E346 | Christoph Klink, Antler: The need for technical founders in Europe with insights from Antler's recent report

0:28Welcome back, everyone, to another episode of the European VC podcast. as I just said, and they have a broadly diversified portfolio with, across the Antler family, more than 1 ,300 investments, including companies like Arallo, Neocarbon, Netbird, and Claire & Me. So I do hope you'll enjoy this episode. We're diving into the need for technical founders in Europe and why Antler is doubling down here. And I think that this is one of the key things that is needed in the European tech ecosystem to really thrive. Here's a few words from our beloved sponsor. This episode comes to you by the support of our partners, PortfolioIQ by Synaptic.

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2:35Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Christoph, welcome to the European VC podcast. Thank you for having me. Pleasure to see you. Before we started, I said, so is it two, three years ago since we first met? And you said, I think it's three because we met in Prague. And then we spoke a bit about the conference that we were both attending back then. We've been chatting a bit back and forth. We've had other people from Antler on the podcast, but we haven't had you. So finally, Christoph, you're on the podcast.

3:10I'm excited about that. And you are because you've just published a large study, the results of a large survey, where you looked into the technical founders in Europe and exactly why we're moving their frontier in the right direction there. Maybe I thought let's dive into that as the starting point of this conversation. Tell us everything about the study that you did and the core conclusions. Yeah, I'm very happy to. First of all, why the hell do we do that? So we look into what makes successful founders because we invest at a point where there's usually not much else than that. Our first investment is usually at a point that's pre-product, that's definitely pre-revenue, that's really a team and an early product that you can see.

3:55So understanding what defines what makes great founding teams and then successful companies is quite at the heart of what we do. And we try to look into that periodically again and again. So the last couple of years, we've looked into what makes great unicorns in Europe, what makes unicorns that stay unicorns through a downturn. and this year we've looked into one of the probably biggest dilemmas that we have in European tech which is why is it so hard for us in Europe to actually build those industry-defining really tech giants so the NVIDIAs, the Metas, the rules of this world there's tons of explanations that we all know about very, very well and all of them are true there's certainly a shortage in growth funding there's probably too much bureaucracy see and regulation in Europe.

4:44There's a lot of different languages and different cultures. So it's not one homogenized market, but it's actually different markets. There could be more public funding. There could be a lot of things that would be more friendly to innovation, but there's one additional element that we found. And it's our belief that when you look at the data, it suggests that historically over the last 20 plus years, Europe has not done very well at backing technical founders, so people that are really building technological innovation that will become the cornerstone and the basis for industry-defining companies.

5:22When you look at the data, it's actually pretty, I was surprised, pretty clear. So we always looked at what do you do as a European? You look at the US if you want to kind of figure out what things look like, one, two, three levels more mature. So we compared Europe and the US and found that when you look at the tech giants, 10 biggest tech companies in the world, almost all of the founders, close to 100%, have a technical background. When you look at kind of their European counterparts, the biggest tech companies in Europe, that's fairly similar. However, the composition of the US tech giants has changed quite a bit.

6:04The majority of them is less than 30 years old. For the Europeans, the majority of what we call tech companies are more than 40 years old. So you take a second look and you look at the unicorns over the last roughly 20 years to 20 unicorns, and you figure out 70 % of the US founders are technical, 30 % of the European founders are technical, which led us to believe, hey, there must be something. We Europeans must have been really busy investing into more business model innovation, more operational excellence businesses, as opposed to those businesses that really, from a technological point of view, become cutting edge and define that.

6:43I think the evidence, when you look at the average valuations of those companies, when you look at those outliers, is very, very clear that we have a lot that we have not yet achieved. But when you then look at the last two years, beginning of 2023 to 2024, it appears as if things are changing. For the first time, all the newborn unicorns in Europe had more than 50 % technical founders. There's great, really deep tech companies, a lot of them actually coming. I sit in Berlin, as you know, work very closely with our colleagues in Paris as well. A lot of new innovation coming out of France and Paris, which we're very, very excited about.

7:24It becomes even clearer when you look into the people that are starting businesses. And for that, I think we have quite an interesting data set because we can look at all the people that are applying to join our residences. So you're well familiar with that. But the starting point for us, the deal flow for us is often individuals, maybe a team, an early team. And we know quite a bit about them because they apply to join us, come to one of our offices, start working with us for us then hopefully to become the first investor. And over the last three years, that has been 60 ,000 north of 60 ,000 people in Europe.

