I would like to announce that we have stopped accepting new startups into HackFwd three years, three months and three days after we first began supporting Europe’s most passionate geeks.
This also seems like a great opportunity to share the lessons that we have learned to date.
I wish I could be pithy, but there’s a bigger story worth telling. If you’ll indulge me, I’d love to share my thoughts about what we did right and what we did wrong.
Let me back up a moment.
After I left XING, I went traveling with my family for several months. The trip was long overdue; after seven years of constant work, I needed the time and space to really imagine my next steps. I arrived home with 15 new business ideas, but I knew I couldn’t pursue any of them in earnest until I sold most of my shares in XING. While traveling I had realized that I was — both literally and figuratively — still far too attached to that company. In order to give my next venture its due, I needed to completely free up some headspace.
But I didn’t look for the highest bidder. When it comes to deal-making, I never do. Instead, I searched for people who had the most thoughtful answers to three simple questions:
We had several buyers offer up answers, but Dr. Hubert Burda and Dr. Paul-Bernhard Kallen gave by far the most compelling ones. We shook hands over the deal in Hubert’s living room, and I left his home entirely confident that my company was going to thrive.
I grew XING to $250 million — Hubert and Paul took it to over half a billion within four years. That’s a thrill for me that is difficult to describe.
That’s when it hit me. For my next venture, I wanted to help others get a chance to feel that same thrill. But I didn’t want to support the business guys. I wanted to support the coders, the developers, the geeks. My favourite memories of XING were the times I spent meeting with them, listening to them, and learning from them. I truly believe that geeks are the artists of the 21st century. But in Europe, unlike in the US, most startups are founded by the businessmen, not the Builders. This never made sense to me, especially because the coders I knew were brimming with great ideas. The key was going to figure out the best way to help them unleash their potential.
This time, though, I wanted to get it right from the start. In previous companies, we’d labored under countless redesigns. I was eager to try and avoid that, so I hired my friends at IDEO (including Tom, Andréa, Marcus, Nathan, Soren, Ferdi, Tim, and Philipp) to help me structure my ideas, validate them with geeks, and kick-start the company. We launched with a tweet, and the news quickly spread to over 20 million people within two weeks. To quote my friend Mike, it was like a Klingon warship decloaking out of nowhere. Within months, we earned a reputation for great entrepreneurs, fantastic ideas, and compelling results.
But — and there’s always a but — we knew we would ultimately be measured on a single metric: the exit. So far, we haven’t had one. I’ll come back to that in a second.
Three and a half years ago, when we started, there were hardly any accelerators of note in the world. In Europe, Seedcamp was in its second year. In Asia, Innovation Works had yet to launch. And in the US, Y-Combinator was just starting to gain traction.
Today, it’s a very different landscape. There are literally thousands of accelerators; so many that I often wonder if there are more accelerators than angels and more angels than there are entrepreneurs. We also have meaningful startup movements in virtually every country on the planet. From Shanghai, to Bucharest, from Moscow to Cape Town, from Alaska to Chile, Argentina to Miami, from Riga to Paris. The odds have changed.
Not to mention that many Fortune 1000 companies are taking their cues from the startup world, rather than the other way around. Digital innovation is changing workflows, collaboration, and business practices all over the world. Some are even Building their own “in-house” accelerators to streamline internal processes and see results faster. In the last 3 years, ideas like rapid prototyping, lean and agile approach, hosting hackathons, and failing faster are no longer buzzwords from startups, but accepted business norms for even the largest global brands.
Things are different for VCs, too. Yuri’s Digital Sky Technologies (DST) and his team have tapped into another market segment — very late stage investments — and made it possible to keep big companies private that would have otherwise needed to go public for further funding. This not only involved massive D & E rounds, but it also provided liquidity to early employees. Many big name VCs have followed this approach, establishing a precedent for huge debt and equity rounds that frequently give early employees liquidity. These traditional Series A funds investing later stage coupled with a sharp rise in seed stage investing contribute to a significant Series A gap.
There are also far more startups that support startups. I’m particularly impressed by Naval at Angelist.co, who managed to organize and in many ways democratize a scattered market of companies looking for funding. Even crowdfunding sites, like Kickstarter, have helped fund new ventures and provided millions with a front row seat to the world of entrepreneurship. This helps explain why being an entrepreneur is finally an entirely legitimate career choice, even in Europe; indeed, in many ways, working at a startup is the new MBA.
