Batch brew #3

Storage units special. Boring world meets the VC world.

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. The recent wipeout is already in the rearview mirror, but discussions about when the economic cooldown is coming to CEE is keeping up busy.

Estimated read time: 8 minutes and 26 seconds ⏱️

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

  • 🚚 Storage units special VC look. We just invested in a London based company called Stackt, which combines moving services with self storage. "Uberisation" in storage & moving, welcome.

  • πŸ“¦ Should you buy or build? The market for self storage will boom in the upcoming years, especially in the first & second tier cities in CE. It is tempting to build, especially in emerging markets, but we argue it has more downsides.

  • β˜‚οΈ Economic downturn & star commentators. Everyone is giving advise these days on how to prepare for the rainy days ahead. Scroll down to the last third of this newsletter to find resources & commentaries from 10 key VC players.

Before we kick-off, special thanks to the 26 new subscribers since last issue πŸ™πŸ»

Department of Venture Capital

Just 12 hours before sending this newsletter out we came back from London (actually part of this is written at the airport) ✈️. Besides other agenda in London, Andrej, our investment manager from met for the first time personally with the founder of our latest pre-seed investment Stackt, which we closed this week and our coinvestor was Haatch (one of the most active UK based pre-seed and seed investor).

This is actually our first deal in the UK! πŸŽ‰

So what's the story and angle of Stackt that convinced us to invest?

Stackt is "uberizing" the moving services 🚚.

Customers can calculate the exact price for moving of their furniture or belongings based on their address, floor, volume, parking options (transparency). They will be then connected to a vetted mover (trust) and can choose a certain time of the moving, whereby the driver's location is always seen through the app - everything done with couple of clicks (convenience). The beauty of such a "uber" model is in providing a next-level customer experience compared to individual moving service companies and connecting only the vetted ones, with high customer rating.

Is this a good business? Taking fees out of the transaction volumes of the moving + fees from additional upselling services as end-of-tenancy cleaning and painting of walls? Probably not. A customer needs a moving service only once per year or per couple of years and therefore his lifetime value is pretty small when compared to the customer acquisition cost.

The real business lies in storage 🏭 and Stackt operates a very convenient, 21st century like storage offering. The core idea is that nobody really has time or interest to personally move his things to and from the storage. Nobody is interested in driving through the whole city just to open the storage box and take out couple of things. So via the Stackt app, you can send it to their storage location and also order it back, even when it's just a smaller part of your stored items. Your things are stored and tracked in smaller boxes so you can order just parts of them back and leave the rest.

Feels like cloud storage. You won't even know where your stuff is, it just magically comes and goes. ☁️

But on a more serious note. We were impressed by the traction just with bootstrapping the business & the trend in large cities is pretty obvious. Rents are on the rise, people need to downsize but they own a lot of stuff. And many people are renting large apartments just to store all of their things. So using service like Stackt provides you "arbitrage" opportunity of not paying so much for a large apartment but still owning your stuff. And we believe this is a recession proof business.

Department of Boring Businesses

It's the self-storage business special, we will be talking about the storage market (shocker) in this department too πŸ₯±. So, what is a self storage unit? Let's get everyone on the same page with the visual representation below:

Selfstorage example

Why do people need this? Well, there are multiple reasons that we list below, but let me borrow a phrase from Gary Vee, "it's people people spend money on dumb shit" (original video here). Other reasons include:

  • Property prices are going up, people are buying smaller homes with less storage.

  • Urbanisation is bringing more people to the same place, meaning less space for businesses & people to store things.

  • Students & expats need temporary storage options throughout the year.

Is this even a market? In the US, self storage is considered the ultimate boring business, and rightly so, there isn't much of an operation going on. This market has been hit during COVID, but as you can see below it's still going to show solid growth in the upcoming years.

In the EU, the situation is interesting. The biggest players from the chart above are all based in the UK where the market is the most developed. Only in the recent years, CEE & DACH countries are starting to adopt the idea of self storage for personal & SME use. This is the opportunity that is present in CEE now & for the next few years. Our hypothesis for the boring part of the business is pretty straight forward:

Given the increasing property prices, optimisation of space in new homes, urbanisation & UA migration situation, a market for self storage units will develop in prime population centres of CEE such as Prague, Bratislava, Warsaw & other second tier cities.

In Germany alone, the growth of self storage units has been 50% over 3 years. To add to this, self storage market is considered as extremely fragmented. These facts alone tell us, that this opportunity can be played by acquisitions, but also by building these facilities on a greenfield. Should you buy or should you build?

Entrepreneur vs. Investor

You will be often tempted by building if the opportunity is straight forward & there aren't enough market players yet. These are the three main arguments why being an acquisition entrepreneur is better:

  • New companies fail (even more so if they are called startups)

  • Established companies have infrastructure in place which you can build on

  • There is already expertise in existing companies & customer base (easier to pull strategic levers)

So, should you not build? Have a look around you, these are the players that popped up recently in CE > this one, this or how about this one. Ask yourself this question, are they worth acquiring or can you catchup with then in the rapidly growing market by building new?

Ultimately, does it pass our obligatory boring business test? I bet you 3 beans it does, it's a simple business that is purely real-estate based, minimum operations. Regional, totally. It is a subscription business, you pay monthly for the space you rent & you have the possibility to add extra services to the package. Macro test? Urbanisation is in full swing, home prices are up, UA migration is real topic, especially for destination cities such as Warsaw & Prague. Check βœ…. Lastly, is it stuck? Not really, since it's not even a market in the CEE. 3/4 boring this time.

How to play this opportunity? 🚚

  • What market are you in? Are there acquisition opportunities? Will you be able to roll up few operations into a chain? If you are located in CE, then the answer is probably "no or meh", thus you will need to look at how to build this on a greenfield.

  • Considering the fragmented nature of this market, there is a software opportunity for booking software, operations software & customer front-end. You don't have to play it purely the boring way.

  • If you are considering to start one, get your favourite hot beverage & read here.

Department of Twitter Thread Research:

1/ Yes, yes, yes, the slow-down. Everyone is talking about it & this is what 10 leading VCs have to say about it. This time we found an interesting article on LinkedIN, putting together comments about the current situation from key players in the industry. Elad Gil, YC, Andreessen, Lightspeed, you name it. It's all there & nicely linked.

If you just need one source, then get the whole Sequoia view here.

2/ We said it was a storage business special. A short thread on how to play it.

Department of Visual Research:

Are you able to explain complex topics well? Are you able to pitch your web 3.0 / crypto / metaverse startup to any audience? Take an inspiration from Tatra, which explained aerodynamic drag & wake turbulence in 1934 like this:

News from our portfolios & where to shake hands:

  • At ZAKA in May, apart from Stackt we also closed an investment in StoryBox, another Munich based startup in our portfolio. Production of video material in a corporate environment is tricky, usually you need an external supplier, then get it approved by corporate communication, legal etc.. StoryBox solves all of this and they have great traction, find out more here.

  • Our boring business pipeline keeps growing, some new announcements are just around the corner, but let us deal with all the paperwork first.

  • You can meet Slavo @ ByDesign Conference in Bratislava on the 11th.

  • No travels planned at in the upcoming two weeks. Meet us in Bratislava or Prague, we will be busy with admin work due to many recent investments, but always up for some solid batch brew!

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Enjoy your coffee fresh, allocate capital, repeat! See you in 14 days πŸ‘‹

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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.