E325 | Patric Hellermann, GP of Foundamental: On investing in the recreation of the real world

29:583D and design? Because that's a bit of an odd one. So it looks odd, right? But if you, again, if you consider like in 3D and computer-aided design, in the end, you have two sectors. You have architecture, engineering, and then you have manufacturing. Architecture, engineering, and construction is actually the largest demand sector. So here, Autodesk and their product suite would be a dominant player. But you have Hexagon, you have Nemeczek, you have Trimble, And then you have like 500 different specialty softwares that address that. And then the other side is like the manufacturing CAD here, Dassault System, for example, PTC, Siemens.

30:34They deliver like decades old softwares. But because the first one is the larger one and addresses architecture, engineering, construction, and the planning and design stage before the supply chain kicks in can influence certain procurement choices, can influence how optimally you get to deliver the project. it's one that can define the project outcome very early. And so that's why we feel like, you know, when you do ConstruTech, you should do this. And now a surprise question. Everyone talks about generative AI. And what I'm always curious about is, okay, generative AI, obviously there's some applications for it.

31:13But the big question is where does the puck maybe end right now? So within your vertical or verticals, does generative AI really impact a lot right now? Or is it more like, no, not generative AI, but all the other AI that we've had all the time, that's obviously ML and very important. But generative AI, only important in 3D and design, as an example. I think you picked it exactly right, Andreas, intuitively. So in 3D and design, or by extension 2D design, whatever generative AI can have a very big transformative impact. We need to build a little bit more data infrastructure, but we're nearly there in that vertical.

31:55So to give you an idea, also again about another vertical quirk of our sector. So when you're an engineer on a construction project for an oil and gas platform, for example, you would not believe andreas the amount of 2d drawings like paper you know of the plant like the amount that they do is crazy why because they need to do markups and then send them around etc and so the amount of companies that have proposed oh can you please just eliminate 2d drawings it's way more efficient if you do it in my 3d software that have gone bust i think that list is very long because 2D drawings, they are efficient in their own way to communicate certain markups, et cetera.

32:37But now here comes the twist to Gen AI. To generate a 2D drawing out of a 3D model is actually not simple. It takes a lot of work. So instead of eliminating the 2D drawings, Gen AI that generates 2D drawings more easily out of 3D can have a massive market within this. So that's an example from that sector. Yeah, yeah. Do you have a portfolio company doing that? I'm looking for a portfolio company. Yeah, I imagine because that's an exciting application. Okay, very cool. Okay, now I want to shift to another thing. And this is a slide from a big piece that you're going to put out as well. By the time we put out this episode, it will be out there.

33:19So we'll link it to it in the show notes. And this slide shows the headline here being sector patent, how long it takes sectors to raise venture funding. And then you say, this is why you bet on Construct Tech in 2019 and today. And then you show your sectors versus prop tech, logistics tech, travel tech, mobility tech, fintech. For the ones watching this on the UWC or YouTube or wherever, you'll of course be able to see this on the screen. but I'm just describing for the ones only listening in. So you have these six sectors described, stacked on top of each other, basically. And then you describe how the total VC funding has developed since basically the inception of the category up until where it reaches what you define as the tipping point, which is 50 billion in funding.

34:16So could you maybe tell us through or talk through how you see the other stack up against construct tech and why you see it as such or why you think this is so important. So the origins of this analysis is actually before we decided to do fundamental, when we looked into our category, because none of the three GPs in fundamental actually come from construction. And we're going to talk about that as well. So we had to convince ourselves from a macro perspective that it was worth dedicating our careers to. I'm now 40 years old. This is my plan A. I don't have a plan B either, right? So I needed to be right about this one.

34:51So that's when we started. And what we realized, I think we analyzed more sectors than fintech, mobility, travel, logistics, and prop. The pattern still held is that once you crossed 5 billion in cumulative VC funding, it takes every sector between 2 to 4 years to get to 10 billion. 5 to 10, 2 to 4 years. From 10 billion to 50 billion, again, the pattern holds. It takes 2 to 4 years to get from 10 to 50. Overall, the journey from five to 50 is always six to eight years. We haven't found like a meaningful deviator from that, from any of the big VC categories. And when we did Fundamental Fund 1, first check out was January 2019.

