E368 | Announcing Rerail with Anthony Danon - our most awaited episode this year! 😍

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1:32Tear down this wall. It's more than just an ally. This is a union of values. United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. New beginnings. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Anthony, welcome to the European VC podcast once again, but this time not as a host. So excited to be here. Thank you for having me. It's an honor. Yeah. And to everyone in the audience, I am sure you can imagine how excited I am to finally be having this unveiling podcast with you, Anthony, where we can talk about Rerail, which is the fund that you've just embarked on building.

2:32But before we open and really talk about what Rerail really is, I'd love for you to just tell us a bit about your journey and how you've come to found Rerail as the founding star here. And I think fair to say, let's just assume that we have many listeners that don't know you yet. So start from the bottom. Okay, so originally I'm Greek. I was born and raised in Athens. I have a lot of family all over though. I ended up in the UK for my studies in Cambridge, and then I stayed in London after. So I've been in London for the majority of my career and having been brainwashed to do consulting or investment banking, because that's what you would do by majoring in econ back in 2012, 13 time.

3:15Thankfully, I did a small stint in consulting, which I disliked, which got me into exploring something different. And that ended up being my first actual, basically, job was being an operator in a fintech company. Little did I know it was fintech or that it was an operator in a startup, but actually was me applying a lot of my econometrics knowledge and getting a bit more technical into a company doing credit analytics and wanting to branch out into invoice financing. So that was about around 2013 time. And it was great because it got me into tech. It got me into fintech early and I got to see a bit from the inside how it is to be an operator.

3:54Although quite soon after, two years later or so, I switched to the dark side, as I say. So I've been in VC since June 2014. So almost 10 years, almost about the time you're starting to see if you're any good at it, as I say, and been in venture since. So the majority of my career venture, I've been focused in Europe. but initially I was doing both US and Europe. And now I'm branching back to being a bit more global, but we'll talk about that. I've been in different firms and funds over time, always with a skew to early stage. And the more time I spend, the earlier I went, right? I realized I love the zero to one, supporting founders from like how the sausage is made, you know, the ideation side of the way to kind of product market fits.

4:39And also I've always had a skew to what I've called fintech is everything, which sounds like a very self-serving motto. And I'm sure we will unpack later, but it is really a very, I guess, wide definition of fintech or people think about fintech. And I also very quickly realized at the time that although most people around me doing fintech were trying to get alpha from being like traditional domain experts, I was basically spending most of my time building relationships with the founders and operators I was meeting. And the idea was like, these are the people that would get me smart. And so, you know, by now, hopefully that's percolated to being some of the deeper networks of fintech founders and operators in Europe.

5:20And so although I say I focus on fintech is everything, I'm very bottom up. I'm very founder driven. I'm very network driven. First years in venture, I was junior, but we worked on deals like Carta, CurrencyCloud, Betterment, you know, and it was dead times and I was learning from it. It was where also I led one of my first deals in Trulayer, Francesco and Luca, who have now become very good friends as well. And then from Anthemis, my first four years, I went to Speed Invest my next three years, which was also a really great school. And I led different other deals, some of which some people will know, like Wayflyer and revenue based financing or Primer in payments.

5:57And while I was within a speed investment, thinking about like, you know, road to GP was when I kind of ended up realizing, whoa, I'm super young still. Do I really not want to be in venture? I was 27 back then. That's four years ago. So what I ended up doing is I thought, let me take a step back, spend a year validating whether I want to be in venture, go back to operating. So, you know, 2014 to 18 was Anthemist, 18 to 21 was Speedinvest. I hired my replacement at Speedinvest, who's now a partner there and was really great Olga. And then I spent a year exploring. That exploration ended up being where I ended up coming with the insight or at least for me seeing the opportunity of being an angel fund.

