How the next generation of billion-dollar investors think - Jonathan Userovici [Headline]

0:00OpenAI is 500 billion, but it's gonna be 1, 2, 3 trillion. It's going to be trillions. I don't know exactly what I can say publicly. Content creation is going to happen next year. What we really aspire to do is to back the next generation of founders. You can get to unicorn status very fast, but it can also disappear pretty fast. Money on paper is not money and valuation paper is not a valuation. And that's why we have a lot of zombie unicorns from 2021. Today on Billions, I'm sitting down with one of Europe's youngest general partners, is Jonathan UseroVC from Headline, a global venture firm that spots the next billion-dollar companies before anyone else.

0:35Jonathan already backed some of Europe's fastest-growing unicorns and is quietly redefining what it means to invest with both data and instincts. In this episode, I want to talk about the behind the scenes of fundraising, how we spot future billion-dollar founders, and where the biggest opportunities in AI are. And of course, we'll talk cash, secondaries, cap tables, and the real economics behind. staying hungry once you're rich on paper. If you ever wondered how the next generation of billion-dollar investors think, this episode is your blueprint. Thanks a lot, Jonathan, for being here. Thanks for inviting me.

1:10I'm super excited to do this episode. We've known each other for a few years now, and I've always admired, you know, like the way you invest in companies and how you back founders. So it's really cool to have you here. I know that you've already invested in a few unicorns, And I would love to understand how exactly do you spot, you know, the best deals before anyone else because you invest quite early in companies. You know, we talk a lot about unicorns all the time and it's, you know, it was a great term to use in the past years to define success, I think, in the vendor industry. But it changed also.

1:47It changed also. I mean, if you think about what we really try to spot more than unicorns, I would say it's, you know, long term compounders. compounders. So you can get to unicorn status very fast, but it can also disappear pretty fast. And we saw that in 2021, you have a lot of unicorns stuck now at the status that are not, you know, real unicorns anymore. And so, you know, I would say that what we really aspire to do is to back the next generation of, you know, founders that are really looking to build long term, big compounders, big businesses that are enduring and sustainable. And at the end of the day that can IPO or stay private for a very long time, but that can be independent.

2:27And so, you know, to do that, I mean, you know, our mission is basically to invest early and to help them get to that stage. And so the unique value proposition that we built headline as a team, and then, you know, I can discuss a little bit more in detail what, you know, I'm doing personally, but the mission is really to help the founders go international and basically conquer the biggest markets that you can go, that you can expand into. And so basically our biggest office today is in San Francisco. We also have people in New York. So that's, you know, in the US and North America. And then we're in Paris, where I sit today, in London, in Berlin, in San Paolo, in Tokyo, in Southeast Asia.

3:10And so our mission is to find founders that are Europeans or, I mean, you know, that's my personal mission and to help them go international. And that's what we're trying to spot is the founders that can go international, can really think big and can build companies that, you know, don't hit the unicorn status, but one day can hit, let's say, $1 billion of AR, actual revenues. So we start with zero. You know, we have them yet to 100. And then, you know, obviously the long-term goal is to get to a billion. And do you see like any common characteristic for these founders, you know, want to grow like internationally?

3:48Is that just people telling you like, hey, we want to build an international company? Or do you see like any common traits for the founders? I think what we're looking, you know, after iterating a lot, I mean, our job is also to iterate all the time. And to be honest, with the age of AI, I'm asking myself every day the same question. is that's the founder that, you know, had this characteristic to build like very big companies 10 years ago. Is it the same type of founders that we should back today? I think, you know, one common trade between, you know, when I started more than 10 years ago, actually today, and today's we're looking for founders that have a very high rate of iteration, like testing all the time and, you know, the speed and the quality of execution to try new things.

4:36and accept when it's a mistake very fast, but also damele down when it's the right thing to do is what we look for. And so iteration, you can see it in many different dimensions. You can see it in the way, and that's probably the thing we look at the most at the earliest stages, the speed at which you build the product and you ship the intensity at which you push, you know, code new features every other day, every week. and so that's probably you know one aspect but iteration you can you can look at it in many many different ways right so the speed at which you hire people and you know great people obviously is important if you want to if you want to scale at some point the speed at which you test new you know gtm motions especially in the age of ai so i think generally speed is something that is very you know important and that's maybe the the first thing the speed of you know learning what we basically called the learning curve.

