Clear Ventures focuses on investing in B2B enterprise softwareRead more...
MGV invests in B2B SaaS companies, in categories like insurance, real estate and healthcare
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.
Marc Schröder is co-founder and Managing Partner at MGV.
As the Managing Partner of MGV, Marc is focused on working with world-class tech entrepreneurs and establishing the MGV legacy. Having founded a successful HR and staffing agency that served all of Germany, Marc has a deep background in building and mentoring highly motivated, successful teams. Before Co-Founding MGV, Marc served as the Head of Global Sales at the Maschmeyer Group and was an investor at Seed + Speed Ventures. Originally from the Netherlands, Marc grew up in South Africa and graduated with a law degree from Bertolt-Brecht University.
VatorNews: What is your investment philosophy or methodology?
Marc Schröder: I was born in Holland, I'm Dutch. I grew up in South Africa, came to Germany after the apartheid regime fell because my parents were afraid civil war would break out. I did my school degree in Germany, did my law degree in Germany; during law school I founded my own startup, which was an HR matching students with really cool part time jobs. I did a decent job, I was just by myself; I didn’t even know it was a startup, I just wanted money. I made $1.7 million in ARR with that, so it was good. I extended my law degree to the absolute max because I was living a fairly good life and through that I met Carsten Maschmeyer, who's a self made billionaire in Germany. This is about 12 years ago now. He became billionaire through doing his own startup, which eventually became one of the largest InsurTech companies in Germany. He was in seven countries and made $22 billion in top line revenue, it had 15,000 salespeople, actual boots on the ground, and he sold his personal stake in that company when I met him.
Long story short, he painted me the vision of the Maschmeyer Group, which was originally just a sales organization, which is important because we went into every large financial institution in Germany that you can imagine, every bank, and we did sales consultancy there. Then we rolled it out to every large German corporate, and then we started to invest in startups in Germany, and we rolled that out to two current investment vehicles in Germany, a €104 million fund and a pre-seed/seed investment vehicle out of Berlin as well.
We fell in love with the US, and the entire ecosystem there. We traveled to San Francisco frequently, and we felt we wanted to be part of it. Nowhere in the world, to this day have I found a place that has so much talent in one place. You have all these phenomenal companies that attract talent from all over the world; that talent goes out and then and founds a company themselves and then later becomes an investor. So, this entire ecosystem was super compelling to us, but we also knew that nobody would take us seriously if we were tourists so we wanted to have actual boots on the ground, and that's why, in November of 2016, I made the decision to actually set up an investment vehicle in the United States, based out of San Francisco. We built up a team, built up a brand, to do real pre-seed/seed investments in the US, and show that we truly bring a value add, and then raise our own fund in the U.S. And we've done that successfully, I believe, since we did our first investment in March of 2018, which was in Modern Health and Alyson Friedensohn, who I think was the fastest female CEO/co-founder to ever reach unicorn status, and she's one of my best friends in San Francisco now.
We've done 30 more deals, similar to that, and at the end of this year we're going to go out and fundraise as well. We are transitioning from a single fund LP to a multiple LP base, and our value add in everything is sales and our InsurTech expertise.
VN: Are you still investing out of Germany as well? What percentage of your investments are in Europe , what investments are in the US?
MS: MGV solely focuses on North America, South America and Israel. All of our investments actually, besides the three, are in the United States; we have one in Canada and we have two in Mexico, but our investment horizon is North America, South American and Israel. The two other funds in Germany that I am no longer part of, they do their investing in Europe and in Germany.
VN: What are your categories of interest?
MS: I like to use the American phrase, we're very opportunistic.
A lot of people say it but if you talk to any of our founders and the team you'll find that it's really founder first. Sometimes they only have an idea, they have nothing on paper, certainly no product, certainly no product-market fit. We believe in the person. So, that's first and foremost because I believe you start on a journey together. I see it as part of a family, and you go through all the ups and downs together and I see my role as not only supporting them with our sales and our industry expertise, but to be there as a mentor as well. These founders go through a lot of ups and downs, they don't have a lot of people that they can openly and honestly talk to. So, if they give you a call on a Saturday or Sunday when shit is hitting the fan, they don't know where to release steam or pressure, I want to be that go-to person.
