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Investor spotlight: Mangrove Capital's Hans-Jürgen Schmitz – exits, fundraising and why Europe's "contrarian" VC is back in Berlin Written by Nina Fowler on 27. November 2012

Hans-Jürgen Schmitz

Mangrove Capital is a bit of a quiet horse among European VCs, keeping a relatively low profile despite early-stage investments in the likes of Skype, Rdio and Russia’s KupiVIP. Now, its partners are rediscovering the scene in Berlin (including by throwing a party tomorrow at Platoon Kunsthalle). They’re also starting to plan their next fund.

We asked the firm’s co-founder Hans-Jürgen Schmitz about future plans, and what it was like on the inside of Brands4Friends’ tumultuous €150m exit to eBay in 2010.

Hans-Jürgen Schmitz

What’s behind Mangrove’s new interest in Berlin?

We’ve been in business for 12 years now… In the last, certainly five years, we’ve been going out and about in many markets, in many geographies (Russia, Israel, India). We believe fundamentally that good ideas are not just linked to one location. It sounds, however, that a lot of things have happened in Berlin in the last two, three years, and it’s worth taking a closer look and engaging with the community locally…

We are, after all, an early-stage investor. That’s something I think people may have an incorrect impression about. We like most to invest in early stages and that means really from the angel phase on, or right thereafter. So in the €500,000 ticket range up.

When did you raise your last fund?

That would be the third fund we’ve raised. We raised it at the end of 2008, just around the time when hell broke loose all over Europe… That was very fortunate timing. It allowed us to invest and not spend our energy fundraising over the last four years.

Which companies are in that last fund?

Wix and SohoOS in Israel, the “Groupon businesses” Spreets and ClickOn… Those are part of the latest fund. If you look at our other geography – KupiVIP, Oktogo and Home Me, for fashion, travel and furniture, those are our key lines in Russia, which we’re very bullish about generally as a market.

We have a few things in there that are probably more unusual for VCs, but are part of the character of Mangrove. We decided, about a year or so ago, to go more into automotive tech. We believe, on the software side as well as infotainment, there are markets that are opening up.

MetroCab is one of our more recent additions to the fund. That’s software systems for electromobility vehicles, which we believe has great potential. Not so much in individual transportation, that’s your and my car (to the extent we still have that), but more personal transport solutions, in closed circles or in inner cities.

MetroCab, a case in point, they’re developing an electric taxi for London and other places. That becomes a really high-attention item for communities to become more environmentally friendly, particularly in larger cities.

How much did you raise last time?

The last fund was €180m.

The Brands4Friends exit to eBay in 2010 for €150m, that was a big deal, and one you handled personally. What was it like?

Brands4Friends was one of those landmark deals. So was Skype, obviously. If I take Brands4Friends as an example of what we look for, it reflects relatively well, except for a couple of points…

It was eCommerce, that’s something we like. Product eCommerce, that’s something we used to like. I’m not sure we’ll like it as much going forward, because it becomes a very capital intensive businesses.

We looked at the consumer need, and that’s one of the real drivers for us. Is it a problem someone’s actually trying to solve? Is there really a pain point for consumers? And the flash sales model, at that time, in 2007, was something that was on the verge, in Europe. We already saw it in the US, to some extent.

We invested in a team we thought were strong executors, at the time, with very relevant background. Now that part, that proved us somewhat wrong. There were enough rumours about what happened at the end with Brands4Friends so I’m not going to expand on that… Suffice it to say that, as these businesses grow beyond a certain size, and I’d say that size is €50-€100m, anything below that, just anybody can build a site and sell stuff. When it comes to growing and scaling it, that’s when the rubber meets the road, as they say, and some of the team in Brands4Friends didn’t cut it anymore, which means that we had, as investors, a very active role there.

(Editor’s note: Here’s an article, in German, about the restructuring at top level two months before Brands4Friends’ successful acquisition announcement.)

We were all called to action, essentially, when things got a bit tough. That was personally a very demanding experience but certainly it was a very rewarding experience, to see that even VCs can work together to ultimately get a very good outcome for everybody.

For the investors?

Not just for the investors. I’m not sure what you’ve heard, but given the history we went through, especially the six months before the exit, I don’t think anyone who was in that business as a shareholder could really complain, including the management team.

Thinking about that next fund – how do you plan to handle the challenge of fundraising?

I’m not saying we necessarily have all relevant elements under our control, but these are the things we’d certainly focus on. The first, exits and performance of exits. I think we’re pretty well positioned at that level.

The other one is sticking to your strategy and not moving around. In this case, it’s really an early-stage VC with somewhat of a contrarian view, certainly a view on investing in businesses that have the potential to go global or really conquer a market.

Then it’s essentially, what’s your investor base? Do you have a large enough investor base, that are loyal to you?

Those things count, particularly the last point, even more in an environment where limited partners have a critical view on Europe, changed their allocation strategies to some extent, have limited the number of relationships they want to manage with the likes of ourselves and other VCs.

The loyalty factor, the constant engagement between the investors and the fund managers, is a very strong element in the decision process here. We are convinced it should be do-able.


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