E369 | Oliver Holle, Severin Zugmeyer, Uli Schmitz & Hazel Savage: Roundtable discussion on investing in culture and creative tech - deep dive on AI and the future of music

0:00Welcome, everyone, to this episode of the European VC podcast. Today, we have a massive panel for you, and we're going to be talking about investing in culture and everything related to it. It is a topic that I don't know much of, even though I'm pretty much building in this space, I think some would say. We have with us Oliver Severin, Hazel Savage and Julie Schmitz. So I'll let them just introduce themselves all around the table. Oliver, will you start telling us about how Speedinvest relates to this topic? Yes, happy to do so. And thanks for having me. So my name is Oliver. I run Speedinvest.

0:40Speedinvest is a multi-vertical seat focused fund in Europe. We have roughly 1.2 billion under management and have a pretty broad portfolio. Roughly 350 companies have vertical specialist teams, one of them being focused on consumer and market basis. And within that practice, we've done several investments in that space. And I hope I can share a few learnings here. Hi, everyone. Super happy to be here. I'm Severin. I'm the founder of a micro fund called New Renaissance Ventures, which is a fund investing only in tech startups in the cultural and creative industries. What we mean by that, I think we have tons of time now to discuss that, actually.

1:25Before that, I started my career in venture roughly seven years ago at Speedinvest. So Oliver was my big boss back then. and before that I had a bit of a corporate career first at Red Bull where I did culture and brand marketing and then at Google where I was mainly working with high growth consumer companies in the German speaking area and with New Renaissance Ventures I'm investing across Europe in the early stages so three seed seed, small tickets 100k to 400k checks in all kind of culture and creative tech related companies So my name is Hazel Savage. For anyone who doesn't know me, I was the founder and CEO of a music AI startup called Museo based in Singapore.

2:14And I sold that company, exited to SoundCloud in 2022. Since then, I've been angel investing in almost exclusively music AI companies globally, to be fair. I started my company in Singapore, but I've invested in companies, some in the UK, some in Europe, some in the US, some further afield. And so, yeah, pleasure to be here. I hope to add in some of the founder insights and also talk about angel investing. Hello. Great to be here today. I'm from Axel Springer Digital Ventures, which I co-founded roughly 10 years ago in 2013. And what relates to media, our mother is a media company. It's a corporate VC.

3:07Axel Springer is the 100 % shareholder here. and since we are in the media business, media is an important topic to us. Happy to share some thoughts. Beautiful. I'm so happy that we've just started focusing a bit more on CVCs on the UVC and we've never had Axel Springer on. So I'm so happy that we are finally getting you, Uli. I think we've actually been introduced two or three times, but where we've never followed up, I at least haven't followed up. So I think that's on us. I've never activated that introduction. So happy to now finally have you on the podcast. All right. So let's start with the very big questions of whether the potential of the culture and creative industries in venture capital is really one that's there.

3:59Is it overlooked or is it more that, well, there are some people that are passionate about it, but it's definitely not a VC sector. Severin, you're dedicated yourself with new Renaissance ventures to this industry. So I think you're probably the best guy here to really make the strong case that it is a good industry for VC. Sure. I mean, yeah, but obviously I'm biased, right? I mean, that's the whole reason why I started this fund. So I do believe the cultural and creative industries are overlooked in the venture capital world. I mean I think as part of the first exercise before launching that fund was that I looked at the portfolios of the big VCs out there of the Sequoias and indexes of the world right and what I found quite interesting is that quite a significant share actually of their portfolios are companies which can be considered companies in the culture and creative industries and that number is like between 8 to 10 percent so it's quite high if you think that those portfolios are sometimes bigger than 500 companies.

5:06So I do believe there is a big opportunity to build a VC brand or a VC network or a VC fund which is dedicated to that topic. And that's also the mission of New Renaissance Ventures. And don't get me wrong when saying this, It's very important that we have all those climate tech funds and health tech funds and fintech funds, right? But differentiation is becoming quite difficult, right? And it's all, I mean, the actual default amount of money chasing these opportunities at some point is limited. Whereas in the creative industries, you don't really have that, which opens up an opportunity to build a dedicated fund here.

