“We are planning to launch a €60M Fund II, expanding its reach to the entire CEE.” Interview with Movens Capital

Recently, Movens Capital announced a new deal: the fund participated in a $700,000 round for Certifier, adding the first Ukrainian-founded company to its portfolio. This investment also marks the third one for Movens Capital this year, which made us recognize the fund as one of the 20 most active Polish VCs. Moreover, in the first quarter of next year, Movens Capital is planning to launch a €60 million Fund II with the intention to invest in 30 companies from the region.

AIN.Capital spoke with Artur Banach, Managing Partner at Movens Capital, and Yaroslav Krempovych, Principal at Movens Capital, about the fund’s ongoing activities, its first investment in Ukrainian founders, and to learn more details about Fund II.

Tell about Movens Capital. For example, for those who are looking for the investment but know nothing about the fund.

Artur Banach: We are an early-stage fund, investing up to €1 million in pre-seed rounds in Central Europe, but predominantly in Poland. A quarter of our investments went to non-Polish companies. Our focus is on Central European founders. In terms of sectors, we are generalists, but we have some sectors where we have strong experience and a robust expert network. We particularly favor startups that leverage AI and machine learning to disrupt large industries. Half of our current fund’s investments have gone to such companies. Additionally, we are active in climate tech, e-commerce enablers, and digital health, especially.

We are a mission-driven team and believe that our role is to support local founders in expanding westward to Western Europe and the US, a task we see as the responsibility of a VC.

What about your team? What kind of expertise do you provide to founders?

Artur Banach: We have five operational partners, with a team of about ten people in total. Some examples of our experience. I used to run Netsprint, which was a Polish web search and later regional adtech ecosystem, from the early 2000s until we, with the current partner of Movens Capital, finally exited in 2018. I teamed up there with Przemek Jurgiel-Żyła, who built products and partnerships with the market. Michał Olszewski is an experienced investor who also built up SkyCash on the Polish market, one of the most popular payment applications. Maciej Kraus, another partner, is a pricing guru, specializing in business consultancy for tech companies. Yaroslav brings an understanding of the Central European ecosystem, not limited to Poland, and is a seasoned entrepreneur as well. We also remember you have to think about exits from day one of your investment. Łukasz Pawłowski and Radosław Rejman bring an experience from about 50 M&A transactions.

Yaroslav Krempovych: We have many activities where we can support founders. Certainly, the most important one is preparation for the next fundraising round. We are in the VC game, and the first measure of our joint success with founders is the next financing round. That’s why we are very proud that our portfolio has already raised 90 million EUR. It’s a clear signal to us that the entire platform is functioning properly.

However, it’s not just about generating interest from Western funds. We have a substantial network in the region, and we’re actively working on expanding it outside of Europe. We have more than 300 active connections worldwide. Right from the beginning after our investments, we prioritize providing guidance and support to companies and connecting them with talented individuals.

We also know when not to disturb, when not to overwhelm the founder. While every investor may have a lot to say, consuming the founder’s time with their ideas and gaining a deep understanding of problems to try to solve them or offer advice can be too time-consuming. We know when to stop.

How is the fund performing in 2023? How many startups does it currently have in its portfolio, and have there been any exits? 

Artur Banach: We maintain a high level of transparency. Since our launch in 2020, we have invested in 17 companies. As we said, most of our companies already raised the next round at the much higher valuation. As the result, net value of the portfolio has already increased by 61%. Based solely on the valuations at next financial rounds, our Net IRR is 24%.

We consider this a satisfactory result given the overall market situation. In our portfolio we have several candidates for breakthrough companies. Example? This year, our portfolio companies secured the largest financial round in both Poland (Vue Storefront) and the Czech Republic (Woltair). 

As far as I know, you have already made three investments since the beginning of the year: Epinote, DevSkiller, and the third one just announced — Certifier. 

Yaroslav Krempovych: Yes, that’s correct. What I can tell you is that Certifier is an especially important investment for us because it’s the first investment in Ukrainian founders.

Ukrainian-founded Certifier raises $700k from Polish and Czech funds

Artur Banach: And now we are working on closing three additional deals. 

Three more projects, that sounds great. What about your investment approach? Have there been any changes in the fund’s investment strategy since the start of the full-scale war in Ukraine? Changes in investment size, focus areas, or geographical preferences?

Yaroslav Krempovych: Fundamentally, there are no changes. In terms of sectors, for example, we are exactly in the same space — our bet on AI and Machine Learning is now even more clear. Obviously, not every AI company will be successful now, but in general, the idea that talent is here, and great companies can be built upon that talent has been confirmed.

