#178 Eduardo Ronzano, Secret Fund - The Super Angel Podcast

0:03Hi, and welcome back to the European VC, the go to podcast for everything European VC. If you love the show, share with your friends and join our newsletter at eu.vc. Welcome everyone to a very special feature of one of our Super Angel episodes that we did together with Anthony Dannen from Kakoa. We've gotten so much great feedback on this one that we decided to just give it a special little bit of love here on EUVC. Yeah, exactly, David. And I can get why as we got into some very interesting conversations with Eduardo and Anthony about follow-on investments, ownership target, and the likes, which obviously is something you all care quite a bit about.

0:44And as Andreas and I have spoken about, Andreas is a bit of a fanboy here, so he doesn't give a lot of pushback anyway. All right, let's get into it, everybody.

0:57Is this a dream? No, it's not a dream. I'm an angel. Why would God send me an angel? Because God knows that everyone needs a little coaching down there. I'm loving angels. I saw an angel. All angels sing. For long days. Please sing. It's me an angel. The smile on her face. Being in it together. But don't love me, Angel. Thanks, let's buy an angel. Girl, girl. Hi, and welcome to the Super Angel Podcast. The go-to podcast for angels backing the next generation of European unicorn founders. If you love our show, do drop us a review, share it with your friends and join our community at eu.bc. Today, we're happy to welcome you to Eduardo, a Spanish tech entrepreneur and angel investor.

1:46He founded Keldot, one of the top online booking platforms for hospitals in France and sold it to NEHS Insurance Group. Eduardo is the Managing Director of Secret Fund, an undercover entrepreneur fund based in Paris. If you're an angel listening in and wanting to get closer to the European angel scene, do not hesitate to reach out to us. We'd love to connect and see how we can play together. And now, some words from our beloved sponsor. How are you currently reporting to your LPs? Is fund administration taking hours? Are you getting lost in spreadsheet version control? Well, Flow solves all of these issues and more, allowing you to unlock the power of your fund's data by consolidating your work streams onto Flow.

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2:52Welcome to the Super Angel, Eduardo. We are so happy to have you with us. Thanks for having me, guys. I'm super excited to be here. I must say I was so positively surprised I managed to persuade you, Eduardo, to come to the pod. So I'm super excited to be getting you out of the shadows. Thank you for joining us. So let's get started. I mean, we'd love to hear your story, your background, and what got you into angel investing in the first place. Sure. So I was born and raised in Spain, actually, in a small town called Bobao. I was actually surrounded by entrepreneurs. My dad was an entrepreneur.

3:19My granddad was an entrepreneur. So I actually was kind of like maybe destined to be an entrepreneur at some point in my life, but I didn't know. And so I ended up studying engineering in London, did a double diploma in France, then went into renewable energy before it was cool in 2008. And I actually got into tech, I think by the weirdest way. It was in an investment bank focused on tech that was doing a fundraising and M &A for entrepreneurs. My first deal was Captain Train that Index did in Prec. And I remember meeting that team and I was like, wow, these guys are amazing. I want to be like them.

3:54I want to get into this world. And that was probably how I got into this. And then after 18 months doing deals, I was like, okay, this is boring. I don't want to be a banker. And so I went on to start my first company with two co-founders, which was Keldoc, a medical booking platform in France focused on hospitals. So basically we raised funds from Alvin, Angel, scaled that to gathered about 20 % of the French market. And then we sold the company to a big insurance group called M &H. And it was at that point where it was kind of a rough entrepreneur journey in the sense that my dad was very sick throughout the whole period.

4:28So I was weekends in Madrid in the hospital, weekdays in hospitals all over France trying to convince hospital directors to go into the new age of medical booking appointments online. And it was tough, to be honest, because it was, I mean, the two worlds kind of blurred in. But when I sold my company, I was like, OK, I should start a new company. And then I had this chat with my mom and she was like, I don't feel you. You're not optimistic. You don't have the energy you had before you started the first one. So maybe you should do something else. And I think it was my mom's that actually got me into angel investing.

