1Mby1M Virtual Accelerator Investor Forum: With Pawel Maj, Investment Director at Warsaw Equity Group (Part 4)

Sramana Mitra: We are big fans of capital-efficient businesses that are not necessarily chasing unicorns. Partly, the problem I have with this unicorn chasing is flushing these companies with too much capital. Then the exit bar is so high that companies end up in this twilight zone where they’re burning too much cash, can’t raise more money, and can’t find an exit because the valuation requirements are too high to have a profitable exit.

I’m pleased to hear that you are acknowledging that there are other ways of building businesses. Now there is a question though. How much exit capacity exists in the region? If there are 5,000 to 10,000 startups, how do you think this is going to play out?

Pawel Maj: In our case, we see three pathways to exit. We seek startups that are already doing business in the region or maybe are selling the products internationally. The idea of a startup from our perspective is a startup that already has a broad customer base and has already proven that they can sell through the region. The more sales they bring from outside the region, the higher the probability of exit. This increases the probability of the exit to a much larger global corporation.

Where do you generate your sales? Do you generate your sales from only one country? If it’s in the USA, that’s good enough. If you generate sales from a small local market, will you be able to go outside the local market? Maybe the startup only has $50,000 MRR but has a broad scope of customers from different geographical regions.

Sramana Mitra: We have worked a lot with this model in the Indian startup. The Indian market is full of B2B SaaS startups now. One of the things that the Indian investors have learned is, it’s great to validate the business in the Indian market and then come to North America. It’s a tried-and-true formula. Nonetheless, I think you can imagine that just central and eastern Europe has 5,000. India, alone, has that many and many more.

The volume of B2B startups is very large. The number of companies that are going to try to do this is very large. One thing I would like to point out is, I think as this market matures, there are going to be private equity-led rollups. Some of the exits are not going to be in the strategics but into these private equity roll-ups.

You talked about Amazon sellers. That’s a market that’s already happening. There are private equity roll-ups happening that are getting some traction and some private equity company comes and creates an umbrella brand under which, they roll up a whole bunch of good brands. I predict that this is going to happen in the B2B SaaS world.

Pawel Maj: Yes. We don’t see it much in Central and Eastern Europe yet. We see it more in developed countries. We also see, more and more often, larger startups buy out smaller startups.

Sramana Mitra: That is the traditional strategic exit. Larger startups buying out smaller startups is happening, especially the ones that are doing this unicorn route. They’re flushed with capital and not showing enough revenues. They’re a great exit target.

Pawel Maj: Exactly.

Sramana Mitra: Thank you for your time.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Pawel Maj, Investment Director at Warsaw Equity Group
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