E390 | Christian Meermann, Cherry Ventures: Culture of excellence & underwriting the next generation of emerging managers

0:00Welcome back everyone to another episode of the European Easy Podcast. Today, I have Christian Meerman, the founding partner of Cherry with me. He's also a Forbes Meaders lister in case you're thinking, didn't I know that name? So we are diving into a conversation here where we're talking all about building Cherry, the culture of excellence, as well as competition in venture. But we're also diving into a topic which I think many of you will enjoy, which is, of course, how to underwrite new managers in the current market and what to look for, as well as decision-making when it comes to follow-arounds in venture.

0:51This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Christian, welcome to the European Easy Podcast. Andreas, Thanks a lot for having me. I'm super excited about this. From our first intro call, I was like, this is going to be so fun. I'm happy that it's happening now. Yeah, likewise. Christian, let me just run through the core stats on you and Cherry, and then we can talk a bit about the context that goes with that. You're Christian Meerman, and you're, of course, the founding partner of Cherry Ventures. You've got the latest fund is 320 million euros and the total AEM is around a billion.

1:32You're headquartered in Germany. You're doing early stage pre-CTC plus and you're focused on all of Europe. Target sector and vertical is very broad. You can do, as I remember, pretty much everything, but you are focused on SaaS primarily. Am I correct in saying that? Yeah, yeah, that's good. Good. I mean, I would say we have done a lot of consumer previously, but in the current market, it's obviously much more B2B software. Yeah. And we're going to talk a bit about that. And, of course, notable investments, Flixbus, Auto1, Flash & Post, Finemise, and Ninetailed. Flixbus, I remember when I saw that Flixbus had acquired Greyhound, and I was like, that must have been such a truly mind-numbing moment because Greyhound is this bus that you've seen all through your life in the big U.S.

2:29movies. And then a European company, Flixbus, this weird colored bus that comes driving through Denmark all the time. I was like, and they acquired Greyhound? That's incredible. Absolutely, yeah. Tell me a bit about the founding story of Cherry. I'd love to hear how did Cherry come about? Yeah, happy to tell you that. So, Philip, my co-founder and I, we were both entrepreneurs before. So, we were both building up Zalando. Philip was heading product. I was the CMO. So, doing everything that had to do with marketing and driving up revenues. And back in the day, at some point, we could do a small secondary.

3:12Then we had a bit of cash. And the question was, what are we going to do with it? And we said, why don't we start angel investing? And also, this is now more than 10 years ago. I think the German tech scene was kind of way less developed than it is today, obviously. And then we said, hey, let's do this as a hobby on the side. And then early on, invested into Otterwan, Flixbus, Quandu, Amoreli, which was big in Germany back in the day. And yeah, always enjoyed it since then. And then after the Zalando IPO, we both asked ourselves what to do next. And then it was a pretty natural move to say, why actually don't we do what we love to do as a hobby and do this now full time?

3:58And that's how we came to Cherry full time, raised external money and then started investing as a proper job. As a proper job, yes. And it's been a good job. You've done well. Congrats on that. But I'd love to ask you, how do you think that this journey with Zalando has shaped you as an investor today? Yeah, I'd say that it's going to shape me personally massively and I think also our whole team. So I think how we are different as a firm is that we all as partners have entrepreneurial backgrounds. If you look at Sophia, our partner in the Nordics, she was very early on in Spotify. So she brings that kind of DNA.

4:43Then Dineke, our partner in London, as she was building up Uber in Europe. So we all have this entrepreneurial DNA and that's what all kind of unites us. And it comes from different companies. So it has slightly different ways of looking at it, but that's also what makes us strong and complimentary. But I think having been on the other side before just makes a ton of difference. And then talking to founders and helping them on their journey towards building, hopefully, kind of a very good outcome. You know, that makes a difference versus just having been in a bank before as an investment banker and then kind of switching to startups versus, you know, having done this real life before and knowing all the ups and downs in that journey.

