The key to a successful network is empathy

HTGF Partner Claudia Raber, who is responsible for relationship management at the company, explains the art of successful networking, the amount of time that should be invested in building relationships, and why empathy is so important.

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Claudia, you’ve been in charge of relationship management at HGTF for over a decade now. What does that involve exactly?

Claudia Raber: It’s been a core element of HTGF from day one. Alongside the various other benefits we provide, one of the things we need and indeed aspire to do for our start-ups is to open doors to other potential investors and customers from industry and the SME landscape. This is a critical success factor, both for portfolio companies and HTGF itself – it’s in our DNA.

How do you build your network?

Claudia Raber: By adopting a highly strategic mindset. And that’s something that we need to have, given the diverse areas in which we invest. A lot of our work involves active market screening. We identify which players are active where, and what they’re interested in. The support landscape for start-ups has grown considerably in recent years. There’s a lot going on. We’re frequently seeing new players coming in, while others are disappearing. We keep an eye on all these developments and identify which benefits the individual players have to offer – both for us and for our start-ups.

How do you keep in touch and manage your network?

Claudia Raber: We’ve come up with special instruments such as HTGF events aimed at different target groups: the HTGF Family Day for our investors and selected market partners; the High-Tech Partnering Conference, where we bring together potential customers and cooperation partners; and the Private Investor Circle, which we designed specifically for private investors. On top of that there are also regular industry events on a smaller scale.

In a nutshell – what is the key to successful networking?

Claudia Raber: Over the years, we’ve learnt seven principles that have proven effective time and again:

1. Know your own targets and set priorities before you focus on setting up a network. Start-ups for instance should talk to potential customers first and then approach potential investors with the knowledge they have gained.
2. Be ready to network at any time, in any place – you never know, this might be your only chance to win somebody over. My advice for start-ups would be: Make sure you absolutely nail your elevator pitch!
3. Use the relevant channels. That could include conventional events, but sometimes social media communication and creative mailings can be suitable options. Strategic access is the focus here as well. If you’re involved in active ingredient development, for instance, then you’re probably more likely to focus on specialist congresses than on Instagram and Twitter.
4. Be authentic – know your own strengths and weaknesses. If you’re someone who doesn’t like to take centre stage, you might need to look for a different opportunity to communicate creatively. If you’re more at home in the lab, you might not be the right person to be pitching the product at conferences.
5. Make use of promoters and try to identify early on the people in your own network who can open doors to new customers or investors.
6. Even though it might be important to cast your net wide when starting out – in the long term you need to focus on quality over quantity. Out of the many contacts you made at the start, you need to identify those who are going to be relevant in the long run.
7. Be on the ball and be proactive – if a few weeks have passed and somebody still hasn’t responded, you need to follow up. Be creative about it, and look for new reasons to get back in touch with them. There’s an art to maintaining frequent contact without being overbearing.

Okay, but point seven sounds tricky. How do I deal with people who don’t respond?

Claudia Raber: Try to put yourselves in their shoes and understand their interests. Take a look at what’s happening around them. This will often lead you to opportunities for a follow-up. Sometimes you’ll meet the person you’re trying to get in touch with at events, and then you can talk to them personally. Be authentic and you’ll have nothing to worry about.

A lot of events have been cancelled of late though. Does that still work in the digital domain?

Claudia Raber: It certainly does. We tried this ourselves with the HTGF Family Day, which we had to turn into a purely digital event due to the outbreak of the coronavirus. And what’s more, the digital arena also provides great opportunities for one-on-one meetings and pitch sessions.

How should I prepare for events?

Claudia Raber: Identify 20 people you find are important, and try and talk to 10 of them. If you then get one or two long-term contacts out of it, I’d class that as a successful event.

How much time should you invest in networking?

Claudia Raber: In many cases it depends. A CEO, for instance, will most likely invest between a fifth and a third of their time in networking. Generally though, if you really want to build a successful network, you need to show dedication – as networking is not about just keeping in touch with others. It’s more about forming a long-lasting, living structure in which different people are constantly interacting with one another. This active give and take ensures that you all benefit from each other in the long term. And it’s just as important to connect other people together, as this helps build trust. In a nutshell: There may well be less time-consuming activities out there, but you are rewarded for the effort you put in.

And now to my final question – what message should readers take away from our discussion on networking?

Claudia Raber: That the key to successful networking is empathy. If you start talking to somebody and your only goal is to get your message across, you won’t be successful. You can only expect to get something in return if you show genuine interest in what the other person’s saying, ask questions and pay attention.

Thanks, Claudia!

How can we achieve Product-Market Fit? – The Customer Development Process

By Fabian Hogrebe

With contributions from Gregor Haidl (Investment Manager), Ulrike Kalapis (Investment Manager), Yann Fiebig (Senior Investment Manager) and Dr. Andreas Olmes (Principal).

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“How can we achieve Product-Market Fit?” is a question that we are regularly confronted with here at High-Tech Gründerfonds. The bad news is that there is no straightforward path to success.

However, each and every start-up has the chance of getting there. The question should therefore be: “How can we enhance our chances of achieving Product-Market Fit?” Although this path may not be straightforward and does not always lead to success, inductive and iterative approaches can help to enhance your chances.

What we know so far about Product-Market Fit

In previous articles, we demonstrated how Product-Market Fit is critical for start-ups, as well as how companies can pick up on and use indicators to gauge the point where they’re at.

Product-Market Fit from HTGF’s point of view means that the start-up solves the problems of the target customer entirely and better than potential competitors.

We now want to share how companies can achieve Product-Market Fit, if they haven’t yet reached that stage.

It all starts with the customer

In our first article, we defined Product-Market Fit as follows: the value proposition of a start-up must correspond to the customer’s problem. In 2010, when talking about Product-Market Fit, our colleague Andreas gave the following definition:

“Customer? ➢ Painful problem? ➢ Effective solution? ➢ Why start-up? ➢ Cash customer? ➢ Cash start-up?”

Furthermore, Andreas’ definition provided a pathway that company founders can follow. Over the past 10 years, we’ve continued to outline the nature of this pathway. We’ve also come up with a series of questions for each individual step that serve as an indicator of whether a company is ready to take the next step.

We’ve also learned the following: You need to start with a single customer (n=1!). Try to understand this customer 120%(!), because otherwise important details can be easily overseen. There is no shortcut for this intensive groundwork with your customers. Furthermore, it must be performed by the founders themselves.

Customer Development Process and Product-Market Fit

And there’s some more good news: This pathway has also been outlined by other individuals and appears to be the best way of achieving Product-Market Fit. For example, as part of his Customer Development Process, Steve Blank proposed a pathway that launched the “lean start-up” revolution. The pathway has four steps: customer discovery, customer validation, customer creation, and company building. We have combined this pathway with Andreas’ definition of Product-Market Fit, resulting in a very strong method. As you can see, this combination goes hand in hand.

Pre-Product-Market Fit: agile and capital efficient

In Steve Blank’s Customer Development Process, everything begins with the search phase. This phase is almost always a closed loop, with companies often having to go back to the “start”. The pathway ends upon reaching Product-Market Fit stage, which can take up to two years. Be honest with yourself and your company and avoid scaling too early, the #1 cause of death for start-ups. You need to be able to answer the questions completely before taking the next step. If you cannot, you’ll have to pivot.

Before reaching the Product-Market Fit stage, it is important to work in a predominantly inductive and iterative manner. Hypothesis testing and pivoting is key. In order to follow these guidelines, start-ups need to act quickly and exhibit capital efficiency. Fail fast and focus on cash!

