VentureFriends mainly focuses on investing in Greek talent, both in Greece and abroad
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh how times have changed. While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
George Dimopoulos is a co-founder and Partner at VentureFriends.
George has been an angel investor for the last five years investing in Greek and foreign tech companies, including Taxibeat which was recently sold to Daimler. He has a rich finance/deal structuring experience stemming from his four year tenure with Bank of America Merrill Lynch in London where he was involved in numerous transactions with total EV valuation of c. €17 billion across multiple geographies. George holds an MBA from Columbia Business School.
VatorNews: What is your investment philosophy or methodology?
George Dimopoulos: The way we approach VC investing is that we primarily are investing in people and teams. The most important thing is for us to be comfortable with the founders as on a business level (that they are able to materialize their idea and make a successful business out of it) and on a personal level since we will be working very closely with them. Talking about those ideas, we like to invest in "need to have" type things, not "nice to have." We love services and products that serve an tangible need.
To be specific, we like ideas that can be implemented in more than one country, meaning that there's a big market out there and the team is willing to go to that market and willing to expand in a couple more countries. So, investing in a single country idea is not good enough; we like to invest in things that can go international.
Currently we are investing in Greek talent anywhere in the world. What I found out with my partner Apostolos Apostolakis, from our entrepreneurial days, and our angel investing days, is that there was a lack of capital available for Greek entrepreneur, especially back in 2011 and 2012, when Greek founders had a really tough time finding funding. The same still goes for some Greeks abroad, who, being new to a local ecosystem, have faced difficulties raising money from local VCs. Having said that, we've provided seed capita to Greek founders in the U.K. and Dubai and, subsequently, we have been co-investors there with local VCs in subsequent rounds. Overall, we are focused on Greek talent, but, when the opportunity is right we have done investments abroad to non-Greeks. For example, we were investors in AdEspresso in Silicon Valley which was recently acquired by Hootsuite, just because we liked the business and the team a lot.
So apart from our overall Greek founders focus, there is also the math behind each investment; meaning how big is the market? What percentage of the market can the company get? How feasible is it to do so? Then comes the judgment call that goes like: 'Ok, does this team have the skill sets to get there? Can I be of assistance to the team to help them get there?" If you can check all of these boxes then you go ahead and invest.
VN: What do you like to invest in? What are your categories of interest?
GD: If you visit our webpage, and look at our portfolio, you will see two main categories of investment. First is marketplaces, which are mostly B2C. Some of them are quite original ideas, and some of them have been already a successful model in another country that was transferred to Greece. The other is SaaS because they are the easiest to go international. That is the beauty of SaaS, that if you can have your team in Greece, or in another country, it is possible to have clients all over the world. Marketplaces are more local, so they're mostly in Greece, and maybe one more market, but the SaaS businesses, which we are looking at a lot right now, are a lot more international.
It's no accident that we are going after these spaces. As a team, we have a lot of expertise in marketplaces. Apostolos was the co-founder of two marketplaces, one of which was a very successful exit for the Greek ecosystem. We were also involved with Taxibeat, where we were both angel investors from the beginning, and was another big success for the ecosystem. So we have been involved with marketplaces for quite a while.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
GD: Our biggest success was Taxibeat. That was my first investment with Apostolos, and was sold recently to Daimler. The company had operations in Greece and Peru, and it's an excellent example of a Greek entrepreneur who managed to make a very big company, while also solving the tangible problem of taxi services in Greece.
Another successful exit was e-food, which is a food delivery business that was sold to Delivery Hero. Another success was AdEspresso. Instashop, which is a grocery on-demand service, there we did a partial exit. To be clear, Taxibeat and e-food were not part our fund, they were part of our angel career, and they actually helped us with the fundraising, because they were the first proof of concept that we could actually achieve good return by investing in startups in Greece.
Some of the SaaS investments we've done out of the fund include ContactPigeon, which is doing mail marketing automation. Despite being from Greece, they have managed to bring around 200 customers from all over the world, who trust them to send out e-mails for them and now part of the team will be moving to NY. We have also invested in Flashchat.ai, which is an AI messenger bot for e-commerce. They provide an easy implementation of an AI that can interact with shoppers. Another SaaS with an international market that we invested in was Blendo, which helps you transfer and process data from different sources. It will format the data for you, so you can easily extract it, and get the information that you need.