5:29Whenever you talk about operators or founders turned investors, you always talk about, yes, it's definitely a strength, but it can definitely also be a hindrance or you have this propensity for action, which might not be the propensity you want to have as an investor, because sometimes what you want from an investor is just that they know how to shut up. How do you navigate this? How have you seen it play out in the firm? You're more than 10 years in, so obviously this is some time back where you wrestled with those thoughts but i'd love to hear yeah look i'd think i'd say kind of that has changed quite a bit but in the very early days like from switching from entrepreneur to investor it was hard i think for me it was especially you know kind of having done marketing before and kind of it's a lot of us responsible for top line right then for marketing spend and the good thing about it is you spend dollars today, you see the impact tomorrow and you can act super quick.

6:33If you feel things are not working out as planned, you optimize more, you see your results immediately, you get immediate feedback. Then switching sides as an investor, you deploy money today, you invest in a startup, you partner with the founders. And then suddenly, three months later, you feel like, oh, this kind was more challenging than expected. But there's basically nothing you yourself can do. You can sit with a founder, try to support and discuss, but you personally are not going to have that immediate impact. And if the company decides to do marketing one way and I would have done it the other way, that's what you have to live with as an investor.

7:18And it's fine, right? So the entrepreneur should decide. They are in the business. they know much better what's kind of the right thing for the business. But I think, you know, being one layer more removed as an investor, that in the beginning was a bit tough to accept. But yeah, after like half a year, a year, you get used to it. And I think it's also good to have more distance as an investor because it helps you to fly a bit higher and also stay objective on the key decisions. Where do you think that this operational experience gives the highest value and where does it maybe end and it's not that important?

8:01Look, I'd say still the highest value is on the strategic side. So when it's about sparing on different topics, you know, sometimes early on the company might have to pivot as you're giving an hour view on this. or whether it's, hey, should we do this M &A now or should we rather grow organically? I think there we can add a lot with our expertise and know-how. I think where it ends is on nitty-gritty input. I think it's not our job to fine-tune campaigns or to go through every single cost line of a business and question every decision there. I think that's where it's going too far. But I think on the strategic sparing and challenging, I think that's where the value comes in.

8:52You were operators both at Zalando, right? You were not the founders. Yeah. Sometimes people distinguish a bit between operators and founders. I'd love to ask you, one, do you think that's meaningful? One, do you think it's not? And do you get my question? I'm trying to figure out because the way I would think about it is that there's founder mode and manager mode, but there's also operators that are in founder mode. So what's your take on that? Do you sometimes get asked that question as well? Yeah, I'd say, look, we both kind of joined super early on and we were part of the kind of extended founding team.

9:36So I think, and Robert and David, as the kind of original two founders, I think they did a great job in having everyone in this five, six, seven people team feel like as if it was our own company. So I think we always felt like entrepreneurs and as if it was our company. So, you know, every dollar I spent wrongly, I felt pretty bad about it. Right. So not like a manager where like it doesn't matter. Part of my job. Move on. You know, I felt like, hey, shit, I have burned our investors money. Could have done better. So I think that kind of makes the big difference. And that's also what the difference is between like, you know, a manager or someone that you hire at a later point in time in a company that has done it beforehand, but just sees this as one of their gigs kind of in their professional life.

10:29and they do this for three years until they move on to another company where they maybe earn more or see the challenge more exciting. I think here it was like, hey, we're building this from the ground up and everyone is essential to that in his or her specific area. When you started 10 years ago, we didn't have many founder investors or founders turned investors. We have a few more of those today. definitely venture has gotten more competitive in Europe. How have you seen your competitive edge being a founder-driven firm? Have you seen it wash out or have you seen it be just as strong as it was back then?

11:13Do you see, you know, how have you, this really, you know, the competitive dynamic of European venture changed in the time that you've had, you know, been building Cherry? And where have you seen your position in being made only stronger? And where have you seen, okay, we have to reposition a little bit? Overall, the market got more competitive because there's also way more funds out there now versus 10 years ago. On the other hand, you see also that trend being reversed a little bit right now. So there are a bunch of funds going out of business, which is not raising another fund. So that is changing a bit.

