Sramana Mitra: There’s one topic that I want to explore with you which is very much in line with what you’re saying about the European market in a relative fragmentation due to language, culture, country boundaries, and so forth. In Silicon Valley or in the US market, in the Chinese Market, and even in India right now, there’s this kind of traditional venture capital. Every deal has to be a billion-dollar TAM. Every investment has to go from zero to $100 million in five to seven years. The unicorn thinking is prevalent.
Given the fragmentation that you’re describing in Europe, I imagine there are lots of opportunities for smaller TAM, more niche deals where you can invest and you can still make very good revenues and very good businesses. Except that there are certain dynamics that are a bit different, right? They have to be built more capital efficiently.
Let’s say, build for $1 million to $5 million and sell for somewhere between $15 million and $30 million. Build for $5 million to $10 million and sell hard for $50 million to $60 million. Are these acceptable deals for you and for some of your compatriots?
Daniel Keiper-Knorr: I would say yes. Looking back, our first fund back in 2011 was €10 million. Still, we stuck with our plan to have an entry ticket of €500,000 with probably one additional round where you keep your pro rata and putting another half a million. Such a company excels in the bracket of €25 million to €50 million that can still be a good deal.
However, of course, with the growing fund volume, to return to your piece is getting a bit difficult. So you must have a very high quota of successful exits in that evaluation bracket to make the whole fund model work. But still, especially for Speedinvest, this is actually a line of the things that we work along given the fact that 80% of all exits have been below €50 million in the present.
The other space is totally overlooked. We run a small M&A team in our fund to see who is probably developing organic growth, cash flow positive, and doing €10 million to €20 million revenue a year. Then, we look for potential exit partners. However if you do the exits, it’s very helpful if they come very early. So holding such a company for eight to ten years and then doing a €20 million to €50 million exit is still better than a write-off for all parties involved.
It is our responsibility towards the entrepreneur because he opened up to us and took us as shareholders to his company. He has the right to expect contribution. To the entrepreneur, this is a once-in-a-lifetime experience. However, it would help a lot if it exits. There are the strategic buyers that come into the space. It’s just opening up in a larger scale in Europe and it’s an extremely good sign to see.
Sramana Mitra: Are you based in Vienna?
Daniel Keiper-Knorr: Yes.
Sramana Mitra: Is there entrepreneurial activity in Vienna?
Daniel Keiper-Knorr: Absolutely. We’re hosted here in a large co-working space. We’re renting an office on a permanent basis. In the lower floor, they run acceleration programs of 15 batches a year. There’re a lot of things going on in our portfolio. Historically, still a third of the complete head count is Austrian entrepreneurs. Of course, it’s shrinking if the portfolio grows as we increasingly source from other parts of Europe. But there are always good entrepreneurs coming out.
An engineer over here costs a third of what it would cost in the Valley. A dollar investment gets you three times the run here versus in the Valley. The public grant system is very attractive. This makes up a bit for probably the corporate space not being so active. We’re happy here. We cannot imagine building Speedinvest anywhere else.
Sramana Mitra: Excellent. Wonderful conversation. We have a lot of stuff going on in Europe. I don’t know if you saw that we announced a partnership EIT health last quarter. They have a digital health program. At this point, our program and their program is getting very deeply integrated. We have a lot of European companies in our portfolio.
Daniel Keiper-Knorr: That’s totally exciting. Digital health is one of the emerging topics.
Sramana Mitra: Thank you for your time.