35:32We were at 4.5 billion. So right before the 5 billion mark. And of course, you do a lot more analysis when you decide what to bet on, etc. This was not the only one. It would be way oversimplified. But in the end, it was the one that kind of captivated us the most and that we've kept tracking since then. And as per December 2023, so four years later, sorry, five years later, we were at 30 billion. So from 4.5 to 30 within five years. So we have two to three years more to get to from 30 to 50. I think we're exactly on track. I think the bet played out. It's such an interesting way of thinking about it.

36:09And I really enjoyed seeing this slide because it's like it's the LP perspective where you're taking, you're betting your best years on this and you don't do it like, you know, well, I kind of think FinTech is the thing, so I'll do that. But you said this is like where we're seeing inflection. So I think this type of analysis is very interesting from an LP angle. Well, also, specifically, I'm a venture partner with ISM or Cavill, and what we sometimes talk about is when is the sector investable? And it's, of course, a matter of the number of funds that's there, because if there's only one fund doing it, then it's like, well, is that really the best team?

36:51Might be. Might also not be. So I kind of want to see a critical mass of funds investing in this so that I can see what does an A-team look like. And then, of course, there's this perspective, which I'll definitely take it to Joe from Isomer and ask him, have you thought about markets in this way when you evaluate a new fund in your frontier market or frontier vertical? So very cool. Very interesting analysis. And cool to see that you've seen it play out. Just one more remark there before we move further, Andreas. Of course, it doesn't end at the 50, right? So I think that's important, right? I mean, the eight years to get there are pretty awesome, I guess.

37:31but like, hey, let's get from 50 to 500. That's the bet. Yeah. It's pretty funny because it's actually a very similar analysis to what the Play Bigger team, the guys behind the Play Bigger book, did on the Time Tour IPOs, where they came up and said, well, almost all, 90 % of all unicorns or something like that, have gotten to the unicorn size within, I think it was six to eight years at that time. and then they're seeing that it's moving to actually be a little bit later. And then they said, what's the ideal IPO window and so on? Because what they said is you typically IPO when your company reaches dominance of a category that's established.

38:15And that then overlaps with when companies emerge as a unicorn. Now, let me go to another slide that I wanted to pull up. And again, I'll describe it a little bit so we can talk about it. And that's the slide that you have on the market where you're really just describing the waves of technology. It's called fundamentals wave thesis. I think that's an interesting take. Tech transforms in waves. And then we have these three lines of, I was about to say adoption, because that's where we know them from, the adoption curves, the S curves layered on top of each other. And you have a first wave that's called 1 ,000x more data.

38:58And that's also what you've described, right? You're really betting right now on the data infrastructure because that's what we need. And then we are on the brink, I think is what you're saying, or on the upper echelon of the second wave, which is the AI and ACID light wave. And maybe you can talk a bit about that connected data pools and workflows. Yeah. So the last, ConstruTech is not a new category in itself. So, I mean, it's not like Fundamental was there, whatever, when the category was born. Not at all. So ConstruTech or AEC technology, you could even make the argument has been a 50 years category because computer-aided design for that, you know, that was invented in the 60s.

39:47But it's just never really seen enough macro capital allocation to really build up the transformational ingredients to the sector. And that started really 10, 12 years ago when Procore was founded in 2004, but Bessemer did its first round into Procore in 2012. so eight years after and with Procore it kicked off like an adoption among customers in the western world of new project management tools oftentimes they would be quite isolated though so they would help you to do certain issue tracking or ticketing certain time stamping around a construction site and and so all these different functionalities created more and more data that previously was running in spreadsheets or even on post-its.

40:39You wouldn't believe the amount of post-its in a construction container on site because it's a simple tool. But so it digitized a lot of that information. But it's actually not connected. I mean, not to poo-poo here, but if you look at the tech infrastructure of Procore, for example, how you manage instances in order to log in into different instances, it's not easy. so the data doesn't talk to each other so now we have all this this these amounts of data but in the end how do i automate anything on top of it in an isolated way i can do it but once i want to really steer my workflows across a project across the supply chain very important i need to find connectivity and i need to find a level of harmonization of the data so that i can make it talk to each other and so that's where the um where the connectivity comes in and that's also wear what we call like asset light in a marketplace.

41:33I think that's intuitive what we mean by that, but also in a software or service sense, once I've delivered the service, generated enough data pools, but then I connect it, I can graduate to an asset light type platform play. An example here from my portfolio, because it perhaps sounds abstract. So Speckle is a portfolio company where we led the pre-seed round in 2020, and they've just done a tremendous round, which I'm not allowed to not just yet. And what they are doing is for all the 3D models around architecture and construction, you will typically have lots of specialty software where you load a 500 megabyte file of the model.

