In May 2019 together with Paul Bragiel and Diana Koziarska we announced the launch of SMOK Ventures. Our goal was to help top founders from the CEE region bridge the gap between Emerging Europe and Silicon Valley. Today, four years into the journey, I’d like to share with you early results and our plans for the future.
You can check my previous articles with insights into running SMOK Ventures here: SMOK in 2021: Year in Review, 12 Deals in 12 Months: Year One of SMOK Ventures in Review
If you’re only here for the key insights, here you are. I’ll be diving deeper into them in the article.
- SMOK invested €9M in 24 startups during the investment period (2020–2022).
- Portfolio startups make €33.6M in ARR. This is annualized MRR of 2.8M as of June 2023. 25% of them are profitable.
- Our startups hire 678 people — that’s how many new jobs were created.
- Our startups raised €100m from external investors — €99.6 to be exact, but a hundred mil looks nice, doesn’t it?
- 82.72% of that €100m of new funding came from investors from outside of Central and Eastern Europe.
- The overall valuation of all of our portfolio startups is €250m if you count the equity rounds and €325m if you also count the latest valuation caps in SAFE rounds.
- Average valuation bump of a portfolio startup is 3.1x (for equity rounds) or 5.9x (when also counting the SAFE caps).
- 87.5% of portfolio startups managed to raise additional funding after SMOK’s pre-seed investment.
- 1/3 of SMOK startups has a female co-founder, while 12.5% of startups had a female-only founding team at the time of investing.
Who’s dead, who’s alive?
We invested in 24 startups out of our first fund. Most of the initial investments took place in 2020 and 2021, the golden years of venture capital. The competition for deals was the biggest ever and so were the valuations. Not exactly the best time to start your VC career, right? So how are the startups doing mid 2023?
- 7 portfolio startups (~29% of our investments) are now worth 8x or more compared to the valuation at which SMOK entered at pre-seed. Those startups are doing incredibly well.
- 7 startups (another ~29%) are worth between 2x and 8x and doing reasonably well.
- 7 startups (yet another ~29%) are still worth between 1x and 2x of our investment price and most of them are struggling.
- 3 startups died (~13%). Let them rest in peace.
Common theme among the companies that are doing well? Product market fit + founders are fundraising superheroes.
Common theme among those struggling? Tough markets, too early), bad timing for the fundraise or founders not pivoting fast enough. Usually, all of the above.
Who is making money?
SMOK portfolio startups make €33.6M in ARR. This is annualized MRR of 2.8M as of June 2023.
- Two companies make over €10M in ARR
- Three companies make between €1M and €10M in ARR,
- Eight companies make between €100k and €1M in ARR,
- Three companies make between €10k and €100k in ARR,
- The remaining five companies make less than €10k in ARR or zero.
Additionally, six startups, i.e. 25% of the portfolio, either hit the break even / profitability or are spending less than 10% more than they make, suggesting a break even in the coming months. Even though profitability is never the goal of VC-funded startups, at least not until they’re nearing the IPO or a growth round, it’s still good to see some of the portfolio companies getting that additional security in these uncertain times. This should allow them to raise the next round on their own terms.
Who is hiring?
Our startups, as of June 2023, hire 678 people. That’s how many new jobs were created with our initial investment of €9M — approximately €13k per job.
- Three companies hire more than 100 people: Sunroof, Omnipack and Vue Storefront.
- Ten companies hire between 10 and 100 people.
- The remaining eight companies hire fewer than 10 people.
- The dead companies obviously hire no one.
It’s not all shiny, though. Almost every portfolio company was forced to lay people off during the last two years. The layoffs — aimed at extending the runway — did not omit even those startups that raised the biggest rounds.
Portfolio founders raised €100m!
SMOK only invests between €100k and €500k in initial pre-seed rounds, so it’s essential for our team to make sure that the startups we back are fundable by outside investors.
Our startups raised €100m from outside investors, which is 11x of what we invested at pre-seed.
The overall valuation of our portfolio startups stands at €250m if you count the equity rounds only and €325m if you also count the latest valuation caps in SAFE rounds.
The biggest rounds happened during the last year, which is counter-intuitive, given the overall slowdown of the global funding market.
- Vue Storefront raised €37M overall, with the latest round happening in March 2023 led by Felix Ventures.
- Sunroof also raised €37M overall, with the latest round by Klima and World Fund worth €21.5M in October 2022.
- Return Entertainment and Omnipack each raised between €5M and €10M.
- Eight startups raised between €1M and €5M.
- Nine startups raised less than €1M.
- The remaining three startups failed to raise funding following SMOK’s pre-seed investment.
Overall, 87.5% of portfolio startups managed to raise additional funding after SMOK’s pre-seed investment. Conclusion? If you’re getting funded by SMOK, you’re almost certainly getting funded again by investors from our network.
Who’s funding SMOK startups?
82.72% of additional funding came from investors from outside of Central and Eastern Europe.
Some of those foreign investors include Creandum 🇸🇪, Earlybird 🇹🇷, Paua 🇩🇪, Felix 🇬🇧, Klima 🇪🇸, World Fund 🇩🇪, Y Combinator 🇺🇸, innoenergy 🇳🇱, Tencent 🇭🇰, Rheingau Founders 🇩🇪, MAVA 🇺🇸, 7pc 🇬🇧, Xffirmers 🇺🇸, Peak Capital 🇳🇱, Ludus 🇹🇷, R/GA Ventures 🇺🇸, Supernode Global 🇬🇧, Colopl 🇯🇵, Deutsche Telekom 🇩🇪, 1Up Ventures 🇺🇸, vGames 🇮🇱, Samsung Next 🇰🇷, Superhero Capital 🇫🇮, Sisu Game Ventures 🇫🇮, bitkraft 🇺🇸, Verge HealthTech 🇸🇬, Realty Corp 🇬🇧, Octopus Ventures 🇬🇧 and Shilling Caital 🇵🇹.
