Diskussionsrunde zum Thema Next Generation VC [ENG] | #Investoren 💰

00:00:00: Hello and a warm welcome to another episode of Inside VC, our cool venture capital podcast.

00:00:05: And I have the honor to also welcome Christian Leibold again!

00:00:11: Yes, and this time we're about to speak the next generation of venture capital.

00:00:15: In this case Next Generation VCs because as one can witness in the German ecosystem I would say We kind of have a generation shift problem.

00:00:23: And Christian and i are not alone To my left or right.

00:00:27: they were great entrepreneurs and investors by now.

00:00:30: Please introduce yourself starting on your left.

00:00:31: Hi im Olaf, Olaf Cikobi One of three partners for Capnamic Ventures stepped into venture capital, I raised venture capital as an entrepreneur.

00:00:41: I've grown and exited three startups mainly in the tech sector And in two thousand seven I changed to sides of the table became venture capital.

00:00:52: What's your age?

00:00:53: Forty eight

00:00:54: okay Christian what is yours by the

00:00:56: way?

00:00:56: Thirty nine

00:00:57: Okay But actually you are one who was longest in VC game right

00:01:02: from this last because i got it quite early.

00:01:06: By now.

00:01:07: I've been in there for so long that i'm completely unusable For anything else.

00:01:10: Okay,

00:01:11: see and to my right please introduce yourself.

00:01:13: Yeah Hi glad To be here Phillip Darmes I am one of the founders of Cherry Ventures.

00:01:17: Just closed our fund where I came to Berlin In two thousand eight to do My first venture which failed Company called Tamundo marketplace for collectibles And then joined The founding team Of Zalando and helped build a company at left Right before the IPO to focus on investing did A bunch business angel investing also with Cherry and now we are basically an institutional proper venture capital fund.

00:01:44: It seems that your family is quite like a business focused on entrepreneurial background because I interviewed your brother as well, it's the most.

00:01:51: over four thousand people were interested in Fudoran your brother so i hope you can top that.

00:01:55: what's your age?

00:01:57: Okay, so at least we have a level above thirty.

00:02:01: but as I said what i witnessed recently is this generation aspect.

00:02:05: We had quite a few older more classic VC funds in Germany that actually stopped being active or about in the change where it's yet unclear whether they succeed or not with these generations shift.

00:02:18: What are your views on this basically?

00:02:19: First of all, the center-of gravity is not the venture capitalist in our ecosystem.

00:02:24: The center-off gravity is the entrepreneur.

00:02:26: What we have seen since the bubble bursted in two thousand Is that there's a new generation of entrepreneurs out There.

00:02:34: business cases are it say very fast We're talking about but really let's say defensible technology coming Out Of Germany.

00:02:43: if they if the VCs Are Not Adapting with the Entrepreneurs then they are outdated, and I think this is from a meta perspective the issue.

00:02:54: What's your view on that by the way?

00:02:56: You see the US quite a bit...I learned France has problems with this topic.

00:02:59: I mean venture capital in France as special case because tax wise it really attractive to investment companies.

00:03:05: yet what you told me there also problem over here can give bigger European picture.

00:03:10: yeah i thinks so.

00:03:13: if we look across the key markets like London, you know and then Paris which for a long time was very important.

00:03:20: And now it's coming back.

00:03:22: You have a lot of funds that were started in late nineties.

00:03:25: so almost twenty years later It is kind natural to get into an age where its about.

00:03:34: think about next fund generation.

00:03:37: Every new fund you do has ten year commitment.

00:03:39: So once you are maybe in your late fifties or early sixties, do really want to enter into new tenure commitment and do LPs?

00:03:45: Really wanna back you for that period.

00:03:48: And I think the challenge is a little bit that... A lot of partnerships have worked together for very long time which by itself it's fantastic but has failed to bring in new people years ago!

00:04:03: You cannot then.. In one moment To The Other Managed transition and a fund.

00:04:08: it takes years to bring other people into that partnership Allow them to get used to how your firm works?

00:04:14: To develop their voice in position, and ultimately Bring them to eye level.

00:04:19: And I think a lot of people have kind of underestimated the power with which new funds are coming Into the market and are creating pressure on some of these established partnerships to change.

00:04:31: so now those folks that over the last five years or so haven't brought other people on board, Or at least not the kind of people who can now really step up to the plate and work as partners.

00:04:41: I think those funds are all scrambling to hire And it's a challenge because you really have to start early.

00:04:48: Ideally You'll start hiring somebody when you have fresh fund To invest As opposed being in the end cycle Of fun Then thinking about Who is going do their work for next fund?

00:04:59: That's not a good time.

00:05:01: And I think that is what happened, to the number of

00:05:04: funds."

00:05:29: figures, market figures from our let's say industry association.

00:05:33: What we see?

00:05:34: that the liquid funds committed capital in German venture capital funds are still lower than beginning of two thousand or two thousand five.

00:05:44: why?

00:05:45: Because some old bigger funds they just disappeared.

00:05:49: there is new fresh fund.

00:05:51: luckily funds like cherry ventures power capnemic ventures point nine.

00:05:57: we're able to raise new funds so that our market is not totally dried out.

