For us, it’s all about humans, humans, humans

— an interview with Jörg Rheinboldt from APX

Jörg Rheinboldt is a living legend of the German tech scene. He started his first business, a digital agency called Denkwerk, in the nineties. Then, he co-founded Alando together with the Samwer brothers, Max Finger and Karel Dörner. After the company was acquired by eBay in a record time, he became the Managing Director at eBay Germany. Jörg stayed for the next five years.

In parallel to his many business achievements, he co-founded betterplace.org, Germany’s biggest online donation platform. Now, as the Managing Director at APX, he is investing in and supporting more than a hundred of startups from all over Europe and beyond.

During our conversation, this serial entrepreneur with a steady hands-on approach and affinity for learning by doing told me of his ambition to reach 200 startups in APX’s portfolio. With the comfortable position of not having to reject startups too often and being able to invest in even two companies per week, he’s getting closer and closer to achieving this goal.

Paweł Michalski (PM): When you look back at the last twenty years, what major developments in the VC ecosystem have you observed?

Jörg Rheinboldt (JR): When I started more than twenty years ago, there was only a small community of founders, no proper VC scene, and almost no option to raise investors’ money. When we started Alando, the concept of business angels had just begun to exist in Europe, and there were even fewer VCs active in the market.

Then, all of a sudden, hundreds if not thousands of new companies erupted. The government started putting a lot of money into state-run funds of funds that made some bizarre investment decisions. It ended with a bubble: many companies went public way too early, which reminds me of the crypto craze a bit. People with no clue about tech entrepreneurship were buying shares of publicly traded startups with no significant traction. I remember that we used to say that it was a “greed eats brain” mentality.

Then, the nuclear winter happened. All financing dried up. Only a few startups survived, while whole market segments ceased to exist. Nobody knew what was going to happen next.

The second boom came when the next generation of young people, fresh out of business schools joined the ecosystem. They started launching companies again, investors from all over the world started investing in Europe — it felt terrific.

If you look at more recent developments, like the COVID-19 pandemic, we had just one bump from April to September 2020, when many VCs and business angels halted investing. At APX, we continued investing; however our portfolio companies could not raise any significant rounds until Fall. Then, suddenly, everything was back on track. I think we made 18 deals between late September and mid-December last year! It’s like nothing really changed.

PM: Let’s focus on Berlin. You have been active in this ecosystem for the better part of the last two decades. It must have been an amazing experience to watch it become a top destination for founders from all over Europe. What has contributed to that success?

JR: There were multiple factors. First of all, Berlin has always been an island. There isn’t much to do around the town. There’s no ocean, no sea, no mountains — almost nothing to get you distracted.

However, the quality of life in Berlin is fantastic. The coexistence of what you could call the “real” startups and the “lifestyle” startups creates a diverse culture and an excellent ecosystem for people to plug into.

We used to have something unbeatable — the real estate prices were incredibly low when I moved in. A number of new apartments were being built. Back then, you could find a place to live for 300 euros per month.

It’s very different now. It’s tough to find an affordable place for a new company. I had to pay 50 cents per square meter for my first office. The second one was already six euros. Now it’s almost 30! With COVID, the prices may drop again, but I wonder where this will go in the future.

PM: Is there something else, besides real estate prices, that you struggle with?

JR: Humans! (laugh)

PM: Fair enough.

JR: I mean: as venture capitalists, we are very much focused on people. We are the exact opposite of Warren Buffet when he says he tries to invest in businesses that are so wonderful that a monkey could run them.

We invest in human-run companies, and humans have different dreams, desires, plans, and agendas. We care about all those, even if we don’t entirely agree. Still, we invest in people and try to help them achieve their potential.

PM: What do you consider the most crucial part of your job?

JR: It’s figuring out the right teams. I need to find out if they are driven and motivated, but also how complete they are, how much they agree with each other, and what kind of steps they want to take.

The most significant part of my job is sharing my experience with them, teaching them about best practices, opening doors for them, and last but not least, helping them raise their subsequent financing round.

PM: Do you have any favorite accomplishments?

JR: Investing in a company called Papaya that turned into N26 turned out to be a wise decision. One day, Peter Thiel visited Berlin. Coincidentally, we knew each other from our old eBay-PayPal days. I honestly don’t know how, but he remembered me.

He came to me and said he wanted to meet some local founders without revealing who he was. He met the Papaya founders who, by then, had already pivoted from being a credit card for children to the future of credit cards.

Peter sat with them for thirty minutes. They clicked, and within the next two weeks, he invested twenty million dollars. The rest is history. That decision turned out to be wise because with only one secondary deal in a later round, we could pay back all the costs and the money invested so far. Our shareholders have been pretty relaxed ever since.