A founder in our portfolio provided us with an excellent phrase: “capital reach is not measured in time, but in the number of hypotheses that you can test.”

This is something we have experienced and observed in our industrial tech portfolio with more than 150 companies. Nevertheless, it also comes with a drawback: the path is not always as straightforward as it may seem.

The key challenge – and opportunity – is to pivot! As demonstrated in the combined model of customer development, the real question to ask is: how can we test our hypotheses and pivot most efficiently?

Summary

There is no straightforward path to achieving Product-Market Fit. The most important message to take away is this: Trust yourself, be courageous, fail fast and focus on cash! We hope these guidelines can help you and look forward to hearing how you get on.

In the next article, we’ll focus on the following question: How can we test hypotheses and perform pivots most efficiently?

Check out our other articles:

Product-Market Fit: The Main Reason for Failure of Industrial Tech Startups within the HTGF Portfolio Product-Market Fit in Industrial Tech – The way to customer understanding How do Industrial Tech founders recognize Product-Market Fit? (Part 1) How do Industrial Tech founders recognize Product-Market Fit? (Part 2)

“You don’t need entrepreneurship in your genes to successfully found a life sciences company”

HTGF Partner Marco Winzer has been with High-Tech Gründerfonds since its foundation. In an interview, he talks about why real entrepreneurship is not something you can learn in the classroom. However, he also advises anyone with an innovative idea to make sure they found a company themselves and outlines what they need to do to make this happen.

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Marco, do successful founders usually have business degrees? Or do they tend to be inventors, programmers and scientists?

Marco Winzer: People keep on saying that founders have to have a business background, but I don’t sign up to that idea. In fact, I’m convinced that this puts a few potential founders off, particularly in the sector in which I’m active – the “hardcore” tech field of life sciences and chemicals.

You’ll have to explain that a bit more clearly. What do you mean exactly?

Marco Winzer: Put it this way, entrepreneurship is something you’re born with – or indeed without. Not everyone is a born entrepreneur. And many inventors and scientists simply don’t have it in their genes. But despite this, anyone with a good innovative idea can and should found a company.

What makes a born entrepreneur?

Marco Winzer: Enthusiasm, a talent for sales, a good nose for market trends and margin optimisation, as well as empathy and the power of persuasion. These are all traits you need to really sell yourself and your idea at a pitch, while also convincing others and getting them emotionally involved. It takes a very special kind of personality.

And yet you say that anyone can found a company, regardless of whether they possess these characteristics?

Marco Winzer: That’s right. And it’s a controversial approach, because I know a number of investors and other VCs who say quite definitively: a company founder needs to be an entrepreneur! As if this is something you can learn on a training course!  The risk is that tech-savvy founders then spend too much time and energy on aspects of business, as they try to present themselves as “entrepreneurs”, when instead they should be dedicating 100% of their time to innovation and product development.

So what’s your approach?

Marco Winzer: I’d like the inventors, programmers and scientists to also get in touch with us. Those who are perhaps more introverted, who work on algorithms or develop new drug candidates in the lab, and yet who couldn’t imagine one day selling their drug on a stage. It would be fatal if these people were put off by the traditional image of the entrepreneurial founder. That’s why at HTGF, we provide financing to whoever has a really good idea.

But you surely need a little bit of business savvy to come up with a business plan that you can then present to HTGF or other investors?

Marco Winzer: Absolutely. But who says this all has to come from one person? A successful business venture essentially requires three types of personality: there’s the Leonardo da Vinci type, the manager type, and the classic salesperson who has a direct sales approach and isn’t afraid of selling “door-to-door”. We can’t expect anyone to be able to fulfil all three of these roles. And why should we? After all, the traditional “serial entrepreneurs” show us how it’s done. They know where their strengths lie, for instance in product development, and then get other talented individuals on board to cover all other aspects.

So if I’ve understood you correctly, you’re primarily looking out for the Leonardo da Vincis of this world? What attributes must they have?

Marco Winzer: They have to be excellent scientists, that’s for sure They also need to be able to demonstrate absolute expertise in their field, for example drug development. Their idea should have been developed beyond the basic research stage (proof of principle) and find itself at the proof of concept stage. In the field of drug development, this means that they should have a lead compound with pre-clinical data available; in terms of medical technology, a lab prototype of the device should have been validated. And even if they aren’t traditional entrepreneurs in the sense that I just described, they should at least have a certain idea of where their product fits in the market – or, to put it another way, the problem that their future product is going to address, whether it be a consumer problem or a medical need, for example.

In terms of personal attributes, they need to be able to reflect, trust others and take on advice.

Why is that so important?

Marco Winzer: Well, as a founder, I need to show a level of self-reflection to the point that I know where my weaknesses lie. And if I simply don’t have entrepreneurship in my genes, then I need to be willing to go and seek out people who have stronger entrepreneurial skills. But to do so, you first need to accept where your strengths and weaknesses lie. By the way, nearly all of the start-ups that we finance are team ventures.

And how do the Leonardo da Vincis get to meet the European Business School graduates?

Marco Winzer: That is indeed an important question. I really try and do all I can to establish contact between those pursuing traditional entrepreneurial paths and those at universities leaning more towards scientific research. At HTGF, we’re also on hand to analyse the business case and identify who’s missing in a team. And we can dip into our very extensive network and help put people in contact with one another. But it’s ultimately the founder’s decision as to who they start a company with.

Can you think of an example from your portfolio in which a da Vinci and an entrepreneur came together?

Marco Winzer: I got to know a veterinarian at a Leipzig University event once. She told me all about her idea and I encouraged her to keep working at it. I often have discussions like this with people and don’t always expect to receive a business plan six months later. In this instance, the business plan took twelve months to arrive – in the meantime the veterinarian had joined forces with two entrepreneurship graduates from HHL Leipzig Graduate School of Management. Two months later, they’d secured a financing deal from us.

Thank you Marco!

“We will continue setting important trends“

In an interview, High-Tech Gründerfonds’ (HTGF) new Managing Director Guido Schlitzer talks about the first-ever Family Day held exclusively online, what the future holds for HTGF, and why sometimes you just have to give things a go.

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How was the first-ever Family Day held exclusively online?

Guido Schlitzer: It was fantastic! The special thing about Family Day is that we’re able to bring together people who would have otherwise never met. We had wondered whether this interpersonal aspect would get lost along the way for this digital event. But it turned out to be a great success. And even once this crisis is over, we want to make better use of synergies between events held online and those in person in order to establish more effective links between our portfolio companies, start-ups, fund investors and industry partners.

Most participants in the Family Day survey reported that there was a positive mood within their companies. What’s your take on this?

Guido Schlitzer: We obviously have companies in our portfolio who have concerns and whose revenues are falling. And nobody can really say how and when things will get going again. Another issue concerning many companies right now is how private investors will act in the next few months and how foreign investors will react. In terms of financing growth in Germany, we are obviously still very reliant on foreign investment. But foreign investors will now focus more on their domestic markets in many cases.

After 15 years at HTGF, 2.5 of which as CFO, you’ve now taken on a new role as Managing Director during these difficult times. What drew you to this new challenge?

