263 / June 13, 2024

B2B SaaS Investors Discuss European And Indian Startup Ecosystems

54 minutes

263 / June 13, 2024

B2B SaaS Investors Discuss European And Indian Startup Ecosystems

54 minutes
Listen on

About the Episode

The Nuances of B2B SaaS Investing

On this episode of The Neon Show we have Laura Raggl, a distinguished partner at ROI Ventures. Based in Europe, ROI Ventures is renowned for its strategic investments in B2B SaaS companies globally.

In this episode, Laura shares her extensive experience and insights into early stage investing. With a portfolio of 18 diverse investments, Laura discusses ROI Ventures’ approach to angel investing, their investment criteria, and how they nurture long-term growth without initial revenue or traction requirements.

We also explore the intricacies of the European startup ecosystem as Laura highlights the unique challenges and opportunities it presents, especially in contrast to other major markets.

Whether you’re an investor, a startup enthusiast, or someone curious about the venture capital world, this episode offers valuable lessons and insights into venture capital and angel investing.

Watch all other episodes on The Neon Podcast – Neon

Or view it on our YouTube Channel at The Neon Show – YouTube


Siddhartha Ahluwalia 01:02

Hi, this is Siddhartha Ahluwalia. Welcome to The Neon Show. I am your host and also co-founder of Neon Fund, a B2B SaaS fund that invests in the most enterprising B2B SaaS companies that are coming out of India and are building for the globe.

Today I have with me Laura from ROI Ventures. It’s an angel fund based out of Europe and they are known for investing in B2B SaaS in Europe and now globally also. Laura is an Austrian and now, Laura, welcome to the podcast. So excited to have you on the show with us.

Laura Raggl 01:38

Thank you so much for the invitation. Happy to be here.

Siddhartha Ahluwalia 01:41

Laura for our audience, we would like to start by the introduction about the ROI Ventures team and what is ROI Ventures and the history of ROI Ventures.

Laura Raggl 01:51

Yeah, definitely. Happy to start a little with our history and why we started ROI Ventures. I’m basically into VC and angel investing since six years now.

I started out at a DeepTech Fund in Austria first and then for the past three years, I was managing the Austrian network for business angels. So we ended up having over 300 angels and also VC funds within our network and I thought, okay, what’s the next step now? I have quite some knowledge when it comes to investing, have quite a good network.

So two years ago, me, my husband and two close friends of us, we’ve started ROI Ventures. It’s basically a micro multifamily office where we just put our funds together and we started to do angel investments in a professional and also in a joint way. And we have 18 investments made so far.

We usually do checks between 50 and 100K and we look for outstanding founders. So we invest quite early in the founder’s journey. We don’t need revenue. We don’t need any traction. It’s really founder driven and we like to come in super early and we are like typical angel investors.

Siddhartha Ahluwalia 03:00

And can you tell us more about your thesis and your portfolio split between the first is in Austria and across Europe and how much outside Europe, both across companies as well as funds?

Laura Raggl 03:16

Yeah, the most important point of our thesis is that we like to come in quite early. So early means under 5 million valuation. That’s like a cap we have given ourselves to really find people really, really early at the journey.

So it’s also fine for us if our founder is just starting out, still looking for a co-founder, just having the idea of starting a business. So this is really important for us and this also narrowing down the startups we are interested in. So we thought like we need to have a quite broad focus and that’s why we focus on B2B SaaS.

B2B is quite interesting for us because we have a lot of contacts and network in Austria when it comes to corporate clients, when it comes to bank, insurance companies, manufacturers and Austria is quite often also the next country which is interesting for example for German startups to enter, for Swiss startups to enter.

So we thought okay we can focus on B2B startups and also invest outside Austria. This can provide a lot of value for everybody if we can create access to corporate clients. So that’s why we started to do B2B and our usual ticket size is 50 to 100k and we like to invest quite a lot. So we do 10 to 15 investments a year with the goal of building a quite diversified portfolio. As I said we’re quite opportunistic.

What we’re not investing in is health, also not digital health just because we’re a small team and in the end it’s just a lot to focus on at the same time and we also want to find the best talent in their spaces.

Siddhartha Ahluwalia 04:49

Got it. And all four partners including you are full-time in ROI Ventures right now?

Laura 04:57

No, I would say we have like a split that me and Niklas we’re both like doing this full-time and the three others and they support a lot strategically and we also stay in touch a lot so they definitely more than an LP but like Niklas and me I would say we’re in charge of most of the things.

Siddhartha Ahluwalia 05:16

Got it. And can you tell us more about your own background and about the other founders of ROI Ventures just for our audience to know you as a person more before we dive deep into you know the ecosystem in Europe and how do you think about the ecosystem in India?

Laura Raggl 05:35

Yeah, definitely. I grew up in a really small village in Tyrol. This is like the more I would say mountain based parts in the Alps of Tyrol.

So if you have ever been skiing or if you’re thinking about skiing that’s usually where you should go to. It’s a great place to grow up but for me it was too small at some times. So after finishing studying business and did my bachelor’s I wanted to go to a bigger city and Vienna is the only big city we had in Austria.

