E406 | Apostolos Apostolakis, VentureFriends: Blueground's journey - from early investments to a global unicorn

0:00Welcome to the special episode of the EUVC podcast where we're looking behind the curtains of a European unicorn. Blueground. Blueground was minted the European unicorn in March this year, 2024. And today we're having Apostolos from Venture Friends, one of the early backers, if not the first backer of Blueground, with us to share the story behind that company. Here's a few words from our beloved sponsor. Discover where operational expertise meets innovation. With end-to-end coverage across fund admin, tax, accounting, compliance, ESG, and more, We take care of the complexities so you can focus on what matters most.

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0:56Tear down this wall. It's more than just an ally. This is a union of values. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. So today we have actually a repeat offender to the podcast. It's been a while. We've done almost 400 episodes. So sometimes I almost forget when the recordings were, which is the case. But I think it was probably in 22 or something like that. I don't know. We have a repeat offender with us. Apostles Apostolakis, founding partner of Venture Friends. To those that don't know, Venture Friends has roughly 170 million euros in AUM.

1:42They're now deploying out of Fund 3. I think Fund 4 is coming soon just because I'm looking at the timeline. To those that don't know, Venture Friends is focused on pre-seed and seed in Europe, UK, and Middle East. They have offices in London, Barcelona, Warsaw, and beautiful Athens, which is one of my favorite cities in Europe, as many may know. And they're focused on B2B and B2C software and fintech being something they also care a lot about. Notable investments are Blueground, Husby, Instashop, Carmoola, Flexcar, MBAT, Harbor Lab, Spotterwheel, AgroClub, and Barty. Apostolos, how are you? I'm very well.

2:19And thank you for having me again, David. Again, exactly. So today we have a weird different episode. It's not the type of episode we normally do. And I want to start by saying kudos to you for kind of accepting the challenge of experimenting with us on the content, which is always, it's always like incredibly welcome by us. So to those listening in, we today are doing this kind of different approach where we're going to talk about a European unicorn. And guess why Apostolos is here? Because he invested in that company. So we're here to talk about Blueground. Apostolos, do you want to start off by just giving us kind of a quick rundown of what is Blueground for those that don't know.

3:02So Blueground is a full stack operator in PropTech, meaning they offer apartments, fully furnished apartments for booking of one month plus. So for medium term stay in 30 cities globally. So the difference is that they are actually renting those apartments. They're taking care of their aesthetic improvement. They're also taking care of adding furniture. And then they allow people to book them for one month up to one year. Yeah. And let's go back memory lane here. When did you first meet the company? So we met in 2015. It was one of the first companies we met with. During the time we were launching Venture Friends, actually, because Venture Friends was officially launched in 2016.

3:52Yeah. Okay. And so help me here. So Blueground was minted. It was already going, actually. It was already going. That's an interesting story. It's one of those stories that really shows you the passion of the founder and his willingness to get going even without getting venture capital funding, which is obviously a great start. Alex was already working at Samsung, and he had started Blueground with his own capital. and some co-founders, some friends of his who were based in Athens. He was traveling between Korea and Athens while on parallel had set up Blueground, had furnished some apartments in Athens and had started subletting them and had already the proof that this was working.

4:41He has a couple of hundreds of apartments actually in Greece. And at some point he realized that this can be pretty huge. So I guess a common friend introduced us, a common acquaintance said, okay, why don't you have a chat? And that's when I saw the deck and I visited them in their office at the time in the north of Athens, in a residential building. And we had the first discussion. Yeah, yeah. And so for those that don't know, Blueground was considered, and I'm referring to public data, was considered a unicorn in March this year, 2024. Most recent valuation, according to public data,$1 billion.

5:25So it's been a ride. It's been a ride and certainly not a smooth one. But yeah, Blueground raised in this difficult year for the markets, for funding, raised the round at that valuation. So there is a$40 million round to get us to profitability. So yes, this valuation is pretty accurate. So you said a common acquaintance introduced to you. You guys met. Blueground had some activity already in Athens. You guys met in the north of Athens. Share some more details. How was that? Take us through that experience as if we were watching a documentary. I mean, you know, it's not often that you get very excited about a business and about the founder and everything.

