Batch brew #2

Punched in the Face, F1 & Steamy Opportunities

GM, this is The Caffeine Capitalist. We tell you what opportunities are brewing in Central Europe, what is hot & what's not in VC & Boring business spaces. BTW we are still hurt from the recent wipeout in crypto, tech stocks... and pretty much everything else.

Estimated read time: 10 minutes and 25 seconds ⏱️

If ya only have a minute, the TL;DR actionable insights:

  • 🐻 All charts are red, US is signalling a downturn. Now is not the time to expect those huge exits, fancy caffeinated seed rounds & unlimited runways. If you are founder, cut your burn rates, re-calculate base & negative cases, fundraise early & brace for tough negotiations. If you are an investor & still have some money left, there is blood in the streets, you know what to do!

  • 🎰 Got yourself a boring business? Pricing strategy, digitalisation (sales, loyalty, experience), pricing adjustments & a roll-up of businesses are just a few of levers that you can pull to improve the bottom line of companies you just acquired.

  • 🏎️ I'm not going to make a summary of a summary of Liberty Media buying Formula 1 in 2016 and skyrocketing it, but if you watched Drive to Survive & love F1, just scroll to the second half to find a super nice Twitter 🧵 on this.

Before we kick-off, special thanks to the 82 new subscribers since last issue 🙏🏻 (actually I made a bet last week, that we would get to a 1000 by summer, help us? anyone?)

Department of Venture Capital

Turbulent weeks looking back & ahead. The markets have taken a punch in the face and the biggest dip is seen with tech stocks 🤐. The widely followed and tech-heavy Nasdaq Composite Index is down about 30% since it peaked in November. After incredible growth for tech stocks during pandemic, skyrocketing P/E ratios and revenue multiples of some companies, we see that bear market might be coming 🐻. So, what are the reasons for the fall? A combination of:

  • Rising inflation and interest rates (with a negative effect on valuations through discounted cashflows)

  • Population returning to a normal non-digital life post pandemic

  • Supply chain crisis, chip shortages and increased pressure on logistics

  • Signs of overall economic recession at the doorstep

  • Increasing energy prices

  • End of massive quantitative easing and free money

So what does this tech downturn mean for venture capital and startups?

Firstly, as valuations are decreasing, so are the valuation multiples. NTM revenue multiples for SaaS companies fell from it's high point of 20.8x in Q2 2021 to just 8.8x in Q1 2022! Find out more in the State of current market from Redpoint Ventures. 

 NTM Revenue multiples for leading SaaS companies were below a 10 year average in Q1 2021. 

Not only revenue multiples for public SaaS companies are down. We see the same trend also in consumer, internet and fintech and SW Large Cap sectors.

A Framework for Navigating Down Markets, a16z

This public market dynamic might not yet be reflected in the private markets, but what are the possible outcomes?

  1. Window of opportunity for IPOs is likely closed for now as market sentiment is low and IPO valuations together with it.

  2. Lower revenue multiples on public markets will likely decrease revenue multiples and valuations on private markets as well. As the potential exit valuations from M&A or IPO are decreasing, so will the late stage and early stage valuations for start-ups to balance the risk-reward expectations of investors. The change in valuations in private market will be lagged by one or two quarters to the public markets as everybody waits for the quarterly reports.

  3. Will we see lower investment activity in the VC space? Not sure yet - there is a lot of dry powder in the market (cash of funds prepared to be deployed) as we saw record fundraising activity in the last years. But deployment of capital into VC assets class during an expected economic downturn will likely decrease.

As a founder, how should you navigate through the market downturn with your start-up? Here is an interesting and short take by the a16z team. Summing it up:

  • Re-evaluate your valuation (duh 🙄)

    • Are the leading public companies in your sector down by tens of percents? Your valuation is likely also down by tens of percents.

  • Control your burn rate and cashflow

    • Expect that this downturn continues for a mid-term period. Decreasing the buying power of your customers, increasing the churn rates. Behaviours change, macro changes and so do your assumptions for the financial planning. Re-test your growth channels. Don't rely on easily getting another attractive investment round, focus on increasing your runway. (Yes, also your coffee expenditures will need a cut)

  • Create scenario plans

    • Best case, Base case and Worst case scenarios. If worst case materialise, think about debt financing or a down-round. We will see a lot of down-rounds in the coming months.

Speaking about decreasing valuations in the public markets, you surely heard that the Twitter acquisition by Elon Musk is on hold now 🏦. Even though he is officially the richest man on Earth with a today's net worth of 230bil. USD (check the Real-time Billionaires List by Forbes here), most of his wealth is bound in equity of Tesla and SpaceX and not in liquid assets or cash to be able to cover the 43bil. USD investment alone. Approximately half of the acquisition price is secured as debt financing (and half of it pledged by Tesla shares). The other half financed by Elon in cash and by other co-investors such as Sequoia, Binance, A16Z, Larry Ellison and Fidelity. See the whole list here.

"CZ" or Changpeng Zhao, the founder and CEO of Binance after adding 500mil. USD to the deal. A small contribution to the cause. 

Btw, we are also accepting smaller contributions for our future investments and acquisitions. 📲

Department of Boring Businesses

Investing into, or building a traditional small business is like going into a specialty coffee place. You don't stumble into those places by an accident, you know why you are there and you know what you want to drink ☕.

