VC Of The Month - Credo Ventures

Magdalena Balcerzak Manager, Vestbee

About Credo Ventures

Credo Ventures is a Prague-based VC firm, investing in early-stage tech companies. The fund targets visionary tech entrepreneurs from Central Europe who aim to become global winners in their respective verticals. Since its inception in 2009, the VC has invested in 54 startups. Today the firm invests from its latest fund Credo Stage III, which at €100 million is almost triple the size of its previous fund.

Fund Strategy Overview

Geography: Central and South-Eastern Europe (CZ, SK, PL, HU, HR, SL, BG, RO)
Preferred industries: any company leveraging technologies
Investment ticket: initial ticket of €100K – 3M with the possibility to follow-on up to €10M
Company stage: seed, early growth (pre-series A, series A), in exceptional cases pre-seed
Product type: mostly B2B software, but all tech-related investments are considered
Product stage: all stages
Revenues: preferably revenues validating the product-market fit but all stages are considered

Q&A with Jan Habermann, Partner at Credo Ventures

What are the 5 main things you look for in a startup?

  1. Quality of founders and the team; does the team have the right qualities (reliability, honesty, strong work ethic, potential for a long-term relationship), business and technical ability and some unique insights into the market to make the startup a success?
  2. Size of opportunity the startup is attacking; is there a potential for the startup to deliver outsized returns if everything goes as planned?
  3. Ambition; do the founders aim to build a company that can potentially become a global leader?
  4. Competitive advantage; does the company offer a solution that is unique or substantially better than what is currently available?
  5. Cap table; are the motivations of all stakeholders aligned and corresponding to the current stage?

What disqualifies a startup as your potential investment target?

VCs, unfortunately, say „no” most of the time. On average, we make six investments a year out of almost two thousand opportunities we screen. Generally speaking, if we answer „no” to any of the questions above, we resign from the investment.

What in your opinion differentiates the best founders from the rest?

Best founders have: a clear understanding of the problem they attack, a clear vision for their product and can communicate it clearly. Good communication skills are essential, since the success of a startup – especially in the early stages – relies on founders’ ability to communicate with (potential) customers, (potential) employees, (potential) investors or co-founders. They are also able to get things done. With the best founders, you can see progress from one meeting to another. They do not come back with excuses. They always find a way to complete their tasks, learn from them and how to continue.

What startups should take into account before making a deal with a VC fund?

First, startups should decide whether their ambitions are aligned with those of the VC world. It might be safer to bootstrap or to raise money from a few angels (friends, family, professional angels) if they prefer to build a cash-cow lifestyle business or don’t want to accept the high risks associated with the ambition to „conquer the world”. The high-growth VC way is not for everyone.

If the VC route wins, founders should ask themselves:

  • Do I understand the motivations and are my ambitions aligned with those of the VC? (a $10 M fund will have different ambitions than a $100 M fund)
  • Does the VC have the expertise I seek? Have they made an investment into the sector I am in? Do they have connections in the region where I want to expand?
  • Do they have good connections for the next round of fundraising?
  • Do they have a good reputation and track record with their portfolio companies?
  • Do I get along well with them on a personal and business level, so I can ask them for advice at any time?
  • Are they taking a reasonable share of my company and generally are the terms typical and appropriate for the stage?

What is your approach to startup valuation and preferable share in the company?

There is no exact way to derive valuation in early-stage investing. Our preferred stake in return for our initial investment is between 10% and 20%. This is to ensure that we, as investors, have a meaningful enough share after all future investment rounds, and earn a meaningful enough reward for taking the risk. At the same time, it’s about keeping the key people in the company motivated. Thus the valuation is typically derived from how much the company needs to move to the next stage and what is the “reasonable” share the investor can get at this stage.

How do you support your portfolio companies?

We work with all companies on individual basis and try to provide a valuable support. This can have many forms, depending on the stage of the company and their focus. A typical case would include helping our companies in hiring great talents. We also try to help them to shape their strategy by our board participation or by connecting them with relevant experts. And most importantly, we help our portfolio companies to raise follow-on rounds by connecting them with the most relevant and prominent global VCs.

What are the best-performing companies in your portfolio?

To name a few: Pricefx - the global leader in native cloud pricing software, that has just raised a $48M Series B round; Productboard – a Czech product management system company which recently closed a $45 million Series B round led by Sequoia; and our shining star - UiPath – the global leader in robotic process automation (RPA), originating from Romania with valuation of $7 billion at the last fundraising round almost a year ago.

What are your notable lessons learned from investments that didn’t work out as expected?

One of the most exciting things about being a VC is that you learn new things every day. However, since the feedback cycle in VC is extremely long (it typically takes years to see the impact of your decisions and actions), it is not easy to attribute the results to one single decision. I learned tons of smaller things that I am constantly trying to apply in my decision-making process, in order to increase the odds of a successful outcome of my investments. Anyways coming back to the question, most of the not-so-successful investments didn’t work out due to the misalignment of the people involved. Based on that experience, the most critical part of any investment decision, in my opinion, is the understanding of motivations of all people involved and making sure that the investment structure reflects it.

What are the hottest markets you currently look at as VC and where do you see the biggest hype?

Our investment focus is on the region and we are not really sector driven. In general, I still see an opportunity for technologies to bring more efficiency in most industries. Whether it’s an application of AI or AR is of smaller importance to me. The key is the actual benefit that the technology brings and the magnitude of the problem that it helps to solve.

In your view, what are the key trends that will shape the European VC scene in coming years?

The key factor shaping the current VC and startup environment is the number of success stories we have seen recently. I believe that these success stories prove the potential of Europe to all stakeholders and motivate more and more founders to start their own companies. This is one of the reasons why there is a lot more funds going into the European VC. This naturally means that there is more money invested in startups. In Europe, the total amount invested has doubled between 2015 and 2019, to roughly EUR 32 billion. This in turn, since the number of deals has not increased, leads to bigger rounds and higher investments in mega-rounds (over $100 m). I believe it is likely that we will see the trend as long as we have such strong private markets with large VC funds. There is also an increased interest of the US (and global) investors in European and Central and Eastern European startups. Over the past few years, the percentage of deals where US and global VCs were present has increased sharply and I believe it will continue. The early-stage funding also flourishes, mainly due to an ever high number of micro funds and individual investors willing to finance companies at the early stages. I believe that we can expect to see some adjustment in the number of these investors if there is an economic slowdown. Nevertheless, I am convinced that early-stage VC has become an established industry even in Central Europe and good startups will always be able to raise the capital they need.

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