If you’re a founder strategising how to land your next funding round at this challenging time, then taking on advice from venture capital firms can certainly give you a head start. A few weeks ago, we ran an article Tips on how to land funding during the pandemic, from Europe’s VCs, in which you can find the opinions of different firms on topics such as timeline, adapting your pitch and communicating remotely.
Today we’re getting inside the minds behind venture capital firm Digital Horizon, an investment company bringing together a venture fund and a venture builder. With presence in London, Tel Aviv and Moscow, the firm has an international focus and supports B2B software-based solutions and marketplaces.
We spoke with Managing Partner Irene Vaksman, who leads startup incubation, business development and deal execution, about changes to the European funding landscape, raising funds in the ‘new normal’ and tips for founders.
Hi Irene, thank you for joining us! Firstly, could you briefly explain what you offer early-stage tech companies to help them build and scale-up?
Digital Horizon is an investment company that brings together a venture fund with an international focus and a venture builder that launches and scales technology startups. I head up the venture builder arm focusing on the European markets. Our main objective is to leverage two sources of expertise – a deep understanding of a market vertical as well as hands-on practical co-creation experience – in order to launch competitive investable companies. We achieve this by providing initial funding and access to a professional shared services team that can take care of development, operations, back office, basically anything that is not essential to the product proving itself viable in the initial stages. Such an approach allows for sufficient cost reduction in those early stages. And of course, the network that we keep building throughout is essential to gain access to industry professionals and corporate decision-makers alike. This sufficiently speeds up business concepts and tech hypotheses validation, agreeing pilots and generally paves the way for further business development efforts by the portfolio companies on their own.
I would also add that we accommodate both a founder-led model where we come on board as a co-founder and leverage available resources and a model where a business concept is developed in-house and we engage an industry specialist under a CEO-for-hire model where the upside is available as part of the motivation.
Do you have any stats about your deal flow, and how this has changed over the years?
In our experience so far the venture build cycle is generally shorter than that of a VC fund. Over the last three years, DH has launched seven ventures out of which there are two exits, three are in the final stages of closing the next external round and another two are under freeze subject to testing possible pivot strategies. Currently, we’re in the early stages of venturing out a martech product as well as lining up several others within the core fintech space.
An MVP would normally take us anything from 2-4 months, that remains fairly stable, while we strive towards reducing time to market which has now come down to 10-11 months vs 18 in the initial stages.
Could you tell us your impression of the current Venture Builders landscape in Europe? Have you seen anything change in the past few years?
We see the development of the venture builder model as part of the execution risk reduction strategy for VC funds, allowing them to leverage the available resources and expertise in the early stage segment. Another stream is led by government funds as part of the overall industry development effort as well as a model for purpose-built ventures with a certain socio-economic effect, for instance, financial education to reduce public debt and improve credit scores.
In recent years, we’ve also seen the role of corporations evolve significantly in the venture game driven by demand for advanced technological expertise, as well as valuable customer insight provided by innovative products in the market. We see that it’s in partnership with larger businesses that a lot of breakthrough companies are able to scale up – up to the point of being able to disrupt the industry and change it to the benefit of all those involved.
Since coronavirus hit, many VC deals have slowed down or fallen through. Have you noticed a rise or a fall in campaigns as a result? What’s the feeling?
Once the realisation that this is not just a short-term thing settled in most decision-makers’ minds, it did of course slow down the processes. All of the companies had to regroup and we were no exception. But I would say that this time has allowed everyone to re-prioritize, evaluate what is truly important for business and what is simply white noise, catch up on internal processes in order to come out of the quarantine in better shape than we went in.
It has also shown to a lot of our strategic partners and potential clients that business automation is not just a trendy fad, something that’s nice to have or something that can launch a corporate career – under current conditions it becomes critical for the businesses to be able to perform. A great example of this effect is one of our portfolio companies, supply chain finance platform Factorin, that grew to over $100M turnover over the lockdown months with the nearest plans to introduce its platform to international markets. Another example would be the Swiss-based fintech Aximetria that has doubled the number of active users in the first half of 2020 despite the pandemic crisis.
What medium-term changes do you foresee the pandemic having on the way funds are raised by startups in Europe, in the ‘new normal’?
The pandemic has indeed disrupted the investment cycles for a lot of startups out there. Fundraising is a constant process and taking several months off is just not an option for most. This resulted in reduced valuations, second-tier investor choices, or development freezes that would not be that easy to catch up on.
I would think that this experience would actually raise additional interest in the venture builder model, startup studios, or similar formats that allow founders to weather the storm, re-allocate resources and reduce run rates in hibernation, or on the opposite – provide them with additional funds to speed up and get ahead of the competition scrambling for funds in “open waters”.
Do you see any long-term changes or shifts on the horizon in the next 5 years?
We feel that while the most low hanging fruit have been gathered over the last several years, it seems that pandemic has lasted long enough to create a shift in consumer and business behaviours, to create a different set of needs that have to be fulfilled with a wider set of solutions than those existing today. We place our bets on a more nimble segment of small to medium-sized companies, which form a large part of any economy.
Being traditionally underserved as well as not necessarily ready to fully embrace the available tech solutions, SMBs were often lacking the appeal as a target audience, however, we see this continuing to change greatly over the next five years. And the trend of technologies getting deeper and more complicated poses a certain challenge to the funds to be able to spot and evaluate such companies. We see great synergies between the tech talent in the Digital Horizon builder team being able to lend its expertise to the VC fund for the tech due diligence processes.
What advice would you give to startups thinking of raising funds from cautious investors during the ‘new normal’? What are you looking for?
Like any other period of global change, it’s a great time to launch a business. We’re looking at two components – expertise and ability to move fast. Digital Horizon venture builder is constantly reviewing product concepts within fintech, martech, and retail segments looking for co-founders with a deep understanding of the unresolved issues and experience to drive this change.
We’ve seen a lot in the news recently about VC firms trying to increase the diversity and inclusion both within their teams and their portfolios. What’s your approach?
Whilst initially it wasn’t a purposeful objective, over time we came to a realization that most key positions in the Digital Horizon venture builder are female-led and this definitely has an impact on how we approach things. Flexibility and such instruments as the inclusive design has proven time and time again that these are a great source and driver of sustainable business appeal and product differentiation.
What advice would you give to startups with female and underrepresented founders, who are currently experiencing pushback?
If we look at almost any profile of a successful entrepreneur we’ll see that a large part of their day-to-day life is about overcoming difficulties and solving all sorts of problems along the way. Traditional business setup, regulatory frameworks, society as a whole are prone to resisting change, which is driven by innovation. And only those with enough resilience are able to create real shifts and changes. The underrepresented groups have a lifetime of experience powering through the barriers, and building on this background can be a great driver in achieving success as an entrepreneur.