What VCs like (part 2): amazing teams

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I recently tried to explain what VCs mean when they say that they look for large opportunities. What VCs also say often is that they look to identify and back amazing teams. The theory goes that the more amazing the founding team, the higher the likelihood that it can execute well on what often is not much more than an idea, that it can react to changes and pivot quickly, if needed and that it can actually build a large organisation. 

In this post, I will try to shed light on what I think makes an amazing VC-backable team. I am well aware that this is totally subjective, reflects the current state of my continually evolving thinking on this topic and is subject to tons of exceptions. Furthermore, the perceived ideal qualities of a team may differ substantially depending on what the company is actually doing and the stage of its development.

In general, I think that the amazingness of a team can be looked at on two major levels. Amazingness that can be directly observed during interaction (like funding process) and track-record.

Observable amazingness. Things that a VC can figure out from meetings with the team during fundraising discussions.

1) There is a founding team. A team means more than one person. A team will typically have a leader.

2) The team is complementary in backgrounds, characters, task division and covers the key areas of the venture. A great example of a powerful complementary combination is a founding team with both a great tech and a great business person on board.

3) The team shows positive dynamics and some history of working together. Founder break-ups are one of the top causes of startup failure, so VCs will look at this one closely.

4) The team has already done some work at the startup. Look at the results.

5) Animalness. How passionate, quick, committed and willing to go the extra mile are the founders? Christoph described 'the animal test' in a blog post.

6) Passion for and strong commitment to the domain area of the startup.

7) Ability to sell. Not everyone, but ideally the CEO, should be able to sell. Sell your ideas to investors, vision to the employees of the company, products to customers. Good salesmanship is very important in the startup world.

8) Ability to recruit great people and strong focus on building a great team. If recruits were made already - what is their quality?

9) Business acumen. People with strong ability to apply logic to solving commercial problems are always hugely beneficial to any startup setup. This ability is frequently reflected in being numbers driven and analytical while making important decisions and allocating resources (both time and money).

Amazingness in the track-record of team members. These can be found at previous jobs and roles they had as well as by talking to people who worked with the team before.

1) Ideally, (some of) the team members have first entrepreneurial experiences behind them. They started a company (not necessarily in tech), bankrupted a company, sold a company, worked at a startup, etc. The key is that the key members of the team know what they are going into and they have done or at least witnessed (some of it) before.  Previous failures are OK, especially if handled with integrity and if resulted in valuable learnings.

2) Strong relevant domain experience. Have they done things before that are directly relevant / give an advantage?

3) Excellence. Did the team members show in the past that they can do something in an excellent way. These things may be totally unrelated to the startup, but can show what results a person can achieve, if they are passionate about something.

4) References. This one is about asking others questions about the points described in the ‘observable amazingness’ part. Good VCs will check references (both those the founders gave them as well as others) in a similar way to what a company would do while hiring an executive.

5) Last, but certainly not least - integrity. This point actually belongs in both categories and it is a classic ‘necessary, but not sufficient’ condition. While not every honest person will make a great entrepreneur, lack of integrity or dishonesty, both demonstrated during VC discussions or in one’s track-record are always a BIG warning sign to VCs.

Obviously, very few, if any, founding teams will check off all the points from the above list, but in general, the more of these points a team is able cover well, the more likely will a VC like it. At the same time, VCs tend to understand that entrepreneurial teams can have the most surprising ‘features’ and it is impossible to have a perfect pattern.

At Point Nine, we will typically weigh the observable amazingness higher than the track-record and experience. As someone once said: “Lack of experience is a temporary state, lack of intelligence is not”.

I am sure one can think of further points that could be added to the above, or group them differently, so please let me know in the comments below, if you have ideas on this and would like to share them.

Getting internationalisation right

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Two weeks ago we organised a meetup in Berlin for our portfolio companies and friends around the topic of internationalisation. With over 40 companies in our portfolio, of which more than 80% are active in more than one country, the accumulated knowledge about the dos and don’ts of internationalisation is massive. Sharing this knowledge was the goal of this event.

The event comprised 9 very interesting presentations. Below you can find a summary of the key takeaways from each of the sessions. Maybe it will be useful for your internationalisation efforts.

Fabian Siegel, Marley Spoon / formerly Delivery Hero:

  • Discussed the advantages and disadvantages of centralised (done out of one country) vs. local (including teams on the ground) approach while internationalising.

