Navivo increases the scale of its investments and launches a new fund

The Polish venture capital market has so far been sparse in terms of funds interested in more mature startups that generate recurring revenue and require capital to scale up their operations. This has created a gap between venture capital and private equity financing. Growing companies have had to seek capital abroad. In recent years, companies such as Cogito Capital, WEG, bValue, and Vinci have begun to fill this gap.

In 2023, the first Navivo fund, managed by Tomasz Danis and Marcin Borowiecki, was launched. Investors included Mariusz Książek, founder, CEO, and main shareholder of Marvipol Development, a company listed on the Warsaw Stock Exchange.

The first Navivo vehicle with a capitalization of over PLN 100 million has seven companies in its portfolio.

"We've spent less than half of the capital. We'll complete one or two more new transactions. We plan to allocate the remaining amount to follow-on investments. After that, we'll focus on exits," says Tomasz Danis.

The second fund, co-managed by Marcin Borowiecki and Tomasz Danis, currently has PLN 143 million at its disposal, including PLN 80 million from PFR Ventures and FENG (European Funds for Modern Economy). It plans to invest in eight to 10 companies. The final number will depend on the raising of additional capital (so-called second closing) within the next year.

"We want to invest larger sums and differentiate ourselves from seed funds that offer up to a million dollars. Our goal is to raise at least twice that amount in startup investments," emphasizes Tomasz Danis.

Marcin Borowiecki joined Navivo in 2023. Previously, he was the head of the US branch of the online booking platform Booksy and the CEO of the Polish branch of the fintech lender Wonga. Tomasz Danis and Marcin Borowiecki have known each other for 23 years, dating back to their time as analysts at McKinsey. Their paths later crossed again while working in the US.

"Over the past 20 years, despite infrequent meetings, we've kept in touch and followed each other's career paths. This partnership bridges two worlds. Marcin has the soul of an entrepreneur, not just a manager. He understands the needs of founders. After 10 years at McKinsey and another dozen years in investments, I bring experience in business model analysis and investment exits," says Tomasz Danis.

What is the strategy of the second Navivo Capital Poland fund? It doesn't differ significantly from the first fund. They differ geographically. The first fund finds it easier to invest in foreign companies because it has private capital and isn't limited by administrative requirements. The PFR Koffi program, which distributes funds to the second vehicle, specifies that 85% of the budget will go to Polish entities.

Companies that Navivo is interested in should have global potential. This isn't about expansion into neighboring markets, but rather the ability to build a stable business that can operate independently in different market conditions. Navivo's management intends to support companies in their expansion, and given Marcin Borowiecki's extensive experience in this field, they are looking at the United States.

"We're interested in companies with annual revenues of at least PLN 10 million, or approximately PLN 800,000 per month. This is the minimum required for high margins exceeding 50 percent. In the case of lower-margin business models, such as a marketplace with a 10 percent commission on GMV [Gross Merchandise Value, i.e., the total value of goods sold - ed.], the required turnover should be correspondingly higher. The company doesn't need to have a positive EBITDA, but it should be close to the break-even point," emphasizes Tomasz Danis.

Although fund managers are already analyzing potential companies for investment, actual decisions can only be made after the formalities related to fund registration are completed. Tomasz Danis points out the dynamically changing market, where the list of potential investments quickly becomes outdated.

Investors often ask to see a pipeline, a portfolio of projects. The problem is that six months after I present it, it's largely outdated. Companies that were supposed to secure financing have already done so. I no longer want to invest in those that failed. If other investors reviewed them and rejected them, there must have been a reason," says Tomasz Danis.

In terms of investment, Navivo plans to initially invest PLN 8-10 million in individual companies and then add PLN 10-15 million to the best ones. The managers aren't limiting themselves to any specific industry, but see particular potential in medicine, robotics, and cybersecurity. According to the fund managers, strict regulations in Europe create a natural barrier to entry for non-EU companies, giving local players an advantage.

There are also areas that Navivo is not interested in.

"We employ negative selection. We don't invest in binary ventures, meaning they create a single product, such as a company working on a single drug or a studio developing a single game. We also reject businesses that rely on repetitive human labor in their core operations. Such solutions are difficult to scale," explains Tomasz Danis.

Tomasz Danis is a proponent of co-investment. He points out that there are so many risks in the venture capital industry that it's better to share them with other funds.

- It's not just about money, but also about competences and a network of contacts - he emphasizes.

He's also considering participating in investments that venture capital funds rarely engage in due to the size of the investment. By forming a consortium, he sees scope for Navivo in a segment typically targeted by private equity funds. In such a scenario, Navivo places greater emphasis on profitability. The company doesn't need to be profitable, but it must have full control over its finances.

The industry is more likely to talk about new financing rounds than spectacular exits. According to Navivo's manager, the wave of exits will arrive in two or three years.

"The market needed time to build portfolios. However, looking broadly at the Polish ecosystem, I already see several companies ready for exit. Personally, I would have sold some of them long ago," notes Tomasz Danis.

He emphasizes that some funds, especially those investing in the earliest stages, fall into a trap. They rely on one of the twenty to thirty companies in their portfolio to repay the entire invested capital and hold off on selling, even though valuations are no higher today than they were a few years ago.