42:14And then Andreas, you would do something on the model. For example, you would do a fire dynamics analysis or fire simulation analysis to be more correct. And I would load the model and I would do something else. I would move a wall. I would split a wall. I will do some water analysis, et cetera. So you have your file. I have my file. Boom. Like I mean, the nightmare, the file is big. It doesn't get shipped around, et cetera. So what Speckle does is it's like if Notion and Google Docs and Microsoft Word could talk to each other in real time and you can stay in Notion and I can stay in Google Docs and a third party can stay in Microsoft Word and And yet everything gets synced in a Git way.

42:55Everything gets branched and committed in a Git way. So that's what Speckle does. And that's really the second wave of a sector like ours is when the different data pools that exist get connected and harmonized in a way. And then the third wave is what I think, for example, we see currently with the offer of Schneider Electric potentially buying Bentley systems. Schneider,$120 billion. Bentley is a large infrastructure software company. So Schneider is looking to buy them. So consolidation. Why? Well, I imagine because Schneider wants to become a one-stop shop for infrastructure. So that's the third wave where sectors transform in our mind is like through such consolidation.

43:33That consolidation is obviously interesting from an exit perspective. I guess it also means that from a technology perspective, that's where it also you can take a startup from the ground up and build something that will take ownership all the way through and disregard what's already in place. So the former, I'm highly convinced of. The latter, I'm looking for it, but I haven't seen it yet. But yes, in the thesis, I think you can absolutely make that argument because in the end, what you're trying to do is take ownership of end-to-end workflows. You could do that as a startup through roll-ups the way a PE would, But perhaps you also get to build something that actually is sort of an all-circumpassing wrapper.

44:21Speckle is the closest in my portfolio to that thesis. Before we go away from technologies and into more strategy and normal VC lingo stuff, I want to ask you about something that always puzzles me, and I think it puzzles many. how come we haven't really been able to get pre-manufactured or just improved how we build houses? Because it's like it seems so dumb. I'll respond to that, but I'll start with perhaps from the other side, but I'll still come to the same point. So people ask me oftentimes, Patrick, why do you think that on-site robotics for construction is going to be bigger than off-site construction robotics, off-site manufacturing robotics for construction, which I think it's a very, very valid question.

45:14And the reason why I'm more interested in on-site robotics is because in the end, every construction project has a lot of local constraints. There's the weather. If you do an urban infill, there's going to be a house left and right and a street in front and a garden in the back, which constrains how I build, how I get access, how I organize my logistics. Keep in mind, Andreas, it's a supply chain business. So if I build in the middle of Wyoming and there's no constraint around me and it's like flat land, no elevation, nothing, it's a perfect spot to build something that I designed in a standard way off-site and I can put it on top.

45:53There are these projects. It's just they represent, with this set of constraints, they represent the vast, vast, vast minority of the constraints that you would typically find around construction. Another constraint is consumer taste. And so consumers, the more money you unlock for your personal life, the less you want to live in something that looks like everyone else's. It sounds silly, but it's another set of constraints that you operate against. And so I do think that moduli and offsite do have a place. Absolutely. It's just not the large part of the market. And then think of construction.

46:28We're building industrial plants. We're building office buildings. We're building warehouses. So all these different categories where if I think of offsite, I actually oftentimes need to dedicate to a category in order to then make offsite work. But I could probably not build offsite for all the different categories that make up the construction GDP. Which means, you know, the more I can manipulate against the constraints locally that I have in my project, for example, on cyberbotics, the more I tap into a larger market. Yeah, I get that. I get that. Makes sense. And then I still, but okay, you have the startup that does bricklaying basically automated, which is something that you would think like, why hasn't this happened before?

47:15And I guess that since you've made that bet, that's also what you're kind of saying. we have the tech, it should be pretty manageable. And the cost, because it's so many man hours, that is something that's ripe for. Exactly. And it's a perfect example. I sometimes get hate from some 30-year construction people. I'm sure. Automating bricks is stupid because bricks are small to be handled by hands. And I'm like, dude, did you not pay attention? It doesn't mean you can only automate a brick that is hand-sized. You can also automate with this a brick that is a cinder block that is this big. The reason why bricks are brick-sized is not only because of hands, but also because it allows you to build more flexibly and to also do the logistics in a more flexible way.

