CEE • INVESTMENT
SEPTEMBER 26, 2019
What does it take to be an investor? How venture capitalists choose companies and make their investment decisions? To get answers to these questions, we interviewed one of the most recognized investors in Eastern Europe — Bas Godska, General Partner & Founder of Acrobator Ventures, who has already supported 40 startups — and counting.
What are you dreaming about as an investor? What are your aspirations and plans for the near future?
For me, this is a significant transition in my life because I think in the coming ten years or longer, I will be fully dedicated to nothing else than raising awareness for the results of my funds. I am pretty sure there will be Acrobator Ventures One, Acrobator Ventures Two, Acrobator Ventures three. The overall goal now is to 'cure' a slightly sick investment fund sector. Let me explain. When you look at the numbers, you see that the IRR, internal rate of return, of European funds in the early and the pre-seed stage is minus 0.1%. That looks pretty bad to me. It means you'd better throw your money out of the window then to make a profit. Many funds are not sufficiently equipped for this particular startup stage range.
When you look at the IRR for early-stage startups among angel investors, it is around 20-24 %. That shows that there is particular know-how among the angel investors that is not present in funds. I believe that the fund sector will move further down to more entrepreneurial first-time funds, emerging funds, growth hack funds, micro VCs, you name it.
When you see upsetting stats that startups spend up to 60% of their time on fundraising in the first three years, and they have to approach about 200 funds to get a few term sheets, it frightens me. It is not how it should be. It is some strange illness in matchmaking. My dream is to fix this and to help investors succeed and make founders' lives better. Entrepreneurs should be spending time on creating beautiful products and not on non-stop fundraising.
In spring 2019, you launched your venture fund - Acrobator Ventures. What are the fund's plans except investing up to €20 million in the next few years?
Acrobator Ventures is a fund that I believe is different from most other funds. Firstly, we invest in startups with a hands-on mindset; we lived through the experience of being tech entrepreneurs and growth hackers ourselves. Companies that don't know how to sell and market their products and services have a tough time to succeed. Our fund's affiliated company Acrobator Consultancy consists mainly of growth hackers, and we apply all the knowledge we gained in the past in our work with startups. With the founder, we fuel growth through knowledge, call it 'smart money'.
One of the other distinguishing factors is that as a Western fund, we have a passion and extra attention for the CEE/CIS region. I've travelled to many different countries in the region, lived for over ten years in Russia and Ukraine. I speak Russian and learned a lot about the culture in this area. Startups from the CEE/CIS region often have a harder time accessing Western capital. I hope they will find easier backing from our fund.
And the last three distinguishing factors — Acrobator.vc is geo-, sector- and stage agnostic. We are not too focused on particular investment mandates; we operate more broadly. The internet has no geographic boundaries so why would we limit ourselves to only Dutch or European firms? We emphasize on CIS and CEE countries, but it doesn't mean that we refuse attractive deals elsewhere. We are geo-agnostic. The same thing for verticals and sectors; it's part of our investment process, we are open to many different tech sectors. As top global funds like Accel, Insight, Liberty Global and EBRD have invested tens of millions in our portfolio companies, we aim to also join large series A and even B rounds as a niche expert investor. Also, our alliances with other global players ensure unique deal and investor access later down the road.
What do you find unique about the CEE region? What is the entrepreneurial landscape there and the dynamics of growth?
There is always a little bit of magic needed for miracles to happen in this region. You need to know where to look. When you compare fundraising and exit potential here in CEE with, for example, Silicon Valley, our local entrepreneurs need to be stronger, more lean, resilient and resourceful to achieve goals than players in those other markets. The willingness to learn and put extra effort is impressive in this region. I love the entrepreneurial spirit here, the ability to dream digitally with a no-nonsense execution. Also, I see that it's a region where tremendous company growth and adaptation to a lot of fast-changing factors in the market is often handled more quickly than in, say, the Netherlands.
For example, I come from the Netherlands, where the economic climate has been pretty stable for well over half a century after World War II. People in Europe have been able to focus on building high-quality business via often a slow decision-making process. When we look at, for example, the former Soviet Union countries, at least since the end of the 80s there have always been crazy periods, from revolutions, bandit battles and currency defaults. It means that the generation of entrepreneurs is quite resilient, has excellent shock resistance and a particular type of "Digital DNA". This mix can lead to terrific chemistry when you access global markets and have the mindset of being able to survive difficult situations.