6:42And so I was basically spending time with founders and operators. and instead of joining any, I started coinvesting alongside them as an angel. Small personal checks. It was also 2021. So everyone was irrationally spending their savings. So was I. But it was, I guess, in some respects, what was energizing me the most. And it was the first time I was seeing like the unique relationship of trust I could build with founders from the get-go, from just not being the lead VC they pitched for term sheets. And also that all the VCs that have grown up with who are now leading some of the top firms and are good friends that were starting to collaborate quite intensely, which is obvious in theory, but because I wasn't competing with them anymore, you know, I could leverage that.

7:29And I was in this unique position and I started thinking about building my Fintech Angel Fund. But actually I spent a second winter long down in Barcelona with a few VC friends because it was the only city that was open. And that was when I started chatting a lot with Carmen, which many of you will know, who is a very good friend. And we decided to partner up together and launch Cocoa, right? And that was around three years ago. It was early days micro funds for European standards. And there was an opportunity to build an angel fund that's backed by founders, that's generalist in nature. Although at the time, you know, majority of the deal flow was fintech.

8:09And I had that skew, where basically, it could become the in-house VC to The founders, as we say, help them hack the system and then collaborate with the rest of the investors. So we did that three years ago. We launched Kukua One and we've had an amazing time both deploying Kukua One and also supporting the portfolio. And we have another eight years or so supporting them as well, which is a privilege to do so. Now, the more time I spent, the more I was seeing two things. One is my right to win. And, you know, the reason why I was top of mind and a lot of the value that I was bringing to founders besides the in-house VC, which I think is very valuable and I still am doing, was the network of fintech founders and operators I was bringing to the table.

8:54And on the other hand, I was seeing that fintech's definition was finally becoming very horizontal, right? I was meeting vertical software companies or vertical AI companies where fintech was just a revenue model. I was meeting climate companies where they were using the analytics to offer some sort of or finance to actually stimulate that. I was looking at health care companies that were using insurance to monetize or were solving their FinOps problems within that specific industry. So although the markets, let's say headlines or the news headlines were all about fintechs doom and gloom, I was actually seeing a very interesting industry, which I think we've just scratched the surface, becoming a strategic advantage of almost any business.

9:38And I wanted to go a bit more global as well. And so I decided to launch a solo GP fund or angel fund that's dedicated precisely to that. And that is Rerail. And so Rerail is the start of a series of funds. So Rerail One, which I'm launching more officially now, is a 20 to 25 million dollar angel fund backed predominantly by founders and operators, but also some institutions essentially investing collaborative checks at pre-seed and seed 200 to 500k checks with a skew to fintech is everything, which we can unpack in a second on what we're doing. that means if you want, with Europe as the core focus, but opportunistically global.

10:24And there's a ton to unpack, Anthony. Maybe just before we go further, let me ask you a status question. What's the status of the fund? Are you deploying out of it already? Are you fully raised? Are you still open? Yes. So I'm privileged to have raised above $20 million, which is the target. And I did the first close back in end of July. So I've started deploying from that already. The hard cap is$25. And so I'll do a final close soon on that. Everyone talks about how tough the market is. But Anthony, I have to say, I tip my hat to you every single time we talk. You blow me away every single time.

11:05And I really hope that everyone listening it already feels that way. But otherwise, I think we should just continue into the conversation about your thesis around fintech being everything, because I think that's where we should start. Then we should go into strategy afterwards, because there's a ton to unpack there. I think you're one of the really important upcoming thinkers on micro VC and strategies that can be successfully deployed there in Europe. But let's start with the fintech is everything thesis. Tell us why do you see FinTech being everything and exactly how do you approach it? Awesome.

11:42Thank you. Obviously, very self-serving, Meldo. I mean, I didn't coin the kind of FinTech is eating the world. I think it was Angela at A16, maybe a bit too early, but it's done a lot of good to the industry as well. Again, I think for perspective, the way I view the world and I operate because I focus a lot on early stages. I focus on talent and people first. So if you ask me and whether I'll be looking out for companies to put them in some sort of thesis, I won't, right? A lot of my modus operandi is like meeting and building relationships with some of the best fintech founders and operators out there.