The rest of the funding came from local investors 🇵🇱 and angels. Out of the former we co-invested the most with Next Road Ventures (6 startups), Level2 (3 startups), Corvus (3 startups), and Movens (2 startups).
Some of the most exciting angel investors who funded our startups include Marcin Żukowski 🇵🇱 (founder of Snowflake), Ragnar Sass 🇪🇪 and Martin Tajur 🇪🇪 (founders of Pipedrive), Michał Kiciński 🇵🇱 (founder of CD Projekt RED and Mudita), Aaron Patzer 🇺🇸 (founder of Mint), James Park 🇺🇸(founder of Fitbit), Niklas Hed 🇫🇮 (founder of Rovio) or David Bizer 🇺🇸 (first Google recruiter in Europe).
A third of SMOK’s portfolio is female founders
Looking at our CRM data, only 10% of startups that applied for SMOK funding have a female co-founder. However, exactly one third of our portfolio companies have at least one female founder, while three (12.5%) had either a single female founder or an all-female founding team at the moment of investing. This means that it’s actually easier to get SMOK funding when you’re a female founder than if you’re a male. I’m not sure what to think of this, to be honest.
Lessons learned from SMOK 1
As first-time managers, Diana and I had to learn how this VC thing works pretty much on the fly. Having our more experienced partners Paul and his brother Dan onboard certainly helped, but we still made a number of silly mistakes evaluating founders.
Here are some lessons learned based on our fund 1 investments.
- Great co-founding CTO is key to success. We made a few mistakes in funding business-oriented founders who did not have the necessary experience to build great products. They also did not have the network to find a great co-founding CTO.
- Sometimes there is a co-founding CTO, but (s)he owns a significantly smaller stake than the business founder. Sometimes there might be a good reason for this. More often than not, however, this is a sign of a greedy founder and likely future co-founder issues.
- It’s equally key to have a business co-founder in your team. The tech-only teams generally performed poorly compared to those which featured both a tech and business co-founder on equal terms. Those are the startups we’re prepared to back.
- Grit is more important than resume. Speed is more important than experience. It’s nice to have that ex-Facebook / ex-Google / ex-Apple co-founder or key employee in your team, but it’s way more important to have people onboard who will fight with you and not give up. People who want this done, whatever it takes. I was often blinded by great CVs at times and haven’t spotted some obvious flaws in the founders we supported.
- Generally, founder tensions kill startups. I’d argue that the most important reason early stage startups fail is tensions between the founders. That’s why it’s crucial to make sure the team is right to take this startup from 0 to 1. Sometimes I focused too much on the key member of the founding team who led the funding conversation and neglected the relationship with other co-founders. I missed some hard-to-miss signals that suggested there already were tensions between the founders at the moment of the investment.
What will the future bring?
When we started SMOK in 2019 we wanted to fund top Polish entrepreneurs and become the first choice fund for their pre-seed rounds. I’m happy with the early results. We did well in building a new brand in venture capital in the region and we were able to attract some of the best Polish founders to go on a journey with us.
Our vision quickly expanded as we saw a huge opportunity in funding founders from nearby countries in the Emerging Europe geo. That’s why our founding partner Diana left Poland and lived in countries like Czechia, Hungary, Croatia, Slovenia, Serbia and Latvia during the last year. That’s why our new principal Sasha came onboard to help us with the deal flow in Ukraine and the Baltic states.
The next couple of years are going to be hard for entrepreneurs in the CEE region. Investors money dried out. Many venture capitalists struggle to raise new funds. And when the VCs struggle, the founders struggle, too.
However, I’m a big believer that the world’s most innovative and disruptive businesses are founded in a downturn and thus the best investment outcomes are generated when everyone else is staying conservative.
When the recession become eminent, we told our limited partners that we see this as an opportunity, not as a risk. We won’t be slowing down. We won’t be playing safe. We believe venture capital is about the upside optimization, not downside protection. We are still aiming to generate 3–5x DPI from fund 1 and we’re on the right track to get there. And our goals for our next funds are exactly the same if not bigger.
SMOK 2 is now open for business, investing across CEE and diaspora
We made our last investment out of fund 1 mid 2022 and we silently launched our second, bigger fund late in 2022. The new fund is private. Our tickets range from €100k to €500k, but our investment geography now includes both teams based in Emerging Europe and CEE diaspora founders, i.e. CEE founders with their startups headquartered elsewhere (i.e. in Delaware).
So far, we’ve made seven investments out of fund 2:
- one (undisclosed) investment in Poland 🇵🇱,
- one (undisclosed) investment in Czechia 🇨🇿,
- one investment in Latvia 🇱🇻 — see Hyperjob raises 435k EUR seed,
- one investment in Croatia — 57hours 🇭🇷,
- and three investments in Ukrainian founders 🇺🇦: Finmap (UK-based), Workee (US-based) and Masthead Data (Canada-based).
Our new fund is active and we’re planning to invest in 20–30 more companies during the next three years, so if you’re raising your pre-seed or seed round and you’re a founder of a software startup from the CEE region or diaspora, read our FAQ and shoot me an email with a pitch deck at email@example.com!