Yesterday I attended the first Nexus Squared Demo Day in Zurich (with 8 ventures from 7 countries in Europe presenting). I was hugely impressed by the overall quality of ventures presenting. I am giving ratings here, but even a low rating would have done well in many pitchathons I have attended in the past. This shows that Nexus Squared is doing a good job. I am using an incubator image as they are focussed on the earliest stage, which is smart as the acceleration stage is crowded and the incubation stage is critical – you don’t get to be a teenager if you die within months of birth. Nexus are focussed on Blockchain ventures which makes sense, because if you back early stage you need the tailwind of a disruptive technology. For our intro to the Nexus Squared location-agnostic accelerator model see this post from when they launched – they have clearly executed on that plan.
Pitchathon rating system
As I attend a lot of Pitchathons, I decided to create my own rating system. I tested this out at the inaugural Barclays Techstars Demo Day in October 2014 and my top picks from then seem to have done quite well, so I am emboldened to try it again and refine that MVP on this batch from Nexus Squared. As an admitted data geek, I aim to add some slow thinking methodology to what is traditionally a fast thinking gut decision.
I ranked on two attributes – Quality of Presentation & Fundamentals
For each attribute I have a simple 1,2,3 score (3 is best).
Quality of Presentation. This might sound superficial, but it is a proxy for quality of team & focus. This is clearly subjective. I was looking for:
Strong opening attention grabber
Strong middle with the details, real data, hold my attention
Strong close, make me want to talk to them.
This is clearly subjective. The quality of fundamentals impacts this (its much easier to present a great business) but I have seen great businesses that lost investors because of presentation and vice versa. This is also a proxy for quality of founder (see below). So, Quality of Presentation gets a max total of 9.
Fundamentals. This is still pretty subjective as it is based on a quick pitch (10 minutes in this case). I scored Fundamentals on 5 dimensions (so a max total of 15, weighting it more than Presentation)
Amount of Pain felt by immediate customers/users in market entry niche.
Amount of Innovation involved in solving that pain. In short, any secret sauce?
Monetization strategy. I am old fashioned on this score. Starting with free is good. Freemium works. But I want to know that the team has a plan. If the answer is advertising I switch off (adblockers and you cannot beat Google and Facebook).
Timing. Why now? Brilliant ideas ahead of their time are money losers. Just another follower in an established market needs lots of capital. Timing is the most critical factor in venture success as per one study by IdeaLab.
Go To Market Strategy. Is this clearly articulated and credible? This leads to Product Market Fit, where the “rubber meets the road”.
I then added Quality Of Presentation to Fundamentals to get total score (out of a max of 24).
Note: investors use pitchathons as a first filter – actually second filter, because an Incubator such as Nexus is the first filter. After a pitchathon, investors look at those fundamentals in more detail but what they are really doing is rating the founder (based on how well they handle questions about the details). The old VC mantra is back the jockey not the horse. Do you see a founder who can go the distance in a hard game? If I added Founder rating I would make it as much as the two other attributes put together (so if the max score of Presentation + Fundamentals is 24 I would add another 24 just for Founder).
Note: “Founder” can mean 2 or more people and that is critical in the early days when founders have to do everything but cannot afford to hire top talent to do those jobs; but the reality is one person tends to emerge as a leader and you have to evaluate that person (think of Bill Gates vs Paul Allen or Steve Jobs vs Steve Wozniak).
What I am trying to do with this analysis is combine fast and slow thinking (from this amazing book). VCs work on “gut” – thinking fast based on a lot of experience. I have used gut to evaluate quality of presentation, but you can also gauge how the people around you are receiving the pitch. Then I tried to add some formalism to the process. Evaluating the founder has to be fast thinking gut/intuition, but in all cases one needs to watch out for confirmation bias (see later)
The 8 ventures in their own words
Taqanu Bank, Norway
Taqanu Bank provides blockchain-based identification and banking services including debit cards and checking accounts for migrants, refugees, expatriates and remote workers regardless of residency status or available documentation.
Proof of you has a team of lawyers and IT experts working on digitizing the whole contract life-cycle together with strong digital signature, while connecting lawyers and their customers globally.
Paymeabit is a Value Network, a platform where content, such as a comment, a photo, a video or a blog post, can earn value in bitcoin.
