Sustainable technologies and sustainable business models are often intervened in today's world,, said Shahin Dashti, an investor at Frankfurt-based Futury Capital which is working on launching a new sustainability-focused fund.
Learn more about the impact of market turmoil on startup investments and about the unique roots of sports and regional policies on the back of Futury. We had a rare chance to speak also about football in this episode!
In the NatureBacked podcast of Single.Earth, we are talking with investors about the vision of the new green world.
A few key takeaways from Shahin Dashti:
It's happening anyway if we want it or not because those are the laws of the market. Often sustainability is not only about the business model, which is sustainable for the planet, but also the sustainable business model itself. And that it's not only dependent on short-term trends but can last for a long time.
If you look at how many funds have been raised in the last years or months, this money has to be deployed contractually. So it means those fund managers, in the end, have to make the investments. There is no alternative to that other than giving the money back to the investors like the LPs, which I think will not happen that likely. So they have to make investments.
You could argue that now there's some headwind on the fundraising market. But as I said, I see this as an opportunity. And it means that all the good ones will survive.
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Tarmo Virki 0:07
Welcome to the NatureBacked podcast of Single.Earth. In this podcast series, we are talking with investors about their vision of the new green world. My name is Tarmo Virki. And in this episode, I'm talking with Shahin Dashti from Futury Capital. But first, a message from our sponsor.
Merit Valdsalu 0:23
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Tarmo Virki 0:45
Welcome to NatureBacked, Shahin.
Shahin Dashti 0:47
Thank you, Tarmo. A pleasure to be here.
Tarmo Virki 0:50
Let's talk a little bit about the Futury Capital - how was it born?
Shahin Dashti 0:57
Yeah, I can maybe start with, like, how it all started, more or less 17 years ago in 2005, where it all started with the inception of the Werte-Stiftung, which is basically translated to the value foundation. And it was started by or initiated by a lot of individuals. But I would say the main driver was also my current boss at the moment, at Futury Capital called Holger Follmann. And how it all started was that they wanted to establish an initiative where they bring together athletes after their careers in order to transition them into the business community. And what they then built was a mentor-mentee program, together with the Deutsche sports alpha, which is another huge institute here for the sports business. And they have brought together a lot of individuals from the business side; it could be ranging from the SME side up to big international huge corporates. And those executives were then acting as mentors to help those athletes after their careers to step into the business community - on the operator or entrepreneurial levels. And so fast forward 17 years, now more than 100 top athletes have emerged into this business community. And as part of this Werte-Stiftung mission, many other initiatives have been launched.
One of them is also our sister entity called Futury. Not to be confused with Futury Capital, but we are working together very closely. So what Futury does is basically, they have those core pillars, which are basically innovation and sustainability. And within these two pillars, there are launching different kinds of batches called in their setup missions. And within those missions, on the one hand, they have the culprits, those culprits more or less, most of them from the network of the Werte-Stiftung. And on the other side, you have young, young individuals, which are brought together into teams in order to work together on ideas. And in the best case, then they establish a startup, which then gets feedback from those corporate partners. And those missions always have a fanatic focus. So in the beginning, they had themes like sports finance, construction, food, waste, energy, and so on. And now, they have, they have transformed the logic to those three main thematic missions, which are basically construction, waste, and food. And within those missions, the teams are getting feedback on the one hand from the corporate partners, on the other hand, from investors like us, then there are also other main sponsors and partners, for example, Bain and Company, where they can get conceptual feedbacks about their business model and how they should attack the market. And those programs are run for three months. And we don't within those three months; they really get a Fast Track boost and infrastructure in order to build out from an idea, a real business. And what is really interesting about this program is that a lot of those startups which have emerged from this Futury mission are now quite established. One of them was funded by us, Futury Capital. Some others were funded by different other kinds of investors. And some others are now working together very closely, either on a project or in a normal customer relationship with those corporate partners, which were part of the mission. And those corporate partners are really big players in the respective fields. It could be like the Schwartz group; it could be Procter and Gamble, Nestle, Goldberg, and so on. And what was then interesting was that after those missions were so successful, the people around Futury were thinking, It's a pity that we are basically helping those startups to get created, but when they then have the growth journey, we cannot participate. And this is why the idea emerged that we should launch a fund not only to support those startups out of the mission but also to support more startups, especially startups in the Frankfurt region. So Frankfurt is located in the county of Hesse. So basically, the state of Hesse also supported this initiative to launch this early stage VC Fund, which has a fund size of 20 million. So this is our first fund. We also then launched another fund, a growth fund, and this has a fund size of 60 million. And here we are doing more like later tickets in Series A plus kind of startup investments.
