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04 Februar 2021

Defining investment approach with RMEP Managing Partner Nicola Szekely

Nicola Szekely is a Managing Partner of Russmedia Equity Partners and, together with Eugen B. Russ, he is responsible for the digital investment business of Russmedia. 

Nicola started his career at Roland Berger Strategy Consultants where he focused on retail and first-generation e-commerce companies. After leaving the consulting industry he restructured large retail companies in Central and Eastern Europe. In 2013 he became CEO of Berlin-based start-up mysportgroup, pivoting the company from a flash-sales model to the largest marketplace for sporting goods in Europe. Eventually, Nicola led the company to a successful exit to Munich-based 21Sportsgroup in 2016.

Nicola loves different cultures and languages ​​as he has lived and worked in 11 countries.

How do you position RMEP as an investor?

 

Positioning yourself is always hard. First because our investment approach is quite different from other players on the market. Of course everyone buys and sells, but most players have a different purpose. There are many companies out there that are investing and even more looking for investors. What I can tell you is that we are not just going shopping. 

We are looking for partners with whom we can grow together. We are looking for, as we love to call them, “bootstrapping champions”: founders that set up their company with their own blood, sweat and tears and managed to create a sustainable, profitable business. Companies where the management team and the founders want to stay on board. We don’t just buy up and clean the house. If these entrepreneurs managed to grow their company from the ground up, for sure they are the most suitable people to continue the growth path of the company.

The companies in our portfolio are a network of experts in their field, when you become our partner you become part of this network, of this family, I dare say. We organize knowledge sharing sessions, we have open communication channels so a company from Romania can always consult with their peers from Germany or Hungary and discuss common challenges or even share resources. In fact these are just two out of the four main principles we are basing our model on. The other two are material equity participation, meaning we want our CEOs to have a significant stake in the business they run, and funding throughout market cycles. The latter has proved to be more important than ever in the past few months.

 

How would you describe your business model and where do you see yourself between a private equity and a venture capital?

 

Well it’s certainly not venture capital. We do not invest in early stage companies, but prefer sustainable digital businesses. Most of our companies are online marketplaces or SaaS businesses but our focus is on sustainable, profitable growth rather than on “hypergrowth-at-all-costs”.

We are certainly closer to the private equity model, but not purely like a PE fund in the traditional sense of the way. 

We invest our own money and we do it for the long run. Our purpose is not primarily exit-driven. As long as we think we are still the best owner for a company, we intend to hold on to it. Our structure and our terms are pretty straight forward and we feel it’s a win-win for both parties. We do not interfere with the existing culture or decision making process. Of course we are always looking to streamline some processes and optimize reporting for instance, but the core of the business stays the same. We develop a common plan together with the management team and we agree on some strategic goals, but these usually happen as early as the due diligence process. We then agree on some short term and long term goals, but again our common purpose is the same: to profitably grow the company.

So, to answer your question, it’s a hybrid model, closest to private equity I guess.

 

Why did you choose this approach?

 

I think our investment approach results – at least to some extent – from our own business experience. Both Eugen and I have run medium-sized online marketplaces that at some moment stopped growing super-fast.  

We managed to turn them into highly profitable, decently growing businesses, but then we made a surprising discovery: there are actually not a lot of buyers for this kind of company out there. Typical VC investors are not interested in companies that grow “only” by 20% p.a. And most PE funds don’t acquire business below 10 or 20m in revenue. 

So we said: Hey, here you have a company that generates 1 or 2 million in yearly cash flow and there are no buyers. That surely looks like a market inefficiency. And where there is a market inefficiency, money can be made. So that’s how we started investing in this type of companies and really we are very happy about it. As I lined out, multiples in our segment are very reasonable and it is actually really a lot of fun to work with the founders of these companies: bootstrappers are the real heroes of the digital economy and every single one of them has an incredible story to tell!

 

What kind of companies are you looking for?

 

Our focus is around online marketplaces, aggregators and SaaS solutions. We are a hands-off partner for entrepreneurs of successful digital companies.

We typically come in in one of three typical situations:

  • Bootstrappers: that spent years building a profitable business and now they are looking for a partner to internationalise, accelerate growth or simply sell some of their shares.
  • Companies switching from unsustainable growth to profitability: that have built a great business with considerable revenues and are even close to profitability already. VC investors are at the end of their holding period and need to exit, but the founders want to stay on board to turn the company into a profitable, cashflow yielding business.
  • Business angels or co-founders want to exit and they want to bring in a new entrepreneurial investor to take the business to the next level.

Our main focus is majority acquisitions of profitable (>€500k EBITDA) niche marketplaces and adjacent software businesses with more than €2m in revenues across Europe where we can add value and build a >€2m EBITDA business in three to five years.

 

What do you look for in a founder?

 

Expert in their field, hard working, honest, fun loving, innovative team leader. No bullshit kind of type. We clearly prefer experts in their field over super-seller types whose main expertise is fundraising. Our typical founder is more likely to be a nerd then a salesman.

It’s very hard to say really and it’s not like we have a checklist for everything, but aside from numbers, of course character and personal relations matter a lot. We are a very down-to-earth team that works hard, but also loves to have fun. 

 

What is your advice for founders in search of an investment?

 

Make your customer happy, not your investor. Happy customers lead to good numbers. Good numbers lead to many investors!

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