How VCs invest: Lakestar and Carmel Ventures at DIS 2017
Venture capitalists (VCs), and how they choose which companies to invest in, featured prominently on day one of DIS. Speakers Christoph Schuh, Partner at Lakestar, and Zvika Orron, Venture Partner at Carmel Ventures, took to the stage across the day to discuss investment strategies.
Lakestar: investing in "disrupters"
Christoph kicked off his session on the main stage by telling the audience about Lakestar. A European VC, it is active across different continents and has an impressive track record: they were early investors in Airbnb, Skype, Facebook, Spotify, and So-Fi, among others, and out of 50 investments, there have been no write-offs so far. "We try to identify game-changers, disrupters," Christoph said.
Next, Christoph outlined some very interesting statistics with regards to the role of VCs in today's global economy:
● 38% all employees in the US work for VC-financed companies
● 42% companies founded after 1975 are VC-financed.
He identified Uber and Airbnb as being truly disruptive, outstripping the revenue of their traditional versions (ie. taxi and hotel industries) by astonishing margins. Airbnb will have 200 million guests in 2017, amounting to $20 billion in revenue - far more than hotel companies will make.
What about media companies?
For media companies, Christoph recommended they think about where future growth will come from, since the industry has struggled so much in recent years. He advises three strategies:
● Partner with a company - especially an innovative one. Be fast in implementing it, and associate yourself with a disruptor.
● Build your own - eg. innovative technology/platforms
"All have their pros and cons," he added. But looking at the examples of Google and Apple, you can see that their investment and partnerships with smaller companies are quite interesting, and we could learn from them. Google acquired 55 companies in the last 24 months (more than two per month), at a conversion rate of 2% - they talked to more than 2,200 companies. Apple is also acquiring companies at a rate of one per month.
"From the VC side, we try to understand the trends," Christoph emphasised. European companies are underrepresented in mergers and acquisitions (M&A) compared to American ones, and this should signal that a change in mindset is needed, he added.
Christoph ended by quoting Mark Zuckerberg: "We have never once bought a company for the company. We buy companies for excellent people." A similar sentiment is echoed by Tim Cook and co-founder of Ryanair, Brian O’Leary. "It’s all about investing in the people," said Christoph. With a graph, he showed that the top reasons by far for M&A are innovation, R&D, and tech talent.
Christoph's key takeaways
- Lack of strong talent and tech innovation will lead you nowhere
- Structural M&A deals (“acquihires”) are a crucial element to getting strong (technical) talent
- DNA-shift needed in European companies - eg. management of a media company needs to shift towards more active pursuit and closure of structural M&A deals
- Companies have to have presence in the hotbeds of technology and startups - London, Berlin, Stockholm.
Carmel Ventures: "we invest in leaders"
On the afternoon of day one at DIS, Carmel Ventures' Venture Partner, Zvika Orron, elaborated on his VC's attitudes towards investment. With over $800 million currently under management, several successful exits, and a growing portfolio of promising companies, Carmel Ventures is among Israel's top-tier venture capital funds.
He began by emphasising Israel’s position as a tech hub: full of startups, it is a global innovation centre where new generations of talent are exposed to complex technologies. For many companies, Israel is the second-largest site after the US for R&D.
Changing the status quo with disruption
"The startup format is one of the greatest formats for making the world a better place," said Zvika. Startups are all about learning from mistakes, and changing status quo with disruption.
Zvika highlighted a shift towards "frictionless" user experiences. "People are not interested in loading an app. I can now speak to my Amazon Echo and ask it to get me an Uber."
As a further example, Zvika mentioned Cellsavers, a service comes to your home and fixes a broken phone within 60 minutes. "Time is of the essence, and services that come to your home are getting more popular," he added.
Noting that Carmel Ventures "invests in leaders", Zvika noted some of the common qualities he sees in successful entrepreneurs:
- They’re obsessed with quality of the product
- They can explain their vision of the company in a few words
- They are tough and calm
- The product grows organically
- They get stuff done and they move fast.
One of the difficulties, based on Zvika's personal experience, is timing: it is hard to identify and control, and questions must be answered before a product is launched. Is the world ready for this product? Or, perhaps, is it too late, with too many competitors? Sometimes a product has to be shelved, even if it shows promise - which is one of the key areas where new companies fall down, in his opinion, as they try to spread themselves too thinly.
"This is where judgement, intuition, and foresight are important," he added. "We can only learn from the past, and project to the future."
He ended by advising that finding a problem worth solving is the key to startups - even if that means repositioning the product. He emphasised again that people are getting used to talking to machines like Siri and Amazon Echo, so this is an area to watch out for.