What does an investor pay attention to when evaluating business models?

Expert interview
Jan Becker
Founding Partner of FLEX Capital and 10xFounders

Jan Becker is an entrepreneur and expert in the field of KPI management. He has served as CEO of various companies, including FriendScout24, for many years and has invested in over 100 firms. In addition to 10xFounders, Jan Becker is a co-founder and partner at FLEX Capital.

Peter Waleczek
Managing Partner of FLEX Capital

Peter Waleczek is an entrepreneur and an expert in strategy development, financial management, and inorganic growth. At FLEX Capital, he primarily works with the Marbis Group (Nitrado, Apex, MCProHosting) and the OMS Group (Formware, Rasterpunkt, and docuguide) within the portfolio.

What do successful entrepreneurs consider before they invest? In a conversation with FLEX Managing Partner Peter Waleczek, Jan Becker, Co-Founder and Partner of FLEX Capital and 10xFounders, reveals what matters when investing in tech-enabled companies and the role he plays as an investor.

Hello Jan, it’s great to have you here today and for taking the time for this conversation. Please be so kind as to introduce yourself briefly at the beginning. Who are you, and what have you done?

Jan: I’m Jan Becker, one of the partners at FLEX Capital. At the beginning of my career, I worked at Lycos, one of the first and highly significant search engine brands at the time. I worked in business development at Scout24 and became the CEO of FriendScout until I started my first company in 2007. Since then, I’ve founded two more companies and, together with Christoph Jost and Peter Waleczek, built FLEX Capital. Additionally, I founded the 10xFounders fund, which invests in early-stage startups.

On the side, you have successfully invested and have been able to accompany many national and international companies that scaled in their early stages. What do you pay attention to when it comes to companies in the MitTECHstand phase that are in the scaling phases?

Jan: One should distinguish between different phases. In the early stage, a very high iteration speed is important. This means trying and testing, and being close to the customer to understand their problems and then solve them. The product-market fit and problem-solving should be so good that the customer is willing to pay for it. Unfortunately, this is often not the case with young companies.

Then comes the actual scaling phase. In this phase, it’s crucial to test different marketing channels and understand which ones are efficient, meaning cost-effective and quickly scalable. There are significant differences at this stage, especially between B2C and B2B startups. To compare and scale marketing channels, it’s essential to experiment rapidly, iterate, modify landing pages, and measure these processes precisely. Not all channels—such as LinkedIn, Facebook, PR, and offline campaigns—are easily comparable, but that’s precisely what’s important.

Another challenge I’ve observed with founders is finding the right people and successfully integrating them into the company.

During the scaling phase, it’s essential to test and understand the different marketing channels to determine which ones are efficient, meaning cost-effective and quickly scalable.

What KPIs and areas do you focus on when evaluating different business models?

Jan: In a nutshell, I primarily look at the unit economics. This means that I examine the lifetime value of each paying customer. Afterward, I segment this analysis based on different customer groups or various distribution channels. This approach can be applied effectively in the mobile industry, for instance. An iPhone user, for example, may have a higher expected customer value than an Android user. This value may vary depending on the age category. In the B2B sector, the size of the company plays a role in determining the value

Secondly, I examine how customer acquisition costs behave in various channels to decide where the money can be best allocated. Churn is an important factor in this regard. When churn rates are reduced, the expected lifetime value of a customer increases, ideally leading to revenue growth. This means that for each new customer, I earn more annually because I can launch new product functionalities. In summary, it’s a positive sign if the unit economics improve across cohorts.

First and foremost, I look at the unit economics. Then, I examine how customer acquisition costs behave in different channels.

What are good quality attributes of a customer from an entrepreneur’s perspective? In what ratio should customer acquisition costs be to customer lifetime value? What are excellent churn rates for you?

Jan: The answers to these questions cannot be generalized as they depend heavily on the specific business model. There are B2B business models that have intrinsic churn. For example, if you’re building a dating portal, the goal of the business idea is to bring customers together and have them unsubscribe afterward. You have successfully created customer value and fulfilled the product promise. This approach leads to natural churn.

On the other hand, if I offer financial software as a SaaS model deeply integrated into a company’s structure, I expect the churn rate to be significantly lower. The ratio of customer acquisition costs to expected lifetime value should be greater than three, ideally in the range of five.

In addition, the time it takes to recover customer acquisition costs for each customer is also crucial. As an entrepreneur, if I manage to recoup the money within a month, I have a significantly lower cash flow requirement than if it takes me two years to recover my customer acquisition costs and then make the corresponding revenue over the following four years.
At what company size does it make sense, in your view, to introduce the position of a floater? How should this role be structured?

Jan: I myself was a shareholder of a company where I held the role of a floater. This allowed me to have an objective perspective on all business processes. Often, in the very early stages of a venture, the founders themselves act as floaters. If there’s a problem in one area, one of the founders steps in – you can also consider it as collaboration among specialized generalists. Of course, each person has their specific functions. Nevertheless, I believe that this cross-departmental thinking is valuable.

The right phase to introduce the floater position is at the beginning of the venture, as soon as the founders or the top management begin to specialize, and a certain silo mentality starts to emerge. The holistic perspective on the company’s activities must not be lost, and this can often only be achieved when a selected person – the floater – looks completely unemotionally and non-politically at the different cross-departmental projects of the company. Normally, this is the task of the COO or the CEO. However, they are often already deeply involved in the processes and are considered political due to their role within the company, which makes them unable to act as floaters.

The right phase to introduce the floater position is at the beginning of the venture, as soon as the founders or the top management begin to specialize, and a certain silo mentality starts to emerge.

That is, from 50 or 100 employees, you would think about introducing the role of the floater?

Jan: I think that’s a good size.

What else do you look for before you make an investment?

Jan: That depends on the phase the company is in. What I personally find exciting and appealing is when I see that a company has a very good Product Market Fit, meaning it’s clear that customers love the product. This is often reflected in high conversion rates and low churn rates.

When the entrepreneurial team has also managed to establish a great company culture, meaning shared values are upheld and everyone is pursuing the same goals, I think that’s great as an investor. This can be beneficial for the investor in later stages, especially if not all growth levers have been utilized and not all processes have been fully optimized yet.

Personally, it’s important to me as an investor to see that I can contribute with my entrepreneurial know-how and help drive the company forward. In other words, if I were to invest in a fully optimized Ferrari, the additional value I can bring as an investor might not be as significant.

Peter: Wonderful. Thank you for your time and the interview.

Jan: Thank you Peter. I was happy to talk to you.

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