Point Nine Loves Berlin

As outlined in a previous post, we at Point Nine are a little unusual for European VC standards, because we very actively invest internationally. We sometimes go a log way (literally) to invest in a startup we fall in love with - we made investments in New Zealand or Canada, for example. Sometimes this can cast the impression that we are not very active in Berlin itself, but this is far from true. We are big fans of the Berlin ecosystem, which is full of great companies, and a are a very active investor here. I thought about this recently and decided to have a look at our fund stats to see what they say about our activity in Berlin vs. elsewhere.

During the last 12 months we made 8 initial investments into new amazing Berlin-based startups (logos can be found in the graphic above), which should make us one of the more active investors in Berlin. These 8 investments also represented the majority of new investments that we made during this period, which totalled 14. The 6 remaining investments were all made outside of Germany. Thus, in the last 12 months, Berlin represented 100% of our German investments and 57% of all the investments that we made (by the number of investments). This does not include follow-on investment rounds, a few of which happened in Berlin too.

The investments we made varied in terms of market segment and setup (we backed first time founders, experienced founders, as well as 'incubator-affiliated' startups). What they all had in common was that they were all fairly early stage - 4 of them were pre-launch investments and 4 were post-launch, with some traction, and we participated in the first 'institutional' round or an extension of it. I would put most of these investments into 'digital marketplaces' category, which is, together with SaaS, a focus area for us at Point Nine. Our average investment amount was close to 500k Euro.

So while being active outside of Berlin and Germany, we are still very focused on Berlin, are very actively investing here and plan to continue doing so in the future.

Why You Get Recruiting Wrong In 80% Of Cases And What To Do About It

I am currently reading a book about 'people decisions' titled 'It's not the How or the What, but the Who.'. It is primarily about various aspects of recruiting and I enjoy it a lot so far. While I am not yet done with reading it, I wanted to share with you an interesting insight explaining with simple numbers how hard recruiting actually is.

The author starts by explaining a well known fact that in complex professional jobs the productivity of a 'top' employee can be 10x+ higher than the productivity of an 'average' employee. This is very different from 'simple' manual jobs, where the difference is less than 50% according to some studies. The phenomenon is well captured by the below chart.

If this is true, then we should try to hire 'top' performers, especially for top positions within an organisation. Let's see how likely we are to succeed at this and assume that:

  • top performers make up 10% of the population of potential hires,
  • we are 90% right in identifying the real traits of a candidate, i.e. whether she or he is 'top' or not.

Based on these assumptions, what are the chances that we will, on average, hire the top person for the job? As little as 50%. I found this very counter-intuitive, as the assumption was that we are right in 90% of the cases. The below chart explains why with some simple math.

What is even worse is that in reality our ability to correctly identify whether someone is 'top' or not is probably lower, say 70%. If we assume this, the odds really decrease further and we will make the hire we wish only in 21% of the cases, on average. 79% error rate!

This is just a model meant to illustrate with simple numbers where the problem comes from and how important it is to really focus on getting recruiting right. The author suggests a few strategies to tackle these problems:
  • generate a great pool of candidates rather than an average one; focus on the right sources,
  • try to test people through work samples rather than just interviews and reference checks,
  • make a number of people assess a hire, but keep the number of assessors very small, so as to not wrongly eliminate too many great candidates from the process.

If you have developed further successful recruiting strategies to tackle the above issues, please share.

Based on my experience with the book so far, I highly recommend it to anyone involved in recruiting process and making decisions about people.

Raise Your Seed And Series A In Berlin

I strongly believe that Berlin is a great startup hub for European tech founders. This has been true for some time, even though relatively little VC / startup capital has been available from sources based in the city, especially compared to other startup hubs out there. London, for example, has an order of magnitude more capital available that sits on the ground (like 10x more?), but the number of startups that get created and funded in London is not that much higher than the number of startups in Berlin. For example, according to CBInsights, there were 150 funding rounds at London based startups in 2014, vs. 91 in Berlin.

Berlin has become a startup hub despite not having a startup financing infrastructure in place. People have been coming to Berlin for many reasons, but startup funding availability has not been one of them. Founders wanted to build their companies in Berlin, but largely relied on funding from sources outside of it. 

Times are changing and capital is following the talent, so that there are more and more local financing sources available on the ground in Berlin. I would argue that you can now raise a good Seed (a few hundred thousand to million-ish) or a smaller Series A round (up to 2-3 million) entirely in Berlin and this from people who really know what they are doing and can be helpful.

This is important for Berlin as a hub, because I think this will give an additional boost to the scene, as founders from all around Europe, especially from the east and south of it, will be able to add 'financing' to the list of reasons to come to Berlin.