Guido Schlitzer: I can only echo the words of my Co-Managing Director, Alex von Frankenberg, spoken at Family Day: Opportunity eats the world – and I now look forward to the opportunity of taking on even more responsibility at HTGF and am grateful for the trust placed in me. In my role as CFO, I’ve been able to help shape the direction of the company. At HTGF, we see the need and opportunity to keep on setting new trends. We want to build on the successes the company has already achieved. This is important both for us and our industry. We’re already doing some great work and our fund investors are more than happy. But we don’t just want to rest on our laurels. You have to keep reinventing yourself, stay on the ball, and even in a large team – HTGF has grown significantly in the last few years – try and maintain a certain start-up spirit. All these aspects will be a driving factor in my new role.

You just spoke about necessities and opportunities for HTGF. What did you mean exactly?

Guido Schlitzer: Necessities have obviously arisen due to the coronavirus crisis, which has caught us – and many of our portfolio companies – off guard. We managed to raise €400 million in external capital for our portfolio last year. This figure will likely be much more modest this year. We will, unfortunately, see cutbacks in our portfolio; after all, the whole start-up ecosystem has been affected. State measures will hopefully provide some support. And at HTGF, we will certainly be helping to stabilise the ecosystem. For one thing, we will carry on investing.

Are these the opportunities you spoke of?

Guido Schlitzer: Yes. This is the advantage of being a public–private partnership. In contrast to private investors, many of whom will initially take a step back due to the current uncertainty, we aspire to keep on investing both in good and bad times. This is something we do, and we will in no way deviate from our current course of action for this year. Our stated aim is also to cast an even closer eye on where there are gaps in the current system and wherever existing venture capital is insufficient – be this in terms of financing growth or a lack of IPOs. I see clear opportunities for HTGF to get more involved in this respect.

How do you want to achieve this?

Guido Schlitzer: We have many years of experience, broad expertise across our excellent team and a unique network. We also help to bring our portfolio companies into conversation with representatives from industry and the economy. And we’re always looking at where there is potential for good synergies, targeting link-ups between our start-ups and our fund investors in order to create new momentum. This is extremely important if you want to stay relevant as a company. Even before the crisis, most companies had come to understand that innovation is the key to being successful in the future. But this isn’t something that’s just going to fall into your lap – you have to actively do something about it.

Could this crisis lead to an innovation drive?

Guido Schlitzer: Yes, for sure. The crisis will, of course, hit us hard and I don’t think we’ll come off as lightly as we did in 2008. After the financial crisis, we saw an immediate upturn and things just went uphill from there. This time it will be more difficult to get back on to the straight and narrow with regard to the economy as a whole. But I’m convinced that the crisis can act as a catalyst in many cases. At least now everyone’s aware that it’s time to get to grips with and start investing in future technologies – and it’s time to do so now and not later.

Thank you for your time, Guido!

A conversation about concluding an exit during the coronavirus crisis and why it’s crucial for start-ups to adopt professional standards from an early stage

Dennis Schmoltzi, Founder & CEO of Emma, and Tanja Emmerling, a partner at HTGF, talk about why it’s important to have a good network in the start-up ecosystem and about how to achieve a successful exit during a global economic crisis.

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Tanja, Dennis – The topic of our discussion today is very much a success story, wouldn’t you agree?

Tanja: Absolutely – although at the start it may not have seemed that way at all. A high-tech investor investing in a mattress start-up? And now we’re selling the business during one the biggest economic crises we have seen.

How did you meet in the first place?

Dennis: When looking for investors, we realized just how hard it is to find one that shares our mindset. After all, most investors are focused on creating a unicorn as quickly as possible – everything else is just ignored. But we didn’t want to simply buy reach without making a profit and then hope that some day our business really would take off despite the losses racking up. Our goal from the get go was profitable growth – and fortunately that goal was also shared by HTGF. But that’s not all: HTGF understood our approach and what the company is all about. They talked to us a lot as founders and gave us access to other investors through their broad network – all of these factors helped make up our minds.

Tanja: The CEO of one of our successful portfolio companies, Mister Spex, was the person who introduced us to Dennis. This shows yet again just how valuable good networks are. Good founders often know other successful founders and can prove to be valuable contacts, including on a technical level. While you might not immediately think a mattress start-up would fit into our portfolio, it was good that we looked beyond the platform at the company’s technology and market approach and met the founders. That is yet more proof of the mutual benefits that our network provides.

Tanja, what was it about Emma that won you over in the end?

Tanja: The team of founders – which is always the most important factor when deciding on a potential investment. The set-up in terms of expertise and execution was simply fantastic and it had the right vibe. Both of them truly believed in the business and invested everything in their stakes. Despite this, they remained flexible, continued to evolve their model and were even prepared to pivot when the direction they had chosen stopped working – they moved away from providing digital consulting services and selling products made by other companies and instead built up their own brand and products. Right from the start, it wasn’t about “lots of money equals lots of reach”, but about rigorously pursuing profitable, efficient growth. And ultimately that paid off.

Dennis: We’d already been running the business exclusively using our own money for two years and wanted to put in place a solid business model that would work by itself. That’s something HTGF helped us with.

How?

Dennis: By helping us to adopt professional standards. I remember Tanja telling us we needed to start getting our financial statements audited as otherwise it could cause problems further down the line during the exit phase. And at the time we thought that we didn’t need to as we were so small. But then we started to do so in 2015, and now look what’s happened – that was hugely important in the deal agreed with Haniel.

Tanja: As one of HTGF’s fund investors, Haniel is no stranger to the start-up ecosystem. I’m therefore really pleased to see the network effects we have here. When big companies and start-ups come together, there’s often a risk that this will lead to a culture clash of sorts. And this is something that can hinder successful collaboration, for example if the larger company feels it needs to sort things out and introduce its own standards. That’s why having the professional standards that Dennis touched on just before is so important. Especially for a start-up like Emma that has grown so rapidly in just seven years, with 22 active stores and 350 employees – that’s only possible when both founders and investors know how to position a company for growth from day one.

Dennis: I couldn’t agree more. Otherwise you wouldn’t be able to achieve the level of equal footing that we have in the deal just reached with Haniel. And that’s extremely important to us, so we can continue to engage with investors as partners.

Now that you’re going separate ways after many years of working closely together – will you remain in regular contact with each other?

Dennis: Yes, I’m almost certain we will. The ecosystem we’re in is based on constant give and take and a lot of communication. And that’s always important, regardless of the business ties you may or may not have.

Tanja: My major goal is for our former founders to one day come back to HTGF as fund investors! So Dennis, I’m sure I’ll be popping round with a pitch deck at some point in the future.

Thank you for your time, Dennis and Tanja!

How scientists become successful entrepreneurs 

Interview with Klaus Lehmann, Partner

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Successful industrial technology start-ups – Klaus Lehmann has helped scientists and researchers to found successful start-ups on behalf of the High-Tech-Gründerfonds since 2014. Now the industrial technology expert has been appointed partner of the HTGF. In an interview he explains what start-ups from the world of science and academia need to bear in mind and why the HTGF is great partner for them in particular.

Robotics, lasers, sensory, VR in mechanical engineering and energy: You have supported industrial technology start-ups for the HTGF for 14 years now. There are a lot of academic and scientific entrepreneurs, aren´t there?

Yes, and the great thing about this is that starting a company has now become an important career path for scientists and researchers. At one time, they would either have stayed at university or gone to a huge industrial corporation. Now starting your own business is a new, third career path, which is the new norm for scientists and academics. Added to this is the fact that German industry has evolved. There is now a greater degree of openness towards new technologies.

Are you impressed by the start-up strategies in the German industry?

