Investor Interview – Andrin Bachmann Talks Seed And Pan-European Investments
Andrin Bachmann is founding partner of Piton Capital, investing in online businesses with network effect across Europe, a NextWomen panelist and Astia advisor. The serial entrepreneur turned venture capitalist tells The NextWomen about his journey as a founder, becoming an investor, early stage valuation and what it takes to be a successful entrepreneur.
How did you first become an entrepreneur? Tell us about your background, founding glocalnet, scaling it to Sweden’s 3rd largest consumer telecom SP and the successful exit.
I met with my co-founder while still at university. We wrote our first business plan while I was finishing my thesis, and a few weeks after graduation we incorporated the company. Needless to say, the original business plan turned out to be spectacularly wrong. We were planning to build a network based on voice-over-IP, which was probably 10 years ahead of its time. Luckily, we were agile enough to change our business model.Instead of focusing on technology, we put the customers at the centre of our strategy. Specifically, we lowered our customer acquisition cost by partnering with well-established brands, and made effective use of the Internet to provide good customer service and billing.Glocalnet ultimately went public on the Stockholm Stock Exchange, and were able to use our listed shares as a currency to acquire smaller competitors. In the end, Telenor acquired the business.
When did you first want to become an investor, and how did you go about it?
I got to know many private equity and venture capital firms while still an entrepreneur. One of them was M/C Venture Partners, a Boston-based firm focused on the telecom and media sectors. I joined them in 2001 to set up a European office.
When and why did you move to the UK? How would you describe the European start-up and VC landscape, and how would you say it compares to Asia, the US and Americas?
I moved to the UK in 2001. I think the European entrepreneurial community has come a long way in the past 10 years. Many successful entrepreneurs now don’t want to rest on their laurels and either continue founding businesses, or apply their experience and skills as investors. It is also very good to see places like London and Berlin developing into proper entrepreneurial clusters. Nevertheless, we can still learn much from our US colleagues when it comes to thinking big and taking risks. On the other hand, I also admire many entrepreneurs in emerging markets around the world for their incredible desire for success and work ethic.
Why would you say VCs are always looking for high return consumer focused start-ups (the next facebook or google)?
Returns in the VC business tend to be dominated by the “home runs”.
Therefore, it is rational that investors chase the next big thing. Of course, VCs are often completely wrong in their assessment of what those big successes will be.
I find it more productive to stay focused on some core principle (in our case the concept of network effects), rather than to chase the fashionable sector of the moment.
Tell us about Piton Capital, its partners, investors, focus and targets. Why marketplaces and why Europe?
I set up Piton Capital with two partners a few years ago. Initially, we were operating as private investors, and then set up a fund which includes external capital in 2010. Our fund is focused on online businesses with network effects – businesses with a product or service that gets better the more people use it. That could be marketplaces, exchanges, networks, communities, etc. We have been heavily involved in some large successes in this area in the past, such as autotrader, betfair and qxl. We believe that these experiences and our strong focus help us make informed decisions about companies we look at now, and allow us to add more value once we get involved.
Finding and evaluating investments is a heavily people-driven business, and our networks are strongest in Europe, hence our geographic focus. Operating across multiple countries is definitely challenging at times, and it is important for us to work with partners who have a more regional approach.
Please describe what you call seed stage investment, and an early stage start-up.
I am not a huge fan of trying to put labels on companies, but an early-stage company in the Internet world for me is one with an existing product or service, some evidence of user traction, and possibly early indications of monetization. Seed is anything that lacks these components.
What do you look for in your investments? Why have you decided to invest in your current portfolio, and what were the key selling points?
The overarching theme in all of our investment is a service that gets better the more people use it. Bullionvault is an online exchange for physical gold ownership. The spread of people buying and selling gold gets narrower as liquidity on the exchange increases. Dawanda is a marketplace for unique items. Choice for consumers increases as more sellers are on the platforms, and demand increases for sellers as more buyers come on.
Likewise for jameslist, a classified marketplace for luxury goods.
fotocommunity is a community for artistically ambitious amateur photographers. More users mean a larger audience for the members’ creative output, and more like-minded people to socialize and exchange ideas with.
What are the top requirements for a start-up to be interesting in terms of investment? How important is the team versus the idea? And how important is it to show adoption versus revenue in the eyes of an investor?
The team is always important, but especially so at an early stage, when it is essentially all you are buying as an investor. Clearly it’s great if there is revenue and usage traction. If there isn’t, a good explanation as to why that will change going forward certainly helps.
How many business plans are sent to you every week, and what actually gets a founder a foot in your door? How often do you get pitched by women founders?
Like most investors, we get a lot more business plans than we can take a serious look at. A good way to get to the top of the pile is for a deal to come in through an existing relationship. Therefore, my recommendation is for entrepreneurs to seek introductions, rather than send plans “cold”.
Unfortunately, the percentage of pitches by women founders is in the single digits.
How long does it usually take from the first contact you have with a founder to the investment money being in their hands? How early would you advice founders to start looking for investment, and how to set the right pre-money valuation?
Being a small partnership, we can take decisions very quickly. However, I think it is in the interest of both the entrepreneur and the investor to build a relationship before the need for funding arises. I usually advocate a “lean startup” mentality – I like companies with products or services that are compelling enough to attract early usage without heavy sales & marketing spend.
Setting a valuation for an early-stage business is an art rather than a science – the “right” valuation is probably one that both the entrepreneur and the investor are slightly unhappy with.
When you were a founder, how much capital did you raise in exchange for how much equity, in how many rounds? Anything you would have done differently looking back as an investor?
We raised about $6m of early-stage capital in two rounds, and then additional money for growth later on. We went through very distinct capital market environments: Relatively benign early on in 1997, then extremely difficult in late 1998 at the height of the Russian financial crisis, and finally the dotcom bubble years of 1999 and 2000.
As there wasn’t really any venture capital around, our investors were a mix of high-net worth individuals, and some traditional institutional investors.
With hindsight, the mistake we made in funding the business was that we didn’t always spend money wisely, and therefore had to raise too much.
What would you say are the most important entrepreneur traits for success?
Persistence, action-orientation, ability to deal with uncertainty and risk, competitiveness, ability to see the big picture, flexibility, ability to sell to different constituencies, and above all: luck.
Any female internet heroes?
She may have lost her vibe towards the end of her reign, but Meg Whitman grew eBay from $4 million in revenues to $8 billion in about 10 years. She had the benefit of a fantastic underlying business model, but that is a stunning achievement
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