8:01And then we've worked with a couple of thousand of them for three months in our office. And in the end, we've made more than 400 investments. And what you see is that technical founders are growing much faster than non-technical backgrounds. That's actually 9x versus 4x uptick over the last three years in applications, so in kind of top of file deal solutions. And when you then dive one level deeper, the fastest growing backgrounds are data, AI, machine learning, and engineering backgrounds, which is not very surprising given kind of what's going on in the ecosystem right now. So we have growth rates of more than a thousand percent over three years, kind of in that category of farmers and that background of farmers.

8:56When we did our report on the state of fundraising in Europe, we looked into Isomer data there and said, okay, so it kind of said this is somewhat representative of Europe because in the end, if you're an emerging manager that wants to build a firm, you're probably going to get in contact with Isomer at some point. So assuming that we have a good representation across Europe in data that covers their pipeline should be okay. Like, you know, obviously it's not everything, but it's probably a good representation. But we did think, okay, there's some people that raise Super Angel funds, as an example, that just do not want funder funds.

9:41Like that's not what they focus on. So they are automatically out. But then there's obviously also Isomer doesn't do a pharma. So you have that whole segment cut out. So we're very much looking into the skewness of the data set because of this coming from Isomer in testing, whether it doesn't really make sense to use this data for this report. when you reflect on that for yourself, meaning has Antler put out messaging around, we want more tech founders, or we believe in deep tech is going to be the next big thing in Europe, and thus you've kind of skewed the data set so that that's also part of the growth here?

10:28Or do you think that it's probably quite representative of what's happening in Europe? I think it's an excellent question. So I think probably because we believe in that, we've done something to trigger more inbound from technical founders. But I think there's two underlying things that I don't think we've anything to do with. One of them is, we did that a year back to figure out what the impact of the downturn had been, and the impact of downturn on innovation. And counterintuitively, we found that actually the rate of innovation and the rate of new companies being founded had accelerated through the downturn.

11:10Why? Because if you were sitting at Klarna or any other grown-up tech company, your opportunity costs of doing something new had often changed quite a bit. All of a sudden, your ESOP package was priced differently. All of a sudden, some of the interesting pet projects were gone. and all of a sudden you had to focus on cost, not just in growth. And so many people were way more open to starting something new. And when you look at how that impacted technical founders versus non-technical, so generalists or what we call domain founders, then we've seen a 4x uptick for any company that has undergone restructuring for all founders and a 9x uptick for technical founders.

11:59When you look at the hiring market in 2022, 2021, 2022, for technical talent, it was very, very tough to hire technical talent. The market was very hot and people were in very, very high demand. There was great opportunities to do stuff. And that has cooled off, fortunately, because it allows others to hire. That has cooled off a little bit and has driven, I believe, more technical founders to be starting something new. And also we're at the beginning of what probably is only the beginning or the mid of the beginning maybe of a new technological cycle driven by AI. We've seen again and again and again that these bigger technological cycles have driven technical founders to build cool things.

12:48We'd be probably not very smart if we didn't work on actually finding more interesting technical founders. because we believe that indeed they hold great value proposition. But at the same time, I think there's a big organic shift in that direction as well. And when you look at how it changes in the population of the new unicorns, then I think in the last few years, it has been tougher than before to build a company that becomes vastly successful, not because of technological innovation, but because of business model innovation or operational excellence. And I buy the argument as well. We're also seeing deep tech on the rise, which is a trend that you did not describe as much as one of the things, but definitely we're seeing more and more funds wanting to fund this type of businesses.

13:39So for that reason, we're going to see both more in the statistics, but we will also see higher founder activity in that space. And obviously here you're going to have heavily technical talent, right? I'd love to ask you because sometimes I said this to David on a call yesterday, I said, what I hate about being data driven and all this data that we keep hearing is far too often, it just confirms something that you knew already. And that was because David had a data set where I said, well, you actually found something there that did not just confirm my existing beliefs, but that was a real breakthrough.

14:24Completely unrelated to this, so I won't dive into that. But I'd love to ask you kind of, if you look at this, then you say, okay, it's massively increasing, which is great. That's good for Europe. It aligns also with the fact that deep tech is growing here. And that's also why I think that we can also see European venture proving better and better, so to say, and being a hotspot for US investors to want to come in as an example because we have this deep technical talent within these spaces. But I'd love to ask you, what is it about these technical founders do you think that makes them over-index in the top 20 unicorns in the US as an example here in Germany?

15:11Maybe just to add one point to your previous point. I've recently spoken to, I think two weeks ago, to one of our interns who asked me, Hey, Christoph, I know you've done a PhD. Should I do a PhD? And I said, Well, I enjoyed it. I really like the process. I like the work. I like doing that. I have a PhD in business, right? So the world doesn't turn the other direction because I've written a PhD. But I told him, Well, essentially, what you do is you try to come up with hypotheses that kind of make sense to you. And then if you write an empirical thesis, you're going to look for data that confirms that.

