Established in 2012 as an accelerator in Tallinn, Startup Wise Guys (SWG) has undergone a transformative journey. Evolving into a holding, it now offers a spectrum of products, including investment and non-investment programs for startups, educational programs tailored for future entrepreneurs, business angels, and venture capital funds, investing globally, all under the esteemed Startup Wise Guys brand umbrella. To date, its portfolio includes over 300 active startups from nearly 50 countries, spanning Europe, the US, Australia, and the LATAM region.
This February, the holding celebrates its 12 years on the market. Vestbee talked to Alexandra Balkova, an early-stage investor and a Partner at Startup Wise Guys, about how it operates, the products it offers apart from acceleration programs, and why relying on AI-driven strategies today can't guarantee success for a startup.
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What is Startup Wise Guys?
Startup Wise Guys is an accelerator, as our core value and our core activity, and a group of venture capital funds. We also have products for different categories of people, starting from students, such as the Young Entrepreneurs Summer School. This is not an investment part, but an educational piece that we run in summers for several years. Finishing with products for idea-stage C-level executives, like Founders Club. We also have the educational Angels Up Academy for business angels.
So far, we are operating a group of VC funds together with a holding company. Startup Wise Guys has been in the market for 12 years, and its main mission is to help founders become entrepreneurs by building great international tech companies. This is one thing that has never changed in SWG since the very beginning.
A lot of founders call Startup Wise Guys accelerator with a heart. Why so? What makes it so attractive?
I think it is better if this answer will give you a founder from the portfolio company, but still I would share my personal opinion — it’s not necessarily the whole company's opinion. The whole industry, the entire VC ecosystem, is moving with high speed towards the data-driven VCs as such. And this is good because we have tools, AI, just way more ability, capacity, way more options for VCs to be data-driven today compared to previous years. However, for pre-seed investors, there are still a lot of things that are not measurable.
SWG still remains the pre-seed investor, and sometimes we do invest in companies where there is not much data to be driven by. Most of the investors or even all of them will say that they focus on founders. And this is true. But depending on the stage, for many investors, the data will be the primary factor.
For us, humans remain the primary factor. I was talking recently, like three days ago, with one of the founders, who actually brought up what you were saying. He said that for him, our approach is more focused on beyond the business, on the founding teams, and on the humans beyond the business and not only on the business.
Because we do value, we try to build relations for the long term. Even if the founders fail the company, they will forever remain in our network, so they will always be welcomed in our yearly gatherings. They also remain in our Slack forever, so they can always use our network, asking for whatever they need. Startup Wise Guys is just one of the largest accelerators in Europe in terms of network. The larger accelerators are primarily coming from the US historically, such as Techstars, for example.
You mentioned the European market, and, as I’ve learned, Startup Wise Guys is active on the African, and Turkish markets as well. Tell, please, more about its geographical reach.
We still remain primarily European, just by the number of investments. For example, we are the most active private investor in Ukraine until today, with 50 startups invested. So most of the things are still happening in Europe; however, we do have a fully active vehicle in Africa where we invest in only African-based startups. In general, we have in the portfolio up to 50 countries, and this includes the US, Australia, Nordics, so it is global. This year, we added startups coming from a couple of new countries: Peru, Tanzania, El Salvador, and Chile.
However, why am I saying European is because we don't actively scout in countries like El Salvador. While we process applications globally without geographical restrictions, our focus for deal sourcing is on overlooked markets in CEE, Central Europe, and Europe as a whole.
Part of our strategy is to focus on overlooked markets, which don’t necessarily mean developing markets. Spain, for us, is an overlooked market despite being a large and strong economy, it is overlooked from the early-stage tech startup and venture capital perspective. We bring an international approach to such markets, addressing issues like language barriers and fostering global connections in startup ecosystems.
Last year, Startup Wise Guys raised a $27 million fund. How many funds are under the Startup Wise Guys management? How does the structure of funds look like?
It wasn't one fund that raised $27 million. The mentioned funding is a total amount raised by several Startup Wise Guys VC vehicles. We are combining a generalist fund, typically B2B, which is the largest with up to around 180 investments, covering various geographies and verticals, both focused and others. Additionally, we have specialized funds like Wise Guys Sustainability, Cyber, and Fintech among others. All of them are operating under an umbrella brand called Startup Wise Guys.