We'd never invest in hardware, it's too difficult, in many different ways. We don't invest in consumer products because that's not where the expertise of the team lies. We solely invest in enterprise focused software companies, so B2B SaaS, and that turned out to be extremely valuable during COVID, because, as horrible as it is, COVID really was an accelerant for our entire portfolio. Sales have never been as high as they were during COVID; the digitization process in all the areas that we bet it on, like in insurance, for example, accelerated. Insurance companies still use fax machines, spreadsheets and all that, and there wasn't a hard need for them to go to the next level, but COVID changed all of that. Suddenly, everybody was working from home, remote businesses still needed to continue etc. So, the bets we made early on really paid off. The last year was an extremely successful year for us, the year with the most investments.
Besides being B2B SaaS, the areas that we like to invest in is InsurTech. We believe insurance is highly underserved, very far behind in terms of technology adaptation compared to most other industries. So, we invested heavily; if you look at our portfolio late nearly half of our portfolio is in that. The second part we really like is PropTech and we believe that that's going to be the next InsurTech. It’s very similar to the insurance space but only starting now and picking up speed now. We've got a couple of investments in that space; for example, Leap, where DTC brands who don't want to manage their own retail footprint anymore, Leap fully takes care of that. We have Ender, which takes care of completely automating property management for commercial real estate, and Glide, which got bought by Compass. It was automating the residential transaction process. Those bets are slowly taking off as well, so we like to invest in areas that we believe are completely underserved and haven't pulled that attraction of venture capitalists yet. The nice thing about InsurTech is there aren’t other investors out there that actually know insurance, and can speak insurance language; it's very complicated.
VN: What's the big macro trend you're betting on?
MS: Last year, we all sat together and said, “Okay, what are we going to change? Are we going to change our investment theses, focus, etc?” And we decided that we're going to bet heavily, not only still on InsurTech, PropTech and B2B SaaS in general, but also in remote work, the future of work, and healthtech. We believe that that is only going to pick up. We'll never get back to where we were in 2019; you'll have a hybrid world where people do come into the office, of course. I miss it, since I'm an extreme extrovert, so I miss being around my team, I miss going into the office, sitting in the lounge area and just talking for four hours, having that genuine human conversation. You don't have that over Zoom. However, it has worked to the advantage of many startups. The world has become at the tip of your mouth, more or less. You can hire talent all over the world now and it's a lot cheaper. So, if you look at our startups, whereas they were hiring top tier tech talent out of San Francisco, or a sales team out of San Francisco, which is extremely expensive, they can now move out; they have sales teams in Arizona, Ohio, they have tech teams in Brazil, Lithuania, Romania, India. It's a similar level of quality, but at a vastly cheaper price and the startups that we invest in at a pre-seed or seed stage, they don't have that much capital yet to spend, so it works to their advantage.
Sales have gone up because you don't have the negotiation situation anymore in enterprise. Normally, as an enterprise sales guy, I would come into your office, we would sit at a table, it would be a negotiation atmosphere; now we're sitting at home, my daughter might walk in from behind, your guard is dropped, you're more relaxed. Nobody else from the office is going to come in here and place some other job or task on my desk that I need to take care of right away, so I'm no longer distracted, I can actually focus on this. So, the future of work and healthtech; companies like Modern Health are going to be the right way to move forward. For example, you don't go into hospitals anymore to get routine tasks done like getting your blood taken etc; instead, you can order it like you order a package at home, somebody comes into your home, takes care of that, it goes out again. We believe that that will be the future.
VN: What is the size of your current fund and how many investments do you typically make in a year?
MS: Right now we’re an evergreen fund, so we have a single LP with no restrictions; we can invest as much as we want. At the end of this year we're going to transition into a fund with other LPs and that fund will be somewhere between $75 million and $100 million US dollars.