Today, we want to talk about levers or strategies that you can execute once you're "in" a boring business. As in the last issue, we will then confront it with an actual opportunity, this time a steamy one ♨️. Let me share with you few of the levers first:

Digitise = Shocker right? Majority of small businesses are owned by X & Boomer generations (Gen X to A explained here), but significant portions of their customers are from younger generations. Think process digitisation to cut costs, digital marketing & customer acquisition, customer facing experience digitisation & new offerings.

Expand or cut down offering = Are you answering current trends with your offering? Do we have offering for specific target groups? We use customer interviews & rapid prototyping to find new propositions. When we looked at the accounting industry, we immediately though "how to tax crypto" as an offering. (no longer valid, since everyone took losses)

Roll-up = Taking more of a private equity approach would mean buying up multiple smaller operations for lower EBITDA multiple & consolidating them under one brand/operation. The main reason behind this is to sell the consolidated company for higher valuation multiple. Think accounting firms, facility management companies etc.

Increase prices = Yup you heard that right. Pricing strategy is the key element to optimise P&L of your boring business. Complicated price-lists lead to opportunities to increase prices on certain items. Think about activities that take time, are hard to do, annoy people & then price them accordingly. Also, many companies got used to not adjust prices due to lack of inflation in the past years. Have you seen the recent CEE inflation numbers? No time to spare!

Also bear in mind that you can mix & match these levers for additional yield. For us, levers that we can pull play a key role when thinking about "investment thesis" or "angle" for each investment. (more on this in the next issue)

Alright, the opportunity hat full of ideas is out, we're pulling Wellness/Sauna chains (could also apply to gyms & fitness centres). Let us take another sip and look at the opportunity through the lens of "levers". First the numbers:

Does this pass the boring business test from last issue? Pretty sure it does, it's a simple business that could be split into two parts, real estate & operations (investing into one is also possible). Regional, totally. It's not full-fledged subscription business, but part of your customer portfolio will be made up of regulars. Macro test? Urbanisation is in full swing, sedentary lifestyle is up, need to unwind & take care of your mental health also up. Check ✅.

These companies don't pass the "stuck" category though. Hotels and other facilities are investing heavily into their recreational areas, meaning you can find them running pretty much anywhere in the CEE. Nevertheless, there is a company, which played this opportunity superbly. is operating 16 sauna locations across Czechia & Slovakia and I see a few opportunity levers they pulled:

  • Multiple locations in major cities (urbanisation), being open until fairly late

  • Digitally enabled experience (app & loyalty)

  • Accessible locations (mainly shopping malls)

  • Focus on digital first-timers & regulars

  • Limited offering, optimised operations, economies of scale

To emulate this, one could also execute a "roll-up" strategy, acquire a multiple and turn them into a was a greenfield project though. Maybe worth mapping your local environment for this one.

How to play this steamy opportunity? ♨️

  • If you want to play it the greenfield & founder way, look into various no-code tools that would allow you to create either loyalty tools focused on this segment, or an aggregator platform. Something like a local sauna/wellness/fitness airbnb type of business.

  • The boring way & if you have land available at interesting locations. Check out, which is producing self-service saunas in a container. Costs roughly 20k EUR a pop so you can make the cashflow calculation yourself.

  • Roll-up existing sauna operations & digitise them into a single chain. This is the "pro" option for playing the opportunity.

  • If you fine with paper assets, the simplest option would be to explore Saunia's bonds.

Department of Twitter Thread Research:

1/ Acquisition entrepreneurship & the importance of having an investment thesis & levers to pull. Applies in VC & Boring businesses alike.

2/ What do you give more attention to? SMS or random messenger app notification? My hypothesis is that people who are currently over 30 take SMS much more seriously, thus an opportunity arises 👇

Department of Visual Research:

We are looking for someone who started a small Italian company to verify this. If you know someone who did or aspires to run an SME in Italy, be so kind and make the connection!

News from our portfolios & where to shake hands:

  • At ZAKA in April, we closed an investment in eMobilio, a Munich based e-mobility enabler. Their 360 online tool for consumers and car dealerships helps you configure your alternative fuel vehicle and choose a e-mobility package that suits your needs. One of the authors of this newsletter, Slavo, co-founded ŠKODA AUTO DigiLab in the past, thus he is pretty close to this subject. Two main reasons for this investment, (1) manufacturers are not that good at making things digital (direct sales, platforms, support tools etc.), (2) for dealers, selling BEVs is something new & they lack the tools, yet already 30% of new cars sold in DE are EVs. Find out more about their Toyota Germany colab in this article (German).

  • One of our boring portfolio companies, Contiver (Accounting & Tax advisory), just launched their new website (sorry SK, only). We acquired a share in this company late last year & this activity is one of the first pulled levers to grow. Digital SME accounting & crypto taxation, here we go!

  • Staying with new websites, also launched a new website where we get to showcase all the actual coffee plantations we invested in. You can also meet Andrej at the Wolves Summit in Poland next week.

  • The Caffeine Capitalist upgrades: based on your feedback (thanks!) from Batch Brew #1, we changed the main body font for easier readability. We also created a longer summary of actionable items for those of you, who prefer a "quick read". #build #measure #learn

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Enjoy your coffee fresh, allocate capital, repeat! See you in 14 days 👋

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.