5:55Maybe I could ask all four of you to just define it as you do when you are thinking of it as a vertical, because I'm sitting here thinking, is Twitter in this category? Is Canva? Canva must be in this category? Is social media in this category? YouTube, so on. Would you kind of tell me a bit, what are the borders of the category? Of course, yeah, I was going to say we probably all have maybe slightly different definitions. And especially for me, because when I'm investing, it's not even just creative industries. I'm looking almost exclusively at the music industry, which has like a sort of a yearly term of sort of 20 billion dollars, which is really small compared to other verticals that people might consider investing in, whether it's like fintech or medtech, they're much, much bigger verticals.

6:55Although for me, I think where the boundaries are is, you know, Twitter, yes, maybe. I guess I suppose no one on the call would like to think that they would pass on that if it came their way. But for me, I look almost exclusively at music, but I have almost even been spreading that out to like music community plays. And so IRL and virtual. So anywhere that people can gather to talk about music, to engage in music. So that's one way that I've kind of almost, you know, spread out, spread my remit a little bit. Also, like following discussions I had with investors and other stakeholders in the industry is much bigger than people think it is.

7:44and I mean if you follow also the definition of the European Union, what the culture and creative sectors compromise it's actually bigger than far more of the telecommunications industry in Europe it is really big, it's like 5.5 % of the overall EU economy but more like to your question how does this translate into the tech and startup world, right? And it's something like social media is that creative industries now, I would say depends right but if you look at if you look at instagram or also tiktok i mean think about and now you might argue this is the virus of our society but think of it where do these companies have the origins right i mean instagram was an app to edit photos on on on their mobile right it was one of the first um apps for for creative activities on on your mobile phone it merged into or I mean, it became a social network afterwards.

8:41And the same was the case with TikTok, right? TikTok was initially Musical.ly and Musical.ly was an app for music lip syncing. Again, creative industries, right? So a lot of those social networks and social media plays have their origins in the creative industries. And we're also seeing that now, right? I mean, if you look at all those AI generated image tools like mid-journ and stable diffusion, I mean, look at the communities they are building at Discord. This is insane. There's millions of people on these communities sharing that content. We don't call it social networks now, but these might become social networks.

9:17So that's the definition from a kind of the product side. How about the business model side or the things around businesses being built in the creative culture, creative and culture industries? What kind of makes these look alike? Or is there anything? And maybe that's a good question for you, Yuli. Because I imagine that you as Axel Springer, with the media angle, there are some things that make you incredibly good at diligencing these companies and helping these companies specifically. Maybe you can talk to some of the characteristics that make these different from everything else and for that reason make sense to kind of have them as their own?

10:02What makes them different? I think in the end, the business models of most of the media companies are either kind of subscription or you pay for something you're getting or advertising. And at the end, if you want to create a new media company, you have to deal somewhat with it. and you can go further up to transaction. But I would say most of what we called here media in the discussion before. So it's either advertising or subscription. Yeah. Oliver, Speed Invest, 500 million, Seed, across everything. how do you think then about about about the creative industries how do they fit into the investment strategy of speed and list not an easy subject to be honest because it's so as i said it's so broad that you can you can almost plug it in anywhere at the same time uh you know i'm a vc so i try to make it simple uh most about so simple So, excuse me.

11:18Ultimately, it's either a SaaS business. So it's either an enabling SaaS business where you are supporting the creative community to do their things. That can be in design, that can be in architecture and music. There are so many different SaaS businesses out there. And that's a fairly standard business model that you can also benchmark against other SaaS business models and then decide whether it's worth investing or not. So that's one category. In our world, that fits into a SaaS team, but we also have the marketplace and consumer team, which does B2B elements in there. So that's one. And then the other much more tricky one is actually B2C, right?

11:56And I think Europe has not seen a lot of B2C success stories. If they come from Europe, they typically have like a creative or cultural background, Spotify, and the examples that Severin mentioned. so that's of course the the jewel in the crown uh it's also the most difficult and the most risky investments that you can do and we have all seen it uh amazing amazing amazing traction then then explodes goes nowhere right so so we at speedwest have had a couple of of of these types of investments a few of them actually went very well and most of them didn't and i think that's story that many VCs share.

