was pulled into deals where I had specific expertise or knowledge. So it was a bit like being an investor with training wheels. When the company failed, I had scored really strong ties with the Accel team and they offered me to move over to the investment team.
I was very keen to do so. I was really excited to work with them. It was pure coincidence, but well-informed, thanks to having had the luxury of spending time with them, and seeing what they were doing. So, it was very organic in this way.
Arnbjörn Eggerz: That is a very nice insight into the making of yourself as an investor and the opportunity of an Entrepreneur in residence.
Michiel Kotting: And it is funny, because very often former entrepreneurs ask me how to transition into venture capital, as I turned investor late in life, at 35. They assume that I know how to do it, because I did it. But I had no plan, it was just an opportunity that came my way.
Arnbjörn Eggerz: Could you introduce Northzone and its focus with the latest fund? Which technology do you target? Which rounds & deal sizes do you invest in/prefer?
Michiel Kotting: Northzone has been around the block, investing in technology in Europe for 20 years. This means we have lived through upturns and down-turns, and have collaborated with a large number of people on exciting companies. Most of us are former entrepreneurs, and as a firm we have a Nordic DNA (thanks to our roots in Norway!), so expect from us an enthusiasm and drive, and support in helping you build an international business. We invest in tech, in a broad range of fields, varying from developer tools and SaaS businesses to marketplaces and apps. We do 75% of our work in Series A, but also invest in later stage rounds.
Arnbjörn Eggerz: What I find interesting of your fund setup is that the fund is pretty old. So, you basically survived what I call “the mushroom of European VC” around 2000. And the focus is also very broad. This makes you a very good fit for the next question: We all know that the current funding cycle is going to end, somehow, sooner or later, although I think it's pointless to discuss when and how it will be. But in your opinion, what technology or business model is not going to survive the turn of the cycle, which technology or model we just will not see again because it's over?
Michiel Kotting: That is a very interesting question. I find it interesting that you approach it from the level of technology. Because if you think about it, tech is very much creative destruction. The field the internet broke open was then taken over by the mobile and probably now some of the machine learning creates the next sector in which operating change can happen. So, I think inherently everything in tech has its expiration date, right?
Arnbjörn Eggerz: Yes, that is how it goes.
Michiel Kotting: If you would have told people five years ago, that the PC is going to become relatively irrelevant in a relatively short period of time, people would have laughed at you and not believed it. But with the advent of more devices - connected and/or autonomous - that work as a computing platform - I think this creates a lot of pressure for the PC and its related ecosystem. Therefore, I think business models that do not understand the fact that your data travels with you, your computing power travels with you, your identity travels with you - and that we want to function well across device and across experience mode - will have a very hard time. So, I would say in this respect point solutions will be under a lot of pressure. And I think we have already seen it. For example: why do people like Slack so much? Why do people like Store Find so much? It is really because those were very early examples of something being ultra-portable. I think that is one.
Then, the second thing is relevance which is really important. When I started in tech 17 years ago, we were already talking about hyper-personalization and Segment of One. But did it really happen as much as we were talking about it? I think right now we can really make stuff relevant. It is partially due to machine learning, it is partially through social, it is partially through some smart business rules and it is partially through user-generated content. Thus, summing it up, There we see again the static experience versus the personalized experience, where the static experience will lose.
Arnbjörn Eggerz: You recently moved from Accel, known for SaaS, to Northzone. Let's talk for a moment about your time at Accel: What is your key learning/insight from your time there about SaaS in Europe you can pass on to European SaaS startups?
Michiel Kotting: It was fantastic to have worked alongside some great minds there, and to have the benefit of getting to know the US portfolio and see developments there up close.
Arnbjörn Eggerz: What do you plan do to differently at Northzone than at Accel?
Michiel Kotting: There are lots of parallels – look for companies that can be global winners, and are revolutionizing emerging categories. We are focused on growing across Europe, so it will come down to take early views on specific markets and teams, and hustle to build relationships early on.
Arnbjörn Eggerz: The point about SaaS you will not agree on with Philipe Botteri?