5:00Because at that point in time, I told myself, okay, what can I do if I'm not going to start another company? I'm not going back to banking. That's for sure. It was then that I said, okay, I have a pile of money. I have no interest in spending it in anything flashy. So let's just put this money to work with the people I like. That's how I actually got started. And where do you get started, right? Like you decide that and how do you get into the weeds of the ecosystem and start interacting with people? Like if you take a step back and reflect, is there anything you want to share on that note? Ever since I got into the investment banking, I started meeting founders.

5:31And I love kind of like challenging them, helping them out in the stuff that I knew about. I think I was doing the prelude to angel investing way before I even started Keldon. I was just helping founders out, connecting them with someone else, helping them find an employee. helping them do their deck, free help, free advice. And I think that eventually got me to getting intros from other founders and just rolled into that world. And then I couldn't stop it. I think between 2016 and 2018, which was the period I was a full-time angel investor, I must have seen 1 ,000 companies and I invested in only 30 of those.

6:07I was very, very, very lucky, the ones that actually triggered the investment. But yeah, I mean, it was quite natural. There was no point in time where I said, I want to be an angel investor or I want to be like this guy who's an angel investor. I think it just gradually cut into that. What changed from the first period where you then concluded, ah, this isn't for me, this is boring, I want to start a company, to then after it's going back to investing and saying, ah, this is actually for me, it is actually cool. Well, I mean, I think the main difference was I was a banker, right? So I wasn't really investing the money.

6:37So I was seeing the entrepreneur. I was kind of like learning everything about the company. I was amazed about them. I really wanted to work with them. But then the deal got done. You get your fees and then ciao. And then another founder comes and I'm like, no, no, no. I like those guys. I want to stay with them. I want to see what happens. I want to see if the company actually succeeds or not. And so it was quite frustrating. And then when I came back as an angel investor, it was completely different because I was often the first check in and I pretty much never sold in secondary. So I was just really, really committed with the founders and on the same boat in the sense that since I only wrote that first check, I almost never did a follow on check.

7:18I almost always had the same vision, the same kind of like incentives that the entrepreneurs had. So to put an example, if an entrepreneur received a term sheet for 10 million and a 50 million valuation or a 5 million and a 25 million valuation, I could actually tell the entrepreneur, take the 5 million. That's a better investor. You'll be happy. If I was doing a follow-on investment in that company, the entrepreneur would turn to me and say, yeah, of course, man, you want the cheaper price. And I think that that was a bit of my mantra from the beginning. I wanted to be in the trenches with them, helping them out and kind of like being as objective as possible.

7:57I mean, there's obviously some other episodes down the line where you can have a conflict of interest. But I think 99 % of the road, except maybe M &A, you can actually be super aligned with the entrepreneur. And that's what I like doing. And Anthony, can I pull you in on that one? Because that sounds a lot like things I've heard about your style with Cocoa. Tell me a bit about your reflections on the same model. Yeah, with Cocoa, we like that purity of the model, right? I mean, first of all, by being an angel versus a fan, right? For me, I had been a lead VC for like eight years or so, right?

8:27Number one, the moment you're an angel investor, they're not pitching to for a term sheet, completely different conversation. We love that. You're aligned with them. You're by their side, right? That the relationship of trust you can build is exactly what we're playing for with Cocoa as well. And we believe that kind of gives you access to the very long term and actually gets you very, very close to the founders themselves. And that's so rewarding, that connection you build. It is, right? And if you think about it, we do all the hard job for getting the smallest check, but it It is actually, someone told me once that, you know, the most of pre-seed and seed investors actually do it for the passion of being by the side of the founders by design, because it's the most unscalable thing, right?

