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Big wins & hard lessons for investors in 2023

patricia-borlovan

Patricia Borlovan

· 4 min read
Big wins & hard lessons for investors in 2023
Looking to reflect on the past year's investment trends and learn from them? Check out this collection of insights and reflections from esteemed European investors.

As we rapidly advance into 2024, everything happens fast. Let’s see what we can celebrate and learn from the past year.

Take a breather and reflect on some key insights from our community of investors who shared with us some of their lessons learned from 2023. These reveal the spirit and unique thinking of those who take calculated risks.

2023’s biggest wins for investors

Pawel Zylm, a Poland-based angel investor, highlights an important shift in the investment world. Today, more than ever, investments are not just about making money; they’re also about making a difference in the world.

“The notable win for 2023, from my perspective as an angel investor, was the strategic pivot towards sustainable and socially responsible investments, reflecting a broader, more conscientious approach to investing.

This year marked a significant uptick in investments directed towards not just profit-driven startups but also making substantial contributions towards social and environmental causes. For instance, the success of Fresh Inset, which secured one of the largest funding rounds in Poland for business angels, exemplified the potential and appeal of ventures that align financial growth with societal benefits.

Additionally, the increasing global footprint of angel activities, as seen in initiatives like the 4Angels program, underlines the importance of building diverse and sustainable investment portfolios. These developments signify a more holistic investment approach, balancing financial returns with long-term societal impact, and mark a transformative shift in the startup ecosystem.”

Ernst Rustenhoven, Principal at Slingshot Ventures, hits home on two major points that shaped the startup world in 2023. One is about the funding climate improving by the end of the year, and the next one is about profits, which aren't just a nice-to-have; it's the lifeblood of a sustainable business.

“The startup funding climate stabilized throughout 2023 and even improved in Q4. If inflation keeps coming down and central banks follow suit by lowering interest rates, I expect further ecosystem recovery.

Another big win, in my opinion, is the continued emphasis on realizing profitable growth. I have said it many times before economies of scale are overrated and often do not materialize. The business models of many companies that go down the VC path don’t have any potential for outsized economies of scale to start with.

It doesn’t mean you can’t raise growth financing, but it does mean that you need to focus on profitability from the start. I consider it a big win that the fundamentals I learned in high school economics still stand, which can be translated to “turnover is vanity, profit is sanity.”

Andrew Gray, Partner at Tilia Impact Ventures, shares a significant win around resilience and success in adversity. Despite a difficult fundraising environment that was characterized by uncertainty and setbacks for many investors, he closed their new fund.

“The biggest win for us was having the first closing of our new fund. As the year went on, it became apparent that the fundraising environment was in turmoil. For an Impact VC fund based in the CEE, there is not a lot of institutional capital available, so we rely on Family Offices and HNWI.

A lot of our prospective LPs had their fingers severely burned in 2023 - it seemed like everyone was waiting on liquidity, and many of those who had participated in VC funds were affected as they waited in vain for exits. Despite the conditions, we managed to persevere and close with 85% of our target capital - backed by some of the most prominent Czech Investors, Entrepreneurs, and even institutions. That's a testament to the vision of our LPs in seeing the opportunity to invest in people and the planet alongside profit.

In our investments so far in the new fund, we are already proving that the best founders, talent, and investors are drawn to making global change.“

Ytsen van der Meer, seed investor in Tech at NOM and Venture Partner at Golden Egg Check Capital, shares his investment journey from last year with us.

“My partner Thomas Mensink launched GEC Capital I in 2022, and after about a year, I joined part-time as a Venture Partner.

We're a dedicated co-investment fund, investing alongside specialized VCs and great angel investors. We just did the first close at 2,5 million and have made 14 investments so far. I did my first in December.”

Alex Konoplyasty, General Partner and co-founder of Flashpoint VC, celebrates a follow-on investment with a successful exit.

“Our follow-in investment into HotelMize.com. a company that has grown 10x in 2021-2023 - exit from Officernd in a tough market with a great return.”

Ryan Grant Little, an angel investor in the FoodTech sector, discusses the unexpected opportunities that arise from challenging situations.

“The biggest win for an angel investor like me is to have a second chance at deals I missed the first time in the pre-seed or seed rounds.

This is because a lot of startups chose to do a small intermediate round between pre-seed and seed, or seed and Series A, in recognition of how crappy the capital markets were in 2023.

