Exploring the future with Alexander Kölpin, from seed+speed Ventures

Our Director of Partnerships DACH, Menno de Graaf, also had the privilege to speak with Alexander Kölpin. Who’s Managing Partner at seed+speed Ventures, where he invests in seed-stage software companies across the DACH region. During their discussion, Alexander shared his perspectives and insights on the latest developments and trends across his portfolio companies, as well as the industry and markets, particularly regarding talent. Since he has a wealth of experience in investing, entrepreneurship, and community building, we're excited to learn from his expertise.

Let’s start by introducing Alexander Kölpin

As a Managing Partner at seed+speed Ventures, Alexander is responsible for securing funding for their existing portfolio and supporting on and mitigating challenges that may arise. He’s also focused on finding the best deals and being part of the most successful ventures, particularly in an environment where larger VCs may be more hesitant to take risks in the seed stage. He believes that the first half of 2023 presented room for improvement when it comes to the number of deals done, but believes the second half of the year will bring along positive changes.

Navigating the changing landscape: Funding, investor caution, and shifting priorities

As we've stated earlier in the report, there has been a significant decrease in total funding deployed compared to the explosive years of 2021 and 2022. Meanwhile, over the past two years, salaries and hiring experienced a remarkable upswing, but now they are gradually stabilising, indicating a return to a more balanced job market.

These developments have implications for startups, scale-ups, and investors alike, particularly with regard to securing funding and finding the best deals. While there’s an abundance of capital available, it's currently riskier to deploy it. But, Alexander sees it slightly different, “While it's true that there’s a lot of money that needs to be deployed in the next 12 to 24 months, there are also a significant number of companies that are vying for those funds. Therefore, we don't have an oversupply of money, that's for sure. Though, I believe there's still a possibility that not all the money that's currently available in the market will be invested.”. That might lead to an interesting situation.

Companies that are performing exceptionally well still have the luxury of choosing from multiple term sheets. Something that Alexander also sees within his portfolio. However, he adds, “The reality for the majority of scale-ups and VCs isn’t black and white, but rather falls within the grey area. Some companies that are doing reasonably well, but not exceptionally, often struggle to secure funding, especially from top-tier firms.”. In such cases, Alexander, and other cooperating investors have taken the decision to participate in internal funding rounds. Current investors have a deep understanding of these companies, their mission, and their management, which new investors may not possess. By conducting these internal rounds, they aim to bring stability to their operations and position them for the next stage of growth.

Alexander remains optimistic about the future, despite the current investor hesitancy towards later stage investments. He foresees improvements on the horizon, with companies either successfully raising Series A or B rounds through traditional fundraising efforts or achieving high revenue levels that enable self-sustainability, reducing the need for continuous fundraising. Explaining the shift in focus towards capital efficiency and efficient growth, marking a departure from the previous mindset of pursuing rapid growth at any cost. This change reflects the growing recognition of the importance of sustainable and responsible business practices.

Unique characteristics and market sentiment

Germany's startup ecosystem is made up of several hubs, each with unique characteristics and varying market sentiment. As previously mentioned in the interview with Philipp and Julius, Berlin is recognised for its international and modern atmosphere. However, as one travels further south towards Munich, the city is known for its finance-oriented environment, which can pose greater challenges for newcomers.

Although, Alexander sees no differences between the different regions. “If you look at the numbers, there are more hyper growth companies in Berlin than any other region in Germany. This implies that there’s a higher concentration of founders and investors in Berlin with a great appetite for risk.” While Alexander perceives that the majority of large VC firms are located in Berlin, the region isn’t the most significant factor for VCs as they consider all areas of the DACH region. VCs prefer to keep all networks open, since a promising company could emerge from any location.

The impact of AI on scale-ups and shifting perspectives in the business landscape

Looking beyond macroeconomic developments, one trend that will have a significant impact on the startup and scale-up ecosystem is the rise of AI. A change that came faster than Alexander expected. “I must admit, I was taken aback by the impressive capabilities of the AI services that are currently available. While I had come across some similar technologies before, there's always more beneath the surface, like an unseen iceberg. However, this particular advancement has brought substantial changes that have surprised not just me, but arguably the entire world.”

