Christoph Janz – Talks Point Nine Capital, being bullish on SaaS and that Zendesk investment

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Finding the right people is definitely the most important piece but we’re of course also looking at the product and the competition and the size of the market and what level of proof for product/market fit there might be already. We typically invest at a stage where there is some proof of product/market fit already which can come in the form of having some usage or growth or some paying customers.

Christoph Janz, a.k.a the Angel VC is Co-founder and Managing Partner at Point Nine Capital, a VC firm based in Berlin. Before venturing into investing in SaaS startups, Christoph was previously an internet entrepreneur. In 1997, Christoph co-founded the DealPilot.com, which was acquired by Shopping.com. And in 2005 Christoph co-founded Pageflakes also acquired by Live Universe. His notable investments include Zendesk, FreeAgent Central, and Geckoboard.

Christoph joined Alex Theuma on The SaaS Revolution Show Podcast, which is available to listen to in iTunes, SoundCloud and now on Stitcher. Below is a lightly edited transcript of the conversation:

After being an entrepreneur, why did you become a VC and Start Point Nine Capital?

There was not really like a big plan behind it. It’s not like this was a clear career path that I had always planned to pursue. It all kind of happened in a natural way.

When I left Pageflakes, the company that I had founded and which you mentioned in the introduction, when I left the company after the sale in early 2008 I wasn’t quite sure what’s next. I was basically looking around on the internet looking for new interesting things. I was open to potentially creating another company but also wasn’t really in a rush.

Then I stumbled on Zendesk which, at that time, was still a very young, tiny company but it was what got me interested into SaaS. Then since Zendesk worked out very well, of course, I’ve been really fortunate with this investment, I then looked for more SaaS companies that were somewhat similar to Zendesk in one or the other way. I then made a few more SaaS investments and I kind of started to like it.

Then a few years later, I teamed up with Pawel Chudzinski to create Point Nine Capital, but this is again also something which just kind of happened naturally over time because Pawel and I we were already working together informally on some seed investments. Then at some point we decided that we’re ready for the next step and raise a bigger fund together.

What does the name Point Nine Capital stand for?

I’ll let you guess. I typically let everybody take a guess. Some people get it but some also came up with some very nice maybe equally viable, creative ideas.

So what’s your guess?

You’re putting me on the spot here. My really terrible guess would be that as a VC, you help elevate startups through nine different pillars or core points.

Good idea. It’s a good idea but not quite right.

I’ve also heard things like nine bullet points. But the real answer is that it’s just a little play on version numbers. So it refers to the point-nine version of a product which is typically what comes before you launch the first public version of the product, or we could be referring to a public beta version.

It’s just saying that we’re early-stage investors and that we’re happy to invest in companies at an early stage when they might not be completely ready. Maybe the team isn’t complete yet or the product isn’t quite launched yet so that’s basically all that’s to it.

VCs seem to be super busy people. How many pitches do you take a week and what does point nine look for in a startup when being pitched?

Everything that you’ve said I think is true although I would add that I’m probably not as busy as many of the founders which might be listening into this podcast. I think actually busy as I am and as much as I do, and I can talk a bit more if you want about like what that actually is, I still think that like founders or CEOs probably have the more difficult job. Probably there’s more and more pressure and more and more time pressure and you have to deliver product on time and hire people very fast and be always available for your team.

Whereas we at Point Nine we’re a very small team and my colleagues take a lot of work off my shoulders. At the same time, we’re also not growing the team very fast so the amount of management that I have to do is much, much less compared to someone in an operational role. So busy, yes, but no reason to complain.

And to answer, I think, the second part of your question was like what we’re looking for in all those many pitches to find out which are the ones that we want to invest in? It’s a variety of factors. Like other investors we are looking for startups that go after large opportunities, really, really dedicated, energetic founders that have the drive and the passion and the conviction and commitment to build large companies which is obviously insanely difficult.

