We belong to the category of fools: says investor Michal Tesař from NUAF

NEWTON investment offers start-up investment funds to help start a business. What is angel investing? 
And how does NUAF choose who to give up to 500Kč?

Investment at the start of a business is a crucial trigger, says Michal Tesař of NUAF.

At NEWTON, we pride ourselves on preparing students for real business. It starts with professionals in the field, who pass on their wealth of experiences as teachers. This leads to active and practical help launching fledgling businesses, including the initial investment. All you need is a good idea!

How does someone start a business at NEWTON University? 

We support our students with the NEWTON Business Accelerator, which is now accepting applications for its 4th year. Under the guidance of mentors, our students refine their business plan. If the idea has merit, it can receive an initial investment right on campus. This is a truly unique opportunity, right here in the Czech Republic.

This is thanks to NUAF's own investment fund - NEWTON University Angel Fund. The fund offers up to 500,000Kč in funding to budding entrepreneurs and can help with approaching other investors and raising more money for promising, more expansive projects. 

How does it work? And who has accessed the fund's money so far and with what results? This is not the only thing we discussed with Michal Tesař, founder and director of NUAF. He brings together courageous investors who put their money into the fund while looking for new investment opportunities and new talent.

Michal, you've been involved with NEWTON for a long time, what is your history together?

It's been a really long time. In 1996, 28 years ago, I started my internship at Newton Stock Investment as a student at the University of Economics. As far as the college itself is concerned, I've been a member of the Board of Trustees since its inception in 2004, although my role is rather passive. In the last two years, I have been more involved thanks to NUAF, which we founded together.

But NUAF is probably not your main activity or is it?

Definitely not. It is something that I really enjoy, but my main focus is elsewhere. I do investment advisory work–buying and selling companies, financing investments or companies, both locally and internationally. I've been doing that since 1999. Since 2006, I’ve worked together with David Brutek under the brand Newton management development. Another activity we have been doing for a long time is public infrastructure consulting. This means that for cities, regions, and the state administration, we help to efficiently prepare projects such as concessions, PPP projects, or public services that need new investment. 

What exactly do you mean by this?

We have helped with a multifunctional hall in Brno for about five billion crowns. We are helping there in various roles; finding the right contacts and collaborators for the whole project, setting up operations for the future, and securing financing. For Brno, we secured hybrid financing for half of the investment costs, over two billion crowns, so that it would not cause unnecessary debt for the city. Last year we signed a concession for the town of Valašské Meziříčí, which deals with the 35 year old lease of the old hospital and the construction of a new pavilion. So these are very complex and long-term projects. I would say that we have collaborated in some form in all the main segments of the public sector.

You're doing well, you have experience in many fields and areas. What led you to set up the NU Angel Fund? And why Angel in the first place?

Angel funds are the terminus technicus, they are funds that are invested at the very beginning when the future is uncertain but young companies need the most help. That's why they are called angels. Although, I like to say we're more like fools because the initial investment usually comes from only three possible sources - the so-called 3Fs - Family, Friends, or Fools. We are the last category, although we often become Friends in the process.

So an angel investor is actually the first investor in a start-up?

Yes, next to the founders. The beneficiaries of the investment are usually the founders who have an executive function. The angel investor is typically the one who precedes the moment when the so-called venture funds come in. They want the business to be up and running so that the company already has customers, revenue, and some billing. That's the stage that venture funds are interested in and that allows for larger investments.

NUAF will actually "hand-hold" startups to bigger money? The angel is really in place there.

Our role is to co-found the company with the founders. Or, if they've already started it, to help them at the earliest stages to get their business up and running to the point where they can approach other investors for additional capital. Through that successful start-up, of course, they will get more money for a good valuation, that is, for a smaller share. We are preparing them for the big investment world. Or, the company will stay happily in its smaller world and we will eventually leave.

What does such an investor exit look like?

It's called an exit, meaning a way for us to monetize our investment. There are many options. We can gradually release our stake to new investors, actually creating a buffer zone for the founders so that they are not diluted as much. Sometimes a third party comes in and wants to buy the whole company, but that's usually more like the music of the future. Most of the time, we give our stake back to the founders in the sense that they buy it back. To do this, we offer them options at the outset for the right to buy part of our stake at predefined price conditions.

As angel investors, what do you offer start-ups besides finance, or is it just money?

