For executives facing a transition away from their corporate careers, the startup scene beckons.
SpenglerFox recently entered into an exciting business Partnership with Depo Ventures, a Czech based Venture Capital investment house. Under this partnership SpenglerFox supports Depo Ventures to identify highly experienced corporate executives who would like to transition to the startup world as Angel Investors, Advisory Board Members or Fractional Leaders.
Petr, before we start with the more formal part of the conversation, please introduce yourself briefly and give me a quick overview of Depo Ventures
I am from a slightly older generation, not exactly the younger startup generation. Essentially, I have been an entrepreneur all my live. Whilst still a university student during the Velvet Revolution, I co-founded an investment privatization fund. Then, in 1993, I started a consulting firm with a close friend of mine. The venture initially consisted of only the two of us but we grew the business to 65 people over the years.
My focus was on corporate finance and M&A. I am the kind of person who needs constant change, and after so many years of doing more or less the same, I was looking for something new. We launched DEPO Ventures originally as a new brand for providing consulting services to startups and for investors into startups. I fell in love with the startup atmosphere and realized that this is what I wanted to do.
DEPO Ventures is a VC house based in Central Europe, focusing mainly on Central European startups and investors, with specific focus on seed, early stage, and angel investments. We run an angel network and angel funds. Our mission is to help investors to invest in promising startups. In addition, we are helping experienced corporate professionals to become investors and for this we have angel funds and angel syndicates as the initial entry points. We constantly have around 100 selected startups in our deal room, and that means that potential investors do not have to look around.
Over the years we have come across many former corporate executives who joined startups or started new careers as entrepreneurs. We also constantly meet executives facing an imminent end to their corporate careers for a variety of reasons and considering their options. As a company entirely focused on the startup world, why do you think executives facing career transition should consider the startup world?
Firstly, have a look at today’s global corporations. Many of them, including the biggest ones, once were startups themselves. Every successful startup sooner or later will become a corporation. So, if you join a startup as a manager or investor early enough, you have the chance to get stock options (though this is not always the norm in Europe) and participate in the success of the business. Startups are the best employers for open-minded managers.
But that is only a part of it. C-level executives with vast experience, knowledge, some spare money, and lots of contacts, are perfect angel investors and mentors. Startups are always looking for smart money. There is a big opportunity for former corporate executives to become investors and later, when the startup grows, to join the team as a leader or advisory board member. Experienced corporate executives are very valuable as investors and advisors.
I am glad you bring up the concept of advisory board roles. This is of key interest for many executives. However, unlike advisory board roles with larger and established businesses where board members are often handsomely rewarded financially for their contributions, whether in the form of cash emoluments for board attendance and/or regular consulting fees, the idea of less cash and more equity is more appealing across America compared to the European best-practice. Startups often do not have sufficient financial resources to pay advisory board members the fees they would expect. What can executives considering advisory board roles with startups expect?
I believe I do not make any mistakes when I say that in the USA, startups are the best employers, because they are ready to give stock options. And this is where everybody can make a lot of money. Stock options are more complicated in Europe because of their tax treatment, but there are ways around it. In general, well-funded European startups can afford a market salary. But when we invest in early stage startups and before they receive important major capital injections, they are generally not able to pay high salaries. But they can offer an ownership stake.
The best way to get involved for former or current corporate executives is to become mentors, advisors, and investors in several startups. Create a portfolio. Startups mostly do not need full-time deployment. For example, an experienced CFO can easily manage 10 startups in an early stage. This is an ideal fit for senior professionals who want to change career pace. They can work for 3 to 4 days a week, enjoy more free time, make some money to cover basic expenses and create interesting equity stakes in startups.
We already have several success stories from the CEE region. Take for example UI Path, a Romanian company that recently floated, with an evaluation of more than 30 billion USD. It is estimated that it generated more than 70 millionaires – 70 people from the management left the company with a gain of more than 1 million USD.
Early-stage startups bring a different set of opportunities to former corporate executives, one of which is Angel Investing. What is it and how does it work?
Angel investing is about providing smart money to startups. Angel investors make financial investments into startups, and they are also ready to help startups with their business experience, knowledge, and their contacts. The nice thing about this is that an Angel investor is just a minority investor, 10-20% maximum. So, an investor can provide an immense source of financial or expert support but is not obliged to manage the day-to-day business. An investor should not try and run the company – in fact this can be prohibitive and overwhelming.
But this can be tricky. The Angel investment concept has been around for years in the USA where it is easy to get into, but this is not always the case in Europe. The role of angel networks is super important. A beginner needs to learn, needs a place where to find startups and a place where to find co-investors. Angel networks solve all that.
Angel investment is a group activity. You don’t invest alone, always with other investors. If you join a good group, you can learn a lot.
Many investors have other motivations than just making money. But success is measured by money. Success here means investing €100k and when the company makes a successful IPO you may earn €10m or more. But here is the most important message: As the probability of success is low, you need careful selection and a vast portfolio.
If someone wants to become an Angel Investor with Depo Ventures, what is the minimum entry point?
The average angel investment worldwide is €25,000 and it is always advisable to create a portfolio of at least 10-20 companies. We realize that there are many interested people that either don’t have enough disposable money or are not ready to invest a big amount of money into startups. For those individuals we launched our first Angel Fund with a minimum ticket of €40,000. We closed the first fund successfully, and since the idea resonated so well, we are launching a new fund. The idea behind this is that we can allow beginner angel investors to start investing without an obligation to be involved personally or spend much time with the startups that the fund will invest into.
Here I must stress that we invest only with qualified investors. First of all, this is because of the various regulations governing our business. We also want to provide value to startups, and for that we need experienced investors/managers. By definition an investor capable of investing more than €120.000, is considered a qualified investor, and for this reason we need to see that a potential investor either invests that amount at the onset, or commits to that over time.
Besides investing in our fund, we allow investors to invest directly in startups. And to allow smaller tickets, we organize investment syndicates where it makes sense.
Investment in startups is always considered risky. Therefore, it is not advisable that anyone invests more than 10% of their personal wealth in startups. And if you want to create a portfolio to minimize the risk, you need to invest in 10, ideally 20 companies. That defines your maximum investment size.
If you want to start and just get a taste of it, we recommend that you invest in an angel fund or with syndicates, but always with experienced investors.
Do you offer any guidance and/or training for people who want to become Angel Investors?
Absolutely yes. At DEPO Ventures we help corporate executives on the path to become investors. We provide all kinds of training, either directly by us or in conjunction with our partner organizations. We are members of EBAN (European Business Angel Network) which has a formal training program. When somebody decides to become a serious investor, we provide full support. We also have a program for mentors, as well as a knowledge base for investors and startups. And the best way for learning is always by doing.
Angel investing is not without its risks but can also be very rewarding. What advice do you have for anyone considering angel investing as a professional activity?
It is like with any other activity: If you want to be successful, you need to take it seriously. So, my advice would be to just start slowly, and start with learning, looking around, and understanding if you really like it or not. Maybe investing in the fund for the first time or in syndicates is a good way to learn by doing. You can join formal training courses and learn from the myriad of books on the subject, but first of all you need to understand what you are really like.
Angel investment is not only about making money, but also about having fun, and about spending time with people that are smart and full of inspiration. So, if you want to invest, you should understand what your specialty is, what do you like, what you don’t like, what will be the target type of your company, how you can help. And be careful. Because when you taste the startup atmosphere, you will never look back……
To find out more about our Corporate Career Transition service, or about our partnership with Depo Ventures, please get in touch with us.
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