"We invest in the person of the founder"
JOIN Capital is the right address for software start-ups with B2B solutions in the industrial environment that are looking for financing in the Series A or Pre-Series A phase: The fund from Berlin invests in innovative technological solutions with global potential. Managing Partner Jan Borgstädt, who himself has experience as a former startup founder, tells 5-HT in an interview why JOIN Capital focuses on B2B solutions, what role the chemical and pharmaceutical industry plays in this context and what tips startups should consider when looking for investors.
How was JOIN Capital founded?
Sebastian von Ribbentrop, Tobias Schirmer and I built JOIN Capital together from 2015 onwards because we had made two observations. One observation was that the industry in Germany and Europe was very little digitized at that time, while other industries, for example media, telecommunications or retail, were already much further along or had even completed the digitization process. The other observation was that in the startup world, more and more B2B startups took place in the cloud - just not in the industry, but rather in other sectors such as advertising. So we asked ourselves: what if software was also delivered to industry via the cloud in the future? We were aware that there is an incredible potential for entrepreneurs in this area, because the cloud makes extreme market expansion possible. When a startup delivers its software via the cloud, geographical limitations are eliminated because it can reach customers around the world from day one. It also enables startups to compete with large software vendors by providing customer service in the cloud and global support that was previously only available to large enterprises. We have taken these factors, which we have seen in other industries, further for the industry - after all, industry is the backbone of the European economy, and digitization can be a great opportunity for this sector.
How has JOIN Capital developed since its foundation?
In the meantime we have built up a team of ten people and employ six more at service providers. Our current portfolio consists of twelve startups. We are currently making three more investments, so by the end of the year there will be 15 startups. Next year, we will establish a second, somewhat larger fund with a volume of 100 million euros, so that we can invest in the next 20 companies and also use more financial resources per company than before.
Why does JOIN Capital focus not on B2C but on B2B startups?
We have observed that there are often two disadvantages in the B2C sector: Firstly, B2C startups do not usually start out globally, but establish themselves in one market first before they gradually expand into other markets. The problem, however, is that similar products are often developed at the same time in other countries, making it difficult to enter the market later. The potential of B2C solutions from Germany is therefore often limited to this market. On the other hand, it often happens that several companies within Germany start with similar solutions at the same time, so that a race begins in which in the end it is not necessarily the best company that wins, but rather the one that has spent the most money on marketing. For us as investors, B2C products are therefore less attractive than B2B products. In the B2B sector, we are happy to invest in very specific solutions, which from the outside might be considered niche solutions. But the great potential lies in the fact that our startups can cover these niches globally.
In which phase of startup development does JOIN Capital invest?
We invest in the Series-A phase or in the early Series-A phase, when the founders have already developed their software and convinced the first customers. In this phase, the aim is to further develop the product, to win additional customers and thus to push the market expansion.
How are the startups in your portfolio financed?
Currently, the startups receive between 1.5 and 2 million euros from us at the beginning. We also keep the same amount in reserve for future financing rounds. We do not buy companies - which is a common misunderstanding - but merely take a share in them, with our share being between 15 and 20 percent. After six to eight years, we sell our share again to pay back the money to our investors.
To what extent are the chemical and pharmaceutical industries relevant for you?
Many of our portfolio companies develop solutions that can be used in the chemical and pharmaceutical industries. One of our startups, Flexciton, for example, supports customers from various industries in automating their production processes. Datapred, another one of our start-ups, enables companies to save three to five percent of the cost of purchasing raw materials by using AI to identify the ideal time to buy. We are also currently investing in a company in the Benelux that is digitizing laboratory processes. This startup's software can be used to simulate experiments so that they no longer need to be physically performed, which significantly reduces costs and shortens development times. A Scandinavian company, in which we will also invest this year, uses AI to simplify patent searches, which are otherwise a very time-consuming manual process for pharmaceutical and chemical companies. In the future, there will certainly be many more startups that can drive digitization in the chemical and pharmaceutical industry.
What tips do you have for startups that fit your profile and want to get in touch with JOIN Capital?
A piece of advice to all founders: Find a person from your network who already knows us and who is willing to recommend you. Because we receive many messages from startups every day, it is efficient for us to pay special attention to personal recommendations from friends or former work colleagues. Of course, startups can also contact us directly through our website or via LinkedIn. During the first meeting with the startup we ask ourselves the following questions: Does the startup solve a problem that many companies have? Would these companies be willing to pay for the solution of the startup? Is it a unique solution that cannot be copied immediately by everyone? And above all: Is the founder able to make this startup a success? The person behind the company is essential for us, because the future is highly uncertain - the only thing that is certain is that we invest in this person. So the founder should convince us that he can withstand strong headwinds and that he will somehow overcome all the hurdles that will arise in the future.
How can 5-HT JOIN Capital help to identify suitable startups and promote digitization in the industry?
For us, 5-HT is a good platform to get more attention for our fund and for the startups in our portfolio. Possibly a network like 5-HT can also motivate people willing to found a company to take the step into self-employment. Starting up a startup is never easy, but especially in the software sector it has never been easier than today, because there are many funding opportunities and because many of the solutions needed as a startup are now available for free or at variable costs. Of course, we are also happy when companies from the 5-HT network take a look at our portfolio and test one or the other startup solution. The risk is very low, but the chances for companies are huge.
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