We have several funds that have completed their investment periods and are not considered active. Currently, there are five active funds: Challenger II (generalist fund), Opportunity Fund (designed for the best-performing startups at the seed stage), Cyber Fund, Africa Fund, and Cleantech Fund (operating independently as 2C Ventures). We also have two funds in the process of launching: Wise Guys Fintech, and Wise Guys Proptech.
The structure is more complex than a typical VC due to our holding and involvement in business development, tenders, and other aspects, making us a larger ecosystem.
When discussing investments, it appears that Startup Wise Guys places a significant emphasis on gender diversity. What is the strategy?
Right now, we are taking it step by step, with our initial focus within the diversity spectrum being on female founders. While there may be a need to adjust the strategy in the future, attracting female founders is quite challenging at the moment.
One good thing is that in 2023, we observed a 33% increase in the share of female founders within our portfolio. To provide specifics, in 2022, we had 11.2% of female founders, and in 2023, it increased to almost 15% (14.9%). However, 15% is still not half, indicating that there is room for improvement.
Talking about the investment strategy, and what goes beyond the formal requirements, what is Startup Wise Guys looking for in startups?
We consider both data-driven and human-driven factors. On the data-driven side, we prefer startups with revenue if possible. Additionally, we lean towards startups with co-founders, emphasizing a team rather than a solo founder. We only invest in those founders who are committed to working full-time from day one, showing global ambition to become an international company. Ambition is crucial and closely tied to market opportunity.
On the human side, we hope for diverse teams if possible. We also assess coachability since we primarily operate in an acceleration program. We seek founders who can take criticism, emphasizing that this doesn't label those who can't as bad founders. Coachability aligns with our aim to educate. Ambition, if assessable, is also considered within the founders.
Lastly, and importantly, we look for good people. This aspect is crucial in an acceleration program where our managing directors work 24/7 with startups. It's essential that these are people you want to work with.
Name a few trends that will shape the entire fundraising ecosystem in 2024.
Data-driven everything, for sure, remains a significant trend. We already discussed how various tools make startups more data-aware, significantly impacting investor approaches. There are three more things, or at least from my perspective, that started last year and maybe the year before and are still ongoing:
- AI, which is quite interesting right now. The challenge is that with the large buzz around AI, some investors are hesitant to invest because it has become somewhat mainstream, but it's still a developing field, especially in machine learning.
- Sustainability is another trend that's definitely continuing. Going a bit philosophical, sustainability is not just driven by global warming goals and climate changes, but also by a shift in hiring preferences.
The younger generation, those graduating from universities, is more inclined to work for companies that bring meaningful impact. This shift is not only due to global agendas like the UN goals, but also because individuals are seeking more meaningful value in their work. This dual perspective influences both company development and employee preferences, creating a trend from both ends.
Could you provide some common guidance for startups on how to navigate these tough fundraising conditions?
Never follow the top. I really would love founders not to follow the trends, but to follow what they like and what they believe in. Many founders are building trendy, even AI-driven companies, but this is just a buzz.
While building a startup is cool, there's nothing cool about bankrupting a startup.
I believe that, especially in a tough fundraising environment, startups are realizing the need to build sustainable companies from a financial perspective. It's now harder to scale businesses with VC money than with customer funds. The best companies, in my opinion, are always those built by founders who believe in what they're creating, even if it's something perceived as boring and not AI-driven.
What’s next?
We are not changing the strategy because we believe in what we do and want to stick with it. Therefore, we remain a pre-seed/early-stage accelerator, investing in B2B startups within our areas of knowledge. What we will do is try to maintain the same pace as we had in the last year, aiming to invest between 70 and 90 startups this year, within the same verticals we currently operate.
Regarding the funds, we aim to launch new funds, including Fintech and Proptech ones. Additionally, we are aiming to expand our geographic footprint every year. This year, we're looking at the Middle East and/or LATAM, exploring opportunities in both regions. LATAM is vast and popular, and the Middle East, especially with increased cooperation with Dubai and Saudi Arabia, is gaining attention with numerous projects involving the UK and the EU.