Michiel Kotting: How to disagree with someone that taught me everything I know ;-) We do agree on
the core tenets of how to build a strong and successful SaaS business. Hopefully we disagree in evaluating individual businesses so we make different bets in the market
Arnbjörn Eggerz: I know it's very hard to disagree with Philip Botteri on SaaS, so I understand your point here. I will try to ask in a different direction as I am sure you have Bessemer’s laws present: What I would find interesting is, what in your opinion, is still the most important one, or the most outdated, whatever you prefer?
Michiel Kotting: [answering from memory as the internet connection was very slow]: I think all of them sound still very valid. The first one, the lesson “use the cloud more where you can in your own business”, I think is given today. So, that one is no longer really relevant.
Arnbjörn Eggerz: Yes, I agree.
Michiel Kotting: I think that was great when they came up with it in 2011, but then it is amazing how fast the world has moved. [laughing].
Arnbjörn Eggerz: Exactly. I remember the strategic discussion with clients. Years ago, it was still about the strategic advantage of owning your own server, really deep technology stuff, what is the best set up and if should you build everything yourself to control the process. Then all became so commoditized and standardized so fast. So today you just advise, focus on your value proposition. Everything else you can change and decide if you are like Dropbox after some years, but for the start it is just not of relevance.
Michiel Kotting: Yes. For me it is great to look back now and to see how beautifully that has developed and that kind of feeling “yeah that is now a discussion of the past”.
Michiel Kotting: Then, I think there is one issue that was not included at the time, because back then it was not important. It is the whole idea of the balance between point solutions and suite solutions. Not that it is new: it was already present with on-premise software solutions. But I feel we are going through an interesting shift here as it is a pendulum that swings.
The question is: do you want to have one solution that does exactly what it needs to do and therefore it can win in that specific case, or do you need to create a suite with a number of functions and cases? This discussion therefore comes up when we look at SaaS and SaaS metrics, but please do not get me wrong, I wouldn't call it mechanical. But with this exercise you end up with the discussion: do we believe that this piece of the market is going to be dominated by a point solution or by a suite solution? And can this company move from being a point solution to a suite solution; or can it either have the right kind of point solution or vertical solution?
Of course, I think it is different depending on which vertical you are operating in, probably different depending on the point in time, and different depending on which SaaS markets you go after. But in the end this is the decisive question to answer.
Arnbjörn Eggerz: Okay, that is very interesting, yes.
Michiel Kotting: And I said all that [laughing] while my computer is still bringing up the ten laws of SaaS. [He was fully right which we confirmed at the end of the interview]
Arnbjörn Eggerz: People in the Nordics are very tech affine: Does it translate in a different buying landscape for SaaS solutions there? Does it make the story "fast US entry" different for Nordic SaaS start-ups?
Michiel Kotting: The savviness of local consumers helps the companies build great products that can compete on the global market. Of course, the Nordics are blessed with a “large abroad” – having a sophisticated local market that is too small for ambitious companies to be contained to, and companies do have to go abroad early on. Every generation of entrepreneurs that has taken the plunge of going international raises the ambitions of the next one. It doesn’t necessarily make it easier for a Nordic company to win new markets, but the mindset of the entrepreneurs tends to be international from the start, which helps.
Arnbjörn Eggerz: Since you travel in so many different countries, you saw a good portion of this world. So the next question is about global markets and competitive advantage of SaaS: What I like about your answer about the US entry is that basically it is repeating the playbook, you play today as European SaaS. This also means we now have a kind of established standard “how to do it” one can break. Thus, I wonder if it would not be interesting to change the playbook and basically argue “some people do the US entry, we do e.g. an Indian entry”. I understand that it's not the right thing for all SaaS solutions and you probably will not find the deep pockets of corporates in all parts of the world. But in the end, it should all be about process innovation and having a good software as there is a cultural context to selling, but not to the process solution you want to offer the businesses, the customers or the developers.
Michiel Kotting: I think theoretically speaking what you say is right. And in a number of cases it makes sense not to go to the US. Take, for example, the case of BlablaCar, which we had at Accel. There it was right, as their model does not fit the American market. But in the specific SaaS case or for a SaaS vertical I would say: For a European company doing well with European businesses, it would be hard to find an example where you say “go to Asia before you go to the US”. Because I think the challenge is that there is such a clear premium for dominating the US if you look at the way companies are being valued, especially in the SaaS space. This means that when you are a senior company doing well and you can deal with the complexity of internationalizing, and you can raise the capital to go after another market, it is hard to see how to align the board going after India, for example, the way you get them aligned going after the US.
