20 years btov Partners — a few perspectives on time

Today we celebrate the foundation of btov Partners exactly 20 years ago (back then under our initial name brains-to-ventures — yes, for those who weren’t around or haven’t heard it there is a story behind “b”-“to”-“v”). 20 YEARS, wow — sounds like a lot to some of us, to some of you, not so much to others.

What are 20 years for a company, for an investment firm, for an investment, for an innovation, for a product, for a market? So many things can change over 20 years while others don’t change at all. But this is not about philosophical questions regarding time but just some examples that have triggered a few thoughts about different things time can mean for a venture capital investor:

- Taking a VC investor perspective, the first thing which comes to mind when looking back at the year 2000 is still the end of the dot-com boom and the start of the dot-com crash. 20 years ago today the bubble had already started bursting — the peak of the NASDAQ had been reached on March 10th. What back then felt like a very heavy headwind to the btov founding team we would today qualify as not a day too late to start the journey. As the young team was told, it’s well proven now that shoes and perfumes are products needing physical touchpoints and just can’t be sold online (to just state two examples of many “learnings” back in the days). It took our partner Jochen 8 and 12 years to demonstrate the opposite — investing in Zalando in 2008 and Flaconi in 2012.

- Our portfolio company Immatics was founded in 2000. Just last week we celebrated the successful “reverse IPO” of Immatics which brings the company to a market valuation beyond USD 1bn. Crunchbase shows eight financing rounds pre-IPO with a cumulative volume of over USD 300m. We’re not giving away any secrets stating that not every round has yielded a similar cash multiple, not even speaking about IRR when including the time factor. While investors are looking at a big success, a closed end fund investor with a typical 10 year fund term should maybe not have invested in the Series A back in 2004 if he knew it would take 16 years to IPO. But don’t get us wrong, we’re more than happy with the outcome and proud to watch the company’s potential unfold.

- Some readers might remember a phone called Ericsson T39, which was revealed in 2000. It was the first commercially available mobile phone with a Bluetooth communication interface. Interestingly the same year another mobile phone in Japan carried the first camera built into a phone. The development of Bluetooth in the labs of Ericsson had started 11 years earlier in 1989. Around 2008 annual shipments of Bluetooth enabled devices reached 1 billion, ten years later in 2018 this number surpassed 4 billion devices! If one could choose the perfect time to invest on such an adoption curve, when would it be? On a side note, we thought it’s interesting for how long experts were not sure about the suitability of this technology for Corona tracing apps — 30 years and billions of devices shipped since its development.

- Although „completeness“ referred only to a first draft, the success of the Human Genome project was announced in a press conference by president Bush and prime minister Blair in the year 2000. The USD 3bn project had been initiated 14 years earlier and 100% of genome sequencing was only reached 2003/4. Another 16 years later genomics research has become a multi USD bn industry and even our portfolio company GNA still benefits from the know-how on gene sequences that has also driven use cases for GNA’s molecular diagnostics. The most recent use case for GNA is ultrafast testing for the coronavirus — who could have expected such a sudden increase of total market size for GNA?

- “Subject: ILOVEYOU” became one of the most widely spread computer viruses back in 2000. Estimates range between $5–8bn in damages and over $10bn to remove the problem around the world. Major corporations had to shut down IT infrastructures, interrupt email communication, etc. 20 years later cyber security as an investment field hasn’t gone out of fashion. Looking at the trajectory of the problem and the market size for solutions to deal with it might just become one of those business opportunities which never get obsolete.

- The pre-official launch distribution of the Metallica song “I Disappear” on the peer-to-peer sharing platform Napster caused the band to file a lawsuit against the platform. Ultimately, the platform that had evolved into a threat for music industry revenues was shut down a few months later. However, it didn’t save those industry revenues. The decline of CD sales accelerated and with the appearance of paid downloads on the Apple Store the entire music industry got reshuffled and many established players lost large parts of their share of total revenues. From an investment perspective, illegal MP3 downloads certainly were a short sighted opportunity, nonetheless proving technological capabilities and paving the way for a massive legal business, which got disrupted again years later when moving from downloads to streaming.

- Another life science company which very recently made headlines was also founded in 2000: Curevac. The company just received €300m from German state-owned KfW in order to push forward its research on corona vaccines. It was reported that at least one rationale behind the investment is to keep the company from being acquired by international buyers. How would a prediction about such “government intervention” in the year 2020 under the circumstances of a global pandemic influenced early investors in 2003 during Curevac’s series A?

- Another blockbuster technology introduced to the market in 2000 was the USB flash drive, patented one year earlier by Israeli company M-Systems. The company had been founded 11 years before in 1989 and when btov partner Christian Reitberger discussed an investment by Apax into M-Systems in 2004, cash needs were not pressing enough anymore to find common ground on valuation — much to the detriment of Christian who therefore did not participate in M-Systems’ $1.5bn share deal exit to its long term competitor Sandisk. Another 10 years later those M-Systems investors who had kept their Sandisk stock watched Western Digital buy Sandisk for $19bn.

- The best-selling video game console of all times, the Sony PlayStation 2, came out in 2000 and has been sold more than 155 million times. Gaming is another one of those markets that hasn‘t gone away and which led to ever increasing investment successes since then, highlighted by names like Zynga, Rovio or Peak Games. While the population of “gamers” only went up over time, no other dedicated computer gaming device broke the record sales of the PS2 since then.

- The foundation of Ocado & takeaway.com and the registration of the Tesco.com domain — all three in 2000 — are a reminder that not only technology development takes time, but also some basic behaviours like grocery shopping are sometimes slow to change. 20 years later the „corona lock-down“ demonstrated a still quite limited capacity of online grocery stores (at least here in Europe) which is certainly not explainable by a lack of enabling technology nor visibility of a large addressable market.

A first and almost too obvious as well as often cited takeaway from those anecdotes is about the importance of the right timing for technology and products to be successful, and even more so for investments. „Timing isn‘t everything but nothing really works without the right timing“. As much as we have learned this to be true, we have also come to the realisation that good timing can oftentimes neither be planned nor analyzed in a due diligence with much accuracy. So we would paraphrase our learnings about timing over 20 years in VC in some rather simple statements:

• your average time to exit will be at least 50% longer than you thought
• your average „winner“ didn’t looked like a winner for at least 50% of the time
• those management teams who were ready when timing was right would probably have been ready at any other moment in time before, ie. they weren‘t just betting on anticipating this one point in time, but constantly working hard to catch the wave whenever it shows up.

We look forward to investing with you for at least another 20 years. We‘re in it for the long run and we’ll do our best to be ready at any point in time. Remember two out of the 5 FAANG companies were public stock already in 2000 and another two of them were young companies and possible investment targets for a well placed venture firm.