Earlier this week we caught up with Steve Sarracino, the founder of the private equity firm Activating Capital in Greenwich, Connecticut, we last spoke with Sarracino in early April last year, as people around the world were forced to return home by the pandemic, and his company had just closed its third fund with a capital of $ 257 million commitments.

As we’ve learned, Activant, which tends to invest in e-commerce infrastructure and payment companies, is now (according to one SEC filing), approaching the close of a fourth fund that targeted $ 425 million. He has – like a increasing number other American companies – also opened a new office in Berlin, headed by Max Mayer, a former investor in Global Founders Capital.

We talked a bit about Activant’s growing interest in Europe and what underlies it. We also talked about the speed of transactions right now and what Sarracino is doing with one of the hottest trends of the year: the many roll-ups from third-party sellers on Amazon. Excerpts from that conversation follow, edited slightly for length.

TC: How long have you been investing in Europe?

SS: For a long time. We had invested in Hybris [an e-commerce company that was acquired by SAP in 2013 for $1.5 billion]. We are also investors in NewMarket [a six-year-old, Berlin- and Boston-based SaaS company that was founded by serial entrepreneur Stephan Schambach, who also founded Demandware].

We go back and forth to London all the time; it’s easy from the east coast. But the continent is another story. You really have to have a presence on the ground there.

TC: Why make the trip now?

SS: There was always a lot of technical talent there – I think there are twice as many STEM graduates in Europe as in the United States. The challenge before was that the business community was smaller – it takes a vibrant early stage community to create later stage opportunities. Europe also lacked middle managers. In LA, New York, or Boston, you can pull off solid SVPs or even C-level executives from Facebook and Amazon, but there weren’t the same level of big companies there, and that made sense. exchange. They are all [in Europe] now. So you now have the technical talent, [sufficient] business [dollars] and management.

TC: Are there other advantages? Are valuations better in Europe or is Tiger Global increase the numbers here too?

SS: For the best companies, you don’t see much difference in valuation from continent to continent. But the opportunity in Europe is attractive halfway through. Seed and A is pretty well covered, but B, C, D, and E is a very different game.

Another amazing thing about Europe is that although you have to spend a little more on marketing, sales and products because you have to be multilingual, you have to deal with different tax jurisdictions, you have to sell differently in different countries, As a result, European startups are specially designed to globalize much faster than American companies. [In the U.S.], you have a giant market and you could get to the UK and Canada, but it’s a very different proposition to go global.

TC: Do the European companies you are talking to feel the need to establish a presence in the United States as soon as possible, or has that changed as well?

SS: In some areas, for example, where cloud adoption is lagging behind in Europe compared to the United States, you can achieve hypergrowth in Europe. So this is not a requirement or a prerequisite for developing in the United States. But, of course, it’s on the roadmap for anyone in the tech industry.

TC: What do you think of companies that could become rivals with your US investments in the future?

SS: We are careful to invest in the same company but in different geographies, because we believe that they can be competitive on a global scale, so we try to choose the global winner. If it’s a micro-geo – let’s say it’s a company that sells SME infrastructure software in Germany and won’t make it to the US, we would have no problem supporting [a similar company in the U.S.], but this is something you have to be very careful with because we are board members and we are active.

Our funds are quite concentrated. In our third fund, we only have six assets. With this new fund, we will have a maximum of 10 to 12 partnerships. So it’s a little easier to manage.

TC: How can you invest in a market that is changing so quickly? We journalists see a lot of offers and they look so similar at this point it’s dizzying. It must be exponentially worse for you.

SS: Things move fast and they are expensive. Tiger and big business have changed the market. But there are still great opportunities halfway through. Our overall philosophy is that, first, you want to find the startup that is doing something different or doing something that no one has done for a long time. You also need to distinguish between a feature and a platform. Can this startup build a real platform and acquire different types of customers? Thirdly, you have to know these sectors much better than ever before, because in your opinion there are 15 companies doing the same thing nowadays, and to have this level of conviction you have to meet the 15 and choose what you think you are the winning horse based on the direction of the market, the quality of the team and the quality of the product they can build.

In some ways, it’s harder to differentiate yourself, and there are a number of ways you can react to that. The way we’re reacting is to fall back into our key areas that we know well and say no to a lot of things that look really amazing, but we’re just not going to level up fast enough given the speed of the market. market.

TC: How do you determine if a startup is working on a feature versus a platform?

SS: That’s a real problem because there are a lot of big feature companies out there that can get to a certain scale pretty quickly – $ 10 million, $ 20 million, $ 30 million, $ 40 million in revenue. . But doing this next step is difficult. Companies with real network effects – which means that each customer they add, there is a benefit for the other customers – [can be] any kind of two-sided market, [it can be] integrated payments, [but there has to be] another level of “added value” in addition to selling simple software.

It is also seeing more companies bill transactionally than [a flat subscription rate]. I think that’s going to be a big trend over the next three years – this shift from SaaS to billing based on what interests customers. When you charge how the customer perceives their income, the product has to be very good and very differentiated.

TC: You have already told me about the financing of companies that help SMEs to avoid being dumped by Amazon. I’m just wondering what you think of these many third-party seller groupings on Amazon that we’re seeing in the US and Europe and suddenly in Asia as well.

SS: Oh, my God. So they basically find really neat products, buy them for cheap multiples of EBITDA, and then improve advertising, visibility and reviews on Amazon to attract more buyers and increase EBITDA. It’s a shiny piece, but I’ve had my face ripped off a few times, and a [instance owed to there being] only one point of failure, so as Amazon changes things, I think that introduces a risk.

There are some really interesting assets. This is just not what we are doing. I also think there was a Covid bump, because people were at home and not spending money on travel, so you saw the spending go from services and experiences to goods and products and I think it will quickly come back to experiences. So we’ll see what happens after COVID with some of them, but there will be the same type of overall growth that has driven some of the underlying products. There’s also a question of how much technology they’re actually applying versus whether it’s more of a deal. It’s not clear, but, I mean, some of them raised half a billion dollars so they got it, they’re doing something right.

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