It's about money first and foremost, but we want to be partners. There's a lot that we offer, for example; valuable contacts, connections with the right people, advice and suggestions for solutions to current problems, and help with legal matters. We are happy to share our experiences. There is no need to repeat the same mistakes (as Professor Amy C. Edmondson would say). Of course, we are motivated to help to the best of our ability, because in doing so, we are also helping our investment to perform at its best.

How do you see the current global market? Is it opening up new opportunities for investors?

The market equals the world today, you are right. That is why we are part of the international network of Pandion partners, a group of 24 similar companies around the world. I am one of the three formal directors of Pandion, so our membership is quite intense. The largest number of members is in Europe, but we also have strong members in North and South America, India, China and other countries. We work together on global deals, helping each other with local knowledge. The world is getting smaller.

Do you enjoy what you do?

Yes definitely, I definitely enjoy it. But even so, I started to feel about 5 years ago that I was attracted to the segment of start-ups, young and dynamic businesses. We thought about what we could do with our consulting firm that makes business sense and helps burgeoning businesses at the same time. I had some of my personal experience as an angel investor, and I wanted to translate that into something active. That's how the connection with NEWTON University came about. My passive role on the board of trustees turned into a mentoring and investing role, and the NEWTON University Angel Fund was created. Together we support bright students, but also interesting projects from the outside.

Do you tell young entrepreneurs what they should spend your investment on?

Basically, they can spend it on whatever they want. There are no conditions like state aid, which has many rules, but they usually use it as they originally intended. They consult us - at least at the beginning - about the purpose. How they spend the investment is really up to them. So far, though, no one has gotten a car instead of a business.

The investment from NUAF can be up to half a million, it was 300.000 CZK at the beginning, is that really worth starting a successful business?

The amount of investment has a lot to do with the size of the fund. We are now at the stage where we have actually completed the pilot cycle and distributed the money from investors. It was, to some extent, a test run. With a smaller amount of money, we were able to see how it would all work out. However, in addition to that, we are starting to talk to new investors. It is a continuous activity, and in the next round we managed to raise about five million crowns from investors. So we can now invest more - the five hundred thousand mentioned above per project to maintain some basic diversification. 

So I can get a maximum of 500.000CZK from NUAF? Even if it's a very promising project?

Yes, it won't be more than that from NUAF, but if the project is really interesting, we will either get involved personally or help to find the necessary funding from other sources. It's the internal logic. Some projects naturally need more money, that happens quite often, because three hundred or five hundred thousand is not that much. It will help, but again you can't do completely big things with it. 

Do you have a specific example of a project that you have supported from several sides?

In one of the last TakeUp projects we invested in, we raised many times that amount. It was put together by NUAF investors with my own personal investment in it. We didn't go into it as individuals, but we formed a new company for the occasion, to create just one investor. This made the whole business much more transparent and there was no need to deal with each individual investor separately.  

The Take Up app is a project that has impressed you, isn't it?

We see a lot of potential in it. I believe the idea is something that will be successful both here and internationally. That means it has a really big development potential. It's an app that offers different activities and partners for them. It's a bit of a social network with an overlap into the real world. It's about people meeting people, and we liked that. What was also interesting, in this case, wasn't a start-up by NEWTON students, but an external project by experienced people my age. It appeals to the younger generation as well. The app has been very successful so far, which makes us very happy. 

And what's next for Take Up? I guess NUAF is not enough anymore?

Actually, we're already working on the next investment round, because a project like this needs more money. And you're right, that's not for NUAF anymore, that's a task for the venture investors that together we have been searching for.

What other projects have you supported with NUAF? Are you focused on technology?

Absolutely. We are open to all ideas. Technology plays a big role. That is why we have two apps in our portfolio. In addition to the aforementioned Take Up, there's Believer for believers. We have also supported NU students who founded Basefound, a company that produces luxury wireless chargers for the iPhone, and Bogroti, a company that produces men's cosmetics. We have also supported the AntsPark ant farm. As you can see, there are no limits to imagination. In addition, Basefound and Bogroti both came out of Margareta Křížová's NBA - NEWTON Business Accelerator that we selected at this year's DemoDay and are already in talks with two projects. I will reveal more next time.
If there are more interesting projects in the 4th year of the NBA, we will be happy to invest. We are also happy to invest in good ideas that arise outside NU.

Does it look like the NBA and NUAF complement each other well?

