Location, location, location

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Location, location, location is a key success factor with consumer retail businesses. I argue it is a critical success factor with technology startups in Europe as well. Recently I've seen this first hand how location has impacted multiple startups. Location hits hard on multiple areas (priority depends on each situation):

  • Ability to recruit. Millennials needs to be either near public transportation or short trip drives with Car2Go or other ride share options. They also require access to urban on-demand services like food delivery. Of course this means being located in larger, 'hipper; cities across Europe. So while there might be cheaper rent in the suburbs, these startups find recruiting younger talent almost impossible. 
  • Access to capital. Often used with Silicon Valley which has the highest concentration of venture capital on the planet. In fact, it is the same for Europe. Investors are extremely local. They much prefer 'backyard' deals whenever possible. The firms that have been successful across Europe all have deep local presence in those areas. Thus capital is highly concentrated. So where a startup is located matters. An entrepreneur is always fundraising even when they don't need money. Thus being located where the capital is means you are a quick metro ride away from updating a VC over a cup of coffee. (it works). All those entrepreneurs I've bumped into boarding planes from Frankfurt to Berlin know exactly what I mean.
  • Concentration of knowledge and talent. Cities like to label themselves as 'centers' of something in order to attract businesses and talent. But the reality is, large businesses concentrate their research centers and labs around startups and capital. By default, these locations then become the 'innovation centers' for industries that explore, build, and adopt the next generation technologies and products. The best talent, the best ideas, and the willingness to fail to get it right.

Experiences shape our personal thinking. My experiences recently have confirmed that location for startups matters a lot in Europe. What has been your experience with location?

 

Demo Day

Last week I attended Demo Day for the Batch #3 companies at MSFT Accelerator in Berlin. It was a fun, well run event and all the companies absolutely rocked their presentations. (video). Every CEO gave a quality keynote presentation, each one had a specific theme that represented the personally of the company. The slides (more like pictures) were so in sync with the entrepreneurs that it felt like you were watching a movie. Clearly a lot of effort and preparation went into the event and it showed. In addition I got to spend time with Portadi, a company in the Bolt Capital family, for an update on the business. 

The frequent question asked during the after party was which company was the most attractive. Even given my bias of Portadi, especially because I've been an addicted user of their product for about a year now, for me it was all of the startups. The CEOs exuded confidence. The businesses claimed to have working product with real customers in massive markets. An investor's initial screening criteria were all checked. Based on the night, it's hard to say that any one was not worthy of an investment. Here are all the companies: 

tripdeltaWunderAgentSkooveQDatumQuantifiedCodeTandemployIPlytics and Portadi.

There is no doubt that each company will have follow up meetings with potential investors. I wonder what they will find now that the lights are gone and they peel back the layers of the onion? 

A batch 3 mashup from the Microsoft Ventures Accelerator in Berlin.

VC Meeting Frankfurt

Yesterday I attended the VC Meeting Frankfurt, a regular lunch event hosted by Aurelia Private Equity. I didn't have any expectations because it was my first time attending one these events. It turned out to be one of the larger and more valuable lunch events I've been to in Frankfurt. A very efficient program and solid networking opportunities. Of course my limited (none) understanding of German hampered my participation in asking questions of the presentations. 

The event gives me further hope there is a growing community of resources to help startups in the Frankfurt area, although many could have attended just for the free lunch. Most importantly I wanted to share with you the informative presentation E&Y gave on The Journey from Zero to IPO.  IPO as an exit route is at an all time high for European PE companies. That being said, public companies in Germany have suffered with after market performance relative to other exchanges, especially for technology companies. In addition transparency concerns along with performance force German companies to stay private or look elsewhere. Valuations are lofty and entrepreneurs should continue to use this to their advantage while they last.

Full deck here

The Pitch Club

One guarantee about startup pitch events is there will be excitement and passion as hopeful entrepreneurs give their elevator pitch over and over again. I got to see this first hand at the Pitch Club event held in Frankfurt recently. The contest brought selected inspiring startups from the local Rhein-Main region to 'pitch' to a crowd of investors. Entrepreneurs had 10 minutes to shine and then field questions from the audience. The quality of the presentations and business ideas were solid, on par with similar events in other regions. 

Notwithstanding the enthusiasm, a gap exists between the needs of the companies vs the investor funding and support in this region. Technology and talent are strong, but productizing to create commercial solutions is weak. In addition entrepreneurism means risk, and as Thomas Schulz wrote in his Spiegel article with Ben Horowitz - ‘Business failure is stigmatized in this country’. This is reflected in how startups are funded. They get enough capital to survive but not enough to attack opportunities. Startups become the 'living dead' by satisfying a niche as competitors gobble up the market share. As the article also points out, SAP is still the only German software company with international status. There is a reason for this, and it isn’t talent or technology.

@jogebauer drilled into the subject with a blog Why VC is Failing in Germany. His premise is that VCs "don't have the funds necessary to take risks". Seed and early stage investing is high risk, high reward and small cap VCs can't create a true portfolio to spread the risk across several startups. While there some merit to this premise, the root cause and fundamental issue is the engrained nature of not taking risks. 

The mentality needs to change. Do you agree?


 

Winning with Winners

A new post from CBInsights about the 'Recycling of VC Dollars' sparked me into action to pen a blog post I've been meeting to write..... 

Silicon Valley is a false economy. Many companies have an interesting idea, raise capital, launch product, get buzz, get early customers, and then fizzle like a flat soda that’s being sitting in the refrigerator for months. Why is this?

Because many of their customers are also startups themselves. They feed off each other. Startups as customers use their VC capital to buy the latest and greatest software packages, helping create website 'logo' noise for each other. In reality many of the products don't solve real needs, don't apply to a broad base of the market, and promote wrong business decision behaviors. Most of these companies fail with short-term winning.

It is critical from the early stages of product launch that a company finds real, linchpin customers that will be customers for a lifetime. Build your customer base with real companies. Your first customers should be your longest tenure customers in the years to come. 

This was also one of the points made in my favorite product management book called 'Inspired - How To Create Products Customers Love' by Marty Cagan. (I'm sure I'll reference it more).

Win with winners. Don't fall into the Silicon Valley trap of shift VC money from one startup to another in something called ‘revenue’. It's really a false economy.