Munich Startup: From the first financing round in 2016, Picus Capital has Personio At the beginning of the year, the startup reached a billion-dollar valuation. And many of your other (pre-)seed investments – such as Finn.Auto, Limehome or Alasco – are on a successful growth path. Do you know earlier than others which founders will be successful? What's your secret recipe?
Robin Godenrath, Picus Capital: Of course, we don't know. But we do see certain connections and recognize which topics and teams have a higher chance of success than others. The earlier you start working with startups, the more the focus becomes on the entire team. However, many founders in these early stages are still alone, in pairs or threes – so large parts of the team don't even exist yet. It's extremely important for us to be able to imagine that the founders can find top people and build great teams.
For a founder, it's not just important that they have analytical skills or are pushing an exciting business model, but also that they can sell the entire vision and convince other top people of its value. And there are other factors to consider: We want to support exciting business areas, which means investing in large markets. We also want the business idea to be backed by a clear product and a clear vision.
The Personio founder also impressed with his skillset
Munich Startup: Did it work like that at Personio too?
Robin Godenrath: We were very early on with Personio. If one had assumed that the startup would remain only an HR management tool for onboarding and vacation days, one probably wouldn't have expected the company to become so large. But the fact that Personio is now expanding further with services for payroll, recruiting, and many other areas is primarily due to Hanno's skillset (Editor's note: Hanno Renner, founder and CEO of Personio) and his founding team. They brought together the right people.
Munich Startup: Can you estimate how long you need to talk to a team before you can be sure of your assessment?
Robin Godenrath: It varies. In some cases, we reach investment decisions more quickly than in others, where it takes a little longer to get to know and understand the founders properly. It helps us a lot if we have references or can find the founders in our network. When talking to a new team, we initially discuss the business model, the product, and perhaps the first customers in detail. During this process and the initial discussions, we get to know each other better, understand each other's working methods and ambitions, and thus gain the trust for a long-term collaboration. Founding teams are very dynamic at the beginning and are sometimes just finding their way together. Therefore, a certain amount of uncertainty at the beginning is normal for us.
Picus Capital: “Our investment philosophy is comprehensive”
But this also means that we have a certain advantage in later investment rounds: While we know what kind of team we're working with, other, new investors can only evaluate the company and how far it's progressed with its product. At this point, they don't know the founding team as well as we do. Our investment philosophy is long-term: We usually invest between €300,000 and €1 million in the first round, but this can be significantly larger in later rounds.
Munich Startup: Besides the founding team and the hiring skills, are there other factors that make a startup successful for Picus Capital?
Robin Godenrath: A large and growing market is very important to us, so it's worthwhile to continue investing. At the same time, these must be markets in which we believe significant added value can be created through software and technology. These include industries such as fintech, proptech, or HR-tech.
“For us, the focus is clearly on the team, the market and the product”
Another important factor is the product. It's very important to us that founders have a passion for the product. America is a bit ahead of us in this regard. Take the founders of Tesla or Facebook, for example: They build very complex and powerful products that can withstand the competition. It's also important to us that founders focus on a product that isn't easy to replicate and whose success doesn't depend on marketing strategies.
There are also financial topics that we attach great importance to: How does the company plan to operate in the future? What do the margins look like? Timing is also important here. We often see that some topics don't work until a catalyst suddenly appears and then things take off. For example, the coronavirus had such a catalytic effect on digital topics that had previously progressed more slowly.
But if I had to name three things that are important for the success of the startup, our priorities would clearly be team, market and product.
“Early products are difficult to evaluate”
Munich Startup: How can you properly assess products in the very early stages?
Robin Godenrath: It's not easy to evaluate a product in its early stages. Sometimes there aren't any real customers yet, so we talk to many potential paying customers, experts in the field, or potential user groups. In these cases, we can only initially empathize with the actual users.
Munich Startup: A rule of thumb among investors is that 9 out of 10 investments won't generate any profit, and the tenth would have to skyrocket to make up for it. Is this different with Picus Capital?
Robin Godenrath: I think it's generally true that the large companies that completely explode simply command such high multiples that they account for a large portion of the overall return. I still think that support should be provided equally across all portfolio startups. Because reputation is one of the most important things for a venture capital firm. If you're known for abandoning companies during difficult phases, you'll have a harder time attracting the best founders and companies as portfolio companies in the future.
Furthermore, there are many successful companies that also had difficult phases or even nearly went bankrupt, but ultimately achieved tremendous success. Therefore, I think the top ten percent probably account for around 80 percent of the return. However, I wouldn't rush into deciding who that ten percent will ultimately be in the portfolio.
“Entrepreneurship doesn’t start with fundraising”
Munich Startup: You prefer to do acquisitions yourself rather than wait for startups to approach you. How did that come about?
Robin Godenrath: We believe that entrepreneurship doesn't begin with fundraising, but with the moment when someone starts thinking about business models, markets, initial employees, customers, or strategic partners. In this early phase, when the company may not even be founded yet, we see a strong value proposition on our part. We believe that as a strategic and entrepreneurial sparring partner who observes global trends and speaks with many companies, we can provide strong input on the strategic development of business models. We can also support with other topics, such as go-to-market, hiring, customer strategy, or partnerships.
The support of a VC can also help lower your own inhibitions about starting a business. If you're still thinking about starting a business while still in your old job, you often don't have the time to adequately address this topic. It takes a lot of time to conduct the initial discussions and understand what's happening in other markets. All of this is sometimes impossible to replicate as an individual. Therefore, exchanging ideas with experts is important for every early founder. That's why we talk to founders early on without imposing any conditions, because this increases the likelihood of more successful startups.
“Picus Capital helps early on”
We support founders early on because we're then in a very good position to be the first investor. We can't invest in every exciting startup. Sometimes it's difficult to get into the most exciting companies. If someone still doesn't want to work with us, we've probably done something wrong, and our support may not have been strong enough. Therefore, we also see the wrong standard as only talking to VCs when you want to raise money – in my opinion, that makes sense much earlier.