We have done 30 deals since March of 2018. The reason why we kept it so low, why we only do eight to 10 deals per year, is because we generally want to be able to work with the founders. I said before that we really invest in the founders because sometimes they only have an idea, and we believe it's our job to really be there with them, alongside them, and help them in any shape or form. One massive part of that is sales. That is our DNA, my DNA, and we help them set up their entire sales process, so they can get from a value hacking stage, which is, ‘I'm going to get a product out there, we're going to test it, we actually have a customer that buys it, we got a product market fit,’ to the growth hacking stage, which is where you have to build it up in a scalable process to actually build this into a company to get that $1 to $10 million in revenue within 18 months. For them to be able to execute that properly you need to start early on and that's the real value add that we give.
Have you heard of Harry Stebbings’ the Twenty Minute VC podcast?
VN: No, I haven’t.
MS: It's a great venture capital podcast and Alyson from Modern Health was on that podcast, and she actually named us next to Kleiner Perkins and Founders Fund as the ones that helped them most and the reason why it switched from being a startup to an actual company was sales and the processes that we put in place alongside of her. So, if you do more, if you start doing this spray and pray approach, you don't have the time to really invest with that founder. Now, and later, in the fund, we're going to take a different approach, which is not typical for a seed stage fund in the US; we will go in early, with smaller check sizes, and we'll follow on in our winner investments and then follow on heavily in those and support them through their entire fundraising lifecycle.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
MS: Our initial check size is $250,000, it's mostly in the pre seed, seed stage. More pre-seed than seed.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
MS: The honest answer is that it's about the founder, because we actually invest in startups that have no numbers. Before COVID, we had a minimum of three meetings: one was in an office setting, where the founder came in and pitched their vision and themselves to us. The second was either lunch or dinner, we got to know the person even more, and the third was always a walk either in South Park or we'd go on a trail or we’d go to the beach. When you walk, everybody is more relaxed, the brain thinks differently than when you're in a pitch situation and then you generally get the feeling of someone. Do I trust this person? Is this a person that can captain the ship? Being a founder, building a startup, you're captaining a ship and for me it's like, do I believe that this founder is humble, is brave, understands his or her own weaknesses and strengths, is motivating, can hire the right people, can motivate the right people, can lead them, can retain that talent? And, can that person also let go? If you look at startups that fail early on, more often than not you have a founder that wants to keep the reins; they don't see or acknowledge their own weaknesses and are too afraid to hire top tier people around them and let them do their job and to let go. If you look at Alyson from Modern Health, for example, she knew exactly what her strengths were and she knew exactly what her weaknesses were and she was so character strong that she hired the best people around her to take care of that and she let go. The worst founder is one where the line in front of his office is so long because he or she needs to take care of everything, because they don't want to let go. They're setting themselves up for failure. So, it's really, truly to understand if that person has all those character traits, the principles, and is just genuine. I know what my weaknesses are and what my strengths are, and I hope that they are able to convey that.
Of course, never forget, we're not philanthropists doing investing. A lot of people look at five or 10 years down the road; the only thing that you can do as a pre-seed or seed investor is, do you believe that this founder will be able to convince not only teams, hire people, etc, but will this person be able to convince top tier investors for the next round? Will he or she be able to convince other investors in their idea and their vision? Because when they reach seed they might have a little bit of traction, but it's still not substantial. When you get in the seed extension, seed growth, as they call it now, then you'll see you have product market fit and then you use the Series A to scale that up.
VN: What do you look for in terms of the product and market?
MS: Market, of course, is a given. You have to trust the founders, but we do our own research, our own background, on the market to see if it's large enough. We always do reference calls; they tell us what type of customer they're going out for and we try to contact similar customers. I just ask them, “What are your pain points? Is it actually true?” or “What would make your life better, faster and more efficient, cheaper, etc?” We try to find out if somebody really needs this. The co-founder of Benchmark once said, “If the customer doesn't scream when you take the product or service away, then you don't have a product market fit.” I heard that sentence and I thought, “It's spot on,” I could not put it any better, so I want to invest in founders, but also in their ideas and then the products that people actually need. I want it to be a “must have,” and not a “nice to have.” That's why we filter out so much. I mean, we saw over 3,000 deals last year, but we only did 10. We stay rigorous in our entire investment process, and, at the end, everybody has to vote “yes.” If one person votes “no” then we do not do the deal. Everybody on the team, doesn't matter what level you are, if you're a junior associate or a partner, it doesn't matter, everybody has one vote, and the vote counts the same. So, we’re either all super excited about it, and want to work with this founder, or we don't do the investment and that's why we only do eight to 10 deals per year out of all the deals that we see. That's how we make sure we invest in a “must have” and not a “nice to have.”
