This Will Prove to Be a Good Entry Point Afterwards
"This Will Prove to Be a Good Entry Point Afterwards"
Article De Tijd - 28/12/2023
Ten years ago, Duco Sickinghe and his wingman, Renaat Berckmoes, walked out the door at Telenet. With Fortino, they set out to hunt for the billion-dollar companies of the future, and in the meantime, they manage nearly a billion in assets themselves. "Our profession mainly involves asking the right questions."
"Sickinghe and Berckmoes started their own company," announced De Tijd in June 2013 about the establishment of Fortino. Former Telenet CEO Duco Sickinghe was joined a few months after leaving the telecommunications company by his CFO Renaat Berckmoes. "With Fortino, Italian for 'small fort,' they aim to guide young entrepreneurs, with a focus on the technological sector and SMEs in a transitional phase," the newspaper reported at the time. More than ten years later, the Small Fort has become a sturdy fortress in the Belgian investment landscape. Fortino recently raised just short of 400 million euros for its second private equity fund, bringing the total raised capital to over 800 million euros after ten years. With plans for a third venture capital fund, the billion Euro milestone is within reach.
Libero
Sickinghe recently handed over the leadership of the investment company to Berckmoes but does not disappear from the scene as he will continue as executive chairman. "It's good for Fortino that someone else does it for a change. But I will continue to chair the investment committees and coach the younger partners because they are the foundation of Fortino’s future. And I will continue to act as a libero visiting our companies. Thanks to my free role, even those entrepreneurs can now sit very relaxed in front of me." The entrepreneurs Sickinghe refers to are the founders and/or CEOs of the companies in which Fortino has invested. "That target group will remain the same in the coming years," say Sickinghe and Berckmoes: "We invest in software companies that offer mission-critical solutions, essential for the smooth operation of businesses. Not nice-to-have, but need-to-have software. Our biggest concern is that customers replace our software with that of a competitor, not that they completely disable the software. Because then such a company simply stops functioning." The market for business software attracts many investors, but according to Sickinghe, Fortino makes a difference with an extensive and specialized team. He also emphasizes the importance of a good reputation as an investor multiple times. "You can't put such a reputation in a marketing message. You build it up, and entrepreneurs pass it on to each other: At CVC (the private equity group where Sickinghe is an advisor, red.), I learned that you should never go back on a non-binding offer you made to an entrepreneur. Because your reputation starts with that first letter. You don't come back later negotiating like a carpet dealer. So, I thought: what if we personally hand over that first letter instead of sending an email. Then that person will at least open it to see what's inside, and we'll immediately see from their body language whether we're on or off track. We've done that a few times, yes. Nowadays, there's no time for such things anymore. But because we built Fortino from scratch, we have developed a framework of values and norms that allow us to know if someone is a Fortino person."
And what is that, a Fortino person?
Renaat Berckmoes: "Someone who strives to be a top professional, who is honest and keeps his/her word, someone who also runs for their colleagues and the team. And we adhere to the principle that good news travels fast, bad news should travel even faster. Bad news should come up faster than good news because then you can react much faster. That also means trusting people and not punishing them for every mistake."
‘"When I announced my departure from Telenet, everyone thought Fortino was a kind of temporary hostel until I would have become a CEO somewhere else again," says Duco Sickinghe, Executive Chairman, Fortino.
How did the Fortino story actually begin?
Berckmoes: "Our very first office was Duco's kitchen. That's where we also signed our first deal, Zentrick, at the kitchen table. We then started with four people in a way too large office in Zaventem. In hindsight, we underestimated the mobility issue. People came less and less to Zaventem because it's so difficult to reach by car, especially from the Netherlands. That's why we moved to Berchem, near the high-speed train stop to Amsterdam and Paris."
Duco Sickinghe: "When I announced my departure from Telenet at a press conference, everyone thought Fortino was a kind of temporary hostel until I became CEO somewhere else again. Even when I started at Telenet, everyone thought that: He has come up with something fun to keep himself busy. We'll see! That's how I learned that prizes are only awarded at the finish line. Many underestimated that we had a vision as investment managers, that we wanted to make other people successful. That is a very different profession than being a manager yourself. Our profession mainly involves asking questions. If we tell an entrepreneur what we think, he or she stops listening after two minutes. But by asking the right questions, that entrepreneur will come to the same observation we have made. It's like steering a truck with a trailer backward: you have to think very carefully about how you turn that wheel!"
What do entrepreneurs mainly need help with?
Sickinghe: "With building successful teams and a successful company culture. They have control of everything from the beginning but need to let go as they grow. And that's never easy. I was just at a software company this morning, and we talked about it endlessly. That entrepreneur asked how he would attract his first top performer. My answer was that you have to work with the best head hunter. Because if you work with an A-head hunter, you hire an A-profile. We always say: top performers recruit top performers. What we also often see is that an entrepreneur wants to poach a manager from one of the big players, like Google or Microsoft. But they forget that those people may owe their success to the fact that they have that big company behind them. You're better off attracting people who are not dependent on the luxury and comfort of those big clubs. You often have more to gain from people who haven't proven themselves yet but have good intrinsic motivation."