6:18And on my side, it was really, I would dare to say, like love at first sight. So it was a founder who was very articulate, very thoughtful, had amazing passion and, you know, the desire to build something huge and impactful. who, together with the business model, had totally made sense. The founder had lived the problem himself. So he had been a consultant and working for a company based in Korea. He had to travel a lot and spend a couple of months in cities. And he didn't want to be staying at hotels all the time. He wanted the coziness of a house, but it's very hard, as we can imagine, to find a place and rent it out for a few months.

7:02So that was the gap that was identified. and he acted on that aha moment, created the similar service in Athens, started renting out some places and then offering them to the market for medium-term stay. Yeah. So personal story here to segue the next question. Last year, we were about to move to this house where I'm doing this recording now. This is the new house that we did, you know, some remodulation and we get to this house on the 22nd of December. My wife, super excited about first Christmas in the new house, right? And we walk in and guess what? The constructions weren't ended. We still didn't have a bunch of very, very basic stuff.

7:43So here we are. We drove for two hours from our old house, which wasn't in Lisbon. We get here. The house isn't ready. Three days to Christmas. What the hell do you do? Fun, funny thing. So this was in December last year, right? I actually went on Airbnb and I found a really cozy and nice place. where we actually ended up spending Christmas. Funnily enough, it was managed by Blueground. And I didn't know that at the time. And funny story, because when I looked at the list of European unicorns around April and I saw Blueground, I was like, oh, that's cool. That's awesome, right? But, you know, funny story.

8:18But the question being, what you're describing to many would sound very similar to Airbnb. Explain to us the investor rationale here. That's a very good point. And indeed, Airbnb is a channel for us. One could argue that it's also a competitor because they're offering the same service. So they offer apartments for medium-term stay. The difference with Blueground is that we don't have this extra layer, somebody who's connecting the renter with the property manager. So Blueground decided to build a brand and also take care of a consistent experience across many cities all around the world. So in reality, what you get with Blueground is a consistent, ready-to-move-in experience.

9:12You know what you're getting, and that's the difference. And building a global brand, that was from day one the aspiration that the founder had. I guess he's happy now. He's happy now. He's happy, yes, but it's been a journey for sure. Yeah, yeah. Okay, so let's ignore, you know, ignoring the Airbnb versus Blueground comparison, of course. Guide us through your thought process. So you met the founder, you were impressed by the founder, of course, but from there to executing the investment, what was that thought process like? What got you excited at the end of the day? You know, investing at seed and pre-seed, it's mostly about the team.

9:57And in this case, it was a founder who had a founder who had the passion, had the understanding, had really thought through this. And we had the data points of a couple of hundred apartments that were already being rented out in Athens. And the unit economics made sense. The demand was there. So obviously, there are always question marks. Is this scalable? Can there be? What's the technology angle? Can this go to other markets? Will the need be the same in other markets? But for me, it was a very strong conviction that I developed early on that this would work. I could resonate with the need and I could see this happening.

10:43So I guess it was an execution risk launching this in other cities. Yeah. You mentioned something that I think many would ask, which is what's the tech angle? Yeah, that's a valid question. It's not apparent at the first glance, but there is a huge technology angle here, starting from asset selection. How do you use data to make the proper decision on which apartments to onboard, which apartments to offer? Then there's a lot of technology around the pricing, around the process of how to prepare an apartment to be ready to be offered to the consumers, to the B2B or the B2C by a renter. And finally, of course, the booking process.

11:26You have to create a website to begin with for booking and then a mobile experience once the renter is already living in that apartment. So there are quite a few points in technology and it's no accident that even now Blueground at its maturity is employing more than 80 people in technology. Do you have an idea of how many properties they have? Do you have a number in mind? They have 15 ,000 operated properties by us and now we have also the franchise model which adds another 5 ,000 to 10 ,000 properties but these are not managed by us. We are supporting. yeah yeah that's amazing that's amazing well i can say that as as a user right unknowingly a user but you know a user the onboarding process was very smooth and you know you have you have to sign a contract because it's we stayed for a month and a half or something um so midterm we needed a contract was very quick very easy within a couple of hours it was sorted so that's all tech enabled even when you don't see tech that's when it's best right you don't see it and it's happening and then actually we had some issues at the end we had to leave earlier there was a problem and And it was also a super smooth process, actually.

