12. March 2012–
The coolest wind circling about Berlin this week is a rat pack of A-list angel investors: namely, veteran Christophe Maire, Alex Ljung and Eric Wahlforss of SoundCloud, Felix Petersen of Amen, and Matt Stinchcom of Etsy, who collectively have assisted in launching some of Berlin's biggest startups names.
Along with associated cronies like 6wunderkinder's Christian Reber and Petersen's long-time pal and entrepreneur Simon Schaefer, this gang is covertly leading the city's startup scene out of creative abyss into international relevance. "We share certain values: innovation, originality, and social disruption," said Felix Petersen in an interview with VentureVillage. "We each want to make a dent and we're investing in the companies and people that can."
The Gidsy paradigm: Getting tapped, getting funding
For Berlin-based entrepreneurs with international aspirations, Gidsy serves as a model worth emulating. Not long after Maire, Petersen, Ljung, Wahlforss, and Stinchom invested (pre-seed) in the experience-sharing platform, the mega-funding rolled in. In January 2012, Gidsy landed $1.4 million in seed funding from the Nordic-based VC Sunstone Capital, joined by the leading firm Index Ventures, Werner Vogels (of Amazon), Peter Read (UK) and the notorious celebrity investor Ashton Kutcher (who had previously invested in Petersen's Amen, along with Maire).
"I knew all of the investors for many years before we ever started talking about funding," said Gidsy founder and CEO Edial Dekker. "Felix was one of the first people I met two years ago when I came to Berlin. And I did music hack day in Amsterdam with the Eric and Alex." While Dekker says that Maire facilitated the introduction to Sunstone, he also mentions another personal referral.
"If you want to get investors on board, know them well in advance," said Gidsy founder Edial Dekker
"Sunstone knows Christophe very well. They also know two friends of mine from the Netherlands very well (one of whom founded Layar, which received Sunstone funding in 2010). It was a combination of the two."
Remaining independent, they're pioneering an alternative
Instead of working under a formal institution like Berlin-based incubator models (Rocket or Team Europe), these angels are pioneering a "Paypal mafia"-like alternative, minus the funding. With no enormous exits in near sight (SoundCloud might not exit at all), this gang is facilitating a stealth movement of support behind the city's most promising startups. And they're using social standing and a deep international network as currency.
"These guys trust each other a lot and rely on each other's opinions," said Gidsy founder Edial Dekker. "But that doesn't mean they'll ever formally band together. They might just continue to work in tandem." Will Edial get in on the action? "Maybe in the future."
Berlin's very own PayPal mafia? Meet the angels
If you speak with any member of the angel pact (or their associated peers, like Dekker, Reber or Schaefer), they'll insist on their independence from each other, meanwhile confirming they each rely heavily on the opinion of the others.
"They tap one founder and then ask the other angels to approve," said one entrepreneur in consideration (among the latest include Loopcam and Fashionism, while VentureVillage has confirmed that neither round has officially closed). "You're told something as specific as, 'If you can get Alex to invest, I will.'"
Disrupting traditional investment channels by localising support
In a blog post yesterday, the Hamburg-based investor Paul Jozefak wrote, "Ask any entrepreneur where they send their business plan first and it's usually a UK-based fund (Index, Accel, Balderton) or even a US investor (USV, Redpoint, Kleiner, etc). The German VCs remain Plan B."
By providing pre-seed investment large enough to carry a startup through its early stages of development ("paying the gmbH, making sure they can pay the bills"), these angels are disrupting the pattern Jozefak points to. They're also keeping Berlin's most innovative startups afloat, and thereafter channeling talented teams to major investors abroad.
"VCs we connect startups to often end up 'picking up the tab,'" said Felix Petersen. "They're happy to do this because we are there as mentors, often locally, in a way that they can't be."
Introducing the leading angel, Christophe Maire
"Christophe controls a lot behind the scenes here. No one really seems to know what he actually does, but then someone's in trouble, and all of a sudden he's getting them out of it,"said one founder with a smile. "He's good at creating that mystery around him."
