Fail Conference 2012: Patrick polak
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Newion Investments Management has three funds under management focused on early and later stage IT software companies in the Benelux region. The presentation outlines lessons learned from failures, including staying focused on building a sustainable company rather than quick exits, carefully planning acquisitions and integrations, and ensuring all shareholders remain aligned. Key takeaways emphasized understanding the business thoroughly, building minimal viable products, focusing on growth and proof over assumptions, and listening to intuition over being impressed by experts.
Fail Conference 2012: Patrick polak
- 2. Fail Conference Ghent, November 6th 2012 Failure is not about falling down, failure is about staying down 2
- 3. Introduction • Newion Investments Management has 3 Funds under Management: • Newion Investments I: Early stage IT software fund ( € 28 mln, 2000, closed) • Private Plus Fund: generic fund (€ 20 mln, 2005, closed) • Newion Investments II: Early –Later stage IT software fund (€ 50 mln, 2011, open) • B2B, Enterprise Software • Benelux • Stages: • Early: Market validation by minimal 5 pilots/customers • Later: Expansion stage has just started • Investment rounds: min € 500.000 up to € 2.000.000 • Total max € 4.000.000 per company • Controlled growth philosophy: fully funded rounds 3
- 4. Team 4
- 5. Under Management 5
- 6. Personal obeservations • These are personal observations • In hindsight everything is easy • No one can predict the future 6
- 7. Failures that hurt most • Company A (RIP 2002) • Buy and Build strategy in Supply chain software • Focused on exit rather on building a company • IPO forecasted in 2001-2002 • Large syndicate of large VC‟s/PE involved, plus Angels • Too many people involved….. • Successful but dominant CEO • Many acquisitions (paid in shares and cash) • Too fast • No Integration of product and organization and region • Too much money involved: “almost too big to fail” • If one PE would say no to next funding round: full dilution… so domino effect • Lessons • Ambition is great, but you have to build a company rather than go for the exit. • Doing an acquisition requires strategy, careful planning, investigations and integration. • It is high risk! • Do not acquire the next company until the previous company is successfully integrated • Make sure all your shareholders are aligned, and keep them aligned. • A small team is way better and efficient. • Listen to your gut feel!!! If it doesn‟t feel right, it is wrong 7
- 8. Failures that hurt most • Company B (RIP 2010) • Expansion Software for Defense industry (intelligence departments) • World class technology • Track record and references • Unbelievable committed and dedicated (complete!) team • Unpredictable market • One year good revenues, the next none. • Fully driven by budgets and politics • Lessons • No matter how good and committed the CEO and team is, it is not always a guarantee for success • I did not have experience in this typical market • In defense industry you need to be very well funded to survive the long dry desserts. It‟s different compared to other software markets • Shareholders to “bridge from gap to gap” is not the right way: after a while everybody is tired • Understand the situation and try to move away from a market while you still can 8
- 9. Almost a failure • Company C (Successful exit in 2006) • Investment in September „01. • Goal: Buy and Build since they had 1 huge dominant customer • Autonomous growth was not high enough compared to the growth of this dominant customer: buy and integrate other companies to become less depended on this customer • Good technology, good management, excellent market • Long term contracts • 1 week after investment, large customer in financial difficulties: ending relationship with all their suppliers • Instead of investment for growth, re-organize • Laying off over 50% of all staff in two rounds (early 2002 and early 2003) • Lost many key people in second round • After re-focus: acquisition/merger with competitor • Rebuilding again in 2004-2006 • Successful exit in 2006 9
- 10. Almost a failure • Lessons • Timing is everything • Never give up in fighting for the company • In a re-organization always cut deeper than you expect • Minimum of 20% more • Staff is intelligent: they understand and acknowledge the first reorganization. But at a second (or third) they do not support the management and talent looks elsewhere. • Keep your eyes open for survival and maybe that is by doing something hat hurts your ego: talk to a competitor • VC‟s have to stay close to the management of the startup • Many times young entrepreneurs • VC should have hands on experience • VC‟s must look for a solution for all stakeholders • Including founders, other shareholders, staff etc.. 10
- 11. My personal cliché takeaways • Understand your business through and through • Measure everything. • Find a balance between “if you think you are in control, you are not going fast enough” and “to finish first you first have to finish”. • Analyze everything and “sample size n=1 is no proof”! Don‟t fool yourself • Be in daily contact with your customers: they tell their needs and wishes. And they are the believers in your startup. Use that. • It is the CEO‟s job to test new offerings to existing customers, not a sales guy‟s • Look for proof. Real proof…. Don‟t fool yourself • “sample size n=1”is no proof! • Build a Minimal Viable Product! And test it with your customers. Do not build the “Full-Spec-Product-Suite-From-The Attic”: you will be too late. • There is no such thing as 1+1=3 • There is no magic, it is dedication, hard work and smart thinking. 11
- 12. My personal cliché takeaways • “Failure is not about falling down, failure is about staying down” • Why have you ever started to become an entrepreneur? • Focus on the positive things, not on the negative. • And if things go wrong, explain and be professional: you‟ll have a second chance later • It is not the exit, it is building a company • Take the best people in your team. Never compromise on this • Shareholders can ruin your company if they are not aligned, not share the same knowledge, philosophy, experience, etc. • Do not expand too soon or too fast • Scale only if you can prove that your business model is predictable!! • Always listen to your gut feeling. • Use your brain, listen to your heart • Do not be impressed by the seniors and specialists • If it doesn‟t feel right, it is wrong. • Buy: Steve Blank’s “The startup owners manual” • Prepare, Stay focused, Have Fun! 12
- 13. Do you have any questions ? 13
- 14. Thank you for your attention. 14
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