E391 | Nico Schoenenberger, 10x Founders: Community-driven funds & mastering follow-on investments

27:00That's how I would approach this and that market. But suddenly you realize you're not in the driver's seat anymore. You're investing. You need to trust the people that you back. They are running the show. You're maybe a very happy person on the passenger seat, but you will never steer the business. To get that point right, I think to invest in the best people and only into the best ideas was a huge learning that we made over the course of fund one. And we're still learning, frankly. But I think that's one of the key challenges that entrepreneurs turning angels, turning fund investors eventually has.

27:30And the second learning, I think, is that we made in terms of how to adapt and play our investment strategy. So in the beginning, we had a plan and we had an idea and we had a fund model, of course. And we just tried to shape exactly that kind of strategy. So are we more leaning towards lead or more leaning towards follower tickets? And we discovered if we run a broad portfolio and want to be very helpful to our founders, then it's maybe good if we're not in the ultimate responsibility of running a board and signing all kind of shareholder resolutions. But it's sometimes better to just ride the wave along somebody else who's then eventually leading the round or we can provide that very entrepreneurial spice to those kind of rounds and bring in our experience.

28:15And that's, for example, something that we realized. We said we may be a very, very good follower investor. We like to place substantial tickets, but we're maybe not the right ones to ask if you want to establish a board in the preceded seed stage. And that's also something now that we're taking into fund two that will eventually follow one day. We said, okay, we mastered that transition from like angel portfolio to our fund portfolio. We have resharpened our strategy and then already to fully execute and double down on what worked. while making our learnings what hasn't worked and improving on that.

28:50You have funds built by financiers and people that are very experienced in venture where all of these things would not be described as much as a learning story. Some of these are super successful. Some of them are less successful and are not able to raise$150 million and not able to get into those companies. So super interesting dynamic going on here, right? Because normally for 150 million euro fund, it's oftentimes very sophisticated and very drawn out and it's almost checkbox exercise. I would still say we're very sophisticated. So it just took us more time to build those processes from scratch.

29:39I didn't mean sophisticated. I meant methodic and planned out and based on years and years and years of experience where your situation is a bit funny because you have with massive power in the founding team and yourself with incredible angel track, incredible ecosystem built around you, both in terms of the entrepreneurial community from having, you know, the founders having built such great companies before. And then, of course, also Felix's work with Bits and Pretzels, and you also run a very powerful entrepreneurial community. So you have these things that are super powerful and would make me super excited as an LP, right?

30:23Because that's exactly what you want to see. So you're great investors, right? But then you have this light side on the how do you run a firm? and which also then I could imagine also is a bit of an explainer of why is your LP base as it is, meaning all the entrepreneurial community are ready to come behind you. And many institutional matters are a bit more like, ah, where's the guy who's done three funds before? Was that part of the fundraise process also? or did you just not engage the institutional community because you said, well, it's not our DNA. It's not what we want to do. So for that reason, it's not our route.

31:09I mean, very frankly, it was maybe a mixture of both. So of course, we also said, if there's good institutionals coming along and they basically live up to our values of being very entrepreneurial and how we approach things, we would have been super happy to take some of those along. And I think that didn't materialize. In the end, we have been a first-time fund, even though a very strong angel track record. I think many of those institutionals are rather a bit reluctant to back emerging managers, not emerging investors, but emerging managers. And so we made that essentially our secret sauce. We said, we know so many people in the industry.

31:42We wanted to build, as you said, that entrepreneurial community. And this community is incredibly accessible. So we realized that by bringing together our portfolio founders with entrepreneurs that have built businesses maybe 20 years ago, maybe 10 years ago, maybe even active entrepreneurs. And up until today, it's just very, it's incredible value add that we can deliver that goes way beyond the money that funds typically try to sell to founders as a commodity. But we actually have that very vivid collaboration with LPs, with the scout network that we run that we call fellows amongst Europe. And essentially we made it our core mission to bring people together, to believe in the magic of many, as we call it.