48:05That's why not every building is built with 10 by 10 precast modules. As long as something satisfies the first principle behind that, I think bricks are, for example, bricks are going to be here to stay. It's just they will look a little bit different. But in the end, it's a good reason to have that size of a module stacked on each other on a site. That's super interesting. So funny to talk about something that we all touch in some way or form, right? Now, you talk in your letter, which we'll put out, as I said, with the episode about some fallacies, normal VC firm fallacies around basically the models that would then say, okay, this is why it won't work.

48:52Could you maybe just cherry pick a couple that you're ready to share? I mean, the fallacies here that you're going to see as when we release the episode, they're all phrased in the form of quotes. there really is selection, et cetera. So let me perhaps more abstract to, I don't know, the bigger point that we're seeing here. AECS, the technologies that the sectors that we dedicate to have so many vertical quirks that generic advice from other sectors is actually not applicable. I was giving an example earlier about, hey, if I come from a B2C marketplace experience, I will tell my B2B marketplace company, hey, minimize the amount of touch points, terrible advice.

49:32It's actually not working this way. Right. And so I've seen so many fallacies over the years that are being applied to our sector where I say, I mean, I can't believe it. And oftentimes it comes from the same place. That's the point we're making. If you invest early stage in B2B verticals and especially the really tricky ones like ours, a company does not become obvious by its numbers until the A round, sometimes even the B round. Once it's obvious by the numbers, I can come from any background as I want. All I need to be good at is interpreting the number-based signals, and then I can invest.

50:12Before it's obvious by the numbers, though, I need to have different insight or different heuristics to make the right pick. And these heuristics, if they are not by the numbers or obvious, I need to look under a million rocks, and I have to gain routine and practice in the quirks of that market. And if I look at agriculture and then health tech and then pharma and then ed tech, consumer, 365 days a year, and I look into this one vertical once a year, I will not be able to see the quirks of this sector. But if I don't realize that, that's when I'm going to give shit advice. That's when I'm going to say these things that I just said.

50:50And so, you know, be cautious about those things. Like once you're obvious, take the generic advice. Yeah. And then maybe let's, because this might be the perfect setup then to ask you about, you and your co-founders do not come from Construct Tech or this vertical before. So how, first of all, so we've spoken about why did you pick it? You looked at it from the LP angle, so to say, and said, okay, it looks like this is ripe for a VC fund that's focused on this. but I'd love to then understand how did you get yourselves up to speed where you feel like you're the value-add specialized investors in something you haven't done before?

51:36So VC is a humbling business. I think we all always say that. I can tell you that construction is a humbling business. So the intersection of the two has got me really humbled. I really have to say that, which is me saying, you know it it takes us many many years of always looking under the same rock so when I now we're in in year six of doing fundamental and when I see the the exact same part of our market again because I've looked at the exact same part of the market let's pick an example from like that a lot of generic investor friends that I have look at in Europe right now ERP software or or general project management software for smb installers like i've looked at that market probably 50 times in the last six years when i see one i'm i'm fairly confident of my decision left or right i know what to look for i'd still be wrong i'll still be wrong occasionally right so that that's obvious but i'm fairly confident that i know what to what to pick whereas if i if i were to do this once over the last six years where i have to figure out what questions to ask what quirks to look for, and so on.

52:46So in the end, the answer to your question, Andreas, is just repetition within the same context. That's the only way how we gain it. Which I think is fair enough to state it like that. Now let's go strategy and fund model because you are a bit different there, or at least you have some parts that I like to see in venture funds. But let's maybe just start with me asking you, could you just build the contours of your strategy and your fund model here? and then we take the discussion around your philosophy afterwards. It's built really on four components. So we're vertically dedicated, clear. We're global.

53:23We haven't touched upon that. So actually, we invest across the continents. What we don't do is China. We don't do any of the money laundering problematic countries, of course. But generally, we will have... You didn't bundle it into one. No. It's not bundled into one. and so we'll we have portfolio relationships from australia to colombia on a allocation model level the first checks we allocate pretty much equally 30 percent each to north america 30 percent europe which is continental europe for us so not eu it will include uk and switzerland and israel and turkey and then 30 asia pacific including australia the follow-ons we invest where the opportunity in the portfolio is the biggest.

