This post first appeared on Project A’s Insights blog

Part 3: Insights into our investment process

As he mentioned in his last post, Ben will be illustrating the evaluation process that we use for both our incubation and acceleration projects (see here for more information on these two separate types of investments). Based on selected examples from our portfolio, he will explain the reasoning behind why we invested in certain ventures and discuss the criteria underlying our evaluation process.

Those who would like a full overview of the key factors in our evaluation framework, which was also explained in detail in Ben’s previous post, can find it here.

Incubation of Internal Ideas

For our incubation projects we’re constantly on the lookout for new business models, technologies, trends and markets. We regularly organize brainstorming sessions and interdisciplinary think tank workshops involving experts from different teams. Those workshops are paired with constant market and trend research focused on finding opportunities that align with our investment themes and fields of expertise. Once we have narrowed the creative processes and research down to a concrete opportunity, it then enters our evaluation framework.

Recent examples of incubation projects are our ventures Loopline Systems, Spryker Systems, and Contorion:

Loopline Systems offers an easy to use SaaS solution for performance management and feedback. At a time where the replacement of an employee can cost companies between 30% and 400% of the employee’s annual salary, Loopline Systems helps to retain key performers by improving employee management (problem solved) and thus keeping engagement, motivation and satisfaction high. The ongoing “war for talents” and the high demand for cutting edge solutions in the area of talent management make the HR tech market very attractive. The technology, unit economics and business model fit perfectly to Project A’s capabilities and focus, allowing us, in addition to simply funding, to support Loopline with product development and testing, business development, customer acquisition, and – last but not least – user feedback, as we use the tool ourselves internally.

Spryker Systems is a new approach to e-commerce frameworks built on our internal e-commerce framework Yves & Zed. Rather than building a “one size fits all” software as even state-of-the-art players do, Spryker offers a highly evolved modular development framework allowing continuous feature development while maintaining a scalable and agile infrastructure (USP and competitive advantage). Spryker primarily focuses on bigger ambitious e-commerce customers, most of whom suffer from inflexible shop systems (problem solved). Regarding the growing e-commerce market, there is no doubt about market size and exit potential. With Alexander Graf and Nils Seebach from eTribes and CTO Fabian Wesner (formerly CTO at Project A Ventures and Rocket Internet), we have a very experienced and extremely knowledgeable team in place. This and the wide network of agencies (partners) which are being enabled to implement the framework drastically reduce the market entry barriers. The recent investment by Cherry Ventures and several private investors (such as Benjamin Otto) furthermore underpin our investment thesis.

Contorion aims to conquer the massive B2B MRO market, which shows strong digitalization trends (market potential). While existing competitors still tend to ignore the online world, Contorion has shown amazing progress in entering the market as a pure online player. As a trustworthy partner with an easy to use product, it solves a real problem for its customers while building strong relationships. The underlying Yves & Zed technology enables Contorion to build a scalable and very personalized shop system (see Spryker above), demonstrating the competitive advantage and the perfect fit to Project A’s capabilities.

Acceleration of External Ideas

Besides our incubation projects we also invest in existing businesses in Seed and Series A stages. In these cases, companies and entrepreneurs approach us through our vast network, fellow investors or our website. Usually, companies interested in collaboration/cooperation are looking for “smart money”, i.e. they are not solely looking for the money itself, but also for operational and strategic support. We really like this model as our involvement aims to reduce the operational risk on both sides.

Consequently there are two questions which need to be answered when evaluating external ideas. First, we need to analyze the idea itself, including the team, technology, and traction behind it, using our evaluation framework in a first step. Second, we need to think through what kind of support and expertise we can offer at the given point in time and going forward. We often receive amazing ideas from great entrepreneurs but simply don’t see a perfect fit with our focus and capabilities.

Some examples of recent acceleration investments are Catawiki and ZenMate:

Catawiki aims to become the leading auction platform for often hard to find collectibles such as stamps, comic books, or jewelry. The platform is very focused on passionate collectors offering highly curated auctions, which is the biggest differentiation from existing platforms such as eBay (USP and competitive advantage). Catawiki showed exceptionally good growth over the last month (traction and KPIs), a very solid business model and great economics (such as user acquisition cost and retention). Furthermore, we co-invested with Accel Partners, with whom we had already made successful investments (co-investors). Since our involvement ,we have successfully worked together with the Catawiki team to improve their product, help with internationalization, implement our data warehouse solution and train their staff in performance marketing.

ZenMate, which I covered in an earlier post, offers easy to use VPN-like data

encryption for browsers and mobile phones, which matches our digital infrastructure investment theme. The ease of use of the product is both a USP and competitive advantage compared with existing solutions. It has solved a big problem for users all over the world. Additionally the timing of the very capable and committed founder team was perfect, as the launch concurred with the growing interest in data privacy on the internet (followed by the Edward Snowden story shortly thereafter). This development favors the constantly growing potential customer group and market size. Last but not least, the fit to Project A’s capabilities worked out great as we were and still are able to support the team in product development, server architecture and performance marketing.

As an investor with a proprietary fund we made a promise to ourselves that we would carefully choose the projects and companies in which we invest the money that has been entrusted us. So we work very hard to identify and evaluate the best business models, teams and technologies to build and support great, sustainable and successful companies and entrepreneurs. There are many very exciting investments spaces such as Health, Energy and Social Entrepreneurship, but we always try find the project with the best possible fit with our focus, capabilities, and strategy, in order to leverage the best possible effect.

Previous posts from this series:

Part 1: “Our Evaluation Framework”

Part 2: “How to turn great ideas into successful businesses”