This is a bit I wrote for my book and when forced to cut from 1,000 pages to 600 to 200 this part was removed when we actually just cut out all the chapters on Europe and Israel, but I think it’s great for entrepreneurs, investors and bankers to understand – copycats.
“Good artists borrow, great artists steal.” – Pablo Picasso
Christian Saller is a textbook case of a German copycat executed nearly flawlessly. After three years working as a young investment manager at Target Partners, one of Germany’s premier VCs, he decided he could do better as an entrepreneur. He examined the deal market in the US and Europe and decided to make a copycat of Kayak, the travel search engine. In October of 2006 Christian founded Swoodoo, an exact replica of Kayak, but focused on the German speaking parts of Europe or “DACH”: Germany (Deutschland), Austria and Switzerland (Confederation Helvetic). Swoodoo and Kayak came along at a time when travel search was dominated by sleepy Travelocity and Expedia. These businesses make most of their money by helping the user find the cheapest flights, hotels and car rentals, then getting paid by the winning airline, hotel or car rental company for delivering a new customer. They are paid a bounty for lead generation from the travel company that wants the new customer. The trick is to develop the business so that the cost of bringing a user to the web site and complete a transaction is less than the amount of money generated from the transaction. Once that trick has been solved, it is a matter of scaling the model that works best.
Christian raised a seed angel round of $600k less than two months after founding the company. He built the product, recruited the team and made a plan focused on the DACH territory. In July of 2008, 14 months after closing the angel round, he closed a $2.4m Series A VC round with T-Venture Holding, the VC arm of Deutsche Telekom. Now he had the budget to begin an advertising campaign to bring users to the web site and transact. Just like Kayak, Swoodoo showed the user all of the low cost airline flights, not just those willing to pay the commission to Travelocity and Expedia. Like Kayak, the site had much cooler search criteria than Expedia. When a feature was added to Kayak Swoodoo’s developers added it to Swoodoo. After a bit of trial and error, they found that running ads on television in Zurich cost less than the money they made from these users’ transactions. That was it. They had a very valuable business up and running. Kayak was taking notice from their Connecticut, HQ. In May of 2010 Kayak announced the acquisition of Swoodoo for an undisclosed amount. Christian became the Managing Director of Swoodoo Europe and one of the most senior managers at Kayak. The team at Kayak HQ were not offended that an entrepreneur and investors in Germany teamed up to copy their business before they could execute there. In contrast, Kayak acquired the copycat and rather than go to a headhunter to recruit someone and build organically, they got a real entrepreneur that is well connected running Europe.
Christian stayed on at Kayak Europe for 2 years and 7 months, before joining Holtzbrinck Ventures as a partner, another top German VC firm I know well. This is also an example of how the European VC landscape is maturing to welcome in VCs with actual entrepreneurial experience – something that was missing in my early days of raising VC funding in Europe. I’d rather have a combat hardened entrepreneur-VC like Christian on my board with actual founder – entrepreneur experience than someone who came up in the ranks of high yield debt now running a VC fund peppered with worthless or negative McKinsey experience. When I speak to Christian about the deal, his only regret is that he sold too early. Had he pushed on for another two years without VC funding, or with more growth funding, he could have sold his company for five times more.
Swoodoo is a classic example of German venture-backed entrepreneurship. It also shows the clear investment opportunities for the angels and VCs backing these plays. I see these copycat models as attractive investments in any major non-US market so long as I can find a backable CEO like Christian. Peter Thiel, who is probably only chasing the next big multi-billion dollar exit, may not have wanted to invest and spend his time on the board of a company that sold to Kayak, but in my view Christian wasted no time hitting the big time with Swoodoo. He is still a young many with more companies to invest in and hopefully start.