54:08So that's how we do it from that perspective. Vertical and global, we do early stage. So we lead day zero companies before there's anything. We'll lead seed companies or co-lead. Occasionally, we might leading or co-leading a smaller series A if it's still not obvious to a general investor, but we find it obvious. But that happens perhaps once or twice in a fund for us. And then leading Bs or so, we don't do that. Follow-ons we do across stages, of course, like wherever the opportunity is the biggest. And then we're going to talk a bit more about that because you prioritize preempting as much as possible, which I think is super interesting.

54:48And I guess when you say only one or two Series A's, that means as the first tickets. So you will more often lead as follow-on investments. That is correct. So you are global. That means that you're the one and only GP in Europe and you have one in North America and then one in Asia and Pacific. That's right. Could you maybe open up a bit about why did you choose to be global? Oftentimes you see a three-person partnership fully focused on Europe. Yeah, so there's some philosophy behind our setups. And a lot of that was actually informed by my partners who come from... So one of them was a partner at G-Squared in San Francisco.

55:30The other was a partner at K Capital in India, which is like the leading Indian seed fund. They had very strong opinions about fund strategy, fund model, fund setup, and I'm glad they did. So first of all, here's some interesting math to my European VC friends, who I hope they have done, but I'm not so sure everyone has done it. So if, for example, you're having a billion under management in Europe, which some funds have across funds and strategies, and you're promising your LPs, Andreas, what do they promise? 3x. So I need to generate 3 billion out of the AUM that I have. If I own at the exit 10 % ownership and all of my investments are in Europe, that means just from my fund platform I need to generate 30 billion of enterprise value in Europe.

56:23That's one fund in Europe. And then I have a swath of peer funds across Europe who've done the same promises. So in the end, Europe needs to produce, I don't know, from all the VC that's been allocated here, you tell me, 300 billion of enterprise value, 3 trillion? I don't have the math. But like, if you do it on a fund level that way, I think fund managers would be absolutely shocked that they will never generate the liquidity that they promised. That's like a core reason not to dedicate to one region only and especially not to Europe. Now, I do think Europe has terrific exit potential for specific sectors.

57:03Energy, for example, is one of them. Building transformation is probably another one. We have very high liquidity in 3D software and design software in Europe. But then when it comes to like a lot of the other sectors across Europe, I don't think we have evidence enough to point to, hey, there's like this tremendous liquidity that will support all these fundamentals. managers to generate 3x. So if you're global, you can tap into way different liquidity. And India, for example, is like a very liquid exit market. If I should just talk or respond to what you said a little bit. First of all, obviously, 3x is what everyone promises, not what everyone delivers.

57:44Neither in Europe nor in the US or in India. So that's the first thing. If you actually were to do the envelope math, I think it would be a bit different in terms of what you actually need to be out there because you're only in the end, it's going to be a couple of funds that do the 10 plus X and then a couple of funds, another couple of funds in the five to 10 and a couple. So in that sense, there's foreign in between the ones that actually deliver above 3X performance. That changes the numbers a little bit. Then there's also another thing, which is most of, if you have a portfolio that will have those real huge outliers that return a very large fund, those funds will typically, if we're talking the plus 150, 200 million euro funds, which the latest fund iteration will be if they have a billion AUM, probably even going to be a little bit larger.

58:43then they will typically have crossed over to be in effect Europe first, scale to US, exit in the US, right? For the very large successes, that's just the journey they take. So in that sense, the exit market for that type of exits will typically be the US. That's a fair point. And then there's another thing, which is when we look at all the funds in Europe, and there's a reason why, I think I said it earlier, we're venture partners with and I was from a capital, my co-founder and I. And there's a reason why the strategy there is, we focus on funds where the sweet spot is 50 to 150 million, because those funds are like sweet spot for the European exit market.

59:26And you don't want to get too much bigger than that. And I saw James Heath the other day, one of the well-known LPs in Europe, also said it very well when he said, well, when I look at the math, There's not really much reason to do any fund that's more than 300 million, I think was the number he put. Because it's just, it's very, very hard to imagine they're coming more than 3x out of it. And if you only get 3x, there's many other ways to get that money or get that type of return where you don't have the liquidity issues and the risk associated to our asset class. So I think in the end... I'm nodding heavily.

1:00:06Yeah. Yes. For the audience. We have Patrick nodding a lot. And then I think in the end, we should also add in that being a venture LP requires a quite sophisticated setup for being able to pick the right funds. And that is something that's not well enough understood. And that's why I think we also have a lot of poor performance in venture. But let's get out of this hole, which is a bit dangerous to talk about. No, but I think it is important when you pick what regions to dedicate to. And I do have a feeling that some fund strategies in Europe are dictated more by, can I raise capital for it than can I deliver capital for it?

