Investor Ronald Paul: “The Use of AI Alone Is Not An Innovation”

How does a startup become successful? What does a good ecosystem look like? And what trends are founders and investors focused on? We spoke with the successful founder and investor Ronald Paul about the startup scene in Munich and Germany.

Munich Startup: You were a founder yourself before you launched Muzungu Capital and became an investor. What motivated you to take that step? 

Ronald Paul: Exactly, I like to say that after the exit is before the exit, only I changed sides after my first big exit. I became an investor after I founded the performance agency Quisma, successfully built it up internationally and sold it to GroupM/WPP. Since then, I’ve seen myself as a founder for founders. 

I love driving innovation and view the specifics and requirements of the different areas we invest in as an exciting challenge. I know from my own experience what it’s like to start a business and what an emotional roller coaster ride it is. Investors who have founded their own companies can be valuable partners. They have a good network, know a lot of successful founders and have important contacts in the startup scene. They’re more of a mentor than just an investor. 

Munich Startup: Are former startup founders better investors? 

Ronald Paul: Whether former founders are better investors is debatable. What’s certain, however, is that former founders have a very good understanding of where a startup stands and what it needs. They’ve made mistakes themselves and can help other founders avoid stumbling blocks. They also know what works and can give practical advice. As an investor, I’m a sparring partner for founders. I not only provide seed capital, but also give support in the form of expertise and access to a global network of partners and experts. Especially for early-stage companies, advice and connections are every bit as important as secured financing. 

“For me, the team behind a startup is the most important factor” 

I only invest if I am convinced that I can help a startup beyond financial investment. I always have to be close to my investments in terms of content and people so I can realistically assess the status quo and future potential. 

Munich Startup: How do startups win you over with their ideas? 

Ronald Paul: For me, the team behind a startup is the most important factor, followed by the vision, the marketability of the idea and whether an actual problem will be solved. I make sure the founding team has the right balance of technical and business knowledge and that they’re authentic. As soon as the founding team has won me over, I analyze the company’s business plan and make sure a convincing monetization approach is recognizable right from the start. Important milestones, targets, a break-even analysis and how the risks and sustainability of the company are dealt with have to be defined from the outset. 

Munich Startup: To be successful, a startup needs to … 

Ronald Paul: … function like a close-knit kitchen crew. A successful business model is like a good meal: It needs the right ingredients and a balanced mix. An innovative idea forms the basis, and technical know-how and solid management are the spices that put the finishing touch on the dish. If you neglect one ingredient or focus too much on another, it will go wrong just like a salty soup or an undercooked roast. A good founding team is like an experienced, award-winning restaurant. Everyone knows the right ingredients, knows how to combine them perfectly and knows exactly what they have to do. With a smart monetization strategy and good risk management, the startup will become a culinary masterpiece that will wow the market. 

Ronald Paul praises Munich for its “technical orientation and confident attitude” 

Munich Startup: How would you assess the Munich startup ecosystem? 

Ronald Paul: We replaced Berlin, my native town, as the startup capital last year. According to the German Startups Association, 14.5 startups per 100,000 inhabitants were founded in Munich last year, while the figure fell to 13.6 in Berlin. That speaks in favor of Munich as a location. But let’s not kid ourselves: The most money is still going to the ecosystem in Berlin. I’m firmly convinced, however, that Munich attracts much different founders than Berlin, which gives it a unique selling point. That has a lot to do with the city itself and with the local infrastructure. The distances are short and the talent pool is large. 

Munich Startup: Is Munich different from other startup cities? 

Ronald Paul: Munich is distinguished from other startup cities by its stronger technical orientation and confident attitude. The Technical University of Munich and the Ludwig-Maximilians-Universität are among the top 100 or even the top 50 in almost all relevant university rankings worldwide. Both universities produce highly qualified young professionals and innovative ideas and contribute to the growth of the city. 

In addition, the state of Bavaria is aggressively promoting the unbureaucratic influx of skilled workers. Judith Gerlach, Bavaria’s State Minister of Digital Affairs, even aggressively invited tech talents to come to Bavaria on LinkedIn after the job cuts at Microsoft, Google and Twitter were announced and referred to the Central Office for the Immigration of Skilled Workers. The fact that this is not just a promise is something I’m already experiencing in the startups I work with. The speed at which suitable skilled workers from non-EU countries are obtaining work permits is phenomenal. 