32:20that basically have people that are incredibly active, incredibly accessible for each and everyone's benefit. And we are just a community who's putting the wrapper, as the name CanX Founders says, above all of that. But in the end, it's all about the people that we have in that network and that we bring together the right people at the right point in time for the right kind of matter. Yeah. Also, I think that there's a special thing around you, which is that you're a first-time fund, 150 million, which means that when you look at the fund-to-fund landscape, at least in Europe, you have a lot of smaller fund-to-funds for whom it doesn't really make sense to do a 150 million euro fund.

33:03And then you have a lot of, or not a lot, but you have some institutional fund-to-funds who can do or like the larger funds, but to whom, because they like the larger funds, they are not super happy about first-time funds. Totally. So I imagine that there's also this, given this bifurcation of the fund-of-fund ecosystem that cares about Europe and thus actively deploys here, you kind of also fall between two sizes, I imagine. I think that's very fair to say. In the end, I think what's important to stress is that there's, of course, not only fund-of-funds investing into funds as 10x founders, but we have a huge entrepreneurial community behind us.

33:46So entrepreneurs, business angels, but we also have now the first family offices committing or that we are in talks with, particularly like them. They bring, instead of also that entrepreneurial DNA, entrepreneurial values to the table, even though maybe the principal of this firm has already built businesses 25, 30, 50 years ago, but they're still very in-depth thinking, very entrepreneurial. They want to engage in such communities, maybe co-invest with the right people. and it just feels that it's a perfect extension or like addition to some extent to our DNA. And so I think that's at least one core area to explore for us, but also for other very entrepreneurial funds.

34:26You not speak only if it's like the very large or the very small fund of funds, but try to think very strategically about how you want to structure your LP base. And that was also one of the key learnings that I think we made over the course of fund one and that I made particularly in the industry that in the end, fundraising is a bit like a sales process. You need to define your ideal ICP. The ideal ICP needs to fit your strategy. And if your strategy is to invest entrepreneurially, then it's also just the right thing to take entrepreneurs along that eventually back you. Because they will benefit more from the overall ecosystem, but in the end, they will also be way more active in collaboration, in deal flow sharing, in references, in co-investments, in portfolio support than maybe the traditional bank or institutional, maybe pension fund would be.

35:09I say all of them still have a very good right to exist. And I think at a certain point in time, we will also need to think about how to provide a bit more, I don't really call it, but stability into the LP base because entrepreneurs also think about their asset allocation very entrepreneurially. But if you find an institution that's not backing only one fund, but two funds or three funds after getting to know the team, I think that this is also a huge value add. And I think eventually it will come down for us to actually mix those two worlds where we know we have stability in the fund. We know it will exist for the next generation.

35:44But on the other hand, we can always live up to the very entrepreneurial value that we have at the core of our DNA within the firm. Yeah, and you always see this development as well. You go from the entrepreneurial-minded LPs that are typically smaller in the beginning. And then as you get a bit more settled in your ways and get a bit more of the flavor that the large institutions like, you then start to professionalize or institutionalize the LP base. It's just a process you would expect. Could I ask you a bit about the overlap slash collaboration with Bits and Pretzels? How do you leverage it?

36:24Is it run as something that is part of 10x founders or is it run as two separate organizations, separate CEOs and so on. I think that's very important to stress. In the end, there's two separate teams. Yes, we collaborate and we like each other. So I make introductions to the Bits and Pretzels team for potential speakers on stage. They are collaborating with us. So there's Andreas, for example, from my team, who was the head of jury for Bits and Pretzels and was then putting together basically the jury for the pitch competition, where we're always super happy to help. But essentially, it's two separate organizations, two separate teams.

36:59It's not that we organize the conference. We really like it. And all of us are there. And we run the 10X Founders Lounge each and every year on one part of the venue, which is always very well received. But in the end, as you said, separate CEOs, separate decision making. The only thing that we essentially share in terms of people is Felix, who started the Bits and Brussels Conference. And he's one of the founding partners of the fund. And obviously, I think it would be silly to not exploit synergies that we have eventually. But the team at Bits and Brussels is doing an amazing job to put down such a beautiful conference, get all of those people on stage, get all the participants to Munich, to the Oktoberfest.