So, a company like Juicy Marbles, where I’m a customer, and my heart broke a little bit more with every bite of their plant-based filet mignon, well, I got my chance after all in their seed extension round.”

Peter Parragh, Principal at Oktogon Ventures, reminds us that investing in startups comes with highs and lows, and we should be ready to embrace both.

“2023 taught us a vivid lesson about the highs and lows of the venture market across various sectors.

Our early bet in 2021 on a Seed round for a text-to-video AI startup painted a different picture. The company's dedication to AI research, product development, and sales, coupled with the explosive demand in the market, catapulted its revenues.

This momentum led them to secure $22 million in Series A funding at a valuation surpassing $100 million at the end of 2023.”

Diana Koziarska, Founding Partner at SMOK Ventures, celebrates the closing of the second fund and is looking to expand the fund’s investments across the whole CEE region.

“The highlight for SMOK in 2023 was successfully closing our second fund, securing 25M USD.

This infusion of capital has allowed us to broaden our investment horizon across Central and Eastern Europe (CEE) and its diaspora. Already, from this new fund, we've made early-stage investments in visionary founders hailing from Poland, Ukraine, Czech Republic, Croatia, Bulgaria, Latvia, Serbia, and Bosnia, further fueling innovation and entrepreneurship in the region.”

Nikolai Nedelchev, an angel investor from Bulgaria, shares some investment insights from two portfolio companies added in 2023.

“A big win in 2023 for me as an angel investor was doing some quality investments in companies with great potential and great teams in the fields of functional foods, biometrics and fintech.

Two of these investments in these companies were because they have made a very robust use of AI in their technologies and can make big strides in their development on a worldwide level.”

Ada Moldoveanu, Marketing & Community Lead at 3VC, celebrates the first Romanian company in the fund’s portfolio.

“To me, a big win was welcoming a Romanian company as part of our portfolio. Living abroad for nearly 15 years now, I have a special kind of respect for companies growing out of Romania for choosing to brave the challenges and thrive in spite of them.”

A hard lesson in 2023 for investors.

Pawel Zylm reminds us of the vulnerabilities and unpredictability in the global economic and geopolitical landscape despite technological advancements and the excitement around AI-driven innovations.

“The year 2023 brought its own set of challenges, teaching a tough lesson that despite technological progress and the surge in AI-driven innovations, the economic and geopolitical situation can pose significant challenges.

Although the conflict in Ukraine erupted in 2022, its effects were still felt in the past year, as were the new tensions arising from the conflict in the Middle East. In Poland, although inflation stopped rising, it remained at a high level. Additionally, the world continued to feel the long-term consequences of the COVID-19 pandemic, which dramatically transformed the global economic and social landscape, showing how suddenly the world can change overnight. These factors, combined with fluctuations in financial markets, showed that external forces can quickly change the investment landscape. This period of instability highlighted the importance of adaptability and resilience in investment strategies.

Despite the fascination with new technologies and the potential of AI, the year 2023 taught us that it is crucial to maintain a balanced, well-diversified investment portfolio and to approach each investment with full awareness of the broader economic and political context.

This lesson reminds us of the importance of being prepared for unpredictability and having the agility to adjust strategies in response to global changes.”

Ernst Rustenhoven, Principal at Slingshot Ventures, highlights that success requires more than just being a trendy or "cool" startup within the venture capital scene.

“2023 saw the bankruptcies of several notable start-ups and scale-ups, such as Lightyear, VanMoof, Hiber, and Pieter Pot.

Several of these had been darlings of the Dutch VC scene for years, which shows that there’s more to (long-term) success than being perceived as a cool startup. In line with the big 2023 win I mentioned before, this emphasizes the need to shift focus from “growth at all costs” to realizing strong operating margins, providing a high-quality product offering, and delivering an ultimate user experience.

When you get these basic rights, you should be able to “easily” acquire customers, retain them over time, and invest in growth using internally generated cash flows. That’s what a healthy business looks like.”

Andrew Gray, Partner at Tilia Impact Ventures, reminds us of the role and importance of liquidity in startup investments.

“Liquidity is everything in VC. With the cyclical nature of a fund's life, it is important to recognize when exits might be on the table - and to take them.”

Ytsen van der Meer, Seed investor in Tech at NOM and Venture Partner at Golden Egg Check Capital, reminds us to have fewer expectations and refocus on the facts on the table.