11:49and then on the other hand also we as a firm have developed further right so initially when we started it was like a Berlin centric firm we started with investments in the in the German German speaking region but by now kind of with offices in Stockholm and London as well and then people on the ground there we are a proper pan-European firm so we're going to have also kind of increased our footprint massively so we're seeing kind of all relevant deals in Europe and And that, I would say, has changed quite a bit versus before. And then I would say, yeah, there are a few more entrepreneurial venture firms, but not many more, actually.

12:28And therefore, I feel like it's always about the individual. It's like, you know, how do you vibe with a founder that you want to partner up with? And does the founder see the value in you as a person and as a firm? And I would say that, you know, has only gotten better. So, yeah, very positive about the positioning. VCs are always very quick to say that being a founder of a startup is harder than being a founder of a VC firm and never liken their own path to the founders and their struggle. Do you think that's true? Or do you think that that's more VCs being mindful of showing humility towards the trail that the founders are walking?

13:16But in fact, it is similar journeys and it is equally hard to build a venture firm as it is building a startup. It's just different, but definitely you bleed as much when you're building a venture firm. Yeah, I'd say, look, it's a similar entrepreneurial challenge in the sense of kind of you need to raise money, you need to build out a team, there's ups and there's also downs. So I think that is similar. I think what's different is, and I think that's what most people refer to, is I think it's a little less volatile in the sense of, you know, you collect money from LPs, it's a 10 year horizon per fund.

13:57So the management fee you get kind of to pay your team, it's fairly constant. So you have guaranteed revenues for 10 years, which none of our founders have. So if you have an incredible SaaS product, okay, you might get into similar spheres, but you also never know. It's a one or two year contract that then gets renewed, but no one tells you, hey, where can I sign for 10 years up front? So I think that is quite different. So it gives us more stability. I would also say that stability is needed because you are in a long-term game. You need consistency in your team and make sure you can be a good supporter in this journey.

14:45And you don't have to worry about your own funds in the middle of that journey. So from that perspective, I think it makes sense. But yeah, I'd say all the rest is similar to building a startup. And it's funny because when we started Cherry, then some people say, hey, yeah, why don't you want to build kind of your own company? And I was like, wait a second. Like Cherry is my own company. It's just a venture firm and not kind of a tech startup. But the journey, I would say, is pretty similar. Yeah. And I definitely get your point with the volatility because, first of all, also the pace of a startup, you know, the activities and the market movement and iterations are quicker than in venture.

15:25But I think there's also probably another big thing, which is when you're building a venture firm, you're walking a path that others have walked before. So there's probably a more well-written playbook. And you're also moving alongside other giants that you know and trust and who know and trust you. So I think there's more people that you can lean on that you trust and that you can have these conversations with around how are we doing this? And I imagine also given the number of firms that have spun out of Zalando from people that have been closely connected to Zalando, I imagine that you have a very strong community of people that you can kick tires with when it's about building Cherry.

16:12Absolutely. And that's also even how we got started. So when we said, hey, let's do Cherry full time, we thought about, OK, where are we going to get that money from? And I think going to institutional investors on day one, just with a pitch deck, but with having zero euros raised, it's not the easiest thing to do. So and it was a bit more kind of by chance. We were chatting to friends, other entrepreneurs, telling them what we're going to do. and then they were all pretty interested. And they're like, oh, hey, that sounds cool. Like I'm going to have an entrepreneurial VC. Where can I invest?

16:45And we're like, oh, okay. So they want to write an LP check. And that's actually how we got to the first 30 million that was just raising through our network, which is kind of people you know well that trust you. And that's after that that we just got to institutionality. So I think, yeah, it is a good environment. It's very overall kind of friendly. I mean, it's obviously competitive when you fight for deals. But other than that, yeah, it's a good and friendly environment. Just a note for all the emerging managers or the people that consider raising funds or on the first fund. Listen to that story, right?

17:27You had almost 30 million, not in the bank, but you had a lot of interest from people that were wealthy and who had run the journey of a founder or an operator, highly achieved operator, to you be able to actually build your fund on that basis. That is a markedly different route than the people that I talk to that are struggling to raise the first million or two to get off the ground. And I think that sometimes that is a strong signal to you as an aspiring investor. Maybe if my journey doesn't look like the greatest firms in Europe, maybe there's a reason. Maybe that's a signal to me about not moving too quick into this.

