A conversation about scaling and timing?
Venture capital is a crucial driver of technological innovation – but how can we identify the truly big ideas and the founders who can revolutionize markets?
I discuss this with Axel Bichara, Co-Founder and General Partner at Baukunst, a $100 million venture capital fund based in Boston. He moved to Boston from Germany many years ago.
Axel is a successful entrepreneur in his own right and was the first investor in Solidworks. Not only did he invest in Solidworks, but he also brought the founders together. He has achieved great success in the engineering software field, but today he invests more broadly and is more of a generalist in the tech sector.
Axel shares exciting insights into his strategy and explains why the right mix of focus, courage, and capital efficiency is key to success.
Stefan: VC funds help shape our future by providing funding to founders’ ideas. The way in which ingenuity, technology, and business interact seems to have changed significantly in recent years.
You describe yourselves as agnostic tech and engineering investors – does that mean you are a specialized or more generalist fund?
Axel: My specialization lies in finding founders with extremely high potential in attractive, often new markets, where companies can be built with billion-dollar valuations. The best ideas often arise at the intersection of markets, new technologies, and business models. The more open you are to new things, the greater the chance of discovering truly interesting opportunities. Of course, you need to be able to assess the potential, which is why I always find interesting companies in engineering software, but often through indirect paths. For example, we’ve made several investments in the food sector and discovered a founder who is developing modern manufacturing software for food.
The specialization I truly believe in is focusing clearly on supporting founders in the very early stages, the pre-seed phase. When you’re in a big fund with billions of dollars, like I used to be, you can’t focus on startups that need only small sums in the range of $1 or $5 million. That’s the best opportunity in VC, but the large firms no longer pursue it. To be successful in pre-seed, you must know what you’re doing, think big, but also act very intelligently and capital-efficiently.
Stefan: Did you start Baukunst with this vision?
Axel: Yes, we are pre-seed lead tech investors and are almost always the first investors in our startups. More than half of the companies we’ve funded were incorporated after our commitment. We help lay the foundation of the company so that it has maximum potential. We are the lead investor and lead board member in the first few years of the company’s life, but gradually pass on the leadership role to follow-on investors over the years, while staying invested for the biggest possible exit. This strategy allows us to make more investments per partner because we don’t stay on the boards for ten or more years.
Stefan: What does this support look like in practice?
Axel: The most important thing is building the team correctly. Then, we work with the founders to achieve product-market fit with as little capital as possible. It also helps to approach product-market fit and business model proof separately, because both are usually too complicated to tackle at the same time in the early phase of a company. Capital efficiency is crucial to landing in a position of strength for the next funding round. We also have the internal saying, “Every company becomes an execution play eventually,” meaning you have to manage companies very well over many years to build something big. This mindset and discipline in solid company building is something we instill in our companies from the start.
Stefan: With your extensive competence and experience in the entire engineering field, you provide a very high operational value to companies in their early stages. Your founders appreciate this in comparison to VCs who only provide money. However, you continue to work with the usual VC risk profile in the tech industry. A large percentage of founders, despite your support, won’t make it. Your investors and you make money with the 40-50% of companies that succeed, and some of them may even reach billion-dollar valuations.
Axel: The value creation in tech comes from the best companies winning in their markets. Our job is to build winners. That’s where returns for investors and jobs come from. There are so many risks that even if you’re very good, you can’t eliminate them all. That’s why we only invest when we see more than a billion-dollar upside and focus on achieving that. It’s always about the upside, not protecting the downside.
Stefan: Doesn’t that ultimately also mean exiting early from startups where you’ve achieved technology fit, but where market fit doesn’t promise scalability?
Axel: Yes, if the upside isn’t there, both founders and investors should consider exiting. Sometimes it just takes longer for markets to mature. In such cases, you need to be capital-efficient and make good decisions on whether to continue or not.
Stefan: Is it a logical step for VCs to get more involved in the venture builder and company building model?
Axel: If venture builders mean that VCs build the companies themselves, my answer is clearly no. It’s about helping founders build something big over ten years. That means founders working around the clock for ten years and doing everything they can to succeed – the entrepreneurial drive. Without this spirit, there’s no success. We would never invest without a very good founder. Perhaps an analogy: Roger Federer is a great tennis player with very good coaches. We are the coaches, but you shouldn’t send us out on the court.
Stefan: In Germany, we often complain that we lack the big US VC funds with well-known names. Is that really the core problem? Or don’t your descriptions suggest that we have too simple a view of the challenges in the VC field in Germany? According to your thesis, what we really need are very experienced investors for the seed phase who act as good coaches for the VC founders and teams.
And then later, the large VCs capable of deploying over $200 or even $500 million to achieve real scaling. Both are VC, but you need clearer segmentation and greater maturity of the market participants, both among the founders and in the VC industry. What’s your perspective?