At the same time, you could think of a case where one looks at the alternative to the US, when you are saying: “look, there is already a very strong dominant US player and we do not think we have a way to go against them”. But then you need to be confident in your market research. You probably have good visibility into the US market, but do not have the same visibility into the Indian market. If there is a very strong player in the US in a vertical, I argue that chances are pretty high that in India someone has already tried to pick it up and build it out as well. And either they are already successful, so you have to beat them. Or if they are not, the question becomes, how you know that this is not a structural element of the market, rather than a company-specific issue?
Arnbjörn Eggerz: Okay, that is a very nice perspective on markets.
Michiel Kotting: The situation might be different in five years, but I think for today, my bias would be that it is like that.
Arnbjörn Eggerz: Sure, as these countries still need some time in development, but are catching up fast. So, what is a SaaS company you would start today?
Michiel Kotting: Good question. I am tempted to joke, “listen, if I would have a great idea what am I doing in investing?” [laughing].
I am a big believer in business profits optimization. I feel that there is a number of industries where this is lagging. One of my personal favorites is the healthcare market. The whole system in this market has got so complex, also in terms of involved layers, so there are questions around where to go, waiting times, and whom to talk to, and when. So, starting a SaaS company that creates a better experience in healthcare, starting around communication between the relative parties and adding data and personalization – that is the kind of company I would love to develop.
Arnbjörn Eggerz: Sure, that will definitely be a great market. Just that the regulatory burden is probably pretty high, and it makes it very difficult to enter as you go for a very long sales cycle.
Michiel Kotting: Yes. But that is the reason I feel that a communication layer, a solution that is focused on individuals, just the way Atlassian, Dropbox or Slack did it, can stir the volume and create value for the individual participants. And then, parts of the offer would develop into a corporate contract. I like to think that would be possible in the healthcare market as well. And I would prefer that rather than sitting over here, creating the next version of a possible domain focused software. I feel if you can create something that benefits a number of participants in the field and goes beyond borders, that will make the difference.
Arnbjörn Eggerz: Thank you very much for sharing your thoughts on that, very interesting. The next one is a short question. The key metric you would focus on today in SaaS?
Michiel Kotting: I think all the basic SaaS metrics that are here today, matter. I think it is a short enough list, holistically speaking. I will not have them as the topic of discussion with a startup, but they are important. I also think most companies have fairly good awareness around e.g. their CAC ratio or churn. You know, a lot of the statistics are what they are so you look at them, but… .
Arnbjörn Eggerz: So, what do you like to discuss?
Michiel Kotting: Where I feel you have the nicest philosophical discussions with founders, especially early on, is understanding or figuring out average contract value, sales channel and velocity. So, getting a real sense of, if is this where you priced it, then what channels do you need to use for sales, or what sales model will be easy to use, and how are you measuring if you are successful? I mean, obviously, growth is important, obviously, unit economics is important. But that is the one area where discussions either really impress me or turn me off.
Arnbjörn Eggerz: This makes a lot of sense because you can determine scalability pretty well with that.
Michiel Kotting: Yes, and it is an indicator of awareness in the founder of how you build a business. And that is the interesting thing, right? It might be more of a venture capital thing in general. But I think that is what some of the amazing bootstrapped companies have over the venture backed companies. They had to think about commercial models much earlier on. Because some companies just build on the high, some companies understand the venture industry very well, but in the end you want to have companies that understand business well.
Arnbjörn Eggerz: And you want to have the customer being the first source of funding on the long run and not the investor.
Michiel Kotting: It is fine if the investor is the first source of funding, if the company understands all these other line mechanics. If you understand them, you control them. Then if you choose to create hyper-growth on top through external funding, that is great.
Arnbjörn Eggerz: Last question: What number one technology and what skill do you teach your son?
Michiel Kotting: In technology: board games. Concerning skills: curiosity, grit, open mindedness.
Arnbjörn Eggerz: Thank you very much for a really great interview and your time.
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