StartupAmsterdam asks SanomaVentures' investment director Herman Kienhuis about lessons learned; what disqualifies a startup from funding; developments in Dutch capital; and Amsterdam Capital Week.
Who is SanomaVentures?
Early-stage corporate venture capital fund SanomaVentures and its parent company Sanoma Digital (formerly known as ilse media) have been active in the Amsterdam startup scene for over ten years. From being a seed investor they have evolved to investing amounts between 250k and 1 million Euros in companies that enter their first growth phase. Herman: “More angel and informal investors have entered the scene, signifying more capital for early stage funding. We have re-directed our focus to young companies with proven models that generate some turnover. We feel that this is where we can truly add value with our expertise, network and media sources to generate more growth. We still get on board earlier than many traditional VC funds in the Netherlands, however.” SanomaVentures is the venturing arm of the European consumer media and learning group Sanoma Corporation (NB: Sanoma Corporation is listed on the Helsinki Stock Exchange) and invests in young enterprises in media and marketing, e-commerce and education.
3 key lessons for a venture capitalist
Three key lessons Herman has picked up in his career as investment director: know the team, have patience and bestow trust.
"It is very important to invest in a company that has a strong team in which all disciplines are represented. They need to have technological expertise, commercial expertise and know about user experience design."
"As an investor you need ample supplies of patience. The models with which you start are not necessarily the ones that will lead to success. We have had several startups with whom we had to make a turn in order to realize growth. Take Scoupy, for instance, we first aimed at shopkeepers but ended up targeting brands."
"Give the entrepreneur trust and space to manoeuvre. Some corporate investors might tend to go for control and operational integration too fast, but the trick is to allow the entrepreneur to take charge."
The value of Amsterdam Capital Week
During Amsterdam Capital Week, SanomaVentures will be participating in, amongst other events, the Capital Tour XXL. During this bike tour startups visit different types of investors. "I think Amsterdam Capital Week is especially valuable for entrepreneurs in the tech scene to get insight into the different forms of financing available, as well as the different types of investors. Of course, investors are always scouting for good startups, so it is beneficial to have such a week facilitate that." SanomaVentures is launching partner of StartupAmsterdam, the initiator of Amsterdam Capital Week. "We support StartupAmsterdam in making the city's appeal for entrepreneurs visible. We want to help build a sustainable entrepreneurial climate and to attract more tech talent. This will create opportunities for us to find more and even better teams to invest in. We are happy with the initiative for this week: it creates exchange between startups and investors, and brings international investors to the Netherlands creating opportunities for us to join forces. To us, Amsterdam Capital Week is about connecting and matchmaking."
Developments in Dutch capital
"Entrepreneurship as a career path has gained traction. There are many more entrepreneurs than a decade ago which has led to a greater demand for capital, which in turn has resulted in more investments funds and capital. Even the government has pulled through with measures like the SEED capital regulation and the start-up visa. It's a self-reinforcing, upwards spiral: technological innovation compelled more entrepreneurs, which led to an emergence of incubators and accelerators, attracted more capital and stimulated a co-operative government. It has been a bottom-up movement, enhanced by the economic crisis. Now, government needs to stimulate the draw of venture capital and successful companies need to re-invest in startups. Not just with money, but with their experience and expertise."
3 things that disqualify a startup from funding
According to Herman, an investor will know quite fast if the startup is a good match for an investment. “There are several question we ask ourselves: Does the product fit SanomaVentures’ scope and is it based on a strong idea? Does the company have a good team and a realistic plan? Do we feel a fit with the entrepreneur? In your pitch I want to see a demo or a mock up of the product and I want you to tell me what problem it solves. Tell me why customers want to pay for this solution and convince me that it is your team that can build the product into a successful company.” There are some things Herman considers to be deal breakers:
"Some companies present an unrealistic financial plan that does not calculate enough for customer acquisition. It is a mistake to think that customers will naturally flock to a good product."
"We require the company to have in-house technical expertise to build the product. Hiring an external developer to build your product, without a team member who can skilfully manage this is a no-go for us."
"It is a turn-off when an entrepreneur comes with an unrealistic deal in comparison to the phase the company is in. For example: the company has no revenue yet, but wants to collect two million based on a valuation of six million. That’s too much, too soon, and simply too risky."
Recent Sanoma investments to be proud of
"We are excited about our most recent investment in Yoogaia, an online yoga studio. We believe health and wellness is a growing market, and they have an incredible team and are growing internationally. After scouting them we approached them during the Web Summit in Dublin. Sendcloud is a Dutch company we invested in. Sendcloud develops software solutions for web shops to simplify shipping, by integrating with shipment suppliers and automating label creation and track and trace e-mails. They are an active company ready to conquer an international market." What does SanomaVentures do to support these companies beyond the financial aspect? "Firstly, we offer them expertise on strategy, finance or any other element for which we can tap into Sanoma’s knowledge base. Secondly, we offer them a network of corporate partners and additional investors. And thirdly, we use our media channels to generate publicity and acquire customers."
“I though the book The hard thing about hard things by Ben Horowitz was a very good read. It deals with the tough side of entrepreneurship. The book deals with the various crises Ben goes through with the underlying message that you need perseverance when starting up. I feel not all starting entrepreneurs realize just how difficult and serious building a new company is. I highly recommend this book, not to discourage them but to stimulate them to not give up! In case of finding an investor: You may be told no a hundred times, but in the end you only need to hear yes once."