So, if it’s such an exciting and dynamic time to be an entrepreneur, why am I stopping HackFwd?
As with any new venture, there’s a mix of smarts and serendipity at work at all times. Sometimes the right smarts and most fortunate serendipity overlap — but sometimes they don’t. But as they say in Silicon Valley, you either win or you learn. So here are my top ten insights from this experience that I’ll take with me to my next venture:
1. Geeks Can Be CEOs. The assumption that coders are best left in the back room near the servers is not only erroneous, it’s a massive missed opportunity. As I once tweeted, it’s far easier to teach a geek about business than teach an MBA to code. I’ve always believed in my gut that HackFwd geeks would not only rise to the occasion to help truly lead their companies, but also bring many previously underappreciated leadership skills to the table. Both proved to be true; I was proud to see how many CTOs thrived under the presumption that they, too, also contribute at the level of the CEO when needed.
2. European Geeks Are As Talented As American Ones. Innovative thinking is not the natural birthright of US-born coders alone — in fact, European geeks not only bring equal amounts of passion and genius to the table, but they also bring determination that only a presumed underdog status can inspire. We’re very proud that one of our HackBoxes, the team from To Be Honest (formerly Fantasy Shopper) were the first non-Americans to win the worldwide AWS challenge from Amazon! This kind of recognition is critical to the future of European innovation — that’s also why we came up with a prize for European geeks under 18 to show their talents with HackNow.org. We’ve got two winners already: Luiz from Spain and Marcin from Poland. I sincerely hope that other organizations step in to contribute with their own version of HackNow annual prizes, because it’s enormously important that young European tech talent continues to get championed and celebrated on the global stage.
3. Mentorship Is Worth More Than Money. Although we offered an extremely generous funding package, we placed even more emphasis on giving each HackBox real access to luminaries from every startup discipline. In fact, we had dedicated, full-time staff focused on product, strategy, marketing, HR, recruitment, and finance, so focussed expertise and support was always a click or a call away for any one of our HackBoxes. No need for investment managers! Plus we brought in mentors who were truly world class in broader topics, like brand, distribution, PR, business, etc. We covered literally every possible angle to ensure each HackFwd startup was as informed as they were inspired. Many of our mentors also served as referrers — indeed, we had ambassadors in every European country, always looking out for the best talent to refer to HackFwd.
4. The Need For In-Person Inspiration. Every quarter we hosted Build Conferences in Mallorca, later in Berlin. The point was not only to expose each HackBox to amazing talks and face-to-face feedback on their progress, but also allow them to learn from each other and benefit from the emotional support of their peers who were at a similar point of the startup journey. Although it would have been easier and more cost-effective to do everything online and remotely, our Build Conferences were the critical human drumbeat to help both enlighten and empower our teams at regular intervals. But it wasn’t just our geeks who loved the conferences — pretty soon investors and press joined the fun. We enjoyed hosting participants from all sectors, including René Obermann, Niklas Zennstroem, Jason Goldberg, Om Malik etc. etc. and VCs like, Brains-to-Ventures, Accel, Index, T-Venture, e.ventures, HTGF, Creathor, DN Capital, Atomico, CFP, Balderton, HPV, Battery Ventures, Shortcut, Seedcamp, ProFounders and Sunstone. And we loved swapping stories with all the press in attendance, including TechCrunch, Wired, GigaOM, The Next Web, VentureBeat, Focus, Spiegel, Gruenderszene, Deutsche Startups, Silicon Allee and the DLD.
5. The Importance Of Intellectual Generosity. We support innovation, period. So it was important that any would-be founder could access our content, regardless of whether they were lucky enough to join HackFwd. We were pleased when our content became a meme, delighted to see our amazing tools used widely, impressed when our plain English contracts were praised, flattered when we were copied by Mozilla, Apple and Microsoft, and proud when our great talks were viewed over 200.000 times, including some of my personal favourites below- and, they’re all under Creative Commons license, so please feel free to embed them in your own websites:
1. We Didn’t Cut Early Enough. In part due to the amount of energy and focus we put into each HackBox, it was difficult to press the stop button early enough when things weren’t working. We had a policy of seeing each team at least through the first year, but in some cases we would have been better served but calling time earlier on businesses that just weren’t finding enough traction.