37:35And we're super happy to be, let's say, like one fund out of many, but one where we have very close ties to each other and know we can trust each other whenever we need each other. Where's the team base? Are you all in Munich or not, Ryan? All of us are in Munich. So we started a fund here four years ago, the partners at the center of living here. And we believe it's just a very good place to be at. So the ecosystem is very vivid, very active, a lot of tech tunnels coming out of CDBs, GTM of the Technical University in Munich. And we have a lot of like DAX companies from the stock exchange that are located in Munich.

38:09So it's a good place to be in. And I think it takes us not even two hours to reach 95 % of all European unicorns by plane with a good airport. So we are somewhere at the center of Europe and that's why we play to the Pan-European strategy too. What is your take on the viability of being a Pan-European fund out of one place? Like, give me the steel man case of why that's possible. So is that two hour from anywhere to anywhere? I think that strategy or that talk would have been totally different maybe 10 years ago. But I think particularly COVID, as in many other industries, has just accelerated digital adoption.

38:45So people are very used to meet over Zoom, to not always and only meet in person. I think what we try to do is still to meet people further down the process whenever we have met them, diligence them, like each other, to meet in person. I think it just gives a very different flavor in terms of relationship. But many of the things in terms of groundwork can essentially be done from one place. And while I don't want to exclude that within one of the next fund generations, we actively speak and decide for opening up another shop, maybe in Berlin to cover that ecosystem better in Germany, maybe in London, maybe in Paris.

39:19I think all of that is still very open. But so far, we have made very good experiences. And if you could look into our current portfolio, I think we still have like 30%, 40 % maybe of our companies in the German-speaking areas. But there's another 30 % to 40 % that is actually truly pan-European. So there's two companies in Poland. There's two in Spain. There's one in the UK. There's two in Paris. There's two in the Nordics. So we can actually, and we have proven that we can invest even from one place in Europe, have a pan-European approach. And this even covers the US. with the one caveat, as I said, that I think if you actually want to win deals and work with the best entrepreneurs, in the end, it always comes down to personal relationship.

40:00And this is typically best built if the groundwork is done, but you then meet in person, you have a handshake, you look into each other's eyes and say, okay, this is like the next, this is the one person or the one team that I want to work with for the next 10 years. And that's essentially the time that it needs to build a big business. And as a sunny fight fact, I think that's longer than the average marriage in Germany, we better pick wisely. I think what I would say is that it depends a lot on the basis from which you build. So you guys are so embedded already as angels. So you source via an established network more than from a large brand or more than from...

40:41And don't underestimate that we're not alone. And I think that comes back to the principle that we said, if we operate, it's like the magic of many. So even if we are not active or not present on the ground in many ecosystems in Europe, first we travel a bit. That's why we met in Bucharest. I think that's typically not the VC hotspot and we wouldn't open a shop there even in the coming years, most likely, even though it was a beautiful city and beautiful experience. But we also have what we call the fellows program, where we work basically with 50 people more like in a scout capacity that sit in those local ecosystems and that work very closely as part of our community.

41:16and the same is true for the network that we built so with that very unique position of either leading rounds but also being able to follow we're just a very good friend of many of other funds that sit maybe in some of those areas where we're not having a local presence being in Berlin being in London, Paris but also in the Central and Eastern European countries being friendly and venture I think was always helpful and it particularly is if you only have one office and you always rely and can rely and want to rely on people that collaborate and have the same entrepreneurial but also very collaborative DNA as we have.

41:49I personally think that for many, it's not viable at all. And it's not trustworthy. I don't think that it can credibly be set that you can do it. And then there are a handful of teams every year that can do it, that can credibly say, we're coming to Mario with a new fund and it's going to be pan-European and we're doing it out of X location. I think it's incredibly hard, but I think that 10x founders, I think that the capacity level of the GPs and yourself, sorry for using an exclusionary term there, you know, but I would always stress to anyone wanting to do this, check out a team like, you know, the team behind 10X Founders and then say, really, do we stack up against them?

42:36Because I think that you're putting an extremely high bar for yourself if you want to be Pan-European and not vertically focused. So just a word of caution there, at least from my side. And it's just so difficult. Okay, so Nico, tell me a bit about yourself, your philosophy and life learnings. What's guiding you? Yeah, very tough question. Also, when you asked me that question to prepare for. But in the end, I think when doing my reflection, I came up with two common themes, I think, that's worth talking about. And the first one is when I talked about being born in France, but growing up in Germany, French father, German mother, I was always living a little bit in between.

