4 lessons every VC should know before investing in pivoted startups

This article was originally posted on Venturebeat. Read the comments there.

We all know about the perfect pivot. The number of books and articles for entrepreneurs about when, how, and why they should drop their original idea to do something completely different could fill a small national library.

Unfortunately as a steed-stage VC like myself, there is little-to-no advice on how to handle “the pivot” from an investor perspective. And yet, very few entrepreneurs can execute this tricky maneuver without the support of their investors. It’s a very important perspective.

As a seed investor, you invest in teams. You are well aware that product-market fit might be elusive and there may be a few iterations before your team eventually finds its feet. So, you have invested in the team and it turns out there is no traction. The company only has money left to operate for a few more months. They need a new product, they need a new strategy and, most importantly, they need more money from you to have a shot.  It’s Pivot time!

But if a team fails, isn’t this a strong signal that they are not as strong as you originally thought? How do you disentangle external, market forces from in-house? Maybe there are team issues you missed?

These questions are difficult to crack, and there is no easy answer. However, I’ve found that four lessons stick out, (in reverse order of importance) as a good way to place your bet on a pivot investment:

1. Product-team match

You have seen the founders work on their initial product idea and it failed.

Will the new project be a better fit with the skills of the team? For this, you need to understand the skillset of a team first. Are they product people or sales driven? Do they feel comfortable in a B2B environment or B2C?

One key lesson here is that you have to go with what you have. It is very hard, in the short time you have to pivot, to transform a B2C team into a B2B proposition, unless they have done something similar previously.

My advice: if you have the shortlist of pivot ideas in front of you, make this a key criteria for selection. You only have one shot, so you better select a target that the team is truly well equipped to hit.

2. Cut your losses, forget the past

Don’t mistake a pivot for some incremental change in your product.  At least with past companies I have invested in, there comes a point when you sort of know if you are on to something (or not). After a long period of fog, the sky clears and you either see land or you don’t. If you don’t, jump ship. Don’t try to save assets, reuse assets, software components, partnerships, etc. Free yourself of all these burdens and focus on the team and its skills and enthusiasm. If you can jointly find something that makes sense and passes this test, go for it, and don’t look back.

One observation: the successful pivots we have seen were, more often than not, going after an idea that was already sort of on the market. I have rarely seen successful pivots that came up with radical innovations. More often, excellent teams that worked on an original invention — which then turned out to have no market (yet) – can leverage their skills on a product where the risk of product-market fit is smaller.

3. Timing is key or ‘muddling through’

From an investor’s point of view, managing this process tightly is of utmost importance.

Your challenge, simply put, is this: how can you buy time for yourself and the team without piling up further losses? You need to reduce risk in every way you can.

  • Choose a product that has a real chance to prove itself within the financial runway of the startup
  • Scramble for external funding:, salary cuts, renting out staff, office space, etc. Find every dollar you can save to extend runway.
  • Carefully evaluate progress and initial market traction (if any) of the new product. Tie your money flow to milestones.
  • Be 100 percent transparent on the milestones. Have a close, joint understanding with the founding team on the exact scenarios that you can support and those that you can’t.

4. Crisis as team due diligence

So, finally, here is my main point. I have one clear indicator that separates a successful team from the rest: enthusiasm. The single strongest indication is how the founding team deals with such a situation and with a serious, new challenge.

How does the pivot process feel to you? Is it a burden put on the team? Are they weary, still in love with their old product? Do you have to force decisions on them? Do they discuss the pivot as a hypothetical option or do they take fast steps? Do they follow your advice, or wait for your guidance?

Or are they running with it, moving the ball, having strong opinions about a new path? Are they ready to double down their commitments, financially, socially?

Don’t get me wrong: such a process should involve doubt, self-questioning and careful deliberations. But only for so long. At some point, the team has to embrace the change and run. If you don’t see this specific dynamic building up, I would recommend walking away. If you see it, stay with it, fight for it — it will pay off.

Europe vs. the US: founder stories



We at Speedinvest keep on discussing differences between Europe and the US in length, and have done so over and over again. Sigh. You probably heard it enough from us already. That’s why we wanted to ask someone who experienced the difference first hand, founded a company in Austria early and then moved to the US, to see the ecosystem firsthand. Tobias Hann, Founder of Vooch, a mobile couponing solution back from the days when nobody knew how to spell “Groupon” sat down with us to discuss startups, the US and stuff.

You founded vooch in 2009 in Vienna, what was the plan, how did it develop?