So this was quite the place to go for me then and also as I said in the beginning and this was also my entry in the VC world because in Vienna I did the internship at a Deep Tech VC fund and this was kind of the moment for the first time when I realized okay this is super exciting. I can get to work with like really motivated engaged founders every day. I can really do something really fulfilling and be really driven in doing it.

So that’s also why I found investing into startups so fascinating. And I really wanted to stick onto this. And a couple of years later I got the opportunity to lead the network for business angels.

And this was also a really great opportunity for me because my job was basically to do networking for three years which is quite helpful when you also want to invest in startups yourself at one point.

Because also VC is now the biggest asset we have but also when it comes to deal access and also when it comes to supporting our founders is that big network I’ve also built during the time I was leading the angel network. And I feel like it’s really worth it to spend time building a good network as an angel investor.

Siddhartha Ahluwalia 07:19

And how did you and Marco meet? That would be a very interesting story.

Laura Raggl 07:23

Yeah we met really really early actually. I was just 15 and Marco was 17. We did an internship like during we were both still in school and we met at the summer internship where you could like work a little being still in school.

So it was quite funny that we have been together for 10 years now already married since one year and working together since two years. So it’s also quite fun to do this together with my husband and also the other partners and they’re really close friends of us. So we like we really know each other really well.

I’ve met Niklas during my time at the angel network and Julian and Patrick they both were close friends of Marco already because they also have met quite quite early ago and it was just a really nice experience like bring all of us together and it was not as randomly starting a business. It felt quite natural like we were talking a lot about venture and startups already and it was just a kind of logical next step for us to start ROI ventures.

Siddhartha Ahluwalia 08:29

And can you tell us more about the current portfolio like how many companies, how many funds you are LPs in and if you can name some of the top portfolios and what are the regions they are in?

Laura Raggl 08:43

Yes we have focused a lot on the last years to do direct investment into startups and we’ve also started to invest in funds and this year basically. So on our direct investment side we have 18 portfolio companies now mostly based I would say in Germany, Austria and Swiss because that’s also the areas where we have the strongest network in. We have a couple of portfolio companies now in Spain, UK and Sweden as well.

So we’re also trying to go a little broader when it comes to European direct investment and we also figured out we want to diversify more because we can like to invest in Europe ourselves. But we would also be quite interested to invest for example in the US to invest in other countries like India.

And then we thought about our VC investment strategy and this is also basically the reason why we met right because we were looking into the Indian market and about the most exciting VC funds. And you don’t need to look too long to find Neon. So it was kind of a really good fit for us because we were super interested in other ecosystems also in terms of diversification.

And we could never invest in India ourselves, which is too complex. We don’t have the relationships, we can’t assess the founders and it’s such a personal network driven game in the end. So that’s basically the reason why we thought okay let’s look into funds where we can diversify outside of Europe.

Siddhartha Ahluwalia 10:14

Thank you so much. I’m super grateful for the partnership and I’ve really enjoyed our time working together.

Laura Raggl 10:21

Yeah it has really been fun.

Siddhartha Ahluwalia 10:25

So Laura help us understand the European startup ecosystem. What are the pros and what are the cons?

Laura Raggl 10:36

Yeah I was thinking about this question actually and it’s quite hard to see all of Europe being one ecosystem. Actually you could see the US and I hope also India as being one ecosystem. But Europe is definitely quite fragmented.

So there are a lot of different markets, different ecosystems, you have a lot of different currencies, you have languages. So it’s quite tough to see Europe as one ecosystem. And also for startups it is definitely also more difficult to scale faster because you need to yeah market expansion is a big topic as a scale up.

But I would say different hubs have emerged. We have three I would say quite big hubs nowadays one of which is UK I mean UK was for a long time the capital of finance and also the location of most of the bigger VC funds still like I would say there are less startups now which found and go to the UK to found their startup but there’s still like a lot of VC funds especially later stage funds based in the UK. We have Berlin.

It’s also a big hub for customer-facing startups and also VCs. I would say this is the most crowded. And also the most dynamic place especially in the DACH region when it comes to startup investing from the VC side and from the venture side.

And there’s also Paris which is emerging quite a lot because also France is a big country itself and this is also quite important when you want to become a startup hub that your own country in Europe is quite a good market as like in its own.

For example Austria is not a good hub because the country itself is just a little small that you can say okay I do choose Austria for now and then I go to other markets. So this is basically the reason why Germany, France and the UK also being the countries with the most economic activity being also the most interesting hubs when it comes to startups.

Siddhartha Ahluwalia 12:30

So just to summarize. So you mentioned three to four hubs, the largest one is UK definitely. Then people look up to Germany right which is by far I believe has the highest number of startups in Europe.

And then come other regions so for a founder in Austria do they sit in Austria and build for the world or in the beginning years only they migrate to more developed regions like Germany or other parts of Europe.

Laura Raggl 13:06

Yeah there is one really big advantage and I think that’s something Austria has done really well you can get a lot of public grants if you start your business in Austria. So you don’t need to worry about like you being able to finance your life for example in the first one or two years because there’s such so much government support.