43:18So I get into a huge struggle when both teams play against each other for the Soccer World Cup. And so maybe it's my dad and me then on the couch at home to shout and cheer for France, whilst my younger brothers and my mom are more for Germany. and I always kept on coming back to France. My grandparents are still there. I did my exchange semester at university there. I really enjoyed that theme of like being a bit of in between and like combining two different worlds to some extent. And very funnily, then I rediscovered that theme also from my study background where I realized, okay, I did computer science and finance.

43:50I was good at Monopoly when I was a kid. So I had that kind of commercial mindset from the get-go somehow. I liked that. But just doing something in economics just felt a bit odd, maybe a bit boring. So I mixed it up with another discipline and now realized that with that background, maybe it's something that floors this very well in venture because I understand technical founders. I'm not a coder. I'm not an investment banker, but I still get what people do if they want to write software or build hardware. But on the other hand, I understand go-to-market, commercial terms, and I'm very commercially savvy.

44:20And so that theme of like a little bit of in between, it's very rewarding right now to combine, let's say, like insights from different disciplines and bring it together for a good course. I'm a pure social sciences guy. That's a good reason for that, man. I hate myself for taking the easy path 10 years ago or 15. That said, I don't think I would have done very well because I'm not a very technical person. Tell me. There are many more people out there that are way more technical than I am. Don't get me wrong. I think in the end, I would always say that I'm a generalist. I'm above average, maybe in many of the things that I do.

45:02But in the end, I'm not a specialist in any of those or either or. So there will always be people that are better than me whenever it comes down to one specific topic. But it's essential, at least as I believe in venture, to have that holistic overview, to combine insights from many different disciplines. And so sometimes I feel very privileged that a journalist as me eventually found a good place and a good job to work in. and a good profession that actually honors and rewards exactly that kind of like in-between generous profile that I bring. Yeah, and the beautiful networking capability of yours.

45:38I've been on the receiving end of it and thank you so much. It's maybe the second theme where I always felt like I want to surround myself with the right people and with the best people. And like from the get-go, to give you a little bit of a context, I was the oldest brother of four. So my mom always had someone to take care of a bit more urgently. So I was always very flexible, driven by ownership from my early childhood. I really enjoyed that. But then I always picked people that I could learn from. I said, okay, if it's not my mom, not my dad, we have a brilliant relationship, by the way, by now.

46:09But we always knew that, or I always knew I had to organize a bit in my own life and find the right people that support me on that. And provided me with trust, but also challenged me and that are generally interested in my personal development. and I'm very lucky to have found such people at different internships I did, also in full-time capacities. Right now there were some people somehow spotting something. I don't know what it exactly was, maybe a bit of talent, a lot of motivation, a lot of drive and a desire to execute and then took a bet on me and eventually hopefully I never disappointed them.

46:40But it's that kind of like mixture of bringing together the right people, surrounding yourself with people you can learn from that challenge you, but it still always operates with a very, very healthy trust basis. is something that I would recommend to others. But for sure, also one of the key themes that I try to center my life around. I at least have come to massively appreciate you, Nico. Just after a couple of sessions. I do too. Tell me a bit about, like continuing this vein of digging into Nico's set, tell me a bit about your biggest learnings in venture. I mean, like in the end, I'm only there for four years, but still a lot of stuff to learn.

47:18And I think the first thing that I eventually learned and particularly if you come from university where you're just like one out of 800 people maybe, in venture, repetition really matters. So it matters who you are as a person because in the end you're selling money, more or less a commodity, but in the end it's people investing in people. And being a kind but also very curious and caring person is something that can be really helpful in building relationships and particular relationships that should outlast the next decade, the next 10 years. And frankly speaking, I also see investors from non-brands, basically, that are winning deals against other investors at top brands because in the end, they're maybe just like the kind of person and they kick better with the founders because in the end, we're all humans and we want to build relationships and be surrounded with the right people no matter where they work it.