When I came ten years ago to the first startup session in Ukraine or Russia, the pitch decks were completely horrible, and now they are often better than what I see from the other parts of the globe. It proves that people have taken the effort to learn the best practices and applied it.
Why do you invest in pre-seed and seed-stage startups, as those investments are riskier than in the B-series startups, for example?
I have been a founder myself. I co-founded one of the largest travel companies in Russia as a foreigner. That means that I know how to face the daily problem as an entrepreneur. The pre-seed or pre-revenue stage is very familiar to me. When I started investing, I picked companies that sometimes didn't even exist. I have participated in about 40 companies as an angel investor, advisor and a mix of both. After analyzing my investment behaviour, I realized that I am more comfortable with the riskier area and their outcomes.
What did you learn from your investment experience?
What I realized along the way is that the pre-seed stage and seed stage are very desirable areas to invest in. It's very inspiring to see that companies that hardly existed when I first supported them 7-8 years ago, now are worth over 320 million euro in total. What I should have learned as an angel investor is to make sure I don't dilute too much. I thought: "OK, I invest as an angel and here are my savings that I am ready to give, but when larger rounds come I could say: Sorry, I am not joining the round." As I didn't have limitless cash reserves available for investing, it meant that I kept some potential unused when I had a chance to follow-on investments and keep my share as large as it was from the beginning.
It's a good lesson, and this is something that we are fixing with Acrobator Ventures right now. Today, we reserve enough money for follow-up investments. It's not essential for me in which country to invest because we have great startups from all over the world. We have good Dutch startups, Polish, Russian, British, Kazakh and Ukranian ones. Focusing too much on specific geographic areas is not necessary as long as you feel that you can add value and be safe as an investor with a local partner who knows the drill.
What do you consider the investor's failure?
All investors have fiduciary obligations because we are working with other people's money. I think an investor's failure is when you overlook specific legal topics; when you are not clear enough and diligent at the screening stage, checking, for example, tech. Also, what I consider is not right is to be too closely involved with the startup. There is always a certain level of chaos in the startup team, so as an investor, you have to keep away from acting like a school teacher who is telling everybody what to do. You have to leave it to the founder, and be there as a friend or perhaps an older brother to help him/her when he/she approaches you.
How do you make a decision in which startup to invest? What is the most crucial thing you usually pay attention to?
It was always something very intuitive to me. It would just 'click' with the founder, and that's it. When I analyzed after eight years of investing how all this worked, I realized that there was a consistency of about 15 steps in the whole process of searching and selecting to succeeding.
I have been ranked as a top angel investor in CIS/Russia and the Netherlands. My reputation makes me visible, so if you would ask me how I search for startups, actually, I do not often actively seek. All requests come either via websites and Facebook, are referred by CEOs from my portfolio companies who recommend talented friends, or I stumble upon them at events. It means that there is already some filtration. We are not actively hunting for startups; we look at what is coming in. Usually, we receive about 3000 business plans per year. We try to devote as much time as we can to assess this batch of startups, but it's not easy to answer everyone with our small team.
The most beautiful successful formula for us is to find startups in Eastern Europe and the former Soviet Union. We assist them to either expand in Silicon Valley or help them settle in the European market to make benefit from the best of both possible worlds.
We also plan to sometimes invest in startups that are at the idea stage. We can invest in an idea from scratch when it's just a small team with a plan. There might not even be a team, only one very talented founder and piece of paper with a rough idea; but this idea is so close to what we want to achieve that we would do everything possible that this project succeeds. We can't do this too often because it's very labour and resource-consuming, but there are now a few spots on our radar that we believe are worth investing in the marketing services sector, where I started 20 years ago.
You exited a couple of startups in the past. What usually makes investors exit?
I like the saying that good company never gets sold; it gets bought. A reason to exit is simply that there is an offer you can not refuse. For me, in my pre-fund period, I never thought about the exits. If you’re not hungry and you can still buy bread, why would you sell your stake in a startup when you're having fun, and they are still growing like crazy? It was only for a few times that I said 'yes' to a sale/equity swap because I saw that it had a strategic opportunity to grow further in the same sector.
Today, as a venture fund manager, I need to look closer at exit strategies and make decisions more formally. As an angel investor, sometimes you can enjoy the ride more than the sale. I stay keen on combining the best of both possible worlds (angel & VC) in our strategy execution!
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