00:06:03: But yet, new funds often achieve small amounts of money as far as I understood right?

00:06:07: Well on one hand side maybe they achieved smaller amounts of committed capital but sometimes or even more often They don't want To raise a two hundred fifty million fund because it's rather tough to pay back three times the fund in ten or twelve years.

00:06:24: I was asking myself, speaking about this aspect with... ...the amount of money being lower than two thousand and five and all these different players out on market by now.

00:06:32: did anyone at all manage this generation shift so far in Germany when it comes to venture capital?

00:06:40: So its dead silence!

00:06:43: Well i think there are two aspects to be honest.

00:06:45: one is we're just entering a period where that becomes critical.

00:06:50: you can have been perfectly successful by, you know having a stable team over the last fifteen years and not having answered that question but your gonna have to answer it at some point relatively soon.

00:07:02: Okay?

00:07:02: So I think we should revisit their questions.

00:07:05: maybe in few years uh...and then may be results are going look different.

00:07:09: i would completely immodestly and arrogantly claim for us that were doing decent job of it simply because..you now we've brought on number people over the past couple years A lot of them as partners, but also if you look at myself.

00:07:25: You know our firm were started in the late nineties.

00:07:27: I joined us an associate so it's a completely clueless guy.

00:07:31: i was engineer had no idea about venture capital and sort-of worked my way up.

00:07:37: we believe in equal partnership is for the ultimate goal And think We have couple cases where can say people moved internally starting all the way at the bottom like me or also people who have come in later, much more senior positions.

00:07:51: But they've moved up to equal partnership and so I think that's what we're quite happy about.

00:07:57: it has worked but is something you know didn't work overnight... ...but its been a process over many years really

00:08:05: yeah.

00:08:05: And even for us i mean were relatively new on game when we hire someone from team In fact thinking about how can that person develop and whether it be someone who will take more responsibility in the next fund.

00:08:19: I think generally if you look at career paths in VC, on one hand I want to do this for, two or three years.

00:08:27: Get the exposure kind of have exposure too many different deals and industries and aspects of technology.

00:08:34: And then i wanna move on start my own business Or do something completely different.

00:08:39: Then think that other one is in Christian's case someone who joins a firm early-on and does good job develops a track record of investing eventually becomes part of partnership.

00:08:50: Let us do once step back.

00:08:52: Question is, why does a generation shift important?

00:08:55: You know maybe there's team of three VCs raising the fund doing one fund generation and then they will go out off-the market.

00:09:05: But this was wrong in my perspective.

00:09:08: if we see very successful funds or firms VC firms like Sequoia, Kleiner, NEA, Greylock you name it all have managed successions And what is the outcome for the ecosystem?

00:09:24: It's a very tight network.

00:09:26: sometimes thirty years old through the entire industry and A young partner can build on this Network in his startup, which is venture-backed by this old Let's say firm.

00:09:37: with it was a very tied network.

00:09:39: It's like a super performing Petri dish where the start up let's say is put in an a Young fund first time fund.

00:09:50: normally don't have this, let's say very tight network.

00:09:53: Generation by generation is adding more to this network and this really a supportive network for all startups which are venture-backed from the firm.

00:10:02: And that why we need old legacy funds in Germany.

00:10:06: so look into the tail mirror of our start up ecosystem.

00:10:14: I mean, it's also about experience in a way.

00:10:17: I think Christian Nagel once told me cost fifty million dollars to be built up as an investor or VC.

00:10:22: you said twenty million and ten years so somewhere between twenty-and-fifty million dollars.

00:10:26: So that does make sense to keep this knowledge of the market and connections.

00:10:31: yet sometimes ask myself usually from what i learned is Investors are kind of ego machines in a way at least I witnessed this that investors often have quite big egos.

00:10:41: Is this just something?

00:10:42: That's superficial and it might be wrong because from an external perspective.

00:10:45: or is It true, because when it comes to generation shifting.

00:10:48: It comes to sharing sharing is caring.

00:10:50: yet i often Have the impression that investor games are often ego Games.

00:10:53: what's not wrong?

00:10:54: thats maybe ideally one Of the things that are changing a little bit.

00:10:58: Because its True that you will find A lot of Big Egos Inventure funds.

00:11:04: It's absolutely true.

00:11:05: Now, we would probably all claim that We don't have those and you will never find somebody who tells You he's got a big ego But if you've ever been to a boardroom or an adventure firm I mean it's kind of obvious.

00:11:15: That To some extent is true.

00:11:17: However i think what was changing A little bit Is as the ecosystem is getting tighter And people are referencing more and More as entrepreneurs Start really having choice As to What VC they want work for?

00:11:30: I Think The Ego Shooter Kind Of Thing becomes a lot more difficult because you put yourself in the box where maybe at some point entrepreneurs who have a choice don't want to work with you anymore, and You always have to remember that we're hunting for what?

00:11:46: We believe are the biggest best deals And so we like situations where entrepreneurs have choice because it probably means they're good entrepreneurs.

00:11:54: We Have to be referenceable and not come across as people who are condescending or kind of always know everything better, because that's gonna make it hard for us to get that one deal where an entrepreneur does have several term sheets.