Here is a quick list of Berlin-based folks to talk to re startup financing on your next fundraising trip to Berlin. I think all of them have at least one person in Berlin on a (nearly) full-time basis. I am sorry if I forgot someone.

On top of that, as has been the case over last years, VCs from other parts of Germany and Europe continue to visit Berlin frequently. It feels like every significant European VC (incl. the three biggest European VC brands, i.e. Accel, Index and Balderton) has at least one investment in Berlin and is coming by on a regular basis. Also, as exits are slowly but surely happening in Berlin, the number of business angels actively investing is continually increasing. I crowdsourced this list of Seed investors interested to invest in Berlin some time ago and whereas it is not entirely up to date, you might still find it interesting.

On the Series B side of things and later (aka growth financing) you will still have to travel to London or other places, but the good news is that later stage capital tends to be more mobile and international than early stage capital and it will travel to the other end of the world (literally) to meet with a good company. The fact that US investors are quite active in European late stage financings, but much less so in Seed and A, illustrates this point well.

I am not trying to say that early stage fundraising in Berlin is a walk in a park and everyone will be successful - this is nowhere the case and raising money is hard in general. Nor do I mean that there is enough capital available - there are not very many 'classic' VC funds on the ground that can write multi-million Euro checks (Point Nine does up to 1m in the first step). But it is increasingly possible to fundraise in Berlin, especially for Seed and A, without having to fly to London, other European cities or the US. I am sure this trend will persist and the financing landscape in Berlin will continue improving. 

I look forward to having coffee with you on your next fundraising trip to Berlin!

Point Nine Loves Marketplaces

SaaS companies are the biggest segment within Point Nine's portfolio and many people perceive us as an investor strongly focused on SaaS, but with a relatively international footprint. While this is entirely true, there is one other area that we focus on a lot, and we call it 'marketplaces'. Admittedly, it is hard to define precisely what we mean by 'marketplaces'. The definition can range from a very transactional one, where a marketplace is a site that allows users to conduct monetary transactions with one another, or a broader one, famously formulated by Union Square Ventures' investment thesis which is defined as looking to invest in 'Large networks of engaged users, differentiated through user experience, and defensible through network effects'. The definition we like to use is a broad one and we are mostly attracted to marketplace businesses because at scale they can become extremely defensible and profitable due to the network effects they create.

Importantly, marketplaces are not a new or recent discovery for us. In the past, we invested in a significant number of marketplace startups, such as Bitbond, Brainly, CouchsurfingDaWandaDelivery HeroDocplanner, niania.pl, Styleseat or Xeneta, to name just a few. Interestingly, some of the marketplace companies we invested in have a strong SaaS component so that the SaaS tool becomes an important part of the value proposition - Docplanner or Styleseat are examples of that. Inversely, some of our SaaS companies build a valuable network or data asset over time, which adds a marketplace aspect to what they do. Riskmethods or Xeneta would be great examples.

The vast majority of our marketplace investments are European and we expect it to stay this way. Marketplaces are very frequently a country-by-country conquest and we believe that Europe is best positioned to create such companies. Also, marketplaces frequently have a local element and we believe that Europe is where we can be most helpful with that.

For the last three years we've been organising SaaS portfolio meet-ups and we recently came up with the idea to extend the format and do an internal event for our marketplace companies. We were a little bit afraid that the value-add of such an event might be more limited than it is in the case of a focused SaaS event. We believe that the challenges faced by SaaS companies tend to be more similar across startups than those at marketplace startups which are more diverse. In the end we decided to try it out and last week we organised a meet-up for our portfolio companies and friends around the topic of marketplaces.

We had 7 presentations by company founders and CxOs of (in order of appearance on stage): Quandoo, Momox, StarOfService, Bitbond, Lovoo, Kitchen Stories and Brainly. There were two panel discussions - one with two focused marketplace investors (thanks Fabrice Grinda and Fred Destin for joining us!) and one with marketplace companies which have made significant progress expanding internationally (Airbnb, Docplanner and Helpling). We also had Huw Lloyd of Torch Partners present about the valuation and other financial aspects of marketplace companies, as well as Florian Heinemann from ProjectA who held a great presentation about marketing for marketplace companies.

We are very happy with the result. We had the impression that the participants were able learn a lot from each other and from the presentations by the outstanding speakers. We feel encouraged to do another such event on marketplaces next year. Maybe at some point we will see so much interesting content to share and stories to tell about marketplaces within our portfolio and network that we will organise a larger two-day event like in the case of our SaaS meetup last year in San Francisco.

You can expect us to stay committed to the marketplace space and to be making more marketplace investments in the future. Fabrice Grinda said on stage that 'marketplaces are a 50 year trend that will affect all industries' - and we fully subscribe to that.