And I think this is the reason why if you’re Austrian it definitely makes sense to start your business in Austria. Maybe if you grow and at a certain point you think about adding other legal entities but most Austrian definitely also start businesses in Austria.

I mean there are always a couple of if for example if you build a consumer business maybe it makes sense to directly go to Germany or if you do something in gaming or heavy finance maybe you want to go to London right away. But like most founders I know to start in Austria and this is also an advantage in the beginning.

And also it’s easier to become one of the best startups if you start out in a small country right like it’s super hard to be in the top league in Germany I guess also in India. But in Austria it’s just not too many so if you’re good everybody will recognize you really fast. And I think this also helps you a lot from the investor side and also from the international recognition side and can also help you get started a lot.

And I’m also not a huge fan of over complicating everything. It’s so hard to build a startup it’s so realistic that you can fail. Please just get started and start in your home country if it makes sense of course. And then if you have if you’re in the phase of scaling up and it’s working out you can still think about where you want to go next also from a legal entity perspective.

Siddhartha Ahluwalia 14:41

And which would be the best success stories and startups from Austria today?

Laura Raggl 14:49

Yeah we have two really big unicorns in Austria one is called GoStudent. It’s a tutoring app so for pupils who need to have tutoring to do that online they got a really big push due to Covid because there was not too much online offering at that time. And the second one is BitPanda. It’s a crypto exchange platform.

And I think these two examples are quite interesting because Austria was never meant to be a hub for crypto startups or education startups. We would be really good in science in biotech for example in deep tech focused industries.

And I find it quite interesting that like one like the two most successful startups they like in finance and in education which also shows it’s like a lot about the founder driven side and not too much about the ecosystem where and with which topic you can actually become successful.

And I think in both with both cases is what a lot about timing because we had COVID with GoStudent being a really big push. And also we had like the crypto markets going up at that time for BitBanda which also gave them a quite good advantage and now a lot of other players died or had quite big difficulties in the meantime. And crypto markets are starting going up again so they’re definitely in a really good position now.

Siddhartha Ahluwalia 16:11

And how is the B2B SaaS ecosystem in Austria right now?

Laura Raggl 16:16

Yeah I think in Europe we do a lot which is deep tech a little bit hardware and SaaS I would say 80 percent of all startups you see they would be fitting into the SaaS category. And we also see that in Austria we see that in Germany.

And I think we see this and also we as investors like it a lot because it’s super scalable. And it was quite easy to build a really big company and also with low costs on the employee side for example in the past years. But we also see a big shift now because there’s so much being automated already there.

So much software for everything if you’re a corporate or also SME like you can use so many tools already there are tools to show you which tools you need to use or help you to implement the tools or just having APIs to include all that tool.

So we also feel like see a shift now being looking for more sophisticated startups. We already like more technical startups because it’s quite hard to do differentiation as a SaaS business. And so I will say like deep tech and also more hardware investments I definitely also see that coming for the next for this year and also the next years.

Siddhartha Ahluwalia 17:28

And any large successful B2B SaaS startups that have come out of Austria or of Europe?

Laura Raggl 17:38

Yeah I mean like the two I just mentioned BigPanda and GoStudent they are basically I mean yeah I would say the mix between a marketplace and a SaaS business. And we just had one really big financing round with a startup it’s called DeepL.

And it’s a translation writing optimization tool utilizing AI of course. And they just raised $300 million and announced that last week. So they have a 2 billion valuation now so I would say that was the most recent unicorn announcement and big funding rounds also we have seen in Europe.

Siddhartha Ahluwalia 18:15

And how is this the seed series A and series B ecosystem in Austria and in overall Europe?

Laura Raggl 18:25

What ecosystem?

Siddhartha Ahluwalia 18:28

The seed ecosystem that I’m asking is are there enough seed investors and then series A and series B investors?

Laura Raggl 18:36

Yeah I mean I must say the European startup ecosystem is quite young. So it basically started 20 years ago. And I would say since 10 years we have a lot of activities incoming. And it’s just a little behind when you compare it to the U.S. where just the ecosystem has been existing for longer.

And also most people who have made a fortune in Europe have made it out of traditional businesses and not out of venture. So it’s also a different story when it comes to the LP side which also makes it harder to raise really big funds in Europe.

So we’ve seen a lot of pre-seed and seed funds so it’s definitely like there are a lot out there because those are easier to raise a smaller fund of course. And but what we really like are later stage like big really big later stage funds also like it’s basically starting at series A, B that you need to go to a U.S. fund basically if you want to raise really large sums because there’s just not a lot of options in Europe.

But I also think this will keep on evolving and keep on changing and more people will add later stage funds to their fund portfolio. Or also like start raising and new later stage funds it’s more about like the capital and also the LP side where we struggle more with.

Siddhartha Ahluwalia 19:53

And do you see that there’s a sufficient ecosystem in Europe for large exits like companies can go public in Europe for the ultimate exits to happen?

Laura Raggl 20:07

Yeah we haven’t seen a lot of companies going public. I don’t know how this is in India but I think that’s not a too realistic way especially when being a B2B company. I see also IPOs being more realistic for B2C companies in general because you just have put a lot of time in building the brand which helps you a lot with then also selling the stock and doing the IPO.