It took a while, and it took a few shockwaves to go through the economy first, with players like Airbnb and Tesla disrupting entire sectors. But now Germany’s industrial companies have come to understand how fast technology can develop and that they must open themselves up to this in order to stay relevant. Thankfully, for many, collaboration with start-ups has now long been an inherent part of corporate in-house innovation strategy.

And Germany’s universities? As an industrial technology expert you deal a lot with academics and scientists, while at the same time fostering partnerships with universities and research institutes on behalf of the HTGF. Are they keeping up with the fast pace of development?

It varies. On the one hand there are unfortunately still a lot of universities, which may know about entrepreneurship but offer inadequate support to this end. Even as far as the overall picture is concerned, Germany lags behind considerably in comparison to the rest of Europe when it comes to the number spin-offs from science. On the other hand, there are about 20 universities and research institutes here in Germany that I would refer to as role models and which use targeted spin for their scientific research.

Which are these for you?

These include the Dresden University of Technology, RWTH Aachen University, the Karlsruhe Institute of Technology or Berlin Institute of Technology. The Technical University of Munich has even launched its own organization, “UnternehmerTUM”, with more 100 people and a sole focus on entrepreneurship.

What characterizes entrepreneurs from the world of science and academia? Specialist knowledge aside, are they adequately equipped to get a start-up off the ground?

People from a research background often have a mindset which is different from that of the classic business graduate. But that doesn’t necessarily have to be an obstacle. But of course, anyone who wants to launch a start-up has to have the courage and willingness to engage in entrepreneurship. Here at the HTGF we see ourselves as a partner that can offer assistance here when it comes to planning and implementing the right strategic steps.

What would be your recommendation to academics and scientists, who want to start their own business?

You have to think about the customer! Because one common problem in purely scientific development processes is that often, the market dynamic is not considered until it’s too late. Researchers spend years immersed in developing a solution only to then suddenly be confronted with one key issue: technology needs a problem; the approach for a start-up should be the opposite: a problem needs technology. That’s why I advise all academics and scientists who are planning on setting up their own business to think along the lines of customer perspectives ahead of time, to approach potential customers and to actively test their solution.

“Researchers spend years immersed in developing a solution”– those sound like very long projects, even for you.

If you compare that with fast-moving e-commerce start-ups then, yes. In industrial technology we have very different development and time-to-market cycles. The customers have much more complex sales cycles. While you might be able to buy a SaaS license for EUR 100 a month, the costs of products in our portfolios can quickly amount to EUR 600,000. The reverse is also true: where a market launch is a success, the impact is enormous!

And do you provide the start-ups with support for the duration of this extended time period, too?

If we believe in the technology and the potential product-market fit, then we are fully on board as a long-term partner and supporter, guiding the entire development process.

At what stage should entrepreneurs from an academic or science background get in touch with you?

Sometime researchers approach us alone, without a team, with just one rudimentary prototype – and we invest anyway, because we share the founder’s vision and we want to help build the team and the company from the ground up.  Over the past 15 years we have invested in almost 600 start-ups and, in the process, have amassed a vast amount of experience and developed an acute sense of pinpointing where potential lies.

Can you give us any examples of projects you have been involved in on a long-term basis?

Definitely “Next Kraftwerke”, it’s one of our most successful portfolio companies. The founders developed a solution for merging lots of small energy producers to form one huge virtual power plant. The idea was to bring their output to the energy exchange on the one hand and, at the same time, to compensate for fluctuations on the national electricity grid on the other. Their development from university start-up to European market leader is a great example of industrial tech and our long-term commitment.

Can you explain that in more detail?

We have supported the company for more than ten years and we are friends with the founders. In the first three years of receiving funding they hardly generated any sales. Now the company has grown from two founders to 150 members of staff; sales have now reached EUR 700 million. Next Kraftwerke is now the European market leader in the field of virtual power plants.

Thanks for the interview, Klaus!

How do Industrial Tech founders recognize Product-Market Fit?

Part 2: The analytical and quantitative perspective

By Ingo Fehr and Gregor Haidl (both Investment Managers)

Supported by Yann Fiebig (Senior Investment Manager), Fabian Hogrebe (Analyst), Dr. Andreas Olmes (Principal)

“Are there any objective criteria or KPIs that can indicate that my start-up is on a good way to reach Product-Market Fit?” After dealing with the emotional perspective of founders when Product-Market Fit has been reached, this second blog post is dedicated to the quantitative-analytical perspective on Product-Market Fit. We hope the indicators presented in this article help you to assess and improve your own Product-Market Fit.

We were inspired by a great article of Christoph Janz’s about criteria and indicators he found useful for software as a service companies (SaaS) . To our knowledge a similar set of criteria tailored for Industrial Tech Start-ups has not been published before.

Product-Market Fit: Criteria matching with the common B2B sales process for industrial tech start-ups

The most interesting finding we had during our discussions about these criteria was, that there are good indicators in all maturity levels. They work for Industrial Tech companies although tough and long B2B sales cycles exist.

In the following figure we summarized the indicators we found to be useful depending on the actual maturity of a product or company:

You can think of it as a sales funnel: Many ideas enter from the left, are iterated along the customer discovery process and most of them die. If you’re lucky there will be at least one idea/product making it to the right side and achieving Product-Market Fit.

It’s important to understand that albeit the B2B sales process is a linear, most companies need to re-calibrate their product-market fit and even undertake pivots or restarts in later phases.

That’s why you shouldn’t stop using the early indicators as customer insights evolve over time.

Product-Market Fit Criteria for Industrial Tech: The Deep Dive

Let’s dig a bit deeper into why Industrial Tech with B2B sales is special. In many cases you must take several steps with a customer before reaching productive use of your product (and high revenues with this customer). We found these 4 steps to be adequate for most of our portfolio companies:

1. Ideation Phase
   You show and demonstrate your idea to a customer. His main question is “could this be a potential solution for me at all?”
2. Proof-of-Concept (PoC) to Pilot Phase
   1. You demonstrate the functionality of your product/MVP in a limited (lab) experiment in a controlled environment. Your client is answering the question “Does this work?”
   2. Your client is testing your product to a limited extend (only one team, only one site, a small subset of employees, …). His question is “How well is this working under real conditions in my company?“
3. Productive Usage
   Your client uses your product on a larger scale. We like the term roll-out for the beginning of this phase. Unless another product pops up that solves his problem much better, he will most probable stay a loyal customer for a long time.

Ideation Phase: Customer Problem and Value Proposition

KPI	Weak Product-Market Fit	Strong Product-Market Fit
Problem priority	Fuzzy and high-level description of industry challenges. “Let’s be innovative and try something new.” In reference calls customers mention low price or great collaboration with team: Fast reactions or 24/7 service are reasons for choosing the product.   Customer only has high-level understanding of his problem and is often not able to describe the impact of the solution on his P&L.”	Customer is able to precisely describe his specific problem on a root cause level and is aware of the impact on his companies’ P&L.   There is urgency to solve the customer’s problem and he often tried other competitive solutions already without satisfying result. In reference calls, customers are able to clearly describe why the start-up’s product effectively solves their problem: Fit of features and usability to customer problem is much better than any other solution.
Budget allocation	Innovation budget	Business unit budget
Business case of customer	There is no clear, well-reasoned, detailed cost calculation of the customer’s business case. When considering all new pains (e.g. training of employees) only incremental benefit of the start-up product remain.	Clear, detailed, well-reasoned or even validated business case calculation exists. Benefit of the product is at least 3x higher than the associated costs including any new pains. Customers agree to the calculation method and assumptions.
Price sensitivity	High price sensitivity. Most extreme case: customer wants to try product, only if it is free of charge.	Low price sensitivity due to the high value of the solution for the customer. founders experience real bargaining power. Customers are willing to accept almost all conditions due to fear of losing the future PoC/Pilot to a competitor.