12:38So that's of course a much more also, yeah, I think demanding investment hypothesis to follow through. Yeah. Do you have stats present in mind already on how how much of your portfolio could fall in this CCI category? At least ballpark? Yeah, I looked at this. I looked at this in preparation for today. So if we're generous, where roughly speaking about 5 to 7%. So it is handful. It's not super small. And if I look at the last 18 months, actually that number increased significantly. So we've seen tons of investment in our teams, both in the SaaS and in the marketplace consumer team. Why? Because there's so many opportunities around AI and again, enabling this degraded class.

13:35We've done investments in community writing, in music, in architecture, in AR, VR. I mean, it just doesn't stop because the opportunity is endless here. So that's a new wave and I'm excited. Personally, I also expect a new wave on the consumer side. I think it will happen. Things have stagnated for too long. So there's a new wave coming for sure. Oliver, you've got me slightly worried because 100 % of my portfolio is in the creative industry. And now I'm feeling like I might not have diversified enough. There's no doubt that you haven't, but I think that you're not trying to diversify broadly.

14:18You're trying to leverage an expertise that you have. I prefer that angle. Thank you. That's a good way of looking at it. But what Oliver ended on, I think, is the perfect segue into you, because what you shared earlier with Museo and AI and everything, your role as both a business angel and VP of music intelligence at SoundCloud, is kind of, you know, leads us perfectly into then asking you, AI, what are we seeing in this space right now? Is it just blooming, as Oliver said, or are you a bit more skeptical? I'm a big user of Suno AI. I had a lot of fun there. Yeah. Well, you know, I know Oliver spoke about the difference between kind of B2B and B2C, and we were a B2B company and still are to an extent as well, even as we exist within SoundCloud.

15:12But also as well, interestingly enough, because I started my company in 2018, we were at the time we were an AI company. But in 2018, it felt like nobody was interested in AI or very much fewer people were interested in AI. And we used to use the term machine learning ML much more often than we used AI. And it's really interesting to me because in the last, I'd say, 12 to 18 months, AI has become the most interesting thing that anyone wants to talk about. I'd say I get maybe 20 pitch decks a week. I'd say 70 to 80 % of them are at least claiming to be an AI first business. And the reality is probably not quite there.

16:01But it's so it's had an explosion. You know, we definitely noticed a trend when we started in 2018, the available of the availability of GPUs and the technology had come on to such an extent that we were able to create an AI that listened to music in 2018. But it's gone even further on since then. And I think we're seeing that with really big investments in the market around music and AI. But it's controversial because data sets in music are controversial. The music industry is reluctant or a sort of a slightly unwilling participant in its own future at the minute. So it's a very interesting one to watch.

16:46How do you see the Sunu and Udiu case unfolding now with all the legal battles going on? I mean, it reminds me a bit of the Napster and Spotify story, right? When Napster was just a bit too early in a way and Spotify hit the right wave. I mean, there's obviously other factors as well. But before we go there, to those in the audience that might not know Suno AI and the others, these are generative music platforms where anyone can go in, type the theme or type of music and their own lyrics or have it generate lyrics on the back of a few prompts. And then in 20 seconds, you've got a full song. and I would say that we're at a point where it's indistinguishable from having been made by a real band that that's at least uh the layman's perspective here maybe Hazel you have a few guitars behind you so maybe you have a strong position on that yeah I think I I'm not sure I probably wouldn't use the word indistinguishable but it's good enough that it can fool me occasionally and and and or you know someone sent me a song the other day and said I think this is AI generated and I listened to the song and I was like I'd probably agree but I'm only like 80 % sure um which isn't really you know to go full circle me being 80 % sure isn't a high enough accuracy to be able to train an AI to be able to identify an AI itself if if that was the purpose.

18:22So it's, it's, yeah, it's good enough, it could get past most people, me included. So but I think in terms of Suno and Udio, and always, just to express firstly, these are my personal opinions, not the opinion of the company that I work for, currently full time. I, you know, I think that generative AI, which was not what my company did, We were like assistive AI. So we did like metadata generation, the kind of the very unsexy, boring part of AI. But generative AI is where everyone's really excited. But I agree with Severin to an extent that I think the recent court cases that we've seen, I believe, are just the first step towards negotiating what does the legal version of that everyone agrees on or the people with enough money agree on, what does that look like?