A protective force, keeping startups afloat
Maire's reputation began with Gate5, the navigation software company which sold for €160 million to Nokia in 2006. From there, he spent a considerable amount of time and money keeping txtr afloat (Maire owns roughly 25%), "injecting frequent spurts of 100k when the company didn't reach milestones," according to Head of Business Development Ulrik Deichsel. When 3M Ventures finally invested in March 2010, Maire was able to take a backseat. "It was sometimes painful until then, but in the end it was successful in driving up the valuation," said Deichsel, "It was pretty smart to wait until a major player entered. Before then, Christophe fueled the company."
Maire's relationship with Felix Petersen includes Plazes (Petersen's pre-Amen platform similar to FourSquare that sold to Nokia in 2008 during the peak of the financial crisis). "Almost no company got sold in 2008, so this was pretty astonishing," said Deichsel.
Currently Maire holds eight per cent of Amen, three per cent of SoundCloud, and one per cent of Gidsy. Along with Petersen, he was an early-stage investor in 6wunderkinder.
A seal of approval for an institutional investor
Christophe asset lies in his ability to facilitate introductions, namely to international VCs who might otherwise be unreachable to local Berlin founders. "I've heard it's important he knows you haven't pitched around too much before meeting him," said one such founder eager to reach him. "Apparently he likes to be the one to introduce you. And his word means a lot. So as a founder, there's a game going on. You don't want to be over-subscribed."
"Christophe is a seal of approval for an institutional investor," said another local entrepreneur, supporting voice, and long-time friend of Petersen (since '97) Simon Schaefer. "If you're an investor who doesn't know much about the German ecosystem, his approval makes you feel very comfortable."
Introducing the supporting angels
Alex and Eric are a stamp of approval
Having built up the biggest company to come out of Europe since Skype, Ljung and Wahlhorss can faciltate introductions the others (even Maire) cannot. "When they first started it was the other way around," added Felix Petersen, notorious for his ability to take Maire's clout to the global press.
Felix creates the hype, and knows his product
"Financing is creating a hyped product," said Schaefer. "You have to draw the right attention to a product, from the right sort of press to the right people. The more people start using it, the right investors will begin zoning in."
Felix's asset is his ability to attract international press to a local product. "With Amen, the hype was almost unbearable," said one village insider. It launched at TechCrunch Disrupt, raised 2 million largely on the back of his name and that of Florian Weber."
"Felix came back and things started moving," said one Berlin founder whose company is currently processing an investment with the gang.
6wunderkinder's Christian Reber brings methodical marketing
"Christian is a methodical, forward-thinking guy," said Schaefer, who is currently collaborating with Reber in coaching an upcoming startup on the product end of things. "There's a method behind Christian's business savvy, and a lot of intelligence behind the marketing he puts out. He always emphasises how much more love a product needs."
The gap they're filling: What are the limits?
Team Europe and Rocket come with their stigmas, known by one local founder for "pressuring you into signing 80-page-contracts almost immediately. For elite workhorses from Goldman and McKinsey, this works. For creative types, not as much." For large funding and or connections to stalwarts like Holzbrinck or Proceben, though, the traditional Berlin incubators and VCs are still strong options.
“There has been a lot of talk around the alternative of crowd sourced financing at the seed stage," said EarlyBird's Ciaran O'Leary. "Options like Kickstarter allow for a million in funding, which exceeds what Berlin angels are able to provide right now. That said, the investor you want is one who will lose sleep over your company. For that, these guys are great – engaged and invested in what you're doing."
"We give startups the self-esteem to approach big international players," says Petersen. "None of us with the exception of Christophe is a professional investor...
The rest of us just invest where we're interested."
Want more on the startup ecosystem in Berlin? Check out Ciaran O'Leary post today on how EU VCs can become relevant.