Paymeabit enables this by allowing every ‘like’ to have a value in bits – which are fractions of bitcoin worth less than a cent.
This makes it easy for content creators and all the users to monetize their content with bitcoin nanotransactions.
Zeptagram wants to create more value for composers, publishers and holders of intellectual music properties by inviting fans and investors to our trading platform. A stock exchange for music intellectual properties. Based on a blockchain platform, we create more transparency and trust.
Zlick is bringing 0 click micropayments to the web. Their solution enables online publishers, for the first time, to sell individual articles for 0.10-1€ in a completely frictionless manner. Customers pay at the end of the month with their mobile bill
Mamoru provides a global immutable proof of ownership and proximity for any high-value portable item such as a bicycle. Using the app and the identification kit, users can register permanently their possessions into the blockchain. In case of theft, the item can be easily tracked back to its legitimate owner facilitating recovery.
Wone makes payments across different mobile wallets possible through an interoperable Person-to-Person mobile payment solution in Europe. This allows anybody to send money to their friends even if they don’t have the same mobile app.
Doqum.io a communication system which connects SME’s to their clients in the manner of an instant messaging system. It is optimized for document transfer, and offers end-to-end encryption, real-time document tracking, automatic cloud storage, and blockchain-based digital certified letters.
This operates at two levels. One level is highly destructive. Some investors base their gut evaluation of a founder on seeing somebody they are comfortable with. This can simply be disguised racism and/or sexism and/or ageism. This is a well recognised problem in Silicon Valley (although the top VCs may not have diversity among their GPs they work hard to get diversity in their entrepreneurs as they know how much this matters).
Another level of confirmation bias is based on seeing other ventures in that “space” fail. For example, reading their online pitches before the event I saw two Micropayment ventures and was totally ready to write them off. The friction for users is simply too high; it makes no sense in theory, but the friction from zero to 50c is massive and the friction from 50c to $50 is relatively small.
Yet that is why we have Timing as a critical parameter (for more on why Timing is the single most important parameter see this amazing talk by Bill Gross, the founder of IdeaLab which was the original Incubator). Re Micropayments, Publishers desperately need to monetise beyond advertising (the post adblocker media landscape is a fascinating subject that as a media entrepreneur I have some experience of). So the need for Micropayments is intense. This scores high on Pain and Timing.
The issue then is Innovation. Google was late in the search game (and late in the email game). The “xxx that does not suck” model of innovation has worked well. That does require a) some innovation b) great execution. For example, Zlick reduces user friction by adding payments to your Telco bill. That is smart and simple – and easy to copy. They had better move fast and execute well and that requires a top tier VC to take away capital as an issue. They should raise a lot of money fast and I think they probably will (or become an interesting footnote in history).
One more note on confirmation bias. I was inclined to like Taqanu as a) I understood the space and b) had some interactions with the founder before the event. So bear that in mind.
And the winners are – drum roll please
Taqanu wins with 20 (out of 24). See confirmation bias above which certainly impacts how I rated presentation. However I also rate Balazs as an entrepreneur – a good mix of smart, passionate, determined and practical. He is going after a market that is big and that most people don’t even try to understand. He is going after something where the issues are complex but he is cracking some of them and I reckon has the smarts to crack more.
Number 2 is Zlick with 19. This one took me totally by surprise. Without my confirmation bias they might have scored 20 (I was paying less attention to their Presentation Open as I had written off Micropayents).
I was going to present the top 3, but my scoring system got to 3 with a score of 17:
Proof Of You. I love the product that they are building and will be a potential user when it is ready, but they still have some work to complete this and it is complex. They are one of two from Estonia (which we went to on our Fintech Global tour). Great name.
Wone. They are tackling a huge problem (which we looked at in this post). They are up against incumbents who will fight them, but have some regulatory tailwinds.
Mamoru. I see myself buying the product and the plan looks relatively simple to execute. This is digital meets the real world and that is good as we all increasingly suffer more from digital fatigue (getting on my bike has always been one of my favourite breaks that refresh).
European innovation is alive and well
No sign of Eurosclerosis in this bunch – 8 high quality early stage ventures from 7 countries. English was not a native tongue for any, yet presentation quality in English was very high. Kudos to NexusSquared for executing on their plan and adding a lot of value at the stage that most people try to avoid – the earliest stage.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Bernard Lunn is a Fintech thought leader.