🎙️ AI-Powered Angel Investing: DACH Secrets Revealed

And so what do we do? We have own AI that filters through the pitch decks and takes out some red flags. So I at least annotate some red flags so that we easily identify this without going through the 45 pages of some pitch decks. So there are some things in there like nobody has had any experience in sales before or they are emphasizing technology but they don't have patterns and it seems that it's not patentable.

So there are some things where we say it's probably not interesting to take any deeper look at the startup. And so this is just the first filter. It tells about half of the teams that probably they're not so interesting. So depending on the time my people have, so I have one and a half people on the investment side, Roxanne and Christoph, and so they take a deeper look only at those which were not red flagged by the AI.

So the AI just principally takes the pitch deck and goes through some analysis, also puts a lot of information into a kind of a database so that we can later on analyze all the startups. And so if we miss something which turns out to be very good, we learn for the next time. So after two years or so when the startup turns out to be a high flyer.

The thing is that most investors come from a financial background and not from a tech background. So it's much easier for them to analyze financials or teams and take a look at the founders rather than really telling if this technology is a game changer, is really something that is – Really ahead of the competition or if it's just another startup doing something with a very good idea but not with great tech in the background.

And I'm one of the few ones who are coming from tech and can thus tell something about this part. So I think this is probably one of my USPs here that I can take a deeper look into technology. Of course, my team first analyzes just these standard questions like, is the team good? Is the plan good? Is the market big enough? So generally we say we invest in a total addressable market over 1 billion. So if it's only 100 million, normally we just don't take a closer look.

That's one of the things that our AI also tries to find out. And that's something that the AI and the team already challenge. And then when I talk with the founders, I'm also talking about technology. Of course, if the founding team would be like not somebody I would like to work with, then we would also not invest. And of course, technology is not everything, but then it's not that you have to get every good deal.

Just you have to make sure that many of the deals you get are good but yeah so you will always miss out on some deals so i i had a opportunity to invest very very early in a startup started by two pupils they were below 18 years old and they were starting the company when they became 18 but they were preparing for it and i said you need two pivots one technically and one the idea is great but technically and also from the business model, both will not work.

And then the problem was that we had an appointment at the notary and that was in Stuttgart. And I had an appointment in the evening with a politician in Berlin, a member of the parliament. And the notary called and said, we need to shift this by one hour because my previous case takes longer. And I said, then I cannot get my flight and I cannot go on the meeting with a politician. So I will have to cancel today. Let's find another appointment next week.

And we didn't find it next week. We didn't find it the week after. And after about four weeks, they came back to me. We had an appointment in four weeks or so. but they said now our valuation is more than twice what we had before because we have found some other investors who wanted to invest. And then I said for two pivots, I'm not going to do it, not going to do it at that valuation.

And we still discussed a bit but did not agree. And what happened is they started this and they did the first pivot very soon And then they got, I think, 2 million on a 10 million basis after less than six months. And that was quite a lot already because we were far lower in our valuation before. And I'm not so sure how much they finance. I think they have taken up something like 20 million already or so and are doing very well.

So I did wrong there because I thought with the two pivots necessary, the new valuation is not appropriate because the risk is still high.

Two pivots necessary and the valuation is not ultra low as it was before just not very high yet And I was definitely wrong there the other thing is yes I sometimes I just sometimes make mistakes in investing of course and that happens to everyone and there can be two sides of mistakes so one is you have missed the chance and the other thing is you invest in a company where where it doesn't pay off and the company does not do well and I also had this in the past I invested in a company that just

didn't want to grow they were happy after they were slightly profitable and still at a very low level and yes we can run the company now we don't need any more investors so what's the problem and that that's also not so good so so even if the company doesn't go broke, it might still not, by far, not pay off for the investor.

you can't get a patent for it. So that's normally a red flag for me. So, for example, I had somebody with an invention in chemistry, and they would not tell me what it actually was. So actually, they had a discovery in chemistry. That's what they told me. And when they finally told me after I signed a hard NDA and lots of things, I found out in less than five minutes that the effect was already known.