18:19I just say it because I've seen so many fight and in this market now, it's not fun at all. So what do you say when you meet? I'm sure you meet a ton of emerging managers angels wanting to turn VC. What do you say to them? Look, I think first question is always like, what is kind of driving them, right? So like I asked you, why are you doing this, right? It's a very long-term game. You can have a small fund. You're on your own, right? So you suddenly kind of need to decide on every single deal. You have to figure out with yourself, is this a good investment or not? Am I caught, like I'm somehow in love with the idea, with that founder, but is that actually 100 % objective and am I being super rational here?

19:06So I think I always try to understand what's the motivation of those kind of solo GPs. And I would say for the good ones, it all comes down to they are super passionate about it and they love their business. They have usually kind of, you know, learned it somewhere else, like in another venture firm at some point they said hey i want to do it myself or i want to do kind of more earlier stage stuff and that's kind of how they start their business and i think then it's a great motivation right so if that's kind of what you love doing and spending time with entrepreneurs and then being super early on and dreaming together with them i think that's that is great but it's you know it's a long journey a 10-year fund lifetime is long and then comes the next one and the next one.

19:52So you're in it for quite some time. So you really have to figure out initially, do you want that? Have you personally backed any managers? Yeah, yeah. A few actually. Yeah. What have been the characteristics that, you know, define them? I would say for the best ones, I think they are all, like, first of all, they all bring this passion. They really love that. They're all, second, they're all very social because I think you need to be quite social and quickly figure out, like, who's building what, where do I meet them, and so on. And I think they're all working extremely hard and traveling a lot and hassling a lot to get into the deals.

20:41because it's also there that it's competitive. It's not that, okay, no one else wants to give you money on day zero. There's also a bunch of angels out there, solo GPs, small funds. Also on that level is quite some competition. So starting at solo GP just because you think, oh, it's so early, there's no one else around, it's going to be a great opportunity. That's not the case, right? So you still have to hustle into the deals. and I would say that the most successful ones are the ones that live and breathe venture and really just love their job and wherever kind of you go, you meet them because they're all at these events and find the best entrepreneurs and yeah, that's what I would say is what unites the best ones.

21:28Yeah, I'm baffled every time I, as an LP, you know, because we're angel investors LPs, right? when we, when I meet someone that doesn't know UBC, and I'm like, you know that Angel or Angel LP invest, but you haven't really listened to the podcast or follow the newsletter. First of all, you know, fuck you. No, no, but it's kind of like, as you said, if you're not in the ecosystem everywhere, you're not going to make it. You're not, you're just not going to make it. Exactly, yeah. Do you think it's viable because you're pan-European and you're also, so you do SaaS and consumer, but it is somewhat wide in the sense that it's not only infra or something like that.

22:21How do you think about the specialization of venture? Do you see that coming more and more when you look at an emerging manager you look at today? when are you comfortable that they're generalists? When are you not comfortable? So look, we are a journalist fund and we had a very clear decision to do that back in the day because we feel trends come and go. So if I think about 2012 when we started angel investing, back then would have been a good time to say, hey, we focus on e-commerce companies because back in the day it was the heydays of e-commerce. now it would be absolutely terrible. I had to be a fund focused just on that.

23:06So therefore, I think being a journalist fund, so you are agnostic to whatever theme is out there, as long as it has a tech component. And then I think there are always waves with these specialized funds. So suddenly you had a bunch of crypto funds, you have now kind of AI-focused funds, you have many climate-focused funds. I think it can work if you are then extremely good in that specific sector and very focused on that and then build your brand there. I think then it works. I'd say for the majority of those funds, though, it doesn't necessarily work. And I think how we as a generalist fund see it, we have kind of split the firm across different verticals.

23:49So there's always one partner and one or two junior members of the team kind of focusing on that specific vertical. and driving our thought leadership in that. So if you take FinTech, for example, then we say, okay, look, what are the key themes we look at? What is it that we like? What is it that we don't like in companies and business models out there? And then we breathe the whole firm on that so everyone comes with a prepared mind while they meet other entrepreneurs. And therefore, you build the same kind of competence and know-how internally, but just structured in different kind of sub-teams teams to drive that.