19:16So I think that in the same way, a lot of the big companies, I think even YouTube originally started without licensing in place. And we've often seen the big innovations in music occur without the licensing in place. The tech moves faster and then the rest of the industry has to catch up. So I think we're probably looking down the barrel of something similar again. and the sort of the court cases from the labels are just the first step in the process of saying how do we get a slice of this how do we how do we monetize this um so that's my personal opinion I think that's the way it's going so um but I was thinking to myself as well about this uh you know those companies while very sort of technically impressive and you know anyone who's tried the or the song generation will be able to see.

20:10It's really impressive. I think, you know, what I think the challenge is for those founders is they almost no longer have technical challenges. They have legal challenges. It's a completely different space they're in. They've proven that the tech can be done. They've proven that they can create something that's interesting that works. But now they're going to have to spend a long time with lawyers to kind of figure out how that business model works. So it's almost, it is in the creative industry in every way that counts. But as a founder, I can't help but think of the founding team and be like, yeah, you're just going to get to spend a lot of time reading legal agreements and talking with lawyers.

20:56So I think it almost becomes a very different business. Julie, I was about to kick it to you to ask you if you could tell us a bit about how you're seeing, and if at all, the European competitiveness in this space, being Axel Springer, having your headquarters in Berlin and investing out of Berlin. Are you seeing that we have an edge when it comes to the culture and creative industries in Europe?

21:27Or not as much? I think we have a lot of culture and a huge creative industry. But when it comes to, let's say, the AI-driven startup businesses, we see most of it in the US right now. And it's bigger funded and maybe more daring. And I see somewhat similar to the other venture businesses we are in. I think we have catched up in Europe a lot in terms of getting money. But when it comes to newer technologies, we see the biggest investment in the U.S. But also in our investment history, I think most of the directly media-related investments we did 10 years ago also in the U.S. here. and maybe it's the perspective of the venture industry and not everything in culture and media is a venture business and our focus is venture and maybe that's why my answer is like it was.

23:05but maybe the others have something to add to. We see great startups here, but when I see the money they get, it's at least 10 times in the US. Yeah, I would agree. So if I look at our startups in that space,

23:31the tenant material here is excellent. All of them are from Europe. some of them are from the UK. It's amazing. The markets that they cater towards and where they actually have success, for the ones that have success, it's almost exclusively US. It's just so obvious that the creative class, the creative market is so big there and so fragmented in Europe. It's super hard to scale in Europe. And of course, also the funding. This is very, very difficult in Europe. If you look at that also later rounds, all of them are funded from US investors. And you'd say that this is extenuated in the culture and creative industry specifically?

24:16Yeah, I would say so. While we have very strong growth investors in Europe that have a SaaS background, a fintech background, it ends probably there. we don't have really a lot we don't have very experienced consumer investors in Europe at least I would have to think earlier you shared that well only 5-7 % of their portfolio at Speedinvest falls in this category but if you then look at the last 12 months it's actually significantly higher what is making you bold enough to make those bets is it because they're um they fall in in categories that can attract capital from the more usual spec suspects in europe or or is it because you're seeing that that's not actually a hindrance for for the companies well what's your to be honest the former to be honest the former because uh like 90 of the deals we've done are fast business models um so they are really like one of the most successful ones is a company called Kittle.

25:26It's actually a competitor to Canva. So it's basically a new AI first design tool for creatives. Map-based, of course, they're doing extremely well. Yeah, and a typical story, very, very TSS metrics. At the end of the day, IVP came in in the industry as B. Deathlane came in the series A. So two U.S. investors, 80 % of the market in the U.S. growing extremely fast, very successful German team. So that's for me a typical story out of our portfolio. And there are quite a few others similar to that. I would agree, right? But that doesn't mean that we don't have the talent in Europe. I think it's important to differentiate here.

26:09We do have the talent here in Europe. And that reminds me a bit of the Draghi paper, right? So we fail at converting this to successful companies or maybe to have growth capital in Europe to fall on. So we have the talent, but typically quite fast to look into the US. And another company, I mean, a company, Oli and Oliver know also very well, is Inkit, right? Which is a Berlin-based team as well. But they raised the Series A already with Kleiner Perkins, then the Series B with NEA and the Series C with Coastal Ventures. So this is a pure US play now, right? But the talent is coming from Europe.

