Articles Dragos Novac

The bad VC behaviour

“A finance-person turned tech operator-person based in London” (probably a former VC who jumped ship) and without the balls to put a name to his opinions asks why founders don’t speak out about bad VC actors.

It is a rhetorical question, of course - we touched upon this before:

"These individuals will never be named publicly because this is a relationship business. Founders don’t want to burn bridges and investors are friends with each other. And deal sharing opportunities are more frequent and important than “that time I screwed a founder because I coronavirus panicked” situations. It is part of their job."

Another way to look at it would be that the equity sales event is episodic in a company’s life, it is not the main thing. It is rather a distraction and a sometimes necessary evil - once you’re done with it, you focus on the business, not on being friends with investors because you need to ask them for money. Investors are just one of the stakeholders in founders’ ecosystem together with customers, employees, suppliers and competitors.

And, listen, if you go to the market and the guy who sells you apples fucks you over, you just move on and find another guy who sells apples. It’s as simple as that. Changing their mind is not your problem, it is their problem - it is likely a benefit in disguise as you don’t want this kind of character in your company to begin with. It’s a test they failed, next.

And that is why the incentive of calling out the bad apples should come from the investment community rather from startup founders, as

a) this is investors’ industry and you are what your industry rep is.

I have yet to meet a founder who is happy and excited to start talking to investors for fundraising reasons. Anxious, stressed and freaked out are more appropriate attributes and there is a strong corellation between those and the industry rep.

b) investors usually work together and they can correct bad behaviour easily if they want to;

c) more often than not, investors cover each other asses;

d) bad investor behaviour is usually considered an “accident” by their peers, “there’s always a next deal”.

Does Europe need tech entrepreneurship?

Nicolas Colin is singing the praises of Rocket Internet, the German investor which is known as the cloner from Europe. If you didn’t read it yet, go ahead and do it now, it is a well-argumented piece, as all the writing Nicolas is doing.

He does have a point, as Rocket Internet filled a big void in Europe at that time, which, Colin argues, makes secondary the fact that they merely imitated what American successful companies were building, since at the end of the day they managed to develop quite a few valuable assets too in spite of their rep.


If you don’t know what Rocket Internet is, it’s worth reading their wikipedia page and the Controversy section. You may also be aware that history is not what actually what you think happened, but what remains written in the history books.

To make a quick parallel, in the 90s in Romania after communism fell and Ceausescu was executed, entrepreneurship meant racing to bring in American fast food franchises - McDonalds, Burger King etc. Specifically you would pay for operating a brand and its playbook and it was up to you and your skills to adapt those to the local market.

This is exactly what Rocket Internet did with tech businesses, except that they didn’t pay anything. They just copied mot-a-mot US companies which seemed promising because they raised money and added their own logo on top it, and created their own playbook in a market which was empty, like Romania was in the 90s.

And not only that, but also, upon building them, they tried to sell them to the guys they cloned from as “their European operation”. Boy, did that piss off some American dudes back then!

Some of the startups worked, most didn’t. Rocket Internet certainly built assets that returned money to the investors and others which now are solid European businesses.


A topic that is less talked about is that by doing this the Germans had a bigger role in creating a new nomenclator of jobs, the startup jobs. They made startups cool in Germany and provided an educational structure and infrastructure, even though they were clueless about tech startups to begin with.

School doesn’t teach you the combination between tech and building business out of it. Back then and even today, school meant a lot theory crunching, as good as storytelling over a cup of coffee and most of the times senseless without practical support. You either got the concepts or not, and, in some cases, you got theory combined with mistakes made by corporates decades prior wrapped in business cases. Why corporates? There were not startups to learn from at that time.

The rest, which was actually everything, you learn it on the job. Back in the 2000s, your career path as a graduate was to work for a corporation, become a management consultant or an investment banker.

There were not too many startups, especially tech. Sure, there was an emulation because Google was cool and not evil at that time, but, just like now, it was just a small bubble. Especially in Europe.

And so, when Rocket Internet started, their startups clone incubator became an alternative, fast-paced, high-learning curve to a straightforward and rather boring career. And which today has led to a good range of qualified people who are skilled at working for tech business.

Rocket Internet was a huge school for kids eager to learn tech and business at that time, even better than an MBA in some cases - some of those guys are actually Euro VCs or successful entrepreneurs these days.


But. Other than all those conjunctural spillover effects, the question remains: 

Is it better to steal people’s ideas rather than create something from your own head?

Good artists borrow, great artists steal, they say, but Rocket Internet ain’t an artist, it was a bunch of rich kids willing to make a quick buck. We’re talking business here, and in US what they did can be treated as intellectual theft and you can lose your shirt if you’re found guilty.