12:18And so I just wanted to clarify that. But if I were to define, let's say, the wide spectrum of types of opportunities that I would be looking into, I usually kind of slice them into three buckets. So one is what I call core fintech, where is what most people think about when they think about fintech, right? It's like traditional financial services innovation. And there I'm looking at any sub vertical of financial services, right? So from capital markets and trading to wealth and asset management, insurance, payments, retail and business banking, although it feels saturated at times and that we've seen so much activity, and I've heard so many people say like, but there's so much that's been done, is there anything left?

12:59If you really think about it, the average experience of services out there is actually almost negative NPS, if not low NPS. And the technology behind is still predominantly legacy tech. We've had a lot of like lipstick on a pig moments, as I said, rather than actual innovation. Also, it tends to be concentrated within specific subverticals right now with the kind of tech macro change, for example, we've had a rise of the CFO stack companies and business banking, right? Before that, we had like consumer banking revolution. You know, we haven't seen too much actual innovation in asset management.

13:37We haven't seen too much in capital markets, which is actually where fintech started. Now, when you layer to that technological shifts like AI or Web3, or even like infrastructure upgrades, like real-time payments and fraud as a derivative to that. There's so much opportunity there. So that's the first bucket. And I'll look at a lot of that. The second bucket is what I call fintech powered. And it's the idea that financial services is a horizontal. It's the support function of any market. And so I'll look at either natural intersections with markets, let's say logistics and trade finance, right?

14:14Health and insurance, climate and financing, where financial services can be an enabler, a component of that business. And the other side of that specific category is where fintech can be a business model, a revenue model, a strategic advantage. So an example is vertical software. If you think about it, the largest vertical SaaS companies out there, some of which are companies like Shopify, Service Titan, Toast, they don't look fintech up front. But if you look under the hood, majority of the revenues comes from monetizing either payments, lending, revenue cycle management, not SaaS. And so for those companies, fintech is not the core element, but actually can be the core revenue stream.

14:58So that second category of like, let's say fintech powered, the idea is that Rerail, which is not necessarily a lead VC, but rather the coinvest brings, let's say, that fintech network and know-how to enable those companies to capitalize on those opportunities. And then the third bucket is software that sells with a skew to regulated markets where let's say one of the customer base can be fintech or financial services right where the idea is the element of what they're doing per se might not be something that i have a particular expertise on but that one of the type of customers they're selling to is very much one that i have a very deep network with so i can both understand very well those customers and also help with distribution so when i say FinTech is everything.

15:44I think it's becoming, in some respects, a strategic advantage, a distribution, a component of a business for almost any company. And I want Rerail to be, you know, the go-to angel fund, the pipes that, you know, I guess, collaborative value adds in terms of network and know-how. And what is very interesting is that there are not too many sectors that are as nuanced as financial services. And so having, let's say, a specialist coinvest that brings that on board makes a ton of sense. That's at least the thesis in my hypothesis. I love Anthony, because one thing that you've said it shortly before here, but you've also talked about it in past podcasts, is the approach of going for, how should we put it, not a domain expert play, but rather a network expert play.

16:42You still have, obviously, the domain expertise, but what you're saying is not, I am the smartest guy within fintech. I can tell you exactly how to build your infrastructure, XYZ, all that stuff. But rather, you know enough about fintech to be obviously one of the leading specialists, but your real edge is your network. Yeah, absolutely. And if you think about it, what I do, well, I guess what I do really think is if you compare me with other fintech investors, I'm probably the least expert in a traditional sense. But that actually plays really well to founders. What I say is like, look, I speak the same language as you, but I will not even come close to pretend I know better than you or even know the sector as close to as you do.