Even if you just started your company, on day zero, you can focus on certain indicators to find out, if you are on the right way. You don’t need a MVP or even a product in order to find out how pressing and burning your potential customer sees the problem that you aim to solve. Again, these indicators stay valid in later phases as they are foundation of Product-Market Fit. Compared to the customer success category, these indicators are more qualitative. Therefore, mainly customer interviews & qualitative surveys can be used.

Proof of Concept to Pilot Phase: Customer Success

KPI	Weak Product-Market Fit	Strong Product-Market Fit
“Sean Ellis” Score	None/Few of your customers would be very disappointed, if they could no longer use the product -> nice-to-have	>40% of your customers would be very disappointed, if they could no longer use the product
NPS	NPS of 0-10 or lower. Product is not actively recommended by the current customers to potential customers.	NPS of 10-20 or higher. Users recommend the product through word-of-mouth to others.
Usage	Most customers don’t use the product as frequently as you’d expect it.	Most customers use the product as frequently as you’d expect them to use it (or even more) based on the use case.
Customer commitment to roll-out	It stays unclear how and when a larger rollout will take place. Customers don’t stick to initial plans and timelines.	Customers agree early on the criteria (target KPIs) that need to be fulfilled and commit to a clear roadmap to rollout. Timelines and plans are met by your customers.

We found the customer success criteria to be the best indicators for large roll-outs in later stages. Even in pilots or PoCs you can find out, if the users engage with your product and most importantly if they are not willing to give it away again. To measure these criteria, you must communicate with your customers. Interview them, do surveys with them and obtain usage data! Ask “Why?” several times to find out root causes and understand why product is so effective. These criteria help you in later phases to detect problems in your sales performance, killer-features and room for improvement.

Productive Usage: Pilot Conversion Pipeline

KPI	Weak Product-Market Fit	Strong Product-Market Fit
Roll-outs	Decisions take forever. Only pilot groups are testing the product. Sales Cycles are much longer than expected.	Widespread productive use of the product. Pull from other people outside of the pilot groups. Sales cycles are not a problem.
Revenue per customer	Customers are paying insignificant amounts relative to their size. You can hardly cover your high B2B sales costs.	Customers are paying a significant amount of money relative to the size of their company or department.
Churn	Important target customers churn.	For properly onboarded customers, the churn rate is close to zero. You get “Thank you, you made my life so much better!” postcards (really!)
Inbound Leads	All customers come from outbound. They are mostly buddies. You lose most customers along the sales process.	You’re getting an increasing amount of high-quality inbound leads. Word of mouth is spreading.

A lot of sales KPIs do not leave any room for interpretation and are directly linked to the value of your company, e.g. the revenue. We like to have a close look on these criteria, when the start-up is mature enough and has already products in productive use. From Series A onwards investors will look even closer.

Conclusion

After presenting all these indicators, the bad news is: There is no single indicator or mathematical formula that predicts product-market fit with certainty. However, these indicators were derived from our VC-experience and help us to evaluate a start-up from different angles at different points in time. The provided insights are very valuable for our investment decisions. On top of that, the presented framework provides guidance in the strategic discussions that we have every day with our portfolio companies.

We would love to hear your thoughts about these indicators! Do you use other criteria that are not displayed here? Which ones do you think matter most? Please comment!

In the next part of this blog we will present the customer development process that we found to be very helpful in our work with portfolio companies on the way to Product-Market Fit. Stay tuned!

Status quo Start-up Germany?

Interview with Dr. Alex von Frankenberg

HTGF celebrates its 15th birthday in 2020. After all these years and nearly 600 investments — what, do you think, is the state of the German startup landscape today?

Germany is in pretty good shape and has caught up extremely well in many sectors. There are now more ‘Made in Germany’ startup market leaders, including some in the high-tech sector, such as Celonis, the Munich-based process mining firm, and Bank N26, one of the most successful fintech businesses. Then there is also the growing number of major funding rounds. Of course, challenges still remain.

What do you mean by that?

Take exits for example. There are far too few IPOs here. Although Teamviewer was one of the biggest tech IPOs since the dot-com bubble burst, a total of just four companies went public at the Frankfurt Stock Exchange in 2019. Compare that with London, which registered about 27 IPOs. Germany is lagging behind in this respect.

In terms of exit, why do you consider IPOs to be so important?

Because that’s the only way to continue growing at a fast pace whilst maintaining independence. That doesn’t mean that a business can’t grow if it is bought, but growth will be slower, and value will be created in a different way. And don’t forget that the majority of startup buyers are foreign. I think it is incredibly important for Germany, as a center of commerce and industry, that the major startup successes remain independent and do not move their value creation abroad. And we have to work for that by strengthening our ecosystem.

Right now, German startups are demanding more favorable conditions from the Government. Johannes Reck, founder of GetYourGuide, is one of the strongest voices calling for fairer taxation of share options for employees in startups. Do you think he has a point?

Absolutely! In the US for instance, employee stock ownership across all levels of the hierarchy is the norm. That changes the mindset throughout the business and permanently improves its ecosystem. Once you have a unicorn with a value of several billion, the share options are likely to make quite a few people millionaires. Sure, they want a luxury lifestyle, but they’ll probably also invest some of their stash in other startups. But here? Employee share options are only available for the top and second ranks of management at most. And these come with a hefty tax burden. In other words, there are regulatory and political headwinds.

Peter Altmeier, Federal Minister for Economic Affairs and Energy, wants to create a 10 billion future fund to support startups and the tech industry. Is that a good idea?

It’s an important step in the right direction. But we must not lose sight of the competition. The SoftBank Vision Fund alone currently holds around USD 100 billion. We need a variety of smart instruments to be able to compete internationally. In other words, funds need to continue to come from several sources: public, semipublic and private.

HTGF’s third fund has partnered with many private investors. Where do Germany’s industry and the ‘Mittelstand’ stand in terms of digitization?

Innovation is both extremely rapid and radical. That message finally got through in Germany. The investors in our funds and our industry partners are working with us specifically to gain access to young startups, new ideas and innovations. We have been able to link up multiple corporations with startups where both sides benefit from this kind of symbiosis. We see our role here as that of a faciliator/broker. That’s why it is now eleven years since we started organizing our High-Tech Partnering Conference.

Which were the most successful partnerships HTGF has helped to create? Do you have any examples?

Definitely! There is the Düsseldorf startup Cumulocity for instance. It is a former HTGF portfolio company which specializes in Cloud IoT infrastructures. Software AG took over Cumulocity in 2017, and the former CEO of the startup is now the CTO at Software AG. And there is AMAL Therapeutics. They developed a new cancer vaccine and were taken over by Boehringer Ingelheim, the pharmaceutical company, last year. These are just a couple of the many examples in our portfolio.

Where do you see opportunities for startups in Germany?

B2B models and high-tech trends are gradually replacing the B2C hype. That’s why I believe so strongly in partnering our high-tech startups with industry and the ‘Mittelstand’. These established firms have a lot to offer in terms of distribution channels, customer relationships, capital, manpower, and also by opening up future markets in the B2B sector. Those have always been Germany’s strengths.

