Why we invested in Styla.com
As a VC, you are frequently asked by fellow investors why you did or did not do a certain investment. Founders as well are very often interested how specific venture capital funds make investment decisions in order to know if their start-ups fit to the VC fund.
The first venture I want to write about is our recent investment in Berlin-based tech company Styla.com. Its artificial intelligence software as a service offers design automation for e-commerce shops, online magazines and blogs. It increases customer conversion rate while reducing the manual effort of designers and content creators. So, what are the top 5 reasons in favour of this investment from our point of view?
As a VC, we look at technologies which make the life of people easier in a sustainable way, i.e. saving time and/or money. The technology of Styla.com has proven both advantages in a significant manner. First, the users, content writers or designers, save as much as 90% time (compared to existing alternative solutions) when creating their content. The remaining time can be used for producing more content for different target groups. Therefore, firms can save money on hiring less employees for the same amount of content. Second, more content means higher online rankings and more flexibility in individually targeting potential customers — leading to higher conversion rates and higher revenues. Styla.com shows in many use cases a significant increase of conversion rates. In summary, having a proof for increasing efficiency compared to previous methods definitely attracts VCs and influences their investment decision.
2. Market & Available Budget
It is nice if you have lots of potential customers around the world. But they also need the right amount of budget available and willingness to spend for your product. Marketing departments, especially in e-commerce or fashion industry, have huge budgets compared to other functional units, because they have a direct impact on revenues. These are the people Styla.com sells their technology to. Very often, the decision makers are also the ones who suffer from the pains Styla.com solves. Doing venture capital for more than 7 years, we have seen many good products developed by great teams. However, the market potential was very often too small in order to be a real venture capital case. The maths does just not add up if you have millions of potential customers but only little budget to spend.
The level of direct and indirect competition definitely influences our investment decisions. Many investors select start-ups based on a very high-level analysis of competitors. We believe that understanding the competitive landscape is key to understand the market challenges and timing of the investments. There have been ventures in the past that had a great team and product, but they were much too early and ahead of their time. The customers or infrastructure was not ready for the new technology. They disappeared after a while again. With Styla.com, the timing is perfect in two ways. With upcoming AI or deep learning experts and new approaches to anticipate customer behaviour, there is a way available to develop a product like Styla.com has. Second, online marketing departments must professionalize more and more in order to compete with direct competition. Nowadays, it is so cheap to set up a simple online shop, websites or blogs. E-commerce firms must do much better to succeed than in the past. In a nutshell, too much competitions might show, that the timing is too late, too little or no competition might show, that the market is not ready yet.
We want to invest into tech companies. Having a tech start-up employing just 2 developers, but 25 other employees, makes us curious, maybe even a little bit nervous. Either the 2 developers are the pure geniuses, or we do not talk about a real tech company in the B2B space. The ventures we are interested in should be able to set up entry barriers against competitors as well as to offer some real cutting edge technologies to our customers. With a very high rate of developers, Styla.com for sure points in the right direction (side note: of course, the quality of the developers must be also high, not only the quantity). Apart from that, the IT-roadmap is also very important for us in that context. It is good to have a great product now, but what about tomorrow? Styla.com has outstanding features to come which customers really want to have. So, in the end, it is not only about the number of developers and features — the customers must be also willing to pay the right price for the costs occurred.
Of course, in the space of venture capital investing, it is no secret that the team is THE decisive success (but also risk) factor of a venture deal. Your own experience, i.e. comparison with other founders, right gut feeling, but also biases (like similarities between you and the founders) are all factors that influence your assessment of the team. No matter what THE decisive factor regarding the management team of Styla.com was, somehow the founders convinced us. :-)