9:02If I just wanted to make loads of money, I could sit back and do Series C and do large checks. And so, yeah, we've gone to that extreme with Cocoa. And I think to add to that, you know, we see that that positioning of alignment is very valuable and it only comes uniquely by that structural incentives alignment. And so we do like that purity of the model that Eduardo mentioned. So we also don't do by design from that fund, like follow-ons, right? Or by design baked into our model. I am knee deep in the VC space every day. And VC common wisdom is you do an early ticket so you can do your pro rata afterwards or double down when it goes well.

9:36I hate that wisdom, to be honest. There's not that much of de-risking happening in most startups from pre-seed to seed. And for that reason, you might as well take your bet early and then put all the money as early as you can where you get the highest stake as well. I'm curious to hear your take on that because the common wisdom really is the opposite, right? Of course. But I mean, I think it's a trap. I mean, in the sense that there's always an ingredient missing in that wisdom, which is reputation. Your reputation is probably the most important thing as an angel investor, as a VC, because if you do ruin it or if you start having a bad reputation, I mean, there's so many side effects that come.

10:14You start receiving less deal flow. When you actually get the deal it's harder to get in cap tables. And the problem is that it is true that with absolute winners, it would make a lot of sense to kind of like double down in each and every round after your first round. I think Peter Thiel famously said his worst investment decision was not doing the Series B of Facebook because he thought it was too expensive and whatever. And that's probably true. I mean, if you kind of like isolate the best company in the portfolio and then say, yeah, I should have doubled down on that one in Series A, Series A, Series B, and maybe Series C, and even D.

10:49And if you're talking about Google, you probably want it even to participate in the IPO or even Amazon. But at the end of the day, you need to ask yourself, why are you doing this? And also, even if you're looking at it from a 100 % economic equation, if you're a fund and you do follow-on, most of the founders you've backed expect you to do a follow-on in the next from, whether you've been high performing or not. So it would make a lot of sense to say, okay, I'm only following on on the Facebook or on the like that super deal. But the reality is that most funds end up following on on maybe 50, 70, 80 % of their portfolio.

11:26And then all that cash gets diluted into companies that are not that exceptional anymore. So I kind of like two approaches. I like either not doing follow-up or doing it all the time and kind of like being out there and say, we're going to support you. We're at least going to put pro rider. We're going to put double our pro rider in each and every round. I think first round does that. Point nine does that quite a bit too. There's a few funds that are there and they kind of like made the reputation from it. We'll back you. Even if you're not the number one horse, we'll back you. And I find that that's amazing too, but it's a different model.

11:59Again, this is common wisdom, right? You don't then lead the next round. You don't go in and set the terms of that. You follow on someone else's terms because you don't want to, you know, be then bumping up your own portfolio. Or, you know, I'm always like, yeah, so that's what I'm afraid of as your LP. But at the same time, I really want you to leverage your position. If you want to put more money in, then do it before anyone else are ready to and do it on terms that only you can get because the founders love you for what you've done and what they want to do with you in the future. I think that there's a whole flawed, you know, view on common wisdom there.

12:28I agree. No, I know. I think Eduardo has touched on all of the relevant points. Like in the end, you're playing for the model and the position you want to be. So remember that it's a long-term gain. So whether you do Prorata or not, it says something about your positioning, the access you want to have. But also it comes with both swords, right? If everyone could perfectly pick their winners and only invest in their winners, of course, that would make for better economics. Not most of the times the case. In a bull market, you didn't even know. And the valuation was 10 times higher three months later.

12:56And you had to do so. You then get the reputation. So you need to do Prorata for your reputation. So you sometimes have to put bad money after bad money. So there's many sides to it. At the end of the day, there's many different ways of doing venture. As long as you have a model you're optimizing for and systematic or all that, that's what matters more. And what do you enjoy also? Like at the end of the day, there's people that actually enjoy being that hand that helps the founder in their next round, et cetera. I think Anthony and I, we help the founders a different way. We kind of like help them build the deck, the narrative, help them with the intros, help them kind of like understand VCs because it's very different when you've done a pre-seed only with angels or with angels or micro VCs.