48:05And so the personal reputation is something that's, in my eyes, something that's very, very important in venture, maybe in general in life, but particularly in venture. And I think that brings me to the second point that I learned where I said, if you look into companies, even the most successful ones, we touched upon it already, like many of them have faced bankruptcy at least once in the whole company life, but still they managed to move on. And in the end, I think their path to success, people always expect it's very linear. You can predict it from the beginning. You know what to expect. And yet it sometimes goes in circles.

48:38It goes from left to right. You have some setbacks. It's just about how do you deal with those kinds of obstacles. And the same is true for people as for companies and like adapting to this reality of like allowing for those kinds of setbacks, allowing for obstacles to happen, but also accepting that there are so many unknown unknowns in building a company that in the end, all stars need to align to eventually build one of those generational businesses that we will talk about in like 10, 15 years again. And all of that takes time. And I think that's my biggest third learning was adventures and incredibly long-term game.

49:13I did a bit of consulting at the site when I was at university. Like all of that, always like a project, three months, you went in there, you put down a strategy, you put down together a very beautiful PowerPoint presentation. And then afterwards, you were just gone. Adventure is different. You take ownership. Building those companies takes seven years, 10 years, 15 years, 20 years to eventually bring them to a hopefully also financial, the good outcome for all of us around the table. And this is also why feedback cycles are extremely long in ventures. So until you have returned to first money, which can take those seven to 10 years to investors, I also personally have absolutely no clue whether I'm doing a good job as an investor or not.

49:53I hope I do, but all those proof points have to be seen in the next couple of years. So I hope we do another session in like seven to 10 years when I can bring some more proof points that I'm not at to the wrong place. He'll bring your Yachta to the proof point. No, there's a bunch of proof points along the way, right? But it's hard externally to diligence whether someone is a good investor unless you spend real time with them. But I think that once you've seen a few good ones, you can recognize it. Okay, so let me ask you, I love this question, a strongly held belief that you have recently had to change your mind on.

50:30For me, it's like when you asked me to prepare, I came up with two different things. And the first one is more from my personal note. The second one is from a professional note. And frankly, I also love that question. It was really challenging, but I liked it. So the first one was in a personal context. I'm currently doing a coaching program with a coach in the UK. I absolutely love her. She's doing a fantastic job. And she actually pointed me at one belief that I always had, where I felt, particularly after playing soccer for 15 years on a competitive level, that whenever I put a lot of effort and a lot of time into things that I can maybe achieve what I always wanted to do.

51:06And I think that's one of the common, one of the beliefs people are taught to just put down the hours, put some extra effort and you will get what you want. But I think in the end, and I think that's something where I had to change my mind, it all comes down to doing what is really bringing you joy because then it doesn't feel like effort. It doesn't feel like work. It does feel super light to essentially end up where you want to end up. And not everybody needs to get into VC. not everybody wants to become a doctor, not everybody wants to do an apprenticeship and work in the industry. I mean, like in the end, you just need to find your perfect place.

51:39And I think you have done so once you realize that all the time you spend within that profession or that hobby, whatever, whenever it feels super light to do, and it's more like joy and fun and not hard work. I think there's an important point there in that, you know, and yes, it is a personal note right because we can all get like many of us can get so good at grinding that we just do it um and and don't think about what it does to us and and our happiness and so on i think that you're absolutely right that for for a high achiever who have always been so that that did not come from itself right you really have to then if this is your mindset i've been there myself then ask yourself am i grinding just because i'm good at grinding or or am i grinding because i love what i'm doing um frankly i think i was for a very long time in my life and i'm now very fortunate to have found a job that doesn't feel like a job because i was hanging around at demo days and pitch events and the founders during my time at university anyway like when i signed my contract in venture i felt like okay i now met my hobby of profession and i'm getting paid for what I love doing and I think that's hopefully also the kind of like passion and positivity I try to transport and deliver whenever I speak to founders or investors or on podcast at any end I think you need to find something where you really enjoy doing what you do and venture is one of the things that I really do how about on the professional note what where have you had some strong pieces where you have to say ah I was wrong and people will maybe think that I'm a little bit of like a late laggard in that sense.