1:00:54And unfortunately, the IF has not helped here, in my opinion. Disclosure, the IF has not invested with us because we invest globally. I couldn't take them. But if your mentality is, okay, I mean, let's get this big one anchor check, but it requires you to dedicate to Europe, perhaps that's an over allocation on the wrong strategy on a macro level. So that's really something where I'm a bit skeptical of the European model. I actually, so how do you see the EIF impacting negatively? Is that because you see that country requirement or region requirement coming in there, which then fucks up a little bit the focus of the funds, where if they were purely commercial, they would be not only European focused?

1:01:39A lot of the thinking when I start as a fund manager, not everybody does it that way, mind you, but I think I have seen one or two friends that do it like that is, I think I can get an IF check. and once I have an IF check, I probably have a large enough fund and then I can raise something else. But it does come with that constraint. So now all of a sudden, I'm not reverse engineering it from the strategy to return a high performance, but I'm coming from the strategy, hey, where can I get my first check? I honestly think that in Europe we have a bit the opposite going on, which is I would ideally raise 50, but I only raised 20 because the best strategy that I wanted to execute, the team I wanted to have in place, so on and so forth, would work best with a 50 million euro strategy.

1:02:22But I'm a first time manager or a second time or whatever. The market doesn't allow me to raise that. So I'll actually scale my ambitions down and then my strategy becomes constrained by that. I actually think that it's more in that direction that we have issues. I also think that the EIF, at least as I know them, are very, they're not the actor that over saturates the market with capital. There's definitely other public initiatives that end up creating issues in their own ecosystem because the problem is, you know, then you get, it's always matched with private capital. And then all the private capital comes into a fund that was artificially made bigger and so on by public money.

1:03:10and in fact it maybe should not have existed, right? So those we have some examples of in Europe where we've definitely had public initiatives disrupting or skewing the markets in bad ways. From your perspective, I'm really curious, Andreas, everything that you just said and everything that I just said, do you think something like that is also going on and perhaps allocators allocating to first-time climate funds dedicated to Europe? So climate is actually the exact example. I can say this because Joe said it on the podcast that they were hesitant to commit to climate funds in the beginning because they needed to see, first of all, the market there, that it had to grow big enough for them to believe that it would sustain the number of funds.

1:04:00And then they needed to see enough quality funds to really have someone to pick between. So that's why they didn't commit for a period in the beginning of the climate, not bubble, but the growth of the emergence of the climate funds in Europe. I then think that, yes, climate is definitely one of the places where we have a higher LP appetite than in general VC. And that is definitely increased by the opportunity to put a super bluntly greenwash. But, you know, people putting money in where they feel that they like to contribute. So that's where they then maybe lower the bar. And there's many initiatives that has helped out there.

1:04:52I think we have also, I haven't looked at the market. Honestly, I don't think it's a climate problem as such. I think we have it everywhere. Because if you just look at the return dispersion on venture across the globe, We have a big issue in that some perform super well, some perform super poorly. And too many are allowed to continue performing super poorly. Agreed. And that is an LP sophistication problem. Agreed. And then also, some might call it sophistication. Now, there's another where it could also be to some extent, ulterior motives, meaning sometimes you do it because it's, you know, the guy who ran your family office before.

1:05:40So I'll just keep recommitting. What do I care? I get the money back. It's a small ticket for me. That's one thing. Then some do it for strategic reasons that they say, yeah, okay, the fund only returns 2x. But I'm investing in the assets that I think are super exciting. It complements my core business that I'm still an active owner of because I get to look into their portfolio and understand what's happening there. So it keeps me on my toes. So venture is a bit of a mixed bag for that reason as well. And that's what makes venture so difficult for an incoming LP because it's very hard to get good signal value.

1:06:17And you have the same thing even from the very large endowments that they're just looking to put a ton of capital to work. And for that reason, if you have a big endowment in a fund, it's not necessarily a big stamp of approval because what mattered to them was they had to put 30 million to work or 50 or 100. So it was just a matter of, I can't diligence 50 funds for that. So for that reason, it's going to go into this one. So all in all, I think that the LP side is a big reason for why we have the issues that we have in venture performance in Europe. And I do think that both in climate and in the rest of the European VC ecosystem, if you know how to diligence and pick and you're inside, you know the great ones.

