"Never fall in love with a deal"

Olaf Jacobi is Managing Partner at Capnamic Ventures, one of Germany's largest early-stage investors. In an interview with Startbase, he explains what he looks for in up-and-coming companies and why he is not angry about any missed opportunity.

For an interview, you can also meet Olaf Jacobi these days only via video conference. The Managing Partner of Capnamic Ventures is under stress, a follow-up appointment beckons. Nevertheless, he takes a good hour to explain how one of Germany's largest early-stage investors makes its decisions.

Mr Jacobi, Capnamic invests in very young companies, most of which still have little track record. How do you recognize which companies have a promising future ahead of them?

We have a credo that we've been true to for years, and it involves three things: team, timing, and technology. Specifically, the technology has to be scalable and defensible, I think that's self-explanatory. The founding team in particular has to be top notch, because they are the ones who matter if the startup can recruit more top talent and put the company on a growth trajectory. Timing, in turn, depends a lot on the markets. Good teams find the right entry point.

Isn't a good business idea a good business idea at any point in time?

The right timing is critical to whether or not a business idea will fly. I'll give you an example: the market to products around drones exploded six, seven years ago. That's why I got into Dedrone with my previous find, which is about drone defense using sensors. We wouldn't have gotten in a few years earlier, and we wouldn't have gotten in today. If you are too early, then a startup needs a lot of capital to last until the market explodes. If you are too late, you also pay more money to catch up.

Capnamic is invested in startups across a wide range of sectors, from software-as-a-service to expense management to insurtechs. Hand on heart, do you always understand what founders are telling you?

As a VC, you have to be incredibly curious, and you always have to be willing to learn new fields. After all, I don't make my decisions alone; we always make our decisions as a team, which has very different backgrounds. Successful VCs come from all backgrounds: Lawyers, physicists or business graduates, you name it.

"VCs have to be tough too and try to keep their distance."

Surely it takes more than curiosity, though...?

VCs also have to be tough and try to keep their distance. "Never fall in love with a deal" is such a saying in our industry. Especially with young colleagues I often observe this, they think almost everything is great at the beginning. After a while it tips in the other direction and they become overcritical, which is of course not ideal either. In the long run, however, it usually settles down to a good level, between honest enthusiasm and healthy scepticism.

How many pitches do you have to restrain yourself from laughing out loud?

Sometimes there is, but those are special cases. Sure, we say no very often. We read or hear thousands of cases a year, investing on average in maybe four to ten of them. But that doesn't mean that all the rest are bad cases. We have our clear requirements profile, our clear investment strategy, and we only invest in these.

How is this investment strategy defined?

First of all, the nature of early stage investing is that we are looking primarily for highly scalable startups. Some founders bring a very good business plan, will probably be profitable. But for us, we are only interested in those that have the potential to become really big. Venture capital is the search for so-called outliers

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Also, at Capnamic, we focus primarily on B2B solutions. That's the area where we know our stuff and where we can best assess the prospects for success.

Even with the best VCs, sometimes an investment goes wrong. When is the time for you to write off a startup?

If you look at the portfolio of many successful VCs, you can see that only two or three companies per fund become real high flyers and make the fund successful. Which company this will be in the end is often not clear for many years. That's why we don't give up quickly on our investments, even in hard times. This is also what our founders appreciate about us. We help, advise and try to mediate in disputes. Especially the latter is important, because if a startup fails, it's also because the founders are at odds.

In addition to failed investments, there are also those that you once turned down but would have liked to have done in retrospect. Is that also the case for you?

Of course, it happens to every VC. For example Talon.One from Lieferando founder Christoph Gerber, a platform for organizing advertising campaigns with coupons or discounts. I had that on the table and didn't do it. There are many other examples of companies I turned down that went on to be worth billions. Of course it hurts every time, but it's part of a VC's job. A good anti-portfolio is actually important for an investor. It shows that you've seen a lot of good deals, formed an opinion, which of course can be wrong, and that some of the cancelled deals later become big and successful.

Are you jealous?

Not at all. I'm happy about every successful startup, because it helps our tech ecosystem here in Germany. Besides, I was a founder myself, so I know exactly how great a successful exit can be. I don't begrudge every startup, founder and investor that from the bottom of my heart.

Personal details:

Olaf Jacobi is Managing Partner at Capnamic Ventures, an early stage investor focused on B2B business models with offices in Cologne and Berlin. He has more than 20 years of experience as a manager, entrepreneur and investor. Between 2007 and 2015, he was a partner and co-owner of the VC Target Partners. From 1999 to 2007, he founded and established several startups that led to successful exits. Jacobi studied business administration in Hamburg.