5:34It's probably a very, I mean, the common trait is that it's very steep for most of founders who are building very big companies. And this is - Do you have like specific examples of a company you've invested where you felt like the speed was insane like from day one? I mean, most of the companies we've invested, I mean, what's interesting is that as VCs, and I think that's a nice tip for founders also who are looking to raise funds, you always try to basically build a relationship with founders ahead of the fundraise so the minimum six months maybe nine months maybe 12 months you know you know before they build the company or before they raise the seed or series a and so you can actually assess that for a long time sometimes it's not possible it happens right and you assess that in a very short time frame and this very short timeframe is more or less, you know, the fundraising period.

6:29And so most of the founders we back, and the concrete example is really, you know, and all of the founders we back, iterates very fast between the first interaction in the fundraising process and the last round. So they would, you know, start pitching something and they understand the feedback from VCs or from the market is not great and they would adapt and then, you know, they would, you know, double down and double click on the things that they felt, you know, were just not great at the first pitch, for example. And so that happens many times. And what's really interesting is to see that speed of iteration at scale.

7:01And so I'm at the board of companies like Homa Games, for example, or I was for a long time at the board of Swine. And so speed of iteration is not only at the beginning when you invest and at the seed stage. It's actually more common to have that at the early stage. but what impresses me is to see you know founders actually iterate very fast with big companies 100 200 employees sometimes 500 a thousand employees and they always manage to challenge the vision taste new things adapt you know a little bit the pitch and transform also the initial vision into enough iteration at scale that allows you to find the right path to build an enduring company and so you know typically uh you know a company like swile which really started with, you know, meal vouchers, really transformed over time into a company that is, you know, a spend management company dealing with many, many benefits for employees now going into trouble.

7:59And you can see that, you know, iteration and speed of basically becoming, I mean, you know, product velocity to become a one-stop shop is also insane at scale, right? A company like Homa Games, I mean, you know, they started with, So both are actually serial entrepreneurs, Loic from Swile and Daniel from Roma. They really started very fast iteration, hyper casual games. And now the engine that they build and the technology that they build allow them to basically launch super high quality games that are becoming casual games and generating, you know, hit driven kind of revenue scaling, which is very big.

8:36And so, you know, you have signs at the beginning, but you also assess over time. And that also defines the way you reinvest over time in a company, which is a big component of our job. And you mentioned that the best way for founders to potentially raise is start building relationships like six to nine months in advance. You also mentioned that in some cases, it doesn't really happen like this. I know you've invested in Mistrau, so I'm guessing the round went also pretty quickly. With AI companies and such high valuation, like how do you decide you know like to to make that call and and invest early do you only focus on the team do you focus like because you don't really have time i guess to to see how fast the company can iterate like what's what are your tips uh you know when it comes to it i mean there are different examples mistral is a little bit also particular because you know we are with uh with He's the CEO, Arthur Mensch, more or less of the same generation.

9:38And so we know a lot of people in common and also very good friends of friends. And so basically, I've heard of him and I've known him for a long time. And so basically, when someone of your circle start to build something, you know, you heard of him from people who know him very well, deeply personally, but also professionally. And so the diligence is actually happening over the years. And that's the beauty of being local when you invest at the earlier stage. And now we are talking about pre-seed, pre-revenue, pre-everything, right? Because we invested in Mistral when they had no revenues. And so when you've been in an ecosystem for a very long time, you track a lot of profiles and you hear of a lot of people in a good or in a bad way.

10:29if you hear about someone in a good way once and a second time and a third time, it means you have to double click, right? Just because, you know, when you talk about this friend who is just amazing, you know, professionally speaking and always, you know, getting promotion early and performing so well at one of the big companies or one of the best startups, I mean, you double click and you start spending time with these people, right? So the diligence is actually happening over the years for many companies. For other companies and for people typically that are maybe not in my circle or not of the same generation, it can be older people, it can be younger people, it can be other circles.

11:09Then, you know, you need to have said that very early and in real time. So I can give you an example, but, you know, two companies, one, you know, Swyll, when I met Loic, it was really, you know, what we call love at first sight as VCs. And, you know, I just knew after five minutes that we have to, you know, we have to backhand. And so it was at a time where they didn't have revenues. They just were launching a new product because it was a pivot. And the end of the advantage is that I had already digged into that market. So I knew there was an opportunity. And when you have already dug into a market and the right entrepreneur comes in front of you and pitches you something that you want to hear, basically, because you feel these are the good answers.