So what’s more realistic now are definitely M&A cases. So we’ve seen this a lot which is private equity firms buying a majority stake and we see a more active secondary market now which is quite interesting for angels when it comes to exit opportunities.

So it wasn’t that common that it was possible for Asians to sell. But we also see more secondary funds also entering Europe and this also provides more liquidity because we had quite a situation where it was quite hard for VC funds to exit their current portfolio which put a lot of pressure on them because LPs wanted to have the money back.

And we have seen really little exit dynamics in the past two years and some companies also have waited to sell for a long time. And we neglected a lot of opportunities a couple of years ago when there was a quite good market timing.

So I think we’ve definitely also made some learnings when it comes to exit opportunities that they’re quite rare and also we at ROI Ventures we’re also quite open looking into secondary opportunities in general for us as an exit strategy. I mean we’re quite new when it comes to investing because we just started two years ago.

And we made a majority of our investments last year so I think we definitely need to wait another two, three, four years. But whenever we have a company going to a series A round or also to a later stage around we would definitely think about selling our shares because we own really little equity as we just invest 50 to 100k checks.

And there’s also dilution in between so as an angel investor it definitely makes sense to exit maybe as a later round. And it’s also not too bad in terms of signaling because if you’re a VC investor or a bigger investor you can’t leave the round because it’s just looking like you’re not a believer anymore. We don’t face that issue so much because we’re just a small investor and everybody understands if we just need liquidity at one point again.

Siddhartha Ahluwalia 22:33

Yeah and but you have I think great case studies from your portfolio tell us about your top three portfolio companies and their journeys right?

Laura Raggl 22:44

Yeah definitely I would say the most successful and also most well-known startup in our portfolio is called Magic. And the founders are Austrian but they always had a US entity. And they were on a really really big mission: they wanted to develop an own AI who writes code basically to substitute developers long term or at least help them a lot.

And this was a really big mission and it’s also a super heavy Deep Tech startup made out of Austria and we got to know the founder really early and we’ve invested two years ago. And it just raised over 100 million US dollars beginning of this year so it’s quite a success story and we’re quite happy backers of this startup.

Siddhartha Ahluwalia 22:30

Congratulations, that’s a fantastic success story that too such early in your journey.

Laura Raggl 22:39

Yeah I mean it’s a lot about timing. I feel it definitely helps us now a lot to have this actual success story in a portfolio but you can do so much as an investor. Sometimes it’s just taking longer, sometimes it’s taking less time. But we definitely got a little lucky in this case with this shot.

And the second one we also like a lot is a company called Gatespace. And they are a Deep Tech startup they also develop their own hardware. Also an Austrian team also having a US entity now. But they basically develop a system for autonomous driving for satellites so that they don’t crash into each other.

And it’s also possible to recycle them after they have been being used for a long time. And it’s quite interesting because they had a quite hard time fundraising in the European market because European investors are a little conservative.

So they went to the US. Super successful there. Also when it comes to the client side I would say also quite a good success story made in Austria and hope we have a lot of news coming from this portfolio startup in the next couple of years.

Siddhartha Ahluwalia 24:50

And what were your learnings like you have done 18 direct investments in the last 24 months? How has your thesis evolved and what are your learnings on picking the right founders and avoiding even the good founders but finding the green and red signals during the process of due diligence and investment.

Laura Raggl 25:12

I think the biggest learning was I mean I had experience with investing other people’s money already. But it’s a different story if you invest your own money. Because you’ve worked a lot and really hard to be in that position.

And you also don’t have investment pressure like we don’t need to invest if you don’t make any other investment in this year. Because we didn’t find anything which is too fascinating to us, it’s completely fine.

So I would say the first couple of months which you struggle a lot to get started because we were really critical. And then at one point we just needed to make our first investment just to get started and get into a routine.

So I think this is also something a lot of investors struggle with just get started especially being a private angel investor you just need to like try it out. And also invest in a lot of startups later on. But like the first one is really important just get you out there in the market.

And the second learnings around the thesis was we always wanted to invest in founders really really early in their journey. But we just didn’t see any opportunities when we got started because we shared a lot of deals with other angels and VC funds.

And most of the startups we’ve shared they were I would say late pre-seed and like raising $1.5 to $2 million already. And this was kind of too late for us but we didn’t know how to get to the founders earlier. So we needed to develop quite a lot of strategy and also effort into getting the founders and also having them see us.

So we started to do more on I would say I started to do more on a personal branding side we started to do more on the fund’s branding side. And I also got part of a couple of founder communities for example I’m part of Sigma Square which is a really great international founders community.

We also got to know a lot of founders and great people. We have also invested in a couple of them. We also started to invest in one fund called Ebor. They have two programs, one is for founders who don’t have an idea yet the other one is for founders with an idea. So this is also really great access for us to really get the really talented founders really early at the journey.

And so when we have invested in one other fund who’s also like doing super super early investment so this is helping us a lot. And we also try to go to more founder focused events in general. And watch a lot of lists for example when there is a demo day at a university and so on. And it’s really really hard work. And it’s a lot of work. But it’s also quite fascinating.