17:29And the other thing that I think is quite interesting and important here is that because I do pre-seed and seed, coming with a prepared mind and a focused value add helps. But I do remain slightly naive so that I'm open and plastic to changing my ideologies to what could be possible, right? So if it's a category that I found traditionally very challenging to crack, but I meet an obsessed founder with a unique insight and the right tailwinds for that market, I'll be prepared to kind of gain conviction and back those. I've seen too many times domain experts either constrain the type of opportunities they're going after by just saying, oh, I'm only looking at these types of companies.

18:10And in reality, early stage is all about capturing the best talent, if I am to kind of boil it down to like first principles and like oversimplify, or others that are just like too smart to capture like the groundbreaking opportunities that are like shaking the markets. So my hope is that my approach and what I think has fared well to me up until now is to be network driven, to leverage the insights of founders and operators, many of which are my LPs, some of which are my advisors, and match that with some of the prepared mind I have from like meeting and having looked at FinTech for the past 10 years or so.

18:45Yeah, and I think that just to add another point to it, from the LP perspective, at least this is how I think about it is so important to remember that you only have so much time and attention as a micro VC, especially as a solo GP. so it's very very hard to say you know do a really good network play at the same time as you also want to be a domain expertise i always or the domain expert i always say this you know you need there are trade-offs all the time and it's just so extenuated when you're a solo gp that you need to i love that you make this conscious pick and say i need to understand enough to have a prepared mind and be considered one of the go-to guys in this sector, but I'm not trying to be the one who comes up with a thesis that I'm then finding a founder that's building within, like believing that there's already people working in these things in the ecosystem.

19:46My role is to find the best ones. I also think it plays incredibly well with, and now we venture a bit into the strategy space, with your approach of of knowing and working with founders before they even start building things. So that you are when you are the lead ticket and we'll talk about this, it's oftentimes in a in a previous round because it's actually you helping put together the angel round. Maybe you can talk a bit about that. I think it's I think this is really where you can see the difference between what I think is just an outlier emerging manager and micro VC versus most others. Like I appreciate that.

20:25And let's see, like proofs in the pudding. So I got to execute on that. But if I look at some of the learnings also within, while I was operating and co-investing with Carmen at Cocoa, right, as well. But how I've applied some of those learnings and evolved that here as well, is that if you think about it, I think there's two things to it. Well, there's three sides to it that are an advantage for me, right? One is the network of Indic founders and operators, right? That is a magnet for many things, for talent, for YVCs. I want to be close to me because I can leverage that. And the second is that I'm collaborative, right?

20:59And I've been collaborative for the past four years at the minimum, but not collaborative in the sense of like waiting to be brought into deals, collaborative in the sense of like, I want to meet founders super early, but I'm a co-invest alongside Rounds so I can work with anyone. I think that positioning compounds. And then the third thing is what you mentioned previously, which is because my focus is the very early stages. And because I have like this skew of fintech is everything, I can justify spending disproportionate amounts of time meeting and knowing some of the best founders and operators out there, even if they're not building.

21:34Right. And yes, of course, I need to be disciplined because I can't just like spend time with just operators smooching, if you know what I mean. But I think it is some of my superpower is meeting some of those people super early, at least as early as others, many times earlier than others. And I think it's more of an art than science. But for specific types of companies where the founders specifically want to already started building something, but don't want to usually raise a proper VC round because they want the flexibility and they don't want to raise a round yet. but they have some friends and family they want to bring on board.

22:13You know, oftentimes it might make sense for them to do an angel round or a friends and family round. And I think the beauty of Rerail and some of those other angel funds is that in those rounds that tend to be sub 8 % dilution, you know, I can come in and be part of them because I don't need that much ownership. And so going back to leading co-investing, the strategy of Rerail, you know, is to do 200 to 500K checks at pre-seed and seed, which is like a collaborative checks alongside other venture investors as a core. But it will also very much practically look out for some of those opportunities where the founders are just getting started.