12:45So that's also probably where the tech is playing a big role. Amazing. Very happy to hear. I didn't know that, but that's great news. And I'm glad the experience was good. Exactly. I have no shares, even though we have that disclaimer in the beginning of the episodes. I'm not doing this because I have to. It's a true story. Thank you. These are the best. So you mentioned many times that you're impressed by the founder and that his vision resonated with you. And, you know, again, as you said, investing at early stage, it's a lot about the founder at the end of the day, right? So I do see that that was a big factor in your decision-making process.

13:23Two questions. Question one, is that still the case in the way Venture Friends operates? And second question connected to that is, you know, it's been a while and Blueground has played a very exciting journey. It's not done yet, of course, but it's been a while and exciting. What are some learnings actually from this deal, from this investment that you take with you as an investor today into other investments that you're doing? Yeah, on the first question, certainly. It's all about the founding team. We place a lot of importance on that. Actually, I would argue that sometimes we may compromise a bit on the business model if we're too excited about the founding team.

14:09So that still holds. as a seed and pre-City investor. Regarding learnings, there are many learnings, many interesting things that happened in this process. But certainly one thing that I can start with is it certainly raised the bar regarding our expectations about founders and what ideally we should be looking for. Alex sets the example I mentioned about his mission, which, you know, was always, the bar was always very high. he always wanted to build something very big. But also what was really important is the clarity of thought, how easy the communication was, how it was very easy for him to discuss and share his view about where the company could head.

14:58And I would add one thing that is not often mentioned, but I felt there was a very strong alignment, a very clear alignment in terms of values. Alex is a person with strong values meritocracy transparency, honesty, openness this is very important and you know once you get this relationship going from the beginning it's very valuable because typically things are not straightforward and there will be tough times but once you build a trusted relationship, once you trust the founder and vice versa, you trust the investor is very helpful in times of crisis. It kind of puts more pressure in a good way to the investor to be there and support and go out of his way.

15:46But also feel confident about the business he has invested in. And this is important because at the end of the day, we investors, we are going out and sell the business as well. We promote it, we discuss about it. And the more confident we are, this comes out. You know when you have a discussion with an investor and you can see whether they're fully on and really believe in the business or they're just sharing an investment like they share all their investments. And this was very important with Blueground and it has been with many of our companies because there will be times of crisis and you will have to be supportive and it's much easier.

16:26On that alignment, you're going back to this founder-centric decision maker, Right. But on that, two very concrete questions. One, how has that alignment of values helped in the investor founder relationship over this whole process? So from first ticket, we'll talk a bit more about it. But you also did the follow on round in like all of all of those dynamics, investor founder dynamics. But then same question, but different angle. How has it played out in terms of just plain company building? You talked about transparency, talked a lot about values, accountability. I'd love to hear your reflections on those two.

17:09Yes, that's a very good point. Let me start from the second part because this is not just about the investor and the founder relationship. Building a company, the investor plays a limited role. The most important role is how the founder motivates and aligns their team. And so this value-based system is very helpful when the culture of the company is open and transparent and people feel they can trust, they can believe in the founder and can trust them. And again, this is very important in times of crisis. When things are going well, everybody's happy, it's easy times. But when things are tough is when you really need to be able to be open.

17:53And it's not easy. sometimes, you know, as a founder, it's a lonely job, as we know. It's hard to be totally transparent, but still, you know, there is a spectrum. And if you can be transparent and you can convey confidence in what you're aiming for, this is very important for retaining and motivating your team. And that was the case with Blue Ground. Yeah, yeah, yeah. I can see that. So to those listening to us we've uh we've kind of covered the inception story between the love affair between apostolos and alex more than that more than that the business affair as well and now we're gonna we're gonna look you look at the development of the company and so on but before we do that um this is a new type of episode we're doing where we're talking about specific companies and the journeys and the early backers of those companies early believers like apostolos if you have any feedback recommendations if there's stuff you love about the episode, stuff you don't really like that much, please give us feedback as comments on either you.vc or on Spotify or whatever platform you use.

