Decoding Business Angel Investment: AI, Funding Strategies & DACH Insights

Management Summary:

Navigating the complex world of startup funding is crucial for entrepreneurs. This guide, drawing insights from our exclusive interview with Germany's Business Angel of the Year, offers a deep dive into business angel investment, exploring how AI is reshaping investment decisions, the viability of venture capital alternatives, and the unique funding landscape within the DACH region. We provide actionable strategies for tech founders seeking early-stage funding and analyze the evolving dynamics of the European tech ecosystem.

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The Evolving Landscape of Business Angel Investment

Business angels play a pivotal role in fueling the growth of early-stage startups. These individual investors provide not only capital but also invaluable mentorship and industry connections. Our recent discussion with a leading German business angel sheds light on the latest trends and strategies in this dynamic field.

What is a Business Angel?

A business angel is typically a high-net-worth individual who invests their personal capital in startups, often in exchange for convertible debt or ownership equity. Unlike venture capitalists who manage funds, angels invest their own money, bringing a more personal and flexible approach to funding.

“Business angels are crucial for early-stage startups,” emphasizes our guest. “They fill a critical funding gap when traditional investors are hesitant.”

Business Angel vs. Venture Capital

While both business angels and venture capitalists provide funding, key differences exist. Venture capital firms invest larger sums, focus on high-growth potential companies, and have a more structured investment process. Business angels, conversely, invest smaller amounts, are more willing to take risks on unproven ideas, and often offer guidance based on their entrepreneurial experience.

For further insights into venture capital, explore our guide on Venture Capital Essentials (replace with actual link).

How Business Angels Evaluate Startups

Modern business angels are leveraging technology to streamline their evaluation process. Artificial intelligence (AI) is increasingly used to analyze pitch decks, assess market potential, and predict startup success.

Featured Snippet:

Business angels use various criteria to evaluate startups, including:

• Market size and growth potential

• Competitive landscape

• Strength of the management team

• Scalability of the business model

• Technological innovation

“I use an AI tool to pre-screen up to ten pitches a week,” reveals our guest, highlighting the efficiency gains. However, human judgment remains essential, particularly in assessing the integrity and passion of the founding team.

Key Metrics and KPIs Investors Look For

Investors, whether angels or VCs, closely examine specific metrics to gauge a startup's viability. These may include:

• Customer Acquisition Cost (CAC)

• Customer Lifetime Value (CLTV)

• Monthly Recurring Revenue (MRR) for SaaS businesses

• Burn rate

• Gross margin

Understanding and optimizing these KPIs is crucial for attracting investment. For more detail on financial metrics, refer to our article on Startup Financial Metrics (replace with actual link).

Alternatives to Traditional Venture Capital

While venture capital is a well-known funding source, startups have other options to consider, especially in the early stages.

Bootstrapping

Bootstrapping, funding a company through personal savings and revenue, allows founders to maintain control and avoid dilution.

Crowdfunding

Platforms like Kickstarter and Indiegogo enable startups to raise capital from a large number of individuals, often in exchange for rewards or early product access.   

Strategic Partnerships

Collaborating with established companies can provide not only funding but also market access and expertise.

“Don't rush into venture capital,” advises our expert. “Focus on building a solid product first. Angels are often more aligned with this approach.”

Navigating the DACH Startup Funding Ecosystem

The DACH region (Germany, Austria, and Switzerland) presents a unique set of opportunities and challenges for startups seeking funding.

Specifics of German Angel Investors

Germany boasts a robust angel investor network, with a growing focus on deep tech and B2B SaaS startups. However, regulatory hurdles and a perceived risk aversion can sometimes slow down investment decisions.

Austrian and Swiss Angel Networks

Austria and Switzerland also have active angel communities, often with strong ties to local universities and research institutions. These ecosystems are known for their high-quality startups and a focus on innovation.

DACH Funding Challenges

Startups across the DACH region face common challenges, including:

• Bureaucracy and complex regulations

• Competition for talent

• Scaling internationally

Our guest emphasizes the need for regulatory reform to foster a more dynamic and competitive startup environment in Europe.

The Impact of AI on Startup Investing

Artificial intelligence is transforming the way investors identify, evaluate, and manage their portfolios.

AI-Driven Pitch Analysis

AI tools can analyze pitch decks for key metrics, language patterns, and potential red flags, providing investors with a more objective and efficient way to assess opportunities.

Predicting Startup Success with AI

Machine learning algorithms can analyze historical data to predict a startup's likelihood of success, helping investors make more informed decisions.

“AI is a game-changer,” notes our expert, “but it’s crucial to balance data-driven insights with human intuition.”

People Also Ask (PAA)

Here are some common questions entrepreneurs ask about business angel investment:

What do business angels look for in a startup?

Business angels typically look for startups with a strong founding team, a large and growing market, a scalable business model, and a clear competitive advantage. They also value innovation, traction, and a well-defined exit strategy.

How do I find business angel investors?

You can find business angels through online platforms, angel investor networks, industry events, and referrals from other entrepreneurs or advisors. Networking and building relationships are key.

What is the typical investment amount from a business angel?

The typical investment amount from a business angel varies but is usually smaller than venture capital, ranging from a few thousand to several hundred thousand euros.

What are the terms of business angel investment?

The terms of business angel investment can vary widely, but they often involve equity in exchange for capital. It's crucial to negotiate a fair valuation and clear agreement.

What is the future of startup funding?

The future of startup funding is likely to involve a greater integration of technology, including AI, and a more diverse range of funding sources. Collaboration and knowledge sharing will also become increasingly important.

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You can subscribe to our podcasts here. Find our podcast on your favorite podcasting app or platform. Here are some of the links to subscribe.   