VN: What do you look for in companies that you put money in? What are the most important qualities?
GD: The first thing that we would like to see is drive. Ideally, you are looking for people who are determined to literally walk through walls in order to grow their company and make their product/service known. Additionally, we are looking for people who know their market, who can answer all our questions in a convincing way and who know their numbers, like their unit economics, CPA, user LTV, retention/churn etc. They know how big the market is and they have a convincing way of how they're going to claim their share in that market (their go to market strategy). For example, what's going to be your product, how will you communicate the value proposition to the user? What are they going to do if their A marketing plan doesn't work? In what ways will they bring their unit economics costs down? For this type of questions, they need to have convincing answers. I'm not saying that we as a VC know all the answers in advance. When we meet people, we are doing our homework, so we form an idea about the industry and market, but we also need the founders to provide us with more detail, so we can dive deeper. Then, in a very good way, obviously, we want to challenge them, and see what their response is, how they're going to react, and how convincing their replies are.
Moving to more legal and technical things, we are looking for prior to an investment is that there needs to be a clear legal structure in place and a fair cap table among the people in the team, even though we avoid intervening in the dynamics among team members. They also need to have a clear legal structure, ideally, but we never intervene.
The final point that we discuss with potential investment companies is the creation of an option pool prior to our investment. We want to have an option pool in place, north of 5 percent, just in case the founders would like to compensate key employees with equity. If they don't want to use it, they take it take it back, and that’s ok. The overall idea is that the people who are heavily involved with the startup will be compensated in fair way, so everyone will be happy.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
GD: Overall, we invest in teams that have their first revenues. We don't want to take the product development risk. We want the product to be in place and we want to have a small number of sales, in the area of tens or hundreds. We want them to have first revenues so we can feel comfortable that there is some basic product market fit.
To be more specific, for a company at the seed stage, ideally we would want to have €1,000 MRR or €4,000 MRR. We're looking for the MRR numbers so that we know that there are some people out there who are willing to pay for that product or service. We are looking at the cohorts to see, how sticky the product is, what churn they are having. We want as low a churn as possible. Finally, we would like to know the cost of customers’ acquisition and user life time value. Again, there are not 100 percent right or wrong answers in the question above. It also depends on how long the company has been around. There are different expectations for a start up in its first three months versus in its first year.
So, this is pretty much what we're looking for in general, and then we can dive into specific numbers depending on the startup.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
GD: Mostly we have companies that are inbound because we have been in the ecosystem for quite a while now and we've been part of some of the most successful exits in Greece. Obviously we're trying to have as much presence as possible, so we go to startup events, making time to go to startup competitions etc. This is one way how we source deal flow. Another deal flow source is recommendations from our portfolio founders and people we've co-invested with in in the past.
In terms of timing we are fairly quick, so we try to keep the whole process to less than two weeks, from moment we meet the founder for the first time until we wire the first amount of money. Having been entrepreneurs in the past, Apostolos and Stefanos Katsimpas, the third guy on our team, and also from my experience as an investor, I appreciate how time consuming fundraising is and how disruptive it is for the business. You don't want a founder to lose a tremendous amount of time because that is time that is taken out of thinking about the business, how to make it better and eventually to grow. We think that is one of our competitive advantages, that we're able to complete the process in a relatively short time frame.
VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?
GD: Not only in Greece, but in Europe overall, we are still where we used to be. So a seed is still €300,00 to €500,000, maybe sometimes €600,000 or €700,000. That depends on the type of company and what type of development needs to be done. Series A is anything above €2 million to €3 million. I haven't come across a seed stage that is €3 million.
I get where this is coming from in the U.S., where there is a lot of liquidity, a ton of money going after a limited number of very good founders and teams. Thankfully, we don’t have this issue here in Europe, because we'd have to raise much bigger funds! Europe is not where the U.S. is. Startup investing has picked up, but it's definitely far behind the U.S., and this is in Europe, let alone in Greece. The numbers are still in check here.
