E244 | NEUVC | Martin Krag, byFounders on the journey to partner, firm culture and coaching courage

0:08Welcome to the first episode of the special series NewBC, hosted by Freddie, an analyst at Isma Capital and Linda, an associate at Karma Ventures. Today, we have Martin Craig with us. Martin is a partner, I think we can say it now, at Buy Founders, a seed fund looking to back the best tech founders in the new Nordics. We spoke to Martin to hear how he rose to partner in four years, the firm culture and coaching that encourage him to do so, and of course, his own secret source to access.

0:41Martin, thank you so much for being on the show. We're super excited to have you with us. Please introduce yourself. Who are you? Why are you here? What's your superpower? Yeah, thanks a lot for having me. So my name is Martin. I'm an investor at an early stage fund called ByFounders. We are investing in and focused in what we call the new Nordics, which is like the Nordics and Baltics in our mind. And we're a sector agnostic fund, mainly do software investing. But we have what we call an impact mandate as well, meaning we are able to also invest in a bit more frontier tech stuff that is shaping the world around us.

1:16So that can be like health tech and climate tech and biotech, tech bio, whatever you want to call it. So a bit of both atoms and bits on the front side. And I think what makes Bifounders stand out a bit is the whole community aspect of building the fund that we have done. So we have what we call a collective of founders from most of the region's unicorns. So that's like Clio, Cahoot, Zendesk, Pipedrive, PopLake, et cetera. Plus a ton of operators from like US companies like Uber, Com, DeepMind, Airbnb. And all of these people have gathered in the fund and have convinced them to also invest in the fund on fairly good terms, meaning they don't pay any fees.

1:58They don't pay any carry to the fund. In exchange for that very good deal, they have agreed to also help our portfolio companies when we invest and also help us as investors when we look at portfolio companies or potential investments. So I think we have succeeded in creating some sort of incentive alignment around a broader community of people. And when we started the fund like five years ago, there was a large gap in the market, at least in Denmark, where we are based and also in a lot of the rest of the Nordics and Baltics. And there was a large gap in the market for founder-focused venture funds that also had a global network and a global outlook.

2:35So I think we were one of the first funds to actually, being raised by former entrepreneurs and former founders with a heavy focus on operators and community. I know many funds nowadays have some sort of operator network or collective or whatever you want to call it. But I think we were one of the first, at least in our region, to formalize it to the extent we did and trying to align a center all the way around. So that's something we're pretty proud of having been able to accomplish. And yeah, we're now investing out of our second fund of 110 million euros. Personally, I joined also close to five years ago, four or five years ago.

3:12Before joining, I was both a founder and an operator, and in both cases in bootstrap companies. So I'm not an adventure-backed startup. And prior to that, I spent four or five years as a professional poker player. A bit of my background there. But I joined us, yeah, 2018, I think it was, as one of the first employees. And then we were in the middle of fundraising for Fund1 then with two founding partners who had not any background in VC. They were like founders and to an extent, angel investors, but no VC experience. So it was kind of a startup when I joined and we had like, you know, balls dropping left and right and needing someone to pick it up.

3:48and run with it. And that was my first role there. So the founders, the founding partners knew what they wanted to do, but maybe less of an idea how to get there. So that's what I helped with. I didn't have any background in VC either, but from tech at least. So I was a quick learner and helped formalize a lot of the processes around the whole setup as a first-time fund. So yeah, that's it. And I've been there for four or five years, having led eight or nine investments and send it on boards on a handful of companies. So yeah, that's me. You've sneaked around the superpower question very skillfully, Martin.

4:26Yes, that was also a very top question and a very extensive list of things I could either be or wanting to be or having a skill set up. But I think maybe two things stood out. It's on the complexity busting side, which is, I think, a bit of a signal to noise understanding. I think that's very, very useful in VC. You know, we get a ton of information. There's all things going on. You need to be able to dive into the core and understand that fairly quickly. And the other one is around decisiveness. I think also as VCs, you need to be decisive. You need to be able to perform decisions based on incomplete information.

