Smaller Ecosystems, Jealousy

I’m a big believer you can build great companies and a tech community (nearly) everywhere. In fact it’s not a belief thing – there’s plenty of hard evidence for that across Europe – from Finland to Spain there are very valuable global companies popping up everywhere. Same in the US where New York, Boston, LA, Boulder, etc are becoming increasingly important hubs in addition to the Valley mothership.

Of course there will always be larger and smaller hubs. Lets use Germany as an example. In Germany its fair to say Berlin is by far the largest. In some folks that seems to bring out an absurd kind of ecosystem jealousy, that usually articulates itself by people saying things like: “Oh in Berlin its all just fluff and no ‘real’ business or technology, people drinking brewed hipster coffee all day. If you want to see ‘real’ technology with revenues then you should go to / invest in [insert other Germany city].”

Problem is you’re making a right fool of yourself and the ecosystem you are talking for, because:

• you clearly have not experienced the joys of high quality brewed coffees

• you’re ignoring some pretty obvious facts: if you look at revenues (Zalando alone….) or user networks (Soundcloud alone…) Berlin has by far the most ‘real’ substance of any German hub (and not that it matters per se to be the biggest)

• if that’s all you got (talking bad about other tech hubs) you probably ain’t got much at all and it’s very poor signaling

The last point being the most important one. If you’re a smaller hub bad mouthing a larger hub it is not likely to do much for you. Instead I’d try and focus and articulate on what you specifically can do better, what’s your DNA that should attract a certain type of company. Munich e.g. cleary has the most medium and large-scale companies and if you want to be close to them, it’s the place to be. If you need to be cozying up with media agencies and companies Düsseldorf or Cologne could be a really good choice. Or maybe you and your employees just like it in Hamburg.

Fine, doesn’t matter. You can build a great company there and we’d like to hear about it for sure. Just do us all a favour and keep with the good karma.

Fun fact: 7/10 investments we did over the last 12 months were in Berlin based companies. So we clearly believe a lot of valuable companies will continue to be created here. However our largest portfolio company (B2X with several hundred million in revenues) is based in Munich. They wear suits, don’t drink hand brewed coffees and they have no clue what TechCrunch is. And we’re cool with that. Entrepreneurs come in all shapes and sizes and can be found everywhere. Gotta have love for hipsters and guys in suits. Tolerance goes a long way.

The person who can’t be run over by a bus

After investing in a company I like to spend a lot of time with the wider team to get a better feeling for how we can help. One thing that happens quite frequently, is that you discover a person outside of the founding or key management team who is really key for keeping the show going.

Sometimes its an amazing product manager who is the soul of the company, or a community manager that users and customers adore, or a particularly gifted backend engineer that keeps the platform but also spirits up due to her or his character.

So its obvious you don’t want to lose a founding or key management member. But sometimes there are other people in the company who play a role far beyond their job title.

I like to call them “people who can’t be run over by a bus” and try to make sure we are jointly doing everything so that they are happy (and safe ).

Mother Teresa and Lord Dark

We have a strong preference for sustainable strategies to grow your company. But sometimes, especially at the beginning or maybe when you hit a bit of turbulence, the Mother Teresa ways don’t always work so well.

We then like to think about what Lord Dark would do. Lord Dark breaks things and hacks the system to get an unfair advantage. Lord Dark strategies are not sustainable but they can be the shot in the arm you need before you can be Mother Teresa again.

Here are just a few examples of what we’ve seen Lord Dark do (inside & outside of our portfolio):

• A market place artificially created supply & demand by selling and buying under fake accounts that they actually owned. Giving a perception of a highly liquid marketplace and therefore attracting “real” buyers & sellers

• A loan marketplace was ignored by local banks and therefore went to foreign banks, that had lower lending rates, and offered their cheaper loans in other markets through their platform via a legal loophole they had discovered. It got the banks’ attention

• A peer-to-peer task / service platform hired students to carry out tasks for customers, before “real” people offered their services – thus always providing a great experience from day 1

• A daily deal platform bought a huge amount of vouchers from a popular coffee retailer  and sold them at a discount to create huge demand & buzz around their platform

• A company offered a key competitor a can’t-refuse partnership, realizing it would probably steal all of the competitor’s customers mid-term once they had experienced their superior product via the partnership

There are plenty more. Point is, building a company ain’t always pretty and its OK to be Lord Dark now and then.

Weaknesses to Strengths: Bundesliga & Berlin

In this year’s Champions League semi-final 2 out of 4 teams are from Germany (Bayern and Dortmund). The German teams (incl. Schalke) also dominated the group stages, each finishing at the top of their respective group.

This is remarkable as in theory the German league, Bundesliga, has no chance financially against the other leagues such as the English Premier League and the Spanish La Liga. This is mainly due to i) an entirely different TV rights (and international marketing) system, ii) clubs are required to be predominantly owned by the fans and can’t attract ultra wealthy investor-owners iii) there are very strict financial rules and (indirect transfer of) tax payer’s money is a no-no.

Yet, the Bundesliga could be well on its way to becoming Europe’s leading league for a long period of time.

The Bundesliga is a showcase of how to turn your weaknesses into your greatest strengths:

• Don’t have great TV income or wealthy investors: build up other, more sustainable revenue streams (merchandising, long-term corporate partnerships, etc.)

• Can’t afford to pay huge transfer fees: build up a youth system that produces its own world-class talent

• Don’t have a lot of ‘stars’: implement better team tactics

• Etc

The list could go on.