19:00We really appreciate it. And hopefully we can make more insightful episodes for you as well. Back to our conversation, Apostolos. So I want to ask about the biggest milestones. And I know you actually really took the time to think and kind of look back on the timings of stuff. So I'll hand it over to you. Take us through the journey of Blueground. Yeah, I mean, obviously, a milestone for every startup, starting from a home market, and we're talking about companies that have to go to a country-by-country kind of growth story. It's not a SaaS business where you can roll out globally. The first milestone is a successful international expansion.

19:39So for Blueground, when we gave them the seed round, when we led the seed round back in 2016, the promise was that we will launch in Istanbul and Dubai and prove that this is not a problem that only exists in Athens, but also in two more cities at least. One more, I would say, one very international city like Dubai, but also another large city like Istanbul. And indeed, this milestone was successfully achieved. Blueground launched in those two cities successfully. Can I interrupt you? I'm so sorry. But like a company that's operating, 2015, 16, right? Let's remember that. Company that's operating in Athens.

20:24Things seem to go well. Expanding into Istanbul and Dubai. Is that a common route? It feels, so I'm not from the region, right? I'm from the other side of Europe. Yes. But it feels to me like not so obvious. Can you explain? It's a good point. So, Istanbul, I would say, happened because of friends that we had, that Alex had from INSEAD and from his previous work, which made it a natural ease expansion with some trusted people. and Dubai is the epitome of a cosmopolitan city with many expats. So a city that should have had a very strong product market fit for the offering of Blueground. That was the idea.

21:10Another cosmopolitan city and one really global city. That's the idea. And so, of course, that would have been the first step, right? And once this was achieved, it's when we went out to raise a CSA and that's when the first issues started to appear. This was a model that did not resonate with investors back then. Let's remind ourselves that in 2017, the region had not many investors active in eastern, southeastern Europe. The model was also not a clear one. So only a few conversations matured and actually after a last painful conversation where a lot of time was spent And at that time, exactly because we were early on in our journey with VentureVents, I was also quite involved.

21:59And of course, because I was always passionate about Blueground, so I attended some of those discussions. And I saw that it was hard for investors. They were taking a lot of time, asking a lot of questions. And eventually, the offer that came by was a very low one. So that's when we had the first dilemma, how do we deal with this? And that's when we decided to go, you know, to double down and actually lead the CSA, even though we're a small 20 million euro fund. So let's try to break that up into pieces, right? So first, big chunk of your fund. Yes, yes. So that means you're probably on the upper limit of what your LPA allows you to do, if not more.

22:42The maximum, the maximum, yes. Yeah, yeah. So I'm sure some LPs asked questions. Yes. And it's also, it's a big ticket, yes, but it's also not the core stage of that fund, right? That was a seed-focused fund, right? Am I right in saying that? Yes. Yeah, okay. And so, I have a couple of questions, right? So, what do you think allowed you to be able to pull that off, both in terms of having the conviction slash the courage yourself to push for that deal, but also to actually go through with it and, you know, the whole team understanding what it was about. the LPs understanding what it was about, not destroying any bridges or hindering trust, all of those soft topics, but they do play a big role.

23:26This is 20 % of a fund, right? Yeah. This fund had, of course, the LPs were family offices. So what enabled us, I wouldn't say allowed, because we were allowed to do it. But of course, we had the moral obligation and we're always thinking, now we're doing the right thing. So we always thought we're doing the right thing. Having said that, and in order to make it more palatable and explain our rationale, we actually brought Alex to present at our annual LP meeting where people had the opportunity to meet him. And I can say that many of our LPs were also amazed by the caliber, by the vision. And actually co-invested in that round, came with us and validated our decision.

