E412 | EUVC | Isomer (Joe Schorge + Chloe Dagnell + Benjamin Rej Notlev) |LP Deep Dive on Scandinavia

0:00Hi, everyone, and welcome to another European VC podcast. I'm David and joined, as usual, by my co-founder, Andreas. Today, we have a special one. We don't have one. We don't have two. We have three guests with us. And they are Joe Schorch and Chloe Dagna from Isamer Capital. And if I must say, that's Europe's hand down best fund of funds. But full disclaimer, we are VPs at Isamer. So maybe just keep that in mind. And we're also joined by Benjamin Notlev, COO and CIO at Tech Barbecue, the leading tech conference in the Nordics. Before we start, we have a bit of an announcement to do here. Andreas, do you want to take the lead on this one?

0:34Yes, exactly. I do, David, because the big news that we have to share with everyone is that we have decided to partner up with Benjamin and make him our country ambassador in Denmark. And that is quite beautiful because, of course, something like this comes out of something. Yes, Joe is clapping away here. And I think that Joe will also recognize the motivation for us to be doing this with Benjamin because it is somewhat similar to why Joe invited David and I to join the Icemer gang as VPs. Because Benjamin, of course, is very complementary to everything we're doing around connecting the ecosystem in Europe.

1:17Because as CIO and COO with Tech Barbecue, they're all about connecting the industry, but just with a focus on the Nordics. And that's, of course, something that resonates so well with us. And I've known Benjamin for years now and always enjoyed his company. And Benjamin has also invested with us a couple of times. So for that reason, we thought, why don't we do something more long-term, much closer than before? So Benjamin, maybe you would take over here and tell us a bit about why you think that we think you're amazing and also why you chose to accept this offer of becoming a Contra Ambassador with UVC.

1:56Yeah, thank you for that. And I'm privileged to be part of your journey. I think what you're doing is amazing. And I like the vision you have for the whole angel investing into VC funds through syndicates. So the ultimate reason is that I think that there are so many bright, super bright, bright people who does not have the financial means to follow on in a traditional way into a venture fund LP allocation. and these guys have amazing relationship with founders and at the end of the day the most important thing for a venture capital fund is access and i don't mean access to a meeting i mean access to actually getting a signature on an investment even without favorable terms just because these guys have the trust and these guys have the insight that may help them you know accelerate them forward and so i think it's a very overlooked area i think that there is a lot of small ticket business angels, a lot of community people who cannot put down a hundred thousand pounds in five different funds, but could do 10, 20, 30 ,000 euros, pound, dollars, whatever, and actually have a significant contribution to the venture fund, whether that is deal flow access or general access to subject matter experts throughout their whole, you know, investment journey or entrepreneurial journey rather.

3:18And so I love being able to help bridge those two, because I speak with a lot of not only founders, but also business angels, venture capital funds, but also community people who has this great access and this trust between founders. Yeah, exactly. And as you can hear, that's very much the... Benjamin speaks with the same tone of voice and on the same topics as we always do. So in that sense, you can see the connection there. I would maybe ask you, so what does this mean to the audience? I'd love to ask you, Benjamin, to dive a bit into that as well. But clearly, this means that we're going to do a lot more together, both on the content investing and events side.

3:58And don't hesitate to reach out to Benjamin or myself if you're interested in getting in on some of the action that we'll do together. Yeah. So I think throughout time, it's going to mean a lot of things. We're in the early days, but one of the things we've been doubling down on is something called Nordic LP Forum, which is happening during something called Nordic Investor Day. It's one of the largest gatherings of investors, business angels, private equity, most focus on, you know, venture side of things and most venture capital funds, of course. And so we're collaborating on attracting, you know, LPs that are already investing in venture capital funds.

4:37And then we're also spending a lot of time inviting people who are not currently investing in venture capital funds to inspire them as to what BC as an asset class can do. And there are great synergies there. And you mentioned it a bit before, but TechBabbecue's mission is literally joining efforts of entrepreneurship. We do believe one plus one equals three. This is one of the cases. So you spend a lot of time with LPs, so do we, and together we can create something better. So that's one of the primary things I would like to highlight. I think a lot of nuggets are going to be given during this podcast, so I don't want to spill too many beans because a lot of it is spelled when Joe and Chloe talks as well.