Axel: There are very good investors in Germany and virtually unlimited global capital that would certainly be happy to invest in Germany. I don’t believe there’s a capital problem when it comes to scaling in Germany. If anything, the problem is that there aren’t enough VC investors who truly have the experience to build companies in the early stages, or that such investors are in competition with less experienced ones. We have the same problem in the US – a group of angels and less experienced investors can be like a group of coaches telling Roger Federer very different things to do, which ends up confusing the founders rather than helping them.
Stefan: We’re doing a lot for startups in Germany. The number of founders is increasing. We put founders on stage and give them the spotlight, even if their companies haven’t had real success yet. But in almost all cases, these don’t turn into real success stories with big names. In society, entrepreneurs who truly want to achieve performance and big success need to justify their drive.
Axel: The US has a clear and significant societal advantage: starting companies, taking risks, making money – these things are widely recognized and seen as positive. There’s no envy, just recognition when you succeed. At universities like MIT, where I started my first company, it was already expected decades ago that if you’re good, you’ll become a founder. Germany has improved significantly, but it can become even more entrepreneurial and success-driven.
Stefan: Let’s turn to technology: Will the venture capital industry change due to AI? Or is AI just another new technology like the internet, which doesn’t really affect the operating model of founding and scaling companies?
Axel: AI will, like the internet, smartphones, or cloud computing, lead to an evolution in the architecture of companies and products. Every tech company will be an AI company, just like every tech company today is an internet or mobile company. Many new areas will certainly emerge where AI enables entirely new business models, and we want to build those companies. New business models are much more interesting to us than new technologies. A classic example is Uber: The iPhone had nothing to do with taxis, but it opened up the possibility of restructuring the taxi business.
Stefan: You’ve been dealing with creativity, design, product development, and manufacturing since the beginning of your career. How do you see the future of product development for physical products, considering the increasing dominance of software and the decline of globalization? What impact will the new possibilities of robotics and AI have on automation technology and the production of physical goods?
Axel: We see design and user experience as the most important components of new products, both in the consumer and B2B sectors. When building a new company, the products must excite customers. The user experience starts as soon as you land on the company’s website or see them on Instagram. In that sense, practically every company today is also a software company. Furthermore, software is the logical platform for customer retention over time. Additionally, the completely different customer behavior of new generations must be driven more and more by software.
There will also be enormous improvements in product development software through AI. It still takes months for engineers to become productive with today’s design software.
In manufacturing, onshoring is an important trend, but it takes time to replace outsourced know-how. The upheavals in the supply chain present an opportunity for new companies and can accelerate product development and manufacturing. An example is circuit board manufacturing in the US. If you have a factory with modern technology and high quality nearby, you can get your electronics to market faster than if you have to wait for plates from China or Taiwan. One of our companies is developing such a modern, software-driven factory in the US.
There has been enormous progress in robotics. It’s now very easy to build modern automation solutions cost-effectively and quickly with platforms like Vention, and to integrate robots as well. For robots that act independently, like configuring themselves and working together with other robots, AI still needs to develop a bit further. We’ll see a lot of progress in the next few years.
A comment on humanoid robots: Unlike many others, I believe that humanoids with legs and five fingers per hand aren’t sensible for many applications because a robot with so many degrees of freedom is simply too expensive. We will see robot kits here that will be configured depending on the task, with the greatest value being in the software.
Stefan: What areas of manufacturing, robotics, automation, planning, and design of products and services should founders and investors focus on? Where are the markets, opportunities, and possibilities? Will AI be a key driver?
Axel: There are many companies with billion-dollar potential in these areas because so much is changing. I would look for new business models rather than optimizing existing ones.
I’m very interested in companies that integrate design and manufacturing.
There is enormous inefficiency in product development, collaboration, supply chains, and manufacturing. AI can open up entirely new possibilities because it can handle more instructive and distributed data.
But the essential innovation is how all the well-known themes are now re-integrating processually. The new potential through AI and robotics lies in smaller quantities, higher specialization, deeper integration, and especially much higher speed in development and time-to-market compared to before.
Stefan: How can established companies prepare for and adapt to this future?
Axel: In all areas, design, user experience, and software must be in the foreground, both externally and internally, and, of course, with the use of AI. This direction must come from company leadership and be open to significant changes in products and business models. Some established companies can certainly manage this, but it requires a deep new understanding of all the connecting processes.
The speed is simply increasing. And, of course, I’m primarily focused on new companies that you can build properly from the ground up to conquer the world.
Stefan: Thanks, Axel, for the fascinating conversation! I’m sure we’ll hear about some of the next big tech success stories from you.
Venture capital thrives on bold founders – and investors who are willing to provide real support in the riskiest phase. If you want to make an impact, you have to get in early, think proactively, and get your hands dirty.
