We are pleased to announce that the Creandum III fund has invested over USD 5 million in the Copenhagen-based start-up Autobutler. Autobutler is the second investment in Denmark over the last 12 months – the first being the social wine service Vivino. The investment frequency is a testimony to the growing tech start-up scene in Copenhagen and the rest of Denmark. We are continuously looking for exciting Nordic start-ups and the Creandum fund’s are planning on making 15-20 new investments over the next few years. We would like to use this opportunity to shed some light on what we look for when evaluating potential investments. By putting it into the Autobutler context I hope it will become more practical what we mean.
You have probably heard it before: Venture capitalists look for Product, Market, and Team. If your start-up has all these elements then there is a good chance that you will be successful in your fundraising efforts. Obviously this is a simplification so please don’t sue me if you check all the boxes but can’t get funded. Remember that venture capital is not the only option. This is just an attempt to explain why the Creandum fund’s invested in Autobutler in the context of what we generally look for.
Autobutler is a reverse auction site for car owners and a CRM system for car mechanics. Car owners can easily create a car repair job and receive bids from car mechanics. The car owner then has full transparency to price and quality of the car mechanics and can make an informed choice of where to get their car repaired. Car repairs are a large cost for many car owners and finding a quality mechanic for a reasonable price is an arduous task. Autobutler makes this easy. Car mechanics, on the other hand, do not have access to effective CRM tools and have a need to fill available capacity in their workshops. Autobutler also solves this. In other words, Autobutler creates a product that benefits all parts of the value chain. The best indication of a great product is that you have paying customers. Autobutler has a lot of these – 1,400 car mechanics and 90,000 completed jobs. It is also always a plus when the product (like Autobutler) is scalable and has built in network effects.
Car repairs are a huge market in Europe. In Autobutler’s 7 core European markets there is an estimated 140+ million car repairs/services annually. This is equivalent to a market size of around USD 700 million per year. Each repair job costs an average of USD 500 and therefore saving 30-50% on your car repairs is a huge deal for most people. Car owners are willing to spend time to save 100s of dollars and car mechanics are willing to pay a small fee to generate new customers. In a large market there is a higher probability of becoming a big business. Let’s say that you built a great product for the segment “15 year-old Swedes with an interest in cats” then your market size would be 20,000 people (I just made that number up) with an average disposable income of USD 100 per year (I also made that number up). Even if you have a great product that achieves a 50% market share that your customers are willing to pay 5% of their disposable income for your service, then your annual revenue would be USD 50,000. Venture capitalists are looking for businesses that have the potential to become billion dollar companies if they are successful.
Having a great product in a large market is not always enough. It is also important that the product that you are offering the market is unique in some way. Most businesses quickly lose their uniqueness when copycats arise. In this situation it is important to be the market leader with your unique value proposition. Most businesses have some sort of scale benefit so tackling an incumbent who has exactly the same product as you is a risky proposition. That does not mean that it is impossible to outcompete incumbents (!!) but it is important that you have a product or go-to-market edge that justifies why you will outcompete them.
This point always seems like a cliché but it cannot be stressed enough. A strong team is one that has the competencies to execute on their vision. This competency can be demonstrated through experience or by showing execution power. For example, if your name is Mark Zuckerberg and you have an idea for a new social service then there is a good chance that a VC will believe that you can execute on the vision. On the other hand, if you have worked in shipping your entire life and now want to create the next Angry Birds then it is less likely that a VC will believe that you have the necessary competencies. To all you shipping people out there with mobile games ambitions: The best way to prove a VC wrong is to just do it. Build the product, get some customers, and show that you (and your team) have the competencies to execute. At that point investors will be lining up at your door. The Autobutler team did just that. Christian Legêne and Peter Michael Oxholm Zigler (the co-Founders of Autobutler) assembled a team and built the leading car repair marketplace in the Nordics. This shows execution power but also the necessary tenacity to build a big business.
We are very pleased that Autobutler chose the Creandum fund as their investor. We look forward to helping the team execute on their international expansion plans. As always, there are big risks but the pieces of the puzzle are in place for a successful Nordic company. We look forward to finding the next one.