5:18No beans spilled so far. Thank you.

5:30This 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. 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. Anyway, we're here to do an LP deep dive on the Nordics. And I want to start by asking our esteemed Isenberg guests, Joe and Chloe, to kick things off with, I think, probably the first question for anyone that is not, well, like myself, who's not in the Nordics, right?

6:15So the first question is, why look at the Nordics? Why do a deep dive? Where did that start with? So I guess, Joe, Chloe, take the stage. Give us the backdrop there and the details. So why would we look at the Nordics? Well, I think because it's an extremely exciting ecosystem, right? There is tons of talent, tons of amazing companies that have been created there over the last decade or so. So as an LP that's investing in venture, it's a region that, you know, is very hard to ignore. So we kind of look at it from that external gaze, right? You know, there's amazing talent, amazing company building.

6:49So why would we not want some of that in our portfolio? And then I think we look at it in a little bit of a more ice in the lens way, right? So what does this look like in regards to our strategy? Well, there's a ton of great funds up there, the likes of Northstone, Creander, Metolico. They've all got their roots up in the Nordics. But they're kind of growing. They're getting larger and larger. And there's space for these new early guys to come in and scoop up some of those amazing pre-seed-seed deals where some of these more local names are just growing a little bit bigger. So we start looking at it from that perspective.

7:24Who are those players? and who do we want exposure to in that. And let me ask you kind of a more maybe boring question for me, but I think it might be interesting to some of our listeners. And it's related to portfolio construction, right? So when you think of the Nordics as Isomer, is it a matter of we're deep diving into this region, we want to pick one bet, we want to pick that crazy potential outlier player, Or is it more, you know, you're kind of deciding how many bets you want to make? You know, I think this is interesting mostly for GPs listening in, but I'd love to hear the thinking there.

8:02Well, maybe I'll add two cents on just why Nordics. The Nordics are really punched above their weight in producing big, important tech companies. I mean, think about their domination of the gaming world, right? You may have shot an angry bird at some point out of a slingshot. You may have listened to music streaming in your car or on your phone, and you may have done lots of other things with Nordic Tech. So it's an important ecosystem to be part of. And to get to your question, David, we have a portfolio trying to balance the goals of covering all of Europe, discovering where the next big thing will come from, but not having infinite resource and infinite tickets.

8:49So you have to somehow have a balance of number of shots on goal, if you will. And this is a tough, this is the art of it. The science of it is what's your IRR down to three decimal points. But the art of it is how many investments can we make to cover this important region? And this is what we spend weeks, months and years agonizing over as we go meet all the farm managers and try to build a portfolio that's as exciting as it can be. What I really enjoyed in our conversation ahead of this interview was the fact that a deep dive into the Nordics doesn't, it's kind of prompted by specific things.

9:37So first of all, of course, the region in itself is interesting, as you're saying, but then it can also be prompted by different occasions or different happenings. One being that you meet a manager that you're saying, OK, this fund is incredibly interesting. We are very interested in looking more here, but we're not going to allocate to this fund without having a very clear view that we know that this is the right fund to be buying at this time in the Nordics. And then there's another situation, which is also because you're already, of course, exposed to a significant number of managers in the Europe, and they're going to come back and say, we're coming up with fund two or coming up with fund three.

10:28We now want to, you know, can we count an isomer? And if that fund isn't just a smash it and everything is just green lights all the way, then it might also prompt a deep dive into the region because you're going to want to make sure that this is the fund, just as you're going to diligence that fund and look into the issues that you may have had with that fund, you're also going to do an external review and say, okay, is this still the best fund to be in, in this region? Are there things then, I guess you can also be prompted by having done a full review of your portfolio and saying, we think that we're now light in the Nordics.

11:08And for that reason, we should go out and hunt. Am I right in saying that that's the three events that might trigger a deep dive on a region? I think you're getting to the heart of why being a venture capital investor on the LP side is difficult. Because if you, I call it rear view mirror investing, if you simply look at groups that had really strong returns, you may be in their first fund that doesn't have strong returns. You really have to think about is how did they generate those strong returns and are all the conditions the same? You know, what's happened in the market, what's happened in the pricing of early stage deals and the founder network, what's happened in the specifics of the fund and the team, maybe the people who made those great returns are there anymore.