What would you do differently today if you were to start over?
Berckmoes: "Not all our companies have done equally well, you know. We would now ask the difficult questions more quickly. Sometimes we waited too long to hold up a mirror to entrepreneurs!"
Sickinghe: "That also has a reason. When you are just on board with an entrepreneur, you have respect for that person; you have to understand him or her first before you are understood or can form an opinion. As an investor, you are consciously incompetent: very aware of all the things you don't know. And that is still the case. Take artificial intelligence (AI). If we were to explain here that we know how to deal with it, that wouldn't be very credible. But we are working hard on it, trying to master it in every way, to bring that knowledge to the companies as quickly as possible."
Speaking of AI, how will that technology affect your own business?
Sickinghe: "Very strongly. A big part of our job is selecting the right parties. For this, we often gather information manually - by networking and attending conferences. With AI, that selection can be much faster. You can follow more startups, and you get the signal much faster that certain companies are worth a deeper analysis?"
Berckmoes: "With an AI tool, we now follow about 4,000 software companies in our core markets. We try to build a sustainable relationship with 300 to 400 of them every year. That AI model is continuously adjusted. It contains a large number of parameters, some of which are publicly available, such as hires or website traffic. But you still have to establish contact with that company yourself. AI also makes it possible to develop software faster and cheaper. That is a good thing for the profitability of software companies. The downside is that the barrier for newcomers becomes lower, but it was already low in the software sector."
The macroeconomic situation has changed drastically in recent years. What impact does that have on Fortino?
Berckmoes: "The macroeconomic context has not changed dramatically for the type of companies we invest in. Our companies grew as fast or even faster in the past two years than before. Furthermore, we are not very interest-sensitive because we work with very little debt - the average debt level of our private equity companies is about half the EBITDA (gross operating profit). Valuations on the stock market have dropped dramatically, but on the private venture capital market, valuations were never so high and have not dropped so low. I think 2023 and 2024 will prove to be good entry points in hindsight, at the beginning of an upward cycle with AI as the new driver. An advantage of the current market conditions is also that the time pressure has decreased. We have experienced getting 24 hours to submit a term sheet (a document with the key details of a deal, red.). That time is over. Financing rounds now take much longer, and everyone takes the time to get to know the founders and their teams. And that is important. It's like in a marriage: once you're in the capital of the company, it's very expensive and painful to get out."
Do you still have many future champions in the pipeline?
Sickinghe: "Less than two years ago. In the past, a mediocre company could still raise money, but now that's reserved for the top. The top still gets good valuations, even in the early stage. Even before we invest, in the seed capital phase, we are sometimes surprised by what is being put on the table. So, we still have hope in the early startup market. For companies that constantly go from one funding round to the next, the elasticity is somewhat gone. You now have to show significant progress in revenue or product development in every round. And don't forget that in the software world, the big players have time on their side. Sometimes we talk to entrepreneurs who say they will make a difference in a market that the big companies are neglecting. But those big players can decide after three years that they will develop something, and then they can still crush you. As a software company, you really have to offer a good added value to compete with the established order. Sometimes we have to sell companies too early because a strategic buyer comes along, and the management wants to cash in. Sigma Conso was a good example of that. Initially, it was an ugly duckling, which several investment companies had turned their noses up at. They then visited us twice, and after much hesitation, we went for it. The CEO did incredibly well, but not even a year later, a Canadian acquirer showed up, willing to put the top price on the table immediately. We wanted to wait for another 2 or 3 years, but then the Canadians threatened to buy another company, and we might miss the connection. Also, with Ghent-based Ogton, we were kicked out after a few months, much too fast for our liking. You just don't always have everything under control."
Fortino
Fortino Capital is active in both private equity (non-listed companies with value potential) and venture capital (young companies with growth potential), with a focus on business software. The investor is on board in our country with expense platform Mobilexpense, IT company Vanroey, hr-tech company Techwolf, and blockchain specialist Venly. Fortino has already realized 22 exits, including the Ghent-based Teamleader and the big data company Trendminer.
The Fortino team consists of 35 people in offices in Antwerp (Berchem), Amsterdam, and Munich. The portfolio of 655 million euros is mainly invested in the Benelux, France, and Germany, but the team can, in principle, invest throughout Europe.
Duco Sickinghe was CEO of Telenet from 2001 to 2013. In the 1990s, he worked at HP and at NeXT Computer, where he collaborated with Apple founder Steve Jobs for a while.
Renaat Berckmoes held various financial positions at Telenet under Sickinghe, including CFO from 2006 to 2013. He is or was a director at various organizations in the investment world.