  • Concluded that strongest possible centralisation as long as possible tends to be beneficial as it maximises communication within the teams and speeds up problem solving.

  • Building local teams in a centralised HQ can work well.

  • For far away regions, autonomous regional teams are the way to go (one country for many neighboring markets).

Christian Miele, Kreditech:

  • Big believer in centralisation, after all Kreditech is operational in nearly 10 countries, largely out of their Hamburg office.

  • Christian explained how following a carefully designed internationalisation process one can avoid later headaches in complex scenarios (e.g. regulation) and eventually speed up growth.

  • Internationalisation as a risk management strategy.

Janis Zech, Fyber:

  • Starting out of Berlin, Fyber expanded to the US so that it is Fyber’s biggest market right now.

  • Know exactly why you want to go to the US before making the step, as well as be honest with yourself about why you can be successful there.

  • Attracting talent in the US is very hard, especially as a European startup, building an employer brand takes a lot of time and is much more expensive than Europe.

  • One of the founders should move over to make the US a success.

Jan Bohl and Christian Sturm, Ableton:

  • Hardware enabled Ableton to grow in countries where there is strong piracy and selling software is difficult.

  • Internationalising via distributors is a great way to spread the word fast.

  • Being proactive while dealing with compliance can be a good investment to avoid challenges with compliance later on as complexity of the issues increases (massively) with international scale.

Nick Franklin, Zendesk:

  • Don’t be afraid of Asia, it is a great opportunity for online software.

  • However, Asia is not homogenous and different parts of it require different approaches.

  • For example, the English-speaking countries, like India, are easier to deal with culturally, but have a relatively high price sensitivity. The economically stronger countries like Japan or South-Korea are very different culturally and require a very local approach.

Stefan Smalla, Westwing:

  • Especially in eCommerce, being the market leader is key. And in Home & Living, this is only possible with a very local approach and excellent operations.

  • Effectiveness comes before efficiency, if you want to grow fast.

  • Incumbent industry experience is rarely very relevant when you hire - in the end, we want to do things differently.

  • Meritocracy and full transparency on metrics are key for managing international teams.

Marcin Szalek, DaWanda:

  • Local international teams can be more effective in growing internationally than a centralised approach.

  • Obviously, local teams are more expensive.

  • Providing local teams with some freedom to adjust product to local specifics brings positive results, but increases complexity.

Fredrik Pfisterer, Mambu:

  • Global enterprise SaaS sales are well possible, but any opportunity beyond 20k ACV needs a lot of legwork (field sales).
  • Field sales can be a very expensive and time consuming - qualify your leads radically before you get on a plane as you can’t afford losing once you embark.

Piotr Jas, BlaBlaCar:

  • Strong reliance on local teams while accelerating the marketplace internationally.

  • Three ways of building such local teams (1) acqui-hires; (2) hiring or spin-off from existing team + relocate; (3) hire local.

  • Regular meetings of all local teams are crucial for building company culture and communication.

Even though we organised the event at a relatively short notice, over 50 participants from all around Europe and beyond could make it. The feedback we received after the event was very positive which was an additional confirmation that the format of topic focused portfolio events that we started two years ago with our annual Point Nine SaaS Founder Meetup is the right one. We will do our best to organize more such meetups in the future and to make them as good as possible.

Many thanks to everyone who participated in the event, as it is each and every participant and their experiences that make these meetups so good. Also, many thanks to KPMG Berlin for providing us with a nice location and a foosball table ;-)

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How many crypto-currencies will there be?

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One of the topics the bitcoin/crypto-currency crowd frequently chats about is how many crypto-currencies there will be in the long term, assuming the adoption of crypto-currencies continues to increase and regulation does not render the whole concept impractical.

(1) Some say there will mainly be bitcoin and the rest will largely remain ‘noise’ and ‘hobby’. I would argue that this is the case right now. 

(2) Others say that crypto-currencies will innovate and compete with one another and that many of them will co-exist.

(3) Yet another point of view is that it will be neither bitcoin, nor a specific number of alternative currencies, but a wide range of blockchain(s)-based services and bitcoin as such will become much less relevant than it is today.