13:32and then you go on to kind of like the big leagues with seed and series A funds. And how do they think? How does a partnership work? How do you get across the line to get a term sheet at the end? How do you negotiate? How do you choose your VC? All those questions, I think you're much, much, much more relevant to kind of like answer them and walk the founder with them if you're not participating in the next one. And that's what I enjoy doing. I think Anthony does too and Carmen also. You also need to be authentic and kind of like choose your battle, choose where you're good at and where you can help the founder, I think.

14:00Any few or one you want to share with the audience that a particularly memorable deal that you've done over the time? Okay, I'll tell this one. I'm purposely going to kind of leave the name because I think it was the funniest deal I committed to. I remember this was back in 2016. So this guy called Sasha calls me up and he was building a social app. And basically, he pings me with this graph of like zero to one million users faster than Facebook, Twitter or any other social app that was out there. And I was like, Whoa, I'm intrigued. I want to know more. And so Sasha tells me, come to the office.

14:39Let's grab a coffee. And so I walked to his office. The office was, to be honest, really not that glamorous. It was really a very kind of like a dark building. There was almost no light. It looked like a cave, basically. So I get into the cave and I see Sasha, the genesis, and the co-founders. And we basically get talking and I'm like, okay, guys, okay, let's get to the real stuff. How did you get to 1 million users? And then Sasha looks at me in a very kind of like detective way, almost like if I was a police. And he says, come upstairs. And so we started going upstairs to this shitty mezzanine they had on top.

15:20And then I see like about 50 smartphones connected to a computer. And I see the smartphones flashing all over the way. And I'm like, what is this? And he's like, yeah, you see that computer? Basically, it's orchestrating all the smartphones and it's pinging people on all other social apps. So basically, the competitors of these players and telling them how cool our app is and bringing them to our app. I was like completely blown away. So I said, like, dude, I'm committing. I don't care how much revenue you're doing. I don't care how much you're raising or the valuation. I'm in. And yeah, that's probably the deal where I was like the most taken off and where kind of like I didn't need to learn more.

16:01I just like love the team. I said, if they managed to do that on their own, what else can they do if they have some money on the bank account? Tell me, I mean, interacting with people like that, backing people like that, going through their ride, what would you say has given you both personally, but also professionally? I think my biggest takeaway was personal. It's kind of like making friends, not that I needed friends, but really connecting with people very deeply because with people like Sasha, I was there for the good times, but I was also there for the very, very, very bad times. And I think that's when you really make the bonds and when you really kind of like connect with those founders.

16:37And that's why they recommend you to other founders. And that's why you get a reputation. But getting to meet those people and getting to confront my ideas, be challenged by them, I think I've gained so much. So I have to say the people, the founders, that's the number one personal takeaway I get from angel investing. And the second, from a professional perspective, I think I gained a lot of perspective. When I was a founder, it was the grind. It was like, okay, we need to sell. hell we need to. And I never had this kind of like 10 ,000 feet view where you go above and you see how other founders function.

17:12You see how they think. You see how they challenge you. And so I remember at the very beginning of annual investing, I was like kind of like trying to transpose my learnings from my startup onto every single startup. And very quickly, I realized that was stupid, that I had so much to learn from them. And I had so much respect to gain. And I think to date, probably 90 % of the lessons I give to founders, I've learned from other founders. The 10 % delta is the lessons I kind of like the stuff I failed at where I can definitely tell founders, don't do that. I did it. It was a mistake. I love both those points.

17:46And I think it's incredibly important to note exactly the last part that you said about not, you know, taking your own views too much into angel investing and forcing it on founders because that is the path to health for most investors. There's an analogy with that that I love. It's like, you're not a football coach. You're a boxing coach. What's the difference? A football coach, he's going to select the players. So he has a lot of power. He's going to be the one saying, okay, the striker's going to be him or the goalie's going to be that. A boxing coach, he can train you. He can be there between the rounds saying, look, man, hit him with a jab on the left side or be careful, he's hitting you in the head and you're not covering yourself.