VN: You said earlier that your companies are doing better than ever. At the beginning of COVID there was a fear that things would slow down or stop entirely; that obviously didn’t happen. So, where are companies now in terms of valuation?
MS: We've been having a team discussion about this now for six weeks, because it's a real issue if you invest in pre-seed and seed. The reason is this: if you look at seed valuations now, those are former Series A evaluations, and when I say former, I mean Series A valuations from two years ago. Already then we saw the issue that the Series A valuations were going up so much, and the seed valuations were still fairly normal, so the startups were having difficulties getting from their series seed money to the Series A expectations. That's when the whole concept of seed extension, seed growth, etc came about, which we all used to call bridge investments, bridge rounds, but now that has become normal.
Now, because a lot of funds have more money than they've ever had before, and they weren't able to deploy that money last year like they normally would have, they are actually going into earlier stage deals where they would normally not go and leading that round. We've actually been seeing top tier funds going in, taking a whole seed round, and that being at a valuation of $20 million. That's insane: $4 million on a $20 million? So, we've been really seeing, in the last weeks, the valuations really going up.
A general meter for that is always Y Combinator: if you look at demo day there and you look at the post save notes, caps, etc. it's only been going up since their first virtual demo day in August of last year right. The caps have just been going up because there is so much capital available, and not enough money has been deployed, and these larger funds are coming in down the food chain and deploying more capital, and taking these rounds. The founders, they hear that shiny name, they see that valuation, they feel fantastic, so they're going to take it but what they don't get is that they're making a promise that they're going to get to a certain amount of revenue, a certain amount of customers, a certain amount of traction, a certain degree of product, within 18 months. More often than not, we see that they won't make that promise, and then we're going to see a lot of down rounds, because they see the shiny number now, but they don't fully understand the consequences of that.
VN: I feel I've been hearing that for a really long time. Do you think it's worse than it used to be?
MS: Yeah. Last year, I remember this vividly, if I shared our deal flow chart with you, we track everything rigorously, you'd see everything was going normal until March. Then quarantine hit, and then boom, no deals, nothing was coming in, and then it slowly picked up again. At that point, everybody was afraid, everybody was going, “Do the companies have an 18 month runway? Yes or no? What do we need to do to help them to get there? Do they need to fire people? Do we need to make hard decisions here?” It turned out all the worries were wrong, because every single one of our portfolio companies excelled through the pandemic: they got more money offers than they ever had before. It was easier for them to raise money, they've raised higher valuations than before, their sales numbers went up. So, it just went up from there and it's just gotten more crazy year after year, in the last three years, I'd say. We started at $8 million and now we're at 20 million, within three years. It’s crazy.
VN: Do you think that that's eventually going to collapse or what's the end result of that going to be?
MS: This will go on somewhat throughout this year and then things will slowly start to normalize because the funds will have deployed their money. You'll see that a lot of startups can't live up to the promises they made with that figure and slowly things will start to crumble. We're going to stay true to our strategy, and we're not going to play that game. If we miss out on a deal because of it, so be it. Sometimes not doing a deal is the best deal.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
MS: First, our LP base is probably a bit different from most seed stage LP bases in the U.S. because most of the capital comes from outside of the U.S.
What is compelling to them is that we bring the global investment mentality, and the non spray and pray mentality, to the U.S., where they all want to be. What they don't like about many of the U.S. funds is the numbers game, where it's “we'll invest in 70 companies a year, the chances increase that there will be two or three that will return the fund.” What they really generally want is to understand the ecosystem, to have a genuine conversation with you about where the trends are going, what you're seeing, to actually learn from the United States, and the startup ecosystem there, to have somebody that actually invests in their interests. We’re B2B SaaS, and we invest in InsurTech, PropTech, HealthTech, and those are certain verticals which attract certain LPs. They could call any one of our founders because I know that every investor will say this, so it's better if it comes from the founders than it comes from me, but it’s really our incredible sales and PR support that we give all of our founders. We specialize in certain industries, such as InsurTech, where we have more knowledge than many out there, and this is something that I can talk about for hours, but it's best said by the people that actually experienced it.
