“A company needs to be at the right place, with the right product and team in order to succeed.”
Interview with Enis Hulli, Venture Partner at 500 Startups
Over the past 20 years, venture funds have become a dominant force in the financing of innovative companies and startups. Five of the biggest companies in the world by market value are venture-funded companies. So, how do venture capitalists choose which startups to fund?
Educated as an engineer, Enis has the ambition and knowledge to see the global potential in the regional startup scene. That is why, rather than venturing on the civil engineer path, he joined first-seed, a network of investors focusing on early stages investments.
One of ‘500 Instanbul’ goals is to re-shape the future of innovation in EMEA. How do you see the startup ecosystem here in the coming years and what do you think about competitors from Asian-Pacific markets?
I believe the Asian-Pacific markets are still looking inwards and solving the region’s problems. Especially CEE has a huge potential to build global-facing startup powerhouses that build local and export globally.
In your experience, what are the common mistakes that most startups make in CEE and how to avoid them?
The most common mistake is not to internationalize early on whether through sales efforts, expanding regionally or hiring international people. CEE startups need to internationalize from day 1 and build the company culture around that global vision.
How does ‘500 startups’ and ‘500 Istanbul’ help startups to enter foreign markets and do business globally?
500 Startups has invested in over 2k companies from 60+ countries around the globe. We have physical presence in 25 countries and more than a 100 people in the US. We provide soft-landing to the US market, including initial sales leads, recruitment leads and access to downstream capital. Furthermore, we provide similar help, especially in terms of sales, in all of the markets where we are present.
Tell us more about the selection process. In what areas do you see more entrepreneurs passionate about and how does that influence investing in them?
We look into team, traction, and market. There are different levels depending on the stage of the company but we first want to validate customer satisfaction and stickiness through retention/engagement metrics.
Further on, we also look into unit economics and other acquisition figures that will be critical as we scale sales and marketing. From a market perspective, we do a deep analysis of the competition and where the market is evolving towards.
Eastern Europe has great quality of talent that is much more accessible than the US and with almost no turnover.
Most passionate entrepreneurs are the ones in a newly emerging market, where they have a key role in the creation of the market. These ‘blue ocean’ entrepreneurs are mission-driven and have a clear picture of what the future should look like. I would love to see more entrepreneurs tackle problems in emerging markets, where they take a huge market maturity risk but will be in the best position once that market evolves to a sizeable volume.
Speaking of market research, you usually mention red and blue ocean strategies. Which startups do you prefer to invest in? ‘Blue ocean’ that creates a new market or ‘red’ with a high competition?
I personally prefer blue ocean markets that are immature. There are huge market risks involved, but the entry barrier is usually higher and differentiation is not an issue for some time to come. More binary outcomes happen in blue ocean companies and that is what venture capital is all about.
Red ocean companies need to show proof of the team’s executional capabilities and the product differentiation through strong traction and customer metrics.
What differences have you seen between Eastern Europe and Silicon Valley regarding the ‘startup culture’?
Silicon Valley is overfunded with international funding sources, CVCs and new-commer micro VCs. So a company needs to be at the right place, with the right product and team in order to succeed. If a company is too early, it cannot sustain given the huge costs and the opportunity costs for the team. That is not the case outside the Valley, especially in Eastern Europe. Startups can sustain in the market for years, achieve early sustainability really fast and sustain in the market to be best positioned when the right time comes.
In closing, what advice would you give young entrepreneurs who want to raise funds in Eastern Europe today?
Eastern Europe has a great quality of talent that is much more accessible than the US and with almost no turnover. I would suggest entrepreneurs to leverage that, while also learning to acquire customers from abroad, Western markets. Try fundraising locally, but do not focus on it too much if it is not working out. Instead, become a customer-funded, customer-first company until you have enough revenue to open sales and marketing offices in the Western markets and fundraise from ecosystems with no lack of capital.