Last January, I took an in-depth look back at our first year at Speedinvest Marketplaces & Consumer. I received a lot of great feedback, so I decided to make the review an annual tradition. There’s a lot to cover, so I’ve split this year’s look back into three separate posts and changed the structure to better align with our day-to-day business operations.
The three-part series will follow the actual investment process in chronological order: from deal flow (Part 1) to portfolio management, i.e. new and follow-on investments (Part 2) and, eventually, everything that is related to running the fund itself — team, events and LPs (Part 3). FYI: Once the full series has been published, I will include links to Part 2 and Part 3 in this post.
Background: Speedinvest Marketplaces & Consumer was launched in late 2017. While 2018 (our first full year) was all about building our foundation and growing the team and portfolio, 2019 was all about proving we’re able to create value for both our founders and our limited partners (LPs). Hence, we focused a lot on growing and supporting our portfolio companies. But, as you’ll see, there’s much more to our 2019 story.
In 2019, we were in touch with 1,763 companies. That’s an increase of +54% compared to the previous year. Of those, 1,422 companies were newly added to our deal flow. That means, on average, +119 new investment opportunities per month and a year-on-year increase of +88%!
Looking at the monthly development of our deal flow, in addition to the seasonal summer downturn, we also observed a clear slowdown toward the end of the year. We “only” received an average of 74 leads per month over the last 3 months of 2019 — if you exclude positive, one-off effects from our semi-annual The Marketplace Conference. This is rather unusual and might indicate a general slowdown of early-stage founding activity by marketplace & platform founders (in Europe). But that’s pure speculation for now. So far, 2020 is off to a strong start and we’re excited about what the new year has in store for us!
Please note: All numbers are exclusive of any clearly dubious requests and solely focused in the Speedinvest Marketplaces & Consumer investment arena, i.e. early-stage startups built with strong network effects potential — typically in the marketplace or platform category. Obviously, this is only a portion of our overall deal flow at Speedinvest, which is approximately 3 to 4x higher.
In 2019, approximately 675 (47.5%) of the 1,422 new companies who pitched us graduated to our Long List status within the 2019 calendar year. At Speedinvest, being added to the Long List means at least one member of our investment team talked with the founders via a phone call or meeting. The Speedinvest Marketplaces & Consumer investment team included 6 to 7 full-time employees last year, so each of us averaged nearly 100 calls or meetings.
From those 675 companies, 197 (29% of the Long List or 14% of the Top of the Funnel) made it to shortlist status, which includes calls or meetings with several members of the investment team and an in-depth team discussion during our weekly internal deal flow meeting.
Speedinvest Marketplaces & Consumer only made six new investments in 2019, so just 3% of shortlist companies (or 0.42% of Top of Funnel companies) eventually received an investment from us. Taking all companies that we’ve been in touch with throughout 2019 (1,763) into consideration, the “probability” of receiving an investment from Speedinvest Marketplaces & Consumer decreases even further to just 0.34%.
Thanks to Paul Murphy, I finally have a benchmark for how this compares to another European VC fund. Shout out to Paul who recently shared via Twitter that Northzone invests in “0.3% of the companies they (we) see.” That seems pretty much in-line with what we, at Speedinvest Marketplaces & Consumer, observe and do at Pre-Seed and Seed stage.
If I compare our actual deal flow results to our initial plans & forecast for 2019, I’m rather happy with the outcome. At the beginning of the year, our goal was to be pitched by 100 companies per month, which we exceeded by almost 20%. In fact, we had a closer look at more teams and companies than ever before, across all stages of our process. At the same time, we became even more “selective” ( ⇒ only investing in 0.34% of the companies we saw), which should serve as a fairly good early indicator of quality.
That said, I am pretty sure that we missed some great companies along the way. Companies we saw but didn’t invest in. Companies we saw too late or, even worse, we didn’t see them at all and weren’t even able to invest. I’m planning to share more insights on our so-called “anti-portfolio” in a blog post soon — stay tuned!
