An interview with Christian Buchenau of Berlin based Paua Ventures.
(Photos: Paua Ventures)
Berlin-based European venture capital firm Paua Ventures raised its debut institutional early stage fund (Paua I) with a first close of $45 million in late 2015. The firm is looking for European startups in areas such as Software-as-a-Service (SaaS), B2B-marketplaces, B2C mobile, mobile enterprise solutions and e-commerce 2.0.
We talked with Paua’s partner Christian Buchenau about the investment firm and startup scene in Berlin.
What was the real beginning?
We started six years ago. I think what is pretty special is that Moritz, Christophe, and myself all know each other from high school. For example, Christophe and I lived together in Vienna, so we are really best friends. Christophe’s family had founded one of the big retailers some years ago, so he had some money. We used that money and started six years ago. It was two million euros and then we did our first investment. Not in the garage but in the kitchen of Christophe’s house. We didn’t have any clue. We didn’t have a very broad vision. We just started and put a lot of passion into it, because what we realised was that European, especially German, venture capital was not very professional. There were a lot of people but there was not a lot of money. People who were working in the industry were very arrogant because there were a lot of them. We didn’t like the attitude at all. We always saw ourselves as a service provider for our companies – we would just support them however we could. I think this is pretty entrepreneurial, and this is how we see ourselves. This was always our credo and this is how we wanted to build up the company.
Have you been able to keep that through the years?
Absolutely. This is one of the most important things for our company. I fired two interns last year because they really thought they could be arrogant to teams here. We see so much talent, so many dedicated people here, so many young people who are risking everything, who are living for their companies, who are living for their idea. Who are waking up with their idea, going to sleep with their idea and why in the hell should somebody who listened to that idea for, I don’t know, 60 minutes or something, think he can be arrogant about that. No matter if we think the idea is not very good or whatever. In my point of view it’s very important to build a network – being arrogant doesn’t help. We even support teams we are not investing in because we think that this will come back to us.
It’s not a huge investment, it doesn’t have a short-term return on the investment. This is what we’re realising right now. We get contacts, in terms of deal-flow and in terms of fundraising, in other terms too, from guys we have talked to years ago but they still remember us because we did something for them as a favour and so it all comes back. We really think this is one of the most important things in our industry now.
Is this the source making Paua special?
I don’t know if this is special. This should be normal to be honest. It’s always easy being on the bright side, right? I think what we have learned as a very, very, very small fund with two, three, four million euros, is that we were dependent on bigger funds, to get the funds in. We were in the same boat as investors and we learned a lot. It shouldn’t be special, but somehow it is. It’s our way and I think it’s the right one if you want to build a really good brand and a good reputation. I think that’s the key. It’s one of the key principles for a venture capitalist, knowing the right people, having a good reputation, and getting the best teams in front of you.
Now the new fund, which you announced in December – is that basically lifting you up the league in the investor’s scale? From the few million to the few tens of millions you’re now investing. What does it change?
Well, I think one of the most important things for us is that we can follow up now. This reduces the pressure and improves our bargaining power a lot, in terms of new investors coming into our portfolio. We can just tell them, “Guys, this is the deal and I think we have a very good team, a very good company here and we would like to raise five million euros”. Before they could say, “Okay, what are your options? Your options are we invest or you go, right?” Now we can say we have a third option, and say, “Fuck off. We will do it on our own, okay?” This is very, very important. What is important is that you have more options. I think this is the most important point. We will invest into 20 – 25 companies, Europe-wide. Now we have the option to look proactively for deal-flow. We are planning to go to Eastern Europe and other companies with great technical involvement.
I think this will change things. It’s also good to build up a trust structure here, for us. We are really bootstrapped; we get paid a very small salary. We have computers which are five years old now. It’s good being able to travel and just build up the infrastructure for our professional lives, doing deal-flow practices.
With these 20 – 25 companies – what would the ideal candidates be like?