22:51And it makes a lot of sense to do a friends and family round before a VC round where I might be the largest check, right? Leads, for lack of a better word, right? Yeah, but I think you need to be cautious on which ones you're doing those because I'm not a proponent that says any company should be starting with a very small check round. I'm just saying specific types of companies, specific types of founders, it might make a lot of sense. And then there's another peculiarity or not peculiarity necessarily, but you've started as a European focused guy, so to say, but now you're moving a bit more globally with the investment focus.

23:31Could you tell us a bit about why you've made that decision? Yeah. So don't get me wrong. I'm a huge believer in European tech and actually think that financial services on average compared to other industries is one of the least winner takes all dynamics types of markets. It obviously depends on the business model and type of company. But if you really think about it, only on payments, there's three humongous companies, Stripe, Checkout, Adyen, two of which are European, whose business is very similar. And they're above 10, often much beyond billion each. And so I firmly believe there's enough opportunity in Europe.

24:16At the same time, I've started observing because when I started in venture initially, I was doing both US and Europe, but that was back in 2014. So I started some relationships back then, which I've maintained a lot. And a lot of those relationships, whether it's venture investors, some of the top names in the US, operators, they have me as the go-to guy on like European fintech collaborative. And so there's a tendency to start being brought into deals where there's sense for me to be in opportunistically. So even when I was deploying with Cocoa, I was pinged about a deal that was a B2B cross-border payments where one of the corridors was Europe.

24:54And, you know, they're like, oh, Anthony can open any doors for you to set up like initially the business there. Or a European founder in the US or a SaaS like FinTech that wanted to go global from B0 and think about Europe from the early days. And so the idea is that, you know, I want to over time capture the global opportunity, but I'll start slowly but surely getting there. So initially, you know, Europe is the core for Rerail, but I'll spend a bit more proactive time globally because I want to opportunistically capture some of those deals that I initially have a right to win or be part of, but then proactively spend relationships.

25:34So time to build relationships so that I can over time fund two, fund three, become more and more global. So that's the idea. You have had the, how should I put this? the fortunate success or you've been good enough to get some of the absolute leading LP elite to back you. I won't mention any names because I don't know how much you share. But suffice to say, they're names that we all know. I would love to ask you, because this is a topic that I meet from many emerging managers in Europe, that they're thinking about how should they cut their geo spread? Should they do stuff outside of Europe? Should it just be an opportunistic thing they don't talk about, but they know that they have the right in their LPA?

26:24How have you thought about it? So obviously I can hear that there's this long-term strategy behind it that you want to be more and more global, but how has the LPs that you've spoken to on a global scale kind of diligence you when you're thinking, when they're looking at you, small fund, but you're still going to do global stuff? Yeah, I think it's a good question. Obviously, saying that you want to do opportunistically global in itself adds a hurdle, right? It's a bit like, you know, can you prove you can do that because you haven't done this for the past five, six, seven years, for example, right?

26:59I think I was in a privileged position where, and I think that perspective matters for other emerging managers, where I was pitching a strategy that I've proven I can execute on within Cocoa, slightly different setup, but very similar in terms of check size, number of portfolio, etc. And I was also pitching a, let's say, USP or specific point of view, which is all of what I've done for my career. So quite good, let's say, GP market fit. And so how I think about it is like you have certain degrees of freedom of things that you can stretch a bit, which are not like as obvious, which an LP is like happy to take some risk with.

27:39But even that, I think it needs to be rational. And so taking a step back, what I don't want to sacrifice for sure, or risk, let's say, is not being focused. So my number one focus for fund one is day to day on what I know well, which is Europe. Once I feel that that actually works really well, I will proactively spend time forward to unlock some of the rest and that being the US. So just to answer your question directly, I would say you need to think about how many degrees of freedom you have, right? If I were to say I'm a generalist fund that wants to do everything and lead, like good luck, right?