00:12:09: So hopefully is changing a little bit as the ecosystem is maturing and I think that's definitely good development.

00:12:17: The thing maybe positive about ego.

00:12:21: sometimes an entrepreneur needs somebody really places a gutsy bet And sometimes people who have a strong ego and believe in what they see is okay, even if everybody around them tells him your idea's wrong.

00:12:36: Then maybe some times that actually also positive or that may be one of the reasons why you had lot those egos among VCs.

00:12:43: but I think as behavioral trait it definitely losing proposition over long term not so prevalent anymore.

00:12:52: Finally just said an entrepreneur was able to choose For which investor he is going to work for?

00:12:59: He's

00:12:59: not gonna go into work, but you know who he wants to take funding from or work with.

00:13:04: because I was about to say isn't it actually the other way around?

00:13:06: at least At that same level?

00:13:08: yeah investors and

00:13:09: absolutely if The choice of the honorpreneur Which you know again in a good situation.

00:13:14: It is absolutely.

00:13:15: i think That's another aspect where You as a VC we always Say We are sales people for money Right?

00:13:21: At the end of day, we're selling money and we are selling it by telling the entrepreneur here's what comes with the money.

00:13:27: All right those other things that can help you with them.

00:13:29: That is why every VC has a different angle at that And thats good because in this way they can be complementary when you invest together.

00:13:36: But Thats how its to work.

00:13:39: How about Cherry, by the way?

00:13:39: Did you think of all these strategic aspects when you started your fund?

00:13:43: or was it... You might have also go to AVC and say hey I'm doing this for two three years then raise my own fund as others do.

00:13:49: Was there an option or did you didn't think at all?

00:13:52: No we didn't really think that because already invested quite a lot with our first small funds as business angels.

00:14:00: We thought many different ways of professionalizing investment activity.

00:14:06: We saw as well what Christian just said, that the ecosystem is somewhat maturing in a sense of entrepreneurs.

00:14:13: tend to have a choice today in terms of who they want to be working with.

00:14:17: And for us also as entrepreneurs pitching two VCs, we kind of saw the similar development that on one hand... ...we had all these great entrepreneurs and market that has global ambitions.

00:14:28: it's no longer only copy-paste execution models but actually innovative business models emerging here in Berlin at the same time.

00:14:35: the VC landscape.

00:14:37: Yeah, at least to some extent not really caught up with that development.

00:14:41: and for us we said okay Let's let's try and build a firm.

00:14:45: That truly entrepreneur focused.

00:14:47: And where?

00:14:48: We can leverage our operational experience To an extended and obviously we haven't had twenty year VC heritage But we've made some learnings without with our first investments in.

00:15:00: on the other hand I think if we talked too pretty much everybody In the industry in terms of what's important when you're building this Even for us at an early stage, we think about stuff like generation change and what's the right strategy.

00:15:15: So it is not that we woke up one morning saying let's build cherry but actually something which was planned a relatively long period of time.

00:15:22: Maybe what Philip doesn't say is, you know he pitched us when... He was doing Tamundo his first company and maybe it was so terrible that already in that very moment.

00:15:30: ...he decided to do its own VC at some point.

00:15:32: I don't know!

00:15:34: I didn't know.

00:15:34: You remember the meeting?

00:15:38: Famous meeting in Hamburg?

00:15:39: yeah

00:15:41: Is It like with lawyers?

00:15:42: When you speak To a lawyer Like The Big Five or The Big Ten They Know all of their Companies And Either Work With Them Right Now Or Used to work for them In The Past This We Seize The Same Thing that you work with someone else or the company over time, no matter what your do.

00:15:57: Is it a tight network where everyone knows each other?

00:15:59: Among VCs I would say yes.

00:16:02: With The Honourpreneurs.

00:16:03: It's

00:16:03: become

00:16:04: so big now That maybe if we're really focused on one geography You kind of still know everybody but across Europe No way!

00:16:12: For us its more like because i think We are bit more local and early stage And tend to be underground alot here.

00:16:18: So Berlin is... It's a big ecosystem, at the same time it is super small.

00:16:24: I had an

00:16:26: impression that there are groups in a way... I can remember there was the Team Europe group with Lukash Kolja and their combo.

00:16:31: You have the Rocket Group.

00:16:32: then you've got SoundCloud Christoph Mayer Group And they appeared to be these different groups doing all of those deals within... No absolutely!

00:16:39: Absolutely not.

00:16:41: Let's have a look on the German startup ecosystem.

00:16:44: We've counted this and we double-checked it with Hightech Gründerfonds, with other early stage funds And no life signs No biotech!

00:16:52: We are talking about between two thousand and two thousand three hundred deals per year Pitch decks which are flowing around Teams trying to get business angel funding or venture capital funding many venture capital fundings.

00:17:05: Thirty percent of all deals coming out of Berlin.

00:17:08: thirty percent Including e-commerce execution games, you name it.

00:17:13: If you drill down to pure tech deals say technology deals It's about twenty percent

00:17:19: out of Berlin.

00:17:20: the rest is Hamburg Cologne Munich Karlsruhe Dresden Leipzig Stuttgart.

00:17:27: So we don't have today.

