Babbel investor Kizoo: “In business, at the end of the day, you have to trust each other”
Babbel Blog’s Interview with Frank Schüler und Matthias Hornberger of Kizoo, a Babbel investor. Schüler is Kizoo’s president and was managing director of subsidiaries of Web.de; Hornberger is Kizoo’s CFO and responsible for Finance, Controlling, Investor Relations & Corporate Affairs. (For the original German version click here)
When did you first hear about the “internet”?
In business terms it was around 1995. We probably all figured out what roll the internet was going to play at the university. For me personally, in ’91 and ’92, it was a communication tool between universities. I myself was in New York then, and at the time the internet was already an important communication tool with people back home.
For me it was in the second half of the 90s. It was already in the professional world as a communiation tool, though I only realized much later its range of possibilities in an information-based world and in applications. The Greve brothers, the founders of web.de, recognized this potential in the first half of the 90s, focusing their young business on this 100% and staking their first claims. Those were domains like web.de, flug.de, lastminute.de. In those years of entrepreneurial acitivity, sustainable business models were built on those. Web 1.0, as you would say today.
After selling web.de in 2005, you tried to establish ComBOTS as a kind of messenger web application – why didn’t it work out?
It was a very aggressive attempt to newly define communication, to provide a completely new communication experience for the user. As was evident, the user – and in the end the customer is king – didn’t accept it in this way or didn’t depend on it so much. It’s hard to say if we just came up with it too early or if our approach was wrong in some aspects. In any case one has to admit the product didn’t pick up as much momentum as we had hoped.
We stressed privacy a lot. You could safely exchange data – communication data but also multi-media data – on a one-to-one basis. In reality, without even thinking about privacy, users uploaded very compromising pictures to their social networks. They didn’t consider privacy important at all.
After ComBOTS ended in 2007, Kizoo – Technology Ventures – was founded in May 2008. How did you find Babbel?
Amazingly Babbel was a cold call – in May 2008 Mr. Heine came right in to our Investor Relations Department: “You do investments – we have a good story”. We did all the talking really quickly and made the thing happen together with the IBB Beteiligungsgesellschaft Berlin as a co-investor. Contact to transaction occurred in less than two months. That is an extremely short amount of time for a venture capital project like this.
What convinced you?
First at all, the team. We believe that that’s what matters most: Better a brilliant team with a maybe not so seasoned project than the other way around. Second: The business model, especially the market segment that Babbel chose, because it”s flexible, internationalization is possible and it is very oriented toward the future. Learning languages is a universal subject and steadily gaining importance. It is a human necessity. In internet jargon it’s „sticky” – long lasting.
The core team at Babbel came from the Berlin-based music software producer Native Instruments – did that influence your decision?
Native Instruments wasn’t really important to us per se, rather the team’s experience with it, since it gave them their first entrepreneurial responsibiliy. You could see it in how they presented themselves: Very authentic and very professional
All questions were answered very precisely, they delivered every time. They had good “expectation management”: They never built up expectations that they couldn’t follow through on. At the end of the day, in business relations you have to trust each other, and this trust occurs in the first talks. From a professional perspective it fit, but we had good chemistry, too.
How many users do you expect to pay a „premium service” at Babbel?
Basically it doesn’t matter so much. More important is that the the core idea be commercialized. When you think of phrasebooks, language courses or language tours that people feel natural about paying for, it seems normal enough for us.
But are users willing to spend money for internet services?
Unlinke e-mail-services or access to information, professional language learning has always been paid for. Since school it is normal to pay for it; you pay hundreds of Euros for a pack of CDs from Langenscheid (German dictionary) – we believe that this is what’s going to make it easier to implement paid services.
In the end we rely on our own experience. We generated growth with a free service, the freemail product Web.de. We later introduced a members’ product and everybody asked, why would anyone pay for this? In the end we found many people who were willing to and are still glad to pay for it. The crucial thing is for the basic concept to be able to grow on an international basis, to get to big numbers. Then a small percentage chosing premium service is enough. And that is what we expect of Babbel.
Does such a model only work in the educational sector?
Babbel’s approach: oriented around entertainement, with a huge fun-factor, a lot of multimedia with pictures and audio – this approach works in other learning and education sectors. In this respect the model is flexible enough to expand to other content – Babbel’s technical know-how was a strong argument for our investment.
What kind of investment opportunities is Kizoo looking for?
There are still interesting segments of the internet. Even with Google – search is still interesting, games are an exiting field, and learning, beyond languages, is even another subject. Communities are on the downward slope, the market is saturated and the ad-based business model can’t sustain itself. But we hope to see ideas that no one’s thought of yet, particularly in mobile applications. Even Google and Amazon were rejected by investors in their early stages. We don’t want to have a similar missed opportunity in ten years, that is why we have to look a lot and closely…
What is the impact of the economic crisis on internet investments?
For the start-up phase it doesn’t mean that much, because turnover and credit financing are at more or less zero. But it has an impact on the venture capital market. Money that was slated for certain things isn’t there. On a whole the psychology is quite defensive at the moment. But compared to the housing market or the auto industry, the internet investment sector as a risk is negligible: Web 2.0 doesn’t need a public safety net. There will be good deals in 2009. But exits will certainly be harder.
Last question: Are you learning any languages?
I am learning Spanish at Babbel.
I am learning the language that is least learned at Babbel: Italian. I love the dramatic sound of the language, but I haven’t gotten far yet. But Babbel motivates me regularly via email.