What we are looking for are business models which have a great view of economics and whether it’s scalable. When you scale the business, could it be internationalised? We’re looking for teams and second-time or third-time founders which are complimentary. A lot of tech stack within the team, but also execution skills, which are very important for us. This is the kind of business model setup we like a lot. It could be intended for software servers, it could be in mobile, it could even be in hardware. We are pretty open to that. We don’t have e-commerce experts or server experts here, like they do in other funds which are really specialist in that business model. From my point of view, when you’re in the early stages it doesn’t matter that much because what you have during the first two years is pretty similar whether you do software and server or e-commerce, because you just have to build up a company, right?
It’s 50 – 60 percent to just setup a company, and then obviously after a certain time period you specialise and you need more knowledge of the specific technical area. That’s why we’re pretty open and open-minded to take those businesses, which we announced in the PR during the first round.
How would you describe the current state of startup investments in Europe?
I would say that from my point of view there is no better time to start up. It has never been cheaper to set up international business – everything is possible right now. I think the most important point is that in we are in Germany. People here are very conservative but people are also now open-minded. People who would do only corporate investment banking, who held the same careers for the last 25 years, are now open-minded to go into startups. This opens you to a totally new group – a lot of great, great skills, great people and that kind of stuff. This is what people have just realised: that startups and ecosystems have got a certain reputation, which not only comes to people who were open-minded for the last 25 years about startups, but who were also corporate. I think this is very important.
The second thing is that Berlin is a magnet for talent right now. From Southern and Eastern Europe, they come from all over to be here. International investors are coming in and a lot of new local investors are popping up also. There’s a new generation of VCs, which is very, very good from our point of view. We don’t see them as competitors, we see them as colleagues and we talk to them every day. That’s very important. Also, international investors from the UK, of course. And not just from Europe but investors from the U.S. are coming in. What we are also seeing is private equity funds, so very big funds, with the power to invest who make a lot of investments. This all creates a certain competition, which is very, very good for us, because more money is available.
Obviously setups haven’t been any better and therefore we’re seeing not only clones, not only execution startups, but tech ones and substantial business models so I think that there will be some great companies within the next two or three years, yes. They will have great experts, but will have the expertise as well.
We talked in detail about the Berlin investment scene changing. What about the startup scene? With the new people coming in, what changes have you noticed in the Berlin startup scene over the last year or two?
I think it becomes more international, much more international. Nobody here speaks only German anymore, which is very good – even in bars and restaurants. I think that more money is coming in. If you look at Delivery Hero, it’s a very good example. I think 220 million euros was pumped into the ecosystem. You see a lot of angel money, which is great. We see that even the corporate Germany, which is performing pretty well right now compared to other places, has become interested in startups, so they are looking for opportunities every day. They are setting up accelerators and incubators, they are attending conferences and all that stuff. They’re investing into venture capital funds.
The ecosystem is becoming more mature and more substantial in my view, which is great. Still Berlin, I think there is no better place – I think Berlin is one of the few cities where you can start a worldwide startup, because it’s the only place you have natives with four to five years of experience in all the online skills you need. I think this is something, I don’t know of any other city which could have that kind of setup. Even London, New York and San Francisco. They have higher prices, obviously it’s more international, but you don’t have the skills. Therefore I think Berlin is the perfect place to set up your startup.
You’re coming back a lot to the people and to the skillset of people. I assume when you scan the teams to invest in or scan the startups to invest in the first thing you are looking at is the people.
Early stage investing or seed investing is all about trust. Trust that people could fulfil what they’re talking about and therefore the trust in the team. 50 – 60 percent of that is not researchable, I would say. It’s empathy and it’s references and it’s trust and feeling the team.
What is the most unique or strangest place that any startup has pitched to you? Have you actually heard an elevator pitch?
Yes, I have and I was on the toilet and somebody stood next to me and talked with me about it. It’s everywhere.
Yes, somebody mentioned that they have even organised pitching contests in the Eiffel tower elevators, and of course in Finland they have ice-hole pitching contests, which is rather unique.
Okay. That could be interesting.