11:59Sounds obvious, but it isn't obvious because terms evolved over time. So part of doing a deep dive is based on the idea that we shouldn't make selections without as full knowledge as we can. And the only way to have full knowledge in private markets is to try to meet everybody and talk to everybody. But it's recognizing this idea that we're not investing looking backward. We're only using backward data in as much as it can predict what could come. And then we're investing forward. And that's tough. every new team that we come across there's some merit in them right and you meet some teams sometimes I think wow you know I could really get on board with this this is a cool idea it feels like it might fit a bit of a gap in the Isma portfolio but before you get too involved too too lost in the in that uh in that love you man kind of feeling you have to reflect on okay well am I have I just got a great connection with this person or you know is this really the best option for our funds.

13:01So that requires you to go out and do a bunch more work to think about, okay, does this really fit? Is this really for us? Or, you know, is it another great fund that ideally we would love to back, but there's just not room for it in the portfolio because there's tons of crossover. We already have a lot of exposure either in that geography, in that sector, and we don't want to build there. So there's also some backwards reflection that goes into this, which is, well, what have we missed? What didn't we capture in the Nordics in the last five, 10 years? And who would we have captured that with?

13:33Or maybe who are the new up and coming teams that are really looking in those areas that maybe our portfolio is slightly underweight on? You made me want to comment on the, if we can call it the I love you man phenomenon. We all are in this business because we're people who like working with bright, ambitious, smart, innovative other people. you point out that you tend to fall in love with ideas with people with concepts and and the danger of that is you get blinded a bit so we all do it and i say oh i really like this chloe go go up to stockholm and have a look you know and see if you have the same opinion and we think that's really important that independently we look at ideas funds companies and so on and if everyone on the team has a similar response, we're probably on to something.

14:24But it's a way of trying to control for the I love you man, which, you know, if you don't have a team of people who are passionate, they won't have this I love you man moment, and then you lose something as well. So this I love you man should be built into a passionate team that's excited about tech. On the other side, you have to be worried about it, because there have been times over the history of Isomar where I come back to the office and say, oh, this is great. And everyone points out why it's not great. So that committee process is quite important. And the other big driver of a deep dive review that we didn't talk about is this market constantly evolves.

15:08So you may think you've met everyone in January of 2022. And by January of 2023, there's 10 new funds that you don't know. and that's people spinning out of bigger groups, that's founders who exited, do some angel deals and then create funds, that's the big tech executives. We've talked about this in the past, but to be a good early stage investor, you cannot say at any point in time, oh, now we've met everyone. Now we know them because tomorrow there's a new one that you haven't met. And that may be the one that you'll be sorry you missed in five or 10 years when they prove themselves to be rock stars before before um moving on to to how effectively how do you map map out an ecosystem and and choose which one to back benjamin i want to put you on the spot here and before we go into that ask you know what are your preliminary reflections of the nordic region when of course when you hear this but also you know this is very much connected to your day-to-day why should why should lps you know be looking at the nordics why why is it relevant i'd love to to bring you in here.

16:17Yeah, we can get down a couple of rabbit holes here. I think generally, there is an opportunity and at least down the line for growth funds to establish themselves in the Nordics. We don't have a lot. The ones we have are in Sweden, the stronghold, right? I think we have zero in the Nordics, in Denmark, for instance, trying to establish some. We have a lot of interest from global growth funds. So I think there is an opportunity there to back LPs who really, not just historically have done well, but also in the future prospecting are looking to do well with what that entails and back them. Because there is a lot of early stage capital from pre-C to Series A.

17:01There is, I don't want to say an abundance, but at least enough. And so you will be fed quite an amount down the line. So that's one opportunity. If you see a GP who has done well and has a great future outlook that you believe in that are looking to raise a growth fund, then that's worth looking in. I don't think a single country in the Nordics can have a country-specific growth fund. We don't have enough cases per country to do that, but together, I think there is enough for sure. And then generally, I think that there is a lot of opportunity coming out of sustainability cases down the line.