11:52And you have an intuition about the right things to do in the space. you know you you want to do it basically and uh and loik is uh you know i knew after five minutes and i think after three days we did a we wrote a term sheet and obviously now you know the company is very big and it's a unicorn etc but uh i mean it's also you know the revenue scales i think they published their numbers it's like 250 million of of rents and profitable so it's a real sustainable enduring company actually like first world maybe we can build up on this because um i think they did something like extremely smart where they acquire another company that was like a leader and that was making like maybe four or five times their revenue like at that moment are you still on the board like is that something you you like watch out from afar or were you like I don't know in the discussions when they they decided to to acquire that company maybe you could share some stories about it yeah so uh I I mean at that moment I think I was still on the board and I was I mean, I invested in Swal when I was working at my previous firm.

12:56So it was called ID Invest. And so we let, you know, the big seed or the pre-series A. So it was the first round for that product, which is the benefits products. So, yeah, I mean, that was a big, a very big move that, you know, I think the CEO worked on for a very long time. You always have to, you know, it never happens overnight with things, right? You have to think about it ahead of time. and it really happens over 6, 12, 18 months sometimes. And it was an incredible move in that market, right? Because what is interesting with Swile is that it's typically a company that was targeting an oligopoly.

13:32It's very difficult to target an oligopoly. So there were three, four players and they were locking the market. And so when you target an oligopoly, you generally require a lot of money to get to a point where you can then scale. And so Swile is typically that example that raised a lot of money with not so much revenues at the time to get to a size that they could compete. And when they got to the size and the growth was very, very impressive when they acquired the other player called Bimpley, which was a little bit of a legacy player. They knew that this would unlock so much synergies because it's a market where the more scale you have, you know, just the better company you can build because you have a lot of the corporate effects coming with the scale.

14:18From an investor perspective, because like if I remember correctly, like Swy was growing extremely fast, as you mentioned, in the tens of millions in revenue. And Bimpli was more in the hundreds, millions of revenue, but pretty flat or like not growing like a lot. I've got two questions. The first one is, how do you engineer the structure of such a deal? Because acquiring a company that's bigger than you technically or that's making more revenue than you? Technically, it's something that no founder would think of. And the second question is, yeah, let's start with that one and I'll jump on the other question afterwards.

14:56Yeah, so, I mean, the difference between Swyland and Vivi was not that big. Okay, okay. But, I mean, it was, there was a difference, but it was not that big, just to mention that. And then, you know, it's funny that you're saying founders are not thinking about acquiring bigger companies, but, you know, why not? Why are you not thinking about it? The question ultimately is what's the best setup and who is the right leader to build the compounder and, you know, the consolidator, if you need to acquire companies or just a compounder, meaning you can compound, you know, over the years to hundreds of millions and at some point billions of revenues, right?

15:37And so BVT was part of a big group And obviously Swyland was the leading independent player with a lot of innovation, a great innovation pace, a great brand. And so I think the two companies together decided that under the Swyland brand and under the Swyland leadership, leadership that would also welcome, you know, the strength of Bimpley leadership and the strength of Bimpley customer base, the synergies would actually be much more than one plus one, right? And so how do you engineer the deal? You have to be Loic. So you have to be a founder who thinks differently, out of the box, bigger, right?

16:19And so, you know, you should never think of an acquisition because it's too big or because It's too small, but just about how together you can really build the biggest company possible at the fastest pace possible. And then, you know, economically, you have to make it work. Right. And so we managed to find a way to make it work for everyone to be very happy about the deal. you know, the deal and BPC, who was, you know, the owner of BIMK, they are now a very big, if not the biggest shareholder of Swylle. I think it was, yes, it's like 20 % something. So the deal was a mix of shares and cash. Is that correct?

17:04Yeah, so I don't know exactly what I can say publicly, but generally it's always, it's most of the time, it's a mix of shares and cash, especially. scale-up requires another company so I think what was interesting for me in that case it's like we often talk and you mentioned it earlier in the beginning of the episode it's like unicorns it was a term that's been used a lot and we've seen in the last year like some billion dollar company just go to zero Swyld obviously is definitely not part of them as you mentioned profitable in the hundreds of millions in annual recurring revenue. But still, you know, like whenever you look at private market valuation, you see that the multiples on this market are usually like a lot higher versus public companies.