So, we will bring a value add to our LPs by transferring knowledge back to them so they can involve themselves, not being a spray and pray mentality, and by working closely with our founders, investing heavily on our winners, and building out our sales and PR support to all of our founders.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
MS: We were totally different from every other fund out there from the start because we had no brand. We had to build up the name ourselves, so that forced me to actually pitch to founders. We had turned the tables from the start and it was a bet that I took, which started with Alyson from Modern Health. The original Y Combinator model was you had Demo Day and then, on the third day, you had a pitch day, which was like speed dating. You would match with other founders and then we'd go to their table, they'd pitch you for 20 minutes, and then you'd say “yes” or “no” and you'd leave. There were all these top tier American funds, and when you saw the companies on stage, it was easy to see that there were a handful of people that you wanted to talk to you and, more likely than not, others would want to talk to that person too. So, when I was walking to Alyson's table, I was like the second to last of that day that she needed to talk to, and I saw how exhausted she was. Our original game plan was the same game plan that everybody had: let her pitch, see if it's interesting, and then say “yes” or “no.” But when I sat down, I felt it wasn’t right, so I turned the tables and I told her she could lean back, drink a bottle of water, I'll pitch her and if she likes what she hears, then I'd invite her to come into our office and meet the entire team, besides just me, and then make an informed decision on whether or not she wants us to be part of her journey. So, I pitched her who I was, what we can teach her in sales, why it's important, what we can do there. And I walked away from that meeting and Lauren Pfeifer, one of the very first hires, she went, “Mark, what the fuck? That person is never going to call us, why did you do that?” (laughs) Then we walked out, and Alyson wrote a text message saying, “Are you at the office tomorrow? We'd love to come by.” She came by and we're in the office I think for two hours brainstorming and talking and we were one of the very first checks she took. So, that worked out really well. Since then we’ve worked super close with her because she was getting so many leads, but not closing them. She didn't know what was going on so we set up their entire sales funnel, their pitch, and all that, and the rest is history.
We've been doing that with every single founder, because it's a two way street; what good is it for me to invest in that founder and have no relationship with that person? That's not our style. That's why we only do eight to 10 investments. I truly am friends with most of our founders. I've been to their weddings; I’m going to the wedding of Matt Watson from Origin in August. So, we've become really close and I see myself more as a mentor and friend than anything else.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
MS: Well, it's 30 companies now, and I'd have to say all of them, to be fair. But how about I just do it in reverse order? Of course, I can name all the big ones that are doing extremely well, etc, but maybe it's more interesting to look at the last investments that we made, which are all bets, if I may say that, on what we believe is going to be the industry that's going to be ripe for change.
We've talked about the future of work and we invested in Epoch, we invested in OfficeTogether. Two phenomenal female founders that are there to ensure that teams accelerate, that people are able to work together in a hybrid world, and they're doing a phenomenal job. We invested in just them having an idea, without any traction, and they're selling like crazy right now because it's exactly what people need. Then we invested in Rumby, which is revolutionizing the laundry industry and laundromats. Who would have thought? Laundromats work with spreadsheets or pen and paper etc, so Rumby takes care of their needs and the fully digitizes them and actually helps them ensure that the customer can have their laundry picked up and delivered at home, at the tip of their fingers, at their convenience. This folds into the trend that we believe is going to go into the healthtech space as well: you want to have a certain type or service not tomorrow, not the week after, but now, when I want it. It's the Netflix model which is, “I don't want to have to wait another week to watch that episode, I want to watch it now.” So, it becomes, “I don't want to have to go to the hospital in two weeks to get my blood work taken, I want to have it done in an hour, and somebody comes to my home.” So, Rumby was the bet, not only on revolutionizing the whole laundromat industry by bringing them to the digital world, but also, from a customer perspective, that if I wanted it done now, I can actually get it done now.
