Why so many startups will get stuck in the seed phase in 2024

Niklas Benesch von ROI Ventures. © ROI Ventures
Niklas Benesch from ROI Ventures. © ROI Ventures
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2023 was hard, and 2024 won’t be any easier – this has already become clear from our interviews with investors about the outlook for the current year when it comes to startup financing. From large VCs like Speedinvest to small angel funds like ROI Ventures, many are currently focusing on the pre-seed and seed phases.

What that means and how ROI Ventures around co-founder Niklas Benesch sees 2024 is what he tells us in an interview today.

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Trending Topics: What is special about ROI Ventures? What makes it very different? What is your specialty?

Niklas Benesch: We are an early-stage angel fund, an investment company that five of us run from Austria. We have set ourselves the goal of promoting teams and talents at a very early stage. Of course, we support them with capital, but we are involved in other processes as sparring partners in order to guide the startups from pre-seed to seed and then towards Series A and to take the teams by hand to a certain extent.

Often startups say they want to challenge entire industries. You are now the young investors. Are you the challengers to the old ones in the VC business?

Definitely. You can definitely see it that way and we have set ourselves big goals for 2024 and also for the future. But I believe that, despite a very competitive market environment, you ultimately have to work hand in hand to push the ecosystem.

What are the investments you make? How does it work? Can you give us some examples from your portfolio?

We usually invest between €50,000 and €100,000 initially. We have focused on B2B, but on the other hand, we are very active in the tech sector and have the teams from Gatespace, rebuild, and Magic in our portfolio, for example. We are overall invested in Austria, Germany, Spain, Switzerland, in the UK but we also have a team that is currently based in the USA. Accordingly, we are also very widely represented internationally.

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As investors, you not only write checks, but you also write entire books. One of them is called the “Big Book of Venture Capital”. What can you read in it?

We try to integrate ourselves very strongly into the ecosystem, gain new perspectives, and try to network widely. The “Big Book of Venture Capital” is an annual review or outlook on the venture capital industry, which collects many voices from a wide range of investment levels in order to provide an overview.

According to the Big Book of Venture Capital, 57% of VC-backed startups will have to raise money again in 2024. Is this normal, is this a lot, and what does it mean?

Above all, it means a big challenge for the founders and also a big market need. It was the case that last year there was still a lot of reluctance and the teams themselves were still holding back from going into the next round due to perhaps a lack of KPIs and a lack of traction. In 2024, the need will definitely be there, and that means that a new dynamic will emerge in the market. The only question is how this will be accepted by investors.

You are on the investor side. How do you think the story will end this year when so many startups – more than every other one – come back to you and other investors?

On the one hand, it will mean that many investors will have to go into follow-on financing again simply to strengthen their own portfolio companies. We still see very big competition in the early phase. This will not only be evident in the pre-seed, but also in the seed area. What is questionable is simply the transition from start-up to growth financing and ultimately from seed to Series A. And we expect major problems with the teams and actually an increase in bankruptcies, or simply a change in the business models and the general strategic approach of the teams, which may then no longer be able to grow as strongly.

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What I also read from you is the catchphrase “Stuck at Seed Phase”. This means that many startups can raise money for the pre- or seed phase, but then find it very difficult or impossible to get a Series A. What does this mean for the market or why is this the case?

In my opinion, it’s pretty quick to find someone in the early phase who you can get excited about your ideas. Taking them into the seed phase is a challenge, but it is doable. The next step is actually to turn the ideas and vision from paper into reality and to really show that the business model works, that the market is ready, and that the product works. Many teams are currently failing because of this, as they are of course operating in a very difficult market environment, are getting little traction, and are therefore unable to meet their own objectives.

And especially in the transition from seed to Series A, numbers, data and facts become very relevant and the larger growth financiers then want to see the corresponding traction. If this is not the case, the expected problems arise, which of course mean that if there is no more capital and fundraising is really a big need, there will be further downrounds, there will be further layoffs and the teams Those who do not manage to raise Series A will have to reorient themselves significantly.

These are not rosy prospects. How do you think things will continue in Europe in 2024? 2023 was certainly marked by increased bankruptcies, with one or two emergency sales also occurring. What do you think will happen next this year?

I see Europe and believe that this trend, albeit with a slightly more positive approach, will continue in 2024. One can assume that there will be an improvement again and investors will also have more appetite for investing and fundraising. Nevertheless, I believe that it will continue to affect some teams. However, I don’t see this as an incredibly negative aspect, even though I of course feel sorry for the founders. But I think this market reset that has taken place in the last few months is also good for the whole thing in order to really achieve more sustainable growth here and to cool down this hype phase that we went through at times and simply build something long-term and more sustainable.

If you look at pitch decks today and think that new startup teams need to build more sustainably, what are you looking at as an investor?

Of course, with us in the very, very early phase, we still want to see that the hockey stick is possible and the fact that great growth can lie ahead. I think it’s simply a matter of a realistic assessment of the market situation in relation to the business model and, above all, a realistic assessment of the issue of competition. In my opinion, many teams are simply very weak when it comes to market and competitive analysis, especially in the early phase.

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If you look at the deal flow now, which direction is the trend going? Is everyone doing AI right now?

The AI ​​hype is definitely still very big and there are a lot of teams that get into the buzzwording without creating any effective added value using AI in the business model. But I still believe that there are many possibilities. We see a lot of startups in the software sector in a wide variety of industries and verticals. But, for example, as you mentioned before, the link between AI and HealthTech could emerge. An effective trend cannot yet be identified.

What about Crypto? Can this come back?

I believe that the crypto sector itself will continue to be relatively stagnant. I still see great technological benefits and great innovative power in the topic of Web3 and blockchain. If teams manage to create added value in the business model, I believe that the topic of blockchain will become very relevant again. However, I currently don’t see any strong growth figures for crypto per se. Short hype phases will definitely occur again, but I think they will again be characterized by some fluctuations.

You are in the early stage area, as are many other large investors. Do we now have to compete with the big players for investments?

You recognized that well, you definitely have to and I think the competition in the early phase is high. In terms of our setup and investment approach, we generally invest as co-investors alongside one or two larger funds. This means that synergies can also be developed here. But with such large funds, also because of Speedinvest, they take a lot of shares with them on the way to an investment and at the end there is less scope for angels or smaller funds. Conversely, this also means that we simply have to get better, continue to shape our own approach and emphasize why we are a good benefit for the teams and startups. And if we succeed in doing that, we will continue to be able to participate in very good rounds.

What is the outlook for ROI Ventures itself, what are your plans for 2024? How do you want to develop further? Do you want to set up such a large fund yourself or do you want to stay small and fine?

That’s a good question. Last year we invested almost €900,000 in startups in 14 investment rounds. Of these, 12 were new investments in the portfolio. This is how it should continue in 2024, which means: We now want to gradually develop a portfolio. We now just want to develop ourselves further, improve ourselves further, see that we gain traction and I believe that there are a few opportunities that will open up along the way, which will then gradually become clear as to which horses we will be betting on.

Venture in Eastern Europe Report: Startups have raised over €1.8B in 2023


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