Our idea was to offer a mobile couponing service for retailers, restaurants, bars etc. We had one of the first iPhone and Android apps on the Austrian market and with marketing cooperations with local telecom providers we were able to reach more than a hundred thousand customers. While traction on the consumer side was great it was challenging to win business customers for the necessary coupons. Four years ago there was still a lot of skepticism towards smart phones and mobile apps. While we successfully convinced some great brands (such as Starbucks and Burger King) to advertise with vooch the willingness to pay for our service was low in general. In 2010 Citydeal (later acquired by Groupon) and DailyDeal (later acquired by Google) entered the couponing market in Austria and got a lot of traction. The market was swamped with coupons and it got even harder for us to acquire new business customers. As vooch was bootstrapped we eventually ran out of money and decided to shut down in 2011.

What were your learnings now looking back at vooch? what would you have done differently?

During the three years that we were working on vooch I learned a lot – experiences that I could probably not have gained anywhere else. It is quite a roller coaster ride to start a business. On the positive side I learned that I really like entrepreneurial environments and to be in charge of my own work. Because you don’t have a boss that tells you what to do, I think a strong internal motivation and work discipline are helpful personal traits for entrepreneurs. In terms what we could have done differently there are three main learnings.

First, know your future customers and the market you are getting into. Preparation is key and even before your product is done or your company incorporated ideally you already want to have feedback from future customers. You need to understand what their pains are and what product or service they are actually looking for. Knowing the specifics of the market and how sales processes etc. work is of great value too and will save you from unpleasant surprises. For example we didn’t anticipate the importance of advertising agencies for larger clients.

Second, know your team, roles and responsibilities and individual strengths and weaknesses of everyone. You really want to start a new business with a rock-solid team. Ideally the founding team has all the necessary skills to launch the initial (beta) product. Also, make sure that everyone knows their roles and responsibilities. In the hectic time of starting a business there is a tendency that “everyone does everything”. While this might seem like a good use of human resources it is actually not. Everyone should do what they can do best and not waste time by trying to fill in roles that don’t match their skill set.

Third, be prepared to change your plan. Writing a business plan is a nice theoretical exercise but chances are high that the reality will look quite different. The startup world is dynamic and what seemed a good idea yesterday might be obsolete today. Although I’m not a big fan of startup talk such as “follow the money” and “pivoting” these concepts are actually really helpful. While it’s easy to say to stay flexible in reality it is not. I remember when we heard about Groupon in 2009 and briefly thought about adopting or at least adding their couponing concept to our system. We decided not to because we were just mentally stuck in our own approach. External partners and mentors can be helpful to prevent that “out of a box” thinking.

You spent the last 2 years in Berkeley, doing an MBA, what is the atmosphere like there?

Berkeley is embedded in the Bay Area and the Silicon Vally is just around the corner. Entrepreneurship and startups are always present – in classes case studies are discussed, startups come to hire, students discuss their own ideas and you can listen to famous entrepreneurs such as Guy Kawasaki on campus instead of watching him on Youtube. Striving to become an entrepreneur is socially well accepted and successful entrepreneurs are almost treated like heroes.

How do Google, Facebook, others hire there? What are average salaries? What positions are looked for the most?

All the big tech companies are hiring right now. The problem is not a lack of positions but a lack of talent. On the IT side software developers and especially mobile app developers are in high demand and can make quite some money. For candidates with relevant experience (and for the best sometimes even straight out of college) salaries around $100k and above are paid.

Candidates with business backgrounds (and e.g. an MBA) also get hired but it is more competitive. Typical roles include product management, business development, or some analytical jobs. While salaries in general are a bit higher for business roles the gap to IT roles is not as big anymore as it might have been in the past.

The big tech firms all have big recruiting machineries and if you are not in the area or have some personal connection it will be challenging to get a hot lead. As international you also have to pay attention which companies are willing to sponsor a visa and which not. Hiring for startups is predominantly done by referrals and/or networking and a local presence is almost a must. They seek similar roles but pay less which is most often offset by some equity.

How do you perceive the Austrian Startup ecosystem after being away for 2 years?

From what I can tell the Austrian startup ecosystem has developed quite significantly over the past years. Even in 2011 it felt very different than in the beginning of 2009. Not only the number of startups has increased, also many more support structures are now in place. Initiatives like Speedinvest and the increasing number of business angels have made access to funds easier. Regular networking events support the exchange of know how and experiences between founders. The Austrian startup scene (as all the others around the world as well) has also benefited from new cloud computing services and the emergence of development frameworks. It is now easier than ever before to launch a web or mobile startup – all you need is an idea, a laptop, some time and the drive to do it!

But the reality still is that the Austrian startup ecosystem can’t be compared to the Silicon Valley in many regards. If I was starting another business today I would definitely spend some time thinking about the best possible location.