And, beyond morality, in secondary markets such as Europe, it didn’t really matter for the consumers. It doesn’t matter anywhere actually - as always, the market will dictate what works or not, regardless of you being an innovator or just a mere follower.

And on to morality I don’t think there’s a clear answer to that, it’s up to one’s values and intellectual abilities, and, at the end of the day, that’s rather philosopical and personal choice.

And that is why the opinions about Rocket Internet are polarised:

- Some people see the idea stealing. The lack of originality and of creativity. All those are associated with personal values and organisational DNA.
- Others see happy customers benefiting from value created by those successful companies.
- And others see some good assets that made some investors rich.
- And yet another see the related jobs and an educational ramp that created a bunch of successful middle class, savvy these days in building startups.

But, overall, all those opinions are among a very small segment, a closed circle of people building stuff out of Europe. At the end of the day, as I said, the market is the only one validating your business, and that is customers giving you money.

It is certain though that there’s a good part of Europe following Rocket Internet’s blueprint, i.e. copy ideas and adapt to the local market. The continent is full - in Germany, France, Spain there’s plenty of startup clone factories today, they’re building their fame out of that. And there’s plenty of investors backing them up.

Problem is that this is just small thinking, with lower returns on investment as the risk is lower too. It’s not Champions League, it’s a secondary league for teams dreaming with eyes wide open to get drafted to CL teams some day.

And, on top of that, it’s other variables like path to liquidity, lack of fast deal turnaround and lower M&A levels that are part of Europe’s entrepreneurship problem and have been since the beginning.


And so, are those guys part of the problem or part of the solution today?

Is Rocket Internet representative of the European DNA of doing entrepreneurship and innovation, by, as Nicolas puts it, “merely replicating models and strategies that have already been proven on more mature markets”?

Is this the European way of being a startup founder?

If this is it, it’s fine, but let’s call a spade a spade. We just need not be too hard on ourselves when asking why kids cross the ocean in droves when they want to create top products and businesses. In spite of US being a shitshow these days.

And us, outliers, we’ll always have the French/Germans/Spanish etc to make fun of when they will unsuccessfully try to clone Google, Amazon or whatever shiny new things Americans and Europeans living in America may invent.

Which begs another question, a bit meta - does Europe really need tech entrepreneurship? Why or why not - just because today there’s more money than projects, with a bunch of VCs sitting on funds and looking to justify their jobs? :-)

Epic vs Apple

Story of the week is Epic fighting Apple and Google for forcing users to use the in-app payment system and thusly getting a 30% middleman cut.

Here’s what the Epic’s CEO is saying:

we’re fighting for the freedom of people who bought smartphones to install apps from sources of their choosing, the freedom for creators of apps to distribute them as they choose, and the freedom of both groups to do business directly

The story is larger than that, of course, on one hand it is costly to ensure a curated malware-free experience for downloading apps (Apple’s claim for charging 30%) and on the other it seems unfair that Apple should charge for services that do not require Apple’s resources and forcing developers to use Apple’s payment as a gateway in the name of security.

I don’t think the main problem is having to pay a distribution fee or the number per se i.e. 30% but the fact that the number is not worth it in the value creation breakdown, as Apple mostly acts as a dumb greedy middle man.

That number should reflect the value Apple creates in the ecosystem of the products it distributes and there’s hardly a way to calculate a ROI close to that value.

The problem is that Apple Store grew and now has scaling problems - the way it was envisioned by SJ 10 years ago simply doesn’t fit the way business is done today. Things have evolved a lot in a decade. Btw, this also applies to App Store’s byproducts, the Analytics, the ASO and ASA, which are badly implemented, far from being at par to how business is done today.

This head-in-the-sand, our-way-or-the-highway attitude of Apple from its monopoly position will only further alienate developers and business people altogether and at some point a change needs to be made.

That point seems to be now.

Apple is increasingly altering business models (see Guardian’s example above), shaking down entire industries, and in some cases using its power against direct competitors (hello Spotify).

In Europe we have Spotify pushing, a month ago it was Hey, Airbnb, Tinder and ClassPass, 2 weeks ago Apple (and Google, in the same position) had a chat with the US Congress about anticompetitive conduct, and now we have Epic, also joined by Facebook btw, which chimed in and complains about it. Now we have a party.

Obviously Epic is more financially equipped for a fight (they actually sued in a court of law) and better prepared too.

Equity selling as a biz devel tactic

Labster raised a down round of $9 million which they call a strategic growth check and made to bring on GGV in order to strengthen the company’s position in Asia. 

Last time I checked, equity selling to a VC was not a common practice to expand to Asia. China is a difficult market though and this biz devel tactic can be as good as any I guess - Jenny Lee, a Shanghai-based partner with GGV, will take a board seat at Labster. 

Labster raised $21M last year.