5:04And you need to have a mentality of, you know, leaning in when you're 60, 70, 80 % sure of something and just like go with it and make a decision right so you don't have the luxury of getting to 100 % full information and knowledge and etc so so those were two that stood out at least i think it's pretty rare at the precedency do you ever get to that sort of 100 % on on every single topic right but we have a number of questions we want to jump into but there was one that sort of stood out from your intro that i'd love to know which was you you at ByFinders had this amazing collective how have you leveraged them for your own benefit and your own learning as you sort of have been at the early years, especially?

5:45I think we have, you know, leveraged them in all sorts of ways. First and foremost, they are like operators and founders. So they have been through the hoops, right? And they have, you know, taken the journey. Some of them are like one or two stages ahead. And some of them are like unicorn founders, right? So they have seen the whole spectrum of what it is to start a company from scratch. and they can help us when looking at companies, but even more so, they are helping our companies that we have invested in. Sure, but sorry, I was sort of meaning as Martin the analyst or Martin the associate, how did you personally?

6:22I used them to understand the spaces and sectors that I was not that sort of deep into. And I used them for understanding what does great look like. I think that's one of the first things that you're trying to calibrate towards when you're new in VC. you can easily get carried away by great ideas and great people you meet but eventually you need to like decide on a very small subset of people and companies you can invest in and calibrating towards what is not just good but actually great is something that's very hard to do and you it's it's almost basically like a numbers game that you need to see enough good people to understand like okay this was number 100 i saw and this this founder is actually like not just good but great right so so they helped me calibrate towards that because it's easy to put like you know them up and say like they were and also actually the other way around you know you can also have like a ton of questions like is this really a founder who can go all the way right and then you can calibrate towards some of the unicorn fires and when you talk to them they are very open about all the mistakes they've made and very open about what they don't understand and what they're not good at.

7:32So it also gives you an image that you don't need the founder you are wanting to invest in or looking to invest in to have the full package. It's okay to have blind spots and you can still go for. You've touched upon the fact that when you joined by founders, it was very fresh as a fund and you were very fresh as an investor. And now, you know, four or five years has gone by. So maybe the first question being, how has your role changed over a time and you've done an incredible quick progression through the ranks in ByFounders as well. So are you just superhuman and able to learn super quickly what the rest of us are trying to do in what's 15 years?

8:13So what's the secret of that? I think I have the luxury of having joined a very, very nice team where there is not really a hierarchy. When I joined, it was really, you know, what you are able to pick up and run with. you had the opportunity to do so. We have built the team and the firm around the sentiment of letting the best ideas win and a very proactive culture. So if you join buying founders and are a self-starter and have a great idea and abilities to execute on it, there's no one who's gonna, you know, tell you not to. So I took that upon me very early because, you know, as one of the first employees, there was all sorts of stuff dropping into my lap and something I also had to pick up myself.

8:58I took that upon me and was very heavily involved in doing both the strategic direction early on and the portfolio construction and investment strategy and processes and all that sort of things. So I think maybe my responsibility, I've taken them for myself, but also they have increased incrementally over the years. So it's kind of just feel naturally to gradually move into this role, right? Maybe the core kind of skills, what do you think kind of related to that? Is that quick learning? You kind of talked about that earlier. Is it adaptability? Is it, you know, what is it that you think has been influential on that?

9:37I think curiosity and the ability to learn quick and the willingness to do so. So as I said, no one was a trained VC at the firm. So, you know, we had to pick up pieces from our network. We had to like read a lot and listening to podcasts, blogs, books, all sorts of like starting the whole history and the industry, right? And then getting up to speed and then combine that with the willingness to take initiative and, you know, a setup where it's actually, you know, we recommend that you take initiative. And I think, you know, if you have the willingness and the ability to do it, then you can move pretty far with Adbox founders at least.

10:16ByFunders is almost a startup in itself, you know, a five, six-year-old startup. And the sort of, they touched on the sort of the learnings that all these sort of founders in your collective have, you know, of course there are, you know, mistakes on the way, but what are those big learnings of being part of a core founding team in a VC that you've picked up over the last five years? I think we have made some mistakes and not, you know, we had a ethos of, you know, testing stuff out and trying a lot of stuff. But in that way, you can also end up, you know, being spread too thin and not having a core focus of this is what we actually do.

