A CFO’s warning led Wolff to exit his dot-com investments

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 29:03

   within two years we went from actually me pitching an idea to an entrepreneur that didn't have a company around him to an ipo which was crazy you know we found ourselves in the after IPO party, which we used to do back in the day, and we thought that had zero value three months ago and now 100 million euros. You know, one of those companies that I pitched is I found out that there was a web portal, free SMS web portal.

2. 29:36

   It was called sms.at. And what you did, basically, you wrote your SMS on the interface at no cost. And Austria back then had around 9 million people, and 2 million were using this because SMS were expensive. SMS cost money back then. Yeah, it cost money back then. Nine cents a message. Yeah, it was a lot. And so I found out that this was run by a teenage boy in Austria, in Graz, visited him. And basically with the model, I'm going to raise money for your company, which then was very successful.

3. 30:04

   You wrapped it into a legal entity. When I said to him, how do you do that? I mean, he said, I'm hacking. I'm hacking into the SMSE servers of the big telcos. I said, okay. and then and i said well eventually they find out that the data volume was bigger than let's say on normal days and they shut me down and i said okay and if that happens what do you do well i have a plan so for example today i'm running on nigeria telecom and next week it's going to be norway so okay we put it in an entity and i started to visit telecom austria the biggest austrian and T-Mobile then the two biggest Austrian telcos and they said we hate SMS AT we absolutely hate it but we can't shut it down so what is what is it we can do together and eventually you know within two years that non-existent company was sold for 250 million to T-Mobile for 250 million yeah wow

4. 31:03

   Oh, so people forget 2000, this is the year 2000. That is obviously the, yeah. It was just a different era. Different era. Yeah. You know, maybe the kind of 250 million today, when you look at the AI situation, that's going to be 25 billion. But on a relative basis. Relative. It was unbelievable, enormous money and valuation. So, and this was the lucky moment, actually. And they bought it to shut it down?

5. 31:26

   No. They bought a large part of it and integrated it in, took over the customers and integrated it in their systems so what happened is we signed the deal in bonn which was deutsche telecom back in the day t-mobile was a subsidiary of deutsche telecom um and i flew back with my cfo austrian airlines and he was 15 years my senior and was running the m&a department of the austrian national steel company and we were sitting in austrian airlines and got a Class of cheap bubbly. I said that was a good transaction. And he said, something's going wrong here. And I said, why? He said, that business with literally tiny revenue, but with a large customer base, that means with lots of potential, but no way of actually knowing how to monetize it or how to repay the CapEx investment. It's quite some correlation to the current markets now. Was valued at this absurd amount.

6. 32:30

   compared to my specialized Alu business that he had that was generating 30 million in EBIT. So something's going wrong. And I said, nothing's going wrong. The internet is going to dominate and can't you see the amount of customers? The new paradigm, your old-fashioned. Exactly, exactly. And he said, no, no, I'm sure this is going to collapse. The valuation's absurd. And we listed another company on the stock exchange, which was between pitching it to the bankers that scratched the eyes out of each other to do this to the day of listing in three months.

7. 33:05

   And he said, I promise you, we need to look at that. I don't think this is sustainable. And that impulse that he gave me from this one-hour flight from Bonn to Vienna was enough to look at our whole portfolio of nine investments. And we decided to exit all of them. and that was started end of 99 and went all through 2000 obviously when the market collapsed in spring 2000 people were still hoping for a rebound it was just a glitch yes and then the market never came back and we exited all of those investments they are one an israeli startup that we couldn't exit, and we were out.

8. 33:51

   And what remained was a skeleton of a venture capital company very much downsized to continue to look for opportunities whilst having the philosophical idea of this is not going to come back for a long time. I think this is an underrated aspect of good investors is knowing when to sell, and I think there's an incentive in the investor ecosystem