And we want to be like the first one so seeing the talent and not being dependent on any like deal sharing or any like lists which go around. I think you also know them and everybody is sharing a lot but the really good opportunities usually not get shared too much.

Siddhartha Ahluwalia 28:02

and have you taken any exits yet let’s say from your top three companies?

Laura Raggl 28:10

Not really we just made a really small secondary. So this was our basic only experience for now we’re coming to exit. But I hope I can tell you a lot more when we talk again in two or three years.

Siddhartha Ahluwalia 28:22

Yes. And you know till now Europe has been not so active.I think Europe has a lot of wealth but they never invested in startups really actively. But I see something changing in the last two or three years. What do you think has changed in Austria in Germany that you observe that now people are more actively investing in startups within Europe and outside Europe also?

Laura Raggl 28:50

Yeah I mean I think back in the days as I said before people did not make their money with venture cases and with like anything in that area if you look at the U.S. a lot of people work in scale up. They have made money with investing in startups. They have had an exit themselves.

So it’s way easier to invest in an industry where if you have earned money. Instead of like maybe having a family business and then suddenly starting to invest in a VC fund.

So I would say it’s a lot of it’s a big culture thing and we also don’t have an investment mindset in general in Europe. For example not a lot of people own stocks and so it’s more like having the money on a bank account than doing real estate and buying a private home or something. This was more the go-to way of I would say building a wealth in Austria.

And so I think this is a big culture shift in general to deploying more money into venture. But I think what has happened for example real estate is just not a too attractive investment market or a lot of people have had quite bad experiences also when you haven’t been such a big professional and you wanted to invest in real estate.

And this also happened with other asset classes. And suddenly also when you look at into the returns of VC funds in the past 10 years it’s quite attractive. I mean you also it’s not too liquid I think this is also something that all investors consider. But we definitely saw a push from family offices. Also people starting family offices.

I think this is also a big step that you actively want to manage your family’s wealth because a lot of families also own foundations in Austria and also in Germany which is more about passively managing their wealth. And they also sometimes are not even allowed to invest in venture so there also was some change.

But I think this definitely needs a lot more cultural and also motivational change. And the second thing I mean we also don’t have too much like government funds investing into VC funds, for example. Pension funds could invest more or any kind of this, bigger institutional funds, they would also like to add a lot of money and a lot of value to ecosystems. So we also see some shifts there, but it also takes just time.

Siddhartha Ahluwalia 31:12

And what’s your perception about India right now?

Laura Raggl 31:18

I mean, actually, I haven’t been thinking too much about India and India and Indian Startup Ecosystem before we two met. And since then, I think we have been thinking and also talking a lot also within the ROI Ventures team, and you have also like gave us some insights.

We found it quite interesting that you also say it’s quite revenue driven, that you also look a lot into the numbers, especially when you go from a pre-seed round to a seed round.

So you really want to see the go-to-market being working, the business model being working, and then you do the next round. In Europe, we just do round by round by round, and then we figure out that like that it’s not working or it’s working later on. So I like that, I would say, yeah, just the way of financing stuff, which is working and taking the risk pre-seed. And I also find it quite interesting that I have a lot of second-time founders now starting their next businesses. And that’s also a common thing of starting again and do this next business.

And I also think you have a quite interesting ecosystem because India is just a big country. And I guess when you launch something also being consumer focused, there’s just so many people who could be your potential client, which I find quite interesting because we don’t have that dynamic too much, especially when it comes to Austria.

So I just found the general way of you investing, really looking deeply into the companies, knowing the founders a lot, just focusing on India. I think it’s quite interesting. And we also like focused funds a lot. And I mean, being focused on one geography definitely also helps you to get to the best founders.

And I guess also this podcast and all the visibility you have filled up within the ecosystem. I would love to have a similar position like you in the DACH region, because everybody knows us and the best founders coming to us. But I guess we definitely need a couple of more years to work on that.

Siddhartha Ahluwalia 33:14

And what’s your perception about the Indian economy and Indian market? Do you think that, you know, where India’s position in the world? For example, when you think of ROI Ventures, right?

Over a large period of time, how much portfolio allocation would you want to have to India?

Laura Raggl 33:34

I mean, we invested in two Indian funds since we figured out India is a quite interesting market when it comes to startups and when it comes to venture capital. Honestly, I’ve been thinking a lot of time only when I thought about venture. I’ve been thinking about the US because it’s kind of the role model for the world, right, when it comes to VC.

And I’ve been thinking about Europe a lot because that’s the market where we invest directly. So that’s also where I needed to have the most knowledge. But then we also figured out, we don’t know if the market in Europe is going well.

We don’t know about the market in the US and it’s like everything is so related. So we don’t want to put too much money just in those two ecosystems. And I feel like India, but please tell me more because I’m definitely not an expert on the Indian economy.

It’s more like what I heard and what like my gut feeling is. But it’s kind of such a big market and such a big economy in its own. And it’s so upcoming and more and more people also enter a space when it comes to wanting more digitalization.