17:59And publicly traded companies are usually like best in class because they manage to, you know, reach that IPO level. So do you think that in the structure of the deal, the fact that you can have like a super high valuation as a scale up, can actually help you and be a competitive advantage in acquiring maybe like or merging with more legacy players in order to leverage basically like the value of your stock? Yeah, I mean, that's, you know, it's a very good question, but it's also to acquire a legacy player or a new player. I mean, you know, it doesn't make a difference. At the end of the day, I think the question is, you know, is high valuation, you know, a good thing to basically acquire companies, you know, with stocks, right?

18:42And so I'm in an exchange of shares. And I think this is a strategy that a lot of companies are using. And it's a great way to acquire companies. So basically, if you are the right compounder and you have the right leadership, of course, it makes sense to have, you know, to coin a pretty high valuation to acquire entrepreneurs or companies that can, you know, create additional value. And I mean, recently when you see companies like Deal, which is an amazing company raising a very small amount that I think it was 17 billion valuation. Obviously, this company is very profitable. So the goal is obviously to call you an evaluation.

19:17Why do you do that? You do that to acquire a company, to prepare for an IPO, to potentially do secondaries for employees or attenders. Nice. Yeah, that's cool. And if we go back maybe a little bit on the process side, because I think you mentioned, you know, like the part that you've built among the years. So I know like you meet with hundreds of entrepreneurs every year. Maybe you could share like kind of like your system on how, you know, like do you make sure to follow up with the right ones? And also like how exactly do you create deal flow? because I know that I think the first time I talked with Headline, it was like six years and a half ago or something with someone from your team also in San Francisco.

20:06And they kind of shared, you know, all the tech stacks that they were building. And I think this is quite interesting. So my question is like, maybe you can walk us through, you know, like how do you keep managing and building your relationship and maybe like explaining if you score founder when you meet them or if you have like a specific way of keeping the right relationship and then like go through the full pipe from sourcing to closing with the tech that you have actually built internally. Yeah, so I mean, you know, Headline is now 25 years old and so the team has built incredible tools internally.

20:43And so our approach is really to combine human plus machine. So human is, I mean, at the end of the day, the value of a venture firm is a lot about the humans. I mean, and we are trying to hire to build the best team internally. So, I mean, I work with, you know, an exceptional team in Paris, two investors that are, you know, probably part of the best of the generation. And we are trying to build this, you know, great investment teams all over the world. And because a lot of our work is, as you said, it's network based. It's how do you, you know, give the pattern recognition of what a great team is.

21:20but how do you also, you know, win the heart of founders so they want to work with you, right? And so you have to build the best, you know, in testing team. So that's, I think that's the core, you know, principle. But we combine that with a lot of technology. So we had a lot of engineers internally and we built a lot of tech and we built two pieces. One is a sourcing tool called Deep Dive. And so basically, you know, Deep Dive takes millions of data points and it can be on many different fronts. It's not only about, you know, how a company is growing its HR, which is generally a signal that triggers interest for VCs.

21:57Because if you hire, it means that you're growing, you know, in a way or another. But we're also tracking many, many, many other things that shows growth of a company before you actually grow the HR. Nice. And we have our secret sauce, you know, of doing that. And so we're very systematic. when something appears on our tool, we basically reach out and then we start building the relationship. And then we have also a data-driven approach when it comes to analyzing the KPIs of a company, whether it's growth or very specific venture capital KPIs that you know very well. I mean, net dollar retention, gross dollar retention.

22:36So everything retention, efficiency of the spend and all other metrics, basically. okay, and we have 20 years of benchmark. So typically, let's say someone from the team looked at Lemlist six years ago. We can compare with a new generation Lemlist and assess, is it growing better with Lemlist? Is it growing better than peers of their new companies now of this generation? So we can say, between the seed and Series A, or between the zero to two million or three million or one to 10 million of AR, this company is growing much better with better economics, with better retention. So we are very data-driven in this approach and we combine the two to make the best investment decisions.

23:21Is it something you keep to yourself or do you also like put it in common with other VC firms? Because if you have like, you know, like that many data combined, I think it can potentially be like super powerful also. Yeah, so I mean, so we don't, I mean, it's proprietary. Yeah, it's proprietary. Okay. You know, only headline using this. But at the same time, we work a lot with other VCs. I mean, a big part of our job is to collaborate with other venture investors. It can be business angels or earlier investors in some companies we want to invest in. It can be later stage investors. And actually, it's an interesting academic and research topic.

