There are many smart thinkers out there that come up with great business models. However, they often lack the financial power to backup and scale their idea fast enough to be the one who scores the big business internationally. Often, ‘copy-cats’ with a financial backbone take over the idea and conquer new markets. SevenVentures, the investment arm of the German Media & Entertainment Powerhouse ProSiebenSat.1, targets exactly these businesses. When they see potential, they offer a smart investment package, mostly driven by a media for equity or media for revenue business model, combined with advertisement space, risk sharing and various means of support to help the newcomer companies quickly scale in Germany and abroad. We spoke to CEO Sascha van Holt at the e-tail Nordics Conference in Copenhagen.
This article previously appreared in the Cross-Border Magzine nr. 2, December 2016
How did you come up with this business model and why does it make sense?
“The idea originated back in 2009. We talked to a lot of young growth companies which reached the limits of their growth with performance marketing. Search volume was capped, and so was the revenue of the online retailer. Companies sought ways to acquire new customers. Performance marketing is a nice instrument but at some stage you need to reach out further to get new customers. We thought ‘How can we help these companies grow, and supply opportunities to new companies entering that vertical?’. We concluded that we could offer TV-advertisement and help them to become real ‘household brands’. We did just that with Zalando, by holding a massive campaign. When you look back in Google trends to the point where we started TV advertising, the organic search volume for ‘buy shoes online’ and ‘Zalando’ explode. This shows that Zalando became very efficient as a brand, they received more branded traffic and marketing got cheaper. People were looking for ‘Zalando’, which is much cheaper than ‘buy shoes online’. Also, the generic search terms gained more volumes, so new players could enter this vertical. We did not just create household brands, we created a whole new market. Then we replicated this model for other vertical markets, and we are still doing this now.”
Why can’t European companies accomplish this on their own?
“A good example is Starbucks. Coffee was always common in Europe, but even so, Starbucks arrived and became very popular. They had the capital and thus they pulled it off, whereas coffee is something drink everywhere. In Germany, it seems SME’s don’t want to invest in big marketing and branding efforts, or they don’t have the money to stand up against equivalents from abroad. Europeans have to realise that this is important. You must be quick and take your market, otherwise somebody else will come and take it away. Don’t wait until market entry barriers become too high. There is always a momentum to build new markets and we have a the-winner-takes-it-all approach where we help companies scale quickly and take market share.”
Do you also support international expansion outside Germany?
“Right now, the focus is still on companies from abroad scaling up in Germany, but we are increasingly looking to stimulate activities in other countries. We are investing in operating companies as well, such as Parship and Amorelie, where we have majority stake. As these companies expand internationally, we help them and gather expertise. The next phase could be to expand German start-ups to other countries, where we could use our European Media Alliance partnerships with big broadcasting stations, to compile a similar offer in other countries.”
Where does SevenVentures stand today?
“We are currently working with about 60 companies, some with media for equity, some with media for revenue, others with a mix of both. Our advantage is that we fully understand how marketing works. We don’t only give them cash, we also offer advertisement time, help to develop campaigns, use influencer marketing and support them on the ground with operations and expertise. “
Isn’t TV becoming a fading channel?
“Absolutely not, it is still very powerful! People still love to watch TV, so marketing there is very important. It still has a substantial reach, even though the average age is changing. However, we have to be dynamic and also look at other media outlets, such as YouTube, social media or influencer marketing, as these channels are gaining traction. Our Studio 71 manages YouTube stars and we provide influencers to companies such as L’Oréal. But if you listen to big brands, they like this as an additional channel, and stress how they still need classic advertising. With the influencers, you don’t have control how they represent the brand.”
How are the companies scouted?
“In Europe and beyond, we see a lot of companies that have an interesting business model. We scout companies, and then help them to adapt their business models to the German market. We have offices in various countries including Sweden, Poland and Germany, to be as close to potential leads a possible.”
What is the secret to success when scouting a company?
“We invest in anything that is consumer-centric, as long as it hits the mass market and is scalable. The companies we support must have the potential to become number one brands in a short period of time. You have to get in touch with the companies in the phase where they are thinking about internationalisation. In addition, our people on the ground have a highly operational background: our Swedish colleague Robin Reznik, for instance, was the CEO of Uber. People like Reznik know how to scale a business. Rather than just offering capital, the operational support is a good service to manage networks. We call this our consulting approach. We can offer a package to generate quick market entry, based on know-how. “
Can you name some interesting success stories?
“The most interesting cases are always the market-making cases, just like Zalando. Another one is the sportswear brand Just Fab and Fabletics from the US. German consumers are very wary of subscription models, so we have to educate consumers through our TV ads. This way, we opened up the market there for Just Fab, and also paved the way for subscription-based businesses. Another great story is the one of Shopkick, also from the US. It is a retail shopping app that allows you to gather rewards using your smartphone in store. Entering the German market meant stimulating shoppers to download the app, but also opening the doors to big retail chains such as Obi, Media Saturn and much more. Above this, we set up a German entity for them and we provided an interim German CEO. They took all of the market share in their vertical market and none of the clones could get a foothold. Because of our good network with retailers, we have a good track record supporting companies with the market entry. “For example, this year we helped Silicon-Valley based WonderWorkshop to get listings at crucial retailers. Now you can buy their smart toy robots across off- and online channels in Germany.”
How do you make sure the companies you help scale have the backbone to support the growth?
We had some very bad experiences with that in the past, such as server crashes or not enough stock. We are now intensely scanning whether or not the company has the capacity to scale. Growth capacity can be many things, beginning with the ability to source new products or scale up operations.
How do you determine who is the “copycat” and who is not?
We like to work with original companies and businesses with interesting concepts that are eager to make a move in new markets. However, you have to be careful with the term ‘copycat’. Oliver Samwer, with whom I worked a lot, always said, ‘Just because you build a car, does not mean you are a copycat of Mercedes Benz.’ So we prefer to call these businesses ‘first movers’.
How can companies approach you to collaborate?
“The easiest way to get in touch with us is to drop an e-mail and by sending us their pitch decks. If the business case is interesting to us, we will definitely pick up the phone. Another possibility is to apply to our start-up contest. Once a year, we host the SevenVentures Pitch Day which focuses on a particular branch or topic. There is a whole show around it and companies can win an advertisement package comprising TV and digital channels, worth €3 million, including a TV spot creation we produce for them. According to Forbes magazine, this is one of biggest start-up prices in the world. This is very interesting for companies seeking to enter Germany. The next one will be in October 2017.”