But under a different name with a slightly different approach but it didn't make any difference so it was definitely existing so that that's a very hard no so what else is a hard no so I'm not so much on this single founder doesn't work so single founder can work well I don't have a big problem with that I know it for myself so I started multiple companies normally as a single founder in the beginning and then took up some people later, but, um,

uh, fact find that I actually grew to a hundred people without any co-founder. So, and then, then I hired a COO in order to just get me a bit away from management and let me go back to innovation again. Because I don't like management. And this guy really loved management. He was in a 10 times larger company before at sea level and joined us and just restructured, reorganized how we worked in terms of how we managed the company.

And we accept people who have done 10 invests in their past so you don't need to hold 10 invests now even if you have only one or two or so right now and you have already exited or some have gone broke or so and you have done 10 investments in the past you can join very very few members of Bund have had 10 investments So, I don't know how many there are in the Business Engine Network Deutschland who could qualify but it's probably 100 or not so much more and 34 are in our frequent angel circle.

Actually the one with the most investments has done more than 100 investments. We already have one with 75 who was also nominated for Business Engine of the Year and we have one more with more than 50 investments and all of those investments. And so we're talking about investments of 50 K euros and up. We're not talking about people who are just, um, by a bit by a business end of the club or so diversify their money and invest 10,000 euros each in 50 startups. So, um, so it's, um.

Um, so, uh, and we have one who has done also about 20 investments, but his typical, uh, investment is 1 million. Um, so he doesn't start with 1 million. He normally starts with 250, 250 K. Um, but, um, but over time he grows in the companies and sometimes he also starts with a million.

Um, so, uh, there are these people. Um, and, um, so in the frequent angel circle, I'm rather one of the smaller investors, but as compared to the typical business angel, I would say, yes, this is quite a portfolio. So I've done 21 investments, 15 are still active.

And Valent has a number of customers who are big and who have been under or who were under social media attack from competitors or political opposing people. So that means normally there is some truth in the story. So something has gone wrong with something. So like disappointed one customer or so, and an attack normally means that somebody takes this story and makes it huge as opposed to the positive stories. And this happens. This is not just something that could happen, but it does happen.

There are malevolent people who actively attack their competitors in social media. And Valent detects this with AI. And they have a very strong AI team, I can tell this.

And then there are other measures like how do you work with the press because normally then the press takes up this and you have to do some countermeasures there. And how do you deal with the social media and so on. I'm not an expert for that. So you have to interview Veiland the next time in order to talk about this topic. But I think it's a great company and a former investigative BBC journalist is part of the founding team. But they're also really great in AI. So I admire what they do.

So that's one of the startups. I can tell about more if you want to talk about more startups.

So, but I invested in a hardware company. which had a lot of innovation and I was fascinated by the innovation and the hardware company was they showed me their very first prototype of one part of the of the hardware they were building and so what happened was They took in investors, they tried to bootstrap and then found out that it will not be sufficient. They had some money, but not enough.

And then they took in investors and I was one of the people that they asked because of AI, because they thought AI will play a big role also in their future product. And so they had the very, very first prototype of something where you need hundreds of thousands of in big companies. And it did not work stand alone. You needed some other components also and they just had this one thing. But I was fascinated by the height of the innovation they built.

Then it took only 18 months until they sold to a big company. They were still like, I don't know, minimum one and a half years pre-seed, so pre-revenue. So definitely what they had built then was a fully working prototype, but in a very small scale. So like when you say I'm automating, let's say, a car manufacturing factory, and you just demonstrate one robot which screws in the screws or something at one place.

So they could show a smaller part of everything, but you could see that this is going to change the world in this special aspect. And then they already sold. So that went very fast, and it was still far beyond before they could sell the product to any customer. And we thought that we have, in the current situation, we thought that we have to have the first customer. and we tried to get some customer who signed LOI or so, which was also very difficult in the current situation.