00:17:30: even today We don't this mega cluster.

00:17:34: Berlin has a huge impact And it's growing.

00:17:38: It's just the beginning that see what will happen in ten years Maybe, we'll become the mega cluster and Germany.

00:17:45: but currently The entire German ecosystem is spread out I would say into five or six clusters In germany.

00:17:52: Yeah But if you take a look at the numbers of companies being found That might be true.

00:17:56: If You Take A Look At Revenue For Instance Or Exit Money i mean i Would Say That The Biggest Exit Happened In Berlin So Far.

00:18:02: No!

00:18:03: Take Team Viewer.

00:18:04: Yeah i thought about Team Viewers.

00:18:05: Yeah Take

00:18:05: Hypers.

00:18:06: take Astaro in Karlsruhe.

00:18:09: There are some hidden exits you never have written about or you've never heard of, so that's definitely not true!

00:18:16: Yeah but on the other hand I think Berlin is a magnet and an assailant.

00:18:20: So look at also... Not only Germany But look at Europe.

00:18:23: Look how London is looking at Berlin currently How Eastern Europe looks like.

00:18:27: Everybody is moving here.

00:18:29: This city has set up for becoming really one if not the most important startup hub in Europe.

00:18:37: Absolutely, I was sitting at a conference of one of my former investors LPs you know investing in venture funds in New York and there was a panel discussion And that was a senior partner of Union Square The discussion about Silicon Valley or San Francisco.

00:18:54: This guy said well it's the urbanization technology.

00:18:58: People want to work where they want to live.

00:19:01: It's Berlin, London New York San Francisco.

00:19:04: he counted Berlin first yeah and in the entire room I was the only German guy so there were you only US guys.

00:19:12: So absolutely true Berlin will become even bigger than today In terms of you know The startup ecosystem but we shouldn't forget all the other tech clusters in Germany.

00:19:23: I think it depends a little bit on your focus, too.

00:19:25: If you're really looking at real tech... ...it's probably even more distributed than if you look in consumer internet software.

00:19:33: Consumer Internet Software is also the stuff that people talk about and ultimately all companies employ lots of people because they tend to have customer support.

00:19:41: They definitely have strong concentration or growing concentration.

00:19:48: Maybe one less aspect before we dive into what characteristic form a next-generation VC.

00:19:53: How about Kerry?

00:19:54: What I learned so far is that quite a few generation shifts won't work because of Kerry.

00:19:59: When i wrote the book About The Sambas,I was speaking to one guy who accompanied them during the Orlando time and he said The investors would have needed to make the Zambas rich.

00:20:08: They didn't have any money at that time, At least not in a super-rich way they are right now and it would've helped them To continue the eBay game if they were rich If someone was able to give them like one million two million ten million or something Like this Is.

00:20:21: there is some thing happening with VC space as well That if their partner has certain amount of money on his bank account And isn't so focused On Kerry This makes difference in generation shifts?

00:20:32: Well I think.

00:20:33: First of all, let's talk about the business case for a VC.

00:20:37: There are two components – its management fee and carry.

00:20:41: Carry is most important.

00:20:43: A VC will earn carry if he is doing good investments or good exits.

00:20:49: Exits are very important because only with an exit money comes back to the fund and distributes it to investors.

00:20:58: So carry is key!

00:21:01: There are some thesis in the market why generation shift, or that generation change is rather complicated if a fund or firm isn't well performing.

00:21:13: Because maybe this is a thesis on the market and old partners don't want to share because they're not rich enough to share.

00:21:21: but you have one hundred million or two-hundred million real big funds, three million venture capital fund and you have earned Kerry.

00:21:31: You can't care less about generation

00:21:33: shift.".

00:21:34: So this is one thesis.

00:21:35: why maybe some funds are struggling.

00:21:39: What's your view on discretion?

00:21:40: Does it make sense?

00:21:41: Yeah no I think that makes a lot of sense.

00:21:44: Also there two other things to keep in mind.

00:21:48: If you've built a firm where really think that has become a platform, You want to make sure it stays around.

00:21:55: You don't wanna see close its doors when kind of leave the office.

00:21:59: so I think people start putting real effort into it.

00:22:02: and another important element is if your have a firm thats performing strongly It just makes it easier for you higher grade people.

00:22:10: When you're high grade people it's much easier probably let go.

00:22:13: i think this positive effect quite feasible for firms that are doing well to just attract top talent and on the flip side makes it hard for firms, have built a track record.

00:22:26: That will make it difficult for them to raise new fund To attract great people because they would always see risk of not being able to raise another fund.

00:22:34: And so It becomes harder than if you've got a great performance under your belt.

00:22:42: Help us understand one thing If thesis is As soon as an investor is rich enough, he's willing to share.

00:22:50: How much does the investor earn?

00:22:51: Are they really rich or in between like just give us a idea because I'm asking myself if there someone who became multimillionaire by doing investments and that rather...

00:23:01: In the United States you have venture capital investors which are more than millionaires but i think none of us And I would say The majority on the German venture capital market is doing this because they want to get rich.

00:23:16: I think you have to have fun to do this and if an entrepreneur's talking to investor, the entrepreneur will feel and recognize that he really likes to support startups or not.