We also invested in Mate Fertility, which is an area that is very close to my heart, and turned out to be a phenomenal investment in two great founders. The company is ensuring that everybody that wants to have children, but is going through a difficult time, doesn't have to go to specialized clinics, which are focused on the coasts, but actually can go to their gynecologist, their OBGYN, and turn that into a fertility clinic. That is completely novel. It's a monopoly of a handful of people that run the space right now in the U.S., and they can turn every OBGYN into a fertility clinic. They started out in a handful of states and now they're rolling out throughout the United States.
That is especially close to my heart because my wife and I had difficulty having kids. Luckily, we didn't have to go that route, but many, many, many friends around us have done that and, if you ever are in that situation, it's gruesome; you don't know how it's going to turn out, it's very expensive, and if you're in Ohio and you have to travel to LA to get that done, that just puts a lot more stress on you. One of the biggest factors in the whole process is stress. So, helping people to fulfill their family dreams, that's been a phenomenal investment.
VN: What are some lessons you learned?
MS: Trust your gut. We've made about 70 investments in Germany now, and 30 investments in San Francisco, and if I look back at the mistakes we made in Europe, which I told the team we're not going to make in the U.S., it’s that wanting to make the deal is not more important than trusting your gut. At a certain level, at a certain age, and with a certain instinct, and with a certain level of expertise, you should really believe your instinct, because every time I didn't, it went wrong. Something was off; you felt it wasn't right, but the market was there, the product was fancy. You wanted to do it, you wanted to believe it, but you shouldn't have done it. That's why we have that every person has one vote, because then we make sure that, at the very end, we all look into our eyes and we say “yes,” because if one person says, “I'm not sure,” then we just don't do it. That's why we have that fail safe in place. The last question I ask the entire team is, “Would you let this person into your home? Would you introduce this person to your family? Yes or no?” If it's “no,” we don't invest. So, that's the fail safe for that.
The second thing is: don't waste people's time. I read a statistic that interviewed I think 3,000 or 4,000 founders, and the question was, “What is the biggest value-add an investor can bring?” I was, of course, expecting them to say it was some sort of expertise, support network, and all that.” You know what was number one? "Be punctual to meetings." Isn't that crazy? “Don't waste my time, be respectful of my time.” So, actually care, because what does that translate to? If you're late to that meeting, you're literally saying to that person, “You're not that important to me. I don't care.” So, you really need to care and that's what we say as well. If we don't feel it's the right fit, then say “no” right away. Don't string people along, don't hold the carrot in front of their face and say, “Oh, yeah, we're going to look into it more, we'll get back to you next week,” and then next week becomes two weeks. These are people that have their whole vision in front of them, they're putting their hearts on the table, they're building their dream, and then you're stringing them along. That's just not right. We had to learn that as well. Saying “no” is hard, you never want to disappoint people, but say “no” and say “no” fast.
VN: What excites you the most about your position as VC?
MS: This is the greatest job on earth because it doesn't feel like a job; I am listening to people that have dreams and visions and are willing to put everything they have at stake to achieve that and I fundamentally respect these people. They are willing to do that and they put themselves out there, and they're actually trying to change the world. Some try to make it a better place for all of us, so it's really about the people, the team mentality.
The way MGV is built, it's a family. If any one of my team members have an issue, I would be on the next flight out, and I know they will do the same for me and have done the same for me and my wife. It's really about helping people succeed, grow, and bring their dream to life and if you see that happen, then you just feel good. If it doesn't happen, then you're there for them, then your real value-add comes out, and your real character comes out, when you helped them through hard times. They will lay in bed, at some stage, not knowing if they can run the payroll the next week, and do they turn to? Who can they generally be honest to you about their feelings? We hope that we're those people.
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Joined Vator onMarc is the Managing Partner & Co-founder of early-stage VC, MGV (Maschmeyer Group Ventures). Marc served as the Head of Global Sales at the Maschmeyer Group and was an investor at Seed + Speed Ventures before co-founding MGV.