12 months ago we launched SMOK Ventures, an early stage venture capital fund bridging Central European startups to Silicon Valley and Asia. I’d like to give you an update on how we’re doing.

Year 1 in Numbers

• We’ve reviewed just under 1000 startups and made twelve investments, eight of which are public as of today.
• We’ve covered many business models from game-dev studios (Exit Plan Games, Nibble Games), saas-enabled marketplaces (HiPets, inSTREAMLY), regular saas (Smarthotel, Authologic), direct-to-consumer (Sunroof, Gaminate) and enterprise.
• Industry-wise we’ve invested agnostically. We’ve funded startups in hospitality, esports, foodtech, energy, pet services, proptech, ecommerce, game development, fintech and digital health.
• An average ticket size was 260k USD. The smallest deal we made was 50k USD. The biggest was 500k USD.
• Nine of the deals were in Poland, the other three in the Nordics (Sweden, Finland, and Estonia).
• We spent ~3.5M USD , i.e. just below 35% of the fund in year 1.

What does a typical SMOK Founder Look Like?

We’ve noticed there are a few things similar across our portfolio.

• Our average portfolio startup has 3 co-founders.
• Average age of our founder is 39, and the median is 40. This is significantly more than an average age of a Polish startup founder which is 28 according to Startup Poland.
• One in four portfolio startups has at least one female co-founder.
• All startups have been founded by at least one serial entrepreneur. Yep, all of them. However not all our founders have founded typical startups before. Two had previous experience running agency or lifestyle-type businesses.
• 63% of our portfolio entrepreneurs have founded businesses before, 30% of them more than one, 11% more than two and 5% more than three.
• 75% had successful exits in one of their previous businesses.

This is not to say that we’re not looking to invest in first-time founders or entrepreneurs without a history of exits. We’re actually close to signing a term sheet with two such startups just now. But it definitely shows our preference for experienced entrepreneurs. If you’re just starting out, you need to show more traction to get us excited.

How do startups contact SMOK?

Most startups contact us directly via a cold email. Although I used to be a vocal opponent of cold emails, I slightly changed my mind as three of those actually resulted in deals made. Still, most of the cold emails suck as they are not personalized and feel like spam. A well-written, personalized cold email can be better than a bad intro, though.

As for the intros, community turned out to be our biggest asset. More than half of all intros came from our network of founders that we’ve built over the last decade. The second biggest source of intros was from fellow VC funds who either wanted us to co-invest or for which the startup was interesting but too early. Limited partners and portfolio founders contributed to around 10% of intros, and our own events did not make a difference for obvious reasons — we only threw one or two before the pandemic took off.

Gaming, fintech and digital health among top industries for dealflow

As we’re a software-focused, industry-agnostic fund, we’ve seen dealflow from a variety of industries. Some of the leading industries turned out to be gaming and esports (14%), fintech (10%), health (9%), lifestyle and entertainment (9%), foodtech and mobility (9%), e-commerce and martech (8%).

58% of closed deals resulted from direct communication with the founders

Seven out of twelve deals we’ve made so far resulted from a direct communication between a SMOK partner and startup’s founder. Either one of the partners reached out directly to the founder or the founder contacted the partner directly. Chasing top founders and being up to date is what we love doing at SMOK. We also made sure it’s common knowledge that we like to be the first check in new projects of successful serial entrepreneurs. This communication seems to be paying off.

3 deals were a result of a cold e-mail, namely HiPets, inSTREAMLY and Nibble Games. Although it’s worth mentioning that in all those cases we’ve received a number of positive recommendations from our network of founders before making the final call.

Intros resulted in, surprisingly, only 2 direct deals so far, Smarthotel (thanks Bartek Pucek!) and Gaminate (kudos to Michał Kulka).

Unconvincing team a top rejection reason

Sadly, we’re in the business of saying ‘no’ a lot. We’ve done it in 98.5% of cases. We’ve decided to track the most common reasons we decide not to invest.

We invest 50k-1M USD into software and gaming startups with at least a subsidiary office in Poland. Interestingly, 50% of startups pitches that we receive is an automatic no because of either no relation to Poland, not our industry focus or wrong stage (usually too late).

Out of the other half, the most common reason we did not get involved was an unconvincing team or product (28% of all cases) and no market validation aka traction (14% of cases). Other reasons involved a bad cap table, COVID-related, a conflict of interest with a portfolio company or simply radio silence on the side of the founders.

