HUNTING UNICORNS IN CEE INTERVIEW WITH ONDREJ BARTOS, PARTNER CREDO VENTURES

Why a VC fund dedicated to CEE?

Well, first we are a Central European team based out of Prague, Czech Republic, and we believe VCs should invest in geographies they know well and in companies they can be in close touch with. Second part of the answer is that we are really bullish on Central Europe and its potential — if we weren’t we’d probably be in a different business.

IS CEE special?

Well, we certainly do believe CEE is special. Although you cannot view the region as completely homogenous, as you probably know CEE as well as the whole Europe is fairly fragmented, we believe the countries in Central Europe share a couple of really interesting denominators: first and foremost, we believe in an outstanding technical talent supported by well developed STEM programs in universities which go back a couple of decades — and Polish, Czech or Romanian developers frequently score very high in various rankings. Second, the cost base, including but not limited to salaries, is much lower than in the Western Europe and the U.S., not even mentioning the Bay area or New York, and we’re talking not marginal advantage but multiples of 3 to 5-times lower. Finally, as already mentioned most of the Central European countries are small — too small for startups to make their businesses viable locally, so what we see is international, in many cases global ambition from day 1. And we believe the combination is a great melting pot for future greatly successful startups.

Is a term sheet from Credo equivalent to a term sheet from YC?

Credo is a small VC covering a tiny developing startup ecosystem, so I would not even compare ourselves to YC. But I believe it is fair to say our term sheet is as plain vanilla as most reputable seed VC funds in Silicon Valley or the UK, and we have in many cases co-invested alongide them (actually, we’ve invested into YC companies as well). Credo has been built around the same principles as YC, Sequoia or Index have: respect to founders and passion for fueling their startups and helping them to convert ideas into reality. In that respect I believe we’re similar, although compared to YC and others, we’re still learning a lot and have a much smaller scale.

What can CEE VC learn from SV funds?

Credo raised its first fund in late 2010, started investing in early 2011, so what we still lack compared to the best early stage VCs in the Bay area is experience, also we haven’t seen so many great successes in our region. So there’s a lot to learn. The important thing is we are eager to learn — and as mentioned, we’re co-investing alongside SV firms, we show them deals from our portfolio or even pipeline and try having an open conversation. 2 years ago one of my partners moved to Menlo Park permanently to double down on our mission of building relationships in Silicon Valley and support our startups there.

What are particular risks of CEE venture financing business?

I would say there are two particular risks of CEE when it comes to startups: one is attached to early stage cap tables, the other one to go to market. Let me explain further: for the cap table risk, unfortunately what we very often see in CEE (and I guess it might apply to many other less developer ecosystems) are broken cap tables with too much equity in hands of early backers, angels or other funders, which for funds like Credo can mean a problem if there’s not enough equity to enable future funding rounds if the potential is there and at the same time to motivate the founders and team. The second risk just addresses the fact that in CEE there aren’t too many experienced sales people and marketers who would know how to take a great product (sometimes technologically superior to anything else out there) to the global market, and founders are very often inexperienced or even hesitant to hire world class team. Needless to say, we at Credo are trying to help with both of those risks.

You are in fund three. How has the CEE startup market evolved over the last years?

I’m happy to report that the market has evolved and progressed tremendously. And it is not just that compared to some 300 business plans we saw in 2011, this year the count will be around or even above 1,500. But we’re also seeing a good number of success stories — in our portfolio you can see the first Romanian Unicorn UiPath or successful exits to Oracle or Cisco, also more and more VCs and strategics from the U.S. or Western Europe are becoming more active here.

You have UiPath in your portfolio. What’s the secret sauce of your fund? Luck before smarts or smarts before luck?

(Laugh) We’re of course trying to be lucky and smart… There is no doubt that investing in a startup that becomes successful contains a great portion of luck. However, I also strongly believe that the chances of being lucky increase dramatically if you work hard and do the right things. So to try to answer your question, we haven’t built Credo on a belief we’d be lucky. Rather we try putting together a smart hard-working team and invest in smart people. At the same time we’re hoping to get lucky. Does that answer your question?

How come the Czech Republic has a strong VC and startup ecosystem?

Czech Republic has one of the strongest VC and startup ecosystem in CEE, yet in comparison with Silicon Valley we’re still at the very beginning — kindergarten or even nursery. Why Czech ecosystem seems to be among the strongest in the region is hard to say, but I think some of the reasons are that we’re closest to Germany and Western Europe, we’re a small market which makes many entrepreneurs think international or global from early days, and finally because we were lucky to have several good stories like Avast, AVG or our investments Cognitive Security and Apiary.

How are you competing for deal flow?

We’re trying to do the right things, we’re responsive, we give genuine feedback, we’re supportive and we systematically build a great network both in our region and in Silicon Valley and other developed ecosystems. We believe founders should also select their VCs and every day we’re striving to be the best ones to choose. No other magic sauce here.

What’s next for Credo?

Hopefully many more great success stories where we helped founders in their ambitious aspirations.

Is being a VC hard work?

If you want to be a good VC it’s definitely not easy and it is hard work (although not physically). If people describe that being an entrepreneur is like a big roller-coaster, being a VC is like being on several roller-coasters at the same time. It’s definitely not for everyone and especially the emotional part is sometimes rough. On the other hand I’ve never done anything else where work could be so rewarding and exciting. For some people it could be a nightmare but I still believe it’s one of the best jobs in the world and I love it.