Day One Capital is a Budapest-based VC firm, investing from Pre-Seed to Series A stage companies. They are focused on finding the most talented and dedicated founders from the CEE region, entrepreneurs, who have a strong desire to stretch their limits and the ability to build great companies. They want to support them from day one, knowing that in order to be successful, you need more than just money.
Since 2013, they have supported 28 companies and currently invest from second fund with a capitalization of €34 million.
Fund Strategy Overview
Geography: CEE region
Preferred industries: industry agnostic
Investment ticket: Initial ticket of € 300k-2M with substantial reserves for follow-on investments
Company stage: from pre-seed to Series A
Product type: mostly B2B software
Product stage: all stages
Revenues: sufficient revenues showing early signs of product market fit, but they also consider pre-revenue companies at earlier stages
Q&A with György Simó, Managing Partner at Day One Capital
What are the 5 main things you look for in a startup?
● First and foremost, people behind the startup - ours is a game of incredible speed, ambitions and a lot of unexpected turns. Experience counts, but there are no simple blueprints for the founders. Only people with the right, and often contradicting combination of strong determination, curiosity toward the unknown, and attention to execution details can be successful during this journey. During our pre-investment communication, we pay special attention to how our communication and chemistry develop with the founders.
● The people around the company - founders are key, but they cannot succeed alone. It is important to see who are the other stakeholders, who they share the vision with, and who support them to build a powerful venture. Advisors, industry experts, angels and co- investors, as well as key early customers all count. The quality, the engagement level of this wider “ecosystem” of the startup can have a decisive role in their fate.
● Market size and opportunity - this needs almost no explanation: venture backed growth is designed to tackle large, global markets, huge customer base.
● Unique feature of the product - we look for products that stand out with their originality, design, unique features or well-thought positioning and achieved MVP status. Sometimes, in case of founders who have strong, proven track record, we invest earlier, even in idea phases.
● A balanced, motivating and carefully managed cap table is key to long-term success. At early stages founders way too often are understandably neglecting this – but we have to have a common understanding how the ownership structure influences the further stages of the story.
What disqualifies a startup as your potential investment target?
We evaluate thousands of pitches per year and invest only into half a dozen of them, so one can imagine that the list with reasons for saying “no” is very long. The startup’s problem and solution ideally have to be told in the simplest form while at the same time the complexity of execution should not be oversimplified and requires great attention to detail and market realities. Prior to the investment we talk to the founders as much as we can, and then discuss our impressions and findings internally in great length. We make a conscious effort to double-check our own biases and listen not only to our rationing but our collective instincts too.
What in your opinion differentiates the best founders from the rest?
Definitely, the attitude and skills come first. Superior founders have two things in common: their desire to achieve something extraordinary, and remarkable resilience – the ability to sail through troubled waters and react to the ever changing environment of their venture. Good founders are able to decide when they need to stay on course or when is the right time to change or even pivot. On the skill side, I believe the most important skill of startup founders is dealing with people. Some founders are visionaries, some can tell a powerful narrative, others are good organizers or salesmen, often they have great domain expertise or tech base – but the one skill that makes them special is their ability to deal with people. And by dealing I mean a lot: They need to listen, build trust, motivate, care, understand and manage complicated relationships with their customers, teammates, and investors. For that, you need curiosity, the ability to learn from others, and the willingness to learn about yourself – on top of some other skills.
What startups should take into account before making a deal with a VC fund?
VCs and founders commit themselves to each other for “long startup years”, so it is wise to be thorough before they decide. Money should not be the glue of this partnership. Most importantly they have to align on growth expectations, because every good VC is focused on the speed of growth, and it has profound consequences on the way the company develops, conducts business, develops the product, or builds up the organization.
Venture capitalists are people too. Naturally, there are important differences in their style, expertise and priorities even within the same VC firm. Beyond the chemistry, obviously specific domain expertise, and the ability to support the founders is important, as well as, our ability to connect the company to important partners, customers and other investors.
What is your approach to startup valuation and preferable share in the company?
We typically invest at pre-seed and seed stages and aim to have 10 percent stake in the company. Valuation in this business is not science, rather the expression of future expectations and is determined by a number of factors. Most importantly it is influenced by the market potential and the team’s ability to scale fast. We typically analyze the company’s prospects to grow in a 5-8 year timeframe and try to take into the account the effect of future rounds and dilution. It is important that founders have a realistic option to keep a significant stake in order to remain motivated till the exit.