But actually they had some inquiries from big companies who wanted to invest in them or rather buy them. And we went fast with one of them. And so after only 18 months, I could sell my shares again and was very happy with the multiple I got.

So, I mean, normally what I said about this, so what I said about this hardware company right now was also normally when you invest in hardware, you think it takes 10 years until they have an exit. And in this case, it was not necessary because it was so clear that this is very disruptive for the industry. And they were so far ahead of anybody in this field.

So I invested in a company called Hybrid LiDAR. And so they're not really running, but they have first customers who have done

tests, runs with them and paid for that and so on. And but this is already quite a big company and but I thought this innovation is also very high so I invested also. I do a new type of LiDAR of the distance measuring which is used for self-driving cars except by Tesla who is only using cameras but it's also a great application for manufacturing and robots and everything. And they have a much higher resolution at a less costly LiDAR device. And they're currently going to the first prototype.

So not prototype, the first production run. So for the first customer. I'm preparing for that right now. But they're already quite big. So normally I don't invest on valuations over 5 million.

And actually it only did now with DeepSeq, everybody could see that deep reinforcement learning is still a very important factor because this was basically the foundation of why they could be much faster and much better than other approaches in the past. So it's a combination of this transformer technology of LLMs with this deep reinforcement learning. So there was some deep RL also in the previous LLMs, but it had only a minor role.

And now it became part of the core of the innovation of DeepSeek. So that's what I've said then. And right now, I think what is totally underestimated is robots, even though they already have some hype. But I think people cannot see how big the disruption will be in five years.

So then you want to tell them, like, just hand me over five more of those stones. Hand me over this tool and so on. Can you just go downstairs and carry up two more sacks of the cement or something? Yes. And you want to command them in that way, and you don't want to show them every step, which is the normal way of learning for the new robots, so they observe and they copy.

But also for their internal reasoning, for understanding what you're doing, I think they're also using maybe not large language models, but the same kind of foundation models with some transformers inside or so who do represent what the person is doing. So you can reason what is it that it's doing because you don't go like, okay, now the hand moves 20 centimeters in that direction, then the fingers grab.

Rather, you want to do something like he's grabbing the tool, he's taking the tool, putting it to the screw, turning the tool. So you want it to understand what is happening. And for that, it already needs some knowledge representation internally. And that's easier with language, as it seems, than with most other things.

And when you're in Europe, probably founders who have more of a longer time until they will reach results probably have a bigger chance of doing this with German investors and European investors, so business agents especially, than in the U.S., I think, because we're not so hard results-driven as most of the U.S. Investors I've talked to so far, but there might be others also in the U.S.

So maybe some more disruptive innovations, which take a bit longer, can emerge in Europe more easily because the founders will not have so much

pressure to get results quickly.

And normally everything's right. And, of course, in Casablanca I have a COO who runs the daily business and he's also an experienced entrepreneur. So this is his third company. He was also at Accenture. And so it's Marcus Vollmer. He also was a CEO of some other German smaller companies, which were not startups. So he knows how normal business runs. And so I have a very experienced person at my side, and he's running everything in sales and normal daily business in Catablanca.

And the same is true for Omicron Data Solutions. I have Albert there, who is also very experienced and a great operative Geschäftsführer.

It was on the event, and when they finally called my name, I was really so shocked and astonished, and so it somehow resonated with me so deeply. Wow, I got this with these great people around me. So, yeah, so I felt very, very happy. And now what does it mean? So for one thing, it means that we get even more startup inquiries, of course. And not all of them have really read what I do.

So I'm focusing on AI, I'm focusing on technology, and some people just say I'm addressing the business age of the year and I don't care what he does. I just send out my pitch deck and so on. So some of them do their research quite well before they address me, but some don't. So that's one thing. Then, um, then there is some, there was some interest from, from, um, Format's press podcast. I think you also came through, through, uh, Bandnet Network.