SpeedInvest wins 2nd Place at Venture Capital Awards

On June 19th Speedinvest was awarded 2nd place in the 2013 Austrian Venture Capital and Private Equity Awards.

SpeedInvest took home the silver at the recent Austrian Venture Capital and Private Equity Awards. This makes us very proud for two reasons:

First reason:
The prize was awarded by institutions (Vienna Stock Exchange, Federation of Austrian Industries, financial press & media and top notch auditing and law firms – in short: “the establishment”) that the start-up industry often complains don’t give them enough attention.
This award sends a strong signal from the establishment’s, Startup industry!
You’re welcome!

Second reason:
And the best thing about it?  We won the prize without really trying. And we won in impeccable SpeedInvest style:
-we submitted our application two days after the deadline
– and it wasn’t so much an “application” but a 14-line email accompanied by our recycled infographic
– we showed up at the ceremony only after being chased by the organizers for days. We didn’t realize the invitation meant that we made it onto the list of only 5 nominees out of 22 applications
– then of course we were half an hour late
– Oliver preparing his ‘thank you’ speech in even less time than I dedicated to the application itself (taking notes on a paper tissue after 4th place was awarded)

But don’t get the wrong impression.  We weren’t being arrogant, we simply didn’t expect ‘the establishment’ to take us seriously, with our early stage technology focus.  We live so far out in Neuland we weren’t sure they had our address.  But we’re really glad they did.  It tells us that our day-to-day work is award-worthy to others and needs no BS or flashy presentation.

But in the end pride of accomplishment is retrospective:
it doesn’t push us forward. Much more important is what take away for our future work. And this made me think about the good in coming second… And it took me a while, to be honest.

Second place is the last chance to do better next time!

…and that project kicked off on June 20th.

A picture paints a thousand words.

About a year ago, I received an email from Florian, introduced through a mutual friend, with the subject line “Do you know Usersnap?”. I didn’t. We met, Florian pitched me the service, an incredibly easy to use yet super useful way of doing screenshots right in the browser, with the ability to handle even complex Javascript, awkward DOMs and the option to add notes and markers to the screenshot without any effort – the ideal tool to enable everybody to give continuous feedback.

Simple, effortless, useful. Those were my first thoughts. I remember going into our weekly Pipeline meeting, where we discuss startups we’ve seen and take an immediate decision whether to dig deeper or not. I presented Usersnap in exactly that meeting, about an hour after I met Florian and we all gave it an immediate “Go”. Product was good, team was a great mix and we could clearly see a global market.

We started talking about a potential investment, first Florian wanted to take some time to perfect the product and learn more from the early users that were already using it, than we had our hands full with other deals and the always stressful but superb Pioneers Festival, but then, around that time, our talks became clearer and converged to a deal that we signed soon afterwards.

Yesterday we signed the final papers, including some co-investments by Business Angels Usersnap had lined up, a scenario that is frequent in our investments. And although we call ourselves Speedinvest, sometimes good things happen to those who wait. We are very happy to welcome Florian, Gregor and Josef to our portfolio and we look forward to working with you.

Go ahead! Try it! A picture paints a thousand words.

Navigation specialist indoo.rs receives funding from tecnet equity, SpeedInvest and Techinvest

Vienna, Austria – 20th February, 2013 – indoo.rs, a technology leader in the rapidly growing field of indoor localization and navigation, received a significant 6 figure equity investment in a seed round by Austrian funds tecnet equity and SpeedInvest joined by strategic investor Techinvest.

Indoor positioning and mapping is expected to be the next big innovation shaping the mapping and localization industry and one of the ‘Top 15 Emerging Technologies To Watch’ according to Forrester Research (1). Existing “outdoor” solutions, such as from Google, Nokia, and Microsoft, are ubiquitous on today’s mobile devices and critical for the success of any mobile platform. However, people spend 90% of their time indoors, where existing solutions that rely on GPS rarely function.

To determine a user’s indoors location, indoo.rs‘ mobile technology combines available signals from the device sensors (including accelerometer, gyroscope, barometer, and compass) with ambient electromagnetic signals such as Wi-Fi, geomagnetic fields and Bluetooth. The indoo.rs platform allows for the rapid creation and scalable management of indoor maps as well.

The technology of indoo.rs is used today by customers and partners to deliver on B2B and B2C use cases, in venues such as airports, shopping malls and convention centers, and in segments ranging from retail to public safety.

The indoo.rs platform and SDK enable application developers to incorporate indoor positioning and navigation capabilities into their applications and deliver end-to-end solutions to their customers. indoo.rs also allows device and chip manufacturers to run computationally intensive and sensor fusion code natively in their platforms for increased speed, higher accuracy and optimal battery power efficiency.