Finding the right people is definitely the most important piece but we’re of course also looking at the product and the competition and the size of the market and what level of proof for product/market fit there might be already. We typically invest at a stage where there is some proof of product/market fit already which can come in the form of having some usage or growth or some paying customers.

It’s very rare that we invest at a stage where there is just one or two guys and a PowerPoint presentation, although it did happen one or two times. But at the same time, we’re happy to invest at a much earlier stage than most of the bigger VCs that are focused on Series A financings and later stage financings.

I’ve seen a few VCs often publicly advising Startups ‘do not take VC money’. Is this a doctrine you subscribe to? Is it reverse psychology?

I think it really depends on the type of company that you want to build and the environment that you’re in. Most small businesses that get founded, probably don’t raise venture capital and probably they can’t and also they shouldn’t. But if you want to build a global business in SaaS or with an online marketplace or a consumer internet company then I think in most cases you’ll just need money to grow faster because you’re not operating in a vacuum. If it was just you and no competition and you could take as much time as you want then maybe you shouldn’t raise money and avoid the dilution. But the realities that if there are big opportunities in the market it usually attracts a couple of players so it’s usually a race for market share.

Money obviously is not the only solution to win but it’s usually part of the solution because you need to build a team and usually you don’t have enough revenues in the beginning to pay the people that you need to build out the product and bring it into the market.

Coming back to the earlier part of my answer, I think it really depends on what company you’re building and what your vision is and what your ambition is.

Some VCs, for arguments Sake lets say some US based VCs, have a policy not to invest in Startups/founders that aren’t geographically based near them.They can’t help if the founders are not in the same town/time zone. But Point Nine are based in Berlin and have investments in the US, Japan, New Zealand, UK. So why are you agnostic with regards to geography of founders and investments?

What you said is right. Most VCs, especially the ones in the U.S, are pretty focused on or usually limit their efforts on companies that are very close to them. I think one reason for this is probably that if you are a Silicon Valley-based investor, there is simply no need to look elsewhere because that ecosystem is so huge and highly concentrated.

In Europe, on the other hand, the landscape is much more fragmented and there is not just one city or one region in Europe which is producing great startups. It’s a number of countries and then cities. We’ve seen great companies, we see them everywhere and then we have made investments in many European if not most of the European countries and, in some cases, even outside of Europe.

It means that we work together with the founders in somewhat different ways than it used to be in the past. It means less physical meetings, less interactions where you’re in the same room with the founders. It means more collaboration over Skype, over Basecamp, or various other tools. But I think that’s just the way it is. If we were limiting ourselves to investing only in Germany or only in Berlin then we would miss all the other great companies that we see if we look a bit further away.

Out of your current portfolio, Vend, ChartMogul, Front and Algolia are for me the big names. The ones I instantly know and all doing really well. But which of your recent SaaS investments, are you super excited about and we should be too?

That question is always a bit tough because it’s a bit like the question of like which of your kids do you love the most? We love all of them. So if I talk about or if I single out some companies that shouldn’t say anything about other ones. So maybe I’ll just talk about some of our more recent investments.

I think one of the more recent or the most recent SaaS investment that we’ve made is a company called Procurify, again based in Vancouver. Quite a long distance from us. Procurify the cloud-based procurement solution for medium-sized businesses which makes the whole procurement process really, really easy. Like many other SaaS companies that we’ve invested in, it’s a software company which tackles something which most people would probably consider to be a pretty boring or even unsexy problem. But we’re really fascinated by what they’re doing.

Like many VCs, you also blog on a fairly regular basis. Recently you recently published a post about being bullish on SaaS. That was kind of on the back of SaaS stocks tanking recently: Salesforce, Veeva, Workday all seeing a fairly large decline. On the back of that, will we continue to see huge valuations in SaaS companies? And will it be the norm to stay on the private market and not go public?

I haven’t seen too many SaaS IPOs this year. If you look at DocuSign, for instance, raising a ton of cash, Series F, no rush to go public. 