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Conclusion

Securing funding is a critical milestone for any startup. By understanding the nuances of business angel investment, exploring alternative funding sources, and navigating regional ecosystems like the DACH region, entrepreneurs can increase their chances of success. Embracing technology, particularly AI, and fostering collaboration will be key to thriving in the evolving landscape of startup funding.

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Automated Transcript

Narrator Dorsey Jackson [00:00:05]:

Welcome to StartupRad.io, your podcast and YouTube blog covering the German startup scene with news, interviews, and live events.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:00:20]:

Hello, and welcome, everybody. This is Joe from celebrate.io, your startup podcast, YouTube blog, and Internet radio station from Germany. Today, I bring you the second interview with Carsten, the current business angel of the year for Germany. Hey, Carsten. How are you doing?

Carsten Kraus | Founder Casablanca.ai | Business Angel of the Year | Serial Entrepreneur [00:00:35]:

Yes. I'm fine here in Zanzibar at the moment. I'm on holiday still.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:00:40]:

Yes. We we we do have a little game going on if you break into sweats before the end of the of the interview because you had to turn off the the the air condition, before this interview. So it'll be interesting. We may, we may tell our audience that you're the business angel of the year, selected by BANT, the German business angel association. And they usually elect, I do believe, in October and November. And the special thing about it is that, they are awarded on the recommendation of the start ups you invest in.

Narrator Dorsey Jackson [00:01:18]:

Mhmm. Yes. And, also, the, the minister of economy of Germany is, is head of the jury.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:01:27]:

Ah, I see. Which which will be subject to change soon.

Narrator Dorsey Jackson [00:01:32]:

Yes.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:01:34]:

Okay. I see. We already talked about in the other interview that you're a serial entrepreneur yourself, that you currently run Casablanca.ai, which everybody who's watching this can see how this is working here. And, I want to get straight into your investments philosophy and start up selection because you told me when we talked about this, you get up to 10 pitches a week. How do you cut through the noise and identify opportunities?

Narrator Dorsey Jackson [00:02:04]:

Yeah. That's a very good question, and it's not so easy because, of course, you always fear, missing the one hidden gem that becomes the next Facebook or Microsoft, or, OpenAI or whatever. And, so what what do we do? We have own AI that filters through the, through the pitch decks and takes out some red flags. So at least annotates some red flags so that we easily identify this without going through the 45 pages of some pitch decks. So there are some things in there like nobody has had any experience in sales before, or, they are emphasizing technology, but, they don't have patents, and it seems that it's not patentable. So there are some things where we say it's probably not interesting to to take any deeper look at the startup. And, so this is just the first filter. It, it tells, about half of the of the teams that probably they're not so interesting.

Narrator Dorsey Jackson [00:03:12]:

So depending on the time, my people have so I have one and a half people on the investment side, of Sun and Kristoff. And, so, so they take a deeper look only at those which were not red flagged by the AI. So the AI just principally takes the takes the pitch deck and goes through some analysis. Also, it puts a lot of information into a kind of a a database so that we can later on analyze all the startups. And so if we miss something, which turns out to be very good, we learn for the next time. So after two years or so when the startup turns out to be a high flyer. Uh-huh.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:03:55]:

I see. I'm wondering since when do you start utilizing AI in this way?

Narrator Dorsey Jackson [00:04:03]:

Summer last year, I think. So we we started programming something in, I think, April or so and worked then in summer. And we want we want to do more, but right now, I have more other projects. So I didn't program it, but I gave the, the idea what to do to somebody, in my in my team and, and not in the investment team, somewhere else in my company, in my company group. And they, they they they just programmed this.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:04:36]:

Mhmm. I see.

Narrator Dorsey Jackson [00:04:37]:

So but it's it's it's mainly an LLM that does the analysis, but you have to do some things around so to convert the PDF, to, to to set up the database and those things.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:04:48]:

Mhmm. You focus more on a start up's technology than its founding team. Why? And have you ever been wrong with this approach? I I I personally believe a lot of people are saying they're just focusing on the team because they want to see consultancy c or university c, d, and e. That's basically when they get interested and invest or worked at a start up a to z.

Narrator Dorsey Jackson [00:05:13]:

Right. So so when, when they focus on technology, it normally means that they look if one of the founders, was working at one of the, Batman is, I think, the new thing. So so the, the the the magnificent age, and if one of the one of them worked as a software developer there, then probably the techno program is technically good, or the the the startup is technically, well set up. That's what most investors estimate. The thing is that most investors come from financial background and not from a tech background. So it's much easier for them to, to analyze, financials or teams, and take a look at the at the founders rather than really, telling if this technology is a game changer, is really something that is, really ahead of the competition, or if it's just just another start up doing something with a very good idea, but not with great tech in the background. And I'm one of the few ones who are coming from tech and can thus tell something about this part. So I think this is probably, one of my, my USPs here, that I can take a deeper look into technology.

Narrator Dorsey Jackson [00:06:28]:

Of course, my team first analyzes just these standard questions, like, is the team good? Is the plan good? Is the market big enough? So if the so, generally, we say we invest in a total addressable market, over 1,000,000,000. So if it's only a hundred million, normally, we just don't take a closer look. That's one of the things that our AI also tries to find out. And, and that's something that the AI and the team already challenged. And then when I talk with the with the, with the founders, I'm also talking about technology. Of course, if the if the founding team would be like, not not somebody I would like to work with, then we would also not invest. And, of course, technology is not everything. But then you it's not that you have to get every good deal.

Narrator Dorsey Jackson [00:07:23]:

Just you have to make sure that many of the deals you get are good. But yeah. So you will always miss out on some deals. So I I had an opportunity to invest very, very early in a startup, started by two, pupils. They were below 18 years old. And they were starting the company when they became 18, but they were preparing for it. And I said, you need two pivots. One, technically, and one the idea is great, but technically and, also from the business model, both will not work.