We would like to thank all the 70 or so participants and speakers for joining us at the event last week and coming from all around Europe and sometimes beyond to be with us in Berlin. We hope it was worth it for you. Also, many thanks to Axel Springer Plug & Play for hosting us at the pretty amazing location in the 19th floor of their headquarters.

Have a look at the pictures in the top of this post to get a feel for how the event was like.


The "Niania.pl Mafia"

The PayPal mafia is a widely used reference to a group of people that contributed to the success of PayPal and then went on to do more great things. Scenarios like this, where success breeds even more success tend to happen in the tech space again and again. I believe the key drivers for this are the fact that a success story leaves the participants with major ingredients for future successes: (1) valuable experience - having been a part of a successful tech startup teaches a lot of the ‘ingredients’ of tech success; (2) strong network; and (3) financial resources, aka exit proceeds.

The Polish startup niania.pl (its proper name was pomocni.pl, but niania.pl is the group’s by far biggest and well known asset) sold to the Edipresse group in 2011. Not massive, but definitely successful exit, which I believe produced something that I would call the "niania.pl mafia". I think this group of people is a key force in the Polish early-stage Internet entrepreneurship ecosystem.

Niania.pl had three operational founders: Michal Skrzynski, Marcin Popielarz and Marcin Kurek. Since the exit, Michal and Marcin K. have been active as business angels and are now running Protos, an early stage Internet fund out of Warsaw. As business angels and VCs, they have co-invested with us in numerous startups and were contributing significantly to their success.

We had a VC co-investor at niania.pl, the folks at BMP, most notably Jens Spyrka and Jakub Slusarczyk. Krzysztof Nowinski, one of the partners at BMP at that time, and Jakub Slusarczyk, are now partners at Protos.

Mariusz Gralewski, a business angel and non-executive co-founder of niania.pl was running Goldenline at the time of niania.pl’s formation and exit. The proceeds from the exit allowed him to focus on his next venture, Docplanner — which we at Point Nine are happily backing. He is also an advisor at Protos. Another business angel from niania.pl times, Jakub Skoczylas, is currently running business development at Docplanner.

Niania.pl was my first angel investment to which I was invited by Lukasz Gadowski while still working at Greenhill in London. It was one of the first things I worked on together with Lukasz. Later, I joined him, Kolja and Steffen to build Team Europe (Ventures), which led to the creation of Point Nine. Who knows whether all of that would have happened had we not invested in niania.pl together. Also, the exit proceeds from niania.pl helped me finance the early days of building Team Europe and Point Nine.

Furthermore, without the niania.pl network, Point Nine would probably not have made a number of our Polish investments, like Brainly, Docplanner, Positionly, Infakt or Kekemeke - each of which came to us directly or indirectly via some of the folks mentioned above.

I would like to thank everyone involved in the niania.pl story and look forward to doing more cool things together going forward.

On Raising More Money Than You Need For Your Startup

Conventional wisdom suggests that companies should try to raise as much as they can as soon as they can in bull markets like the one we are witnessing now. The theory goes that a good market has to end, maybe very soon, which will worsen fundraising conditions for a bunch of years to come.

This seems a logical thing to do and we find ourselves giving this advice to companies too. Even if you do not need it yet, go out and get it now - it has not been so "easy" for a while and it might end as soon as next year.

The flip side of this is the following: if companies raise more than they need, they will start burning more than they would otherwise do. And if everyone follows this advice we will end up with an overfunded and "over-burning" startup landscape that is even more dependent on future financings to sustain the burn-rates and thus very vulnerable to market hiccups.

So I had this thought that this type of behaviour (raising because you can) might be what ultimately leads to trouble and that it is not smart advice after all. The smart advice seems to be: try to secure the money you need, or a bit more, but not much more, just because you can.

Clusters Within Berlin’s Startup Scene

ChartMogul’s blog post on B2B SaaS startups got me thinking that we are indeed witnessing the emergence of sub-ecosystems within the broader Berlin startup scenery that start having reasonable scale of their own. Ciaran alluded to that in his blog post about the third wave of startups coming out of Berlin and outlined a bunch of sub-sectors that he saw forming.

Historically, it was all mainly about consumer platforms and e-commerce, and these parts of the industry achieved critical mass of companies, people and success already a few years ago.

Adtech got going strong in the last years and I attempted to outline the ecosystem in a blog post around a year ago. SaaS, an area very important to us at Point Nine, has also picked up nicely in Berlin in the last few years and ChartMogul’s list of startups really illustrates that. I also feel that it would be worthwhile to map out marketplace companies that came out of Berlin (Dawanda, DeliveryHero, Helpling, Quandoo, Soundcloud, to name just a few) as I see a strong community and group of companies there.

I am really happy with this development and I am looking forward to seeing these sub-ecosystems strengthen as well as hope to see some more develop critical mass — FinTech could be a good candidate.