You’re super active with choosing digital services for everything. I just feel like there’s such a big dynamic and also dynamic shift, which makes it super interesting for startups to start new businesses and also to scale new businesses. And I also find it interesting because it’s a big old market on its own.

So you can just start out and become successful only doing business in India, which is impossible to only do that in one country, in Europe. But please tell me more about what you find the most interesting things about the Indian economy.

Siddhartha Ahluwalia 35:14

I think the most interesting thing about the Indian economy at this position in the world is that right now India is the fifth largest economy globally at four trillion dollars. And India jumped from 10th position to fifth position in the last 10 years.

And in the next three years, India is going to surpass Japan and Germany to become the third largest global economy after the U.S. and China. And China, as we know, is a little closed, right? People don’t understand China, what’s going on politically. So that is making India the second most favorable destination globally.

Not just talking about Europe, but even U.S. When U.S. funds are thinking of diversifying, which other country they should diversify to. For the last, I would say, 20-25 years, all the large U.S. funds were diversifying to China. But now that China’s economy is closed and a lot of stuff is happening that people don’t understand, like how did COVID originate in China?

And there are a lot of theories that China is closing down on their best unicorns. And what made China today was 20-25 years ago that they privatized the economy. And now the government is saying the government should have more involvement in the Chinese economy.

So that is pushing China back. Whereas India is taking just the opposite stand that India should privatize the economy as much as possible. And with an 8% GDP growth per year, the standard of living of people in India is growing really fast as compared to other developing economies.

That makes it a really lucrative destination. The other factor that impacts India and makes it a favorable destination, India has a very robust public market. So every year for the last many years, we have been seeing 100 companies go public every year in India, out of which 10 to 15 are startups of various stages.

And in India, what you need to go public is that you should be a startup between $20 million to $100 million of annual revenues, you should be doing profit after tax, and you should have some consistency in your results. And Indian markets will value you very fairly.

Laura Raggl 37:35

Super interesting. I didn’t, I didn’t know that, like that, like the stocks markets are being quite stable.

Siddhartha Ahluwalia 37:44

Yes. And it’s supposed to be the stock market was supposed to be growing for the next 10-15 years, till the economy keeps on growing like 8% annually every year. And there’s a lot of domestic manufacturing right now happening.

The foreign direct investment is growing in India. So a lot of tailwinds have come together at the right place, right time. For India, it’s now up to the folks developing the startup developing in India to capitalize that tailwinds.

And India because of the discipline in the public markets, unlike the US market where an unprofitable company can go public. And tomorrow, let’s say, for example, like Wework tomorrow, ceases to exist and goes bankrupt. In India, it’s impossible for an unprofitable company to go public and keep on being unprofitable.

So in the Indian public market, the retail investors in the public market really respect the discipline of building your cash flow, building profits, and growing slowly. They don’t expect you to grow, unlike US 50% year on year. So the US is still the economy, I would say for very large outcomes, like a $100 billion outcome, where a Coinbase or Uber, or companies like these, or OpenAI can go potentially public for $100 billion.

India is a good market to go public between $500 million to $5 billion. And now India is seeing multiple Decacorns, profitable Decacorns, which are startups now come out like Zomato. So yeah, definitely the market, I would say, to keep on consistently being invested in discipline in a disciplined way for a very long period of time.

I would say, let’s say if to any European investor that is listening to our conversation, that if you are allocating 100 bucks, you know, please allocate 10 to 15% of that to India, because you will see that grow the fastest over a 10 to 15 year period of time.

Laura Raggl 39:45

I think this is quite interesting, not having that hyper growth, having sustainable growth, which is also more sustainable for investors long term. And it’s also bringing quite good market dynamics, because otherwise, you always have that investment tourists who invest and then they lose their money, and then they go out of the market, right? Which is not that healthy for the market in general, also not from the investor side.

But also like, as I understood it from your investment thesis, and also looking at your portfolio companies, I value that a lot, because it also gives the companies more time to grow and to generate revenue.

And when they generate revenue, then you can start the scaling phase. But in Austria, and also in Europe and China, we put a lot of pressure also on startups to generate the revenue really, really fast in their journey and just finance them a lot, maybe sometimes also over finance them to hire more, to have more people to generate more revenue.

But sometimes it shows which is a lot about having more time figuring out go to market testing market testing business models. And I guess you see that like all along the different companies in their stages, until people going public.

Siddhartha Ahluwalia 40:54

Yes, yes, I think another interesting fact is why India will attract a lot of attention from European investors is, I think there are some cultural similarities there. Like the US is a very aggressive culture, I would say, where if a startup raises $10 million and $20 million and fails, it’s very okay, which I appreciate, right? The cost of failure is really low.

So a founder can go again and start another company and still raise $10- $20 million. And, in India, and as well as in Europe, they treat failure with not so much respect. So the cost of failure is pretty high in both these geographies. So for example, let’s say..

Laura Raggl 41:42

it’s just also I guess, it’s just a different mindset, right? You don’t want to fail in India. And maybe you’re a rock star, if you fail three times in the US, which also comes back to the investors, because I mean, you can do profitable investments with both mindsets.