Yes, for me the first investments made are actually a confirmation that the accelerator and NUAF complement each other nicely; that the system builds on each other and it all makes sense together.

So it's not just for NEWTON students, anyone can apply?

Exactly, we at NUAF and Margareta with the accelerator are open and looking for projects all over the market. In addition, we try to work with regional grant centres. Those are our, I would say, probably our main channels where we scout and look for interesting projects.

The Believer app for believers sounds interesting as well. How does it work? 

It's an interesting project with an unusual target audience. I'm not part of it, I'm not a member of any church, so I probably won't use the app myself. Times are evolving and demanding change, even in conservative environments like the church. Young believers have their phones in their pockets all the time, they live on social media, and this one will be tailor-made for them. It's a cool idea. We’re excited to see where it goes.

What do you see as the main added value of NUAF?

Apart from the start-up money, it is definitely our support in that next transition phase. If further investment is needed as the company grows and shifts, we are there to advise and help with the legal side of things. In short, we protect our inexperienced entrepreneurs from the world of big investments. We want them to negotiate the best possible terms. At this level, it's a tough negotiation, which, unlike the founders, we have a lot of experience with. That's what we're offering them.

More on start-ups. What is the biggest difficulty in starting a business?

I think the hardest part is getting started. Seriously, the problem is usually getting into the market. It's hard even if you have a good product, even if it's great. The market is full, and unless you have something completely unique, breaking into it and getting customers is challenging. Ideally, of course, solving a big problem makes the journey easier. That's not to say that only start-ups that save the world have a chance. Of course, we are happy to invest in them. Endurance is also crucial. It's not easy to persevere at the beginning, to be unbreakable and push the project further. Many people have a good idea, but only a few can implement it and see it through to the end. And, of course, initial funding can be a hindrance at the beginning.

Is there anything you wouldn't do? What do you already know that just doesn't work?

Personally, I'm extremely open-minded, that's kind of my internal philosophy, and I try to instil that and keep it in NUAF, and that is what sets us apart. Staying outside of the box, I guess. It is always about whether there is the potential for us to make money back and make something along the way. Sometimes, it can be the most bizarre idea. AntsPark, for example, was a bit of an investment oddity that I didn't think anyone would go for. But we did. So, everything has a chance, if the numbers fit.

When will you have the next round of investment applications?

We originally announced the deadline for the submission of applications and the date of the decision, but we abandoned this relatively quickly and are actually processing applications continuously. We receive roughly one project a week. Of course, we also attend DecisionDay - the closing ceremony of the accelerator. This has a precise date, it is a mass presentation of successful projects. As far as I know, the application process for the next edition of the NBA is now open, so if you have a good idea, definitely don't hesitate. 

How do you see the future of NUAF?

For me, it would be ideal if we had ten new projects in a year. I would like the fund to run in yearly cycles so that people know about it and it can help as many good ideas come into the world as possible. We will still be the ones going for the big risks and uncertainty at the earliest stage of the business. That's why NUAF will never be a fund for every investor, but only for the brave. We will aim for the return of around 20%, and that is declared to them at the beginning.

Within NUAF you will come into contact with smart students. Are you also hunting for talent in their ranks for your company?

Good question. I'm always on the hunt for good associates for NUAF. This fund also offers an interesting internship for NU students. They learn the whole process of investing with us, taking care of our projects from A to Z, from investment to exit to sale. It is a great opportunity to learn about the reality of investing. For each cycle, I would like to recruit a new group of about 4 students, always locally, in Prague, Brno, and Bratislava. Let them be within reach and they can always try the whole cycle. I can't rule out that I will try to bring the most skilled ones to my company. 

What would you say to future entrepreneurs?

If you have an idea that you stand behind and have some level of passion for it, feel free to reach out, either to the fund directly or apply to the NBA. At the very least, see if you have a chance of success and maybe even get an initial investment.

And a final question. As a long-time contributor and observer, how do you see NEWTON's evolution over its 20 years of existence?

From the beginning, the emphasis has been on maximum quality. It was never a diploma mill that generated a big profit for someone. Here, on the contrary, it was a very long and slow investment and a search for the right school setup to make it unique in the market. It was important for the development to expand to Prague and later to Bratislava. I think NEWTON has an advantage with its focus on real business and I consider it the leading school of this type in our country. I see real results and skilled graduates.

Thank you for the interview.

All information about NUAF can be found here.