My personal opinion right now is that it will be a mixture of 1 and 3 above. I believe that bitcoin will remain the dominant crypto-currency for transferring monetary value, i.e. fulfilling the role of a currency. I believe so simply due to the huge network effects that a widely adopted currency has. Even if there are alternative currencies that will have technological improvements over bitcoin, it will be very hard to come up with improvements that will be big enough to compete with the value of the bitcoin network. The latest decoupling of litecoin and bitcoin prices suggests we are going in this direction. However, I also think that there will be a large number of services built on top of blockchain(s) - but these will not look like currencies.

Which camp are you in? If you have an opinion, please share below.

Bitcoin could save us a lot of time

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I just spent some 45 minutes making smaller wires for various bills that accumulated over the weeks. These included doctor, parking, insurance, etc - regular stuff that everyone of us has to deal with.

I received most of the bills via paper mail. These letters piled up on my desk. Once I got to it, I had to read every letter, type in the bank account into online banking, type in the customer reference number etc - all just to make these 10, 20, 50 euro wires. 

There must be a better way to do this and I think bitcoin could help us get there. How about everyone of these bills contained a bitcoin QR-code that I could simply photograph and approve a transfer? That would save a lot of time and would take many of these things off my mind as I would probably do this immediately after opening such a letter. Also, that could limit mistakes associated with typing the account and reference numbers into online banking. And as an effect, the recipients would get their money faster. Everyone wins!

I hope that someone comes up with an idea how to implement this across all service providers. This could save us collectively huge amounts of time.

Btw - bitcoin is the only really good application field for QR codes that I have encountered. Making money/bitcoin transfers by taking pictures of QR-codes works really neat, check it out.

Bitbond

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Today we announced our investment in the Berlin-based startup Bitbond, a marketplace for bitcoin-based p2p loans. Bitbond has a very bold vision to create a global lending marketplace, enabled by the revolutionary bitcoin technology.  We are very happy to support the visionary founders, Radoslav Albrecht and Robert Nasiadek on their journey.

Here are a few words explaining why we think there is a great opportunity in front of Bitbond and the team.

A truly international lending platform

While p2p lending is a somewhat established and successful concept and while lending is happening all over the world and is one of the oldest documented businesses out there, it is to a very large extent a local business. So German lenders tend to lend to German consumers and (especially small) businesses, US lenders to the American ones, etc. There are many reasons for that, but one of the key reasons is that transaction costs for international money transfers are disproportionately high, especially for lower amounts. Transferring bitcoin is very cheap and fast, no matter where the sender and receiver are located. It is Bitbond’s mission to make financing and investing globally accessible by leveraging bitcoin as a platform.

And the global lending market is MASSIVE. It is in the 100s of billions a year and, as many startups have noticed, it only waits to get disrupted. On top of the “current” market size being already pretty big, Bitbond can enable new lending markets in places where they might not exist today. The next point explains how.

Independent of banking infrastructure

Borrowing money typically requires a bank account. Majority of the globe’s population does not have one. Thus, most of the global population does not have access to credit. Thanks to bitcoin, ANYONE in the world can start borrowing on Bitbond without the prerequisite of having a bank account. 

Giving people the opportunity to invest their money can turn out to be just as important. Many people have to put their savings under their mattress where they get eaten up by inflation. For example, many African countries have inflation rates above 10% p.a. and without a bank account which returns you at least the inflation rate, it doesn’t really make sense to save.

The whole topic runs under the keyword ‘financial inclusion’. There are many initiatives around this, like this one. You can have a look at these maps to understand the challenge a bit more.

There is a chance that bitcoin and platforms like Bitbond can be more effective at tackling these challenges than some of the global top-down programs. Admittedly, using Bitbond and bitcoin requires access to the Internet - luckily google and facebook are already working on this one.

General bitcoin opportunity

While cryptocurrencies like bitcoin are still in their early stages of development, there is a chance that they will become more prevalent and have significant impact on the world of finance. Bitbond is well positioned to benefit from positive developments in this field and play a significant role in them, primarily as a lending platform, but potentially by enabling further financial services on top of the bitcoin / cryptocurrency infrastructure.

For us, Bitbond represents a perfect early stage investment opportunity. It had some early success, it has a small, yet great team; it is a marketplace and we like marketplaces; it still entails significant risks and unknowns, but offers amazing upside if things go well. We are looking forward to the journey with Bitbond!