“Developing innovations hand in hand” 

The fact that Munich is an incredibly livable city is something I don’t even have to mention. The work-life balance is good, the cost of living is not much lower anymore in Berlin and everything is much closer together. This is also reflected by the density of startup employees. In Munich, approximately 41,000 people work in startups (source: Dealroom + Munich Startup: Munich Startup Employment 2023) in Berlin, there are about 70,000 (source: Berlin. Startup Report). If we compare the cities’ current populations, we come to about 2,500 startup employees per 100,000 inhabitants in Munich and about 1,800 in Berlin. Speaking of density: The proximity to the large, more established companies in Munich and in the surrounding area creates an ecosystem where startups and established large companies can develop innovations hand in hand. 

What a perfect ecosystem looks like 

Munich Startup: If you could create a perfect ecosystem for startups, what would you put the focus on? 

Ronald Paul: From my point of view, the three most important points are talent, research and connections to existing industries. Excellent training, a high density of talent and a facilitated influx of skilled workers are essential. Close cooperation between universities and companies can help to identify and promote talent. Cooperation between academia and companies is also essential when it comes to research and development in order to drive innovation and ensure that startups have access to the latest technologies and insights. Ideally, the fields of research should coincide with or complement existing industries. 

Basically, an ecosystem for startups should be close to existing industries to facilitate the collaboration and connections between startups and established companies. Last but not least, we need a solid investor network and policies that promote research and entrepreneurship without putting any obstacles in the way. Investors who feel connected to the location and support startups in their growth provide access to capital and expertise. The close cooperation between government, companies and academia can help to give a better understanding of startups’ needs and to provide targeted support. 

An example: Munich is home to WERK1, one of the largest startup centers in Europe, which promotes the exchange of ideas and networking through close cooperation with established companies, universities and other institutions. These kinds of centers can be important hubs in the ecosystem and give founders access to the scene. Overall, the aim is to create an environment in which startups can concentrate on the essentials – namely on advancing their innovative ideas. 

Ronald Paul: “Artificial intelligence is definitely a game changer” 

Munich Startup: Everyone is talking about artificial intelligence right now – how would you assess the topic? Hype or game changer? 

Ronald Paul: Artificial intelligence is definitely a game changer, but only if we use it in a target-oriented way. Not every product gets better with AI. You might think that artificial intelligence is the solution to every conceivable challenge and will be indispensable in all areas of life in the long term. However, the use of AI alone is not an innovation. True innovation uses AI to create solutions that weren’t possible before. Just like in other areas, most recently in the crypto and Web 3.0 ecosystem, some approaches that are truly innovative will hold their own and others will quickly disappear. At the moment, however, what Niko Bonatsos of General Catalyst recently said still holds true: “AI is the only place where, today, gravity doesn’t apply.” 

Munich Startup: Do you think the Munich ecosystem is well prepared for AI? 

Ronald Paul: In Germany, we generally always have a hard time with new technologies. Lengthy and bureaucratic tests and feasibility studies occasionally take the wind out of our sails relatively early on in this country. But Munich is in a very good position in this regard. Research is the be-all and end-all in the field of AI. With the Munich Center for Machine Learning, a joint initiative between the LMU and TU Munich, and the Munich Data Science Institute of the Technical University of Munich, we’re in a very good position in this area. The state of Bavaria and federal politicians are supporting the projects, which makes me cautiously optimistic. The fact that Nvidia’s AI-based text-to-video solution is based on the Stable Diffusion product developed jointly by the LMU and the English startup Stability AI, and that Munich researchers are still involved in the project, shows how competitive Munich is in this field. 

Reducing dependencies with sustainable solutions 

Munich Startup: Do you see any other exciting trends in the startup landscape besides AI? 

Ronald Paul: Sustainability is becoming increasingly important in the startup landscape, both in ecological and entrepreneurial terms. The current economic crisis has shown how dependent we are on external factors and that we need to reduce this dependence with sustainable solutions. It’s not about green labels or half-hearted marketing strategies, but rather about the fact that sustainable management has to be part of a business model. One example is the production of meat from cell cultures, which is still expensive, but will become both cheaper and more resource-efficient in the long term. As investors, we also have to ask ourselves whether rapid growth at the expense of sustainability and profitability makes sense or whether slow but long-term growth is the better choice. 

Munich Startup: Are you currently looking for new investments? How can startups reach you? 

Ronald Paul: I always find it amusing when founders hope that investors will find them, as if we’re treasure hunters looking for a lost coin. But seriously, as an investor, you also have to do a bit of industry research and specifically look for promising projects. That doesn’t mean I’m not always open to innovative and promising ideas. If you would like to contact me, you’re welcome to do so on the website of my venture capital company, Muzungu Capital, or write to me on LinkedIn.