24:24So this is what helped us. That helps. Yes. And then the second question I have around the early Series A, let's call it like that, was what do you remember like what were the reservations of other investors? The reservations of other investors were around scalability. how quickly can this company grow how can technology enable it but I think scalability because if we go to the other side of the Atlantic we see a lot of VCs investing in coffee shops and other things but in Europe the mindset is a bit more I think we're a bit more close minded maybe risk averse especially at the time and nobody could kind of discern that you had an amazing founder here who could make this model grow nicely.

25:17By the way, that was the time when we started seeing some players jumping out in the US as well. So I could say that this is one of the few cases where Blueground kind of opened the road. And then on parallel, we started seeing players like Sonder or Lyric or Zeus Living actually get well-funded in the US by major investors, including Airbnb and other big funds. How big was Venture Friends at the time? It was 20 million. Sorry, the team. Sorry, the team at the time we started, we were like four. Okay, at the beginning of the time we were three people. A year after we were four. So it's not like a small team.

26:01And how big are you today, team-wise? So now we're nine. Okay. Do you feel like as you grow as a company that it's harder to do bets like this? Because for me, from the outside, it looks like one of the team members, senior team member, was really excited about this company, understood the company well, was involved in hands-on enough to see, okay, why is this next round being really hard to raise? Does that affect my conviction? No, let's solve that problem. As you grow, these things are harder to do. Yes, these things are harder to do. You're absolutely right. But on the other hand, the size of the fund allows us to take similar or even larger tickets, larger exposure in companies, and that exposure would still be much smaller as a percentage of the fund.

26:56Yes, it was a large chunk of the fund, 20%, but it was a 4 million exposure. For the fund, it had to work, for sure, for that fund. and it needed this extra level of conviction. But then now we can take 5, 6, or 8 million, and we have taken this kind of exposure, and that would still be sub-10 % of the size of the fund. Yeah, so what you're actually saying is increasing fund size partially solves a big part of this tension. Exactly, exactly. I think that's a cool soundbite to hear in a world where we all love micro-ECs. It's not all good when you're small. Yes, sometimes you're going to take the future in your hands, if possible, or affect the future of a company.

27:42Because I'm not saying you should always be contrarian, but sometimes maybe you see something that other people will take a few more rounds to see. And it's a pity if this company is doomed because you don't have the extra firepower to support. Yeah, absolutely. So let's move on. So early Series A 2017, VF steps up, leads the Series A and invests 20 % of its first fund. Yes, it was a bold step at the time. But, you know, with this capital, and that's when we have a very interesting discussion, actually. This is very interesting. That shows how Alex was thinking, how it was forward looking. Then the natural next step would have been, at least in our view, to go around Europe.

28:26We have amazing metropolitan cities in Europe like London, Paris, Madrid, so many places we could go. And then Alex goes out and says, you know what, no, I want us to go to the US. I've seen that some players already started popping out. I want us and I believe we can be the global leader. But if we have this kind of aspiration, we need to go to the US now. And I'm willing to move to New York and set up Blueground there to make sure that it's going to be a success. And this is what happens. And this is what shows, you know, sometimes you have the investors pushing in that direction. Sometimes, you know, it's the founder who makes the decision.

29:10And this is what happened. And by the way, one thing, another learning that goes around efficiency. Blueground has been pretty efficient, especially for this kind of business that is a bit capital intensive. And also one of the other reasons investors were a bit reluctant was because you have to do some investment up front to furnish the apartment. So you do a capex around 10K per apartment, which also makes it less appealing, less scalable as a business model. Going back to the U.S. part, so Alex moves to New York, sets up, rents the first apartments. and as expected, there is product market fit.

29:51There is a segment of the market that needs furnished apartments easily for one to three months duration. So we started having traction in the US and then being optimistic, we said, okay, let's give it nine months so that we're having many data points and let's go to a raise around the US. And then again, we're disillusioned because, as we learned, it's not easy. Despite we have been much more efficient compared to the other players that at the time had raised, but because they were already based in the U.S., they had this advantage of relationships with U.S. funds, we're getting the benefits of the doubt.