“Investors are Interested in the Team” – A Talk With Sven Schielke From nextFATbusiness
The topic is an exciting one: Matching startups that need capital with investors looking to invest in a good idea. This is exactly where nextFATbusiness comes in. Munich Startup met up with Sven Schielke, one of the initiators, to talk about the idea behind nextFATbusiness and the Munich investor scene in general.
How did nextFATbusiness come to be?
I first encountered venture capitalists, business plans and the enthusiasm shared by startup teams while implementing my own projects. When I was in London, I saw “Dragons’ Den,” which was the show that led to the German version “Die Höhle der Löwen.” I was inspired by the concept behind it and thought: We should have a variation on the same idea in Germany. People with a good idea could be given 10,000 euros and then you say, “Now get started – no more excuses.” It might sound a bit too simplistic, but that was how it started.
After that, I founded nextFATbusiness. In the beginning, nextFATbusiness was a website where startups could introduce themselves. It gave them a platform where they could adjust their business plans while also presenting themselves and their ideas. To reach the negotiation rounds, which are the next step for receiving capital, the companies had to get as many votes as possible using voting buttons. The crowd concept played an important role in the process. However, two factors prompted us to modify the nextFATbusiness concept. On the one hand, the crowd’s assessment is of course not always right, especially when the total number of votes is not very significant. On the other hand, the projects being presented on the platform were becoming less serious. Some of it was really a waste of time. As a result, we decided to establish nextFATbusiness as an offline project. This shift in direction has paid off. We have since hosted eleven Grill Meetings (editor’s note: pitches) in Munich.
Startups can apply to participate in your Grill Meetings free of charge. What criteria are used to select the participants?
We are interested in startups that are not too niche-oriented, but with an idea that is not just another delivery service. We get really excited about startups that discover trends – a current example is blockchain. The same startups have the potential to really mix things up in the market. An additional factor is that the necessary capital should not exceed 500,000 – 600,000 euros. For valuation, startups should also not call for more than three million euros. Anything over that quickly makes them uninteresting for business angels and investors in the audience. Of course, we also work with teams that do go over that amount. In such cases, we connect them directly with investors who might be interested. Our big advantage is that we personally know all of the investors. So far, we have also always made sure to find a good combination of all of the industries that are relevant to the startups for the Grill Meetings. We could also imagine organizing meetings that would be specific to one industry or country. What we find less interesting are startup teams exclusively from universities. We believe the chance of success is significantly higher with founders who already have work experience.
Do a lot of Munich startups contact you?
Yes, quite a lot of Munich-based companies contact us. That is because we are predominantly working with Munich investors at the moment. Then they put us in contact with startups from Munich or recommend us as a platform for Munich startups.
What normally happens during a Grill Meeting?
Teams who want to pitch for capital go through our intense casting process beforehand. There are two partners: Stephan Galleitner and myself. Both of us speak with the teams separately from one another. Both of us have to give a thumbs up, otherwise the team will not be invited.
During an actual Grill Meeting, normally three of the selected startups make their pitches. Relatively speaking, we give the teams a lot of time, a total of about 40 minutes. That clearly differentiates us from conventional pitching events, and the investors think it is great. The teams first introduce themselves and their project, and then the investors are able to ask questions. The team then leaves the room, which allows the investors to discuss the pitch in private. The request to have an “intimate” round came from the investors. Of course, this kind of mutual exchange only works when the audience is not too big. That is why we do not intend to turn nextFATbusiness into a huge event. We want it to retain its informal character. However, that does not mean it should be exclusive. The event is certainly open to welcoming new investors.
What is important to investors when they want to invest in a startup?
The first thing they look at is the team! That is the reason why we stopped inviting single founders to the Grill Meetings. You need to already have a team that brings along the essential skills and know-how. Certain skills might be missing, but that can be balanced out with additional employees. However, the gaps should not be all too significant. That is also why we decided that a pitch has to be prepared by at least two team members for a Grill Meeting. That gives investors a first impression of how the team works together. Does the startup have good chemistry or not? The team has to work together well. Investors are often initially more interested in the people who are behind a startup. Then the idea comes in. Why? Because a good founder can still turn a bad idea into something good. A bad founder can ruin every good idea. The team is decisive.
How do you make sure that startups and investors who meet at a Grill Meeting and would like to work together still keep you as their intermediary?
We first thought about requiring a contractual commitment from startups. But then we consciously decided to not take that route. That would contradict the spirit of nextFATbusiness. Our concept is based more on trust. It works on the one hand because we know most of the investors personally. On the other hand, we brief startups in advance about the procedure for follow-up negotiations. Of course we cannot stop people from sidestepping us. Still, we do not want to require a contractual commitment.
What do you have planned for nextFATbusiness?
nextFATbusiness is a commission-based model. That means we earn a commission from the financed amount. The Grill Meetings serve as the core where startups are able to excite investors in the audience, and both parties then meet at the negotiation table. It can be a real challenge to make money with our concept. For example, you might get one deal for every two meetings. As a platform, you do not really earn all that much. As a result, our future plan is to not only function as an intermediary between teams and investors, but to also be an intermediary between the investors. The basic idea is that you often find investors who have a startup in their portfolio that no longer fits their concept, for example, so they would like to sell it. Because we are familiar with other investors’ portfolios, we can help make successful matches. That will make us a secondary market for venture capital. In the medium term, we are also planning funding structures for seed and pre-series A companies. We see so many teams in Munich now. Some of them are then invited to large events, such as Bits & Pretzels. One team was even on Höhle der Löwen (the German version of “Dragons’ Den”) after a Grill Meeting. We have a very good nose for finding teams with potential for success, and we plan to use it accordingly.
How would you assess the Munich investor scene?
I think that the investors in Munich are very well networked with each other. That certainly is partly because Munich does not host a huge number of events such as the Venture Capital Club. At first, I was still confused by the seemingly large number of events and networks. But as time goes by, things start to come into focus and you realize that the number of serious groups is actually relatively low. Everybody in the scene knows each other, and I think it has remained very down to earth. We still interact with each other on a level playing field here. That is also important to us at the Grill Meetings. When founders and investors come to us, they should always meet on equal footing. The aim is to find partners – NOT in the sense of supervisor and personnel.
How would you assess Munich as a location for startups?
From an IT perspective, Munich can be a really strong location. I am not referring to the copycat scene, but instead to more complex IT applications. Munich offers an environment for that, especially thanks to the exceptional array of universities in the area. When graduates join forces with experienced founders, it can lead to productive and promising collaboration.
What would you like to see added to Munich as a location for startups?
I would like to see an institutional exit strategy. I find it downright negligent to leave this area up the Frankfurt Stock Exchange and their half-hearted implementation.