“In two instances last year, I expected to win big (promising exit, new opportunity), but both ended up not happening after all.”

Ryan Grant Little, an angel investor in the FoodTech sector, emphasizes the importance of having a secondary option, especially during this economic environment.

“The hardest lesson in 2023 was that there just was no next round for some really good companies. Funding was so tight that not everyone had a chair when the music stopped.

As a very early-stage investor, this means some write-offs. It was also hard to see a lot of the irrational behavior out there—the funding stopped for VCs because they couldn’t call on their commitments or needed dry powder for follow-on in their portfolios. But this should have been a bonanza for the investors who didn’t have these constraints, especially family offices and corporate venture capitalists. But perplexingly, it was a lot of monkeys see, monkey do.

I’d urge founders always to have a Plan B where they can survive without needing additional rounds of capital. The markets and investors are just too unreliable and unpredictable to depend on.”

Peter Parragh, Principal at Oktogon Ventures

“While funding for areas such as Web3 and the metaverse virtually vanished, with all eyes on AI startups, our journey saw both a missed opportunity and a remarkable success.

We invested in a grocery delivery startup in a seed round towards the end of 2022—a decision that, in hindsight, seemed a step behind the market's pace. Despite being led by a CEO with two successful exits in similar ventures, who impressively steered the company to achieve a €1 million Annual "Recurring" Revenue (ARR) within just six months, the broader investor community's shift in focus left us stranded. By mid-2023, the search for Series A funding for delivery companies had cooled off, and our investment was quickly dissolved by the company's high operational costs and slim margins.

These experiences underline the critical importance of market sentiment in investment decisions. As investors, it's crucial not just to evaluate the current state but also to strategically forecast the potential interest of future investors in the sector. It's a reminder that in venture capital, looking ahead is not just an option—it's a necessity.”

Diana Koziarska, Founding Partner at SMOK Ventures, talks about the influence of the economic landscape over its funding strategies and how she adapted to this environment.

“In 2023, the landscape of startup funding in Europe was characterized by smaller rounds and lower valuations, with a significant 42% drop in funding compared to the previous year.

This necessitated strategic adjustments for many companies. While VCs typically advocate for ambitious growth trajectories, the constrained funding environment prompted some startups to pursue bridge rounds and prioritize faster paths to break even.

This shift highlights the importance of adaptability and shows that sometimes slowing down for a bit, even in the startup world, is a way to go to ensure sustainable growth in the long run.”

Nikolai Nedelchev, an angel investor from Bulgaria, reminds us how the founders' personality can significantly impact how the company evolves and how you, as investors, can avoid that.

“A hard lesson for me is that the founders' motivation and character are crucial for the start-up's success. A very good bunch of founders can be easily imbalanced and broken up.

I realized that I must try to understand the relationships between founders much more deeply and try to predict their dynamics. Oftentimes, a “perfect marriage” from the outside can turn into a “family drama,” jeopardizing the start-up's existence.

Always trying to get as deep as you can into the psyche, characters, and motivations of the founders is the lesson I learned in 2023. And maintaining robust funding reserves is the other lesson.“

Ada Moldoveanu, Marketing & Community Lead at 3VC, shifts our perspective on transforming challenges into achievable tasks and avoiding adding more stress over ourselves.

“As cliche as it might sound, an important lesson for me this past year was reframing the definition of a challenge.

I cannot choose the challenges I’m presented with, but I can look at them as tasks, to dos if you will, and allow myself to not worry beyond the necessary.”

Future thoughts.

To ensure you’ve got the essence of the wisdom shared by our investors, we summarized them into a curated list of actionable insights to help you refine your investment strategies and decisions.

  • Invest in what you know and understand. — This gem is a classic reinforcement that stresses the significance of familiarizing oneself with the business before investing.
  • Don't follow the crowd. — This advice prompts investors to follow investment trends and make calculated decisions.
  • Investing is a marathon, not a sprint. — It's vital to give your investments time to grow. Don't expect overnight success.
  • Invest in companies that give back. — Companies that practice corporate responsibility will likely be more sustainable in the long run.
  • Lower your expectations. — Don't count on achieving high returns immediately; investing is about patience and observation.

If you want to learn more about investment or get inspired by other investors' stories, check out our series of articles from the SeedBlink blog.

We’ve got you covered in technology trends, educational content, investor interviews, and more, so you can learn and apply the right things from the best.

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