"If I buy a Ferrari that’s been completely optimised, then the added value that I bring as an investor is no longer quite as high."
What do successful entrepreneurs look for before they invest? In an interview with FLEX Managing Partner Peter Waleczek, Jan Becker, co-founder and partner of FLEX Capital and the 10xFounders, reveals what is important when investing in medium-sized tech companies and what role he plays as an investor.
Founding Partner of FLEX Capital and 10xFounders
Jan Becker is an entrepreneur and expert in the field of KPI management. For many years he was the managing director of various companies, including Friendscout24, and invested in over 100 companies. In addition to the 10xFounders, Jan Becker is a co-founder and partner of FLEX Capital.
Managing Partner of FLEX Capital
Peter Waleczek is an entrepreneur and expert in strategy development, financial management and inorganic growth. At FLEX Capital he mainly works on the portfolios of the Marbis Group (Nitrado, Apex, MCProHosting) and the OMS Group (Formware, Rasterpunkt and docuguide).
Hello Jan, it’s good to have you here today. Could you please start by introducing yourself? 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 then very important search engine brands. I worked at Scout24 in business development and became CEO of FriendScout until I started my own business in 2007. Since then I’ve founded two other companies and built up Flex Capital together with Christoph Jost and Peter Waleczek. I also founded the 10xFounders fund, which invests in early-stage startups.
You’ve made many successful investments and have been able to support many national and international companies that have been scaled up at an early stage. What do you look for in medium-sized tech companies that are in the scaling phase?
Jan: You should differentiate between the different phases. In the early phase, a very high iteration speed is important. In concrete terms, this means trying and testing and being close to the customer in order to understand where their problems lie and then solve them. The product-market fit and problem-solving should be so good that the customer is willing to pay for the product Unfortunately, this is often not the case with young companies.
Then the actual scaling phase begins. In this phase, it’s important to test the different marketing channels and to understand which of them are efficient, i.e., cost-effective and quickly scalable. There are big differences here, especially between B2C and B2B startups. In order to be able to compare and scale the marketing channels with each other, it’s important to quickly try them out, iterate again, change landing pages and measure these processes very precisely. It’s challenging to compare the individual channels – for example LinkedIn, Facebook, PR and offline campaigns –with one another, but that’s exactly what’s important.
Another challenge I’ve observed in founders is finding the right people and successfully integrating them into the company.
In the actual scaling phase, it’s important to test the different marketing channels and to understand which of them are efficient, i.e., cost-effective and quickly scalable.
Which KPIs and areas do you pay attention to when you evaluate different business models?
Jan: First and foremost, I look at the economics unit. That means that I look at the lifetime value of each paying customer. I then segment this analysis according to different customer groups or different sales channels. This procedure can be applied well in the mobile sector. For example, an iPhone user has a higher expected customer value than an Android user. This value changes depending on the age category. In the B2B sector, a customer’s value depends on the size of the company.
Second, I look at how the customer acquisition costs behave in the different channels in order to then decide where the money can best be allocated. The issue of churn plays an important role here. When churn rates are reduced, a customer's expected lifetime value increases, and ideally revenue expands. That means I earn more and more every year for each new customer because I can go live with new features in the product. In summary, we can say: It’s a good sign if the unit economics improve over the cohort view.
First and foremost, I look at the economics unit. Second, I look at how the customer acquisition costs behave in the different channels.
What do you think are the characteristics of a high-quality customer from an entrepreneurial point of view? How should customer acquisition costs relate to customer lifetime value? What are prime churn rates for you?
Jan: I can't generalise the answers to those questions because they depend so much on the business model. There are business models in the B2B space that have intrinsic churn. For example, if you set up a dating portal, the goal of the business is to bring customers together and then have them unsubscribe. So you’ve successfully created the customer benefit and fulfilled the product promise. This approach leads to natural churn.
If, on the other hand, I offer financial software as a SaaS model that is deeply implemented in the company's structures, then 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 closer to five.
In addition, the period of time it takes to earn back the customer acquisition costs plays an important role. If, as an entrepreneur, I manage to earn the money back within a month, I have a significantly lower cash flow requirement than if I only manage to earn back my customer acquisition costs after two years and then only make the corresponding sales in the following four years.
From what size of company does it make sense to introduce the position of a stand-in? How should this role be designed?
Jan: I myself was a partner in a company at one point, in which I held the role of a stand-in. This gave me an objective perspective on all the processes in the business. It’s often the case that the founders act as stand-ins in the very early phases of a company anyway. If any problem arises, one of the founders steps in – you can also describe this as a collaboration between specialised all-rounders. Of course, each person still has their own special functions. Nonetheless, I think this cross-departmental thinking is valuable.
So the right phase for the introduction of the stand-in position is at the beginning of the company, as soon as the founders or senior management begin to specialise and a certain silo mentality arises. The holistic perspective on the activities of the company must not be lost, and this can often only be achieved if a selected person – the jumper – looks at the different, cross-departmental projects of the company in a completely unemotional and non-political way. This is usually the job of the COO or the CEO. However, these roles are often already so deeply involved in the processes and are considered political due to their function within the company that they cannot act as stand-ins.
The right phase for the introduction of the stand-in position is at the beginning of the company, as soon as the founders or senior management begin to specialise and a certain silo mentality arises.