I also remember one other, more personal achievement — a company started by one of my former interns. He told me about the idea of building an online translator. Even though it already existed, he convinced me his would be better. His company was called Linguee, and I did invest.

As the company started growing, I advised him to raise venture capital. He said it was a waste of time. We argued about it, but he persuaded us to grant him a loan and let him do things his way. If he failed, he would raise VC funding.

After some time, he showed us the results. The translator was among one of the most popular web destinations. They even built data centers abroad. We were shocked and impressed to see that he built a significant company without venture capital. It’s called DeepL, and it’s still growing like crazy.

PM: Have you made any mistakes you regret?

JR: Thousands! One that stands out in my memory was a legal tech company that I co-founded and invested in. It seemed like a founder’s and an investor’s dream come true — the deviation from our KPIs was like six percent. We thought we were ready to scale.

However, there was one thing that we didn’t test for — our revenue came from the courts that we’re obligated to cover certain costs of the process. The problem was that some of the courts did pay while others didn’t. There was no pattern. Some of them simply refused.

That experience made me lose my faith in the strength of our political system. I was simply disappointed. There was not much we could have done about it, so we closed the company.

PM: Let’s take a step back. What did you do in your twenties?

JR: I attended university and started two companies. The first one was called Denkwerk, and it still exists today. It was an online agency I started with two friends. We grew from zero to about thirty employees, bootstrapping it to several millions of revenue before I figured out it’s not my cup of tea. I call it my MBA education.

At that point, I discussed the next steps with my cofounder. We concluded that we need to build a public company. Though we laughed about it, we still did it, in a way.

In 1999, we started Alando, though it didn’t exist for long. About six months after we founded it, eBay acquired us. Then, I became the Managing Director at eBay Germany. Not long after that, I turned thirty.

PM: So, how did you become a venture capitalist?

JR: When we started Alando, we asked a couple of friends to invest as business angels. We also had a couple of VCs on board. I enjoyed working with them as partners. When I saw the money that our angels invested turn from tens of thousands into hundreds of thousands and even millions in less than six months, I thought I would have to do something like this one day.

The problem was that at eBay, we had rigorous policies around personal investments. I remember calling our Business Ethics Officer one day to tell him that I wanted to be a business angel. He replied: “I knew you would call me someday, but I hate to tell you that the only thing that you could actually invest in are restaurants.”

Why would I invest in a restaurant? A few weeks later, a coffee shop where I was regularly meeting my friends went bankrupt. They were running a chain of coffee shops and a roaster and were heavily indebted. Luckily, one of my friends was a restructuring expert, and he knew the trustee responsible for the insolvency process. Before long, three other friends and I owned a coffee chain in Berlin.

After I quit eBay, I decided I wanted to have a lifestyle that would enable me to spend more time with my family and experience my kids growing up. My wife and I decided early on that our careers are equally important, and when she was set to return to work after her parental leave, I wanted to be as flexible as possible. That was when I started angel investing.

For the next eight years, I did a lot of different things. I started companies with friends, invested a bit, and grew weary of doing things that were all over the place. When my kids grew a bit older, their lives became more structured, so I thought it was about time I focused on doing one thing again.

When a friend of mine who worked at Axel Springer asked me to join them as a juror for an early-stage competition, I didn’t hesitate. Four weeks later, I was the Managing Director of Axel Springer’s and Plug and Play’s joint venture.

PM: What was that experience like?

JR: Nobody had a clue what to do, so I could do whatever I felt was right (laugh). We tried many things to figure out what to look for in startups and what to give them in return. We evolved from a batch-driven accelerator to a more traditional venture capital structure.

After Plug and Play decided they wanted to build something else entirely, we decided to rethink our approach towards early-stage investing. We got rid of the batches and started investing whenever we wanted to.

In the beginning, we focused on one or two companies per month, and now it’s closer to four to six. We have standardized our terms: the first check of 50 thousand euros for five percent of equity. Within eight to ten weeks following our initial investment, we may decide to add 150–200 thousand more.

We also declare that if our portfolio companies find additional investors, we will invest more. We can easily follow with another half a million, though we usually stop investing at Series A.

Our goal is to invest in 200 companies, and we already have more than 100 in our portfolio. Another aspect we continuously work on is our value proposition, the things we can give startups on top of our money.

PM: Is there something you wish you knew before becoming a VC?

JR: I would tell my younger self: start a proper VC fund earlier. A typical, plain, vanilla fund with great limited partners. I’m not saying our structure doesn’t have certain advantages. One of the reasons we invest very early is that we hate saying no as much.

If you are a traditional VC firm, you invest in, say, 12 companies per year. Your life consists of no’s, which is a little bit sad. We can invest in up to two companies per week which makes us relatively happier.