Um, but actually, uh, because I'm a well-known AI expert in Germany already, uh, I was in the press, uh, anyway. So it's not nothing new that suddenly, uh, erupted and I was not prepared to, to give interviews or so.

So I was in Süddeutsche Zeitung, FHZ, uh, many other formats, four times on TV last year for AI topics and so in general, it was not a new thing for me to get press inquiries, but suddenly from a new side because before people did not interview me on the topic of investment, but rather on the topic of what is AI going to change in our world.

We also have done some forms like do AI together, exchange your knowledge on AI, exchange your experience, maybe also exchange some code and some other things together and also we have a format called the Startup Future Days which takes place once a year in summer and we invite all startups so we pay the general hospitality except for their own travel and so we have a conference room and pay all that and invite some guests and so And so we bring all the startups together,

the C-level, and they do, we start with a bar camp format. So that means people can spontaneously say, I could tell something on this best practice I have, or I want to discuss with other people on the topic of how to get good talents or whatever, so many typical startup things. And the second day we have prepared workshops. So, somebody from the startups prepares a workshop which is then going on for four hours.

And because that's prepared, there's a lot of theory, theoretical knowledge and so on they can convey or they have prepared practice. So you have to do something, some tasks, you have to work on your own to do something and so on. And my startups actually value this very, very positively every time we do it. And I have not heard of any other business agents who does this.

It's quite an investment also in time not only in money but I think this is something that really brings the startups forward.

into some details and we built a a new kind of loss function for one of the models. And I was deeply involved in that. And I think, so, I mean, this sounds like a bit bragging, but I'm quite sure it would not have worked by far as well as when I joined and helped them improve that. So sometimes I go deep. Sometimes I do go deep. I normally don't, I have not coded for a few years.

And this is already happening right now. Also, for selecting out of the deal flow coming in who is interesting and who is not so interesting, I'm not the only one who has built own AI for that. As far as I know, there are no tools who do everything yet. There are some tools who we have taken a closer look at the frequent angel circle in Bund. We've taken a closer look at some tools who promised to help you invest better and select the good ones from the bad ones.

But the tools were actually producing a lot of paper or non-physical paper, long PDFs with so many research items and did not really help invest rather help justify investments once you had decided because if some investor and LP in a fund asks you why did you invest there then you can send them the 75 page rationale in the PDF and the the LP will probably not go through all the details

The problem is that if people are afraid of using AI because they might violate the AI Act and might get punished, and I see this a lot in the Mittelstands, so the mid-sized German companies which are very important in Germany, that they are very insecure what they are allowed to use and what they're not allowed to use. And so the market breaks away. People are reluctant to use AI. They are afraid to use AI, partly because of this AI act, partly also because they don't understand it.

But even if you get them educated, the AI act still is not precise and very difficult and is subject to be extended very easily. And we need to get rid of this threat of what we call it, the Democles sword, so the sword that's above the head. In order to also get the market better in Europe for buying AI tools.

And the VAT tax and so on. So that has had to be done for some Fraud or so that had happened. But so it would be much better if like when you just declare that you are still negative. So you're not making money or so. Then you maybe can just omit all the tax things. So you just say I declare by I vow. So if you could just say I vow that that we have no profits or even we have no revenues. And then you can just omit everything in the tax regulations.

That would take a lot of pressure from new startups, so starting from the beginning. Because in the first time for Casablanca, it has taken like four years until we had the first revenues. And we're far away from profits right now. So, of course, this is an exponential curve. So, I hope that soon we will be very profitable. But for the first years, we had to develop, develop, develop, develop. And then we also had a lot of paperwork to do. And that's not so nice.

You want to focus on your innovation. You don't want to focus on paperwork. And Germany is very difficult. So when you start a company, it takes like six weeks until you can start the company officially. So a limited company. And I think politics can do a lot of good for the startup ecosystem by just reducing all these obstacles.