17:39There is a significant larger portion of venture capital going towards sustainability startups in the Nordics than any other region. I don't remember the exact numbers, so I'm just going to throw out appropriate estimates. I think it's about 30 % of venture capital that is poured towards sustainability startups in the Nordics, whereas in Europe, it might be 15, 20. In the US, it might be 10, 14. And I think in Asia, it's single digit. And we all know that we need a lot of cases. we need a lot of failed attempts to build a broad ecosystem of strong followers who would learn from that to build outlier companies so i think we're a bit ahead of the curve when it comes to sustainability investing and so looking at investing in article nine funds as an lp we have some great ones coming up they're already established they're already doing investments and i think that may be one area through which you can look like for the listener that doesn't have video, everyone's nodding.

18:41I'd love to ask you, Joe, as I tend to call you the architect and 21 reading our newsletter, that's also sometimes what I say, the VC slash LP architect of Europe, that's Joe Schorch. So Joe, now I'll pitch you a curveball maybe. How does an LP that has not yet allocated to the Nordics specifically, go about starting to do so? What would be your view if you were to take over the family office or help set up the family office or something like that of someone? And then they say, the Nordics, how should we think about that? How should we go about building our strategy for the Nordics? Yeah, well, it's not a curveball in the sense that my answer is always put some money in our funds.

19:32and we'll help you. Problem solved. Next. Problem solved. Well, the reason, you know, we've spent many, many years going country by country to understand because I believe that you can't make a strong selection until you've really understood all the options. So that's just a lot of time on the streets, meeting Sun A, meeting Sun B, meeting Sun C. And we learn a lot from those sons. And as Chloe said, there's something to like about them all. We're not meeting funds that we think have no chance to perform well and to back great founders and so on. However, you have to think about what's your objective, you know?

20:16And if you want to be taking early stage risk, we think that's the most exciting place to invest because you have the highest return potential. However, you also have a high risk. So diversifying, in other words, taking multiple bets within that market, we do that within our funds because based on the principle that I don't know what the next big thing is. It may be in the fintech industry. It may be in gaming. It may be in industry 4.0. I don't know. So if I have a broad exposure to it, I increase my chance to catch the next big thing. So for new family offices starting out, quite a few are LPs of ours.

20:57Some of them allocate to a strategy like ours and use that as a way to learn. You get exposure, but you also start to understand, well, how does that market work? Who are the players? Maybe I can start to allocate to some funds myself. The other strategy you see, the exact opposite end of the spectrum. Family offices quite often just invest in a few companies. And, you know, that's a dangerous thing to do unless you have a team that is skilled at that. Many family offices get offers from private banks and from founders in their network or, you know, I call it brother-in-law investing sometimes.

21:38Oh, my brother-in-law's got a great idea. And the story we hear again and again and again is, yeah, we did, you know, five investments, six investments, four of which have failed so far, two look shaky. So, you know, if you want to take that level of risk, you should be very careful and have some skill on your team or else enter through diversification. Or, you know, if you're willing and able to put in the hard work, you have to go to Stockholm and meet the funds. Go to Helsinki and meet the funds. Go to Copenhagen and meet the funds. I mean, I'm totally biased because this is really fun. This is like the most fun thing you can do for a job.

22:18However, it takes a lot of time. And you have to have a good reason why these funds want to take time to meet you. It goes two ways, right? Really good funds, maybe they don't need your money. So you have to offer something to them as well as part of meeting them and accessing their funds. Joe, what you said is all in all, it's fun, but it's hard work and it's tough. You need to really spend hours and hours and hours on doing it. And everything Joe said is very close to the reason why we have our own investing activity in UVC. It's just more tailored towards angels and high net worth individuals, right?

22:56Because the same story, I also hear it every single day almost, you know, yeah, I've done some investments. I'm not angel investing anymore. Yeah, it's not really worth it, right? And that just comes from, you can call it brother-in-law investing. You can call it just, you know, lack of a strategy, whatever it is, right? So I just wanted to kind of make Joe's words ours in the sense that it's relevant for institutionals and Isomer is the proof of that. And Isomer is a big part of our inspiration and what we do as well, because we believe there's also something we can do for non-institutionals, business angels, smaller families, stuff like that.