1:07:06You know Planet A, you know Pale Blue Dot, you know new ones coming up like Regeneration and Nucleus. You know, those are good bets, I think. But then you have a ton that I'm like, well, they're not on my podcast, right? And if they're not on a podcast or someone who spent all their time in the ecosystem, maybe they're not an LP ticket either. But that's why we're doing the European VC podcast, because we're trying to say, build a foundation for LPs where they can go and say, I just met a fund manager. What other fund managers do we have in Europe that does construction check? Okay, well, not anyone else.

1:07:46But there is 21 VC. There is Planet A, as I said. There is AO PropTech. There is the guys in Contrarian that all do stuff in this space. So let me just take my meeting with Patrick and keep it, hold it up against my conversation or these podcast episodes. And then let me hear if I think that it sounds like Patrick is at least as smart as them. Good luck with that. But that is exactly what I'm hoping that we can have a repository of this is what good looks like in here. So I was coming at it from a slightly different message, Andreas, right? So my whole point that I was trying to make is I think it's a bad way to set up a fund strategy within the context of fund strategy we're discussing, right?

1:08:35It's a bad way to discuss a fund strategy from what can I raise for. That's what I'm saying. Whereas the fund strategy should be derived from what can I generate DPI for. What I'm then saying is that's the sophisticated LP's work as well, right? Right. You go in and then you say, does this actually make sense? And when you know that, you know, when you know the VC math, basically, there are definitely fund models out there where you're like, well, what you're planning does not make any sense. And that's where you have a big problem with large funds in Europe. I agree. So, I mean, that's another component of our philosophy is like we're capping ourselves.

1:09:16So for us, the second fund was 84. The third fund, which we're doing first closing, you know, it's going to be in the same range, perhaps plus 10%, whatever. But we're going to cap ourselves just because the back of the envelope math that we discussed, you know, I need to deliver as much DPI as I can. And if I just become too fat, you know, people will figure me out. People will know that, you know, I've had this one fund that was just too big. And, you know, Patrick had an extra amount of travel that was great for him. But in the end, bye-bye. And I think this track record industry that we're in, it can probably work for some people that don't have to deliver that anymore.

1:09:57I mean, we come into like VC predictions in a bit. But we're not that. For us, we can only sustain if we deliver and continue to deliver. And that needs to be kept. Otherwise, I cannot do it. Otherwise, I cannot do it. So small funds is really key for us. Yeah, I think so too. Okay, so what do we do, Patrick? We only have another seven minutes left and we have half of a conversation script that we wanted to talk through here. We have had too much fun during this. Oh man, I didn't realize. I think I would just like to ask you on the preempting follow-on rounds, I would just ask you really quick to kind of lay out how you think about when you make these calls.

1:10:39to go in before anyone else? And I think both in terms of what's the process for you internally to make that call, because oftentimes you see funds saying, well, okay, Patrick can't do it alone. He could do the first ticket alone. Now it's the whole partnership. Are they saying that it's still the core guy? How do you do it? The first check for us is always a 100 % consensus decision among the IC, which is the three general partners. So we don't do any champion tickets or like whatever, bang the table or sub-threshold tickets. We don't do that. On a follow-on, it's still the same partner that will do it, but it will gain a lot of scrutiny from the other partners.

1:11:19And what gets us excited then as a collective consensus is that we think the company will become obvious soon to external investors, but we can get a great deal if we preempt it. And then it's going to go up in the multiple very shortly and or the business is going to grow in the next 6 to 12 months in an explosive way. So we're going to, in the end, look for in a preemption scenario, look for multiple expansion coupled with a very strong business expansion. But again, not based on hunches or wishes or hopes or some whatever, you know, Uji board, but based on hey actually it looks like this what we've been seeing in terms of traction and in terms of like the market it seems like it's compounding perhaps one of the things we've discussed a lot but what we don't think is for us so we've discussed whether we should hire for example or bring in a follow-on partner or whether it should be another partner doing the follow-ons so we don't think it works particularly well because we invest globally and vertically every market again has its own nuances so if my asian partner did my companies you would lose more knowledge that you would win yeah i think you're absolutely right you lose too much information if you if you do that but it's definitely very wise if for the teams that don't have that late stage experience you're always a seed investor then preempting a series a might be difficult right so so adding in adding in or preempting a series b adding in a partner that at least has that experience to help with the work or have key advices that is just super important.