15:48Or at least kind of you try to not find anything that falsifies that. But in the end, it's very, very applied common sense. It's so that the world doesn't turn another way. Which is if you think about the crisis in academia where, you know, large percentages of research papers that are written are never cited anywhere or only cited in one or two places. And that's by the authors themselves. If you think about that crisis, and then you think about, as you just described, this is kind of the incentive structure we've created. It's not actually about finding things, it's about finding a topic where you can build a thesis that's sufficiently good for you to get it approved as the topic of your work.

16:33And then you go out and try and really prove that your thesis made sense so that you don't end up with egg on your face. That's not a good thing. But back to your question. So when we speak about technical founders, we're not only thinking about software engineers, right? So when we speak about technical founders, we think about basically anybody who has a technical background. To your point of, is deep tech on the rise as hardware, for instance, on the rise? I think both of these are probably true. more and more investors are opening up to more deep tech businesses and more and more VCs have opened up also to hardware investments, which kind of hasn't been a big thing 10 years ago, at least in Europe, right?

17:17And I think one of the natural factors is just if these sectors are increasing, these kinds of companies, a satellite company, will very likely not be built by someone who has a business PhD, right? So very likely it needs an aerospace engineer, and that's good. And the more technical, the more deep tech, the more also hardware tech it gets, the more important the technical capability of the founding team becomes in developing, I think, a solution that really eases cutting action, that is innovative, that is defining that industry moving forward. And then secondly, for most business models at scale, and that's pretty much what any investor or VC investor looks after or looks for, right?

18:09Usually technology is at the core of making that scalable. And I guess when you look at the technology product behind an e-commerce store, that's way simpler than when you look at the newest generation of unicorn companies. and the tech stack that they've built and the technology that they've put forward. And I think that will become a source of hopefully sustainable advantage for them and sustainable differentiation. What I'm looking for is kind of, if you tell me about the cohorts that you have, where you have the teams that are non-technical and the teams that are technical, where are you seeing, like, because, you know, and you are, as you described, You are seeing that they're picking up faster, they're moving faster in developing product and getting product to market and so on.

19:03So where is it that you see that the technical founders are just better? Why is it that you think that this is where you want to put your X, so to say? I think there's a lot of kind of when we look at our courts, there's different kinds of technical founders. There's that kind of technical founder who becomes the CEO of the company. Because that technical founder is the one who understands the problem deeply, the one who actually then thinks about how can we apply any technology. Good tech founders work relatively technology agnostic to solving that and will be the one that builds actually the solution to that, builds the product, leads the company, and also very, very often covers then the commercial side of things.

19:51right there's another type of very very strong technical founder that's more kind of the executional tech founder where the generalist co-founder like one of us uh kind of would be would be coming up with the the deeper understanding of the problem and kind of possibly also kind of envisioning uh and setting up the product it depends a little bit with whom the product that responsibility then lies. And then a technical founder would be incredibly strong at finding the right, making the right technology choices and building the technology and the product behind that and solving that challenge. I think when you think about the technical founders that we speak about in the report, it's more the first part of them is really the technical founder that doesn't need someone who studied business.

20:49When you look at founders of an early stage, many are thinking about, hey, I need a business founder. But in the end, it's quite common sense, as we spoke about a little bit earlier. But you need to have that sense for that preference for that strength in commercializing something, selling, and you need to actually enjoy that. But very, very often, strong technical products are being sold and marketed to quite a technical audience of buyers. And that may be way easier for someone who's been in their shoes, who speaks the same language, who's gone through the same pain, and who really deeply understands that.

21:31I'm actually super happy that you bring this up because it was one of the notes that I had that I wanted to talk to you about, which is founder team conversation. I think it's super interesting to talk to you about specifically because that's what you do at Antler, right? You have people coming in with ideas and then you match them and kind of help build the business right from day zero. Which, you know, means that you actually do have a thumb on the scale when it comes to deciding how do these businesses look like, so to say. And you have agency on the founding team, which is quite rare. I'd love to ask you, how do you then think about this founding team composition?

22:10Because you just described it quite well. And I think that this is where many, especially angels or less well-versed VCs. But even, you know, and I'm very afraid of or hesitant to use these words because back in the days, this is how venture started, right? You would often have very technical guys coming up with something. But then once the VC came in, their go-to-market was practically, I'm going to bring a CEO and you're not getting my money until you allow me to bring in my CEO, which has had a very big counter reaction in the US. A16C would never do that. That goes exactly contrary to everything they think.