From Alexander’s perspective, every change presents new opportunities. Just as the introduction of chips didn't eliminate the need for digitalisation, this shift in AI doesn't diminish the demand for new software companies. Nevertheless, this transformative development does change the approach founders should take when starting a new initiative. 

As a founder, it’s important to adapt to this shift and reconsider how to tackle different aspects of the initiative. While some tasks may still be handled internally, there’s now the opportunity to outsource many aspects to a range of AI services. “I see AI as a valuable addition and a notable progression. Although, it does require us to change our perspective on startups. Right now, I am in the process of understanding the implications, and I believe many of my investor colleagues are doing the same. It's an exciting time to be alive, honestly. We might think that everything has already been done, but there are always new things emerging. This makes being an investor in this field a true privilege.”

Other factors that come into play are the shifts in the overall economic and political landscapes. These broader-scale developments have the potential to impact the economic activities of both consumers and companies, ultimately influencing the overall climate. “In terms of the political climate, our focus has shifted significantly over the past five years towards seeking companies that can withstand crises to the best of their abilities, although achieving complete crisis-proofing isn’t entirely feasible.” As a result, they’re much more critical towards business models and markets than before. By asking themselves, does this solution address a significant problem, or is it more of a ‘nice to have’?

The positive side effects of changing times for the talent market

Undoubtedly, these developments have a noticeable impact on the talent market, particularly for startups and scale-ups. Excessive hiring used to be the norm to sustain high growth rates. In combination with a scarcity of talent, this resulted in salary inflation over the past years. In Alexander's view, “I anticipate that wage changes will not be significant. There’s evident price inflation, employees will likely seek higher wages to offset this effect. Additionally, there continues to be a shortage of qualified labour in the market. Although the pace of hiring may slow down slightly, it doesn’t necessarily imply a complete shift in the market dynamics.”. The talent market remains a supply-driven market, but Alexander believes that highly skilled individuals accustomed to working in startup and scale-up environments still hold the advantage.

With the pace of hiring slowing down over the past three quarters, HR departments will now have more time to look at their existing employees. Which they had less when it was all about growing the workforce. “I expect that this shift will also bring about some changes in the role of HR departments. Both in terms of managing the existing workforce and recruiting new talent, the tasks, and responsibilities of HR will undergo some modifications. This change is inevitable and will likely introduce new dynamics in the HR landscape.” Alexander shares.

This brings us back to the concept of capital efficiency. In the past, the rapid growth of certain companies could be seen as unsustainable. However, with the changing times, there is now an opportunity to prioritise building a cohesive and motivated team that operates smoothly like a well-oiled engine. Alexander sees this as a positive side effect of the current shift, where companies can focus on fostering a unified and efficient workforce.

Advice to founders: how to navigate the talent market

Alexander emphasises the importance of education and continuous development when looking for levers to remain competitive and appealing for talent. He suggests that investing in the education and upskilling of both existing and prospective employees is crucial. Creating a positive work environment is equally important, as it fosters motivation and a sense of security. 

In the current climate, employees are more and more seeking stability and opportunities for growth within a company, rather than just focusing on salary increases and job hopping. As a founder, demonstrating that your company is on a solid path and prioritising employee well-being can make it easier to attract and retain top talent.

Alexander also observed a shift in the workforce's mindset, with a greater emphasis on security and longer-term commitments to companies. Job hopping, which was more prevalent in the past, is expected to decrease as employees seek stability and meaningful growth opportunities. This normalisation is seen as positive for the industry as a whole, indicating a healthier and more sustainable approach to employment.

While uncertainties may arise, Alexander remains optimistic about the future, viewing it as a period of normalisation rather than a bleak outlook. He notes that despite any potential challenges, the job market remains robust, and individuals can still find employment opportunities.