10:53This is what we want to be extremely good at. And then we want to be like, okay, and other stuff. And then there are some stuff we do not want to touch on at all. Right. So you can easily, and I think that maybe it goes throughout venture. or you can always spend more time on almost anything, whether that's investments or vertical thesis or events and networking. And there's ample opportunities to fill your calendars with all sorts of things, right? So getting to the focus and being like, this is what we do, this is our core, and this is what we don't do. I think it took some time to get there, but increasingly getting better at it, at least.

11:30At least I hope so. I think that's a really good point, though, on finding out where you need to be spending your time. You know, as an analyst, you could book up every night of your week with some kind of event or drinks or, you know. One of your key superpowers is being decisive. So how are you decisive in what you choose to focus and spend your time in? I don't know how I'm like explicit about it, but I think to me it comes sort of naturally. And I think you can get caught up in the whole networking setup. and we have people at our fund who are extremely good at that and I use that as their main source of investment opportunities and startups.

12:12And then we have other people who are good at being more proactive and diving into verticals, et cetera. So for me, I've been more on the other side, I think, and being more proactive and hearing around companies and who's out there rather than doing VC calls back to back. But I think it's very much up to like, you know there is not like a winning recipe one or the other i think there are there are good opportunities in both ways of working i try to focus very much on you know also the boards that i am on and then the companies that i work with they come they come first and i tend to spend a lot of time with them and that naturally means that you know i have a big set of hours i could use on on the networking and events etc so it's always a trade-off and i'm not you know claiming that i can you know always make the right choices there but i try to think of it as as at least we have a finite amount of time you know bigger bigger impact on on some stuff and less impact on other stuff how would you define the role of a of a partner now kind of going through the whole the ranks differently so you know did you realize that you were ready for a partnership role and then there was like a specific you know if you do this you become one was it more of a progression where it was kind of agreed with the current partners that, hey, it seems like now you're ready to take the leap.

13:32So yourself, how did you realize that, how did the partnership realize it and then what did you learn now looking back? What could have you done differently or what is there to kind of give as advice to others? So I think at least for me personally, it has sort of felt like a partnership for many years given the responsibilities and the tasks that I have taken on and getting from the team. So with us, we don't have that formal structure. There is a partner that needs to be on the second call with a founder, et cetera. It's very, very fluid with us. And we have actually young people who could come in and actually need deals.

14:15And when you're able to do that, you also get a shorter time to prove yourself. And that's a benefit with by founders, I think, and a benefit that I have enjoyed. So having been able to lead some good investments and being a good partner to the founders that we're invested in has moved the needle, I think. But it's something that has happened incrementally, I think, with us. And we have had a discussion back and forth for a long time that this is the direction it was going in. And now afterwards, we have actually been more formal about building out a whole career development plan at ByFounders from analysts to associates, investment managers, principals.

14:57And this is what your responsibilities look like. This is how long we expect you to be in this role. This is what you need to do to progress to the next one, et cetera. So that was definitely not something we had when I joined. So it was very much like, I don't know, choose your own title and work on whatever we have, you know, that sort of thing. But now we have been way, way more formalized and structured around building the team. And I think it's super helpful for the people coming in after me, at least. Now they have like line of sight of what it means to work the by-finders, what does it mean to work in this role and what are more like midterm and long-term objectives and aspirations here.

15:37So you have clearly defined roles now. something you didn't have back when you started and so that helps all your new hires who come in everyone how are you thinking about you know it it will be a very their experience at five founders will be very different to yours how are you thinking about your how you deliver your training to them we are very explicit about you know first when they come in one of the first thing we do if they are new to the industry is like get them down and trying to align on both like their short and midterm aspirations, but also what does it mean to be a VC? What does it mean to be in venture?