This is also partially because of the potential of U.S. startups. If you think about it, a U.S. startup, if they do amazingly well, they can capture the whole U.S. market, which is a big market itself. In Europe, if you are raising a seed round, in whichever country you are raising, the assumption is that you are going to get your home country for sure. If you are really good, you're going to go to other countries. Going from one country to another is much more difficult than going from one state to another state because of the language barrier. You also have different regulations, different tax laws, pension laws, etc. This is an intrinsic problem in Europe. It takes much more effort and maybe this is one of the reasons that Europe is behind, because in the U.S. you can bet on a company and think it will be become big, but this is not the case here.
Things will become much easier if Europe becomes a full union. So, there wouldn't be any differences doing business in Greece versus Italy or Germany. In my personal opinion, and this is sort of a political question, this is the way to go, but the opportunity window is in the next four to five years to get there. If Europe doesn't get there by then, then it's going to be a little bit tricky.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
GD: My story is that I was born in Athens. I went to a boy’s only school by accident, just because there was a boy’s only school close to our home that was very, very good. Then I studied economics in Greece, and started working at my first job as an accountant in a firm. That helped a lot with my numbers and accounting skills. At the same time, I did my first Masters in finance, again in Greece, as a part time student. After that, I always wanted to study and work abroad, so I continued my studies in U.S. getting my MBA from Columbia Business School, in New York. Then, after my MBA, I wasn't ready yet to make such a big step to move to the buy side in the U.S., so I followed the safe road and went into investment banking, working for Merrill Lynch in London, which turned out quite well for me. It provided the liquidity I needed to start my investment career, and also helped me a lot with my professional training, how to structure a deal, how to handle difficult situations and negotiations and of course, how to deal with investors.
After that I started investing in startups and got to experience the amazing feeling of seeing the numbers of a startup grow month over month. I had this amazing feeling that I was helping make a meaningful change, because, like I said, we invest in need to have products, not in nice to have stuff. With Taxibeat, for example, it was a real problem to hail a taxi from the street back then in Athens. I'll tell you that nine out of 10 times you'd get a rude driver, he would try to do something weird with the meter or he would smoke inside the car. So, with Taxibeat, we managed to solve all the above problems because we introduced transparency and accountability, so after you take a ride you can review the driver, and bad drivers were getting kicked off of the platform. It was an amazing feeling seeing this company grow month over month and knowing that you have provided the capital for this to happen. I decided that this is the way to go for me. My passion, and what I like to do, is going over pitches and helping startups make decisions, I wanted to make it my full time job, so I quit Merrill.
To tell you how VentureFriends came to be, Apostolos and I have been friends since 2007. He's a serial entrepreneur; he started the first e-commerce shop in Greece, an Amazon clone in Greece, and then he co-founded a couple of marketplaces while he was also heavily involved with e-food, Doctoranytime, which is like Zocdoc, and, of course, Taxibeat.
We both studied at Columbia Business School. When I went to work for Merrill Lynch, he was back in Greece, co-founding the companies I mentioned, and he also started testing the waters as an investor. Then we started investing together, with our first common investing being Taxibeat.
After that we moved on to a number of other investments. In 2015, when e-food got sold, we decided to take it to the next level, so we could have more firepower to support our investments even more. It's one thing to provide the seed capital and spend time with them talking about marketing, and another to be able to secure the following round of financing on top of the above.
We went out and did fundraising and had our first closing in the first quarter of 2016. In 2017 we had our second and final closing, raising €20 million. It's all from private investors, and is actually the only fund in Greece where this is the case. Most of the funds in Greece took European money, but we decided to go the harder way and raise private only, so we can keep our flexibility in terms of our investments and the location of those investments. If you have European money, it comes with strings attached, so there are restrictions about geography and portfolio allocation and that's something that we didn't want. We wanted to stay very flexible and make decisions in matter of a week, and deploy money in a matter of days.
VN: What do you like best about being a VC? What makes you excited?
