Let start with: we've actually had good B2B returns in the past. Neo4J, the graph database, is a great company and recently raised an $80 million growth round from Morgan Stanley and OnePeak. We've sold businesses like IPtronics, Trunk Archive, Game Analytics, and CloudMade, and took Asetek public on the Oslo stock exchange. Prezi, while it started as a consumer productivity company, is now firmly a SaaS player.
To some extent, the need to focus is a result of more capital flowing into the industry. The VC market has tripled in the last decade in Europe. We were seeing more and more deals and the good investments were becoming more competitive. There's a limit to how many companies you can look at with a small team, especially if most of your partners have a "full load" of board seats.
Both in terms of preserving our sanity, but also from a perspective of meeting and then converting the best founders, we knew we needed to specialize. We also felt like a broad positioning was preventing us from developing "deep" investment theses which are a prerequisite of investing from a place of conviction.
At the same time, we were starting to see a lot of "deep tech" investments. A kick-ass team from ETH and KIT, doing some super interesting robotic sensors for manufacturing in several specific verticals was my "moment of truth." I knew I would need three months of diligence to really figure out whether the company was as interesting as it seemed, and in the end it would be a judgement call that I still wasn't really qualified to make. Would I really be the best partner to these folks?
The network effects of specialization extend to your ability to source, select, and convert the best founders and companies. But they also extend to the value-add you can provide afterwards. A focused network of founders, operators, and other experts in consumer internet, from ecommerce to consumer productivity software, is much easier to build and maintain than one that tries to encompass "the entire tech stack." Over time I've become much more interested in depth than breadth.
Consumer came naturally for our whole team, because it was where we had been gravitating anyway. With exits like Boozt, which returned more than our first fund, with some of our most recent top investments like GetYourGuide, Natural Cycles, or Seriously (the makers of Best Fiends) it was clear that we were better at B2C (or B2B2C) than B2B.
It didn't hurt that consumer tech has historically yielded larger outcomes. If you think of European venture-backed outcomes, they are exceptional companies like Spotify, Skype, Minecraft, Farfetch. Sure, there's an Adyen or an iZettle as well, but it had been a long time since Business Objects and SAP. In the Pareto distribution ("power law") world of venture capital, investing from a portfolio point of view isn't about minimizing risk or playing it "safe." It's about maximizing your potential outcomes.
What we love about consumer as well is that there are essentially two buckets of consumer investing: the adoption of new technology by consumers (think Google, Facebook, etc.), which have so far contributed the bulk of venture returns, and which we still believe can yield great investments. In terms of timing, there is a bit of a lull in this market as folks wait for consumer adoption of things like voice computing, AR/VR, decentralized web. And hence the time to invest is now.
But there is a second bucket, which is companies applying existing technologies to old industries and very stable consumer preferences. Many of these currently look like they can build category-defining trusted brands that will likely be very large companies and given network effects may hold that position for a long time.
And finally, going consumer-only is a contrarian take, which is also something we liked. Much of our market has been talking about enterprise, SME, SaaS, deep tech. In contrast in the US, Forerunner and Maveron have built consumer-only firms that have been very successful.
So we're joining a small stable of funds here in Europe: so far we know of Felix, JamJar, and Eutopia that have a primarily consumer focus. We'd love to connect with other folks who share our thinking.