what I’ve read neither of them was easy to work with, definitely not Steve Jobs, who seemed quite rude and annoying. But I think I would still opt for Steve Jobs. I mean, you’ll obviously never work with Steve Jobs I think you always work for him, but despite him being an asshole or being quite rude, I’d still choose him, mainly because of his inspiring personality and unique way of looking at the world.
No. I don’t think we’ve done so in the past and don’t think we will do it in the future. The team is our most important criterion and if it’s a one-man show, it’s probably still too early for us to invest.
We always try to obtain a board or observer seat and we try to be highly involved as an investor. We are a hands-on fund, so we try to support the founders on for example C-level recruitments, upcoming funding rounds, setting up reporting, preparing the exit strategy – straight from the start. We often set up dedicated committees to explore the market on a regular basis and prepare the company for exit. We also help them on a commercial level, by looking for prospects and opening up our personal network to find new clients. As I said, we also do this during more challenging times – we try to remain involved and help where some other VCs may decide to keep their hands off. That’s also why we prefer to have a limited number of portfolio companies, so we can support them properly.
One of the most important mistakes is poor cash management. Founders raise too little too late. Entrepreneurs have to focus hard on their cash flow, the remaining runway, and their cash burn. When you don’t do that appropriately and consistently, you will get into trouble. In the end, lack of cash is the only thing that makes companies fail. Another one I would mention is a compromise on talent. It is important to involve the right person with the right experience at the right time, don’t hire too fast – try to spend the extra buck to get in the best people. And the last one, that covers actually all of the other mistakes, is the lack of adaptability. There’s one thing you know for sure as an entrepreneur, and that is that you will make mistakes, so you should be prepared to pivot, to learn from your mistakes, to show resilience. If you don’t have that adaptability, you’re more prone to failure than others.
First of all, startup founders should never feel safe. If your runway is shorter than 12 to 18 months, the moment you closed the round, you already have to start thinking about the next funding round. So there is no time left for the founders to focus on what actually matters which is growing the business.
I like to think that we don’t invest in a company unless we truly believe that we can make at least 10x. Realistically, it’s anywhere between 3-5x on fund level.
We aren’t that specific. We like to think about it as influential minority stakes. Regardless of the percentage, we’d like to have a seat at the table and we like to be involved as much as possible with the company. Anyway, as a founder you probably shouldn’t give away more than 25-30% per round.
The usual suspects would obviously be Google, Microsoft, Apple, Amazon. To think a little bit further I’ll go with Tesla because in less than 20 years they completely flipped a century-old industry. It’s fascinating to see also how slowly the incumbents in the market are adapting to the new reality. The speed of innovation of the company is really mesmerizing and it took, I think, a lot of guts from them to try and disrupt such an established industry. The second one would be Uber – the prime example of the gig economy. They built the solution that makes you think how on earth is it possible that this didn’t exist before. Of course, smartphone penetration played an important role. The convenience they provide to so many people around the world on a daily basis is really inspiring. And the third one, again, Elon Musk and SpaceX. It’s so exciting to see someone trying to democratize space, with the intention of colonizing Mars one day.
In our portfolio, I would definitely mention Deliverect. This is a delivery management software platform that makes managing online orders so much easier for restaurants across the world. The company has an amazing team and currently grows at an incredible pace. Actually, Deliverect was recently named a Soonicorn – a soon to be unicorn – (at least, we hope).
A lot of people in the space would probably say that it really helps to have some kind of operational or entrepreneurial experience, or have that at least, in your investment team. As a VC you also have to be patient and able to set your emotions apart from your ratio. Don’t fall in love with your companies – you need to know when to shut down a company, even if you like the team. VCs should also be curious about what’s next – you always have to be looking for the next big thing in technology. And last but not least, I think that you need to be humble at all times, and respect not only the founders but also your fellow investors and always know your place. Remember, that you’re investing money of your LPs.
I’d say it’s more like poker, Texas Hold’em, because everyone around the table has to make decisions with incomplete information all the time. Nobody has the complete picture, so you have to make assumptions and take quick decisions based on this limited information. I like to believe that even with mediocre cards in your hands (a lower valuation for example) you can still win the hand and close a round, as long as you play it right. It is the perfect balance between skills on the one hand and luck on the other hand. And I think you can substantially reduce your dependence on luck, if you developed the right skills.
I would like to mention two. Data is extremely important nowadays: companies are continuously gathering data from many different sources. The next wave, which has already started, will be more about making sense of these data: how to govern, structure, and monetize them. A lot of companies have a lot of data, but have no clue what to do with it and how to actually make money out of it. I believe that companies, tools and technologies that help to democratize data monetization and structuring could be the next big thing. The other one I’d like to mention relates to blockchain technology. The technology will continue to evolve and more and more use cases will pop up. The use cases will become more and more relevant and accessible to the wider audience, like, for example, NFTs that currently intend to democratize the art and music industries. I think, more of these consumer-oriented use cases will come to life, resulting in a substantial adoption increase.
Be persistent. Never give up and keep on trying. Use all the feedback from your personal network, from investors, basically from anyone that surrounds you, and use that feedback and reiterate. Persistence creates resilience. Don’t be scared to pivot – it will happen at some point in time, so be prepared for the change. This is the first piece of advice. Secondly: be well prepared towards investors. Know your market, know your numbers, know your products. This will help you to pitch confidently and communicate a clear vision. The third one is not only for founders, but also applies to investors: show passion but remain humble and don’t be too greedy too soon. And last but not least, a small bonus advice: never ask a VC to sign an NDA!
It’s rather funny: my dream job was to become a Hollywood actor. I wanted to go to acting school but somehow still ended up becoming a lawyer first, a big part of which was kind of acting as well, but just on a different level.