23:30So Joe, I just wanted to share some love with you because you are an inspiration for us for sure on that front. Yes, so we're now on the Love Wagon, the 225th episode or so of EUVC, and we're all very happy and friends here. Now, Chloe, I want to ask you a question, and that's because you've run this process inside Isomer very much, drawing in the whole team, helping everyone get around understanding the Nordics. So I would now love to ask you exactly what are the steps from going from the realization, want to look at the Nordics to then we will back Fundex. What happens in between there? Oh, what happens in between?

24:14A lot of work, a lot of analysis, but hopefully you get to the right conclusion, right? So we start by looking like super broadly. OK, so, you know, what countries are we going to focus on in the region? So we we've just done our latest deep dive on Sweden, Denmark, Norway, Finland, Iceland. And then we think, OK, well, who do we already know there and who maybe don't we know or haven't we spoken to for a while that we could probably do with getting an update? Right. You know, you speak to people, things change. I think particularly in today's market, you had a lot of a lot of funds, you know, they raised big.

24:52right they they said okay we did a 20 million fund now we're doing 120 actually maybe they didn't quite get there maybe the fund was 60 maybe actually the next fund's looking like it's going to be 80 instead especially in these kind of more turbulent market times you can't be presumptuous about anything so really making sure that you're checking in with those teams keeping relationships warm whereby you really have a strong feeling about about people is a good way to start. But, you know, we map it all out. We think, who do we know? Who do we not know? We do some reengaging. We go to events. We try and meet new people.

25:27We rely on guys like you, right, who are out there meeting these new edgy emerging managers all the time to be like, hey, we saw this really cool girl in Stockholm raising this fund. Like, do you want a connection? Of course, we always take that. So I think for us, there's that initial kind of big research piece that is just externally reaching out to everyone and knowing that we have this good market map. And then there's a bit of internal work as well, right? So what do we have in the portfolio at the moment? What have we captured? What haven't we captured? What would we like more of? What is our forward look on what we think is going to be most exciting in the next few years?

26:06And maybe what haven't we done such a good job of capturing in our last vintage that we think, okay, we really want to double down on this space that maybe we just don't feel like we're strong enough in so a little bit of pairing those those few things together to think okay well where is it that we really really see an opportunity I think we've tracked in this latest process about 90 funds and then we start filtering them down right okay so who's working in those spaces that we really like and are excited about what team constructs are in there that we really feel like wow these guys have something that they're going to be able to access some better deals some amazing entrepreneurs that maybe our current roster isn't getting to because they're investing in a slightly different strategy um or maybe it's a spin out of an old company or you know a principal from a fund setting up their their new shop that we think okay they really have a hold on an ecosystem here and can access something that that we're not getting at the moment so it's really that triaging that filtering down until you feel like, guys, we found the team.

27:11Joe, I'd love to ask you, because I know you have a very strong view on FID, and I'd love to expand a bit on that framework, the FID framework that Isomer applies to your investing. Do also clarify a bit on the criteria side. What is it that you're looking for specifically in the funds? The process Chloe is describing looks a lot like a traditional sales filter, sales pipeline, funnel. We've put a lot of ideas in at the top and a little over 90 funds in the latest filter. But then we start to pare that down by saying, well, we really want to focus on funds that will be the first professional money into companies.

27:52So that tends to be seed and pre-seed. And that takes you naturally to smaller funds. Larger funds tend to trunch their capital in later. So it's more biased to, when you look at where the money actually goes, more biased to later stage. We also, important to say, we focus on digital companies, digital business models. We do not invest in life sciences. So we cut out those funds, for example. And so you start to pare down on really basic criteria. Then we're really looking at three big pillars of activity. Number one, how do we make great returns together? Can we make money together? And all kind of the normal LP logic that goes into that fund size, number of tickets, reserve ratios, exit assumptions, all those normal things.

28:43Second big pillar is, well, we already have a portfolio. We've invested quite a lot in this region. So if this new thing we're considering, is it actually diversifying or would it overlap at all with what we have? So we call that the diversification agenda. And it kills me, but we do turn down very good sums purely on that basis. They're too similar to something else that we've already invested, which is kind of annoying because nobody likes to turn down a great investment. However, that agenda of shots on goal requires that you do. And the third big area is then what we call the partnership model.