Narrator Dorsey Jackson [00:08:01]:

And and so

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:08:06]:

How how how did they react given that they're they're not very old?

Narrator Dorsey Jackson [00:08:10]:

No. The thing is I said, I still I'm still investing. So, but on the that wasn't they offered me a low valuation basis, and I said, I'm going to do this with you, and I think you will do fine because the technical guy was very open to learning, and he was already quite great, but just some things he wanted to do would not work. And, and from the business model, it would also not not work. I calculated this in Excel. But the CEO also had a very he was very far for seventy year 17 year old, so I thought I'd invest. And then the problem was that, we had we had an appointment at the notary, and, that was in Stuttgart. And, I had an appointment in the evening with a politician in Berlin, a member of the parliament.

Narrator Dorsey Jackson [00:09:00]:

And the notary called and said, we need to shift this by one hour, because my previous case takes longer. And I said, then I cannot get my flight, and I cannot go on the meeting with a politician, So I will have to cancel today. Let's find another appointment next week. And we didn't find it next week. We didn't find it the the week after. And after about four weeks, they came they came back to me. We have a we have a a new we had an appointment in four weeks or so, but they said now evaluation is more than twice what we had before because we have found some other investors who wants to invest. And, and then I said for two pivots, I'm not going to do it, not not going to do it at that valuation.

Narrator Dorsey Jackson [00:09:44]:

And, we still discussed a bit but did not agree. And, what happened is they, they started this, and they did the first period very soon. And then they got, I think, 2,000,000 on a 10,000,000 basis after less than six months. So, and, that was quite a lot already because we were far lower in our valuation before. And I'm not so sure how much they financed. I think they have taken up something like, 20,000,000 already or so and are doing very well. So I did wrong there because I thought with the two pivots necessary, the the new valuation is not appropriate because the risk is still high. Two pivots necessary, and the valuation is not ultra low as it was before, just not very high yet.

Narrator Dorsey Jackson [00:10:38]:

And, I I was definitely wrong there. The other thing is, yes, I sometimes I just sometimes make mistakes in investing, of course, and that happens to everyone. And there can be two sides of mistakes. So one is you have missed a good chance, and the other thing is you invest in a company where where it doesn't pay off and the company does not do well. And I also had this in the past. I invested in a company that just didn't want to grow. They were happy after they were, slightly profitable, and still at a very low level. So and, yes, we can run the company now.

Narrator Dorsey Jackson [00:11:17]:

We don't need any more investors. So what's the problem? And that that's also not so good. So so, so even if the company doesn't go broke, it might still not by far, not pay off for the investor.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:11:33]:

Talking about investor approach here, what is for you a hard no or red flag when you're evaluating the start up pitch?

Narrator Dorsey Jackson [00:11:43]:

So one is if I can't work with the company, that's that's a hard no. Also, if sometimes they think they have invented something totally new, and I find out that, that what what the company invented is already there or very easy to reproduce, and you can't get a patent for it. So that's normally a red flag for me. So, for example, I had somebody with an invention in chemistry, and they would not tell me what it actually was. So, actually, they had a discovery in chemistry. That that's what they told me. And, when when they finally told me after I signed a hard NDA and lots of things, I found out in less than five minutes that the effect was already, known, but under a different name with a slightly different approach, but it didn't make any difference. So it was definitely existing.

Narrator Dorsey Jackson [00:12:43]:

So that that's a very hard no. So what else is a hard no? So I'm not so much on the single founder doesn't work. So single founder can work well. I don't have a big problem with that. I know it for myself. So I started multiple companies normally as a single founder in the beginning and then took up some people later. But, FactFinder actually grew to a hundred people without any cofounder. So and then I then I hired a COO in order to just get me a bit away from management and let me go back to innovation again.

Narrator Dorsey Jackson [00:13:19]:

Because I don't like management. So and, and this this this guy really loved management. He was in a 10 times larger company before at c level and joined us, and just, restructured, reorganized how we worked in in terms of how we managed the company.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:13:38]:

Mhmm. When we talked before, you told me you have currently portfolio of 15 investments. First, my personal understanding is that this is usually a big portfolio for Germans, Business Angels. Right?

Narrator Dorsey Jackson [00:13:54]:

Yeah. For Business Angels, yes. So, there are some people I have founded also the the freaking Angel Circle, which is a sub sub circle or subgroup in Band in in the German, business angel network, Deutschland. And we accept people who have done 10 invests in their past, so you don't need to hold 10 invests now. You only if even if you have only one or two or so right now, and you have already exited or, or some have, gone broke or so and you have done 10 investments in the past, you can join. Very, very few members of Band have had 10 investments. So, I don't know how many there are in in the business end of Neustadt who could qualify, but it's probably 100 or not so much more, and 34 are are in our circle. Actually, the one with the most investments has done more than a hundred investments.

Narrator Dorsey Jackson [00:14:53]:

We already have one with 75 who was also nominated for business engine, of the year, And we have one more with more than 50 investments. And all of those investments so we're talking about investments of 50 k euros and up. We're not talking about people who are just, buying bit by a business engine club or so diversify their money and invest €10,000 each in 50 start ups. So, so so it's, so, and we have one who has done also about 20 investments, but his typical, investment is 1,000,000. So he doesn't start with $11,000,000. Normally, he starts with $2.50, 2 50 k. But, but over time, he grows in the companies, and sometimes he also starts with a million. So, there are these people.