P.S. Yes, there also is some early competition - check out Bitlendingclub and BTCjam. The market is so early and so big, that I am sure that there is enough space for a few players.
P.S.2 Radoslav is also a very good at giving presentations around bitcoin and related topics, like the one below. Check it out.

Valuation of Marketplace Businesses

If you are interested in marketplace businesses, you might want to check out this presentation by Torch Partners. It has a lot of data on how leading public and private marketplaces are valued as well as provides overviews of key more advanced marketplace sectors, like commerce, food, transportation or home services. It is a quick read, certainly interesting for everyone keen on learning more about this very powerful business model.

What VCs like: Large Market Opportunities

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We at Point Nine, and presumably most other VCs, look for large market opportunities. But how large is large and how do these large market opportunities look like? Read on if you are interested to find out how I think about it.

VCs need to generate significant returns on the successful investments they make, also to pay for and generate returns on top of those investments that are not successful (and many fail). As an example, if you want to return over 3x on a fund and you assume that around one third of your portfolio companies are really successful, then each of these companies needs to return 10x+ to make it possible. Given that VCs typically invest at valuations of a few million USD/EUR or more and that there is potential further dilution post initial investment, the only way to generate 10x+ results is with exits of multiple 100s of millions or billions. This tends to be only possible, if the market opportunity is VERY large and can accommodate such companies.

In general, I believe that there are 2 types of large market opportunities that VCs can look for:

A new market

A new technology or idea creates an opportunity that has not existed before. Some of the most well known examples here would be bitcoin, social a few years ago, email back in the days or ebay. These types of opportunities are tricky, because it is very hard to grasp the size of the market or nail the direction of market development. Yet the rewards of getting it right can be huge, as typically the resulting company is very unique and operates alone or with limited competition for quite some time.

More often than not, the new market is hidden or at least hard to figure out until it is obvious, like in the case of UBER. One would think that UBER’s business is in aggregation of taxi and limo services, but it seems they created something very new. I believe to remember that the founder of UBER said in an interview that the revenues UBER generates in San Francisco are bigger than the total taxi revenues in the city before UBER started, so that they must be taking share away from privately owned cars, car rentals and potentially other means of transportation. Bill Gurley of Benchmark recently published a great post about UBER’s TAM (total addressable market). It is an excellent read.

I believe that biggest opportunities out there are in new markets made possible by new technologies, but they are also the hardest to spot and grasp as the new behaviours they are addressing are very hard to imagine and analyze beforehand.

A market shift to a new channel

More frequently, a venture opportunity (at least in the Internet space) will be associated with a channel switch. The most obvious example of this is online retail, a.k.a. e-commerce. Meanwhile, it is obvious that retail is going online, everywhere, the question is how fast it will continue to happen and what portion of it will stay offline in which category. Online retail represents a ton of opportunities in various geographical markets and categories, the size of the opportunity in each case is fairly easy to estimate and the opportunities are “easy” to spot. The downside of them being so obvious tends to be high levels of competition.

Another example of channel switch opportunities is online software. Traditionally, software is installed on computers (desktop software) or on internal servers of enterprises. The Internet made the SaaS model possible in which software gets delivered on demand via the web browser, which has a ton of advantages over the old model. So the opportunity is first and foremost a transition of the desktop/on-premise software market into the cloud. If we can figure out how big the market for ‘traditional’ software was in a given category, we have a good first estimate of the SaaS opportunity in this category.

A few important things need to be stated when talking about channel switch opportunities:

  • Most frequently these opportunities are neglected for a long time, disregarded or not tackled well by the leaders and dominant players in the old channels. Channel switches typically offer space for new companies to emerge and rule.

  • Channel switches to online typically result in more concentrated industry structures. There is only one Amazon. There is only one UBER (and a few competitors) vs. a lot of taxi companies. There are regional dominant players in the online accounting space vs. multiple local desktop accounting software companies before that. Consequently, a leader in the online channel can often be substantially larger than a leader in the previous channel.

  • A channel switch can also expand the market and thus represent a larger or smaller new market opportunity as well. The best example is SaaS which enables SMBs to use powerful online software that was not available to them before because of high cost. Or online food delivery, which enables customer experience, choice and transparency that is so superior to the traditional ordering via phone that I would argue that it gets people to order takeaway who did not do that before.