If You Have Nothing Good To Say (Say Nothing?)

The tech and VC scene is not a big industry. It is, however, a very gossipy one and people talk a lot about what others are up to. Folks try to reference one another all the time, be it by talking to people who had worked or done business with a potential new employee, business partner or an investor.

I am generally positive towards other people in the field and we really like working with others, share deals and the like. And if you do not work together you may compete, lose or win, and that is OK. But sometimes people do things that I feel should not be happening, that are wrong and unfair. Be it investors leveraging their position in an extremely aggressive way or folks being totally unreliable or lying outright. These situations bother me when I witness them, even though I am fully aware that fairness is in the eye of the beholder and every story has two sides.

Here is where it gets challenging. Sometimes I am still not sure what the right level of disclosure is when it comes down to sharing these bad experiences with others. On the one hand, I strongly dislike and feel uncomfortable when I have to report bad stuff about others. Being positive is much better. But on the other hand, I do not want to lie or hide facts when being asked about my previous experience in dealing with someone, especially if it was very negative. I also feel obliged to warn people I trust and value about wrongful behaviour of others.

I would be curious to find out how you handle these situations, so feel encouraged to share your views and practices.

Live Berlin, Think World —Thoughts On International VC Investing

When I discuss investment strategies with other VCs, founders or LPs, I frequently feel like we are quite an exotic animal in the VC land, especially with respect to our international activities. We are very international, at least by European VC standards as we see them, and the chart below illustrates this fact well. Our current fund had 29 active companies as of Q3 2014, spread across nine countries. Whereas continental Europe is where the vast majority of our activity is happening, we are also active in North America and sometimes beyond it.


We believe that there is a lot of merit in going international as a VC.

a) The cost of starting a company has decreased dramatically in the last years. This is a well known fact and it results in an environment in which new companies pop up everywhere. Literally. If you are after early stage investing, you need to go where the companies are born, not where they scale (which we agree is more likely to happen in a hub).

b) If you call yourself a European investor, you have to be active and connected to the community in a number of European countries. As more and more local funding options for companies emerge and the ecosystem continues to improve, it is impossible to cover Europe by sitting in a major city, however relevant it is, and only invest in the companies which come by or who want to move. Investing long distance in Europe is a must, not a choice, if you do not want to miss too many interesting opportunities.

c) We like to eat our dog-food. We convince our companies to go multi-local or global and are well aware of the importance of the US market for SaaS, one of the two key investment areas for Point Nine. Furthermore, we believe that remote company setups can work, even across continents, and can have benefits. We practice what we preach.

At the same time, international investing is associated with a number of challenges. Below I listed some that come up frequently, both in our internal discussions, as well as in comments or questions from outsiders.

a) How do you get high quality local dealflow? It must be very hard to compete for investment opportunities against local investors who most of the time have much better access to the companies. And it must result in adverse selection, i.e. you only get to invest in companies that everyone else did not want to invest in.

b) How do you do due diligence on a company that sits in a country you do not know, or sometimes even on the other side of the planet?

c) How do you work with the companies post investment? They are far away, so you cannot just pop by and meet for lunch to hear what’s going on.

d) How do you deal with the legal side of things? All these legal systems must lead to enormous legal bills. Impossible with such a small fund!

e) The travel must be gruelling!

This list certainly is not exhaustive, but I think these are the most common themes that come up in discussions about international investing. And they are all valid, to some extent. Importantly however, the fact that something is a challenge, does not mean it cannot be dealt with. Here is our toolset:

Re a) and b)

We are very focused on specific types of businesses. We are business model driven and SaaS and marketplaces are our key focus areas. This makes finding the companies easier and more efficient.

We believe that business model focus and the resulting ability for quick understanding of key issues makes it easier for us to be contrarian and invest where others have passed, if we like a company.

Furthermore, we believe that being focused on specific types of companies results in accumulation of relevant expertise which resonates well with entrepreneurs and can make us an attractive partner of choice, even if we are not geographically close.

We invest mostly in businesses that can become international / global leaders, so perfect knowledge of one specific geography is typically not required.

Re c)

We have grown very comfortable working long distance with the companies we invest in, using skype, online project management tools and the telephone. Sometimes we actually find it much more productive than the traditional format of day long board meetings.

Re d)

It is actually not that bad. With a number of trusted lawyers in our network we think we are quite efficient with legal. Admittedly, seed deals are typically not very complex from the legal perspective.

Re e)

Yes, we travel quite a bit. And it is fun, but sometimes it hurts. No pain, no gain ;-)

Plus, we are an international team, with people from countries such as Germany, Poland, Spain and the US being part of it. This helps us keep an international perspective and an open-minded attitude.

Overall, we are very happy with our approach and will continue working internationally. If you are interested in finding out more, please leave a comment or ping me with a question.