Narrator Dorsey Jackson [00:15:46]:

Yes. So so, and, so in the freaking angel circle, I'm rather one of the smaller investors. But as compared to the typical business angel, I would say, yes. This is quite a portfolio. And so I've done 21 investments, 15 are 15 are still still active.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:16:04]:

Still active. Exactly. And I was wondering, which one are you most excited about right now and why?

Narrator Dorsey Jackson [00:16:13]:

That's that's actually quite a number of really interesting investments. So, so I'm I'm very positive for Vaillant. That's a London investment I made, so outside Germany in in in, in The UK. Vaillant, v a l e n t, they, they detect social media attacks. So, you know, sometimes a company has negative social media, and that's okay if it's natural. But sometimes a competitor actively attacks a company on social media, or it also happens in politics. And, Wayland has a number of customers who are big and who are, who have been under who, or who were under social media attack from competitors or political opposing people. So that means, normally, there is some truth in the in the story.

Narrator Dorsey Jackson [00:17:15]:

So something has gone wrong with something. So, like, disappointed one customer also. And an attack normally means that somebody takes the story and makes it huge as opposed to the positive stories. And this happens. This is this is not just, something that could happen, but it does happen. There are malevolent people who actively attack their their competitors, on in social media. And Vaylent detects this with AI, and they're very strong they have a very strong AI team. I can tell this.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:17:51]:

Actually, when when one startup starts to attack another one on social media, I would be wondering, don't you have anything else to do?

Narrator Dorsey Jackson [00:18:01]:

Yes. So there are a number of of countermeasures you can do, and that's a project that Beylin then can do that cannot be done automatically yet. So some things are legal. So you can if you find out if if the first thing is you try to find out who is behind it. But if they're really good, they somehow hide it behind a Russian group or something. And so, but sometimes they can find out who is attacking or who is who is behind it. And, and then there are other measures like how do you work with the press, because normally then the press takes up this, and you have to do some countermeasures there. And how do you deal with the social media and so on.

Narrator Dorsey Jackson [00:18:43]:

I'm I'm not an expert for that. So, you have to interview Valen the next time in order to in order to to to talk about this topic. So but I think it's it's a it's a great company, and and a former investigative BBC journalist is part of the founding team, but they're also really great in AI. So, I admire what they do. So So that's one of the startups. I can tell about more if you if you want to talk about more startups. But

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:19:10]:

I I do have still a lot of questions for you, and we're already running twenty minutes of recording. So yeah. And keep in mind, the AC the the AC is not running right now. I was wondering what one startup investment that can can you name one that completely surprised you with how fast they scaled?

Narrator Dorsey Jackson [00:19:33]:

I have one, where I, was wondering how, I was I was astonished how quickly everything went well. I have one startup. I cannot name it if I tell more about it because we are under a not too hard, but still on the NDA with a buyer. So but I I I invested in a hardware company, which had a lot of innovation, and I was fascinated by the innovation. And the hardware company was they showed me their very first prototype of one part of the of the hardware they were building. And so, what happened was they they took in investors. They tried to, they tried to bootstrap and then found out that it will not be sufficient. They had some money, but not enough.

Narrator Dorsey Jackson [00:20:27]:

And then they took in investors, and, I was one of the people that they asked because of AI, because they think they thought AI will play a big role also in in their future product. And so they had the very, very first prototype of something where you need hundreds of thousands of in in big companies. And it did not work standalone. You needed some other components also, and they just had this one thing. But I was fascinated by the by the height of the innovation they built. Then it took only eighteen months until they sold to a big company. They were still, like, I don't know, minimum one and a half years precedes for pre revenue. So, so definitely, what they had built then was a fully working prototype, but in a very small scale.

Narrator Dorsey Jackson [00:21:18]:

So, like, when you say I'm automating, let's say, a a a car manufacturing, factory, and you just demonstrate one one robot which, screws in the screws or something about at one place. That's so they could show a a smaller part of everything, but that you could see that this is going to change the world in this special aspect. And then they already sold. So that that went very fast, and it was still far beyond before they they could sell the product to any customer. And we thought that we have in the current situation, we thought that we have to have the first customer, and we tried to get some some, customer who signs sign LOI or so, which was also very difficult in the current situation. But, actually, they had some inquiries from, from big companies who wanted to to invest in them or rather buy them. And, and and we went fast with one of them. And so after only eighteen months, I, I, could sell my shares again and was very happy with the, with with with the with the mouth multiple I got.

Narrator Dorsey Jackson [00:22:31]:

Mhmm.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:22:33]:

You you learned a lot when you do so many, startup investments. I was wondering what was one of the counterintuitive lessons you learned? You said you're you're still, open to invest in single founder companies and not teams. What else did you learn?

Narrator Dorsey Jackson [00:22:52]:

Oh, that's a difficult question. Maybe maybe we have to skip that if something was counterintuitive and I still had a gut feeling, you mean, kind of you. Right? So but it's not like, we norm normally you do this, but in this case, I'm going for it. So, but nothing comes to my mind at this moment. Sorry. So for counterintuitive investment. Right. Counter rules investment.

Narrator Dorsey Jackson [00:23:20]:

So, I mean, normally, what the the what I said about this so what what I said about this hardware company right now was also, normally, when you invest in hardware, you think it takes ten years until until we have an exit. And in this case, it it was not necessary because it was so clear that this is very disruptive for the industry, and they were so far ahead of anybody in in this field.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:23:44]:

Mhmm. Mhmm. I see. When I talk to many successful investors, they do have personal investment thesis or rules. Do you follow some of them? Do you have some, and you follow them before making a deal?

Narrator Dorsey Jackson [00:24:05]:

So we have, we have a a list of a few things we check, but these are the things that, Roxanne checks when they when when she talks or or some the AI checks, some Roxanne checks.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:24:17]:

Mhmm.

