Five Years of Innovation Nest
Innovation Nest is a Venture Capital company founded by Marek Kapturkiewicz and myself 11 years ago. Within Innovation Nest, we operate two funds. Each includes a separate community of investors, and their strategy is only partially aligned. With a market capitalisation of 33 million pln, Fund 1 was set up ten years ago. With a capitalisation of 44 million euros, Fund 2 came to life five years ago. This article will review how Innovation Nest Fund 2 has worked for the past five years.
More than a dozen investors joined the Innovation Nest fund in July 2017. One of them was the European Investment Fund, Europe’s largest VC fund investor. The Innovation Nest Fund was the first such venture capital investment in the entire region of Central and Eastern Europe, and its investment signalled that the region was maturing.
Five years of investing later, we have built a portfolio of 36 companies, including 29 new investments. What was IN’s strategy for constructing this portfolio?
Venture Capital is a global network
“Technology is a global play” — although pretty obvious, this thesis lies at the foundation of Innovation Nest activities.
First of all, technology knows no borders, and competition in this sector is usually global, making it difficult to erect entry barriers for new players in local markets.
Second, raising capital beyond the local market eventually becomes necessary when building a company to compete globally.
Working overseas allows Venture Capital to build a better reputation and stronger relationships. Hence the fundamental premise of Innovation Nest is to invest throughout Europe. This strategy also enables scouting for startups tackling similar problems in different parts of Europe, resulting in a faster collection of know-how and market information.
B2B software
The next essential premise is investing in business software, which continues our strategy from Fund 1. Business software is easier to understand because B2B customers in different nations are comparable. Therefore, by investing in B2B software, we tame the risk of global expansion.
The pre-COVID times — 17 investments
Between 2017 and the beginning of the pandemic, we concluded 17 investments, 10 of which were new companies. We’ve had previous relations with the remaining seven companies as they were among our angel or Fund 1investments.
We based the initial strategy of Fund 2 on targeted activities within particular ecosystems. The first target markets included Portugal, The Netherlands, and Central and Eastern Europe (CEE).
Building a network in Portugal, analyzing the available publications, and organizing events lead to a stream of investment proposals in the region. During this time, we carried out three investments in Portugal: Prodsmart, Infraspeak, and Climber. We are pleased with these investments, and in the coming months, we will publicly announce their recent achievements.
We have conducted a similar campaign in The Netherlands, which produced a less satisfactory outcome. As a result, we have not invested in any of the tens of Dutch companies reviewed.
Alongside this international portfolio, we also made investments in our region. Analysis of the available data and numerous conversations lead us to successful investments in Doctrine and Antavo. Anyone interested in our local area should subscribe to Marcin Szeląg’s newsletter regarding VC rounds in CEE.
The last investment before COVID struck was Travelsuit, which we exited when BCD, a corporate travel tycoon, bought the company.
Aside from six international investments, we also carried out four in Poland: Nethone, Callpage, HCM Deck, and Autenti. Two of them are associated with the Onet network: Szymon Janicki, the founder of HCM Deck, was the youngest employee at Onet when I was its chairman, and Grzegorz Wójcik, the founder of Autenti, previously worked at Onet for many years.
The result of these ten investments is incredibly positive. Out of the ten companies, six are developing well.
The period of transition
After the first period of our strategy and the first wave of investment, we started to form conclusions. We had increased the team. Among others, we brought more investment talent on board, and we were ready to engage more investment leads from other countries. We were also waiting for another group of investors to join the fund, increasing its value by several tens of percent. And that’s when the lockdowns came. Between March and June 2020, we didn’t make any investments, because just like the entire VC sector, the activity of Innovation Nest froze, at least in terms of new investment.
In May and June 2020, we knew that the market was about to change, and we started developing a new strategy to suit the present moment.
The post-lockdown period — 19 investments
The new strategy had several cornerstones: an increased number of people making direct investments and thus responsible for those investments, a European network and flow of information across that network, agility in decision-making, and shortening the investment process. But, unfortunately, we executed the plan in a tense state, where we felt there was no space for marketing and promotion. Hence, there was a lack of information on what we were working on and where we had invested.
Our first post-lockdown investment took place in July 2020 and by now, we had invested in 19 new companies.
We made twelve investments in the largest European countries, including fintech startups in London: Sense Street and Ember, in Germany: Xapix, Airfarm, Meisterwerk and one undisclosed company, and in France: Once and Weilii. In addition, we were amazed by the quality of Scandinavian startups, which led to funding Vaam, Platypus, and Brink. To top it up, we made our only investment so far in Spain.
More Polish companies joined: AI Clearing, Cardiomatics and one still undisclosed. Also, 4 American-Polish startups with significant teams on both sides of the Atlantic, like Arise and Stream Sage (with two other companies that have yet to disclose the financing rounds).
Map of Europe
To sum up the new Innovation Nest Fund 2 investments:
- UK — 2
- Germany — 4
- France — 2
- Spain and Portugal — 4
- Scandinavia — 3
- CEE — 2
- Poland — 7
- USA/Poland — 4
- Israel — 1
In addition, Fund 2 invested in 7 companies to continue earlier rounds. So, by now, we have 36 companies in our portfolio.
Summary
We are probably the most active CEE fund for international investments and one of the most active in Europe in general. But investing is not about breaking records of geographic expansion. Instead, for Innovation Nest expansion results from our investment thesis: reaching beyond the Polish market makes sense. So far, the partial results for Fund II prove this thesis is correct.
If you have any questions, please use the comment sections on Medium, LinkedIn, and Facebook. I will share more information about the current state of the European Venture Capital and about Innovation Nest in the following articles.
About Innovation Nest:
Innovation Nest invests in top European teams building B2B Software businesses that are getting close to their first sale (pre-seed) and in companies that are already selling, but monthly sales are below EUR 100,000 (seed).
We are a human-centric organization. We realize talented individuals can be found anywhere, and exceptional teams can accomplish extraordinary results.