“Our technological lead has been confirmed repeatedly by leading industry experts. The feedback we obtain in discussions with hardware manufacturers and indoor mapping providers during a roadshow facilitated by SpeedInvest in the US validates our approach.” says Bernd Gruber, co-founder and CEO of indoo.rs. “This investment round combines the financial strength of the tecnet fund, the active involvement of SpeedInvest and strategic opportunities offered by TechInvest to support the expansion of indoo.rs’ technology lead.”

Investors providing capital and know-how

“This technological lead was a crucial factor in the investment decision”, said Werner Zahnt, Partner at SpeedInvest. “We have been following and assisting the indoo.rs team for two years, and are pleased to now have taken another step forward in the relationship. SpeedInvest has intensified its activities supporting the indoo.rs team and is increasing their presence in the US market. “

 (1) Forrester Research Blog “Forrester's Top 15 Emerging Technologies To Watch: Now To 2018”

Startup Spirit

This weekend I had the wonderful opportunity to participate in Startup Live Bucharest, which reminded me of the power and dedication young people show, when it comes to working on fresh ideas.

Over 60 people gathered at the HUB Bucharest (very nice location!) and worked their asses off to deliver pitches on their ideas that they brought to the venue on Friday evening. Many ideas hovered around urging topics in Romanian society and the teams tried to figure out how to package them into products, estimate the market and create a sustainable business.

Those events really are instrumental in creating an ecosystem and getting entrepreneurial thinking and talent into society. They encourage and enable people, from diverse backgrounds to try out building something from the ground up. The spirit of this event and the outcomes are simply amazing.

In about 10 minutes the final pitches should start and I am looking forward to that, finding out how the ideas evolved in those three days.

Hail the hidden champions: why fringe markets may beat Silicon Valley

In January, Speedinvest, our first time seed fund, turned half a year old. Even in startup life, that's quite young, yet it feels like ages. In this first of a series of observations, I want to share my specific experiences and hopefully learn from your feedback.

When I speak with friends in Silicon Valley, they don't explicitly put it that way, but I get the feeling that's how they still judge startups from Europe, especially from regions outside the so-called hotspots like London and Berlin.

Are we really desperately behind in following the hype cycles and trends, is all the exceptional Central European talent already living in studio apartments in San Francicso or NYC? Well, quite a few talented teams from Central and Eastern Europe (CEE) have moved into larger markets. But this isn't the rule.

Read on over at The Next Web.

Metrics for Startups – Speedinvest Insights

When we started Speedinvest we had one ambition that we are trying to fulfill every day: be as entrepreneurial as an investor as possible. This is easier said then done, because the day to day business is truly different than that of the average entrepreneur. We have looked at over 200 companies in the past 6 months, made over 100 personal meetings and invested in less than a hand full of companies, meaning that we are more driven by our calendars and email inboxes, than by product development. What is the “product” of a successful investment fund anyways? We think that it is the value and the specific services we can offer to the companies we invest in. That is what we need to work on, because after all the startups are our clients.

Thus being entrepreneurial means not only to understand the trials and tribuluations of a startup, but also to provide meaningful help to portfolio companies and others in our region along the way. That is why last Friday we hosted our first Speedinvest insights, a get together planned to be hosted regularly, focusing on a different topic (like “Performance & Metrics” this time) where startups and experts would exchange their views and experiences in a friendly surrounding, helping everyone to get better.

We were exited how well it went, here are some impressions.

I am looking forward to future events in this series that is definitely going to be an important part of our “product” in the future.

The Internet is still a Series of Tubes

… or How Ageing US Lawmakers get it Wrong Again with SOPA.

Those of you who aren’t familiar with the ‘Stop Online Piracy Act’ (SOPA) now facing the US Congress, or the earlier ‘Protect IP Act’ (PIPA), and haven’t noticed the flurry of urgent discussion following the Wikipedia Blackout or the many online protests and petitions in the last week, please take the following steps:

  1. Locate your computer’s C: drive in Windows
  2. Right-click on the drive icon, then click on the ‘Format…’ option in the drop-down menu
  3. Follow the steps, and ignore any warnings
  4. Sell your computer on eBay
  5. (Macbook users – simply set your machine on fire because this is about to destroy its resale value)

For those of you who have been paying attention, please read on (and those who have actually read the text of the SOPA bill http://1.usa.gov/xCRQr4 and can summarize the heinous section 105 – IMMUNITY FOR TAKING VOLUNTARY ACTION AGAINST SITES THAT ENDANGER PUBLIC HEALTH with a short essay on the broadly poisonous implications of subsection ‘a’ can claim a cash prize from Oliver Holle)

I wanted to highlight pertinent discussions on the Web that reveal the implications of the bill, and its many dangers, and also to add a few points of my own that reveal two things that haven’t been widely discussed: 1) bad actors involved in the bill’s genesis, and the irrelevance of its ‘bi-partisan’ support; 2) the misrepresentation of the dangers of two factors driving the bill’s creation – illegal online pharmaceutical sales, and the online sale of illegal military equipment.

