30. Challenge Accepted. with Stephan Schulze

Piotr Karwatka: [00:00:52]  Hi Stephan, thank you for accepting  my invitation.

Stephan Schulze: [00:01:18] Thanks for having me here.

That's awesome. 

Piotr Karwatka: [00:01:21]You agree Markus, I’m super happy you decided to join me. Maybe you can introduce yourself? 

Markus Lorenz: [00:01:37] Thanks for having me. Yeah.

My name is Marcus Lorenz. I work now for 15 years within the IT industry. The last six years at Lampenwelt, Europe's largest retailers for lamps and lighting products. And on the outside, I was responsible for the IT department and had the pleasure to develop the IT department as well on the employee as well on the tech side.

And since the 2017 project at Lampenwelt I also got to know Stefan and this is the point where we mapped and collaborated closely together. And Stefan was a really mature sparring partner for me, but I would say that we talk about that later on. Now I have the pleasure to work for Divante, and we'll back up Divante in the DACH region from March, 2021, and we'll help our clients to solve the challenges around the composable commerce area.

And yeah, I’m super happy to work with a highly motivated team and support all of the Divante employees and clients. And for the next episodes of the podcast, I'm also sure that we will have exciting guests in the future. Absolutely. 

Piotr Karwatka: [00:02:46] Thank you, Marcus. And I'm also super excited about our cooperation regarding the podcast and all the new episodes that will come out of it. But now let's switch back to our conversation with our guests. 

Piotr Karwatka: [00:02:58] First of all, guys as far as I know you, you met each other a long time ago. You are good friends. So how it all started?

Stephan Schulze: [00:03:04] I mean, I think we didn't meet before, before we actually invested in numbers. So it must've been in the due diligence process actually. Marcus, I think you have been like on vacation, right? And we had like a longest session, you were sitting somewhere in a hotel. 

Markus Lorenz: [00:03:23] You're right. I was on holiday on an Island and had the pleasure to be remotely within my first due diligence ever. And look in Stefan's eyes through to and monitor. And the second time was within an Italian restaurant where we met in person to discuss the details. 

Stephan Schulze: [00:03:38] Yeah, exactly. And I think I also can remember sessions that we had in the alumni offices. And later when it came about speaking, or what is your, what's your setup here? Why is it working this way and that way, Hey, what are your pieces looking like? And then how do we actually connect it to all of that stuff? A third thing, we had a quite intense time together. And then I mean, after the investment act we met regularly and the exchange of what topics and speak and be sparring partner for each other. So that's like pretty nice. So good to see you also the future. That sounds really cool.

Piotr Karwatka: [00:04:09]. And I think that the setup for our today's call is great because we can get really deeply into how fans and fan venture builders, accelerators, however you name it? Like we're gonna go into details in a second like how Project A  works because Marcus, was a CTO of a portfolio company of Project A and you are the CTO of the venture itself. So we can get really deeply into dynamics between the portfolio companies and, and venture funds, which is really cool. But first of all maybe you gonna tell us a little bit more about project guy itself about the fund portfolio companies  

Stephan Schulze: [00:04:54] Happy to share what we're doing. I think the first thing to mention is we are, we're an operational VC. There is a bit, we see and that is a bit of a USP in the European scene. We have a set of experts actually that have our portfolio and Project A was originally founded back in 2012. From the former he's at Rocket Internet or the joint or decided to find, okay, let's do something different let's create Project A. And since then we are beginning. We did a lot of incubations, so really creating companies from scratch at that point in time, men in the e-commerce business. And then now that let's say per full in range, actually each to extended. I personally joined in October, 2015. In like a CTO position there. And at Project A if you select a VC party of like three funds at the moment around 500 million Euro assets under management, and our portfolio is relatively broad. So we have like in the startup direction companies like Trader Public, Spriker center and many others which is also like a relatively broad range between B2C, B2B.

And everything that has like a digital business and or platform model and next to that, and I think that's also important to mention we just only do, we don't only do the VC business in terms of investing in startups, but around 20% of our funds actually going into private equity, core investments and datas, for example, also where I met Marcus which was like the second P investment that we did it per today.

And that's then, for example, companies like that, like after teller 24 more known in Germany here but also Austrian companies like Cuba we're, we're B2B business and creating machines that are creating tooth replacements and, and stuff like that. So relatively broad and a lot of stuff that we see.‍

‍Markus Lorenz: [00:06:40] Awesome. Maybe Stefan, can you go one step back and for our audience who is not so familiar with private equity and venture capital, can you please explain the difference between Venture Capital and Private Equity or the kind of VC and Private Equity investments? ‍

Stephan Schulze: [00:06:56] Yep. Yep. That absolutely makes sense. The Venture Capital part is mainly Risk Capital. So we actually investing money into companies where we. Well, you're doing due diligence and then somehow relating the market and trying to let's say, pick the right companies. But at the very end, it's something we say, look, we're investing money in a company with the hope that it's developing into something like a unicorn direction or unicorn evaluation, an important point in time.

