[MUSIC] So you invest in what's called growth capital but there's a whole spectrum of private equity and venture capital investors who do early stage stuff and then do much later stage stuff than you do. Could you explain what growth capital investing means and how that's different from the other kinds of players? >> Sure. So most growth investors have a different definition of what growth is. For us, we sort of see a couple of [INAUDIBLE] on the one end, you have early stage venture capital, which is typically described as series a. Where you investing in some early proof points, but the risk that you're taking is usually product risk as well as market risk. In late stage investing, so pre-IPO stage, you're coming at a much lager stage where the company is very established, has significant scale, and the investment is to get in at a discount to the. On the other hand, you have sort of typical buyer investing, where the focus is on profitable businesses where there's an opportunity to leverage the asset and grow value or rather, build value through leveraging operational sort of efficiencies. Growth is somewhere in between. So we're laying in an early stage because we want that to be real revenues, a working product. So we're never really taking product risk. We're never intentionally taking product risks. >> [LAUGH]. >> We want to come in where there's a good product, there's a working product, the customers are buying, and we can really finance sales and marketing expansion. So ideally we want to work with a team to really figure out, what is the sales and marketing equation that makes sense. How much. >> How much capital is needed to do that? >> Exactly, and if we hire one salesperson, what is the level of incremental gross margin that'll generate. And you'll sort of use that to figure out what the right level of investment is to sort of drive sales marketing and international expansion. So for us, growth capital is clearly high growth businesses with real revenues. And the level of revenue depends on the business model. But we typically think of sort of an entry level of $5 million. And then the model is about building topline revenues. So taking a business worth five or $10 million in revenues, and over a three year period building it to 50, 100, $12 million in revenues. We're not focused on profitability. We're not focused on leverage. But we're really focused on building revenue and building revenue product. Where our investments do well, is because they're growing rapidly and I have strategic value to an acquirer. >> So a business that's been bootstrapped and customer funded in it's early stages becomes interesting to you at what point? When they get to five million in revenue or ten or where? How do you know? >> It depends on the business model. So with Software businesses with recurring revenue streams. We're comfortable with smaller businesses so that's about a million Euros a quarter where we start to think, okay this is in range. Where as the businesses that have a lower gross margin profile in the 30%, 40% gross margin, we like to see closer to two million in quota. But if I bring about the spectrum of deals that we've done in the last 12 months they've all been about between eight, and $12 million, revenue run rates at the time of investment. >> So many of these businesses that you get to know, have been bootstrapped, and customer funded, so they really don't in some sense need capital. So how do they know when it's time to change that model and say, okay now is the time to go get some outside capital from creditors somebody like Kenneth is suppose to just staying on the customer funded track. >> Yeah. It's an interesting challenge one that we're dealing with everyday. So the position that we're on is, we really need to sell our capital to entrepreneurs. Early stage investors are investing companies that need cash and those funds that with cash. It buys you're acquiring companies that are typically for sale. So our first challenge is to find high growth, interesting, capital efficient businesses and usually they're off the radar, they don't go to tech events, they're not in the vcc and they're just head down building their business, wherever they are. So we have a data problem to find them, and we spend a lot of time and resources doing that. And then once we connect with them, we spend a lot of time working the entrepreneur to A figure out whether there is an opportunity. And we only want to invest in companies where we think there's an ROI on investment. And typically founders are always thinking about one of two things. They're thinking well and I've now got the business to a level where it has value. Usually there are majority shareholder or even 100% shareholders. So if you sell a company for ten million Euros or 20 million Euros that you own 100% of, it's a big level of capital. Or they're thinking, well should I potentially raise capital to expand to a new market and so we'll typically work with them to provide and option that's somewhere in between. So we can work with a business. We can focus on convincing the founders to work with us because we can help them expand geographically through our presence in the US. We can bring on board senior executives and advisory board members inside the US market. Help professionalize the business such that the value increases because we're focusing on strategic value levers rather than cash flow profitability levers. And at the same time provide some level of cash out dearest gang such that if the investment doesn't go as planned, and whatever their takers cash out on the table. So as a part of the stretcher we're setting to follow why they should work with us. And once gets that it becomes a very interesting where to go because you get 2 bytes of the Apple. Some are equated to know and you get a much bigger equality event later on. And you also get the support of the group working across Europe and the US with everyday. Folks in the building and the business centers. What differentiates founder led, capital efficient, bootstrap businesses to many other businesses is that usually you have a founder who's doing everything. Making all the key decisions, doing strategy, doing execution, hiring, business planning, negotiating the lease. Yeah. Sundays doing the monthly accounts. What we really found it to do was to focus on the highest ROI events and recruit the best people to do finance marketing sales, board and and sign and so it's a very attractive way to go for all off the ground entrepreneurs. Yeah, and that's why, A we like founder-led businesses and founder-led businesses like us, because of our model. So our model is, we learn all about deals to be successful. We target a base case return on each investment of three times capital with the upside opportunity to get much higher than that if you're able to generate major value. But we dont want to risk the company to do that, so we focus on not having losses in the portfolio. And if you think about someone who owns the majority of their business, that appeals to that kind of individual. Because they want to know if not a ten or 20x return. There's still reasonable value. We get a bit of return. They make some money. As opposed to a company, once you're in the venture capital life cycle and you've raised $20 million the bar to have any value for the founders is already really high. So you have a strong incentive to roll the dice. Where as founders who haven't raised capital really don't. >> Well hello, I want to thank you, this has been just fantastic and I think it's really some eye opening perspectives that our participants are going to find from your comments, and it's also nice going back to go viral to hear kind of the end of the story, and how that deal panned out. So everybody was happy with that deal. And I know Jimmy and Claus were. And I know you guys were happy with that deal. So it's really pretty cool to see how this whole growth capital thing can work and pan out when things go as everybody wants. So thank. >> Absolutely. >> Yeah, so thanks for coming. It's fantastic to see you. I really appreciate it. >> Thanks for the time, Erin. Enjoyed speaking to you. [MUSIC]