How do you support your portfolio companies?
As an early stage CEE regional investor, we see our most important added value in strengthening a young team to build the strong foundation for international expansion and later stages of the company. By the way excellence in delivery also increases valuation at the time of the exit, too. Our value add focus especially on leadership issues: helping our founders with professional coaching and organizational development services through partners with experience in startup-specific challenges proved to be very valuable. Also helping our founders in adapting their product and developing fundraising strategy is a key area of our cooperation, as well as making our professional network available to them.
What are the best-performing companies in your portfolio?
Even in pre-pandemic times we experience a lot of changes, ups and downs in our portfolio’s performance – that makes this job so exiting. The last couple of years have been particulary interesting: COVID, the war, now the prospect of economic volatility, geopolitical changes test our companies ability to adapt. For example, our Ukrainian company, PartySpace had to conduct business and keep the team together while their country has been the subject of violence and war. They show amazing endurance and I think they doing a fantastic job. It is worth naming a few of our portolio companies as outliers.
● Material Exchange is becoming a go-to marketplace for brands like Nike to source many of the materials they use. They have been on an exponential growth curve since early this year when they received a $25M round led by Molten Ventures.
● Commsignia, the largest company dedicated to V2X (Vehicle-to-everything) technologies. They connect cars, bicycles, traffic lights etc, and build the basic V2X elements of smart cities. We are proud to be working with the company from its early days, now together with investors like Partech, Inventure, Karma and Credo Ventures on this progressive journey.
● AImotive is one of the the leading self-driving companies, working with industry partners like Sony, Volvo, HERE, Kyocera and others. They have scaled the company from 15 to 200 employees in the past 6 years and become a very significant player in this key market.
● Animoca Brands (that acuired our own Gamee) is becoming the de facto leader in the web3 gaming industry. After raising more than USD 500 million this year they are strongly holding their USD 5.4 billion valuation while using the current market conditions to continue their strategic acquisitions as they now have more than 300 web3 businesses in their portfolio. Gamee’s team still contributes to their business significantly.
What are your notable lessons learned from investments that didn’t work out as expected?
You know, in this business tenure and experience count a lot. The amount of work you invest into a company, especially into struggling ones, does not necessarily correlate with future financial success. But every dilemma, fight, every failure, every discussion, every successful campaign or small innovation might have an element, or a lesson that might prove crucial or useful in a different situation, and hence represent an important part of our collective wisdom. Even though there are patterns in our industry, every story, every founder, every startup is unique. My experience tells that success is most importantly determined by the skills, ambition and attitude of the people involved – and it is a dynamic process. We can and have to help our founders at important fork roads. So my conclusion to the question is that we have to pay attention to every company, every founder and every team in the portfolio, because that constitutes our most important know-how.
What are the hottest markets you currently look at as VC and where do you see the biggest hype?
For us, the CEE market is the hottest at the moment. The region has matured in the last decade tremendously, the tech talent, the unicorns are now well recognized on the global markets. We are a generalist fund and we are always open to new, powerful ideas or to a promising team. Also, as our environment changes quickly, we deliberately want to remain open to all emerging opportunities. But some interesting areas I pay special attention to are as follows - how do our companies contribute to a sustainable world (yes, it is becoming a market), how quickly will the metaverse hype be transformed into mass market and how the energy crisis accelerates the scaling of new technologies. And last but not least, we have a notable track record in the field of mobility startups, and intend to further build on that experience.
In your view, what are the key trends that will shape the European VC scene coming years?
European VCs became much stronger in the last decade. Their fate is in their own hands – talent, knowledge and money are all available for the industry to grow further. But the ecosystem is still weak compare the US, so we need to remain committed and constantly stay hungry, stay foolish. Pushing the limits, educating LPs, governments and universities, to name a few of the challenges. I strongly believe that even though we see a lot of destruction these days, innovation and technology are key to find a way out of the current crisis and venture capital will play a key role in it. Our industry is obviously affected by changing geopolitics of the world order. Partial deglobalization, new priorities and newly designed supply chains are a threat, but also can redirect focus to the strong European startups, and their solutions that are emerging from the continent – for the continent.
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