Portfolion is a Budapest-based multi-stage VC with a mission to back exceptional talent coming from the broader CEE region. The firm manages 440 million euros across multiple funds (apart from the seed funds which we are focusing on in this article, Portfolion manages scale-up and private equity funds as well) thus allowing the Portfolion team to partner with companies for the long run. Backed by OTP Group, one of the largest Banking groups in the CEE region, the fund has been actively investing in the seed stage across multiple verticals since 2010. Portfolion is currently investing out of their 3rd seed fund, a 50-million-euro investment vehicle launched in 2022.
Fund Strategy Overview
Geography: Broader CEE region, from the Balkans to the Baltics
Preferred industries: Enterprise Software, FinTech,
Investment ticket: Initially 1 – 3 million euros in seed stage, 100 – 250 thousand euros in case of pre-seed
Company stage: Pre-seed & Seed
Product type: B2B Software, occasionally B2C
Product stage: from early MVP
Revenues: We can invest pre-revenue but prefer to see early signs of product-market-fit
Q&A with Aurel Pasztor, Partner of Portfolion
1.What are the 5 main things you look for in a startup?
Team – They are essential in building an early-stage company and the success of the start-up depends on them. We like to see diverse teams with high ambitions and each member being deeply involved and passionate about his or her respective field.
Value proposition – We think seriously about this and always validate how relevant the problem is that the start-ups are aiming to solve. How much value does their solution create for their customers? Are they answering a pressing issue?
Vision – We look for teams that can go above and beyond the ordinary and plan to take their company global.
Market – We seek solutions to important problems that are also reflected in the market potential. We look for teams that create or target sizeable and dynamically growing markets of at least a few billion euros in size.
Technology – The tech component of a start-up’s solution is crucial when it comes to differentiation and long-term defensibility.
2. What disqualifies a startup as your potential investment target?
We are quite selective, I have to say. Our focus is on scalable software solutions.
We tend to avoid businesses that aim to sell to governments and where the business opportunity is built primarily on regulation as opposed to business need. Startups that focus on solving problems prevalent for a specific jurisdiction/country are not that attractive either as the teams there typically lack a global vision.
3. What in your opinion differentiates the best founders from the rest?
The best founders have deep domain knowledge and are obsessed with building the most scalable solution to the problem they identified. We like to work with founders who are curious, agile, quick to adapt and are constantly working on validating the product/functions with the target group. We’ve seen many teams finetuning (even down to the smallest details) their products before launching and often completely missing what the target audience needs. A strong opinion and understanding of the target market is also important. Founders shouldn’t try to build and sell products they think the market needs but understand what the targeted group’s real needs are and iterate according to that, this way constantly learning about the market.
4. What should startups take into account before making a deal with a VC fund?
The most important thing about making a deal with a VC is understanding that it results in a long-term and personal relationship and there’s more to it than just funding. They should see how good the chemistry is, whether they are going to be able to closely collaborate (in case of a more hands-on investor, which we are) with them for the coming 3-5 years, and what else the VC can provide besides money.
5. What is your approach to startup valuation and preferable share in the company?
We aim for an ownership stake of 10% and are leading or co-leading pre-seed or seed rounds.
Valuation metrics constantly change. We obviously evaluate the startups based on the 5 points mentioned above and check what their connection is to the CEE region. If they raised rounds earlier, then we like to see what they managed to achieve from the funding raised previously. And based on all that if we reach a conviction to invest, we aim to come up with a valuation that is fair to the founders, can be aligned with our ownership targets and results in a healthy captable for future rounds.
6. How do you support your portfolio companies?
Being backed by OTP Group gives us the opportunity to help portfolio companies in opening doors in the 12+ countries the banking group is present in. We are also happy to support them in finding synergies with the banking group or any of its subsidiaries (however this is a mere option and not a must).
We follow a hands-on approach and like to actively work together with the teams in formulating go-to-market, pricing, hiring, expansion strategies. We aim to become a trusted partner to the founders and are very active in facilitating subsequent fundraising rounds.
7. What are the best-performing companies in your portfolio?
We love working together with all our portfolio companies and are proud of their achievements. We’ve been supporting SEON’s journey since their pre-seed round. They are now one of the fastest growing and largest scale-ups coming from CEE and recently raised a $ 94-million Series B round which was led by IVP. We are also investors in Novakid, one of the largest online English tutoring platforms for kids, which since our investment has been backed by renowned U.S. EdTech investors, Owl Ventures and Goodwater Capital. One of our newest portfolio companies, Deskbird streamlining the adoption of hybrid work grew by an exceptional rate of 6x in the last 12 months and Ivan, Justin and Jonas are actively working to turn Deskbird into a champion of workplace management. We are also extremely proud of FlowX.ai, developing the next generation platform that enables financial institutions and large enterprises to rapidly transform their employee and customer-facing processes.
8. What are your notable lessons learned from investments that didn’t work out as expected?
It is always great to have confidence in the product but sometimes it is important to take a step back and to evaluate the parts that don’t work as planned and to be critical. It is easy to get overly confident in the product which can hurt the company’s responsiveness to market inputs. Maintaining the agility and being able to act and iterate quickly and remaining critical about the product (and the successes) can produce the best-performing companies.
9. What are the hottest markets you currently look at as VC and where do you see the biggest hype?
We see the modern data stack as an exciting space for the years to come. We are still interested in the fintech and edutech space, as well as marketplaces and clean energy-related software solutions.
10. In your view, what are the key trends that will shape the European VC scene coming years?
There’ll be many micro-VCs that will be unable to raise in the current tougher marker environment, so we are expecting a consolidation on the VC market. We still see large appetite from US and Western European investors for CEE startups, we believe that the regions importance and perception in the global VC landscape will continue to increase.
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