SanomaVentures director, Herman Kienhuis, on startup investing
Herman Kienhuis is investment director at SanomaVentures, the venturing arm of European media and learning group Sanoma Corporation. In advance of his session at the Digital Innovators’ Summit in Berlin in March on whether investing in start-ups will decide the future of publishing, he explains what makes a good investment and which areas of digital media excite him at the moment.
How did your association with media venture capitalism begin?
My Masters degree is in chemical engineering from the University of Groningen, and prior to joining Sanoma I was a strategy consultant at McKinsey. After advising many financial institutions, energy companies and electronics firms, I worked for a long period as a strategic advisor to the Dutch Public Broadcasting Organisation. It was there that I fell in love with the media sector and knew that I wanted to work there full time, and in a hands-on way. That’s when I moved to Sanoma, a leading magazine and online publisher in The Netherlands, which is now also a big TV broadcaster. I led on the strategy and M&A department and subsequently the digital product development team before moving on to my current role as investment director at SanomaVentures.
How has investment in digital media evolved during your career, and how have major events affected the appetite for venture capitalists to operate in this space?
The dotcom bubble reduced the risk appetite of investors substantially. With EU investors already being more risk-averse than US investors, this had quite a substantial impact on EU venture capital investments in the internet industry. In the US, investors began to invest again quite rapidly, as it soon became clear that underlying growth of internet adoption was not slowing down. Furthermore, the social media and mobile computing revolution offered a whole new range of opportunities.
The financial crisis caused another slowdown of investments. However, the last couple of years have seen a number of success stories, including big IPOs such as LinkedIn, Facebook and Groupon – as well as big acquisitions of new internet companies such as Yammer, Instagram, Waze and Tumblr. Investment levels are now growing again.
In Europe, entrepreneurship and venture capital investments have always been quite far behind the US. That said, the economic crisis appears to be fuelling growth of entrepreneurship, with more and more young people choosing a career as an entrepreneur instead of a previously ‘safe’ corporate career. Furthermore, following US examples, entrepreneurial education, incubators, accelerator programmes and government stimulus have emerged in European countries, and are further supporting the growth of entrepreneurship. Following this trend, the European VC industry is now catching up somewhat with the US. Of course, at SanomaVentures we hope to contribute to this trend.
What criteria do you consider when looking at investing in a business? What are the ‘must haves’ and how do you know it’s right to back a company?
A ‘must have’ is a great fit and trust in the entrepreneur and his team. We like to work closely together and you should be able to cooperate effectively in good times and in bad times. Other important criteria would be the ‘retention’ of a product: how often users come back and use the product. Another is the ‘traction’: can the company effectively and increasingly attract new users? We try to look beyond vanity metrics such as downloads and registered users. Finally, for us as a strategic investor, it is really important that we see a good fit with our own strategy and are able to add substantial value as well, in addition to the capital we provide.
With the need for media businesses to evolve quickly into full-service agencies and respond rapidly to innovations, do you think we will see more agencies becoming venture capitalists themselves?
I do expect media organisations to start investing more in entrepreneurial talent as an alternative method to grow and innovate. It is easier than ever before to start and create your own business. There is so much happening outside big organisations, where no existing processes and interests hold innovators back. On a smaller scale, you can see this happening with media companies investing in entrepreneurial creators, such as bloggers, authors and video producers. With internet technology offering much more effective means for communications and exchanging tasks and skills, I expect many corporations to become a lot more open in working with external talents and start-ups to develop their offerings.
The digital space is moving very quickly. How do you keep an eye on where you should be investing your money and trends in the market?
Digital media helps us to keep an eye on interesting developments. I read a lot of blogs and follow experts sharing the latest innovations. But most importantly you have to talk to a lot of people – in your own market but also in other markets. Seeing and experiencing new developments yourself is really important in thinking through the impact of new developments. However, when we decide on an investment, we find it more important to look at the way the product solves an existing problem for a customer and not so much if the latest technology is used.
Which are the really exciting innovations and digital areas of interest right now?
I am really excited by the developments happening in education and in healthcare. I think these sectors can benefit a lot from new internet-connected mobile devices and data processing and analytics capabilities – reducing cost, allowing teachers and doctors to focus on the most valuable tasks, substantially increasing outcomes and giving much more power, and responsibility, to students and patients themselves. These changes might be slower than in media or telecom, but their impact will be massive.
Find out more about Kienhuis’ session, and others, at the Digital Innovators’ Summit site.