1:13:03Now, Patrick, we're rushing here. Personal side, I want to ask you because you have this quote in your letter where you're saying that you really prioritize being the guy who answers to founders within an hour. And then when I saw that, I realized, wait a second, that's actually been your track record on email with me. So I thought that was quite impressive. So I'd love to ask you about personal productivity, any hacks there, any philosophy that you have there. I keep my calendar clear. I lump all my meetings except podcast recordings, which I cannot influence into the afternoons. And I keep my mornings for many, many hours free to do exactly that.

1:13:49And also to do just thinking. And one of the angels that I admire, So Angel slash MicroGP has this philosophy of only taking two founder meetings a week. That's not my cadence, but he says, hey, I only take two founder meetings a week because the rest of the time I get to think. And that's my business. I need to take good decisions. It's not sourcing that is my problem. It's the good decision making. So I'm like that. And that means that my communication channels can define entirely how my day looks like. Two founder meetings, that means that getting a meeting with you is not easy. So that's not my philosophy, but I'm somewhat in the same, just from a principal perspective, I'm in the same ballgame.

1:14:32It's still a lot less than 20 in one day, right? Yeah. What is the process like? Because then you preload a lot of work before you actually take the meeting. What do you do that on the basis of? Do you typically have a long exchange with the founder? or is it just on the back of the deck diving into that? And if that's not good enough? Either comes highly curated. Either we know the founder for a very, very long time with lots of very positive data points, or there's something in the deck based on our knowledge that we say, dude, this just makes sense and no one gets it. Let me get into your advice to young people in the industry because I loved particularly one of your statements here.

1:15:14I'm going to have to guess which one that is. But I think one of the, what we said already, think from DPI, not from what can I race for. Find differentiation. It's like so obvious, but so underused. Advice, stay in the ownership. Do not try to, once you have success, it's very dangerous to then think, oh, now I can delegate all this. Don't fall into that trap. VC is unscalable. So whatever you do, if you want to delegate, Give people participation in your equity. Make them pay in because that's when you get the right amount of decisions. And then don't give a fuck about social signals. And then you say also most fund setups are screwed up.

1:15:55Find out if you're one of them. Yeah, so that's what I was referring to. So most fund setups in the end, the founding partners become a bit disconnected from what really happens. But they're usually the most experienced people who can influence the decisions in the most positive way. But once you start delegating a lot of the work out to employed investors who you don't then let participate in the equity, you're getting a really bad setup. Yeah, I thought that was the connection, but I just wanted to have this sentence because I thought it was very powerful. And I think you're absolutely right.

1:16:27You know, if you want to be a real VC, then you should try and really be in a place where you are allowed to participate in the partnership. Real quick, Matrix Partners is a perfect example that I admire from a fund setup perspective. as is point nine. I think they exemplify exactly how it should be done. Thank you for those shout outs. I love it. Three biggest learnings from the last 10 years in your life, just given to me in your very short statements, because I love them. You're not the product of your own doing. So whatever is being done to your success is a result of other people doing it with you.

1:16:59Secondly, there's a very high correlation between large venture success and caring for each other on the cap table. So I avoid founders once they showed me that they don't care for me. Deadlines get deals done. And then as a bonus, just I've learned the universe is bigger than we think. So just chill the fuck out. Something good will happen if you do good things. I love it. I love it. Then your most counterintuitive learning. And then I'll take us out of this with a song. I guess something that I actually did not write is that people care about social signals too much. And that comes then with her heuristics and they don't work in B2B particularly well.

1:17:38And then the other thing is that VCs at some point, you know, there's this risk that you try to scale yourself through hiring more or more team, etc. But it creates bad setups. Now, let me cue the music to get us out of this because I've made a song just for you and it's called We All Wear the Crown.

1:18:04Nobody in this world is on their own I like it. You reach the top They gotta build a zone Caring for others It's a crucial clone On the cap table Connections are sown Deadlines I'm trying to We create the most cringy podcast. And Zuno.ai is really helping me. I don't know. I kind of want to have this song. Yeah, all right. I'll send it to you. I'll send it to you. Did you write it to lyrics or was it someone? So this is all Gen.ai. Both the music and the lyrics. I just gave it your core learnings and your advice for emerging managing. and then put it in there and create lyrics at Musica in the background.

1:19:03Dude, when we open our new letter on the new website, this is the song we have to play in the background. I love it. That would be amazing. It's called learnings Let me break it down In this venture game We all wear a crown Correlations high So understand the sound Caring for each other That's how we are style

1:19:39That's how we are style