2. It Was Difficult To Nurture And Scale. I had no shortage of people eager to invest in HackFwd when I began, but I declined. I wanted to first prove to myself that investment truly made sense. Over time it became clear that in order to nurture 10 + teams per year, I’d need at least a 50M fund, plus ultimately the will to scale the operation with follow-on A or B round investments. While I still have financing offers for this magnitude as well, I still don’t think it’s the right thing to do. I’ve developed real heart for my existing companies, and worry I’d be putting them at risk if I switch my focus to a bunch of new ones to justify the bigger funds. Put simply, I did not find the formula to scale while still truly supporting every venture. Since I fundamentally refuse to follow the common “spray and pray” approach of so many Super Angels or VCs, we had a dilemma of having a business that was the right thing for each HackBox but also potentially the wrong thing for HackFwd.
3. We Underestimated The Bureaucracy. We all knew that bureaucracy in some European states, and across Europe was high. All of HackFwd had extensive international experience. Nevertheless, we totally underestimated how high, and how disproportionate a load this was on small companies. Each European country has its own (unnecessarily complex) rules and regulations for setting up a company. As we helped each startup become legal businesses, we were frustrated by the needless complexity in each market. In Germany you need a notary to sign everything. In France you can’t get shares immediately. In Poland everything must be written entirely in Polish and you have to sign on every single front and back page. In Austria you need 35K to found a company. The list goes on and on and on. It’s insane. And every European country makes virtual work agreements — where you have contractors from one country working remotely for a team based in another — a colossal pain to establish. That’s why I’m pushing hard at all levels of government to create a simple, European standard for establishing small, limited companies. No need for a notary, instant access to shares, electronic filing and registration, standard contracts, and business language of English. And if you want to employ someone in Spain to work for a Latvian company with co-workers in Germany and France, it’s the matter of a couple mouse clicks, not a couple years of hassle. I am part of Neelie Kroes’ Leadersclub and we managed to get both topics in our manifesto. Neelie Kroes will be presenting ideas about the “E-corp” and “remote employment” this October to the EU Commission. Please join Niklas Zennstroem, Joanna Shields and me by signing here.
4. We Assumed Faster Exit Times. Within the first couple of years, we realized that, on average, any exit required between 5 and 7 years to be worthwhile, longer than the average time we’d hoped and planned for. This stands in sharp contrast to the US, where exits commonly happen within a year due to talent acquisition hires. Even when we had a US company eager to buy one of our star HackBoxes, the deal ultimately fell through because of US Visa restrictions.
5. It Can Be Hard To Go Deep And Wide
We had an amazing variety of HackBoxes, which showed the broad appeal of our offer. But it was difficult to constantly switch focus between challenges without feeling like I was short-changing people. Not to mention the fact that, speaking personally, it was hard not to get really excited about the opportunities and want to get my hands really dirty again. Investing is like taking a shower but not truly getting wet — I must confess that I missed the days of diving headfirst into a challenge, all the way.
Which brings me to my news today.
We got over 3000 applications for HackFwd, and accepted only 16 companies. That gives you an idea of how high a hurdle they already surpassed. And while we are not taking any new companies into our program, we care deeply about our existing ones and continue to support them. Many of those are now real, credible companies and we are proud shareholders. Some of them are actively looking for funding and we are ready as a co-investor to invest with a new lead investor. Most of the companies have a link to their Angellist profile. Check them out.
I invested in total around 8 million into HackFwd & our portfolio companies. Will it pay off? At minimum, we are certain it will pay a good dividend. But is the portfolio worth 2 or 3 times our investment? Maybe. The future will tell. But knowing that we won’t lose money (especially compared to many other investors, accelerators and Incubators or even VCs) is still a solid outcome.
Just a few more words.