Author: Dr Martin Pfister, Senior Investment Manager

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According to a recently published study by Wayra, the accelerator programme set up by the Spanish telecommunications operator Telefónica, major corporations founded 264 new venture capital businesses in 2018. It is interesting to note that this type of support for innovative, non-corporate projects has experienced a new boom since the 2008 financial crisis. Moreover, more and more companies are setting up accelerators, which assist external projects with structuring, financing, and often infrastructure too. They can be found in all sectors and have one thing in common: enthusiasm for startups and their innovative strength, culture and agility. High-Tech Gründerfonds too has attracted investment from 32 corporates for its hird fund. Some of these have their own corporate venture capital (CVC) arm, whilst the activities of others originate from their management or Business Development department.

The various types of collaborations, licence agreements, investments and exits between startups and their corporate partners have huge potential, but there are also pitfalls and dead ends.

A big corporation – truly your best customer?

Many startups see a customer-supplier relationship with an established business as their proof of market, especially if it offers recurring sales potential. But according to the Wayra study, startup founders are disappointed by the corporations who have invested in their business. Although the study does not give any specific reasons for this, experience has shown that the culprits are the time decision making processes take or unpaid preliminary qualification studies. Given the risk that a startup may no longer exist in two- or three-years’ time, it is perfectly reasonable when major corporations, especially those in highly regulated sectors, shy away from being supplied by one of these businesses.

According to the Wayra study, corporate investors also fall short of expectations when it comes to the sales and marketing support the young entrepreneurs had hoped to receive. But we can see that startups benefit significantly when it comes to joint developments (R&D), production, and process optimization. What is happening in the mid cap sector is also interesting: more and more of these companies, not normally very familiar with the startup ecosystem, are opening up. Lean decision-making processes often make up for any lack of dedicated structures, such as innovation scouts or venture capital. But here, everything must work out:he search for potential partners is often closely tied to their own target markets and their enthusiasm quickly disappears when they are confronted with too many uncertainties.

Investment by corporates – a ‘bear hug’?

Recent developments in the corporate venture arena have resulted in more fund of funds investments and in more money flowing directly from corporates into startups.  German companies are particularly active: according to the Wayra study, about one quarter of all European deals between 2000 and 2018 involved German corporations. There is (almost) always a strategic element in these investments, i.e. it has to fit in with the parent entity’s plans. This is usually taken care of through a process whereby the Corporate Venture colleague secures internal commitment before pursuing the potential investment target any further. That can be advantageous – as long as the CVC acts like a traditional investor interested in a financial return, which is the case more and more often. This is something startups should take particular care to ensure: Winning over a major corporate partner is great for the reputation.

However, institutional VCs take a critical view of possible specific rights for strategic investors because it could restrict the flexibility required in the exit process. For instance, there should be no specific veto rights (investment = pari-passu), and any right of first refusal should be clearly limited, with a temporal element of just a few weeks that would allow the startup to explore alternative options. If a call option is already being negotiated with the corporate, it should include a drag-along clause which includes the strategic investor to sell their stake with no strings attached when sums are offered in an open M&A process that significantly exceed the sum agreed for the call option.

Royalties – licence agreements are an obstacle

As a result of negotiations with corporates that could end with the transfer of IP or a licence, the startup’s intellectual property rights will be gone through a detailed due diligence. The startup often comes under pressure in this process: Conditions, e.g. exclusive licences for the technology, were often negotiated at an very early stage in setting up the company; several academic partners were often involved in grant projects, and the set-up of a licensing technology transfer or patent agency is in many cases not professional enough.

On the other hand, we have the corporate partners with their substantial experience in knowing for instance which royalties are commercially viable for them, when a product should be launched, or whether it is even possible to show the sales figures for individual products. High payments to a third party, e.g. the university, can quickly land the negotiations in deep water. In these cases, the startup should try get the corporate to join them at the negotiating table – having a common interest often helps in the negotiation process. And the startup’s institutional investors are not interested in such long-term payment options either because this does not fit in with the runtime of their funds. They would rather be paid off early (with a discount).

The opinions expressed here are those of an investor and based on the HTGF portfolio, across all industries. What is true for good management is even more important for any talks between startups and major corporations: an open and frank conversation about their expectations of the collaboration or investment by corporate VCs; and the investor empowering the startup with an eye to the common ultimate goal: the exit.

Source: Corporate Venturing Report 2019

Author: Martin Möllmann, HTGF Investment Manager

Especially at the beginning of a company’s history, resources are extremely scarce. Everybody helps out everywhere. This situation is no different in product development. While established companies can fall back on an entire structure of product managers, designers and developers, this is rarely the case for young start-ups. The technical component is often included, but the other tasks are distributed within the team or external experts are engaged.

While it is easier to outsource design tasks, doing so is less advisable in the field of product management. There are many reasons for this.

Customer focus and speed

Particularly in a product’s early stages, it is important to quickly set up a relevant set of features that will win the first customers over. What are known as “early adopters” excuse small details such as missing loading bars and insufficient information depth as long as a satisfactory solution is provided to their core problem. Fast decisions close to the customer have to be made for this purpose.

Product decisions are strategic decisions

Customer contact cannot be prioritized high enough. Many assumptions and ideas that sounded highly relevant in the concept phase can and must be tested directly on the customer during product development. Customer feedback can have an impact on the start-up’s strategy and overall direction. The infamous pivot is far more likely to succeed in the early stages, since the structures and business model are still less developed and can thus be adapted more easily.

Product management “as a sideline” does not work

In a few cases, founding teams already have product managers in their ranks. But in most cases, this role is taken on by the CEO or CTO, since this is where an understanding of both the customer and the technology is vital. In the medium term, however, creating a separate position for the Product division to relieve the strain on the Management team makes sense. As the product becomes ever more complex, this task becomes a full-time job. That’s why we often see a product owner or product manager set up together with the Tech team to lay the groundwork for further development.

The aspects to look out for

I, myself, was once in the exciting position of being a company’s first product manager to take over this role from the CEO. At that time, there were already several developers in the team, and more than a year was spent working on the product without it being actively used. The following points are important in this situation:

Process stability

The product development process is often unstructured, especially in the early days, and it is organized more “on call”. If something crops up, someone thinks of a new feature, or an early adopter expresses a desire, it is implemented directly. But these conditions are no longer efficient, what with increasing professionalization and a growing number of people involved. An initial starting point for the product manager is to set up a functioning development process, often using known methods such as Scrum or Kanban as a basis. In addition to setting up and arranging the appropriate tools, the team also needs to be trained in the new process, all the while paying attention to compliance with the same. Since a scrum master or an agile coach is often non-existent in the early stages, this role also falls to the product manager.

Channeling and prioritizing

At the beginning, the possibilities with a new product often seem endless. Many different paths can be taken, and the target group can be approached from different directions. These options must be correctly recorded and evaluated, and this is a product manager’s core task. For this purpose, it is important to exchange information with as many stakeholders outside and inside the company as possible to gain a complete picture of the interests and how important they are to the product’s success. (Non)functional requirements are collected in a list, often called a backlog, and the product manager must then put them in a meaningful order. In the final step, the focus is on communicating to the Tech team and implementing the prioritized points.

Communication is everything

One thing has become clear in the points raised so far: Communication with different parties forms an integral part of the product manager’s work. This must not be neglected. Constant exchange with the various stakeholders gives the product manager an overview of developments on the market, customers’ needs and challenges within the company.

