04 Nov 2009   |   News

No sign of the “Next Big Thing” from Internet entrepreneurs

German VCs at last week’s Venture Lounge in Munich showed little appetite for me-too Internet companies.

It sounds like a wheeze from the Dot.Com era of a decade ago. German start-up froodies wants to sell groceries over the Internet.  

The startup’s founder and CEO, Lutz Preussners, was not afraid to confront this unfortunate association in his elevator pitch to investors at the Venture Lounge in Munich last week.

“You may have heard of WebVan, which went bankrupt,” he said dryly, reminding his audience of one of the biggest disasters in the history of the Internet. But this time around, Preussners says, things will be different.  

WebVan made the mistake of trying to do it all alone, making a huge up-front investment in its own marketing, warehousing and logistics – before selling even a single packet of cornflakes. froodies will instead work with established retail partners to help deliver the goods, and will, “keep an eye on its fixed costs,” says Preussners. The company will not make any deliveries at a loss. And Germany, maintains Preussners, is a wide-open market, with no serious online grocery retailer.

froodies is currently doing deliveries in its home base of Dortmund, and Preussners now plans to expand into other parts of Germany by linking up with established German supermarket chains. Froodies will do marketing to promote the brand and the froodies online shop will be the front-end for taking orders. “The principal of the cooperation is to use the existing infrastructure of the retail partner and eventually get support in the picking and delivery process,” says Preussners.

The start-up has been up and running since April 2009 and is seeking between €500,000 and €700,000. Preussners told Science|Business that the company is in talks with potential investors, including the government-sponsored High Tech Gründerfonds.

froodies, he says, will grow organically and turn a modest profit within 18 – 24 months. But, says Preussners, he’s not sure a company at this early stage is what the larger German VCs are seeking. “They are looking for the next Google.”  The self-funded company is expecting more interest from smaller VCs, business angels and potential industry partners.

Expectation gap

Indeed, Berthold von Freyberg, managing partner with Munich-based Target Partners, reminded entrepreneurs in his opening speech that his firm only invests in companies that it bets it can earn about €50 million from – although he admitted eight of ten portfolio companies will not fulfil this.  This points to something of a gap in what most of the firms presenting at the event – held regularly in cities across Germany to bring together potential investors and entrepreneurs – can deliver.

Nor was von Freyberg overwhelmed by the presentations at last week’s Venture Lounge.  “I haven’t really heard anything very new here,” he later told Science|Business.

Indeed, there was little sign of a new Google at the Munich Venture Lounge, which was dedicated to new media and Internet start-ups, and sponsored by early-stage consultant CatCap, Hamburg-based VC Neuhaus Partners, and the German Chambers of Industry and Commerce.  

Instead, entrepreneurs were taking another stab at ideas that have been tried before, perhaps with better prospects this time around due to more advanced Internet technologies – and the bitter experience of WebVan and the myriad of other Dot.com failures.

Few funds for early stage ventures

Among the companies presenting were moreTV broadcasting, which seeks to combine hybrid TV and Internet solutions, Garmz, a fashion website where users can propose their own designs and have them produced, and Epeedo.com, an Internet platform for pawnshop services, which is looking to help companies affected by the economic crisis.   

Perhaps entrepreneurs have simply become more cautious with the bad times. In any case, the German early-stage market has matured over the past decade, says Michael Moritz, co-founder of Hamburg-based CatCap, looking on the bright side. “Founders are more realistic, VCs more experienced, and the whole field is more professional than it was.”  

Still, there is a feeling that there’s not enough money flowing into the system – which is one reason why Target Partners felt it important to put in an appearance at the Munich event. “There is much too little capital circulating,” said von Freyberg in his speech. “There are very few funds for early-stage ventures.” And CatCap’s Moritz confirmed that without the High Tech Gründerfonds, the German early-stage market would be in very poor shape indeed.  

For at least one entrepreneur, there wasn’t enough money looking to meet opportunity at this particular event. “There weren’t any investors to speak of attending,” he said as he ducked out the door to leave early.

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