Paweł Bochniarz, serial entrepreneur, advisor, mentor, and expert in commercialization of new technologies, Managing Partner of Poland’s Value Tech investment fund with a $6 mio capitalization, spoke to Invest Foresight about current mechanisms of early stage support for startups, and prospect investment areas.
How did your project, Value Tech, start and what is its philosophy? What are the most important areas/directions of your activity?
Value Tech Seed Fund was set up in 2017. It is one of probably around 50 seed funds operating in Poland today. It was launched as part of a government program called Bridge Alpha. The philosophy of the program is to attract private investors to put their money into early stage, high-tech projects. Hence the government agency running the program, the National Center for Research and Development, put in place attractive incentives for private investors. My fund has 6 private investors (four private individuals and two companies) who put into the fund €1.5 mio and the government further added €4.5 mio. We are therefore able to invest up to €6 mio into innovative startups. Our investment ticket is typically around $250K and we focus on transformative technologies for traditional sectors of economy such as energy, retail and manufacturing. At this point we have 11 companies in our portfolio and we are closing another three investment agreements in the matter of the next few weeks.
What are the specifics of your venture company, who are its main clients, what kind of activities and assistance do you perform?
Our main clients are our investors and we are working hard to assure a satisfactory return on the money they put into our fund. On the other hand, we are also dedicating a lot of time to the support of our portfolio companies. As an example, in one startup, we helped to recruit a highly experienced sales director. In another one, we helped them to get in touch with potential suppliers in Taiwan. Elsewhere we open doors to potential customers and of course, we are helping to find new, follow-on investors.
What are your most interesting projects and deals? How do you work with projects, which have already been invested in? From which areas of activity do you have the most projects?
I consider all of our portfolio companies as very interesting. You can look them up on our website. Most of our portfolio companies are still at a pre-revenue level, developing their products, performing proof-of-concept implementations, however, some have already gained some interesting market traction and are beginning to grow quickly. One example is Lerta which is digitizing energy production, trading and consumption with its very innovative AI-powered tools. The vision of Lerta is to become the world’s largest energy company without any owned production assets. Another example could be ZeroQs – with its innovative SmartCart. It is a mobile self-checkout for retailers that eliminates queues in supermarkets. One more case could be Noctiluca, a company set up by experienced chemists, which is synthesizing novel OLED emitters.
What are support mechanism for novice entrepreneurs (their requirements, stages, kinds of support, etc.)?
The ecosystem for supporting innovators has developed rapidly over the last several years and from the Polish perspective I can say that looks nothing like 5 or 10 years ago. At the early, concept stage, there are several grant programs offered by the National Center for Research Development (NCRD) and the Polish Agency for Entrepreneurship Development (PAED). NCRD is more for deep-tech projects and it offers non-repayable grants that can reach up to several million euro. Typically, NCRD requires an entrepreneur to contribute 20-25% of the grant amount, so usually one would need to also have an investor, unless there are own financial resources available.
PAED grants often cover 100% of the costs and are not limited to deep-tech projects. However, they are also usually smaller – up to €250K.
In both cases, one can apply for the grants if one has a Polish company set up. This can be done online, although it is wise to have a legal advisor to guide through the process.
At what stage are you ready to consider a startup? At the level of an idea, business plan, finished product or first customer? What is the first step a team should take to get help from an investment company?
In our fund we usually don’t accept projects which are just concepts. We would expect to see a strong team, a solid business plan and at least some kind of prototype. It doesn’t have to be fully developed though. We focus on ideas that could be scaled globally and which potentially can have a significant impact on industries. We provide on our website a template pitch deck, i.e. a presentation for investors which outlines all the main tenets of a project. Some teams, probably most of them, come to us with their own pitch decks and then we analyze in several steps, what are the areas of the project which we have to analyze more thoroughly, what are the potential risks and benefits of the investment.
What are the specifics of venture capital funds in Poland?
I would say that probably 75% of VC funds in Poland have been set up with some sort of backing from government agencies such as NCRD or PDF (Polish Development Fund). The latter is the largest government-backed fund of funds in Europe at this point. 25% of the funds are entirely private. There is probably around 50 seed funds in the market, which invest very early on, but typically no more than €250-500K. Then there are late seed and A-round funds which can provide more generous funding of up to €2 mio. I guess there may be 20-30 of those. And there are also later stage funds with tickets going above €5 mio. I am leaving out private equity here, which is a different kind of a story. VC practices have become more uniform and have edged closer to those in more mature markets such as the Nordics or Germany, but since there is a large institutional investor in place (NCRD, PFR), you may expect some additional requirements in terms of reporting and compliance.
Do you work with Russian companies or investors?
We are open to work with Russian innovators and Russian startups, provided they establish a company in Poland and are active in our market. They do not need to shift all of their business to Poland, but need to have some “boots on the ground” – have clients here, some employees, maybe do some R&D. As regards Russian investors, I do not see them as being very active in our country. Perhaps they have more activity in the Baltic countries such as Latvia or Estonia.
What is the role of the media in your bbusiness?
Media are an important channel of promoting the activities of our portfolio companies. Of course today, the attention is shifting more and more to online channels, especially the social media. In fact we are about to launch a LinkedIn campaign targeted at future investors, to help our portfolio startups to more effectively position themselves.
In the near future, what industries may ensure biggest return on investment?
It is a very difficult question, as the final impact of the COVID pandemic is not yet fully understood. We do not have a full picture in terms of which sectors of the economy will suffer and which will boom, apart from some obvious situations like those with the tourism and airline industries. If I were to pick the likely hot spots for investments, my bet would primarily be telemedicine, online education and industrial automation. I think that the current crisis is an excellent opportunity to speed up technology adoption in those sectors.
By Christina Firsova