There has already been quite a lot of explanation of the bills’ dangers. Trevor Timm, at the Electronic Frontier Foundation, does a great job of summarizing some of the bill’s more harmful provisions and likely consequences. The National Venture Capital Association already strongly oppose the bill (as of the writing of this post, their Web site was still black); SpeedInvest also oppose SOPA (our Web site remains unchanged because of our unwavering, primary commitment to our limited partners; we have real work to do, etc.). Even many Hollywood artists, ostensibly one of the groups the bill is designed to protect, have offered a cautiously worded opposition statement.

Everything seems stacked against this “poorly thought out” law. Could the necessity of opposing SOPA be any clearer? Well, yes.

The bill’s title explains its purpose ‘To promote prosperity, creativity, entrepreneurship, and innovation by combating the theft of U.S. property, and for other purposes.’ Those other purposes are the elimination of online trafficking in counterfeit drugs, and the illegal, online sale of military items. It appears that the bill was written in such a way as to assure support from patriots and pharmaceutical manufacturers, distributors and resellers. The bill counters piracy, terrorism, and drug trafficking all at once. Who would oppose it?

One statistic used in discussion of the bill is that the global market for counterfeit pharmaceuticals was 75 billion USD in 2010. This statistic, which is quoted widely, comes exclusively from the ‘non-partisan’, ‘non-profit’ research institute – The Center for Medicine in the Public Interest. ‘The Center’ is funded by pharmaceutical companies, and ‘was originally a project of the Pacific Research Institute, an older corporate front established in conjunction with Philip Morris to fabricate academic support for the tobacco industry.‘ The real statistic is this – USA Today estimates that in any reasonably regulated pharmaceutical market, the percentage of counterfeit drugs hovers at about 1%. Actual law enforcement statistics bring that number much lower – there were 433 seizures in the US of counterfeit pharmaceuticals in 2010, with a stunning street value of 5.6 million USD.

The fear that stolen or misappropriated military gear might end up on eBay or clandestine auction sites, and fall into the hands of terrorists, adds another strong impetus to the bill. But the US Deputy Undersecretary for Defense, Alan Estevez, doesn’t seem to agree, arguing in 2008 US military internal equipment rules do the job quite well. The Army’s own criminal investigation department (DCIS) ran a sting operation in 2004 ‘Operation High Bidder‘, at a time when illicit trade in military body armour was supposed to be rife due to supply shortages in Iraq. The outcome appears to have been the uncovering of 150 online sellers of body armour (although the report doesn’t indicate how many were subject to criminal prosecution). In 2004 eBay had approximately 3.4 million sellers. And much of this body armour was purchased by families of US soliders in Iraq, hoping to supplement the inadequate provisions of their sons and husbands. One conclusion of the DCIS initiative was to instigate a joint program of keyword filtering with eBay, which seemed to do a good job. Almost too good. In 2008 eBay caught 4,000 suspected body armour purveyors, but only removed 1,000 listings. 75% of the alerts were false positive. For matters of scale, eBay carried over 13 million listings in 2008.

The inclusion of ‘anti-terrorism’ and anti-counterfeit-drug measures in the bill is pure distraction, and addresses problems that are hardly relevant on a national scale, and not even recognised as urgent issues by the DCIS and law enforcement agencies. What really motivates this bill are the media and publishing corporations who provide large financial backing to Howard Berman and John Conyers, two of the bill’s Democratic authors, and the two congressmen who provide the ‘bi-partisanship’ that would normally signal broad political acceptance. You would expect support from Lamar Smith, Republican, whose largest backers include TV/Movie/Music industry and healthcare industry professionals; and from Bob Goodlatte, who has been a crusader in enforcement and expansion of online copyright legislation, and is chair of anti-piracy and both bi-partisan and republican internet caucases.

Howard Berman is the congressional representative from Los Angeles districts, and has often been called the ‘representative from Hollywood‘. His political career is underwritten by media and entertainment companies. John Conyers has courted controversy by opposing public access to publicly funded research at the behest of large publishing companies (who profit massively from such research, sold back to the very institutions who provide the data for free, at the expense of the US taxpayer). Large publishing houses are among his strongest financial backers. I enjoin the reader to track the money trails (and the falling approval ratings) here – http://www.opencongress.org

If there weren’t already enough reasons to oppose SOPA, here are two more: it addresses problems that are hardly of an international or national scale, and shouldn’t require fundamental changes to the Web to address; and its ‘poorly thought out’ provisions, rather than being a bi-partisan and honest effort by US lawmakers, are simply products of a small group of congressman acting as mouthpieces for the publishing and entertainment industries.

