We recently had the pleasure of interviewing Tatjana Zabasu Mikuž, a Managing Partner at South Central Ventures – a VC fund that specializes in startup funding and operates primarily in the Balkan region.
If you’re looking for investment opportunities, you won’t want to miss this insightful interview with Tatjana! She shares key criteria that investors use to evaluate companies, what to look for when investing, future trends, and the support they offer to companies. With Tatjana’s expert advice, you’ll be well on your way to making smart investment decisions with confidence!
Startup success stories
1. We’re particularly interested in hearing about success stories. Among the startups you’ve invested in, could you please share the biggest achievements?
Our portfolio performed very well last year, despite a tightening economic environment that made growth more difficult. Growth was solid and most of the companies successfully weathered the onset of the crisis.
I would like to highlight Cognism as our most successful investment. Cognism has consistently grown since our investment six years ago and has attracted global investors such as GIC, Viking Global, AXA Venture Partners, and others. They have confirmed their success in the market by growing and securing several contracts worth over a million a year. They work with large clients, have around 600 employees, operate in multiple markets, and have won several awards. For instance, they were ranked second in Vendor’s list of best-selling software in the ‘Demand and Lead Generation’ category, just behind LinkedIn. This is a significant accomplishment, considering the value they offer to their customers.
Sentinel Marine operates in the field of nautics and nautical telemetry, working with major manufacturers such as Beneteau Group, Hanse, and Torqueedo, as well as more exclusive manufacturers. They have gained recognition among the most important players in the nautical market and are expanding into other markets. In 2023, they achieved significant growth despite the economic slowdown.
I would like to mention Smartocto, a company that specializes in digital media analytics and has partnered with FT Strategies, a division of the Financial Times, though their growth in recent months has been largely driven by its AI tool.
We have several companies in our portfolio that, despite their small size, work with the biggest players in the market and demonstrate their excellence.
South Central Ventures and investments in startups
2. What can you offer startups? What can they expect from you?
We are an investor planning a long-term cooperation with a startup. Whenever we make a first investment in a company, we plan to follow them in subsequent rounds and we always reserve 3 to 4 times the amount of funds we give in the first round to participate in subsequent rounds. However, not all companies make enough progress to take advantage of this opportunity. If they make progress as expected, we will continue to support them through multiple rounds.
Additionally, we assist the startup in finding other investors during these rounds. Our company has been doing this for more than 15 years and we have built up a good network of co-investors. We have successfully attracted investors from the region, Western Europe, and the US for the vast majority of companies in our portfolio. This is undoubtedly one of our significant contributions to the growth of companies. We guide and encourage them to raise the next rounds promptly, enabling them to grow faster.
As we have been operating in the market for many years, we have a large portfolio of existing and former companies – over 40. We aim to foster a community where experience, knowledge, and advice can be shared, such as recommendations for legal advisors and solutions to common problems. We are creating a community where founders can assist each other and identify mistakes to help others avoid them.
As we typically join companies at an early stage, we are often involved in the company’s operations. We do not interfere with operational matters unless necessary. However, we provide support and mentoring and are involved in strategic decisions, such as market entry or exit, fundraising, and “middle management setup”. In short, we collaborate to solve the challenges that companies face.
At times, we may become frustrated when things are not moving in the right direction. We keep an eye on what’s happening with companies and if we see that things are moving too slowly or that they’re getting stuck at a particular step, we try to guide and encourage them to change their approach. We can also provide assistance with recruitment, legal advice, or transaction structuring. In essence, we try to be as helpful as possible.
Criteria and red flags
3. What criteria do you use to select startups for investment? What is most important to you? Have these criteria changed due to external factors such as geopolitical crises, interest rates, or stagnation in economic growth?
Despite changes in external factors, our criteria remain the same. Only the values may change, but not the criteria themselves. The team is crucial to us when it comes to our selection criteria.
The team should possess domain knowledge and be open to learning. Additionally, they should demonstrate their ability to contribute to the project. Market potential and the team’s ability to capitalize on it are also crucial factors. Finally, technology and product considerations are important as well. In addition to the market opportunity and the team’s ambition, it is crucial to be able to capitalize on that opportunity. The technology and product serve as the foundation. When companies approach us at an early stage, they often have a product base that can be commercialized, but they may still have additional ideas for its potential use. The approach to future development is crucial to us. Technological progress is rapid, so a company must be agile enough to respond to new developments and market demands. While domain knowledge and technology are essential, we also value the approach a company takes in applying that knowledge and technology to the market.
