Katalysen publishes lessons learned from five years of venture development

Over the past five years, Katalysen Ventures ("Katalysen") has operated as a "venture developer" ("VD"). When we established our VD rules half a decade ago, we combined elements from VC, accelerator, and incubator frameworks. This synthesis, coupled with our own experiences in building, advising, and funding early-stage ventures, aimed to create the kind of partner we had wished for during our own earlier entrepreneurial journeys. In this text, the Katalysen team reflects upon lessons learned from these first five years of venture development. Work on implementing these lessons learned into our VD framework is ongoing, and the result will become apparent during the spring of 2024.

As one of Europe's earliest venture developers, Katalysen has helped shape the characteristics that the innovation ecosystem associates with venture development, and we have been fortunate to inspire other investors and sector experts to adopt similar models to help more early-stage innovation thrive.

Through Katalysen, venture development has become characterized by:

Portfolio building: Similar to more traditional investors, a VD constructs a portfolio of equity.

Investing mixed resources: The VD builds its portfolio through combined expertise+cash investments. Recognizing the scarcity of cash in early stages, we opt to exchange our expertise for equity, considering it a more favorable arrangement compared to obtaining short-term cash. Expertise investments are often combined with cash investments, capitalizing on synergies between these two crucial needs of most early-stage ventures.

Not structured as a fund: By avoiding the traditional fund structure, a VD maintains greater agility and decision making autonomy.

More than an investor: The VD positions itself as a partner to the venture, aiming to provide more comprehensive support compared to traditional investors.

Warrants ensure careful alignment of interests: Preferring to trade expertise for options on equity (typically warrants), the VD ensures careful alignment of interests by setting the strike price at the venture's value at the start of the partnership. Both the VD and portfolio venture benefit from value created above the strike price, and if no further value is created then the VD has "worked" for free.

With recent market turbulence hopefully behind us, now is an opportune moment to reflect on the lessons learned from five years of venture development. Over the next month, we plan to outline how we are implementing these lessons in Katalysen.

Key lessons learned from five years of venture development:

1. Information advantage in venture development: Investing both expertise and capital provides the VD with a pronounced information edge over most investors, evident throughout the portfolio venture's entire lifespan. Initial meetings with Katalysen center on illustrating Katalysen's value proposition for entrepreneurs. Entrepreneurs glean a crucial takeaway – recognizing that openness around key challenges is key towards maximizing the value extracted from a partnership with Katalysen. The focus shifts to how Katalysen can actively aid in overcoming these challenges. Throughout the partnership, actively collaborating with entrepreneurs towards milestones affords us valuable insights, enabling strategic investment timing.

2. Building an in-house team of experts comes with substantial costs and operational challenges. It poses financial and operational management hurdles due to the high expense associated with securing truly exceptional experts. Moreover, complexity arises from the difficulty in deploying these experts across an entire portfolio, given the diverse and specialized needs of individual ventures.

3. The significance of facilitating opportunities cannot be overstated. Instead of assembling a team of numerous experts, an effective alternative is cultivating a team of highly experienced generalists. These individuals possess a multifaceted perspective on early-stage venture development, having played various roles such as founders, investors, advisors, and more. Their extensive involvement has resulted in a wealth of experience. In our observation, many early-stage B2B ventures grapple with similar "core challenges". A team of seasoned venture developers is adept at addressing these core challenges across diverse sectors. Furthermore, the value added by generalists lies in their ability to connect disparate pieces of the puzzle, facilitating opportunities that demand a combination of a robust network, diverse experience, and a proven track record in facilitation.

4. While networks wield considerable power, activating them can be difficult. Experts within our established network, referred to as "in-network" specialists, offer comprehensive niche expertise. Although our network stands as an invaluable resource, the task lies in finding sustainable methods to effectively engage it across our portfolio. Sustaining collaborative efforts often hinges on equitable compensation, whether in the form of equity or cash. Notably, the most successful partnerships between our portfolio and network occur when individuals within the network invest in specific portfolio companies, underscoring the reciprocal nature of these relationships.

5. Serving as the sole active investor in an early-stage venture can be exceptionally demanding. While we take pride in being the inaugural "semi-institutional" investor in early-stage innovation, this position underscores the heightened importance of our role in facilitating the onboarding of subsequent investors. The need for a diversified investment base becomes paramount, emphasizing the significance of establishing a robust ecosystem of investors beyond the initial stages.

6. Agility stands as one of our paramount strengths. A distinguishing feature of a VD compared to accelerators or traditional VCs is the absence of a rigid "one model fits all" approach. Instead, we can tailor our strategies for each unique venture. Given the perpetual constraint of time, it becomes imperative for a VD to avoid overextending and compromising this invaluable customization advantage. Our experience has taught us that, as a VD, the more effective approach often involves a focused commitment to fewer initiatives, executed with unwavering effort and passion.

7. Things often take longer than expected when constructing prerequisites for growth. Our experience has revealed, rather than concentrating on establishing "prerequisites for growth," a more effective value creation strategy involves prioritizing the "removal of barriers to growth." Recognizing the inherent complexities and unpredictable nature of the growth journey, we have learned to pivot towards agile solutions that address immediate challenges, fostering a more efficient and adaptable path to progress.

8. Our focus is people, not stages. Our expertise is working with people, entrepreneurs. Ventures are a mix of human and structural capital. When ventures are born, they are 99% human and 1% structure, and when they are listed on Nasdaq NY they are 10% human and 90%+ structure. Our skill is working with humans to establish structure(s). Entrepreneur-led ventures that need help to transform human knowledge into structure are often early-stage, but not always. By focusing solely on early-stage ventures, we miss out on relevant investment opportunities.

9. Combining diverse perspectives usually results in higher decision quality. The best decisions often emerge when a diverse group of individuals with different perspectives compromise to find common ground.

We have spent plenty of time reflecting on this topic, not only now, but continuously over the last five years. As an investor that is very active in early-stage innovation, we have always preached for and lived by the rule that you must be agile, ready to adapt as circumstances change, and look for opportunities in the moment. This rule of agility has become even more evident and important than we first thought. Over the next months, we look forward towards presenting how we implement the above lessons learned to become even more agile and opportunistic, while combining cash, expertise, and network in collaborative investments in our “phase 2” of venture development!