Narrator Dorsey Jackson [00:24:17]:

And, so the the the general thing is that we are always ready to to learn and maybe still invest if something is not according to, to to to to our list. But, if something is some other parts are overwhelmingly good. So, but so in general, for example, we invest pre seed. So that means if the company is already running and just wants to grow, normally, we don't invest. Still, I did this once. Mhmm. So I invested in, in a company called Hybrid LiDAR. And, so they're not really running, but they have first customers who have done tests, runs with them, and paid for that and so on.

Narrator Dorsey Jackson [00:25:06]:

And, but this is already quite a big company. And, but I I thought this innovation is also very high, so I invested also. They do a a new type of lidar of, of the distance measuring, which is used for self driving cars, except by Tesla, who is only using cameras. But it's also a great application for manufacturing and robots and everything, and they have a much higher resolution, as a less costly, LiDAR device. And, they're currently, going to the first prototype. So not prototype, the first, production run. So the the so for the first customer. Mhmm.

Narrator Dorsey Jackson [00:25:53]:

That's for that right now. But, but they're already quite big. So, normally, I don't invest on valuations over 5,000,000.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:26:00]:

Every investor is currently getting giddy when they hear AI, which was in the past something like blockchain, quick delivery, and so on and forth. Except for those current technologies, if you could only invest in one emerging technologies in the next five years, what would it be?

Narrator Dorsey Jackson [00:26:22]:

Oh, so, half a year ago, I would have said, I I would have said, deep reinforcement learning. So that's one part of AI. But it's AI that was underestimated, for a long time. In my prediction in the beginning of twenty four, I said, DeepRL, deep reinforcement learning, will, will, do a lot, in the coming year in '24, and, actually, it only did now with deep seek, everybody could see that deep reinforcement learning is still, a very important factor because this that was this was basically, the foundation of why they could be much faster and much better than other approaches in the past. So it's a combination of this transformer technology of LLMs with this deep reinforcement learning. So there was some deep IL also in the previous LLMs, but it had only a minor role, and now it became part of the core of the innovation of the the of DeepSeek. So that's what I have what I've said then. And right now, I think it's what is totally underestimated is robots, even though they all already have some hype.

Narrator Dorsey Jackson [00:27:34]:

I think people cannot see how big the disruption will be in five years.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:27:40]:

I I actually talked to Jan Lippert, another interview that we just published. He is, Frankfurt born even though he was raised in US. He is working currently on a company that combines robotics with large language models, which is also pretty interesting. And it's it's something I haven't heard a lot about before.

Narrator Dorsey Jackson [00:28:02]:

So, definitely, you need to combine them if you want to have practical applications in, in smaller scale companies. So in bigger scale companies, when you need, like, 200 robots doing the same thing in a, in a factory or so, You can train the robots by other measures. But if you want them to just take over any kind of small job that helped you, you need to also be able to give them commands in that natural language, like when you have them, let's say, at the building site, and it's a helper for the mason. So then then you want to tell them, like, just hand me over five more of those stones. Hand me over, this tool and so on. Can you just go downstairs and carry up two more sacks of the cement or something? Yes. And, and you want to command them in that way, and, and you don't want to, to to to show them every every step, which is the normal way of learning for for the new robots. So they observe and they they copy.

Narrator Dorsey Jackson [00:29:10]:

But also for their internal reasoning, for understanding what you're doing, I think they're also using maybe not large language models, but the same kind of foundation models with some transformers inside or so who do represent, what, what the person is doing. So it can reason what is what is it that it's doing because you don't go like, okay. Now the hand moves 20, 20 centimeters in that direction, then the fingers grab. Rather, you want to do something like he's grabbing, the, the tool. He's taking the tool, putting it to the screw, turning the tool. So you wanted to understand what is happening. And for that, it already needs some some knowledge representation internally, and that's easier with language as it seems than with most other things.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:30:03]:

I I I was smiling when he started to to to kind of combine this, robots with, learning with, what came to mind are the apprenticeship models. Because if you're an apprentice in Germany, they will play some practical jokes on you in the start. I also was a victim of that, and I was wondering what jokes the, the people will play, with robots.

Narrator Dorsey Jackson [00:30:26]:

On robots. Yes. Certainly, they will. People want will want to play tricks on the robots and then then laugh at at them.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:30:33]:

Yeah. I see. I'm getting a little bit more on the bird's eye view. What do you think is the biggest advantage that European startup founders have over Silicon Valley Entrepreneurs?

Narrator Dorsey Jackson [00:30:47]:

So you mean the founders in Germany or the invest or the small investors in Germany, the business angels?

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:30:53]:

I I would rather go for the founders because if they do have advantages, also the investors should invest in them have advantages. Right?

Narrator Dorsey Jackson [00:31:02]:

Mhmm. So, I cannot tell exactly about The US, scenery, but what I would say is that probably the founders in The US will get money more easily, but then they have to deliver more on KPIs more quickly.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:31:16]:

Mhmm.

Narrator Dorsey Jackson [00:31:17]:

And when you, when you're in Europe, probably founders who have more of a longer time until they will reach results, probably have a bigger chance of of doing of doing this with, German investors and European investors, so business engines especially, than in The US, I think, because we are not so we're not so hard results driven as most of The US, investors I've talked to so far, but there might be others also in The US. US. Mhmm. So maybe some more disruptive innovative innovations which take a bit longer, can emerge in Europe more easily because, the founders will not have so much pressure to to get results quickly.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:32:06]:

Mhmm. I see. Be before we go into very small ad break, I was wondering, how do you manage to run Casa Planca plus all the companies, all the start up investments you have?