26:50and that's what we see quite often actually right and we do have I mean just looking at at like creatives in Europe and looking at the university infrastructure here we have by far the largest pool of creative talent in Europe by far this is like a multiple factor right and also looking at the cultural heritage and history in Europe there is a lot here but we we're just not very good at translating that to the tech world. But that again reminds me that there is an opportunity actually to build here. And don't get me wrong. So we are investing a lot in Europe because of that talent. And most of our investments are early stage.

27:36And here we see a lot. And also getting starting larger rounds. But at the end, the US investors make the biggest bets on it. And a couple of companies then moved to the US. But we are still investing and we are quite optimistic when it comes to this market. We had an interesting chat internally, a strategy session around our consumer practice. And you can talk to my team. What they argue is that they are really now refocusing on consumer in Europe. Why? Because valuations are so extraordinarily low. So there are so few consumer investors in Europe that actually have a conviction and are really doing these bets that you can enter really, really interesting, highly like startups with a lot of traction at the valuations that are completely unthinkable in the US.

28:47So I thought that time is far behind us, but in this specific sector, it's still around. So quite interesting. I think it's an incredibly interesting point. I think it's so important to highlight because I guess it informs also very much the company building for you, Severn, as an example, when you're building your firm, that means that I guess that you're very much spending your time, of course, sourcing deals in the early stage, but then you're spending a lot of time in the US making sure you have the follow on capital from your counterparts over there. That's very true. Yeah. I mean, a lot of the focus and a lot of the funds I talked to in terms of follow on funding are actually coming from the US.

29:34I feel like consumer topics, and I mean, just to mention it, right, I'm not only investing in consumer, I'm actually business model agnostic, but a lot of it is obviously consumer driven, if you look in the creative industries. But it's true. But yeah, I think I would agree also to what Oliver said, I mean, put it in a different way, it's picking up. I feel like we're seeing a bit of a renaissance in consumer companies. Also because we have this huge technological shift with AI and AI-VR, there is so much opportunity to build new companies capturing the attention of users today in newly innovative ways and subsequently also find new ways to monetize this.

30:20And I think we only had that like decades ago with the shift to mobile, right, when web to mobile happened and tons of very successful consumer companies emerged. Again, let's take Spotify here. And I think we are at the same brink here again. Can I ask you all, so in deep tech, we always talk about, well, are there commercial founders when there's deep tech companies? You might think that there might exist a similar problem when you're talking creative industries, that you have founders that are very creatively driven, but there may be less financially driven business savvy than your typical fintech founder.

31:07I'd love to ask you all the founder profiles that are building in this space, anything in particular that you know always to look out for, anything that makes them stronger than others, so on and so forth. I mean, I think it's true to your point that there might be more, that these founders or type of founders might be more driven by values or the ideology, right? And I think the same might be true also in health and climate, right? Because you feel like you want to change, you want to do good. And it's not just about like, what is the next tech layer you want to build? But that being said, I mean, everyone here is investing in the very best founders at the very end of the pyramid, right?

31:56And that means, I mean, these founders have both, right? They have the creative vision and also the business understanding of what they're building. And they look at this also then from a venture perspective and they want to build unicorns and big companies. But it's true, specifically looking at the long tail of founders, you have a lot of founders driven by ideology, Which is also nice, which I like, because these are typically all very nice mission, value driven people. Maybe just to add one point in assessing them. Right. I mean, for me, what is really, really important when assessing those founders.

32:33And I mean, to be very honest, 90 percent of my assessment is the founders at this very early stage. right um is how deep is really their understanding of of user behaviors of consumer shifts of of understanding of trends in the market um and not just hey we found a nice tech or product let's let's find if we let's see if we find some users for it i think you always have to come from from the other way actually having a deep understanding of the users of the markets of the trends and then building a product based on that. Building on that. In the early stage, you invest in the founders and so they like what they do when they're in media.

33:21And what they have to consider then is to get the audience and then there's no difference to what it was before. and that's something which I miss sometimes when it comes to the technical founders. They're so very deep in AI that it's not 100 % clear to them where their audience will come from. And I'd say that's also one of the ingredients they should definitely have when it comes to consumer products. Having been a founder, I can also just tell you that I was not particularly great with the old spreadsheets. I was not particularly a very numbers-driven founder. I can do it because you have to be able to do it.