12. July 2013–
Want an investor's take on three of the most prominent tech scenes on the planet? Between them, Jon Soberg (below left) and Alon Lifshitz (below right) from Blumberg Capital have a hand in up to 3,000 company screenings and about 12 deals a year in the US, Israel, Germany and beyond.
Germany is a relatively recent market for the San Francisco-headquartered firm, which typically makes early-stage investments of between $500,000 and $3m, starting with an invitation to DLD Munich (linked to one of their limited partners) and a first deal in mobile ad tech company Madvertise in 2011. Soberg's recent deals include fintech companies Kreditech and Paymill, which have brought put him into close contact with Germany's infamous Oliver Samwer.
During a recent visit to Berlin, we asked Soberg and Lifshitz to discuss trends across the US, Germany and Israel. Spoiler: it looks like the hype around consumer mobile apps might be on the way out.
First question – what proportion of your time is spent where?
Lifshitz: I'm in Israel 90 per cent of the time, 10 per cent in the US.
Soberg: Last year, I was in Germany eight times. Twenty per cent, maybe? Quite a bit.
What about the deals you see versus the deals you do?
Lifshitz: In Israel, I see 20 companies a month and do maybe three to five deals a year.
Soberg: I probably see more, total. Not me, necessarily. We did stats last year and Blumberg saw at least 3,000 companies and we did 12 investments. I don't see all of them but I see a lot – most of the German deals and most of the US deals.
Lifshitz: We do things together. It's a bit hard to define...
Where are you seeing deals and where are you choosing to invest?
Soberg: We don't have any kind of quotas. I would say that – for the larger portions of our incoming deal flow – the US is probably the biggest portion, probably 60-70 per cent. Israel's probably second and Germany's probably the lowest. The sourcing in Germany is a bit different. I'm not on the ground, no-one is [but] the referrals we get from Germany tend to be higher quality on a per deal basis… There's a strong signal-to-noise ratio for us right now in Germany, which is great.
Lifshitz: Same here. We're seeing big success in this space.
What's the most exciting opportunity?
Soberg: I guess, what I'm most interested in right now – Kreditech's a good example. Applying big data to financial services problems. Underwriting for lending – using big data to do that is a game changer...
Lifshitz: The financial industry is so traditional, so old. You have programmes that have been around forever. Overcharging in fees, credit shortages, which everyone took as given. Now you have companies that are coming in and disrupting this industry.
Soberg: Take lending, for example. You have unbanked and underbanked people who have very little access to credit. Big data has possibilities to solve that without being as predatory as historical types of lenders to that category. In emerging markets, there are entire populations who haven't had access to credit. Those are massive opportunities...
Payments is similar too. If you think of the Visa and Mastercard infrastructure, it goes back to before eCommerce. It's changed a little bit but it hasn't really been done, it's just "add this on, add that on".
What trends are you seeing in the markets where you invest? In Berlin, there's increasing interest in hardware and B2B.
Lifshitz: In Israel, hardware is declining and declining. It's all about software. A lot of cloud, a lot of storage efficiency, a lot of big data, machine learning applied through all different verticals…
Soberg: I'd say that's somewhat true in the US. There's probably a little bit more hardware in the US than there is in Israel but still as a percentage it seems to be dropping. People are doing more software solutions in place of hardware or using basic standard hardware and then putting all the logic in with the software. There's just not a lot of investments being made in pure hardware. I do think some of the 3D printing is going to change that. I think there's going to be another wave of hardware.
B2B is a trend globally. We're seeing that everywhere… In the US, it's probably 70-30 per cent on our deal flow, B2B companies versus B2C.
Lifshitz: B2C is declining... Our recent deals in Israel involve B2B and very, very deep technology, which is great. High technology risk. Low execution risk. For me at least, that's what I look for. It's easier to find in Israel.
What's Germany known for?
Soberg: Historically, we saw more commerce types and really good execution. We're still seeing really good execution but now we're seeing it across multiple types of businesses.
What about differences in attitudes?
Soberg: Culture comes into it everywhere. For me, when I look, Israel probably has the highest risk tolerance of any place I see anywhere including Silicon Valley.
Lifshitz: The problem is that Israeli entrepreneurs are great at technology and development and risk and everything but they're really not very good in self-marketing... That's where we fall short.
Risk aversion is linked to the amount of capital you have to play with. Agree?
Soberg: If you look at places like Germany in particular, or a lot of different startup ecosystems where there's a lot less capital than there is in the US – you always have to build differently if you don't know if you're going to be able to get more capital.
I think that trend is there. I do think, though, that there's a group of entrepreneurs in Germany that are unique even relative to the US. There are some entrepreneurs in Germany that I think are more aggressive than just about anywhere else. It's not just Rocket. The Kreditech team was going into a new country every six weeks.
They're ex-Rocket though right?
Soberg: I don't think it's just necessarily Rocket. It's that mentality – it's something I don't even see in the US. Sometimes I think it's the reason some of these companies get to the very top of my list. I think that they truly do want to make massive companies that are global. Often in the US, the mentality is – let me build a really good company in the US and then I'll think about going outside.
What's the downside of aggressive growth? Groupon is probably quite a good example...
Soberg: I tend to believe in scaling businesses pretty quickly. I don't think you should be irresponsible about scaling and you have to understand what your operational limits are – but yes, there are definitely some investors that push very hard to scale as fast as you possibly can.
Lifshitz: It's the stye of investment. It's different. It's on a case-by-case basis.
Jon, you met with German Federal Minister Philipp Rösler's recent delegation to Silicon Valley. Do you think it's futile for governments to try to influence their country's startup scenes?
Soberg: Having the government paying attention to startups is a really good thing… I don't think government can make this happen but they can definitely support it.
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