And we are typically a bit more early stage investors. So that means we do. We typically doing like seed series A investments.  And the tickets would be 1 to 8 million depending on maturity and the stage of the company. And up to like 30 million in total, that's mainly our part and our main focus is mainly software and tech enabled business models.

So typically a Software as a service model or something like that. And a set this company or companies are mostly super. Young compared to the private equity part, especially they are heavily founder driven. And it's like what you imagine as a typical startup, small company doing everything they can on wanting to either survive or truly grow and then manage the scale that they're facing.

And then on the other side, we have Private Equity Investments. And then this private equity part is not that well known.  I would say it's typically funds like to BI cup that are equity to just name some of them who really have much, much more money than we have also more in the billions. And they typically buy companies completely. And it's maybe also like a difference in the VC business. We invest a bit of money. We get like a specific share of the company. PE funds actually buy the complete company. And then they do, let's say whatever they want for them, that that's not completely right.

But they are the owners of the company. And they're what we typically do is we do like a co-investment of them because we are not, you don't have the money to buy the company completely. But we do include investments especially. I'm also meeting our ticket size between one and 28 million.

And the, the main driver for that is actually especially for the PE funds, because for us Hades, they own a company. Why should they have another investor coming in? These company then can get access to operational support and our operations services which is not possible for anybody who is not in our portfolio.

And I think that's, that's like the main differentiation start-up relatively small, fast growing and like more living from 12 to 18 months. And the PE company is always profitable and like bought completely VIP fund.

Piotr Karwatka: [00:09:28] Gotcha. So it's all about the profile of risks and the groves potential groves, where the risk is higher. The groves are also much higher, but when we have this PE situation, the business is more stable. 

Stephan Schulze: [00:09:41] And, and  that's cool.  I'm wondering what does this Operational VC really mean? You mentioned that project a is operational BC, how it differs from like maybe classical VC or also how it differs from Rocket Internet because you just mentioned that it came out of a kind of split as Rocket Internet and, and guys wanted to make things different.

Stephan Schulze: [00:10:08] Absolutely. You mean in generally it means we have experts in-house so they are employed per prototype. And we can actually use these experts to serve our portfolio in every direction. I'm going to speak about experts. That's not, that's maybe like a difference compared to other VCs. It's not just the people we have in our network who knows stuff and are maybe particular experts in a specific area.

We have the people employed in or payroll. And this is like teams that do, for example, data engineering, data science that do talent acquisition for a portfolio that can help with marketing that can, of course in my direction help with any IT related support when it comes to software architecture, software implementation infrastructure, and so on and so forth. 

Piotr Karwatka: [00:10:55] So you can drop them exactly when they need it, so that the company doesn't need to hire look for some guys. If they are at a very early stage, it's very hard to hire really. 

Stephan Schulze: [00:11:07] So we can help that as a temporary provided. Yeah. And I think one of the important things is to know net operation and model is our funds are getting a management fee, like a refund. And we use parts of the management fee to subsidize our services. And then as we are also like shareholders in the companies we've worked together with we always have the same motivation and alignment. So for us, it's not about staying in there as long as possible and getting as much money out of them.

It's more like to really create value and outcome and then leave them and make them more standing on their own. Not being highly dependent on us. And when you have a look at typical VCs they often have things like investment or team of investment managers and the network of experts, but they are not able to tell from things that they actually really did by themselves.

So I can go into my teams and ask, Hey, how did we actually implement explore that like a specific portfolio company and, you know, the executive get details. And also all of the pain points when we dealt with the problem. That's highly valuable for a portfolio. 

Markus Lorenz: [00:12:07] Awesome. Maybe we can do a little bit digging deeper in those services and services besides money you provide as a project, for your portfolio companies. And maybe we can also have a look at those service dimensions. You mentioned a few of them are marketing engineering and so on how they are structured and I would like to hear what are the most consumed services from Project A. 

Stephan Schulze: [00:12:31] Yeah.  It's a, it's a good question. And to be honest, I'm not 100% sure. Sure. I mean, I can tell from my perspective it is one of the largest teams there. And we're also sitting do related to that most of the support in our, in our portfolio. But it, I tap and no, and that's something that we, we also do for our portfolios. We help them to hire the right people.

