Ondrej Bartos on Talking to VCs: “Focus on Problems”

I first got involved as a mentor back when Lukas and Petr founded SY in 2011, and after the first year we decided as Credo Ventures to become an investor and shareholder, as we felt that SY was very well-positioned to support the startup ecosystem in Central Europe which is something we as a venture firm very much hope for and is crucial for our business. So in 2012 we became a very active investor, we supported SY to get into GAN, to extend its mentor group, and to get funding for the following classes. And it’s been great fun as well as inspiration working with both the SY team and the accelerated startups.

Hey, it hasn’t been such a long time… 🙂 I actually first started as a small angel investor, then I worked for a Polish VC MCI Management, but I only co-founded Credo in 2009 – and that’s what I consider the real start of my VC career. I did make some nice venture deals in my MCI days, like Geewa for which we then hired Cedric as a CEO [Cedric Maloux is now CEO of Startupyard] or Nostromo which was a terrible failure due to Mr. Jobs’ genius move with the iPhone. I made successful investments like Retail Info (sold to Mafra) or Invia.cz (which still is the largest online travel commerce player in Central Europe). But only with Credo I really started focusing on what my passion is: seeking and backing the future global stars, the innovators and disruptors who aim to create from scratch something which can change people’s lives.

Stay hungry, of course I dream. I dream of Credo fund 2 and 3 and 4… I dream of another billion-dollar-company from Central Europe, backed by Credo. I dream of a Czech startup solving world’s poverty or schizophrenia.

As already said, my passion are entrepreneurs who aim to disrupt ways markets operate now, with the use of technology which is our main sector focus. We consider venture capital is that it’s a tool to help the smartest and most capable entrepreneurs to make their dreams happen. We are not financiers, we are backers of entrepreneurs. And we are entrepreneurs ourselves.

This really depends on the point of view. You could say the environment hasn’t changed too much, we as VCs still receive only a couple of hundred projects per year, most of which are really low quality (and I’m being diplomatic here), we still have to explain what we seek in projects and what we look for in entrepreneurs, people generally still don’t understand the basics (of our business), people still don’t understand what startups are (even the ones who claim to be startups). On the other hand, comparing to the situation 5 years ago, we have a NYSE traded tech company AVG from the Czech Republic which attacks $1B market cap, we have a NASDAQ traded company LogMeIn from Hungary which attacks $1B market cap. We have another $1B security company Avast which recently announced investment from CVC Capital Partners. We saw successful exits of local startups Cognitive Security (which we happened to be an investor in) to Cisco Systems or Mdot to GoDaddy. The number of projects we saw in 2010 was a third of what we saw in 2013 (550 projects). There are a number of accelerators and incubators, foreign VCs are looking around and finally are willing to invest into Central European startups – we have coinvested with Atlas, Index, Flybridge, Baseline and other U.S.- and UK-based funds. I am very optimistic…

The most apocalyptic one I will skip, sorry. Maybe in a couple of years…

I will say Nostromo was certainly one of them. It was a great team, great entrepreneurs, solid product and vision… if only Steve Jobs didn’t introduce iPhone and change mobile telephony forever. We made the investment at a time when analysts and researchers predicted something totally different than what actually then happened. $1M down the drain, nothing worse, no apocalypse.

In general I must say that startups come to us better prepared than a couple of years back – which could mean that startup founders in Central Europe have more access to information and lessons learnt from other startups from around the world, and are becoming more aware of the whole startup investing thing. On the other hand there are always things to improve – in general I would say that the most common mistake would be insufficient understanding of competition and customers. Who is solving the same problem and how, and who should be buying/using the product, what exactly is the motivation, what is solving the problem now…

It is all about people! And there are tons of things that turn me off – crazy ambitions, lack of ambitions, inability to listen, lack of knowledge of the target market, laziness, and the list could go on…

There is no rational reason to be scared of VCs, or at least no more than being scared of swimmers. Of course, you need to be aware that venture capital is not for everybody, and it could be uncomfortable for an entrepreneur who doesn’t have the ambition to grow rapidly or change the world, due to unaligned interests. So if you want to create a lifestyle business with organic growth generating steady income, don’t go to VCs. VCs just can be scary as they often provide very direct and brutal feedback, but again – mostly for the ones who don’t want to hear feedback.

As cliché and banal this may sound, very often founders are in love with their product or offering, and they spend way too much time on brushing it and playing with it without having any feedback from customers. Then they release their polished product to the market and often realize that it doesn’t solve any problem and there are no customers who would want to pay for the product, or even use it at all – so they spent a lot of time and energy on a beautiful useless product. Just to be clear, we love founders who are passionate about the product – but the passion has to be about the problem–solving attributes of the product, not the product itself.

Before I answer this, I would just like to remind that a great pitch doesn’t mean it’s a great company and vice versa – I’ve heard really bad pitches from founders who ended up being super successful and I saw an awesome pitch by an entrepreneur who failed badly. When you think about it, pitching is really very much like the sports in which judges make calls – impossible to measure, it is about subjective opinions and feelings – some people feel Sarka Pancochova should have won the olympic medal, judges thought otherwise… But the last pitch I’ve heard was actually from a team we decided to invest in – and it will be announced soon, so I won’t tell you the name. But it was a pitch which gives you goose bumps because you feel this is something potentially world changing. As my colleague Andrej says, that’s the feeling to be a VC for – BTW, I would highly recommend Andrej’s blog, it is great for startup founders who are considering coming to us for funding – it gives them a great recipe.

Well, there’s pretty much just 1 thing to accomplish: convince us that we should invest. But seriously, we want the founders to convince us on the existence of a problem or pain in the market, show us big enough potential in solving that problem, explain us what the solution is, build a strong and committed team and ideally show us some initial traction proving their point and ability to execute. Not difficult, ay? 🙂

Prague is an awesome place, both to run a startup and to live in… 🙂 You can change the world no matter where you’re based. Although it is still the case that for some startups you should at least have access and exposure in places like Silicon Valley, but you can still base your startup anywhere else.

[ssba]