Open for business

Looking for a company to reboot the economy? Welcome to the world of the Openfund

The hard core of a €10m fund concentrating on technology companies, George Tziralis and Georgios Kasselakis have lived and breathed every minute of the Openfund's journey from startup to established investment fund. Now into the fund's second incarnation, they describe the effort of sniffing out the next big thing in the software market

You have to go back to June 2007 to trace the roots of the Openfund.

Back then the thought that the 15 or so technology enthusiasts who gathered in an Eleftheroudakis bookstore in central Athens to bounce around a few ideas would grow to a monthly gathering of several hundred – calling themselves Open Coffee – was fanciful in itself.

But that a couple of then mid-twenty-year-olds attending those original meetings would go on to become the hard core of what is now a second-generation investment fund offering advice, networking and – crucially – seed capital for software technology start-ups would, simply, have seemed too good to be true.

And that was before subprime mortgage and sovereign debt were phrases associated with crises.

When there was money around for investing, in other words.

And yet this is that path of George Tziralis and Georgios Kasselakis, who co-founded the Openfund in June 2009, attracted three other partners with investment experience and contacts to join them, and now have a number of high-profile startups on their books.

To take funds and allocate them in an asset fund that has such high risks was unheard of at the time. We were trying to convince people who had made their money in shipping, tourism and, lately, energy to commit money to a sector that has never generated significant returns for any of them. And they would not even have a say in which companies we would fund.

– Georgios Kasselakis

The cab-hailing smartphone app Taxibeat is probably the best recognised, but the Ukraine-based YouScan gives an idea of the scope of the project.

Offering social media monitoring in the Cyrillic alphabet, it allows businesses in the Russian market and beyond to follow what is being said about them.

And where Openfund I raised €500,000 and invested chunks of €20,000 to €50,000 for return of a 15% equity participation in the companies, Openfund II – launched in November last year – raised the little matter of €10m. The leading contributor is now the European Investment Fund (EIF).

Indeed, both co-founders laugh when they think back to a several months long due diligence process, that included ten-hour meetings with the EIF, convincing them that they were worth backing in the midst of a financial crisis.

"Painful" is how one of them recollects the experience... "Getting an MBA" says the other.

It's hardly surprising.

"Our target is, over the next three years, to make up to 35 investments – this time not only limited to 50k but going up to half a million euros," says Tziralis.

Then again, the early days of trying to draw individual investors into contributing to Openfund I were no less arduous.

"To take funds and allocate them in an asset fund that has such high risks was unheard of at the time," says Kasselakis. "We were trying to convince people who had made their money in shipping, tourism and, lately, energy to commit money to a sector that has never generated significant returns for any of them. And they would not even have a say in which companies we would fund. Bear in mind that five years ago I was 27 and George was 24. In a market with no track record, a couple of young guys trying to raise capital wasn’t the easiest."

In the end, around half the €500,000 in commitments that made up Openfund I came from individual investors and half from Piraeus Bank.

"We collected more than 300 applications, only half from Greece, and we ended up investing in eight companies amounts ranging from 20k to 50k in return for 15% equity participation," Tziralis recalls. "Of these half are still operating – Taxibeat's going well, as are Youscan who are doubling their revenue every year. We are pretty close to making our first exit by selling our participation."

He says that they are computing an average return of more than two times the initial capital.

"More than 50 people are currently working on our portfolio of companies and we believe we’ve proved there are some great people willing to take an entrepreneurial risk," he says.

Within a year of being set up, the Openfund was being referred to by the then prime minister George Papandreou.

The business plan of Openfund II is straightforward enough.

In Tziralis' words:

There's a two-part plan. The first's pretty similar to Openfund I, investing up to 50k and taking 10% of equity to a team of great entrepreneurs with a sound product, with a view to adding more money further down the road. We would expect to end up with, say, 20-25 investments on this path.

At the same time we would pursue more mature investments with teams that already have a great product out there, in which case we would be able to put in 200-500k in order for them to grow aggressively.

For now we are focusing only on companies located and operating in Greece, or holding a significant part of their operations within Greek borders. But, at the same time, we’re looking for ideas with international innovation, addressing international needs.

The product itself is the least important as it’s the easiest to change. In fact, it’s pretty typical for our companies to change their product a number of times before being launching or even right after that. This is one of the benefits of software products, which is are focus.

He points out that it's usual in a venture capital fund for only one out of ten companies to succeed.

"We are looking for opportunities we can exit from at the rate of €30m or €50m each – so that if we end up with an equity participation of 10% at the time of exit, we can get €3m or €5m from each case. That’s the broad idea and why we're only focusing on big, big markets."

The first Openfund II investments were in Incrediblue, an online booking service where you can hire a sailing boat or a yacht directly from the owner, and WorkableHR.com, which has created a tool that helps sort CVs according to the requirements of the job description.

And, just recently, Locish.com – a mobile application created by a couple of Greeks aimed at travellers looking for suggestions on sightseeing, food, leisure and other activities from locals – has joined the portfolio. 

The one thing Openfund isn't there for, both Georges, stress is to tell their partners how to run businesses.

"It shows in statistics that the less you get involved in the management of a company [as investors] the better they do," says Tziralis. "The products are very closely linked to the founder. Having a great relationship with them is certainly more important than having great legal agreements with them. There is no recourse. You just accept failure."

He stresses: "We're locked in for ten years. Full time. And it’s a big commitment, with penal clauses if we fail. In three years, when our investment period ends, we’ll need to have raised another fund that will overlap with the other for seven years."

Kasselakis then steps in with a smile: "But we're impacting on the creation of new companies. At some point we invested in a company of 17-to-21-year-olds who quit college in order to pursue a new business. Exactly what their parents didn’t want them to do. I’m sure they freaked out. And they failed spectacularly. But when you see you have created such social change it’s like a drug... There is no way back."

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