We had amazingly smart referrers with various areas of expertise all over Europe helping to review our applications and identify those that should move to next round. Which meant listening to literally thousands of pitches in order to get to a handful worth serious consideration. That takes a lot of work and even more passion to pull. That’s why I’m forever thankful to:
Andris Berzins, Business Development, Latvia
André Schmidt, Go-to-market, Netherlands
Alex Barrera, Marketing, Spain
Berislav Lopac, Web Development, Croatia
Bogdan Iordache, Pitching, Romania
Carlo Matic, UX/Usability, Germany
Charles Wiles, Product, UK
Chris Boos, Scaling Technology, Germany
Chris Kowalczyk, Marketing, Poland
Dalibor Jakus, Solving complex problems, Slovakia
Daniel Gutenberg, go to market, Switzerland
Didier Tranchier, Finance, France
Dimitris Kalavros-Gousiou, Social Media/Online, Greece
Hannes Dernehl, Business Development, Sweden
Jaroslav Satkevic, Collaboration, Lithuania
Jonathan Briggs, Measurement, UK
Josep Pujol, IT BackEnd, Spain
José Zurstrassen, Scaling Companies, Belgium
Karl Klingsheim, Business Models, Norway
Kushtrim Xhakli, Product, Germany
Maks Giordano, Marketing, Germany
Natasha Starkell, Public Relations, Germany
Peter Arvai, Going International, Hungary/US
Prof. Franz Guenthner, Search Engines, Germany
Prof. William Latham, Gaming, UK
Rob Fitzpatrick, (Business Modeling, UK
Stephanie Kaiser, Gaming, Germany
Sven Illing, Biz Development, Estonia
Tine Thygesen, Teams and Talent, Denmark
Tom Hulme, Business Model, UK
Torsten Reil, Games, US
The process of then selecting “HackBoxes”, as we called them, was never easy. But I was privileged to have enjoyed the support and mentorship of industry luminaries I deeply respect, including Marco Boerries (Founder and CEO NumberFour), Stefan Richter (Co Founder Freiheit.com), Jean-Paul Schmetz (CEO Cliqz), Roman Stanek (Founder & CEO of Gooddata), and Michael Jackson (former COO Skype and now Partner at Mangrove). They each gave tremendous energy and passion to help ensure we selected the very best teams for HackFwd and helped us enable each one to grow and flourish. What do these 5 men have in common? They are all equally skilled coders as they are businessmen, thus proving my thesis that the two skill sets need not be mutually exclusive. Thank you.
I was also grateful to have an amazing team on the ground with me. Stephie, our Team Lead, is the best event organizer in the world, orchestrated every Build Event, oversaw all the legal work with our teams, lawyers, company registrations in multiple languages, and so much more. David, our Talent Geek, is simply the best recruiter in Europe. Agnes and Ed, our Finance Geeks, managed to make sure every audit was 100% correct. Mikko our first Marketing Geek who started successfully his first company vuact.com. Andrew, our second Marketing Geek, not only co-founded TechStars but is a marketing genius. And Jana, our Team Assistant, who always made sure everything worked. Hardly as easy job, considering that we all lived in different places, including Hamburg, Paris, London, Boulder, and, of course, on airplanes. I could not wish for better teammates throughout this journey.
I also have a surplus of fantastic memories that I’ll always treasure. Some highlights include:
HackFwd has become more than a powerful brand; it’s a movement. I have felt honored to help lead that movement in Europe, and I look forward to supporting others who are eager to do so going forward as well.
So what’s next for me? I have been active as an investor for over a decade and will continue to do so. I’ve had many ups and down, successes, IPOs, trade-sales, small wins, zombies, big losses and even dead companies. I’ve seen it all and I’ve felt it all. For the moment, I’ll be concentrating on helping to Build up a few companies out of my 2nd, later-stage fund, Cinco Capital.
Recently I entered the real estate world, as I try to re-imagine the rental market. I saw a big opportunity to make a painful process far better for everyone, and I couldn’t help but jump in and try. Will it work? I don’t know. And, truthfully, I don’t care. I love trying.
So as I think back to the last three years with HackFwd, I feel nothing but gratitude for all that I learned along the way. We tried extremely hard and gave it our all. As a result, it was the richest work experience I could have hoped for. In my mind, it has more than paid off. For that, I am truly thankful.
Lars Hinrichs, Hamburg
PS. Many special thanks to Andréa Mallard, Tom Hulme, Jean-Paul Schmetz, Christian Hernandez, Klaus Hommels, Andrew Hyde, Katharina Borchert, Carlo Matic, Stefan Richter, Jana von Dach, Paddy Cosgrave, Marco Boerries, Michael Jackson, Sebastian Deutsch & Agnes Wyrwa, for reading drafts of this post and providing thoughts and comments.