I have been asked about our (Capnamic Venture) investment strategy several times. Here are some background information on it.
In my last post I have underlined the importance of a thesis driven investment strategy:
Investors without a clear focus and strategy are lost
Some investors claim to invest opportunistically in all the “good” deals. In my experience, this just doesn’t work. A VC needs an investment strategy. Based on the defined strategy, the VC team builds its domain expertise, deal sourcing, industry and co-investors network. Opportunistic investors are like bankers — money with little value added and support.
VCs shouldn’t be afraid to build an impressive anti-portfolio. If a VC firm is investing according its defined investment strategy, they will turn down interesting startups which are off-strategy and out of their chosen focus area. So, don’t worry about all the great companies you did not invest in. Just keep a record of your anti-portfolio. An experienced LP (fund investor) once told me that the deals you have turned down are not that important. It is the deals you have invested in that are important.
We are investing in markets and industries, which are characterized by technological innovation and high growth. Often these industries are on the verge of a digital transformation. Identifying such industries at an early stage has multiple advantages.
First of all, we generally believe that startups in these industries have the greatest chance of becoming globally successful companies.
Second, industries undergoing a digital transformation often see an increasing number of startups with comparable business models over time. History has shown that the first exit of a startup in such an industry is always the highest. The second and third already have significantly less value but are still highly attractive, while the fourth and following exits continue to decrease in value and become less attractive for venture capital investments.
This effect is further leveraged by the fact that industries undergoing digital transformation often experience a certain “hype” movement. A hype in an industry usually leads to increasing pre-money valuations even in early-stage investments, diminishing the attractiveness for venture capital investors. In light of this interplay of factors, we attempt to identify these industries early to attract the strongest investment opportunities before hype commences.
The aim is to build fast-growing and leading companies. In the past we have been able to identify upcoming trends early and attracted strong deal opportunities, as exemplified by the incoming deal flow.
Our investment strategy is based on defined investment theses.
The three focus areas for our investments are:
B2B solutions — enterprise solutions and platforms that are solving a concrete problem, have a clearly defined target group and are built with a defensible technology.
Digital infrastructure — strong investment opportunities developing enabling technologies which are the basis of an intelligent infrastructure, enhancing the performance and/or shrinking the complexity of online and offline businesses.
Digital transformation — innovative business models, disrupting existing value chains and facilitating a more efficient use of resources both B2C and B2B.