The right choice

It is important for founders to find the person who can focus on these tasks. This enables them to take product development to a new level. The candidate should have experience in product management and have highly independent organizational skills. Working with and administering common tools such as JIRA, Asana or Trello is a key aspect that releases a lot of speed, especially at the beginning. What’s more, attention should also be paid to the person’s long-term development potential, since the first product manager often takes on a leading role within the organization later on.

Please feel free to discuss with Martin Möllmann. Contact him by mail: m.moellmann@htgf.de

Tanja and Dr Dennis Schmoltzi, the CEO of Emma – The Sleep Company (Bettzeit GmbH), discuss the right HR strategy in high-growth startups

Tanja:  Hi Dennis, so we invested in your company, Emma – The Sleep Company, back in 2015. At that point, you were of course a classic seed company. Just 4 years later, you’re making an annual profit of more than EUR 100 million and you have over 250 employees. To keep things running, you need plenty of capacity for recruitment, job interviews, onboarding, training and employee support. How did you get to that point on an operative level in such a short space of time? 

Dennis: Recruitment, onboarding and employee development are indeed very time-consuming. But we see resizing as one of the most crucial keys to success: only the best team can create the best results faced with strong growth. In turn, our People & Org Team has grown from a single intern to 10 people today. I can only urgently recommend every startup to hire someone at an early stage, to advertise vacancies and invite applicants to apply. Apart from this, efficient processes in the field are enormously important. For example, we launched “Recruitment Friday”. Every Friday, we interview around 20 applicants. After this, both we and the applicants have all the information we need to make a decision right away during the week. Alongside sufficient resources and standardised processes, the high value forms the third factor: the management team as a whole is actively involved in recruitment.

Tanja: You are moving in an industry that is characterised primarily by old-fashioned structures. There are dominant purchasing associations and trading partners, existing sales structures of established players. At the same time, you have a very young team. How important is the experience that brings employees on board?

Dennis: In my view, “experience” is hard to define from a startup perspective. Yes, we were initially laughed at for being the “lads from Frankfurt” who had no idea about  end-customer business within our industry. And we were faced with the fact that you couldn’t just sell top-quality mattresses online. But more important than experience is talent. Skills such as a high level of comprehension, the ability to develop solutions suitable for a particular situation in a short space of time and a pragmatic, hands-on mentality. These skills are very prominent in our company and form a strength of our team that we can tackle a topic with major talent in a way we were unable to do before. In order to create new excellence, you have to question the existing. This is also one of our company values. It often also functions more easily when you are impartial and have limited experience. This is why we do not work with headhunters; they are almost always trained to identify people based on their experience profile.

Tanja: Can you describe how the recruiting process usually works for you?

Dennis: We have three core channels for recruitment: Firstly, close links with universities. Secondly, we employ two people full-time to actively address talents. And thirdly, we get regular recommendations for friends, acquaintances and new employees from the team and the network. For a successful experience, we pay a premium of EUR 500.

Tanja: OK, and can you tell us a little more about your interview process? What is especially important to you? How do you find out whether a person fits and whether they’ll stay with you? What does a good employee look like to you, and how do you test for this in the interview?

Dennis: So I’ll start with Recruitment Friday. Anyone invited to interview has already overcome the first hurdle. The day starts with a 30-minute company presentation for everyone involved.

This is followed by two hour-long individual interviews that are independent of one another. Applicants are then given a tour of the office, during which all interviewers meet for a 30-minute debrief. During this debrief, the interviewers give their opinion of the candidate in question. The orientation points are formed by our assessment dimensions. These are cognitive skills, operative skills, interpersonal skills, an entrepreneurial mindset, ability to learn and team fit. In order to be able to estimate the dimensions, we ask applicants questions regarding specific situations that they have experienced. For cognitive skills, we also use smaller cases, calculation examples or brain teasers. Because we (with very few exceptions) do not ask technical questions, the interviews can be carried out independently of the team.

We attach far more importance to the composition of the interview partners in the sense of their experience and their approach in interviews. A distinction can be made between rational and intuitive interviewers. Sometimes, debriefing discussions give rise to the strengths and weaknesses of individual applicants, and sometimes we agree right away. There may even be a decision at that stage, and we’re able to say yes or no immediately. We also then carry out a third, shorter interview. Later in the following week, we make a decision and agree on the specific offer with a role and salary for everyone who we want to employ. In individual cases, we contact references. It is important that all interviewers carry out professional discussions with the candidates. To ensure this is the case, there is internal training to be completed by those colleagues carrying out interviews. And as I mentioned, recruitment has a high status. Our team leaders, my co-founders and I all have calendars totally blocked off for interviews every Friday. It takes up a lot of time, but at the end of the day, we want to keep growing at a rapid pace.

Tanja: Once an employee’s on board, how do you assess whether they’ll be up to scratch?

Dennis: We determine the employee’s performance in line with the same dimensions we used during the recruitment process. 360° is involved here, to be filled in by colleagues who have worked with the employee. The feedback is highly valuable and helps team members to develop in a targeted way. At the same time, it is important to understand that everyone should be employed in line with their individual strengths and that nobody is going to be strong in every dimension. If somebody does not perform in the way we expect of them, it may be that we have made a mistake in their role. If this is the case, we discuss changing their roles and their responsibilities.

Tanja: How do you motivate your employees?

Dennis: All our employees receive a fixed salary. On principle, we do not issue bonuses or financial incentives. As I see it, this is an extremely important part of developing a group into one, cohesive team. After all, if you define a personal bonus, employees will fight for that bonus alone, even when the situation has changed and the company actually needs something different. In agile companies, I believe this is actually counterproductive. And of course, you have to take into account the fact that staff development is far more successful when it is not connected with a bonus. During the 360° feedback discussions, we can concentrate on promoting personal strengths and content. KPIs and OKRs are perfectly sufficient as motivators for the individual teams. An important point here is that these are really visible so that as a team, we have a feel for progress and success.

Tanja: You talked about ensuring that employees work in line with their strengths. What does that mean for you?

Dennis: Overall, we’re a highly diverse team with very different strengths. We have around 40 different nationalities in our team. It is important that people know how to utilise the different strengths. This involves understanding the individual strengths everyone has, and most of all, valuing them. A very typical phenomenon, for example, is that I’ll have two team members coming to me and telling me they’re totally frustrated with one another:

Person A complains that Person B just isn’t abiding by the agreed processes and is making everything else disorganised. In turn, Person B complains that Person A isn’t flexible and agile enough to grasp the opportunities in front of them. At the core of it, one person is very process-focused, while the other is more of a entrepreneur. You need both people. The most helpful thing is for everyone to understand and to define the roles and tasks in line with the differences. For example, if somebody has an entrepreneurial attitude and does not enjoy abiding by processes, the person is put in a team with someone who is process-focused. Accordingly, we make it clear to our team leaders that their task is to create a complementary team. For example, a very process-focused team leader may have somebody at their side who is an agile strategist or coordinator for ad hoc projects.