What is somewhat different is that capital efficiency is more important than ever. We now care about how much you have to spend to increase ARR, and that multiple is even more critical than before. We have always been concerned about efficiency in that area, but today, it has become even more important.

The situation with talent changed dramatically. There are much more Ukrainian and Belarusian founders. Logically, there is more capital in Poland than in the countries in the neighborhood. That’s why capital meets talent and everything is becoming quite faster now. I think that was ought to happen a very long time ago — people tend to address funds from Poland firstly, then getting straight to the US-based funds or somebody outside. 

And how does the Polish venture capital market feel generally now? 

Yaroslav Krempovych: It’s a gap year. On one hand, every several years in Poland, there is a year when some funds crumble and some of them don’t, or most of them don’t raise following funds. Because their performance was poor or for various reasons — it’s really hard to actually fundraise in the region. From the other, the governmental programs of Polish fund of funds are expanding.

So, there is generally lack of private capital, and that is why Polish fund of funds is the most dominant source, dominant to be here. There will be fewer funds for the next one, one and a half year. If you combine with strong deal flow and reasonable valuation, you can see why the next years will be an excellent time for investing in tech companies. The funds that manage to gain capital will heavily leverage from this.

What changes is that funds grow bigger. For example, we plan to establish the Fund II in the first quarter of next year. We are enlarging our pipeline, and we specifically will grow 2,5x compared to what we are in our current size, and we plan to target the whole region. 

Until now, our focus has mostly been on Poland, with some exceptions like Czech companies, companies from Germany, Lithuania, and Ukraine. However, for the next fund, we really plan to step up our game and expand our reach to these markets.

Could you provide me with more information about the fund you are currently raising? 

Artur Banach: We want to invest in 30 great companies from the region. Poland will be something between 50% and 70% and the rest will be from the region. In the Fund I we have strong focus on early stage (pre-seed and seed). In the Movens Fund II we want to split our investment into two portfolios. One is early stage, half of money will be invested in that pre-seed and seed companies, and half of money will go to later stage (companies in Series A round and later stages) — it might be even like small growth equity. That structure let us return money to our investors much faster than in a typical early-stage VC.

Our target is the size of the fund, about €60 million. We expect to have first closing in H1 2024 — the goal seems to be realistic as we can observe much better dynamics in fundraising in comparison to beginning of the year. For sure, we want to retain our hands-on approach and the whole platform of solutions supporting the most ambitious founders.

The focus areas for our Fund II will also remain unchanged. We are actively looking for breakthrough companies in AI and Machine Learning. Also, software companies marketplaces are still very important for us. Although many markets are already covered, we can still see opportunity there. Additionally, we aim to become more active in climate tech. We see many promising or already successful startups in this space.

What about Ukraine? Will you target Ukrainian startups with founders and offices in Ukraine, or Ukrainian startups based in Poland? 

Yaroslav Krempovych: We admire Ukrainian founders, and would like to support them in global expansion. However, the elephant in the room is that the Ukrainian legal system is not suitable for establishing any kind of startup in its current form. The government knows that it will take around five years, or perhaps two very intensive years, to make the necessary changes. It will still take five to seven years for investors to trust the ecosystem. There are some solutions, namely Diia.City special economic zone, that provide partial solution. However, even Polish companies that raise global rounds often don’t stay in Poland. They usually either become London-based or Delaware-based.

Simply because western VCs know this jurisdiction, and from a tax perspective, it doesn’t matter much since companies tend to be unprofitable for a long period. I wouldn’t say that if somebody is located in Ukraine, this is really a barrier for us, but its case requires a deeper understanding of impact of such situation on further growth plans of company. Obviously, it would be great to have the peace in Ukraine and the much more stable situation, but our primary focus is founders and their capabilities. And I think it’s the most important. But also the truth is the majority of people are in Warsaw anyway. So it really doesn’t matter that much. 

And my last question. What are your thoughts on the new, quite popular area now, like defense tech and military tech?

Yaroslav Krempovych: As long as defense tech and military tech make sense commercially — if this is a dual use technology, it makes sense for us. However, most of the time, it’s connected to hardware, which we rarely invest in. If it’s related to software, mainly cybersecurity, it’s very interesting for us because anything applied by the government to protect against cyberattacks could also be applied by enterprises. So, it’s extremely interesting. We haven’t invested in cybersecurity yet, but we have considered several potential opportunities that we wanted to invest in.