So I think what few people see coming is that probably the economy will change a lot until 2030. So I fear that the German car industry will go down by 50% until then. So I hope that I'm completely wrong, but it might happen. and the car industry is so central for Germany. So what will happen is that we have many people who are unemployed at that time.

And if we continue to just say, okay, if you're unemployed, the state will care for everything, then we will not get power into the startup ecosystem. But if the state rules change and you really, for one thing, empower the people to start a company, on the other hand, and also drive them to take up either work or start a company, then maybe we will have a lot more founders because they're very talented engineers and other people who will suddenly be out of business in their big companies.

And I have seen an engineer of... 48 or so, leave his company and start a new manufacturing company for glasses. So he had some idea on how to improve that. He was in that industry before, and he's quite successful with that. And also the startup I told you about before where I had the exit within 18 months was also founded by two people who were at the end of their 50s. So now they're both over 60.

And who had left their traditional careers actually a few years ago, built another startup, and then started this one. But so it's not that startups can only be started by 18-year-olds or 25-year-olds who just left university or so. That's not necessary. Also, older people can be very innovative and very inventive. And we will get all this knowledge from the engineers coming into the startup world in a few years.

So gut feeding is not so good for a startup fund. So what would I do? I would use a lot of AI. I would try to get hold of many startup stories and analyze them and see how the market shifts and changes. So which startups get good valuations at the next stages over time and how this changes. And then I would also try to identify which business angels benefit the companies, and I would try to get into startups they invested in, or try to get them on board also if I'm investing.

Because when I started my first company, if we had had a business angel, we would have avoided so many mistakes. It's not just because of the money, but we did so many things wrong, like not having a proper packaging for our first product, for example, which was sold also in stores and so on. So there are so many things which we can learn from an experienced business person. So I would probably take the business answers more into account than I have the impression the current startup funds do.

They can destroy your company because they so I think you have to be wise in selecting the investor so so you should not take seed seed funding from somebody who is not helping you but just pushing you in in their direction and you don't like this direction or you don't you're not convinced also you shouldn't do that at the startup founder um uh what else um so i think you should do some part of your innovation before you go out for money there are some people who seek money

when they have just an idea um and um so of course if you have worked for Or as a whatever CEO or a co-founder or something in a well-running company before, then you can probably get a lot of money already very early. Also when you work for Google or something before, then you probably also will get some money early. So but if you try to get money, whatever it takes, then it takes a lot.

So, and you have to make many concessions with some people who are just investing early at their high risk actually also,

but then they will take a lot of shares from you at a low valuation. And for some founders, that's maybe not so necessary to secure this so early. But generally, people rather take up an investor too late than too early. So in FactFinder, I bootstrapped FactFinder. And in 2007, 2008, 2009, we had over 40% growth. And while we were still 5% to 10% EBIT positive, not EBITDA, EBIT positive. So we were making real money and also cash flow positive.

And we were growing over 40% and investors were coming and asking, so can we invest, can we put some money on the table? And I did not do it because I thought, well, 42% to 47% growth rate is already so huge If we grow more, probably the company will do wrong or bad things because we cannot control all the growth. But I think I made a mistake because if I had taken some money at that time, probably we would have done the international expansion much faster and maybe much better.

And in the end, so I'm not allowed to tell the exact amount we had for FactFinder, what it was, let's say, a middle double-digit million, and Deca, our U.S. Competitor, sold for $1 billion to Oracle, and even though the founder, Steve Papa, only had a minority share at that time, he still definitely had more than 10%, and that means he definitely made more than a hundred million for that so probably it would have been better to uh just to the international expansion especially to

the us with investors money and also maybe with some investors guidance so choose the investor well but do not say i don't need money i don't need investors uh if you actually should or do need them you know to do the next step to do the next real growth step.