00:23:35: Sure there a business case but at end we are investing money from our investors from pension funds, from corporates you name it and they want to get back a multiple in good return.

00:23:53: And that's why we have to generate money.

00:23:55: so if we generate money We will earn money.

00:23:58: perfectly mark makes sense but But are investors like rich usually

00:24:02: normally?

00:24:02: You have to be somehow rich in order to become the venture capitalist because you have to invest In your fund your own money.

00:24:09: It depends.

00:24:09: you know.

00:24:10: The thing is I got the fun cycles of very long right.

00:24:13: So I think if you do a good job as an investor, You can absolutely become rich.

00:24:19: Absolutely!

00:24:43: let's say less extreme in a way, right?

00:24:45: But of course you know it takes longer and so maybe actually taking longer makes it very risky again because there are lot things that can go wrong

00:24:53: over time.

00:24:54: Philip doesn't share your opinion

00:24:56: I don't know.

00:24:56: i think at the end comes down to what do want to achieve.

00:25:00: Do You Want To Build A Firm That'S There To Stay?

00:25:03: Do You Want To Build The Brand Also At The End Of The Day And Someway Also Differentiated In The Market?

00:25:09: When we decided to do Cherry, obviously it's a very long commitment.

00:25:13: It is not ten years but usually much more than that because after the investment period you start raising another fund and then new funds are ten years again.

00:25:21: so in this for a really long time at the end if wanted build something Christian Daniel & Philip would have been like completely different motivation of building a firm or cherry which will be there For generations, hopefully.

00:25:37: So I think at the end of day yes everybody wants to build big companies because big companies mean great returns for your investors and eventually also means carry but then it's more a mindset with which you start.

00:25:54: Ideally this is the last job we ever do so i've been doing this for fourteen years... ...I don't think im gonna do any different jobs anymore.. ..so I agree without one hundred percent!

00:26:02: But Philip ,to be honest You won't have given your investors terms where you don't take carry, right?

00:26:07: Of course.

00:26:08: The economics are part of the game.

00:26:10: that again is necessary because That's how we attract great people

00:26:15: Right.

00:26:15: on the other hand if I think If you want to optimize your return as an investor and you're in a situation Where you can invest personally then i think this Probably the more straightforward way to do so because you can be more flexible.

00:26:28: You don't really have to think about fund economics.

00:26:30: You can do a small ticket left and right.

00:26:32: So it's I think it's very different game investing as a business agent than Investing is a VC.

00:26:39: The other interesting thing that people often quote in this context Is that, you know?

00:26:43: You spend as much time on investment company where you deploy one million an early-stage Company And now there's a lot of questions still As somebody might spent Investing ten million in a later-stage company where there's a different set of questions and you know You have more profound due diligence process.

00:27:01: But at the end of the day, in terms of the partner's time it may be quite similar.

00:27:05: However Of course they carried interest on a ten million investment.

00:27:08: is going to be ten x that?

00:27:10: Over one million investment assuming the same multiple right.

00:27:13: so of course people who really want to make money typically move up The letter to private equity or you know later stage funds because sometimes the economics are more attractive than in early stage.

00:27:26: Let's dive into the characteristics of next-generation VC then, I mean interestingly we have different generations right here.

00:27:31: starting with you Philippe what would you say?

00:27:34: is that the typical aspect of a Next Generation VC?

00:27:37: What differs from these first time funds that started and renewed the business right now?

00:27:45: realizing that there's a number of funds in the market, I think you said it.

00:27:48: There is less capital than on the other hand we would all agree especially at an early stage.

00:27:53: there are increasing competition between funds but also more professional business angels.

00:27:58: so i think its really important to think about how do you differentiate and what can be done differently then others?

00:28:04: And How Can You At The End Of The Day Convince The Entrepreneur To Work With You?

00:28:11: That might not have been part so much of the thinking about more traditional VCs.

00:28:16: For us, it's really to work with an entrepreneur on eye level trying build something together rather than meeting every couple months for a board meeting and screaming if numbers go in the wrong direction.

00:28:27: but We are in this together, we will be for a long time and it's very much as sparing on eye level rather than investors up here or entrepreneur down there kind of relationship.

00:28:41: So I'm not saying all the VCs had that type approach but i think tendency goes to put the entrepreneur first.

00:28:49: And I think a lot of new funds, but also some more traditional funds that are changing their structure reacting to the trend.

00:28:56: That entrepreneurs in the center have everything and actually gets choose who he wants work with.

00:29:01: But this is not really a defendable position away right?

00:29:04: Is all these two next generation VCs?

00:29:06: because easily... All vcs would say hey we're entrepreneurial focused.

00:29:12: Yeah at end it's very much clear positioning And this can be in the case of point nine, that they do with a stronger focus on the SaaS and marketplaces.

00:29:23: It can ask more consumer technology... ...with a bit more local focus on Berlin.

00:29:28: it could also be an international exposure to fund-like events.

00:29:31: So I think its very much as well.

00:29:33: same way we look at startups.. ..and asked what's your USP?

00:29:38: the entrepreneur will look at us and go, okay what's your USP really?