What both funds have in common is that we have those two funds, let's say, a semi-regional focus, meaning that we like to invest into startups into tech startups, which are either located here in Hesse or have a certain angle to the state of Hesse. So it couldn't be that after our investment, they launched certain operations here. And usually, we then discuss with the founders what is the best first for the business? And also what makes sense from our regional investment policy standpoint.
Tarmo Virki 7:22
It's an interesting combination of combining sports background and then the regional background and then combining the two. And did Frankfurt actually win the European League recently, right? So you actually have some regional top teams.
Shahin Dashti 7:42
Absolutely. And me as like, I grew up in Frankfurt, I love the city. So for me, seeing Eintracht Frankfurt winning this huge trophy was a huge success. And also what is also interesting, one of our portfolio startups, he is in his main job, a professional athlete, he's actually the under 23 Europe, champion in decathlon. Okay, well, soon, he will also be joining the Olympics if everything goes as planned. And he is, we're like, as a side job; also founder and CEO of one of our companies in our portfolio called Preventio, which is a prop-tech startup. And, yeah, this makes it really interesting this, this combination of sports also we are invested into another, let's call it sports tech company called Sorare which is active in the NFT. Blockchain space will, primarily for the football industry, but now also transitioning to more sports, for example, baseball, and yeah, so here you can see our close relationship also to the sports industry. Definitely.
Tarmo Virki 9:02
Futury Capital has two funds, 20 and 60 million, but what tickled my mind was when I heard you speaking in Barcelona at EU-Startup Conference. You said you are in the early stages of working also on a sustainability fund or some kind of the Climate Fund.
Shahin Dashti 9:23
We are at the very, very early steps of launching this new fund. This fund is, in its investment strategy, a bit different than the two previous funds. The two previous funds had a sector-agnostic approach, investing in a lot of different kinds of industries, which fit our policy of investing in software startups primarily with a B2B business model.
This new fund, which we want to launch, will then be exclusively investing in sustainable technologies since we have not only observed on the market but also, more and more heard the feedback from the people close to our network that this is the right thing to do. On the other hand, we see all those macro trends emerging, right? So it's the changing consumer and investor demand. It's like those global, let's call them trends., like global warming, and then leading to new regulations, then we have things like the resource scarcity, which has more and more become clear also with the conflict happening here in Ukraine, not only on the energy level but also on the food level. And having said that, we can see that all those big trends come together with our background of being very active in the field of sustainability and innovation. And also looking at what kind of investments we have made in the past three and a half years. So we have made 16. We have invested in 16 different portfolio companies, ranging from a variety of industries, starting from FinTech, prop tech, Industrial Tech, and sustainability tech. Also, we have exotic cases like in the pharma tech, being German medical producer Demecan. And as I said, we are active in the space of blockchain. But we also have a drone delivery company, primarily delivering medical goods in areas, for example, in Africa, or South America, where there is no existing infrastructure to deliver such kinds of goods. So it means that from our investment background, from the background of the people in the background of our fund, and our whole ecosystem, it simply made sense to make those transitions and also be open for transformation ourselves in order to launch such a transformation fund.
Tarmo Virki 12:30
You have a plan in the early stages, and then the economy around you starts to kind of crumble down. How much does it have any impact on the plans?
Shahin Dashti 12:46
I guess you refer to the latest market, macro.
Tarmo Virki 12:51
Exactly. The macro economy, the stock market, and the crypto market, kind of everything starting from the crypto markets. Is it having an impact?
Shahin Dashti 13:03
Well, obviously, it will have an impact on all of us somehow, definitely. What we can observe is that it hits the latest stage startups at the first level. I think it will definitely be hitting the early-stage startups at some point as well. Since what we can see is that all those companies being at the pre-IPO level and then going to the IPO they have now, they are basically lucky if they can keep the valuation of the previous level, right. And what we think is that in the end, this is some kind of market cleansing happening. And now those very hyped models, like it could be those instant delivery startups and others, which were very hyped in the last one or two years. They basically are now struggling because, at some point as a business, you have to show that at this point, you can reach profitability. And if this is basically not inside at all, it makes it difficult for new investors to still join your project and support you with capital. Having said that, we believe that this is an opportunity where solid and strong business models will stay on the market, and those, which were rather hyped by market momentum by the over-liquidity of the markets, they will struggle. So this is why today, even more than in the past, we have to look out for solid business models. Definitely.
Tarmo Virki 14:51
I think it's nice that the overhyped stuff is possibly cleaned out from the market, which should be good for everybody. We will be focusing on the fundamentals, hopefully.