Tanja: How do you develop your employees? Have you experienced any success stories or perhaps any big surprises

Dennis: Alongside the 360° feedback specified, we have created an internal training concept: the Emma Sleep University. As part of this concept, colleagues give courses on their areas of competence during working hours, in topics ranging from marketing basics and lean management to communication skills. Anyone can register on one of our 20 courses. Team leaders also participate in a compulsory programme. We hire external coaches for some training sessions. Badges are available to those who successfully complete a course. Essentially these are stickers that you receive for your laptop. I find it really notable how something so simple and yet so visible changes the dynamic of the training programme. In addition, we’re learning something every day at work, which is a real motivational factor for many in the team. And of course, there are real success stories here. Often these are employees who have started as uni graduates without much professional experience, who’ve joined the management team within two years and who are now heading major teams.

Tanja: What do you consider important when it comes to team and company culture?

Dennis: First of all, I consider it highly important that a clear company culture has been defined and is being promoted. For example, we have six company values that we use as a focal point. Essentially, these values revolve around the fact that we’re a diverse team, that we put ourselves in the customer’s shoes, that we question the established system, test things in an agile manner, make rational decisions and that everyone takes responsibility. You really experience meetings in which these values are referenced and somebody might notice that an approach isn’t sufficiently agile. A decisive part of all this is that we don’t hold discussions and make decisions along hierarchical lines. This means that if team members are in agreement following an argument on what the best decision for the company is, they can make the decision on their own. If they do not agree, they can simply involve another person to help them make a rational decision. When it comes down to it, it’s about making the company independent of the founders. I think this is a crucial prerequisite for growth, and the company culture should support this as a guiding principle for making good decisions.

Tanja: What advice would you give to a company that’s just in the seed phase and that has ambitious company and marketing plans?

Dennis: As I said at the start, it helps to acknowledge the importance of the team at an early stage. Books I can recommend include “Top Grading” or “Scaling Up”. And if you’re really starting to grow, your main goal should be to create a self-sustaining organisation. This involves cash flows, innovation and inevitably, the organisation and the team. And to do that, you have to set up the company independently of yourself as a founder. This is the only way in which the company can grow without you becoming your own organisation’s bottleneck. A side effect is that you’ll then be able to focus on the most important themes. For example, I can now spend around 60% of my time on the topic of People & Org.

About Emma – The Sleep Company (Bettzeit GmbH)
Emma – The Sleep Company is an owner-led enterprise and one of the fastest growing providers of mattress and sleep systems based in Frankfurt/Main. The internationally operating Sleep-Tech was founded in 2013 by Dr. Dennis Schmoltzi and Manuel Müller. Philipp Burgtorf has been the third managing director since early 2018. The portfolio includes the direct-to-consumer start-up Emma Matratzen, which quickly became one of the most successful bed-in-a-box brands in Germany and Europe, and the strong traditional Dunlopillo brand. With their leading expertise in the field of research and development, they translate material and technological progress into their top-quality product range in the long term. In addition, the 250-strong team achieves continuously innovative concepts in the fields of process optimisation along with marketing and sales. Success components of the very agile everyday life of a company include a distinct digital mindset, a good dose of pragmatism and valued diversity.

Dr. Dennis Schmoltzi
Dennis Schmoltzi ( 1986) founded Emma – The Sleep Company (Bettzeit GmbH) in 2013 together with Manuel Müller in order to design the mattress market in a more comfortable, transparent and attractive way.

Schmoltzi studied business administration at the European Business School/Oestrich Winkel and earned his doctorate at the Goethe Universität Frankfurt/Main. Prior to founding the company, he worked for seven years as an advisor to finance companies and medical technology manufacturers at the McKinsey management consultancy.

This is what usually happens. You take your car and go to the Mediterranean for your holidays. You prepare everything but you don’t think about the fuel your car needs to reach your destination. Although it’s clear that your car needs additional fuel on the way, you are sure to find many stations on your journey offering enough petrol to go as far as you want.

Capital is the fuel start-ups need. However, at the time you found a growth-oriented one, you are aware that you will need further funding at different stages of your company’s development. This is a significant risk. You know neither the next round investors nor whether there are any interested in your idea at all. A well-organized seed investor will opt against providing an initial injection of capital if it does not believe additional investors will be found at further stages of the company’s development. Nobody wants to get stuck in the so-called valley of death. This valley has moved further on. Roughly ten years ago, seed investments were the bottleneck. Some years later, seed capital was available but significant growth investments were difficult to obtain without involving global investors who were not easy to convince. Nowadays, the situation has improved significantly. Start-ups dealing with technology-driven innovations have a good chance of raising money at all stages of their development. Even larger rounds above ten million euros are possible. However, from the individual start-up’s point of view, gaining access to the right investors remains highly challenging.

That’s why we recommend choosing the right seed investors as partners if you are not acquainted with the appropriate investors yourself. A good seed investor provides access to others. The market is not transparent at all. You can’t get access to high net worth individuals, corporates or international venture funds easily. In addition, you have to be well trained, because the investor pitch is different to a sales pitch. Above all, it’s about trust in the team. With a view to additional financing rounds, make sure that your investors have the capability to invest further down the line. Action in the form of capital from your shareholders will prove much better than words.

The current funding situation seems to be great. We see pretty large seed rounds above 10 million euros in the drug development sector and extraordinarily huge amounts invested in deep tech- and software unicorns. It is not only the Vision Fund investing in AUTO1 or Get Your Guide turning them into leading lights in the European ecosystem for start-ups. There are many significant financing rounds taking place. The HTGF portfolio companies for instance were able to close more than 120 follow-on financing rounds with a volume of around 400 million EUROs in 2018 alone. Almost all start-ups were able to raise sufficient capital for their growth.

However, the situation varies from sector to sector. If you want to drive your electric car to the Mediterranean, you will carefully consider charging stations on the way. You might even change your destination due to the lack of charging facilities. So, if you start your company in the chemical sector, you will probably face significant funding problems when scaling up your pilot plant to a demonstration plant or up to industrial standard. Those types of investment are regarded as unsexy. For those kind of sectors, highly specific investment funds are needed. Those funds need to be qualified investors contributing money that also have expertise and a network with other investors who might join syndicates.

However, all the investors need to have attractive exits otherwise they cannot deliver the returns to their fund investors. There are some attractive exits which are very important, but experts still have the impression that there is a bottleneck which has moved to the end of the value chain. Most of the medium-sized and large companies have already learned that they need external innovation to secure their competitiveness in the future. They are increasingly interested in high-tech start-ups, showing little interest in buying them for attractive valuations. Large companies in Germany execute their mergers and acquisitions professionally but focus mainly on profitable revenue-generating companies. Start-ups relying on investors are undervalued by local buyers or in many cases are bought by Americans or Asians paying a premium for good German technology-based companies. To change this situation we need more success stories giving us benchmarks and peers. The best way to find those beacons is on the stock exchange. However, initial public offerings (IPOs) for high-tech start-ups are rare since the European stock exchanges do not offer enough liquidity for tech-IPOs. One reason for this is that we have around 30 stock exchanges in Europe competing with each other to attract liquidity, whereas China and the US just have just two or three of them, therefore enjoying great liquidity and interest in even exotic and technology-driven companies.

At a time when a German biotech start-up valued at around 40 million euros is almost starving on a European stock exchange, the Munich-based biotech company Immunic closed a reverse takeover to get listed on the NASDAQ in April 2019. Immunic will present more clinical data soon, which means that they might have very good prospects of raising further funds for the next stage development of their drugs, each with a market volume above one billion dollars. Obviously, this is a very clever and entrepreneurial transaction coming along with a clear learning: As long as we do not have a strong marketplace for tech start-ups in Europe, we need to connect to other ecosystems more intensively in order to address the remaining bottleneck of the value chain: the exits.