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March 06, 2007
Earlybird Venture's Mathies On Exits, Oktoberfest Bashes, And Convergence Of Another Sort
Our last early stage VC interview with Sofinnova was a big hit so this week we have a German exemplar of the early stage sort, Earlybird Venture.
Like Sofinnova Partners, it tends to go in at the seed stage, but Earlybird is a much younger firm, just starting to raise its second large-sized fund (€200M) for the European market. Its last fund closed just as the boom became a bust, missing out on the "insane" valuations of that era, nevertheless it has since managed to accompany several of its startups to the stock market delivering returns to its LPs and creating some new famous founders.
Rolf Mathies, Managing Partner, runs us through the firm's exits (more IPOs than trade sales), and he also delivers some advice on avoiding Blackberry-addicted board members and how Web 2.0 is already too old for this early stage investor.
There's only one area that this Rousseau-quoting venture capitalist is not so open about, how the firm sources investments. It's the only question we asked that he declined to answer. We'll keep trying to find the answer for you. In the meantime enjoy the interview.
Any air travel tips for fellow VCs and entrepreneurs that read the alarm:clock?
Well, we have three locations, Hamburg, Munich and Menlo Park -- we want to be close to the companies and help as well in the US -- so we are in the air a lot.
But as an early stage firm we limit the number of board seats we have in order to have time to spend with the firms. I recall board meetings with two board members being on the phone calling in from somewhere with bad connections, or in the middle of a security check at an airport, and being constantly under time pressure and stress.
Clearly this does not help the quality of the decision-making and it is no fun for others that have been present in person. My tip is beware of VC board members that always call in from somewhere and only answer e-mails in cryptic short hand from blackberries. Look at the numbers of boards they are sitting on. More than 6 usually is not helpful.
Do your partners gossip around the coffee machine (euro style) or is it the water cooler (US style)?
Although the quality of the beans in our US office does not match the Italian roast in Europe, we have been able to convert them to espresso talk
When Earlybird has a reason to celebrate, like when you floated Interhyp or sold Element 5 to Digital River, where do you go?
Coincidentally Interhyp floated the day we had our yearly company event at the Octoberfest in Munich... this created a bad hang-over the next day.
You have 13 women that work at Earlybird, only one is a partner and she is in the healthcare sector. Why aren't there more women in tech VC?
We are very glad that we added a woman, Gayathri Radhakrishnan [pictured right], this month in the Tech sector ! It is a well known fact in the public stock sector that woman are better investors (more brain, more gut, less macho) so my guess is this will change in the future.
Interhyp and Tipp24 are two Internet ventures that you backed and then floated. But we haven't seen you invest in any of the Xing.coms, Wikios, or DaWandas of the newfangled Web 2.0 world. Why not?
The last two years we have been focussing very much on our portfolio and on exits, not doing too many new deals. Our thinking is that once a sector is hot you better get out of that sector. It is too late for an early stage VC [such as Earlybird is].
We hear your fundraising for your second large-sized VC fund is going well. What did you differently than the myriad of funds that were raised around the same time circa 2000?
Although we missed the lucky exits at insane valuations in 2000 we focused our portfolio on profitability and capital efficiency.
Therefore with the help of our (patient) LP´s we could wait until the window for IPO´s was open, listing 6 companies across Europe (Tipp24, Interhyp, Wilex in Frankfurt, Noemalife in Milan, Esmetec in Switzerland, Entelos on Aim).
Now we have more companies that have been profitable for more than two years [that are] in preparation to list: Amaxa and Hemoteq.
Interhyp alone returned the fund close to 2x making a 40x return. These kind of returns are expected to be benchmarked with US early stage VC´s. High write-off ratio but high multiples.
Do you still like the idea of trans-Atlantic investing - will you do it in your next fund?
In the US there is a huge capital overhang. We have less deals and less talent in Europe but even lass capital creating a huge supply/demand imbalance. That’s the reason we focus on sourcing in Europe but some companies might relocate there headquartes to the US. As Alantos and BridgeCo in our portfolio [have done].
Early stage investors in Europe are few and far between. You've co-invested with Sofinnova a couple of times. It's our impression that there are not a lot of other true early stage investors for you to co-invest with. What's your view?
VC is a very people centric business, it takes time to build trust and have success together but we hope that more good funds will be established because lack of capital is the biggest problem in Europe.
US VCs are under the impression that Europe is under-served with venture capital. What do you think?
See above – it really is a fact
It is a great time for to be selling companies, or floating them, you should know. Tell us a bit about finding the exit. Is the IPO an exit at all?
The IPO´s of our profitable companies all have been partial exits with 20-30% secondary portion in the IPO creating true liquidity for us.
But IPO´s of emerging companies take some more patience at high public awareness (Esmertec).
Still, raising enough capital at ok valuations is the life-blood of our industry. Without efficient capital markets (as was the case in 2001-2003) then our business model does not work.
Do you ever use the so-called dual track, aiming for an IPO but being open to M&A offers at the same time?
Dual Track rarely works with young companies as the process is so different. If you are down the road with an IPO it is often too late for a trade sale buyer.
Some of our companies have been approached by buyers right before the IPO but the valuations they offered were too low and growth companies with great management have their reason to be a successful public company eventually buying others.
Not the large eat the small but the fast the slow..
What kind of companies are you going to be (hopefully) taking public in five years' time? In other words, what kind of tech companies are you looking for now - stage, technology, geography?
We are focussing on early stage tech companies. Tech being applied across all industries.
Convergence in big markets is the buzz word. Is a biotech company creating new ways to produce biofuel/bioreactors - it could be a Life Science company or a Tech company too -embedded systems software or communication. We look for entrepreneurs that create a paradigm shift in large markets.
An example of Earlybird's convergence thinking is its recent investment in Vital Sensors, which develops a wireless heart and vascular system using microsensors. The Hannover-founded company is now based in the US.
Do you have certain process that you undertake before and after making an investment in technology venture? Do you organize events for your portfolio firms to get together ?
We do have all of this but every portfolio company is very special and it is tough to standardize process in early stage. Ultimately all of our portfolios are relatively small, it makes sense to syndicate and collaborate with other VC´s. For example we organized with Sofinnova and others the European Research day.
What is a dealbreaker for Earlybird?
Technology innovation just because of innovation prodicing marginal customer benefit in small markets. In particular in Germany some techies don´t have the view of their potential customers
What should an entrepreneur do if he wants to meet one of Earlybird's partners to discuss a new venture?
Best is to outline his idea and his track record in a quick and focused e-mail to any partner .- Rousseau said “ sorry I have written you such a long letter – I had no time to write you a short one”. The best ideas are easy to understand if explained by a good founder and the impact is clear from the beginning.
Thank-you for the interview.
Posted on March 6, 2007 08:22 PM | Posted to Venture Capital | Permalink
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