00:29:42: So if a project A can say we can leverage our BI support online marketing.

00:29:46: that is one way of doing it.

00:29:48: The point nine is to do another one.

00:29:50: so I think

00:29:51: in end-of day you need have on otherwise just part of noise.

00:29:55: The market professionalizing not more about providing capital but with certain twist, let's call it that.

00:30:03: So I think its just a maturity thats coming into the market with more players That each carve out their clear positioning and that is very beneficial for the entrepreneur because you're no longer looking at money.

00:30:19: There are a number of VCs relatively small numbers And they all kind of are undifferentiated.

00:30:25: You can try to find one which probably fits your need Hopefully as an entrepreneur also likelihood that you find somebody who you like, who shares some of your experience and can work with.

00:30:37: And whose going to want a backhoe is higher because there's just bigger overlap than if we have more general purpose capital as maybe historically has been the case.

00:30:47: In terms next generation We see what it means behind It´s mindset and approach.

00:30:55: Philip already mentioned this eye level.

00:30:59: We can't repeat this enough.

00:31:01: The eye level approach between investor and founding team, an entrepreneur.

00:31:07: I think it's key because the entrepreneurs not going to a bank And asking for loan... The entrepreneur is looking for partner.

00:31:16: Money is easy.

00:31:17: A good team will get money.

00:31:19: As i've said the center of gravity Is the founder?

00:31:24: If there are no VC in market A good team with a good case will get money from wherever.

00:31:31: If there are no VCs, the ecosystem will somehow survive.

00:31:35: so we're not at the center.

00:31:37: that means we act as supporting factor or support part to and with the founder after we've done our diligence which sometimes is tough.

00:31:49: We are partners And when you wake up in morning Let's say we are doing this thinking about how We can support our startups at the end in order to pay back The money two hour investors.

00:32:01: but

00:32:02: it is a supporting job mainly HR and business development And This Is A real big difference.

00:32:09: I have raised as an entrepreneur i think six venture rounds

00:32:13: from,I

00:32:13: would Say first time VCs.And How I Have worked with them?Is Totally totally different.

00:32:20: how entrepreneurs Can Work if they pick the right one with VCs today.

00:32:25: Why?

00:32:26: Because more and more VCs have entrepreneurial background, an experience And If you Have had a situation when you wake up at night Sweating because in two weeks is cash out As an entrepreneur You know what it feels like!

00:32:46: And that doesn't mean every partner and team member of EVC has to have this experience.

00:32:54: But if you've got ten people, it's really good with an entrepreneurial background in a VC firm so the entire team is understanding their founder and can support

00:33:07: them.

00:33:07: What you just mentioned being on one level like this high-level expect I would think something normal something I would expect from every VC and not only a next-generation VC.

00:33:17: Definitely not!

00:33:19: This is shocking in a way, isn't it?

00:33:20: From a founder's perspective this...

00:33:22: It's also the question of supply & demand.

00:33:25: You used to take couple weeks together meeting at a VC And obviously that now drawing an extreme picture.

00:33:31: Now you have four than the radius or five kilometers.

00:33:36: The game has changed a lot.

00:33:39: Also for the entrepreneur its so much more fun To deal with.

00:33:42: someone kind of understands what you're talking about, and it's not that.

00:33:46: You do the first meeting.

00:33:46: I remember those pitch meetings is like if have a first meeting then nothing.

00:33:52: Then two weeks later over second one we do the exact same pitch again to different group of people than Nothing.

00:33:58: then third week goes by.

00:34:00: then you get some questions via email and this process

00:34:04: That

00:34:04: kind of drives you crazy in an entrepreneur And i'm not saying that's the case today Also not with the first generation VC, I'm not sure if i actually like this term.

00:34:15: But it's just something that is simply not acceptable today and you will get into very good deals if you behave in a way Like

00:34:23: This.

00:34:23: There Is A Nice Story!

00:34:39: All partners.

00:34:40: So the meeting was scheduled for, let's say two p.m.. He was waiting half an hour at two thirty.

00:34:48: all of the partners were in the room and the associates as well.

00:34:51: The main partner you know the gray eminence if this is not too much Germanism showed up ten minutes late didn't pay attention checking emails on his laptop not on this blackberry or iphone.

00:35:06: so and This founder the CEO of the company Berlin based Company after fifteen minutes.

00:35:11: He just closed His laptop and said well, I think this meeting won't make sense anymore.

00:35:18: Goodbye It's only thing you can do.

00:35:21: So i think it has to do with respect And this is very drastic.

00:35:28: The scene yeah more than scenario but I've heard a lot of stories like this,

00:35:33: but on the other end let's be honest It's not going to be the main differentiation of the fund.

00:35:37: To be punctual two meetings?

00:35:39: i think This is becoming hygiene factors and we are in great situations for founders today because there Is you know availability of capital in the markets And But I think their differentiation needs to go beyond that.

00:35:51: yeah,

00:35:52: but but II Disagree We're Not In A Great Situation For Founders in Terms Of How Much Capitalism The Market Think.

00:35:59: we have more cases interesting cases in Germany Compared with the money which we can invest.

00:36:07: so if we take the European average We are still under capitalized.

00:36:12: We are below European average.