16:15And what are some of the mindset that you need to adopt to actually get into that mindset for an entry-level hire that is new to the industry? So we try to pull forward the learning curves by calibrate the thinking around this like outlier nature of venture because it's easier when you're, I think from the outside, venture can look quite a bit different to what it is on the inside. And that's always nice to calibrate people when they come in and help them a lot. And I think that's something we have worked quite hard on to be better at and something that helps our new hires very, very much. So it's everything from thinking about the outlier nature, touching on the math behind the venture model and the portfolio construction.

17:00What are the companies that we're looking for? how should they actually progress over a short period of time to be able to be these outlier nature companies that we invest in. And that's very different from when you look at maybe when you look at the industry from the outside, you come in and you just want to like invest in startups. And we go after a very narrow subset of these startups. So calibrating new hires to that is something very important for us. And after that, we do like weekly one-on-one. two or three times a year, we are having performance reviews and trying to understand where they want to go in the future.

17:39And we have examples of joiners who would like to go to a portfolio company in one, two years from after they're joining. We try to already map that possibility out for them early on and trying to figure out where they're strongest and where they can help our portfolio companies, where they have their interest. And some are very adamant that they want to be in venture for 10 years and even further. And then we try to, you know, to see how we can make that happen and, you know, put them on that trajectory. But I think it's very much like setting the expectations and understanding each other's like long-term aspirations is very helpful.

18:15So just being transparent around it is something that helps a lot. And it's one of our core values at Bartholomew is both in terms of internally and externally. So yeah, that's something we spend quite a bit of time on. Maybe a bit more of a philosophy kind of philosopher related question. I don't know if you'll have an answer to this. Oh no. I think many VCs struggle to kind of promote people and have this good pipeline of people coming up to firms and those few then have succeeded in that. And your experience working with other firms and seeing other people in the industry, why do you think that is?

18:52What are the kind of core things in the VC industry that, you know, is it the wrong hiring? Are we targeting the wrong people? Is it that the VC industry as a whole has some strategic disadvantages of promotion? Is it that we're not allocating enough time of it? What is your take on it? I think there are numerous reasons for it. One is, of course, like on actually generational shifts in VC, you're giving up a piece of the pie that you have earned or you feel entitled to. Maybe you are entitled to it, right? So that's at least like a high-level incentive structured thing. And then there's another aspect of, I think, VC for, I mean, maybe not now, but at least earlier, kind of a cottage industry with a very top-down approach, very few folks.

19:44And that's all you needed. Now it's becoming way more professionalized. So you have like whole teams and you kind of need that career progression to be able to get the best people. and having the best people to stay because otherwise they're going to be outdoor fairly quickly. And then you have to start over. And as a fund who actually want to build not just a fund, but a firm, we also spend a ton of time with people and the culture and that sort of thing. So you definitely need to be able to give new hires a line of sight of what can my future at this fund look like in two, three, maybe seven, 10 years.

20:25I'm not saying everyone who joins will be on the partner track, but it's definitely a possibility at ByFounder to, to, to come on the partner track as a new joiner, if you're, if you're putting in the work and you're good at what you do. Yeah, it's almost like you, you still need to be an outlier within ByFounders. You still got to be the best in ByFounders to pick up the top. So sticking on that theme of, of, you know, new joiners, what do you hope your analysts and associates come to you with? What would you advise those young professionals in the industry to come to the partnership and ask around progression?

21:00That's a good question. I don't think I want them to come and ask. I think we try to be very, as I said, transparent, right? What do people want and what do they want to achieve? I think we also transparent, and as you said, we want to see outlier performance. That doesn't mean you need to make all the right investments and never do a wrong one. Definitely not, maybe even the contrary, But we need some sort of evidence of you thinking outside the box and not being one of many, but being one of 100 instead. I think we apply the same logic to the investments we make to the people that we have to keep it.

21:42I'm very proud of the team so far. So I think we're doing something right. Obviously, you have a great plethora of people at ByFounders. You know, people have been progressing in different roles across the board and obviously yourself to partnership. But ultimately, I think the responsibility still relies on the partners. So do you think it's up to the youngsters to really make enough of an effort to get that trust from the partners to make these decisions on investments? Or is it ultimately still on the partners to kind of guide and be the final kind of, you know, gate to get through? So how does that transfer over time?