Update January 23, 2012 – As of last Wednesday Rep. Lamar Smith has announced the postponement of SOPA consideration in the US Congress, and hinted at broad changes to the bill. This is likely the death of the bill in its current form, and reason to celebrate!

Can we stop talking about European clone startups now?

My fiancee, who is a violinist, and takes no interest in my work with startups, except to express the opinion that people who work in business (and particularly finance and hi-tech) are overpaid, and probably dishonest, came up with a second observation recently:

Fiancee: ‘I hear most European tech startups are just copycats of successful US companies.’

Me: ‘What?! Wait! Where did you hear this?’

Fiancee: ‘Mike Butcher wrote about it in TechCrunch.’

Me: ‘How do you know Mike Butcher? Why are you reading TechCrunch?’

Fiancee: ‘It’s great! It keeps me from thinking about Mozart all day, and has tons of good gossip. Did you know that Mike made Oliver Samwer cry?’

Me: ‘No. And you’re not allowed to read TechCrunch anymore!’

There followed a long argument, but I’ll summarize my winning position: ‘Who cares? Can we stop talking about this now?’

The fact that Europe has copycat or clone startups should be irrelevant. The real issue fueling this whole conversation is that people don’t like being made fun of. A natural reaction is to turn the ‘copycat’ accusation into a term of pride that you are not one (see, ‘The Pirate Summit’), to deny the accusation, or, in rare cases, to walk out of an interview in tears (or perhaps there was just a misunderstanding. These are all emotional reactions that don’t address the substance of the accusation.

Let me put it to you this way: who today complains about Japan’s copycat auto industry? No one. That is because Japan learned from the models of others, as everyone must do, and became an economic powerhouse in its own right. And anyone who dares repeat the old canard that the Japanese, as a whole, make good copycats, but are unable to innovate (…because of their stifling education system, their cultural homogeneity, their bland diet, blah, blah, blah…) needs to take a hard look at the recent 30-years’ history of consumer electronics, or Japanese world-leading innovation in robotics today. Any remaining doubters can spend some time investigating the glorious Kajimoto Lab!

Bill Gates himself spent his early teen years pulling printed source code out of rubbish bins so that he could copy other people and become a better programmer himself. A period of ‘copycatting’ characterizes almost any individual or collective route to success.

The recent Euro troubles pose a far greater, long-term threat to the EU tech ecosystem than any reliance on copycatting. The fundamentals remain strong for creating a European nexus of innovation, and a technical and economic engine to rival Silicon Valley: Things happen fast. Ten years from now, this entire little flurry of name-calling will be forgotten, Europe will likely have a couple of mega-successes under its belt, and the tears will have long since dried on Oliver Samwer’s cold, German cheeks.

This post also appeared on Techcrunch.

Building a brigde from Central Europe to San Francicso

Slowly, but surely, Vienna is building its own reputation as a startup hotspot. There has been a bunch of massive exits driven with Austrian founder DNA (Cumulative value of the exits from UCP, Jahjah, 3united or last.fm exceed 1 billion USD), but recently the news flow from this region has jumped up with companies such as Wikitude, Runtastic, Lookk, 123people or just recently MySugr being international success stories.

Vienna, as the logical hub for Central Europe’s startup scene is now making a move. Next week, the five day startup festival called Startupweek (www.startupweek2011.com) is nailing this ambition.

Now, this region also has its first Super Angel fund.

Speedinvest aims high and comes with a very distinct model, that may show a 3rd way between the wave of incubators / accelerators on the one side and the traditional VC model on the other.

The idea is, besides cash from the $10 M fund, to staff our portfolio companies with part- or full time entrepreneurs from our team and thereby fill gaps that almost all startups have to a degree, especially in a region with a much thinner talent ecosystem than the US. We think that a 3 month program is a nice start, but will not move the needle for a small team from Vienna, Lubljana or Prague. What they need is an experienced co-entrepreneur that works for the company day in day out until they are successful. Much more engagement, that hopefully also yields better returns.

Specifically, we aim to build a bridge between Central Europe and Silicon Valley. Erik works as an outsourced biz dev operations in the US until either a series A round provides the cash to build up own operations or the company fully moves to the US.

See the announcement on Techcrunch.

Things happen fast

I woke up the other day to find that some of the worst regimes in the Middle East were on the verge of collapse, and Vienna had a startup scene. I don’t want to overuse the ‘Arab Spring’ metaphor, so I will stop right here and never, ever mention it again. It might all have come as a surprise for Americans who, paying intermittent attention to their inadequate news media (pro-tip: BBC World), have had little more than a vague impression that ‘things are pretty complicated over there.’