23:58In the U.S., the people who did the research on venture capital, maybe not the most interesting research of all time, but still very interesting work, So that the main source of deal show for a VC, no matter when and what cycle you look at, is other VCs. You know, that's what comes from, you know, thousands and tens of thousands of interviews and basically research in this space. And so as a VC, you always collaborate with the rest of the investors to find spots, understand which companies are doing well. And that's a way to gather data points. so let's say you know you have an in the middle m this has an investor an early estate investor and i would try to understand you know with uh with this investor what companies is working well why is there you know a new hire a new contract something that shows you know an inflection point in terms of you know go to market etc so we gather a lot of information through the vc community that's why you know founders always said that they say that vcs you know gossip all the time and repeat everything there is a truth to that uh and i can tell i can confirm no it's nice and actually it's quite funny because um i remember like back in the days um headline was on one was probably like the first uh like serious vc phone to reach out with and it was like pretty accurate you know like all the data they had i know they were like checking traffic, backlink, like a lot of I think there were like hundreds of things and they kind of shared the backend and it was pretty impressive so I was like, okay, this is actually pretty cool so congrats on that We actually we do Xemis for the reachouts which is funny, right?

25:49Our work is not the promotion podcast but it's funny so we re-automate all the reachouts and all the vanilla That's cool and there is something also like you mentioned earlier that i wanted to dig deep because it's maybe you know you can walk us through when whenever you you dig in into a specific topic because you mentioned it with swile you know you had done like your research for a lot of time on a specific vertical you were like mapping all the players and the opportunity and then there is this founder who comes to see you and he has like the same analysis that you have so like how much time do you spend on one vertical?

26:30And maybe can you explain how it's structured among the funds? Yeah, so that's one of the reasons why I joined Headline initially. Why? Because we have so much intelligence globally. So because so many people work in so many different cities, we know what's happening in the private market. So typically, if you say, I want to dig or I actually realized, I realized that the US team, they've been looking at three, four companies in the same space. Let's say, I'm going to give a very current hype, whatever space, but let's say AI customer support. So there's like two or three companies that are raising seed series A's with great funds.

27:15We spoke with the founders and they have an initial traction that is amazing. and then you talk to someone in Asia and similar things are happening and so then you would say, okay, there is something happening in this space. I'm going to spend more time and the great thing being a VC is that you can spend time with the best people in the world specialized in a topic and learn very fast in something. So you speak with the best founders on a topic in the US and other regions and then in Europe, I'm like, okay, I'm going to look for something that is actually building in the space and that has a right to win in Europe because the space is very big and some new, you know, an innovation and something is happening in the space.

27:57It's going to lead to the creation of very big companies. And so I'm not saying we're trying to invest in copycats, but we're trying to assess what's happening on a global scale. So basically we can have a very high degree of intelligence and information on a new trend. And maybe five, six years ago, it was less relevant because there was less innovation. But today in the age of AI, so many new things are happening all over the world that when you learn about a new trend and you're very fast, you're able to invest in the category, whether it's the first one or the fast followers, which sometimes can be more interesting.

28:31And so that's what we're doing. And when we do sprints on something, we call it roadmaps, it can really be over one, two, three, six months. And then you have enough knowledge to invest in the space. If you have not done that in that period of time and we speak with all the founders with all the players we form convictions what works what doesn't work you know and then you meet the 10th founder in the space so the fifth and you say okay what is saying that makes a lot of sense because we have spoken with a lot of customers a lot of players and we think this is the right thing to do to win in that market nice so when you mention you speak to customers like you reach out to them maybe you you look on the website and you see like, I don't know, like five or six people like giving testimonial, reach out to them directly or how does that work?

29:20So first we have a pretty big base also of MPs and we work with a lot of corporates and we also, we have a lot of corporate network in every city because we're local. So I'm, you know, I'm in, let's say in charge of the corporate network in France. And so I have a lot of network in there and same thing in Germany with my partner, Christian Miller and same thing in the US, etc, etc. So first, we have access in the networks to a lot of people that can help, whether they're customers or leads or the ICP of this company. And so they can give a lot of details about benchmark competition, etc. And then when we can't reach out to the customers, we use platforms that help us reach out to experts.