Narrator Dorsey Jackson [00:32:19]:

The secret is people. So you have to have you have to have the right team. You have to have the right people. And, I'm very happy about, my PA banker. Also, very happy about the other people in the team, who actually manage a lot, on their own. And I don't have to say okay to everything before they do it. They just do it and ask for forgiveness rather than, than for permission before. And, normally, everything's right.

Narrator Dorsey Jackson [00:32:49]:

And, of course, in Calabanca, I have a COO who runs the daily business, and he's also an experienced entrepreneur. So, this is his third company. He was also at Accenture, and so it's Marcus Weilmer. He also, was a a CEO of some other German smaller companies, which were not start ups, so he knows how normal business runs. And, and so I have a very, a very experienced person at at my side, and he's running everything in sales and and normal daily business in Santa Blanca. And the same is true for Omnicom Data Solutions. I have Albert there, who's also very experienced and and and a and a great, operative,

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:33:37]:

CEO. Okay. We'll be back after a small ad break. Getting thank you for staying with us, guys. We're talking with Karsten Kaus, business angel of the year 2024, current business angel, because the award is only the award ceremony takes only place, in late fall, so he's the current business angel. Talking about this winning business angel of the year 2024 is a huge honor. What does this award mean to you?

Narrator Dorsey Jackson [00:34:16]:

I was quite astonished when I finally got it. So in the beginning, I thought, yes, I'm doing very well and probably I have a good chance, so, like, 30% or so. And then I saw who got into the shortlist. And out of, I think 83, they selected seven. One I was one of them, and the others were so great. So one of them had 75 investments and so on. And then I thought my chances are, like, below 10% to get elected. And when they finally, I just I didn't hear anything before.

Narrator Dorsey Jackson [00:34:47]:

It was on the event. And when they finally called my name, I was I was really so shocked and astonished. And and and so, it it somehow resonated with me so deeply. Wow. I got this with these great people around me. So, yeah. So I felt very, very, very happy. And now what does it mean? So for one thing, it means that we get even more startup inquiries, of course.

Narrator Dorsey Jackson [00:35:16]:

So, and not all of them, have really read what I do. So I'm focusing on AI. I'm focusing on technology. And some people just say I'm addressing the business age of the year, and I don't care what he does. I just send out my pitch deck and so on. So some of them do their research quite well, before they address me, but some don't. So that's one thing. Then, then there is some there was some interest from from, Formats Press podcast.

Narrator Dorsey Jackson [00:35:50]:

I think you also came through through, Band net network. So there is some more press. But, I mean, as an I I AI expert in Germany sorry. But, actually, because I'm a well known AI expert in Germany already, I was in the press, anyway. So it's not nothing new that suddenly, erupted, and I was not prepared to to give interviews or so. So I was in, many other formats, four times on TV last year, for AI topics. And, so, so in general, it was not a new thing for me to to get press inquiries, but suddenly from a new side because before people did not interview me on the topic of investment, but rather on the topic of what is AI going to change in our world.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:36:45]:

I've read through why by the by the way, we need to point out again that, you get only into the group to be nominated as business angel of the year because the startups you are investing in recommend you.

Narrator Dorsey Jackson [00:37:00]:

Yes.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:37:02]:

Yes. And you got the award you were recognized for, I quote, building bridges between start ups. What is your approach of network and collaboration there?

Narrator Dorsey Jackson [00:37:13]:

Yeah. So, I mean, as a business end, what what can I do for the start ups? So, I can give them money. Yes. But money is not everything a start up needs. Very often, they also need advice. But, also, I think, interchanging ideas between start ups and good practices between the start ups and so on, that's also very helpful. And we do this actively. So we meet with startups online.

Narrator Dorsey Jackson [00:37:36]:

We bring them together. We also have, done some forms like do AI together, exchange your, your knowledge on AI, exchange your experience, maybe also exchange some code and some other things together. And, also, we have a format, called the, startup future days, which takes place once a year in in summer. And, and, we invite all start ups. So we pay the the general, hospitality except for their own travel, and so so we we have a conference room and pay all that, and invite some guests, and so on. And so we bring all the startups together, the c level, and, they do we start with a bar cam format. So that means people can spontaneously say, I could tell something on this best practice I have, or I want to discuss with other people on the topic of how to get good talents or on whatever. So many typical start up things.

Narrator Dorsey Jackson [00:38:41]:

And the second day, we have prepared workshops. So somebody from the startups, prepares a workshop, which is then going on for four hours. And, and because that's prepared, there's a lot of theory, theoretical knowledge, and so on. They they can convey or they have, prepared practice. So you have to do something, some tasks. You have to work on on your own to to do something and so on. And, my startups actually value this very, very positively, every time we do it. And I have not heard of any other business agent who does this.

Narrator Dorsey Jackson [00:39:27]:

It's quite an investment, also in time, not only money. And, but I think this is something that really brings the start ups forward.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:39:38]:

Mhmm. Talked about bringing the startups forward. You often help startups to optimize their AI models. I was wondering how hands on are you? Are you sick in sitting in front of the the the desk together with one of the senior senior developers and say, do it like this? Do it like this? Like, on on the vertical screens? Black background. That's what I had in mind there.

Narrator Dorsey Jackson [00:40:03]:

So the last time I programmed myself is about five years ago before the pandemic. So, I'm not as practical as you now described, but I, last year, I actually went into, into some details and we built a good, a new a new kind of loss function for, for one of the models. And I was deeply involved in in that. And I think so, I mean, this this sounds like a bit bragging, but I'm quite sure it would not have worked by far as well as when I joined and, and help them improve that. So sometimes I go deep. Sometimes sometimes I I do go deep and normally don't I have not coded for a few years.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:40:50]:

Mhmm. It ain't bragging if it's true. You are an AI specialist. So I was curious, how will AI impact startup investing in the next five to ten years? Will AI start picking winning start ups, and will this be a reinforcing circle?