At Point Nine Capital we focus a lot on SMB SaaS and most of the investments we are making are bets on a combination of a market shift and a significant market expansion into the area of small and mid-sized companies. We also like marketplaces, which tend to create significant new markets. Our experience shows that most of the entrepreneurial activity in tech out there focuses on opportunities with a significant degree of channel switch character, but we actively look for investment opportunities in both categories.

Thesis on Venture Capital [in Polish]

Maciej, my younger brother, recently completed his Bachelor studies and wrote a thesis (in Polish) on Venture Capital and its role in financing young technology companies, especially in Poland and Europe. I think it is a nice overview of the basics and the situation in Poland and Europe and I thought it would be worth sharing with the community and he agreed to it.

So here it goes. Please ask any questions or make comments below, I am sure he will respond to them or will enable direct contract.

Congrats on completing your studies and the work, Maciej!

AdTech Cluster Berlin

As previously explained, I am a big believer in technology clusters, as they are the only way to get to a stage that significant companies are generated with some regularity. What we are observing in Berlin is what I would see as emergence of an advertising technology cluster. The number of more or less siginificant and successful AdTech companies is growing and the landscape looks more and more interesting. Some noteworthy companies in this space in Berlin are:

Please add to the list in the comments below, if I missed something.

Also, I know of a few AdTech companies which are about to launch, started (and angel financed) by, surprise surprise, earlier and later team members of some of the companies above - cluster at work!

I am not sure why this cluster emerged, but I would guess that the primary driver was the demand generated by (1) the large number of ecommerce startups in Berlin/Germany started in the last years - being smart at advertising is a key success factor in ecommerce, so ecommerce startups are keen to try new technologies in the field; (2) strength of the German ecosystem of gaming companies, who also invest heavily in specialised performance advertising and (3) presence of big media companies in Berlin, like Axel Springer. Whatever the drivers are, it is exciting to see this development. With such a concentration of companies and human capital / experts in this field, I am sure Berlin will be home to many more new exciting AdTech startups.

By the way, I also published this post on quora and it provoked an interesting post and discussion on onlinemarketingrockstars.

Unicorn Research Part 2: Europe (looking good!)

Remember the widely commented post and piece of research by Aileen Lee of Cowboy Ventures on unicorns (i.e. tech startups worth more than $1bn)? It was a very solid piece of work that sparked a debate on what it takes to get there for the companies and what it takes to get into such companies for VCs. Also, it made clear how rare these animals are - only 39 were started in the US in the last ten years.

We were watching this debate from afar here in Europe. Intuitively, we felt that the number of such companies in Europe is much lower, probably not worth doing the same research work for Europe that Aileen did for the US.

Interestingly, the tech investment bank GP Bullhound did just that. And guess what, Europe is not that bad in producing unicorns after all. To be precise, 30 of them were born in Europe in the time period that Aileen took for her research piece.

Admittedly, Europe did not produce any ‘mega unicorns’ (worth 10bn+) in this time, but the result is pretty good, certainly better than many would have expected (and it does not include the Kopenhagen-born Zendesk, which just IPOed).

Check out the presentation below, it is interesting. And let’s go build some more European unicorns!

Bitcoin startups in Berlin

I got interested in bitcoin. Some say this is the biggest thing on the Internet since…well…the Internet. I spent some time reading about it, talking to people, went to events, bought some bitcoins. My conclusion is that it has a hugely disruptive potential and can change many aspects of finance as we know it today. I almost feel guilty I did not pay more attention earlier…on the other hand, it is still super early in the land of bitcoin.

There is a bunch of presentations and other media out there that can help you get up to speed on bitcoin. Some of the more interesting recent ones are the slide decks by coindesk and sunstone, podcast by a16z, map/database of bitcoin startups by creandum, a video by Radoslav Albrecht of bitbond and the funny basic video by bitcoin.de.

The VC world has noticed bitcoin and especially in the last 12 months VC activity in this space picked up significantly. Well known folks like A16Z, Benchmark, Index, Ribbit and others have been making bitcoin investments. An interesting development is creation of dedicated bitcoin funds, like Pantera Capital (backed by Benchmark, Ribbit and the hedge fund Fortress).

We will certainly be looking at the space closely, especially with the purpose of identifying opportunities in our key areas of focus, i.e. online software (aka SaaS) and marketplaces. To start with, I tried to look at how the bitcoin scene (startups, events, etc) looks like in Berlin. Here is what I came up with:

Andreas Schildbach, the creator of a very popular mobile wallet is based in Berlin.