How do you beat a 15 minute delivery grocery business proposition

You know what is cooler than London’s Weezy GTM promising to deliver groceries within 15 minutes? One similar promising to deliver in 10.

Gorillas, based in Berlin and founded this year by Kagan Sümer and Jörg Kattner, is a grocery delivery provider offering an aggregate supermaket products range delivered to consumers within 10 minutes of ordering.

10 or 15 minutes of course don’t make a difference, the fundamentals are the same while the markets are differently sized - arguably people living in London are about 3 times as many as in Berlin.

And, btw, Gorillas just raised venture money from local investors, just like Weezy. Two is a tango, it looks like the beginning of an European trend.

Anybody reading this old enough to remember Webvan?

Klarna wannabes startups

SeQura secured a debt facility of up to €50M in the first phase and with the possibility to scale it up to €200M.

SeQura does payment solutions for the ecommerce biz and has an interesting story - it was founded in 2013-2014 by Swedes living in Spain with the objective of cloning Klarna and later flipping the business to it. They were not on their own as they also had VC backing from another Swedish living in Spain (Optimizer Invest).

In total, the company raised about €6 million from Optimizer and Grupo Intercom, which control about 25% of the equity.

Long story short, they put together a nice business serving about 2500 stores, growing double digits yoy and bringing in about $20 million per year, mostly from Spain. 

Klarna actually wanted to acquire them last year - the founders were ready to sell but the VC wanted way more than a $100 million valuation, which is more money than Klarna thought it was worth and the deal fell off. 

And so now they took debt for building more business on their own - but instead of expanding in Europe, they intend to go to other Spanish speaking countries such as Mexico and Colombia. 

Also notable: there’s another little startup, also based in Spain (Alicante) and also developed by Nordic people, Danes this time, and which wants to compete with Klarna by charging half of their commissions. They’re not on their own but together with Clearhaus, which invested in them. The target markets: Spain and Norway.

Clearhaus is a medium-sized Danish payment processor and has 20k merchants as customers. For context, Klarna has about 10x as many. Btw, Klarna is not active in Spain.

It is a fascinating emerging space, still in very early innings and very-very fragmented in Europe, all players solving similar problems but in discrete parts of the value chain and going from different directions. And, of course, chasing market share and growing the pie. Until a player like Apple or Square comes and changes the rules of the game by providing a credit card, POS software to merchants etc - Apple still not active in Europe btw, Clearhaus implemented Apple Pay for them in the Nordics. 

Other notable plays from the big guys - Paypal bought iZettle in Sweden 2 years ago, Square just bought Verse in the Spanish consumer payments market, Lydia just raised $45 mil in France from Tencent, Alipay is quite active in Europe, etc. and I am sure I am missing a whole lot of others.

Why Google needs to be regulated

Imagine you built a travel business operation, an online one that compares the best hotel deals and airlines, lets users add recos about their experience and ultimately providing consumers with holiday solutions.

The business makes money by selling leads, or reselling airline tickets or hotel accommodations. Or even advertising.

You talk to suppliers to give you good deals, you build a clean valuable product showcasing the content for customers and spend a lot on brand, marketing an differentiation.

Once you have all these in place, you’d probably build the asset’s home page (aka the entry side of your business) as simple as possible. Maybe, say, showing content snippets, adding useful links guiding users to the value points you created for them, and maybe a big search box to help find useful information.

It makes sense, right?

And now once you established this operation and you have some success, imagine that there is somebody else coming up with the same idea as you did. Now, competition is good and healthy but here’s the twist: their implementation involves scrapping all the content from your asset, for which you worked so hard to curate and aggregate, they store it on their servers and put their own search box and useful links as a mean to front their own business model which btw is exactly like yours and targeting the very same customers.

You would be pissed, wouldn’t you? Somebody else takes advantage of your work and makes business off your back. And you don’t get a dime out of it.

The name of this somebody is Google, which is by far the biggest data scrapper in the world, taking the content properties from others in the name of good SEO and usability for users and putting its own business model on top of that.

The search box, the maps, the assistant et all are just free tech products fronting off the content scrapped from other people’s assets. Those free products are just like another home page for your asset. But for Google’s benefit.

Combined with analytics and the ad business + chrome and android they form the today’s internet monopoly, probably one of the most powerful in the economic history. This is Google in a nutshell - scrapped content fronted by nice free products and a powerful ad machine on top.

That is why the Germans, and not only, are so pissed at them and are filling a cartel complaint against Google at EU, accusing them of stealing content and data.

And that is why Google needs to be regulated pronto.

About the online groceries market and 15 minutes delivery

Weezy is a new London startup promising to deliver groceries within 15 minutes, for the moment in Fulham and Chelsea (some affluent hoods from London) - here’s the PR spiel.