Narrator Dorsey Jackson [00:41:10]:

Yes. So, it it it will happen. So, actually, a number of, especially, precede, funds, so in professional investors investing with with other people's money, have already built their AI tool AI tools to scan the market. So, picking the good start ups or the promising start ups into, into their their their line of, Yeah. Deal flow. Sorry. So okay. So, yes.

Narrator Dorsey Jackson [00:41:57]:

It definitely will. So already right now, a lot of, professional investors, so funds, who invest with other people's money, are already using AI tools to scan the market to discover potential startups for their deal flow, so that they don't have to wait for those startups applying, but rather can go actively, and tell them, oh, we we're interested in investing, so please tell us more. And this is already happening right now. Also, for, selecting out of the deal flow coming in who is interesting and who is not so interesting, I'm not the only one who has built own AI for that. As far as I know, there are no tools who do everything yet. There are some tools who we have taken a closer look at the frequent angel circle in Band. We've taken a closer look at some tools who promise to help you invest, invest better and, and select the good ones from the bad ones. But the tools were actually producing a lot of paper or, nonphysical paper, long PDFs with so many research items and did not really help invest, rather help justify investments once you had decided.

Narrator Dorsey Jackson [00:43:29]:

Because if some investor, an LP, in a fund, asks you why did you invest there, then you can send them the 75 page rationale in the PDF. And, and the, the LP will probably not go through all the details.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:43:47]:

I'm very confident he will have an AI to give him five bullet points out of that.

Narrator Dorsey Jackson [00:43:53]:

So, definitely, we will do it better. So with the things we are doing, we are we are already doing it better because our AI helps us decide, and some other some other investors have also built their own tools to help them decide rather than produce a lot of, PDF paper.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:44:11]:

What is one area of the German startup ecosystem that needs some major change to stay competitive globally?

Narrator Dorsey Jackson [00:44:20]:

So there are several things which need to change in Europe. So for one thing, the AI act has to be reduced. And currently, I'm not so confident that this is going to happen, because it's not because of the start ups, because start ups can adapt to bad conditions as well as to good conditions. The problem is that if people are afraid of using AI because they might violate the AI Act and might get punished. And I see this a lot in the Mittelstands, so the mid sized German companies, which are very important in Germany, that that they are very insecure what they are allowed to use and what they're not allowed to use. And, so the market breaks away. People are reluctant to use AI. They are afraid to use AI partly because of this AI, partly also because they don't understand it.

Narrator Dorsey Jackson [00:45:14]:

But even if you get them educated, the AI act still is not precise and very difficult and can and is subject to be extended very easily. And we need to get rid of this of this threat of this, we call demo the demo class demo class sword, so the sword that's above the head, in order to, to also get the market better in Europe for buying AI tools.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:45:46]:

Mhmm. Given the current political situation that we we are likely to see a new government in pretty soon, what role do government policies play in making Germany more or less attractive for start ups?

Narrator Dorsey Jackson [00:46:07]:

I think it does play a big role for certain for several reasons, actually. So, I'm not so much a friend of of state financing everything. But if you hinder it, by the state, that also does not, stand for a good ecosystem. So, in Germany, we need to get down with a lot of bureaucracy. And when I started my first company, I think I remember that we had to do, the v a VAT only once per year. And now as a as a new founder startup, you have to do it, every month. You have to do the VAT calculation, and the VAT tax for you, the and so on. So, that has had to be done for some fraud also that had happened.

Narrator Dorsey Jackson [00:46:59]:

But, so it would be much better if, like, when you just declare that you, are still negative, so you're not making money or so, then you maybe can just omit all the tax things. So you just say I'm, I'm, I declare, by, so that's the spot. I I vow. So if you could just say, I vow that, that we have no profits, or even we have no revenues, then then you can just omit everything in the tax regulations. That would, take a lot of pressure from from start up from new start ups, so starting from the beginning. Because in the first time for Casablanca, it has taken, like, four years until we have the first revenues, and we're far away from profits right now. So, of course, this is an exponential curve. So I hope that that soon we we will be very profitable.

Narrator Dorsey Jackson [00:48:03]:

But, but, but for the first years, we had to develop, develop, develop, develop, and then we also had a lot of, a lot of paperwork to do, and that's not so nice. You want to focus on on your innovation. You don't want to focus on paperwork. So that's and and Germany is very difficult. So when you start a company, it takes, like, six weeks until you can start the company officially. So a limited company. And I think politics can do a lot of good for for the startup ecosystem by just reducing all these, all these obstacles. Mhmm.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:48:42]:

They they can. I'd I like to have you as a guest because you're known for making bold predictions. What's one thing about the startup world in 2030 that only few people are seeing

Narrator Dorsey Jackson [00:48:59]:

coming? Yes. The start up world in 2030. So, so I think, what few people see coming is that probably the economy will change a lot until 02/1930. So I, I fear that the German car industry will go down by 50% until then. So I hope that I'm completely wrong, but but it's it might it might happen. And the car industry is so central for Germany. So what will happen is that we have many people who are unemployed at that time. And, if we continue to just say, okay.

Narrator Dorsey Jackson [00:49:40]:

If you're unemployed, the state will care for everything, then we will not get power into the startup ecosystem. But if the state rules change and you really, for one thing, empower the people to start a company. On the other hand, also drive them to take up either work or start a company, and maybe we will have a lot more founders because they're very talented engineers and other people who are suddenly who will suddenly be out of business, in their big companies. And I have I have seen, an engineer of 48 or so, lead his company and start, start a new manufacturing company for, for glasses. So he had some idea of on how to improve that he was in that industry before, and he's quite successful with that. And also the startup I told you about before, where I had the exit within eighteen months, was also founded by two people who were at the end of fifth of their fifties. So now they're both over 60, and who had left their traditional careers actually a few years ago, built another start up, and then start this one. But, so it's not that start ups can only be started by 18 year olds or 25 year olds who just left university or so.