It’s just about also the investors mindset, and also the amount of time and also the amount of startups you have invested in.

Siddhartha Ahluwalia 42:06

Yeah. And it’s very interesting, which I would like to know, right? Why at ROI Ventures, you’re only focused on B2B SaaS, whereas the largest case studies, which have come out of Europe, are the B2C companies today?

Laura Raggl 42:22

Yeah, I mean, like, as an angel investor, it’s a lot about adding value, right? And about, about showing your position and about having arguments to the founders, why we should invest, why we are the right investors. And we see a lot of competitive rounds.

And we just don’t have a lot of knowledge about B2C companies. And we also have that really big network to B2B companies in Austria. So a lot of times, if we invest in the German startup, for example, it’s us getting into a round because we can help with market access in Austria, we have really good connections in Austria.

And we just don’t have this in the B2C space. So I, in general, find B2C interesting. I just don’t think we could be really good investors and doing investment into B2C. Why are you doing B2B actually?

Siddhartha Ahluwalia 43:10

So for me, the revenue predictability is really important, because I have been a founder previously, I ran a company. So I don’t want my founders to depend on the series A and series B investors for survival. In B2B, SaaS is one of the very few sectors where you can keep on growing without raising any external investment.

And there’s an opportunity to just become profitable through your enterprise clients revenue. Like if you recall, right, Microsoft is one of the largest companies, which is purely B2B, essentially, and they never raised any money. So we have so many case studies in B2B, where companies raised the least amount of money, and became very large, and just on the basis of the revenue. Not not because on the basis of funding

Laura Raggl 44:03

Which also gives you more security and more control as a pre-seed or early stage investor, which makes total sense. I mean, it’s a lot about like other spending on marketing, and also like being quite competitive in a lot of B2C cases, because it’s also harder to differentiate. It’s just about differentiating with things like marketing, spend and community, and in the best case you have built a really good community, which also helps you having your USP. So I think it’s just a completely different dynamic. And I also really like your perspective on long term profitability and also survival rate.

Siddhartha Ahluwalia 44:37

Yes, yes. I think the kind of DNA required for B2C investing is you need to be okay with a very large failure rate. I think I don’t have that DNA.

And in B2C, what you need to be okay with, even if you have large winners, a unicorn can also fail. We have seen it happen multiple times, right? A WeWork can fail, or any B2C company, which is large enough can fail if they’re unprofitable, and if they’re not able to raise around even at a billion dollars valuation.

In B2B, it’s really hard to fail unless and until you screw up as a founder. For example, let’s take the example of Clubhouse. Clubhouse a couple of years ago was so popular across the world.

And now nobody hears of Clubhouse. I wonder what has happened to the investors of Clubhouse. They had raised, I think, two to $3 billion.

Laura Raggl 45:34

Yeah, it’s insane. I mean, there were other examples like that, like Hopin, for example, which was a quite big event. This platform also raised a big amount of money.

Yeah, I mean, that’s like usually you see funds like Index, Sequoia, and like the really big funds, they also back those companies. And I guess they will also just have some winners and some losers. And in the end, if you look at their fund returns, it’s still insane.

So I figured out maybe they could just still be okay having this big losses in the portfolio. But I think this is also a space where like retail investors and smaller investment funds just keep their fingers away from because the probability of losing huge amounts of money is just higher, I guess, than in other sectors where it’s more about profitability, finding your client base, and so on.

Siddhartha Ahluwalia 46:22

Absolutely. And B2C is also a flavor of the market. So a couple of years ago, crypto was very hot.

Today, crypto is not so hot, right? So what do the investors do that invested in crypto? Or for example, three years ago, during COVID time, EdTech was super hot.

Now nobody cares about, you know, EdTech. Unless and until you are a company that is giving spectacular user growth or revenue growth. So the flavor in B2C changes very rapidly.

Laura Raggl 46:58

Yeah, that’s true. I think if you want to do B2C, if you have a lot of experience in that space, if you have a big network, if you maybe like coming yourself being an influencer, having any kind of special knowledge, also when it comes to disregards or unfair advantage, I think it still makes sense to start out and a lot of like amazing customer businesses are quite successful ones. But for us, and I guess also for you, it was just not the right fit.

Siddhartha Ahluwalia 47:23

Yeah, not the right DNA. Also, what I’ve seen is the common among the common, how do you categorize a good B2B investor and a good B2C investor is a good B2C investor will largely come from a very large B2C startup. For example, like Deliveroo or Uber, or something like Coinbase, because they would be successful, they would have access to the network of the people who are starting again, from these large companies.

And in B2B, the kind of DNA that makes a successful investor is somebody who has large enterprise connects, so they can constantly validate with the enterprises, what are the problem that they have, what are the solutions they are looking for. So both require very different skill set, very different DNA.

Laura Raggl 48:18

Definitely. And I mean, that’s always the thing why you start a B2C company, why you start a B2B company, which investor is the best fit, which are your clients? And I think just like so critical questions for an investor and for the founder who is like the base of the foundation of starting a company.