24:27Yeah, and I think that makes a ton of sense. I do think that as a new firm today, damn, you got to be good if you want to be pan-European and generalist. That's my only comment to it. But I do think that obviously we have great firms that are generalist and pan-European today. I think that the time where you can start that firm may have passed, at least for many, but that's just my reflection. I'd love to ask you because we did a deep dive retreat or deep work, deep inner work retreat a couple of months back. And this is, of course, around coaching and finding yourself and staying true to yourself.

25:15And I am very much leaning into that work because think it's incredibly important anything that you can do to optimize the performance either of a vc of or or founder will you know just come back so many times so for that reason you know and we're all dealing with stuff most of us are also trying to create a family at the same time as we're in a high performance job that definitely uh comes with its baggage um that's not easy and you need to manage manage that and you've then launched at jerry ventures your co-pilot program um and i'd love to ask you to to outline that and then talk about the uh the the origins of the reason to do so and and what you've gotten out of it so far yeah happy to so yeah kind of we launched co-pilot i think almost kind of a year ago because we said hey the best athletes in the world have a coach multiple coaches even why do not the best entrepreneurs have a coach and i think we as partners ourselves have been users of the product coaching, right?

26:20So navigating kind of your life, your professional and your private life with a coach on your side, I think makes a huge difference. And I think there are moments or even phases in your life where you need it a bit less and other moments or phases where you feel like, hey, I now really need someone as a sparing partner on the side. that also helps me grow or kind of manage a difficult, difficult phase in life. And therefore we said, hey, let's also implement this for founders. And I think if you look in the sports world, so a good friend of mine, he's a world-class triathlete. I mean, he just kind of retired from his career.

27:01He won Ironman on Hawaii three times in his life. So amazing career. and when I talked to him about coaching, he's like, yeah, of course I have coaches my whole life and not just one. I have a nutrition coach. I have one for my bike riding, one for swimming. So it's a bunch of different coaches that then even have to work together, which is luckily one thing we don't have to orchestrate. So I think one coach per person generally is enough in business. Yeah, I mean, for him, it was completely natural to have that coach And he's like, otherwise, no way he could have gotten to where he got to. And then we said, hey, let's launch this as a program.

27:44And then we thought about what's the best way of implementing this. Because if you just give this as an advice and say, hey, you know, we think our founders should take a coach. Then, you know, everyone says yes in the beginning, but then it somehow kind of fizzles out. So what we did is we put this, implemented this into our term sheet. So as one of the clauses, it says, hey, can you participate in the J coaching program, which means you set aside a budget of 50K per year for the Fawnick team. And, you know, that can come from the investment amount that we invest. And then we have a pool of around 30 coaches that we recommend.

28:26But it doesn't mean it has to be one of those coaches. If a founder says, hey, can I have found this coach or I'm already working with that one, obviously totally fine. So we have no preferences on that. But obviously these 30 coaches are curated. Either we have worked with them or heard very good things about them. And we feel like by committing to at least this 12 months, it helps that it's also a continuous effort to build the founders out as good leaders. because suddenly they are growing their business from originally maybe like a 5 to 10 people team to a 20, 30, 40, 50 people team in a year.

29:07And that comes with lots of new challenges, being a good leader, being a good role model, being visionary on the one hand while also still being deep in the business. And we feel this can be best done with a coach on your side. So that's why we implemented it. I think it's a big passion project for all of us as partners. So, you know, we're really passionate about it and also make sure that this gets implemented after we've sent the term sheet. What's been the reception? Extremely good. I think we have never kind of received pushback or anything from founders. I think for some of them, it was a bit new and it was like, why?

29:50Is it only for us that you have this clause? Because you felt during the pitch, we didn't come across as senior enough leaders. But then obviously, for example, no, no, no. It's for everyone. It has nothing to do with you kind of personally. I think they all like it. And once they start working with it, if they haven't worked with a coach before, so mostly for the younger founders, they really love it and embrace it. And I think that's great to see. It's also, I'm sure what you've perceived with the founders and the VCs that you know in the ecosystem that this is consistently work that the best performers do.