18:27But once the bell rings, the founder goes back to the ring. And so you can only advise them. You can only prepare them. You can only... But the moment you start getting into that ring with them, it's a recipe for failure, if you ask me. Oh no, not about the thesis.

18:48First question here is really, could you just give us a grand view on your investment strategy and thesis? How many investments have you done? How many investments are you looking to do? What were you focusing, both skew and vertical and so on? To be honest, when I started, I didn't have a grand thesis or anything like that. I would say to date, I've done 120 investments. I'm kind of a generalist because when I say generalist, I have to specify within the software and hardware realm. So my strategy is really quite simple. It's based on three parameters. First of all, do I understand what the founders are building?

19:22And do I like the world they're imagining? And that kind of like factors out any biology, chemistry play, just because I had known nothing about that. I studied electronic and electrical engineering, studied computer science. But outside of those realms, I know nothing. And I've actually passed on really, really nice companies just because I couldn't understand if this was really something amazing or not. So that's number one. Like, do I understand? And also, do I think it's good for society? So I didn't back companies that were doing supplements for vitamins and stuff where I thought maybe this will help some people, but it can also go wrong and it can also harm a lot of people if it's not done properly.

20:03So I tended to kind of like stay away from businesses where I was afraid it could degenerate. Number two is basically how much upside is there in this? Like how big can this be? And this is a question some of the great investors ask themselves, but a lot of people forget. They always think about the downside. They always think of like, this can fail and there's this risk and this risk and there's too many risks and this is going to fail. But the fact of the matter is like, if there's no, there's really no risk, there's probably not that much of an upside to go and get. So I really like thinking about upside.

20:33It helps me a lot thinking, what if everything went right? What if they really managed to do something amazing and capture 20, 30 % of that market? And that helps a lot because I mean, at the end of the day, your downside is always going to be the same. It's your investment. your upside is very different. Each deal is, and it's very hard to calculate, especially in pre-C because sometimes a founder pivots, sometimes they add layers of a product that you couldn't even imagine that could be there. But I think it helps to just kind of look at the category as a whole and kind of like be imaginative.

21:06Okay, what if that goes right? What else could be at it? And then this kind of like build an upside thesis on that specific company. How do you think about market sizing and also taking kind of market timing risk? I also think that, you know, as VCs, we have this about upside potential. A lot of angels do and should, some don't as much. A lot of it is about scalability and what it could become if all stars align. Some of it is about looking at today and where it could go. And some of it has to do with the time dimension as well. I don't know if you have any specific views on that. I know a lot of investors have different ones.

21:39I mean, to be honest, I do not think of it too much from, I know it sounds when I say upside potential, everybody thinks, yeah, that's what you need to do. It's a return, blah, blah, blah. I don't really think that way, which goes with my third factor that I look at, which is will I enjoy working with this human being for the next 10 to 15 years? Which is today it's become pretty much the number one criteria because I have 120 investments. And so each and every one kind of like dilutes my time. So I really want to make sure that I'm building a cool relationship with someone I like. And so when I think about upside, it's more of like, how impactful will this idea be?

22:14And how many people can I touch? Or how many people can this founder touch and me indirectly help him touch? I don't think, for example, I can't remember what VC backed Google, but I don't think they could possibly imagine what Google is today. Or even Amazon, it's an even better example. Who could even imagine AWS when, like, even when they, when it IPO'd, it's impossible. But there was something about the vision of the founders that was huge. I mean, Google was, they had this indexing all the data in the world in their DNA. That's huge. I mean, is there a limit to that? It's very, very, I like it when it's hard to imagine a limit where you're not thinking about how big it is, but you're kind of like blown away by, wow, that's huge.