SMOK-backed startups raise follow-on rounds easily

One of the key metrics of success of early stage startups is how fast they raise follow-on rounds of funding, and their valuation multiples.

Out of the first seven companies we backed earlier this year, four have already raised follow-on rounds, 2M USD in total, with valuations growing more than twice in less than 6 months.

inSTREAMLY has just landed a 600k USD seed round from London-based investor Supernode Global, after an introduction from our partner Diana, proving that women VC networks work. HiPets, Exit Plan Games and Sunroof also raised follow-on funding just months after we put our money in. Expect more news on the rest of our portfolio soon.

Co-investing with world’s top angels and funds

We like to be the first check in the companies we back so there usually isn’t a lot of space in those pre-seed rounds for others. However, we will always find space for value-adding angels or specialized industry funds that we respect.

So far we’ve invested together with some of the top early stage funds from Finland, Singapore and Japan. We’ve also co-invested with top global angels, including the founders or early employees of companies like Supercell, Rovio, Pipedrive or Mint.

Highlights from portfolio companies

• Sunroof already made their first acquisition. They acquired a Swedish software company Redlogger to accelerate their bet on becoming an energy marketplace. Sunroof Germany also launched with an ex-Tesla director as country manager.
• inSTREAMLY was not just the fastest to raise a follow-on round, but also quadrupled their revenues and won two important pitch events: Pirate Summit and Pitch To London (previous winners were Packhelp and Symmetrical).
• Gaminate made more in revenues in their first four months of operation on the Polish market than we invested into the company back in April. They also just entered the German market and, if they show similarly strong numbers there, they will actually have a chance to become a top European brand for gamers.
• Exit Plan Games were able to build a dream team of ex leads from CI Games, CD Projekt RED and Techland. Can’t wait to play their first game next year!
• Smarthotel is now available in 100+ hotels and 1000+ apartments in Europe and Africa. More than 20k guests have already used Smarthotel for remote check-in and safe, contactless communication with hosts and hotel’s reception. This one I’m the most proud of. Given the circumstances and the impact of COVID on the hospitality industry, Smarthotel’s progress is simply breathtaking. I can’t even imagine what they are going to achieve once the coronavirus mess is finally over!
• Authologic, our most recent public investment, launched only 3 months ago, but already has 2 corporate customers which launched their identity verification widget on production and 6 more agreements have been signed, pending implementation.

The anti-portfolio of SMOK

Occasionally we see a startup too late and miss a chance to properly evaluate it before the deal is done (or we don’t see it at all until it’s too late). In other times we love the team, the product, but we’re so ignorant about the industry that we decide to pass and support the startup from the sidelines. In a few cases the founders decide on a Delaware HQ and don’t want a subsidiary in Poland, which rules the startup out.

The list isn’t long and it includes companies like Jutro Medical, Pilot, Spacelift, nomagic, merXu, edrone, Ramp or Stonly. All those startups form an “anti-portfolio” of SMOK. I love those startups and try support them when I can even though we’re not shareholders and I believe each of them can become a huge and successful global business.

Lessons Learned

The thing I worried the most about when we were starting the fund was us missing deals or being outbid by other investors. So how did this play out?

• Missing deals or being outbid almost did not happen. We’ve seen over 90% of the startups that raised funding in Poland during the year and only in 2 or 3 cases we might have invested if we learned about the deals earlier. Missing those still hurts, don’t get me wrong. But the reality turned out way nicer than I anticipated.
• Speed counts. Almost every deal we made was competitive, i.e. startups had multiple offers on the table. We were able to close some of those deals strictly because we were faster and more committed than others.
• Terms matter but fund’s reputation and culture-fit matter more. In exactly zero deals that we made we have offered a higher valuation than competitors. However, in all of those deals we did offer a clean, well-communicated and easily understood process with specific deadlines we thrived to honor.
• Communication is key. Founders want to know where they are in the process, and how fast they will know our decision. Once we both agree to a deal, they want to understand what the process looks like between a term sheet and the wire. 100% of the misunderstandings we’ve had have been a result of poor communication on our side.

Are you working on a startup relevant to SMOK?

We’re constantly searching for talented founders looking to build global companies. If you read the above and liked what you saw, please read our investment FAQ first and then:

• send me an email with the deck at borys@smok.vc,
• or book a 15-minute introductory meeting with me via https://calendly.com/borys-musielak/office-hours

SMOK Ventures is a Polish/American venture capital fund investing between 50k and 1M USD in early stage startups in Poland and CEE. We like gaming and software startups run by serial founders who think global market domination.