Side note: I’m totally with Paul who, in the same tweet, mentioned that VCs do not serve as a great source of validation for founders and their startups, as our processes are flawed. Hopefully, blog posts like this one help to shed some light on our processes, create more transparency and, as a result, help to eliminate some of these flaws. So, if you spot any or have other suggestions, please comment below or shoot me an email!
Now, some not so sunny news. I have to hold myself and the Speedinvest Marketplaces & Consumer team fully accountable for our poor “response times” in 2019. As I mentioned in my previous annual review, it is our KPI (“average day at status”) that we deeply care about, and we are not happy with our performance in 2019. As seen in the above chart, we increased waiting times at all stages — especially at the middle of the funnel which, at the same time, saw the most growth. This is likely the result of a significant increase in deal flow (+88%) while, in parallel, our team had to get up to speed (we doubled the Speedinvest Marketplaces & Consumer investment team in one year!)
The total average time from initial contact to investment (i.e. signed term sheet) decreased by 12% to 46 days for the six deals we completed in 2019. The shortest process took just 19 days to term sheet, while the longest took 78 days (due mostly to Christmas break). Overall, we became faster at doing the deals we got really excited about, but we did this partly at the expense of letting other founders and companies wait too long.
I would like to use this as an opportunity to sincerely apologize to all founders and teams that waited too long for an answer from us last year. We’re aware of our shortcomings, and we are working hard to improve. This primarily applies to founders that were added to our Long List and shortlist (above graph) in 2019.
While the opportunities we decided not to pursue waited, on average, 19 days (2.5 weeks) to receive a final answer, we struggled to respond as quickly to Long List and shortlist companies. This is largely due to the fact that we added significantly more companies to those lists in 2019 than compared to 2018 (in absolute and relative terms). We promise to do better in 2020, and we are actively working on improvements. In fact, we just launched a new CRM tool, which will help us better track, organize and respond to founders who reach out to us in the future.
In terms of geographic breakdown, here are the ten countries where a majority of our deal flow originated in 2019:
Approximately 86% of our total deal flow in 2019 originated from these ten countries. The top three countries (Germany, UK & USA) collectively contributed to over half of our total deal flow (53.5%). While Germany remained number one, and maintained the same relative contribution as it did in 2018, the UK increased by more than 4% points to +20% of overall deal flow. This can easily be explained by Magda Posluszny joining the Speedinvest Marketplaces & Consumer team at the beginning of 2019. She is based in our Speedinvest London office and is doing a terrific job.
Meanwhile, deals originating from the US almost halved in 2019 (in relative terms) to just 11% of our total flow, due to the strong absolute increase of leads from other countries. Overall, we received pitches from more than 40 different countries! Note: Numbers are an approximation, as we only have accurate geographic data for approximately 87% of our total deal flow.
Last January, we set out to originate more deals from the Nordics, Spain and France. Looking at the above chart, that has definitely come to fruition. Sweden, Denmark & Finland now rank in our Top 10 and collectively account for 12% of total deal flow. And Spain and France both rank among the top five. That said, in 2020, we hope to double down on our efforts in the Iberian Peninsula, and in France, as we have only yet scratched the surface in both.
Looking at the various top-line sources of our deal flow at Speedinvest Marketplaces & Consumer in 2019:
From 2018 to 2019, there were only minor changes to our sources, but there was one striking development: Deal flow from friendly investors doubled from 6% in 2018 to 12% in 2019 (“Network - VCs”).
At 26%, inbound deal flow remained stable, while outbound increased from 33% to 36%. That’s good news! We set a goal in January to increase outbound via an increase in outbound activities. We’ll continue this push in 2020 and our semi-annual The Marketplace Conference will continue to play an important role. FYI: MPC San Francisco is in March!
Finally, I couldn’t write an annual review without taking the time to thank everyone who shared or signed a deal with us in 2019 — be it founders, angel investors, LPs or other VCs. Thank you very much for choosing us a trusted business partner! Our continued success is dependent on your continued support. To return the favor, the entire Speedinvest Marketplaces & Consumer team will continue to work hard on your behalf and share interesting opportunities and ideas with you whenever possible. We’re excited to continue working together in 2020!