Shahin Dashti 15:10
It's happening anyway if we want it or not because those are the laws of the market. So if you look at, like, we were dropping the word sustainability, so often, sustainability is not only about the business model, which is sustainable for the planet, but also a sustainable business model itself. And that it's not only dependent on short-term trends but can last for a long time, right?
Tarmo Virki 15:47
Absolutely. And I think that's the key, which in the startup world often gets lost the kind of the two sides of that coin, that you cannot build a sustainable, well-doing business without actually having a sustainable business model. I would say, two sides of the same coin, right?
Tell me a little bit about Futury Capital going forward? What are the plans to weather the downturn? I think from the global scale, it looks somewhat bleak, at least.
Shahin Dashti 16:35
Yeah, so I think at the end, we have to look at our like, at our business, right. So our business, of basically our portfolio companies, and for each individual portfolio company, they are facing different challenges, they see different opportunities. And obviously, you always have to keep your eyes on the market in order to see not only when it's about fundraising because this is where basically the market fit feedback hits you the strongest, but also when it's about winning new clients since I said that beginning we mostly have portfolio companies with a B2B business model. So definitely, we have to see the feedback from respective clients in terms of okay, are the sales cycles are staying at those typical, I don't know, three to six months or they rather shifting to nine months, up to a year. So those are the early indicators that things might get tough. And I think what we are pretty lucky with is that the biggest exposure of our portfolio companies is still in the very early stage. So means most of our portfolio companies are still either in pre-series A or still in the Series A stage. So this means we are still quite confident. But you never know what can happen tomorrow, right? So we are quite confident that we are still with most of our companies at that stage where this market downshift will not hit us that hard at the moment, but we are still keeping our eyes open. And it still means that we have to look at the burn multiple of our companies more than we did in the past. So it should be clear that there's that the discrepancy between what money is coming in and what money is going out is not getting too big. So this is what we are looking at; we are also looking at that we have a strong management team. And they get all the support that we can offer them, not just we as an investor, but also the people in our background, also our co-investors, and other people in the background of the founding team. And I think this is also quite crucial. And in the end, they have to just keep on going believing that businesses do what they do best. And all the rest should sort out by yourself. Right?
Tarmo Virki 19:19
It's probably not the greatest time for startups to go out to the market and start raising capital, right?
Shahin Dashti 19:25
I wouldn't say so: I still see that. Because the fact is, if you look at how many funds have been raised in the last years or months, this money has to be deployed contractually. So it means those fund managers, in the end, have to make the investments. There is no alternative to that other than giving the money back to the investors like the LPs, which I think will not happen that likely. So they have to make investments, and they have to be more careful with their investment strategy. But it means that it's basically like what we said before.
Those startups which were hyped in the last one, two, three years, will have a much more difficult time now because I don't think that fancy slide decks and a few buzzwords will be enough to raise funds at the moment. You definitely have to have a strong team, strong vision, and strong business model, no matter at what stage you are, either in the pre-seed level on the Series ABC level, whatever. But then you need to show also strong traction not only on the financial side but also on the team side on the product side. On the customer side, definitely. So it means that, yeah, you could argue that now, there's some headwind on the fundraising market. But as I said, I see this as an opportunity. And it means that all the good ones will survive.
Tarmo Virki 21:00
We are slowly starting to wrap up. Shahin, as you were describing, the background of the fund is in sports. I'm sure everyone among the listeners is thinking, what sports was Shahin doing?
Shahin Dashti 21:15
I used to play football quite actively. But on the one hand, luckily, on the other hand, unluckily, I had some injuries when I was at this crucial age of 14,15. So I had several surgeries. So it means that I did not play football that actively anymore, but I could focus on school and university. So this was also the chance for me to emerge on this career path, which I am on right now. But I still like to play football with friends as a hobby. Sometimes I even join my old football club, for training sessions and so on. But yeah, I like football. I do a bit of gym; I go running. I like hiking. Two years ago, I started a bit with skiing, but I'm still a very, very rookie skier. Yeah, so I'm pretty active when it comes to sport, even though I like eating even more than doing sports.
Tarmo Virki 22:21
Good. Thank you for your time.
Shahin Dashti 22:25
Thank you, Tarmo, for a great initiative, and I will be happy to see you soon either or the other on another event or here in Frankfurt in Estonia, wherever.
Tarmo Virki 22:35
Absolutely. Good. Thank you so much.
Shahin Dashti 22:38
Thank you. Bye.
Tarmo Virki 22:40
Join us again for the next episode. Thank you for listening. If you like the show, please give us a good rating and leave the feedback in your podcast player so others will find it too. We will be back next week. Turn on to the NatureBacked podcast.
Transcribed by https://otter.ai