22:22Yeah. So we have a framework of, at least when it comes to investment decision, to have at least a partner being positive, being a yes. It doesn't mean it needs to be a strong yes, but then we need a strong yes from somewhere else in the team, right? And that can be from one of the other team members, an investment manager or an associate. So that's essentially the framework. We can definitely make an investment happen if there are like two or three partners that are against, but one partner that is for. So we try to not, you know, contemplating a consensus investment decision. And I think, I mean, some of our, you know, best performing companies, I think we were the most, you know, disagreed on.

23:03And I think that's very common. And so for us, it can be like also, you know, associates and IAMs taking a deal from start to almost to finish. Sometimes we also throw people out on the deep water and having them trying to negotiate terms and being the front there. And then we and the partnership support as much as we can. But having other people lead and learning by that, I think we are actually cultivating the rate of learning and making the rate of learning faster by doing that. And also then we get to see actually who has it in them to go for in BC if that's what they want to do. Let's talk mistakes.

23:45What are those common mistakes? What do you see as the avoidable mistakes that the junior team traditionally made? I think one that I definitely made myself and one that I see again and again is that I touched upon before with not fully understand what great actually is, but being overly optimistic. optimistic is not the right word, but being like, when you join a fund, you want to make an investment, right? And you desperately look to make that investment and maybe you find something and you kind of fit it into the box and it confirms all your thesis or works or whatever. And then you just want it to get it done, right?

24:33So I think the first one, two investments, especially when I made them and maybe that also other people make, or when you look back at them like a few years after you're maybe like, I could probably have, you know, sat on my hands a bit and getting up to speed and understanding the whole industry of not just venture, but also the startup industry, et cetera, a bit more and met more people and, you know, getting the flywheel going before being so pushy about buying the money. Just so I'm sort of understanding the takeaway from this point, it's almost sort of being a little bit more patient and, and, and so less rushing into it.

25:10Yes, I think that's the takeaway. Obviously, we also have examples of the opposite where you have someone coming in and their first investment is just like sort of a home run. And maybe that's a lot, maybe a skill, we don't know. But I think in general, calibrating and getting up to like cruising altitude before you make decisions is always a good idea. Do you think that having been a founder before gave you an advantage maybe getting that what does great look like faster? obviously you've kind of touched upon the other operators that you kind of work with as well but you know sifter has been releasing articles about you know we need more operators we need more people from the industry becoming investors so you know does that help i don't think it helped me and as i said i was mainly in bootstruck startups so that was like a far you know between running a small shop that is never meant to raise VC dollars, is never meant to be an outlier.

26:08And then raising VC dollars and trying to build that massive company, like a big step change between the two. So it did not help me. I think what helped me more was actually my past as a poker player, because that's fairly easily translatable to a lot of the decision-making you're making as an investor. But on the whole debate between founders and operators, I think it helped. helps to have been in the shoes of starting something from scratch. You have empathy. I also think maybe you can over-index a bit on your own experience. So it's always good to, ultimately, it's the founder of this and the driving seat of the company.

26:49And that's always the case with us. We're not there to run your company, even though we have a lot of great people, people great at running companies, but we're not there to do it. So we can give our perspective and we can compare notes of what we have been through and what our people in the collective have been through, but ultimately it comes down to the founder. But on a mindset, I think it makes it easier to empathize and just that, but maybe not that much in the day-to-day. I think it's for the founder to forge their own journey. And if they are to build an outlier company, it's not like there is a recipe for building an outlier company, but less than everyone would be able to do so, right?

27:29So they need to also do like contrarian things and then force new ground there when building a new company. But do you think you do new companies slightly differently because of your background? Or, you know, obviously I think at BioFunders, you all have very similar backgrounds in the sense of some sort of operator experience in almost all of you, I think. But does it change the way that you approach it versus, I don't know, comparatively to maybe other investors that you've spoken to maybe come from different backgrounds? I think we sometimes can be caught up in dreaming a lot with the founders and we can like see the possibilities and be like, this is like an amazing idea.