While you where sleeping…

But the seeds of the sudden blossoming in tech entrepreneurship in Central and Eastern Europe (CEE) were sown long ago, and they fell on ground that few realized was so fertile. Like a lot of important historical phenomena, the whole thing started with a deep sense of inadequacy: Europeans have been scratching their heads for decades trying (badly) to recreate the economic engine of Silicon Valley. Planned scientific/technical communities like Sophia Antipolis in France fail even to come close. Chamber of Commerce initiatives hoping to foster ‘innovation exchange’ or ‘to seed the ecosystem’ usually amount to nothing more than a handful of Euros and a 12-week lease on a grubby cubicle in Sunnyvale. Although, I have to admit the Danish Chamber of Commerce program doesn’t look too bad, like the best item on the menu of a tourist trap restaurant on Mariahilfestrasse.

Looking at the history of Silicon Valley doesn’t really provide any clues on how it should be done today, in a small cluster of countries whose rich technical achievements of the past two centuries are often overlooked. What worked for Cupertino in 1976 probably wouldn’t work for Budapest today. But one doesn’t have to go too far back into the recent past to a time when Budapest and Vienna where the cosmopolitan centres of a dominant European empire that produced a surplus of great mathematicians, engineers and technicians. Something of that culture is alive now, and it is taking little to revive it quickly.

Silicon Valley had Stanford, and research and development flourished there that bridged the tricky cultural gap between industry and the academy. Frederick Terman helped establish the Stanford Industrial Park in 1954 to help stave off Stanford’s financial problems, and to retain graduates who might otherwise have headed back to New York to look for real jobs (Stanford was surrounded by farmland at the time). The next thirty or so years look nothing like the development of technical innovation centres now (unless you focus only on China). Back then it was all about the hardware. Large scale investment in industrial laboratories, fabs and warehouses humming with mainframes (AT&T Bell, Intel, Fairchild, etc.) drove innovation at a costly and glacial pace by today’s standards. The history and current indicators that make Silicon Valley such a success don’t necessarily play a role in the creation of other tech hotspots.

Anything you can do, I can do better!

So what are the primary factors driving economic growth and innovation in Silicon Valley today? And can we compare them to what is happening in Europe to help understand what the future holds for CEE?


First, in Silicon Valley, the human resources needs are met by immigrants (and, in fact, immigrants drive economic growth and investment in new companies – they founded 25% of US venture backed public companies). When I ran mobile messaging at VeriSign, 60% of my team were from India., with a few Israelis and Europeans sprinkled in. When I look at friends with startups (or even university labs in the US) I see a very large proportion of foreign talent. European secondary education beats the US, hands down: young Europeans are better educated in math and science than their US counterparts, and they maintain their lead. European Union (EU) enrolments in university mathematics, science and technology programs (under- and postgraduate) as a percentage of total enrolment hover at around 25%. In the US that number is 17%. And in strange places like Finland, Germany and Austria, the numbers are 35%, 30% and 26%, respectively. The engineering talent pool is proportionately larger, and better in many respects.

OK, sure, but Silicon Valley has the money…

Not for long. The offices might be on Sand Hill Road, but the capital is global. Funds will go were the opportunities are, and European private investment is recovering faster than that in the US. Large venture funds are beginning to take a serious interest in CEE technology sectors, and new funds (such as ours at SpeedInvest) are popping up quickly. EU VC/private equity investment (including buyout, replacement, rescue, growth, late-stage, venture, startup and seed capital) grew, or recovered, 92% from 2009-2010, with the largest change in growth capital and buyout investment. It’s not entirely comparing apples to apples, but US venture investment recovered only 21% in the same timeframe. European private investment growth exceeds the US rate over the last two years in nearly all categories.

But US Engineering schools, like Stanford, still have the best industry ties…

You don’t need 8 years and 100 million dollars to create an industrial research lab in order to drive significant innovation anymore. The tools are open source, and the hardware is commoditized. And platforms like Ruby on Rails mean that services are easier to build, easier to deploy, easier to maintain. Small teams can do a lot, and most importantly, there are no more geographic restrictions. Incubators and ‘hacker spaces’ provide equipment, ideas and community, and they have sprung up like wildflowers since 2008 in places like Vienna, Budapest and Prague (not to speak of Berlin or the UK, which now have many 100s). Additionally, university programs across Europe are modernising. I was at Oxford for the inception of its first MBA class. Now Oxford, Cambridge and even Technische Universität Wien (TU) not only have world class MBA programs, they have technology management and entrepreneurship tracks (Seriously, look). And academic institutions throughout Europe have significantly dropped barriers to spin-offs. TU has dedicated, transitional entrepreneurship programs to support its graduates.