00:36:14: Finland is on top one followed by UK and even Spain has More you know, more money to invest compared with a growth income of the country.

00:36:26: So I think there's there's enough let's say room to be filled in the venture capital industry in Germany.

00:36:32: But nail it down a bit, I mean this is rather fluffy.

00:36:34: yeah saying next generation VC about treating entrepreneurs equally and that's respecting them and argumenting on eye level.

00:36:42: That so far what i learned from being a Next Generation VC?

00:36:45: No thats not everything.

00:36:47: Philip and Frischin already mentioned this.

00:36:49: its about positioning a totally, and this was true in the past for some VCs.

00:36:57: A totally purely opportunistic investment approach.

00:37:02: sitting at the desk in your office waiting that our founding team is ringing doorbells asking money.

00:37:11: No!

00:37:11: Today you really have to work on network In order find right teams & cases.

00:37:19: So if you are little bit more in the market as a VC, at the end your network is better and you can support startups even more.

00:37:51: applicable to most of the portfolio companies.

00:37:53: so HR is a typical one or in our case for example, it's online marketing right?

00:37:58: So we have his offices next to us here Louis Hanman who used to be that the CMO at Rocket.

00:38:03: His job Is to support companies In online marketing and helping them grow especially internationally because That's what he has done before.

00:38:11: you know thats One specific thing We're doing which fits with Our positioning Of helping companies go international but other people do different things, and so ideally as an entrepreneur you can build yourself a syndicate where maybe you get people around the table who have different areas of expertise.

00:38:30: By the way just one small question on this operational VC approach.

00:38:34: I think it's really expensive in a way?

00:38:36: So your burn rate turns up... As a VC we have that problem.

00:38:40: four to seven years later, the money comes in basically.

00:38:44: No so it's something that you can only do once you have a certain level of assets under management essentially because you have enough management fee to finance these type of people or That is another thing.

00:38:57: and then come back with business model.

00:38:59: if your AVC has strong track record where people made carry Then alot partners actually say we are happy a very low salary and invest rather in people who help us make our portfolio better.

00:39:14: And therefore, our return stronger which again at the end of day is going to result in better fund performance and more carry.

00:39:20: so it's a long-term game but you can really only play it.

00:39:24: pay these resources if typically involves several front generations.

00:39:32: Okay, so we have entrepreneurial mindset treating each other on an eye level having a clear position.

00:39:37: how about other VCs?

00:39:38: by the way?

00:39:38: I mean this eye-level aspect does also count when it comes to VC rounds where you obviously need co-investors.

00:39:43: quite often is there's something that different in next generation than first time VCs?

00:39:48: I think look this whole like new gen, old-gen kind of.

00:39:52: so i think at the end it comes down to will you make successful investments?

00:39:56: and there's you know like look at Hallspring as a good example for fun.

00:40:00: that's been around for awhile.

00:40:01: And has been doing a great job in terms of their fund performance.

00:40:06: For us its really we're taking a bit off different approach.

00:40:11: Change something we're trying to build something new, but you also have to prove ourselves and I think at the end of day You will only proof yourself by making good deals And that usually involves.

00:40:21: You know Also being able to partner with other VCs and get a company to level where they can raise A much bigger round than The money that we can invest in there?

00:40:31: We see is very different from private equity.

00:40:34: it's very much focused on partnerships and working together with the number of people that you trust.

00:40:40: And building a network not only for references, but also for crosschecks or business models at end-of-the-day as well for co-investment opportunities.

00:40:49: I think this is very important point here.

00:40:51: The syndicates how VCs are working together.

00:40:57: If we look back fifteen years early two thousand We have had maybe five six VC firms in two thousand three, two thousand four with capital.

00:41:10: the likelihood of a syndication from The very first beginning from the initial investment was rather low.

00:41:17: today if we are Meeting together at a conference.

00:41:22: So we are exchanging really deals and talking about deals.

00:41:26: It's more a cooperative approach than a. well I want to hide my next big thing or something like this because sometimes, most often it makes really sense to step into a syndicate from the very first beginning with two of three investors.

00:41:48: Because what Christian mentioned all of them bring different things or experiences onto the table in order to support the startup and This is a big differentiator is rather new in Germany compared with the United States, for example.

00:42:07: Yeah, I was about to ask about access-to deal flowing away.

00:42:09: How does this happen?

00:42:10: Usually investors are super well informed... ...I guess it's probably a lot of network in the way but i also tend to ask myself how that happens.

00:42:18: if a founder speaks with one guy It is usually not enough.

00:42:20: as you guys said there isn't enough VC on the market and its'nt the case.. ..that a founder has like four term sheets at his table just needs to choose.

00:42:28: So basically quite often he need to talk two different people.

00:42:32: How do you guys act with this whole deal flow thing ?

00:42:37: Well, there is pure proprietary deal flow but this is very very rare Pure proprietary d-flow.

00:42:42: that means it's more a family tree deal like in my Example de drone.

00:42:47: Maybe you have heard about the company.

00:42:50: The two founders to of these three founders were co-founders off myself.

00:42:53: So they came to me said Olaf does our new idea?

00:42:56: Okay here's the money.