Finally, achieving profitability is a crucial factor. We dedicate significant effort to ensure the company becomes profitable. In the past, we have never been an investor who would simply give money to a company and leave it to chance, in the sense of “let’s see what happens”, without knowing at least roughly which way we want to go in terms of monetisation and how they are going to generate revenue. Instead, we have a clear vision for monetisation and revenue generation, particularly in the B2B sector. Perhaps in the B2C sector, there is a greater tendency to focus on building a user base before determining the next steps. However, in B2B, this approach is much more challenging.
4. What are your »red flags« when evaluating startups for potential investment?
We are not impressed by people who act like they know everything and are condescending to the competition. In such cases, we assume they do not need us. If we find it difficult to work with a team that does not accept external criticism or suggestions, and there is no symbiosis, we choose not to invest.
We also avoid things that have caused problems in the past with other companies. If we encounter a similar situation again, it could be a reason why cooperation may not occur.
Additionally, we are also mindful of any unresolved issues among the founders. If one of the founders is selling something while claiming that the others disagree, or if there are any questionable issues related to intellectual property, it raises a red flag that can prevent the investment from taking place. Lack of integrity is also a concern, but such cases are relatively rare.
5. What should startups consider when seeking investment? Can you offer advice?
While there are numerous factors to consider, I would emphasize that companies should only seek external capital when they have a clear understanding of their growth needs and how investment can help them succeed in the market. We often encounter entrepreneurs who are unsure how to use investment funds effectively.
It is crucial to recognize that investment represents a significant commitment. The investor provides funding with the expectation of increasing the company’s value. Without a clear investment plan, it is challenging to persuade the investor that the company’s value will increase significantly, making it a worthwhile investment.
Market developments and interest in AI
6. How would you assess market developments in the field of investment in Europe? What can we expect in the future?
In general, there have been optimistic predictions that things are changing and we can expect better times. However, our existing fund investors, such as the EIF and similar, have indicated that they have less money to invest in funds. As a result, they are being more stringent and tightening up their criteria when choosing which funds to invest in. This suggests that there will be less investment in funds and less capital available for companies on the market. Nevertheless, there will still be sufficient capital for the good ones.
Furthermore, it is worth noting that there is a growing emphasis on certain topics such as the sustainable economy, decarbonisation, and climate change. These areas are currently of great interest and are expected to continue to grow in the coming years. Additionally, artificial intelligence (AI) is a field that is attracting a lot of investment.
Based on the information received from our investors, there may be slightly fewer new funds in the future. However, other types of fund investors, such as pension funds, are expected to become more active. This trend is not limited to our area but is also observed across Europe.
7. We are witnessing a flood of AI solutions. Every solution is already AI. How do you assess the value of technology when you evaluate companies?
There has been a lot of hype surrounding AI in the past couple of years, but it has actually been around for over a decade. Slovenian experts have also been involved in this field, particularly in research, with the most advanced solutions from the outset. It is true that artificial intelligence encompasses many fields, including machine learning, natural language processing, robotics, and computer vision.
Our first fund, over 10 years ago, already included companies building on AI and developing their products and technologies with AI. In our existing funds, more than two-thirds of the companies use some segment of AI.
However, generative AI opens up a whole new set of opportunities, unknowns, and dangers. There are various opportunities for new products, marking a significant turning point in the technology industry.
While technology is a crucial factor, it alone is not enough to determine investment decisions. The business aspect is equally important as we aim to enhance the company’s value. We have not been very active in the area of Deep Tech and biotechnologies. In this field, technology can be sold, and transactions are already taking place with larger companies buying technology developed by smaller ones. Our focus is not solely on intellectual property or patents, but on companies that intend to bring their technology to the market themselves.
SCV at Podim
8. You have been a partner of Podim for many years. What kind of startups are you looking for at Podim? Which areas are you most interested in?
Podim is a leading event in the region that brings together a diverse group of stakeholders, including investors, startups, and speakers. Our focus is not limited to a specific segment of companies, but rather on gaining a comprehensive understanding of the developments and trends in the geographic area. Our primary goal in attending these events is to network and expand our connections.
