Since Limburg Technology Investment Fund (LTIF) took a 20% stake in Genzai two years ago, I am more structurally monitoring the valuation of our participations, also since the portfolio has been growing quite fast. Regular early-stage VC investors typically calculate with an Internal Rate of Return (IRR) of 30% annually. Genzai is aiming to do significantly better.

The in-kind VC model that we are building with Genzai is quite unique. I have not seen other parties doing it this way. So I tried to visualize the Genzai VC fly-wheel in the below picture. Basically our model tries to lower the percentage of non-succesfull start-ups and tries to increase the valuation of the top start-ups. How do we do this?

LOWER PERCENTAGE OF NON-SUCCESFULL START-UPS
The Genzai ICT/AI team basically builds the critical ICT technology for the start-ups. This reduces the Technology / Product Risk because our team is pretty skilled in evaluating what is possible and what is not possible and we have all important skills in-house (and leverage the experience across the different teams).

Because our team works as an embedded team with the rest of the start-up team, we are more involved with the start-ups than traditional VC parties (or outsourced ICT providers). This means we can identify issues, risks, opportunities earlier and can advise the start-up to take measures, other directions etcetera.

Then there is the network effect, we are helping them get access to investors, partners and customers.

I think we can definitely get this 65% failure rate down to something like 20-30%.

INCREASING THE VALUATIONS
Genzai is focused on A.I.-driven start-ups that leverage the power of A.I. technology to build unique business models. All of our start-ups use A.I. really in the core of the company, not in some side-area of the business model. Real A.I. business models will have a valuation premium in the next 10 years (that is our investment hypothesis).

I support all start-ups in helping them fire up the power of their business models and business cases with the power of A.I. Usually this includes building in some form of lock-in, self-learning or other concepts which allows the start-up to build a sustainable competitive advantage and will create a sort of “natural” monopoly.

After Genzai has become a shareholder (because our initial in-kind investments have been converted into equity) we continue to operate as an embedded team but do this at very low pricing (cost-plus) so that it really does not matter that much whether resources are on the Genzai payroll or the start-up payroll. However, we also try to limit the number of Genzai resources on that start-up as well and we help the start-up recruit their own ICT team. Simply because we believe in our start-ups and can earn more money with the rising valuations than by invoicing hours.

Genzai is trying to disrupt the traditional early-stage VC model by taking a different approach.
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