It’s of course also a great analogy for startups vs. big companies and fledging startup ecosystems (ask Israel…) vs. more established ones. In fact if you look at Berlin, I wonder if its weaknesses are also its greatest strengths:

• Don’t have a world class engineering school in town: lets go get talent from around the world

• Don’t have great local funding infrastructure: lets get into plane and get international funds active here

• Confronted with a fragmented European market: lets go english and launch in US immediately too

• Etc

Again the list could go on.

Berlin has a big chip on its shoulder, it’s far from perfect as tech ecosystem.  And for now that’s a good thing.

Shame

Yesterday I attended a meet-up of tech & art folks at the wonderful The Wye and thanks to everyone who organized it. One of the special things about it was we had a group of Indian entrepreneurs from the GSF accelerator as guests. It was a small group, because most of the group had visa issues and couldn’t make the trip to Berlin.

Next week I’m supposed to meet some people from Yandex in Berlin. Maybe it will be the week thereafter, because they already wrote me they are expecting visa issues.

Last Friday AWS held a workshop for some of our CTOs. I bungled the communication so it was a bit on short notice, 1.5 weeks. One of the CTOs invited was Safa from Peak Games. Safa wrote back saying that he’s unlikely to get a Visa at that short time and alas he did not make it.

Let me tell you the folks at Peak are a lot smarter and – for what it matters – wealthier than I am. When we have a meeting in Istanbul I just hop on a flight and get a cab straight to downtown. Not quite so the other way around.

Whenever something like this happens its a sting straight to the heart. It remains a deep and recurring source of shame for me.

Black & White vs Grey

The problem with entrepreneur – VC relationships is that they are often reduced to black and white:

• Things are going well: VC is the biggest cheerleader around

• Things aren’t going well: VC is the biggest pit-bull around snapping at your heels

This leads to completely wrong and dangerous incentives around information sharing: the entrepreneur will be encouraged to share as much positive information as possible and be discouraged to share the bad news.

Of course you want it to be exactly the other way around.

You want to work with any anti-cyclical folks, those that can help you identify key challenges and opportunities underneath the “we’re killing it”-noise and those that “have your back” when flying through turbulence.

Also, most of the time in startups it’s not black and white, it’s grey. Managing the grey part of the relationship is key and it requires a lot of work from both the entrepreneur and the VC. It means being in more of a constant dialogue vs. a pure board meeting relationship.

Of course it’s difficult to find out how black/white or grey someone is, but here’s a couple of things I’d look out for in a personality that I think make a great grey investor:

• Passion: an investor should really, really, really care about your products, the company and you. Irrespective of €/$ and %. Filter out the “deal makers” that just don’t care

• Respects the boundaries: an investor that does not secretly think she / he’s the better entrepreneur and accepts their role in advising, not decision making

• Attitude: good karma is a must

• Not a badass: I’d take a cool-headed, friendly person any day over a badass. Remember at the end of the day they’re just bad+asses

There’s been a ton of posts about pre-investment “dating” and I’ve written up a longer VC-checklist a while back, so I won’t repeat anything here. I’d just encourage everyone to look out for the anti-cyclical grey folks.

What do you look out for?

Failure and Hidden Champions

There is a nice group of companies based in Berlin that have reached significant scale. They deservedly get a lot of attention. There’s also a group of companies that have yet to reach scale but also get a lot of attention. That’s cool. In fact building a buzz around your company can be a key skill every entrepreneur should master (but also managing the consequences of it).  Some of these early companies may fail this year. That’s also cool. The guaranteed Schadenfreude that will come less so.

None of these companies have raised a lot of money, none have spent too much time trying to figure it out. I hope when the times comes we make no fuss of it and give the teams the resources they need to take their next shot. I want to be a part of that next shot; you’re very welcome at Torstrasse 109.

However maybe its time we turn our attention to something else: the hidden champions.

We just inked another investment yesterday; these guys were right under our nose here in Berlin and we never knew it. We met them by pure coincidence. They haven’t been on TechCrunch yet, they don’t go to SXSW. But what they have done is quietly built a global category leader.

The hidden champions are among us – we all ought to be looking harder.

Funding announcements

Just a few days ago we welcomed Videdressing to the Earlybird family. We announced the funding pretty much as soon as the ink had dried on the agreements. Why? The team wants to grow the company quickly in several international markets and some good international PR is likely to be beneficial when attracting talent and partners around the world.

We just signed another investment literally a few minutes ago. However in this case we  jointly decided not to announce the funding for now. Why? We don’t have our MVP yet, we still have to figure out our initial target group, we don’t need to hire a lot of folks right now. Announcing funding now would just blow our ammo at a point in time when we really don’t need it.

Sometimes it seems a bit of a knee-jerk reaction to announce funding when you get it, but it may not always make sense.

Welcome to Germany

I’m a fan of Monocle Magazine. A recent issue discusses how “Europe’s star economy uses business brawn, good design and Gummi Bears to win hearts, minds and tummies.”

I liked another aspect of it most though. We talk about how diversity strengthens tech communities and we see it every day here in Berlin. But there’s something more going on and I loved reading this:

Things are changing, not just in the tech community

Welcome to (the new) Germany.

The VC inferiority complex marketing gag

There are a fair amount of black sheep among the VC community. Many struggle to accept their role within the VC-entrepreneur relationship. No need to discuss further.

However lately it has become all the rage as a VC to indulge in acts of extreme self-flagellation vis-à-vis entrepreneurs. The new VC marketing trick is to repeatedly underscore how lame VCs are compared to entrepreneurs.

In a lot of cases it’s not being humble, its cheap talk. It’s too easy, its cheap signalling. Not entirely sure how it helps entrepreneurs either.

If I was an entrepreneur I think I’d love to work with people who, while being self-critical, are confident and really passionate about what they’re doing. Those folks probably don’t need an inferiority complex as a marketing gag.