The 15 min seems like an extreme constraint that could work for viral purposes but not sure it’s scalable. 15 minutes vs 1-2 hours is not much of a big differentiator as in retail consumers care more for i) price; ii) product scope and iii) stock availability. On top of that it’s more important to be predictable and on time rather than the fastest, given you deliver within an hour or so.

Weezy’s app (ios) seems to be still very rough to the edge of unfinished and what’s the point of selling online if you can place an order only from 10am to 10pm? Dark kitchen but for the ecommerce?

These constraints seem more suitable for impulse, on-the-spot transaction decisions rather than for planning - buying groceries is a planning process. Definitely an interesting experiment to follow.

Tbh I like better Jow’s edge in the space, also a retail aggregator of online groceries but based on customized menus they put on the front end for consumers - it’s a sort of lock-in preventing price-based decisions, making switching costs higher and without the inventory costs (they’re operating on top of physical retailers).

Online grocery retail is a dog-eat-dog business that relies heavily on suppliers, great logistics, distribution and good consumer prices. You live on thin margins and, as it’s the case of Weezy, you also have inventory costs that will require a lot of capex (storage, refrigerators, mopeds etc) and opex (stock), you work with perishable goods you need to turn over fast etc.

It is a hard business requiring consumer branding, differentiation and marketing spending even though the main asset to build has little to do with those.

Selling groceries online is a good trend to ride nowadays in Europe, as Covid augmented the e-commerce demand but the opportunity is rather taking share from local supermarkets than from Amazon. It is hard to compete with Amazon’s prices and logistics - you may win some local fights but not the war.

Weezy is basically a bet for developing a competitive logistics and delivery service, ultimately to be exited off to a lagging retail chain or even to Amazon in an edge, lucky case. Question is how many such logistics and distributions hubs can London sustain, and other big cities for that matter, on top of taxis, food and postal services - all of them will ultimately want a piece of the grocery delivery service.

Heartcore is one of the backers, unusual for them to take such early risks, probably high on conviction from prior deals with Taster (a dark kitchen op which relies on 3rd parties distribution) and La Fourche (a digital consumer buying club for organic food).

They now invested in three different parts of the chain, a correct directional bet based on the thesis that the online food delivery is going to grow quite a bit in Europe in the future. Arguably Weezy seems the most riskier of the three, and not because of the stage but because there’s no visible moat - it’s a pent-up demand business with lazy incumbents.

Apple acquired Mobeewave

Apple announced the acquisition of Mobeewave, a Canadian company with a solution that makes any phone a POS with just an app. 

That means Apple will go down the value chain and make it as easy to add merchants as it made adding consumers via their cards. The goal is to become the important connecting link managing the relationship between merchants and consumers to process identity, loyalty, rebates, rewards and coupons. 

And, why not, create a business layer on top of it, a la App Store, and take a 30% cut.

Square in US and iZettle (owned by PayPal) in Europe are some top of mind providers in the space and which will likely collide with Apple.

Apple allegedly paid $100 million for the acquisition - also interestingly, Mobeewave raised money from Samsung and Mastercard, about $25 million in total.

The tech versus the regulators, part 231527

This week the US Congress interviewed the CEOs of four of the most powerful tech companies on the planet  - Apple, Google, Facebook and Amazon - for the purpose of establishing grounds for monopolistic behaviour.

I followed a bit the live discussions, and, as always in such situations, it is striking the huge information and knowledge asymmetry between the tech regulators and the tech creators. The congress people seemed very unprepared for the job they were supposed to do, made a lot of silly claims and irelevant points, proving once again that the gap is so big between the two worlds that the politics is out of control.

Here’s what I wrote just 8 weeks ago:

The tech ecosystem has developed tremendously in the past 15 years, in spite of the shitty politics from across both ponds.

That is the very reason for which governments want to regulate Google and Facebook. The gap is so big between the two worlds that the politics is out of control.

More regulation and protectionism will not narrow it [the tech gap] down, au contraire, it will force tech to be more creative, they invent things for a living after all. And yes, US is a very different beast than Europe but smart people adapt.

In conjunction with the hearings, a lot of internal emails were made public, which make for an interesting economic history learning - worth digging through, you can find them here

Also notable Zuck’s statement claiming that Facebook is a laggard:

In many areas, we are behind our competitors.

The most popular messaging service in the U.S. is iMessage. The fastest growing app is TikTok. The most popular app for video is YouTube. The fastest growing ads platform is Amazon. The largest ads platform is Google. And for every dollar spent on advertising in the U.S., less than ten cents is spent with us.

Zuck’s PR taught him to play humble and assertive - but really, does anybody believe anything he says in public at this point? Btw, Facebook’s ad business outpaced Google’s in Q2 — here’s why.