It seems that what we’re currently seeing and which is really very different from what the markets looked like 15 years ago or so when so many dot-com companies went public is that currently the valuations on the public markets are usually much lower than the valuations which the best startups can get in private rounds from VCs or private equity investors. That is certainly one of the reasons why companies don’t feel in any rush to go public because they can raise huge amounts of capital at very high valuations without going public.

Whether that is going to stay like this or if it’s going to change, I really don’t know. Depends on so many, many factors so I think I don’t really have an answer or speculation on that.

I think we’re currently seeing an interesting phenomenon in the market where those companies that either are the clear winners or are perceived to be the next big superstars raise money at really, really high valuations. I think for some of them it’s probably justified and maybe Zenefits is one of them. Then for others it’s not.

But here, one of the reasons is certainly that there is a large amount of capital available by later-stage VCs, private equity investors and other big sources of growth financing and because of the economics of their funds or investment models, they need to do everything they can in order to be in those winners or unicorns because there just aren’t that many unicorns. So you have to do everything you can to be in the small number of unicorns that are born and made every year or every decade. Because there’s just so much capital and not so many unicorns that drive up the valuations of those unicorns so much.

I think this could also change again. I think it’s probably subject to a cyclic development where interest in this type of investment or entire asset class goes down, goes up and down in longer cycles. So I think this is something which could change as well.

Also as I’ve written in this blog post, I’m trying to not even think about that or about public market valuations too much. I’m super bullish about SaaS and the Cloud in the long run for many reasons, some of which I’ve described in this blog post. And the short-term fluctuations in valuations, whether that goes up or down, whether it’s for public stocks or private companies, it doesn’t really matter. It’s almost like a parallel reality.

Within that post, you also wrote that IDC estimates that in 2015 the market share of On-prem deployments and enterprise is still around 80%, so it’s still this huge opportunity for SaaS as a whole. I guess it’s difficult to say, but when do you predict it will be 80% Cloud and 20% On-Premise or 100 % SaaS if ever?

It’s hard to estimate like when it will switch to Cloud getting the majority of the investments, 80% or even 100%. I mean, what’s clear is the direction that every year the part that goes to the Cloud goes up and the part that goes to On-Premise goes down. It’s developing in this direction at a pretty high speed. So hard to say like how long it will take to really reverse that ratio. Maybe another 5-10 years or so.

But I am convinced that in the longer term almost everything, maybe everything, will move to the Cloud. I just can’t find enough compelling reasons for On-Premise deployments. Maybe in 20 years from now or so it will be unheard off that someone could run their own servers in their office or in their own data centre and then maybe people will laugh at that idea.

Personally, all my I.T is in the Cloud. I wouldn’t think about using On-Prem.  So I certainly think based on the trend of the millennials growing up using SaaS, that SaaS is certainly going to capture this 80% and make it maybe 70-80% in favour of SaaS and software being in the Cloud. So good on the millennials.

Absolutely. Actually, I think people like you or maybe even younger people who eventually take over like critical-decision maker positions in companies, I think they’re probably not just asked the type of questions which the generation before them asked around security and/or other concerns because it will simply be the default assumption.

Will your first investment in Zendesk be the one that you’ll be most famous for or is there… I guess you’re always hoping that there’s going to be ten other Zendesks?

Good question. Zendesk was definitely a very fortunate pick. It’s not something which I can expect to hit again every year or maybe even every couple of years. I do hope that we at Point Nine, my partners and me, will be able to make like similarly successful investments in the future. Some other companies are on a good track, although of course still like a long time to go until they reach the same level of success as Zendesk.

Maybe a realistic goal is to hope for like one Zendesk every 5 years or every 10 years and maybe other successes which are also very big but not quite as big a bit more frequently.

by Alex Theuma @alextheuma

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1 comment

  1. Mrpeasy.com

    Reaally nice interview with susch SaaS guru. Thank you, Alex!

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