22:57But then I'd be curious, what does someone like Antler think when you're putting together these teams in the beginning? because one part is founder pulled between them that they want to work together, but you also have some agency there. Yeah, definitely. And it is the one most valuable ingredient to a company at the point where we start working, where we start investing, the entire founding team and the entirety of it. The first thought that I'd like to discuss is it's very hard to see from the outside and on paper. I'd even argue it's impossible. to figure out whether you and I should or should not be building a business together and what we should be building.

23:39We can try and match people based on what we know, but we'll very likely be wrong about a lot of things that are interpersonal, that are about working together. You and I can only figure that out when we start working together. Our residencies, what we do with founders in person in our offices, that's the reason why we have 10 offices in Europe, because we need to be close to founders. We invite them to our offices. We work with them in our offices and we give them the opportunity to work with different people and figuring out what's a good configuration and what isn't. And that I cannot, and cannot prescribe to someone.

24:17What I can do is I can curate a large enough group of people that I think can be a good mix. But then founders have to work together to actually figure out what that individual fit is. That's the first one. So we don't actively match because it's close to impossible. When you think about that early phase, you validate at least two things. One is the problem space and the solution that you're covering. And the second one is the co-founder relationship. And you may at any point end up devalidating one of them. And you may actually change one or the other, or changing one might trigger a change in the other.

24:57Because you and I can probably build business A, we shouldn't be building business B. When you look at our portfolio, you'll see that it's quite diverse with regards to founder backgrounds. So we are invested into companies that are being built by three founders. We are invested into companies that are being built by a solo founder. We are invested into companies that are being built by two technical founders. We are invested into companies that are being built by two generalist founders. The question for us is always, what's the fit of the individual founding team, their strength, their skill set, and the business that they're building?

25:31Not just the product that they're building. And I think that's quite important because one is delivering the product, but product without distribution also won't work. And that answer can be quite different. So I think the more technical the audience is, if you're building cybersecurity business, for instance, You're going to sell to people that are also quite technical in their individual background. You may actually be way better off by building a business without any generalists. You may not need that at least through the first, I don't know, two, three years of building a business. While other businesses, you can't live without that hustler, that strong commercial founder, which, by the way, are also incredibly rare.

26:16So don't get me wrong. We speak a lot about technical founders, but one of the very interesting learnings that I've personally had is there's lots of generalists, but also the very, very strong commercial founders, those that can dream up the vision that they can actually come up with a product, go deep enough on making sure that that product actually sticks and then commercialize it. They're also quite rare. So that's another breed. That's another breed. So for us, it's always going to be an individual question where we look at what's the roadmap for the next 12, 18, 24 months, roughly, of building that company.

26:50What's going to be important for you to win when you drive in that initial wedge into the market that you're targeting? And what do we believe at that point is the skill set that you require? Having said that, it's also a crystal ball, obviously, and that may be different in three years. So it may still be that a VC comes in at that point and figures out that distribution is the main bottleneck. And they will, rightfully or not rightfully so, whatever the case may be, push for bringing someone on board who's stronger commercially. For us, the focus is really, what does it take to get to initial product market fit and hopefully beyond?

27:30It's interesting to see exactly that where probably many go wrong is that when they are thinking about adding a founder, so to say, or hiring that extra person in that isn't there already, you can very easily dial it down or water it down to being, we need a technical person. And then you're looking for someone who has the technical capability that you need, or we need a business person. And then you're looking for someone who knows how to do go-to-market. But what you need is, first and foremost, you need a founder. And that is very, very difficult to find. And I think that what you just described on the generalist side is that, well, there's many generalists, but there's not a lot of generalist founders.

28:15And if they should then at the same time also have a match with an already established idea or established team or model in problem space, it gets all the more difficult slash impossible. Right. And if you build a large and scaling, fast-growing company over 10 years or so, it's very likely you're going to learn tons on the way. And it's very likely you will not have been able to do a lot of the things that you can do 10 years later at the beginning of it already. So if you judge your co-founder by their ability to actually do all the things that are going to be required over the next 10 years, you're probably looking for the impossible to find.

28:53You'd be much better off in looking for someone who learns bloody fast, who's very strong, very willing, very committed, and shares the same kind of values and works supremely well with you. somebody who you actually enjoy spending 12, 14, 16, 18 hours together in a room. So, Christoph, before we go to the segment where I want to get to know you a little better, or at least I want the audience to get to know you a little better, I just want to ask you to just recap the core learnings from your study, because now we had big conversations about everything from founder composition to how to find new founders and so on.