For entrepreneurs looking to raise funds for their startups, early-stage investors such as angels and venture capitalists can be very difficult to find, and when you do find them, it is even harder to get investment funds from them.
But business angels and venture capitalists take on significant risk. With mature companies, the process of establishing value and ‘investability’ is fairly straightforward. Established businesses produce sales, profits and cash flows that can be used to obtain a fairly reliable measure of value. In the case of early-stage companies, however, VCs must work much harder to get into the business and capture the opportunity.
We recently caught up with Uwe Horstmann, co-founder and General Partner at Project A Ventures, a Berlin-based VC firm investing into digital companies. If you are interested in early-stage funding in Europe and operational support to startups, you might want to read on.
Hello Uwe, thank you for being with us today. Would you be so kind to share with us your journey as an entrepreneur and the story behind Project A?
I started out at Rocket Internet, Germany’s largest incubator at the time, which brought up a lot of big tech companies here. Coming from Rocket Internet, my partners and I founded Project A in 2012. Our founding team wanted to take a different approach of supporting startups than the incubation model, where you simply build startups on your own from scratch. We came up with what we call the “operational VC”, combining financial capital with operational support so that founders get exactly what they need. In addition to our VC investment team, we have a dedicated team of 100 in-house experts who work exclusively for our portfolio companies, supporting them in all areas, including IT, product development, design, marketing, branding, data, sales, and recruitment.
Project A is headquartered in Berlin, Germany. What is your opinion on the environment for creating an investment company there? (local government, support, tech hubs, etc.)
Berlin is at the moment one of the most important tech hubs for startups, not only in Germany but for all of Europe. The German government funds startups with specialized programs such as the €10bn Future Fund. For talent, Berlin is the ideal place to be. It is a vibrant city, everyone speaks English, and it has great infrastructure. Additionally, the welfare state covers everyone, for example free day-care centres and short time allowance.
Perhaps most importantly, Germany is also Europe’s largest economy, therefore the market is huge for startups reshaping existing industries, and offering better, smarter digital solutions.
So, Project A is a VC team that invests in early stage startups (Seed and Series A rounds) in Europe and the US. What is your opinion on the state of early-stage funding in Europe? Has it changed with the pandemic?
Venture capital is at an all-time high at the moment. More venture capital money was invested in European startups in the first half of 2021 than ever before, which has contributed to creating a growing number of unicorns.
Of course, a lot of big money goes to later stage ‘mega rounds’. But the most important funding rounds are still at an early stage. Here, VCs look for the most promising founders and ideas, and we take most of the risks! It is much easier to invest in a thriving Series D company than finding a “raw diamond” at pre-seed.
COVID-19 has also accelerated the investment process. For example, we haven’t actually met many of our latest seed investments in person. So, a process that used to take months, with several onsite meetings, is now done entirely over Zoom and is completed in weeks. With the amount of venture capital available and the reduced time span of investing, competition has definitely risen in the market.
We all know how hard attracting investors can be, especially in the early life of a startup. As an investor, what are you looking for specifically? Do you have any tips for startups pitching their project?
First and foremost, founders should ask themselves: Do I really need external funding, and is my company really a ‘VC case’? To understand how venture capitalists work, consider the main steps of a VC case: The market is large and attractive, high revenue growth can be maintained, the team seems capable of building the product, scaling it, and hiring the right people, an effective marketing and sales organization is in place, significant ROI for the investor can be provided.
But it is not only about numbers; all business plans are basically lies! They reflect only one possible version of future outcomes. When we invest, we invest primarily in people. So, founders should display the agility to adapt, and put together a founding team that complement each other, rather than founding companies with friends or colleagues. A team with complimentary skills and personalities bodes very well for decision making, and therefore achieving scale.
Project A invests in digital companies that challenge the status quo of their industries. Could you tell us a bit more about the sectors you and your team invest in?
We are a generalist investor with selected focus industries: Digital Health, Enterprise Software, Developer & Data Tools, FinTech, Education, Real Estate & Construction, e-Commerce, Media, Mobility. As an early-stage investor, we are keen on seeing bright minded founding teams that create digital solutions in their respective industries that disrupt or bring added value to the market. It’s also worth mentioning that we invest across Europe, so we are not restricted by geography at all.
Let’s say I am a startup founder looking to grow my company. What kind of operational support do you and your team could provide me with? Any practical examples?
Project A has a dedicated team of 100+ experts from every area of expertise a startup needs during its different stages: IT, product, design, marketing, recruiting, communications, sales, data & analytics. We support our earliest, pre-seed portfolio companies to build their product, and we advise our later stage portfolio companies, and help them achieve scale. This can be project-based or on a long-term basis. To put it into perspective: We created go-to-market campaigns for telemedicine provider KRY, helped Trade Republic hire customer service teams during hyper-growth and our IT department helped scale sennder’s tech infrastructure. And it is not mandatory to take this support, every company decides for itself.
What is your take on the current status of the European sectors you invest in? Where do you see them in five years? Any trends we should be watching out for?
A positive trend is that Europe is ready for more complex business models. We are moving away from trivial models to tech-driven solutions that are not mere copycats of existing ideas. There is a lot to do in the B2B software sector, we see a great demand for cloud infrastructure, cybersecurity and in digital sovereignty.
We hope that in the next five to ten years, this development will make our lives easier, more independent, and combine commercial success with the necessary sustainability.