GD: The most exciting part is the feeling that you are seeing some brilliant, and very capable, people achieving their goals. You assist them, either by making connections, introducing them to the right people who they can potentially hire, or to potential investors, or by sharing some of your knowledge and expertise, through similar issues/problems that other investments of yours have faced in the past.
In general, it's helping people that you really believe in. We are quite hands on and we always feel like we are part of the team, in a good way. So we take it quite personally when the company is struggling, and when the company is thriving we feel amazing.
VN: What is the size of your current fund?
GD: We closed our €20 million fund earlier this year.
VN: What is the investment range?
GD: Initially we're investing between €300,00 and €500,000. Then, if the company proves that it can grow, and it fits the criteria for going international and can become quite big and significant in one or two markets, then our cap in the fund is that we can invest 20 percent of fund in one company. So total investment in one company can be up to €4 million.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
GD: When we invest at the seed level ideally we want something north of 10 percent, and below 20 percent, so around 15 percent. We need to have enough skin in the game in order to justify the time we spend with each company, so that's why we prefer to start with around 15 percent.
VN: What percentage of your fund is set aside for follow-on capital?
GD: We have set aside around 30 to 35 percent.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
GD: We do mostly seed, where we test the water with the start up. If the startup is doing great, we have the capacity to follow on with a Series A. Then, for Series B, it has to be a bigger fund to come into play. So we deploy the first amount at the seed, and then double down on your successes, on the things that show that they will become big.
VN: In a typical year how many startups do you invest in?
GD: We have been quite quick about investing, just because we were grooming a number startups before we actually launched the fund. We were quite active in the ecosystem, so we were monitoring the ones that we thought were fund material. By the time the fund launched we had eight companies in the pipeline already. That was one reason why the fund investors were quite comfortable with us, because they liked the fact that they knew in advance some of our investments. After that, we have done 20 investments. Typically we'll do around six per year.
To be honest with you, things have slowed down a little bit, but the fact that there were some big successes in the Greek ecosystem recently, I think it's going to pick up again. Because what was missing from the ecosystem were those big success stories that would inspire more people to take the bold step of quitting their corporate job and venturing to a startup.
Here in Greece, there's a different typical profile of a founder from what you have in mind. In the U.S., you have the 20-something, some of them being even drop outs of college with this amazing idea and they implement it immediately, but in Greece the profile of founder is a 30-something guy, who had a corporate job. In our portfolio we have people from McKinsey and P&G, who quit their job and went after a gap in the market that they had identified while working for their company. Using their network and their knowledge from the big corporate, they are tackling that problem and start a business out of it.
Eventually we are going to have those younger founders. They are just catching up right now. The Geek ecosystem is quite young. You have to take into consideration that in 2010 there were almost no start ups. Most of the great startups started in 2011, and, again, started from 30-something people that saw a gap in the market. Now they have been successful, so they're having an impact on the ecosystem, so now more and more younger people are starting to get interested and now I expect the number to grow even more. The last 15 to 20 years, that wasn't the case. That's the only good thing about the crisis in Greece, it forced people to take risks and go into venture.
VN: Is there anything else you think I should know about you or the firm?
GD: As a fund we have an entrepreneurial background, operational expertise, because we have been there, done that, and we have a good balance of mixed skills. We have been angel investors before and we have been entrepreneurs. We have been there and done that and exited successfully a number of times, and that makes us entrepreneurial friendly. When you have gone through being an entrepreneur, you can connect and understand all the difficult situations they are going through to grow their company.
This is very important. You cannot be perceived as just a source of capital. The relationship between a VC and a startup has to be more meaningful. You need to be there to be able to support them in any way that you can. You need to be able to provide a knowledgeable opinion, making meaningful connections, helping them grow, but part of your job description, if it comes down to it, is also to provide psychological support.
It's not easy, but it’s an amazing thing, if you think about it, because, you get an amazing opportunity to have a big impact on society and the economy, and change people’s habbits. Change the way people are consuming and living. You can have a real impact. If you are working for a corporate, it's much more difficult to do that and definitely it takes more time.