There is a bitcoin startup incubator: bitcoinsberlin.

A few startups: all4btcBitcoincommoditiesBitbondBitcoin Brothers, e4btc, gold4btc.

Bitcoin meetups: stammtisch at room77 and regular startup meetup.

There is also this highly interesting thing called Bitcoinkiez - a part of Berlin/Kreuzberg with a number of traditional shops/restaurants accepting bitcoin as a payment method, including room77, allegedly the first physical place in the world that started to accept bitcoin payments (serves amazing burgers, btw).

It looks like there is quite some bitcoin-related activity in Berlin, but the number of startups in the space is still somewhat limited. Given that my explorations of the bitcoin landscape are still early, I might have missed something here, so please let me know if I did and if there is anything I should pay attention to. I would love to get to know folks interested in bitcoin and working on bitcoin startups in Berlin and beyond, so please feel free to reach out to me if you want to grab a coffee and talk how bitcoin can change the world.

Checking out tamyca

I needed a car for the Easter weekend. I started looking for one a day before I was planning to leave and unfortunately all(!) the car rentals in Berlin were totally booked out. Then I thought about tamyca, a peer-to-peer car rental service I had been following for a while. I gave it a try, typed in the dates and types of car I would be interested in and there were quite many cars to choose from. 

I decided to go for the small convertible Mazda MX-5, a car I have been a fan of for some time now. I pinged the owner and had the car within a few hours. This is how it looks like:

After a few days I returned it, everything worked smoothly and with no complications. Thanks Torsten for renting out your nice car!

Here come a few thoughts after using the service:

I really enjoyed the experience: tamyca could offer a lot of cars at a time when standard rentals had nothing available, it was reasonably fast, the choice of cars was broad and it was (much) cheaper than a rental would have been. 

What can be criticised is the process, as it requires meeting the owner (which can be fun as well!) to get the keys, signing some papers etc. If tamyca could automate the process further, so that the experience is comparable to drivenow, I think the usage of the platform would increase significantly. I believe that the manual handover process is the biggest hurdle to a more widespread adoption of the service.

Also, it seems that the German mobility market is hugely competitive and it can be hard to be heard with a relatively new offering like tamyca. There is a variety of standard car rentals, like Sixt, Europcar, etc. There are ridesharing services, like wundercar or carpooling, and carsharing services, like flinkster, run by Deutsche Bahn.

I really recommend that you try the service, especially if you are into non-stanard cars (older, sporty, convertible, etc) or if you are very price sensitive and look for the cheapest alternatives. The prices on the platform are high relative to the value of the cars being offered, but no other rentals rent out, say, 10 year old cars, which makes the pricing very competitive (and at the same time likely attractive for those renting out). And with over 4 thousand cars available, there is enough to choose from.

Last, but not least - the cars people own are standing around not being used some 90% of the time. So a service like tamyca makes a lot of sense economically and it would be great if more people were using it (on both sides).

Thanks tamyca!

US is a must if you run a SaaS startup

United States is a big country. However, the world outside of it seems so much bigger. The US does not even account for 5% of global population. It is an economic powerhouse, but it generates “only” just over 20% of the global GDP and the EU is bigger than the US in GDP terms.

Thus, one would think that it is a perfectly good strategy to focus on building startups outside of the US. Many entrepreneurs do that and are very successful, especially in areas that have a very strong local component. A highly interesting, Berlin-based case for this is Rocket Internet, who build big businesses, esp. in the ecommerce space, in geographical markets where American companies are late to the game.

This logic does not apply in software though. In software, and especially in SaaS, products go global on day one and frequently see a strong pull (and competition) from the US. The reason for this is that US is a massive software market. It accounts for almost 50% (!) of global software spend (depending how you look at it and which stats you want to believe, the number is somewhere between 40% and 50%). In SaaS, the number is estimated to be even around 60% (!!!).

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Source: SaaS Report by Siemer.

With the US software market being so big, you probably cannot build a big software business if you are not successful in the US. The US market is a must, unless your software is heavily entrenched in the local ecosystem.

Consequently, almost every SaaS startup needs to think through how they are going to tackle the US market. We encourage our SaaS companies to think strongly about the US and many of them are very successful there. Also, we try to spend time in the United States (the article is not very accurate, unfortunately) and build relationships so as to best help our companies in their efforts to expand into North America.