But probably most interesting is the emergence of organizations like STARTeurope that have rightly taken the leadership from the clumsy Chamber of Commerce initiatives of 3 years ago. STARTeurope provides a large number of events and platforms that bring entrepreneurs together in CEE, and provide access to ideas, capital and human resources. And the organization’s growth is a strong indicator of things to come: in the space of a year they have gone from sponsoring meetups and events that attracted hundreds of participants and a few dozen startup teams, to the recent Vienna STARTup Week 2011 with TechCrunch, my venture fund SpeedInvest, and local consultancy i5invest – which is chronicled in Wired: 1,300 participants, 400 startup teams, standing room only and speakers like Esther Dyson and Morten Lund (Skype). More broadly, the explosive growth of incubator and support platforms has generated speculation of a European incubator bubble (although interviewees remain quite optimistic).

The Results

Despite former TechCrunch writer Paul Carr complaining that everything in Europe sucks indicators point toward growth that is not only accelerating the size and productivity of tech hubs like Berlin, London and even Vienna, but also to a phenomenon that could reach the sort of critical mass to create a self-sustaining nexus of innovation centres to compete on equal terms with Silicon Valley. Carr’s metaphor of recording artists and music production is a good one: he argues that Europe has produced nothing but small copycats (he calls them “tribute bands”) and that comparisons to Silicon Valley are premature and vastly optimistic. But bands like The Rolling Stones, or The Beatles of 1961 were nothing but pale imitations of American sounds until they quickly found their own voices and created a phenomenon at least as large as the first wave of US rock and roll, but also unique in significant ways. Within four years, the entire world had Merseybeat coming out its ears, and the whole thing happened fast, because the precedent had been set, the audience was there and a successful model was available to build upon, and to adapt. It doesn’t matter if Europe hasn’t produced a Google yet. It will. Among the founders and investors of our fund, SpeedInvest, if you only count the Austrians, we have had nearly 1 billion dollars in exits since 2005. Growth of incubators, investment in engineering grads, growth of university support programs for entrepreneurs, an inflow of venture capital investments; all of these things are at least keeping pace with, and in most cases beating, US growth rates. It’s happening fast and one morning central Europeans are going to wake up to see their society has been transformed, like the young activists in Egypt who recently… Oh, f***k.

This post also appeared on Techcrunch.

The First Austrian Startup Genome Project

Modeled on Black Box’s Startup Genome Project, the Austrian Angel Fund Speedinvest piloted a similar project, focused on local technology companies, in September 2011. The Austrian Startup Genome Project evaluated over 100 Austrian mobile and internet startups. The study focused on socio-demographic data, geographic focus, education, and experience of founders and the sector of choice of each startup and aims to analyze the booming startup scene in the country and hence to identify the target areas for support.

Men in the twenties with little experience

Demograpic data from Austrian tech founders shows similarity to other regional data. Not surprisingly, the technology startup scene in Austria is dominated by men, and only two percent of startups are founded by women or have women in their founding teams. 40 % of the founders are between 25 and 30 years old and have put their ideas into practice with little or no experience, immediately upon completing their education. Most of them are university graduates and first time founders. In addition, most startups seem to feel comfortable co-founding in smaller groups with less than three people.

Tech cities: Vienna and Hagenberg

Predictably the pioneering edge in founding a tech startup is found in the capital city, Vienna. 70 percent of the Austrian startups are founded in the capital whereas only seven percent are from Styria, followed with five percent each by Upper Austria, Salzburg and Carinthia. Tirol, Vorarlberg, and Burgenland create 2,5 each. Notably, none of the startups are from Lower Austria. Despite the few numbers of startups from Upper Austria it is crucial to mention that the institutionalized technology hub of the regional government in Hagenberg generates remarkably high quality projects. Astonishingly, in a business where it is key to operate globally, only one third of the Austrian startups state that their vision is to conquer the world market.

Sector focus

Considering the business focus of the projects there is an increasing trend towards consumer products. 70 percent of the startup projects address the consumer market, which offers rapid scale, but is notoriously challenging to take to market. However this target concentration is broad and balanced. Current trends show the largest number of startups focusing on social media and video, whereas gaming, digital marketing, eCommerce and publishing are represented equally. In spite of the growing mobile app market (according to the research firm MarketsandMarkets it will be worth ~$25 Billion by 2015) many Austrian startups still rely heavily on developing and marketing internet products, a finding that the research team noted with surprise.

See an overview presentation on SlideShare (german)!