So I know our Talent Acquisition team. It's also like huge in terms of like 10 people who are doing the sourcing doing the connections and speaking to people on holiday, they, for example, handle like 15,000 applications per year. And that if you see that like income, which is more like a bit invisible, compared to what we are doing.

Then that's also a huge amount. And then afterwards marketing is coming which has been much bigger in the past, but as we switched or food was a bit more to B to B oriented investment focused in the, in the last one and a half years there was not really the need to have such a big team anymore. So it shrink a bit and is now like, a slightly smaller, but more suited for our portfolio actually. 

Markus Lorenz: [00:13:35] And if I'm right, you also have an awesome data team around who's doing amazing things with data, data warehousing, and stuff like that. Maybe we can also have some insights about that.

Stephan Schulze: [00:13:48] Yeah. So we have, like I said, every direction they can nowadays need to run like Digital Company experts and be brought into the team around Marketing. And, and also all the, or head of BI is actually helping our companies to become more data-driven on the one hand to create at the very first step, because it's often not there.

So kind of constantly updated you on data. Bringing all of the different data sources together provide some kind of analytics, insights creating something like a data warehouse, for example. And then can also help us topics when you come to the machine learning range of trend prediction or forecasting of, of any development of a specific KPIs.

This is what their daily business is and we can actually benefit. And I think that's pretty nice as well from all of the experience around the portfolio we are doing and also seeing so part of the job is not just to do stuff, but also I would say to gather knowledge and also share knowledge within our portfolio.

And that helps pretty much because oh, Project A is doing some kind of very interesting thing in that direction, and you know we have a Venture struggling with that at the moment? Let's bring them together and let's organize some kind of knowledge sharing session where both parties can actually learn from each other and get some kind of beneficial input.

And we are also involved in that as well. 

Markus Lorenz: [00:15:03] Yeah. Remember on those exchange sessions, which you also do a yearly event right?

Stephan Schulze: [00:15:09] This is the  event that we're doing that is, it originally started being like a tech day. So I think it was like Austin 2016. So shortly after I joined so that, hey, let's bring as many tech people together that we have in the portfolio.

Right. Let's do a Tech Day and it happened  and that then over time grew much more. Now we're actually doing, like a yearly project and knowledge conference. And it's always free for a portfolio. Yeah, absolutely. So we'll bring all of our portfolio together, plus invite only external guests who wants to join.

And it's always, I mean, if you do it in person,  I feel it's much better than just doing a digital, like last year. But even there having like a huge audience of like around 5,000 people who were joining us. And I want to contributing, but also listen to  the knowledge that we get from us and our experts and sharing that in a book that's super exciting.

Markus Lorenz: [00:16:07] I can highly highly recommend this because it was really awesome to listen to all these speakers get insights from the portfolio companies and the different dimensions around data marketing engineering, Matt.

Awesome people at this conference and highly appreciate that project is doing such an event.  Thanks for the insights you have overcome. Maybe we can have a short look at the operating model with the venture itself. How has the operating model look like? And what is the collaboration with you as the CTO or the team with the ventures?

Stephan Schulze: [00:16:41] Yeah. It's very broad. I would say sort of what all. We always check what is really needed on venture side, and that can be everything from, we have like a six feet legit check in off like 30 minutes. We just talk a bit and, and extensive kind of ideas.  Maybe sharing some information that I picked up somewhere else.

Up to like, we are really involved with the food team working or supporting a venture for, for half a year or a year in India. Sometimes even longer, even if you try to wipe that as much as possible. And that, that is a range we are in. And especially in it, I would say we are currently more into long-term projects as to be onboarding and offboarding takes quite a bit of time.

So it doesn't really make sense to support for two weeks. But even that is happening sometimes. So sometimes we see portfolio companies. Just struggled with a very specific part to set up maybe it sounds like trivial, but set up like a like a normal standard Taka set up now for, for local development.

And this is also something we can, we can quickly jump in and say, Hey, look, we'd want to have weeks maximum what you can just a couple of days to set that up and then it's done. You can continue from there. And yeah, the question is probably, maybe one of the questions about, does it cost money? Actually that's yeah, so that's, that's a bit to point.

So you're not yet at, at the level where we can do that for free that that's like, like a pity, but I think also somehow, right, because it's stuff that is for free, always. It doesn't seem to be like good. So it costs money. That's true. As I mentioned before, we subsidized it from the management fee.

And the, I think what we bring into like that alignment with the company goals also that's like that because we are shareholder and it doesn't really make sense for us to just get money out of the company that ideally is invested in stuff that is really creating value for them. Does it answer your question?

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