Price f(X) — the case study of how we invest at TopMonks
Price f(X) is a cloud base platform for setting optimal prices for your goods. It is also the most successful project in our portfolio to date. To be honest, we have never thought this would be the case. After years spent among the Fortune 500 corporations, the founders always envisioned Price f(X) as a small family store. Well, something else lied in store for us.
The project started at the end of 2010 and we became one of the four founders. Two of them where friends and colleagues from my past gigs (Ariba, Vendavo), so we knew their capabilities and skills. Especially Marcin Cichon, the CEO, is one the most skilled sales guys I’ve ever met. This is the first rule for the startups we invest in — we need to trust the founder’s sales skills. All of our successful investments have this in common.
Back in 2010, it didn’t really matter what we would build with Marcin and the other guys. We knew Marcin was able to sell anything. In addition to the pricing suite, there were funny ideas on the table such as a meat ball restaurant, a dating app or a SoundCloud-like app. We picked the pricing since all of us had some previous experience with the domain. We also knew that all of the then available tools really sucked.
First, we had to find some product name, so we all gathered for a workshop in Zurich. All of us spit out cool ideas for the name such as Mr. Profitoso, Pricevana, or Price-fu. Looking back, I’m glad that we picked the name we did. Funny enough, the company name was different — Nabitek GmbH. It had some fancy polish origin (Marcins influence) if I recall correctly. We renamed it to Price f(X) later on to match the product name.
Another part of our initial workshop was the financial plan. TopMonks were supposed to cover the engineering. We committed ourselves to invest around EUR 100K into the programmer’s costs in the initial phase. Our typical investment ranges from EUR 50 to 100K . This is usually enough to test the idea on the mar- ket by delivering a minimum viable product and to create some buzz.
Marcin also put together a quite detailed five-year financial plan in Excel. These plans are usually products of the gut feeling since the future is foggy and business ridiculous. Having said that and looking back, it’s funny how precise the Marcin’s estimate was up to the fourth year of our operation. We almost precisely hit the numbers from the Excel sheet year by year.
The business started to grow, so we at TopMonks decided to stay and invest more. Our contribution finished after two years and totalled in a range of EUR 180K. That was OK since we already saw the business was viable. Hence our next rule — we are an active partner ready to invest more.
After three years, we formed the engineering team and a part of the consultancy teams for Price f(X). It was the right time to think about building the team in- house. The easiest way was to acquihire the TopMonks team by Price f(X). So we did. This is another compelling approach for our startup partners. If our members/ team wants to join them, we are ready for the acquihire to let them go. Re- member, being partners with the share, this is in our own best interest.
Speaking of shares, this is another interesting part of the deal. Our share varies from 5 to 50%, depending on the phase when we join the startup. Our sweet spot is to join at the very beginning as cofounders.
In case of Price f(X), we ended up with 20% before the first investors (Credo Ventures, Talis Capital) joined the boat. We weren’t active as investors anymore when they joined, so we agreed to sell a portion of our stake to the investors. We still keep a minor share as a lottery ticket. This is also typical for us — we try to get back a fatty multiplication of our initial investment during the Series A. This is a win-win situation for all — us, the founders, and the new investors.
Price f(X) has been thriving with more than EUR 36M so far. Currently, it’s a leader in the pricing segment and the CEO is openly talking about it becoming a unicorn pretty soon. Of course, we keep our fingers crossed. TopMonks still cooperates with Price f(X) as partners. Turning a little startup baby into a commercial client has always been a sweet side win for us as well.
(me with Marcin Cichon (CEO) and Christian Tratz (CTO) somewhere in Florida. The future is bright. )