53:15But I think in the beginning, everybody was just laughing about like JetGPT and artificial intelligence and like the term is already around for the last 10 years or so. And I sometimes felt, particularly in the beginning, that it's a bit of a hype. I have seen Web3 hypes. I have seen grocery deliveries as a hype. I've seen FBA aggregators as a hype. And I wasn't too sure in the beginning whether AI and like technology built on top of LLMs will not just be just the next hype that they will disappear in the next couple of years. But then frankly, we did a couple of investments in that space. We spent a lot of time with founders, digitalizing technology, really understanding what's behind.

53:52And frankly, also seeing the impact of artificial intelligence in general, chat GPT or open AI as maybe one of the first ones only, and not the only one. We saw, okay, this is really going to change our lives. And in many different facets, we have to decide whether it's good for the good or for the worst in the end. And I think we have a huge responsibility also as humanity to deal with technology. But in the end, I'm very clearly convinced by now. And I changed my mind in a way that I now very strongly believe that within my lifetime, hopefully there's a couple of more years to come, we will see that machines are not only faster, more efficient, more reliable in executing tasks as humans, but they will also be smarter.

54:36and then it all comes down basically how do we deal with that kind of like new situation and that superiority the tech will maybe have over us humans so it will be a huge challenge for all of us but i'm i'm glad to be alive in such a time because i think we see technological but also societal and political change way faster than we've ever seen in the last years and decades i think it'll be absolutely incredible next 20 years uh like you will not recognize the world today in 20 years. Humans will still be around. I'm super sure on that. Yeah, it will be around in 20 years, but it's like, to me, it does not seem weird.

55:15A lot of things I never thought was around the corner. There are many things that I'm like, in 10 years, this is going to be 100 % out there. Absolutely. It's truly bonkers to me. Okay, final question. Then we need to wrap Top tips for VCs or fundraising? What's your take? Yeah. I mean, I tried to break it down into three key learnings. And then by that, also top tips that I would give to other fund managers and raising their funds. And the first one is, and we quickly touched upon that, that you really need to know your target audience. And by that, also your strategy. So you need to know whom to approach, with what kind of messaging, what kind of story, and what could this person next to money potentially bring into, for example, the community that you want to build around the fund.

56:00I think that was one of the cornerstones within the next that we talked about that we thought very strategically about our LP base. And we still do. And I would always recommend doing so. And that there's a fit to the overfund strategy. Second piece is, and that's a bit unfortunate, but in the end, it's about relationships. It's about building relationships between people, people that back you and trust you with your money. So it just takes time. The raising funds is that kind of relationship game. and you need to spend time with people to build trust, to build a relationship and to eventually then potentially secure one of those commitments to your fund and to win in the long term.

56:38And the third one I typically give and I really like to think about it as a notion is like the fund size that you pick is essentially your business model because in the end, you need to make the economics work. You need to make sure that you're returning money to your investors, hopefully a bit more than what you initially collected. By that, there's a lot of decisions to make. So are you more like a management fee fund that dips out of debt with more stable returns, larger volumes? Are you more a carry fund, a bit smaller but higher upside? The volatility at the downside. Do you want to lead or do you need to lead or follow in rounds?

57:11What's your following strategy? So I think it all comes down to many of the points that we discussed today that in the end, you need to set your strategy clear, pick the right fund size according to the business model and according to the secret sauce that you have to eventually cut through the noise, work with the best people, and then hopefully contribute to a very, very good and flourishing ecosystem in the long term. Just on the relationship note that you said there, because you said, and maybe it's a bit unfortunate that it's a relationship game. I like it. Honestly, I think if you're raising, then you realize it.

57:41Sometimes I want to say to people, well, you are asking for 20 million. Isn't it fair enough that it's going to take a while before you get that? Or from the individual, it's 500k or 100k, but That's still real money. And I think that some people would do well to consider what this really is that you're asking for. They might be wealthy, the people that you ask for that 100K or 200K from, but you are asking a really, really big amount. So yeah, awesome. Nico, thank you so much for joining me on the podcast. Thank you so much, Andreas. This is an amazing experience and hope we can do another one of those things.

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59:10Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting