Money for Startup: Piotr Wasowski - Arkley's CEO & Founder in interview for Puls Biznesu

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Marcin Dobrowolski: We are in Arley’s office, on the wall I see the pictures of startups with which Arkley has some collaboration. Can you tell us a little bit more about some of them?

Piotr Wąsowski: These are our last investments - hardware startups. Maybe, I will say something more about Senstone. It's Ukrainian startup, which created a small gadget based on voice to text technology. It analyzes speech and transforms it into text by using AI. The idea is to automatic make the notes “on the go”, for example you can create invitation to the calendar, reminder etc. Basically to work faster without the phone or laptop. Right now, it's available in six languages, but of course the main language is English, the goal is to make it available in any other language.The solution is consistent with trend of limitation of phone usage. At the same time the device is very fashionable, and looks like a small-size brooch.

Second startup is Robo Wunderkind, the product is kind of Lego blocks toy. Toy is designed specially for children who with the help of The Robo Code app can easily learn how to programme. Thanks to intuitive coding process children can learn new skills and have fun in the same time. The product is comparable to Lego Mindstorm but is designed for younger children.

Why you are interested only in hardware projects?

I was working for few years in media industry, Icreated such portals like Nowadays, media is already developed sector, which makes it quite hard and competitive. That's why few years after that experience, exactly 5 years ago, I invested in first hardware project - ZMorph, which is now a leader in multitools, 3D printer industry. Then I realised that this market has a huge potential and it’s instantly growing which opens a dozen of possibilities. Moreover, in hardware industry you are more aware in what you are invest exactly, because the products are tangible.

It is easier to find the investor for hardware product?

It’s even harder as it is a new trend so not every investor is confident enough to do it. We started our adventure with hardware startups 5 years ago, and at that time we were the only hardware VC in Poland. Now it become more and more popular. Even taking into consideration various events, now one third of startups presenting there is from hardware sector. On the other hand, we need to remember that this sector is harder to push yourself forward, because the founder has to build something that physically exists and works.

How often does people come to Arkley just with the idea and ask for help to develop and create the product?

People are reaching us out with the project on different stages all the time, but in general I would say that number of good projects on the market is quite limited.

Which criteria need to be fulfilled by startup to catch your attention?

My answer can be a little controversial, but in my opinion it’s not a product that needs to be perfect, but the founder who we want to cooperate with. The most important are such characteristics like knowledge, ability and motivation to create something great and develop yourself. The chance of achieving success is much higher with  the remarkable founder. Of course, the work goes easier with more than one founder and when those founders complement each other competencies - it's a perfect team.

What startup needs to prepare for such a meeting?

The ideal situation is when startup come with prototype, at least with the initial model, which shows how does it work and how it will look like in the future. Of course it never works perfectly at the first time, but when the main features work that means that the product has a potential. Another important thing is when the founders has a vision, a long-range plan what they want to achieve in the future. The third important feature is passion and commitment to create something new.

What you require from founder who came to you with his or her idea and asks for not disclosing the idea?

In my opinion it is huge mistake when someone requires the NDA from the beginning. In the whole world there are not a lot of entirely new and brilliant ideas. I would say it is even quite rare, so we don’t expect this kind of situations. There are a lot of similar and innovative product that’s why the key is the team - its motivation and vision. Someone once said that the idea is just a 10% of the success, whereas the execution is 90%.

How the investor engagement looks like?

We have two models. The first one is the accelerator - Arkley Launchpad, which works with the startups on initial stage before the investment round. The collaboration lasts about 3 months and during that time our team works with the startup on theirs product, vision, marketing positioning and finally prepares them to the  investment. During that time we can also asses if this is potential project for our own investment,  so on the next stage the fund comes and we can prepare for investment action. Now, we have the joint fund with our partner from Hong Kong -, which is the second biggest hardware accelerator in the world, and which make us even better fit for hardware startups.

Except for that, we offer a service package in accelerator from Shenzhen where startup can tweak the prototype and design the manufacturing process in China where the services are the cheapest and the most efficient. It's  not a secret that the majority of hardware products is manufactured in China.

And how the formal stuff looks like?

All rights stay in the company in which we invest. The founder just divides the equity between himself and investors, and of course founder keeps the majority.

What the startup can count on after this kind of investment?

We are not just VC fund, we are the accelerator VC wherefore we help our startups in key areas of their activity as well after the investment. For example we can help with the recruitment, eg. when the startup needs Sales Manager, we are looking for the best fit form them, we can recommend the prototyping agency which helps them with product development, we can support in manufacturing, production and distribution, as well. We have developed network of contact in the USA, Asia and Eastern Europe where we can easily launch the product. This is exactly what we call smart money approach.

So it means that you offer advisory services?

In my opinion, it’s even more than just a simple advisory, we offer the specific solutions that help produce or launch the product on the market. However, the most important for startups is the financial support. It is the way how to measure the startup success. In most of the cases startups need another follow-on round to scale, so we are also helping them to raise that follow-on runds. The best example showing our experience are our portfolio companies - all of them raised follow-on rounds last year, which proves that we have 100% of success.

How much did they raised?

Five startups raised about 17M PLN which is quite big success. Tespack raised the most of the money which was about the 2M EUR. Tespack makes the equipment which used the solar energy to charge the battery. In consequence with their equipment people can travel many days without access to current.  This product is also perfect for B2B market, they are already working with some armies, miners etc. Right now they are ready to enter the Saudi Arabian market, as also the investors taking part in follow-on round are from Saudi Arabia, which makes it easier for them.

Investors are trying to predict which sectors will be profitable in the future. Have you got any suggestion how it will look like in hardware sector?

In hardware the most important is positioning of the product and finding the market niche where the startup has the opportunity to become the market leader. The 3D printers’ industry is a good example where the competition is huge but ZMorph, which positions itself as multifunctional robot, shows its uniqueness - this is the key. It is obvious that competition will always rise, that is why founders have to finds their own niche and become the best in it.

This printer looks amazing, is it dedicate to some specific group of the consumers?

Exactly, by niche I mean also a specific group of the consumers, target group. ZMorph sells its equipment to the universities and schools to enhance education process. 

On the wall, you have six pictures of startups you collaborate with. Each of them is from different sector, from 360 degrees camera to  sex toys. In your opinion which of these sectors is the most promising one?

Now, the trend  “off the screen” becomes more and more popular, so I believe Sensone with their small voice assistant is promising, and could be very successful in the future. This device can change our daily live, because you can use it in many situations for example at the gym, during the travel ect. This solution is in line with our investment strategy, we would like to invest in project which can disrupt the market and like Senstone does replace phones or computers.

April 16, 2018