And I also don’t like if founders start like random businesses, like I wanted to start a business, I’ve evaluated 10 ideas, and that’s why I started this one. It’s way more about that, as you said, it’s about like, which connections can I leverage? How can I build the anchor advantage?

It’s not just about the potential market needs, others could identify as well.

Siddhartha Ahluwalia 48:56

And Laura one thing that I would like to ask you is, between the four partners at ROI Ventures, how much of your capital have you allocated to startups or private markets?

Laura Raggl 49:08

Yeah, I was talking about this this morning with my husband, actually, and we’ve calculated this a little bit. And I mean, right now we have around 15% of our total capital allocated in startups and also allocated in VC funds. But this is just the beginning, right?

So the more we invest into this asset class, the more diversified we get, and the bigger we can like invest based on our total portfolio. So we want to definitely continue investing a lot directly into startups. And we also want to expanding our fund portfolio.

And we, yeah, we’ve been thinking about like adding this up to 50% of our total portfolio long term, keeping in mind the diversification we have also gained within one asset class at one point.

Siddhartha Ahluwalia 49:54

Got it. And if you have to split it geographically, right, between just your private portfolio, how much of it would be Europe, how much of it would be US and how, how much percentage of it would be India today?

Laura 50:10

And I think we would like to all our direct investments, choose in Europe, because as we discussed about being an investor, so I think we will have like 50% of that 50% being allocated in Europe. And then I think we will spread out the rest, focusing US, I hope we can also like do more in India. And because as you said, it’s just super attractive for market.

Also, when we look at the growth potential within the country, we don’t have that in Europe, we don’t have that in the US. So you want to have really big returns. And I think you also made that super clear today.

And it’s quite interesting to also think about investing more into India. So also keeping, keeping this in mind. And but in the end of the day, we also have a family office dynamic.

So whatever is interesting, and we also need to take a look at the interest rates and so on and about other asset classes. So I think this is also quite interesting for us being an investor, just evaluating different kind of asset class all the time. And always thinking about, okay, its venture, the most interesting asset class we can invest in right now is the other things which are more upcoming.

And I think I can tell you now what we’re going to do the next years. And also when we look back at the markets, the last five years, I mean, they were super crazy. So I hope everybody constantly re-evaluated his or her investment strategy all the time.

Because I think that’s also the most important thing you need to do right now being an investor, also being a founder, of course, just don’t stick to your plan, please replan whenever there is a change and monitor the market, get feedback from clients, from investors all the time. And I think if you want to win this, you really need to be agile and on top of things.

Siddhartha Ahluwalia 51:55

And right now, what are the questions that other family offices, which are not so deep into venture like you ask you often?

Laura Raggl 52:03

Yeah, when do I get my money back? I would say that’s the most relevant question. We also get asked a lot like how big the percentage should be investing into venture.

And you also get asked a lot how to directly invest in startups. And I think we both know it’s super hard to do direct investment. That’s not something for starters.

So I get that question a lot. And I also recommend usually to just invest in funds for now. And then I got asked a lot, which funds to invest in.

And I see a lot of family offices investing quite locally, which I don’t like too much. So I see a lot just investing in fund managers they have known for years and they trust that person. But I think it’s more about trusting.

It’s more about thinking about diversification and returns. So I think there is still quite a big shift of more family offices looking at that from a more geographical, broader perspective. I also know others who just would do VC funds in Europe or just in DACH.

And I think it’s just quite, it’s so easy. I mean, it wasn’t a difficult process, right? Us investing in you, especially using AngelList.

So it’s super easy also when it comes to doing the legal things and everything. So I hope this also becomes more common for European investors to look outside the European market, especially when it comes to fund investments.

Siddhartha Ahluwalia 53:28

And what are the kind of risks? One is they’re asking, when do I get my money back? But are they asking what kind of IRR expectations or returns, percentage year expectations should they have from venture as compared to other asset classes?

Laura 53:43

Yeah, definitely. I mean, that’s like the second big question, right? So it’s always about return perspectives, liquidity, and about risk.

And I think, especially being a more conservative family office, you think a lot about these three things in combination, also comparing that to the asset classes you have already invested in. And then it’s most, usually it’s coming back to the founder of the family office. Like what’s his intention, how much risk aversity there is in the founder’s family?

What’s their general perspective with growing their wealth over generations? So I think that’s a lot of the kind of case. I feel like whenever somebody found the family office and made the money having a venture, having an exit, it’s a no brainer for them.

They would invest a lot into VC and into startups. It’s kind of a logical step. That’s why they start the family offices.

But like with those old school family offices, it’s not too common. I think most of them have started investing VC funds, but I guess they could allocate way more.

Siddhartha Ahluwalia 54:51

Got it. Thank you so much, Laura. It’s been an amazing conversation today. I learned so much.

And I believe my listeners learned a lot about from you today on how Europe is a market, how Austria is a market for investing in startups and in venture capital.

Laura Raggl 55:08

Yeah, thank you so much. And looking forward to also welcoming you in Vienna in a couple of weeks so we can even go deeper into this conversation.

Siddhartha Ahluwalia 55:15

Thank you so much. I appreciate it.

Laura 55:18

Perfect. Thank you.

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