Narrator Dorsey Jackson [00:51:04]:

That's not necessary. Also, older people can be very innovative and very inventive, and we will get all this knowledge from the engineers coming into the startup world in a few years.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:51:15]:

I'd I've I've once heard that statistically speaking, the most successful entrepreneurs found the company with 45. But by the way, what what what came to me, most people listening to this, already, speak German. They speak three to four languages. But for everybody who wants to practice German, the monthly VAT filing you were referring to is called, one word.

Narrator Dorsey Jackson [00:51:41]:

Yes. Yeah. So the German words gets very bad.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:51:46]:

Oh, don't don't worry. We only have two more questions left. So you are a mentor and invest in AI startups. If you were to start a fund today, what would its focus be?

Narrator Dorsey Jackson [00:52:00]:

If I would start a start up now?

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:52:02]:

A fund. A VC fund.

Narrator Dorsey Jackson [00:52:04]:

Oh, a fund. I should have prepared that one. So sorry. So there were so many questions. I've prepared some, but most I didn't. So anyway, so if I were to start a startup fund, what would I do? So I think what I would do is I would try to spot the, I would use so if I would start a start up fund now, I would use a lot of AI, and I would use a lot of data, because in a fund, you always have to justify also what you're doing. And because you're working with other people's money, currently, I'm just investing my own money. So gut feeling is not so good for a startup fund.

Narrator Dorsey Jackson [00:52:50]:

So so what would I do? I would use a lot of AI. I would, try to get hold of many startup stories and analyze them and see how the market shifts and changes. So which startups get good valuations at the next stages, over time and how this how this changes. And then I would also try to identify, which business angels benefit the companies, and I would try to, get into, startups they invested in. And, and then, or try to get them on board also if I'm investing. Because, when I started my first company, if we had had a business engine, oh, we have would have avoided so many mistakes. It's not just because of the money, but we did so many things wrong, like not not having having a proper packaging for our first product, for example, which should was sold also in in stores, and so on. So there are so many things which we can learn, from an experienced, businessperson.

Narrator Dorsey Jackson [00:53:55]:

So I would probably take the business angles more into account than I have the impression the current start up funds do. Mhmm.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:54:05]:

To to to close this interview and by the way, we will ask you where all the start ups can pitch you. I was wondering, start up funders often chase VC funding without considering other options. When should they not raise VC fund money?

Narrator Dorsey Jackson [00:54:24]:

Mhmm. So I think that, people go for money because they think, money is the most important part of the start up. But I think it's, if you get the wrong investor in too soon, they can destroy your company because they so I think, you have to be wise in selecting the investor. So, so you should not take seed seed funding from somebody who is not helping you, but just, pushing you in in their direction, and you don't like this direction or you don't you're not convinced also. You shouldn't do that as a startup founder. What else? So I think you should do some part of your innovation before you go out for money. There are some people who seek money when they have just an idea. And, so, of course, if you have worked for, as a, whatever, CEO or a cofounder or something in a well running company before, then you can probably get a lot of money, already very early.

Narrator Dorsey Jackson [00:55:39]:

Also, when you work for Google or something before, then you probably also will get some money early. Mhmm. So but, if you try to get money, whatever it takes, then it takes a lot. So and, you have to make many concessions, with some people who are just, investing early, at they're high risk, actually, also. And, but then they will take a lot of a lot of, shares from you at a low valuation. And for some founders, that's maybe not so necessary to secure this so early. But, generally, people rather take, take up an investor too late than too early. So in FactFinder, I bootstrapped FactFinder.

Narrator Dorsey Jackson [00:56:28]:

Mhmm. And, in 02/1989, we had over 40% growth. And, while we were still five to 10% EBIT positive, not EBITDA, EBIT positive. So we were making real money and, also cash flow positive. And we were growing over 40%, and, investors were coming and asking, so can we invest? Can we put some money on on the table? And I did not do it because I thought, well, 42 to 47% growth rate is already so huge. If we grow more, probably the company, will, will do wrong or bad things because we cannot control all all the growth. But I think I made a mistake, because if I had taken some money at that time, probably we would have done the international expansion, much faster and maybe much better. And in the end, so I I'm not allowed to to tell the exact amount, we had for FactFinder, but it was, like, let's say, a middle double digit minimum.

Narrator Dorsey Jackson [00:57:36]:

Mhmm. And, and, and, our US competitors sold for 1,000,000,000 to Oracle. And, even though, the founder, Steve Papa, only had a minority share at that time, he, still definitely had more than 10%, and that that means he definitely made more than a hundred million for for that. So probably it would have been better to, just do the international expansion, especially to The US with investors' money and also maybe with some investors' guidance. So choose the investor well, but do not say I don't need money. I don't need investors, if you actually should, do need them, you know, to do the next step, to do the next real growth step.

Jörn 'Joe' Menninger | Founder and Editor in Chief | Startuprad.io [00:58:26]:

Mhmm. Karsten, thank you. Thank you very much for answering for two interviews, taking up two evenings of your vacation. Thank you very much. Greatly appreciate it. Hope to have you back soon.

Narrator Dorsey Jackson [00:58:41]:

Thank you very much. That was very interesting for me also to answer this, and I'm looking forward.

Narrator Dorsey Jackson [00:58:50]:

To That's all, folks. Find more news, streams, events, and interviews at www.startupgrad.io. Remember, sharing is caring.