00:42:58: so and no other VC has seen This case.

00:43:00: this is Very Rare.

00:43:02: But then You Have A Normal proprietary Deal Flow Means a team you have met and they have met cherry an e ventures And they are approaching maybe two or three vcs not more, and then we have the dear Madam and sir venture capitalist.

00:43:20: here's my pitch deck.

00:43:22: But this is the incoming say deal ideal flow.

00:43:26: but then if there isn't interesting case on The table as a VC.

00:43:31: You start thinking well should I do this alone?

00:43:33: Or would it make sense to Let's say to invite one of my partners from a different venture firm.

00:43:42: Say, well have a look what do you think?

00:43:44: Should we do this together or should be asked the third one as well and This is happening more often than in the past.

00:43:51: give us some advice.

00:43:52: if a young founder goes through a VC What is he supposed to do?

00:43:55: I mean, obviously we learn... Do not these mass email stuff thing with just sort of a madam.

00:44:00: But i had the impression that it's sometimes hard to be in this exact window right.

00:44:05: Not too many VCs That you feel like a prostitute A VC prostitution?

00:44:08: As far as I know VCs start to talk And yet not too few.

00:44:12: If one says no Basically your round is screwed up and away.

00:44:16: So what's the ideal way Of dealing here?

00:44:18: because I also tend To ask myself If I approach to Christian my idea, will he call Olaf and say hey get this guy on the phone just recently?

00:44:26: He said isn't that?

00:44:26: what do you think about it.

00:44:27: Is this benchmarking happen?

00:44:29: Normally when i was a founder at first... ...I have approached The B-List only some guys from The B List in order to learn my pitch.. ..and to learn their reaction.

00:44:43: And after having done two or three meetings with B-list VCs which normally wouldn´t work for me.

00:44:50: Well, then I approached the A list maybe four not more.

00:44:55: This is one approach.

00:44:56: there are many approaches

00:44:57: that happen to your network.

00:44:58: first as an entrepreneur yeah so see where can i get a good introduction and it doesn't really matter what firm it is but never write an email to team at XYZ and say okay here am i think we will as you said this.

00:45:13: hundreds of deals in uh...I don't remember single case were actually ended up investing in company Dutch just in a general pitch.

00:45:20: We look at all of them, but at the end it's also somewhat of trying to get warm intro like try and get closer with people because that is what you will be working on as an entrepreneur.

00:45:33: Look for LinkedIn who can connect you through

00:45:37: two

00:45:37: corners.

00:45:38: everyone can kind-of get direct entry into investor.

00:45:43: I think thats super important.

00:45:47: It's a people business.

00:45:49: And if you as an entrepreneur,

00:45:51: have...

00:45:52: You make the impression that you're shopping your idea around to everyone.

00:45:56: then eventually also it will look less appealing to investor.

00:46:01: I mean i think there are too many deals for us To sort of always pick up the phone and say oh..you know ..I just talked about this ...and now we've looked at that.

00:46:07: There is just too much going on At same time.

00:46:11: they not that many VCs.

00:46:13: You know, you could say I'm approaching fifty or so.

00:46:16: So we can do that in the valley.

00:46:17: but here i think The risk of spreading to everybody is somewhat limited because if you Do a good job at only pitching vcs That are actually relevant In the sense Of they invest in your stage and your sector And so on?

00:46:29: Number Is not going To be huge!

00:46:32: I Think one thing some people do.

00:46:35: They brag about who their talking too And tell you like oh yes We're very far into process with investor xyz right?

00:46:43: Then of course you call that guy and say, hey I heard your gonna put a term sheet down on these guys next week.

00:46:49: And then he says hang out a minute!

00:46:51: You know i just took the meeting and thought we were going to pass.

00:46:55: That really doesn't help credibility.

00:46:58: so thats one thing don´t oversell who have relationship with whom are talking too?

00:47:05: because if thats not true its something very easy for us validate.

00:47:11: So this next generation VC mindset, let's call it a mindset.

00:47:15: Maybe you're right.

00:47:15: It doesn't make sense to divide between old guys and new guys because that is basically about the mindset.

00:47:21: Does this mean consequently?

00:47:22: That these next-generation mindsets leads more cooperation between investors as well?

00:47:26: I think so.

00:47:29: You see more syndicates, you know we would invest together with one or two other VCs and I think that's the sign of

00:47:38: it.

00:47:38: It is not only on the deal-making side where really investment professionals are talking to eachother.

00:47:45: what happens now among young VC firms The so-called CFOs or the guys from you know, from the back office are meeting and exchanging best practices.

00:47:59: So that communication in the cooperation amongst all the new VC funds is it's very tight And its good for their industry.

00:48:07: because as I've said sharing best practices on no goals makes sense.

00:48:13: Cool did we forget anything about next generation VC?

00:48:16: That's it.

00:48:17: Okay, if four brains say that's all about next generation PC.

00:48:21: I have to thank all of you guys.

00:48:22: Thanks for taking the time.

00:48:23: it was fun having had other different generations here.

00:48:25: thanks Christian For being with me all the time and see you next time.

00:48:29: Thank You.

00:48:30: Thanks been a

00:48:31: pleasure.