Here come a few links to resources on the structure of the global software market: 1, 2 and 3.

Global vs. (multi-)local startups

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At Point Nine, we spend a lot of time thinking about how startups internationalise. As we are mostly active in Europe and given it is hard to build a really large company only addressing one of the European countries, most of our portfolio companies face the challenges of internationalisation at some point in their lives.

My current thinking is that as far as internationalisation is concerned, there are two types of startups: global and local/multi-local startups. It is very important for founders to understand which category their company is in, as it will have significant consequences for how the internationalisation process will evolve and how it will impact the development of the company.

Global startups

Global startups address an international audience from day one. They will typically launch their product in English and might add additional localised versions later. Many of our SaaS startups, even those based in Europe, are global startups. For example, Contentful, infogr.am or Algolia all fit this definition of a global startup. Being a global startup has following consequences:

- It is “easy” to go international. You sell to international audience from day one.

- Sooner or later you will have strong direct competitors, so better get funded and move fast. If the opportunity is significant and it is global, someone else out there will notice and try to exploit it.

- Especially in software, if you are global, you have to be strong in the US market, the biggest software market in the world. If you lose the US, it can be hard for you outside of it.

- First you need to master the English / US version of your product and sales and marketing. Local language versions or localised sales might be necessary at later stages of the company to scale it really big, but not to get to the first significant scale.

- The financial outcome of your startup journey will probably be binary - either you will create a very significant company or you will be crushed by competition or die of other problems.

Local and multi-local startups

(Multi-)local startups are different. They typically start with a product offering tailored to one country and after gaining some experience in the initial market go to another market and another, in a country by country fashion. Examples from our portfolio would include Delivery Hero, Kreditech or Docplanner.

- (Multi-)local startups are “hard” to internationalise. Every new market is a new logistical challenge. This can be especially hard in ecommerce, but marketplaces are not easy either. Figuring out a fast and efficient way to rollout new markets is key.

- Competition in the local markets will vary between zero and moderate, rarely will it be very sophisticated, aggressive or well funded.

- As you gain experience in a multitude of markets, it will be hard to compete with you.

- US is not a must. More importantly, US competitors will typically not be a threat. US competitors who start with a local business model in the US, frequently do not internationalize at all or go only into a few countries, do it late or are not good at it (see GrubHub Seamless, Zocdoc or Amazon).

- It is hard to get to a really big scale as it will typically require winning a large number of countries or winning in the biggest, most competitive countries (like Germany, UK or France).

- The outcome does not have to be binary. You can make it in one or a few small and mid-sized countries, fail in bigger markets and you can still have a decent exit.

Of course, the world is not as black-and-white as painted above. One can imagine that a company launches a global product offering following some success locally. Or that a company is not easy to categorise, like in the case of Spotify which goes country by country, but is building a global brand.

While certainly not perfect, I like this way of looking at the internationalisation of startups. If you have any thoughts or experiences that support, contradict or simply add to the above, I would be thankful to read about them in the comments below.

Berlin has exits?!

Around a year ago, Harry Nelis of Accel famously complained about the lack of exits in Berlin, implying that if Berlin continues to have an “exit problem” the growth of the ecosystem is threatened. This makes sense - no startup ecosystem can work sustainably without some sort of exits enabling capital to get recycled.

Luckily for us here in Berlin, the exit problem seems to be slowly taking care of itself. While Q1 is not yet over, we have already seen a few meaningful transactions that could be considered exits this year: Sociomantic selling to Dunnhumby for up to $200m, Plista selling to GroupM for rumoured EUR30m+, Skobbler being acquired for $24m and Aeria Games being acquired by Pro7 for an undisclosed, but potentially sizeable amount. Also, rumours about an upcoming massive Zalando IPO continue. Admittedly, other than Zalando, we are not talking multi-billion Euro transactions here, but the trend is quite positive nevertheless.

However, as outlined by Ciarán O’Leary, the Berlin ecosystem is still fairly young and given that great companies simply take time to build, the most exciting stuff is still in the making. This is best illustrated by the massive financing rounds that took place earlier this year (Delivery Hero, Soundcloud). 

I am very happy to see these exits in Berlin, as they make the Berlin ecosystem more complete. At the same time, I am very confident that Berlin will see much bigger exits in not so distant future.

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