E446 | Oleg Bibergan, S16VC: Scaling Founder Communities and Productizing Venture Capital

0:00In this episode, we sit down with Oleg Birbagen and Alex Shamus managing partner at S16BC to hear all about how they're backing European builders. The S16 VC team started as an underground founder incubator in a Moscow apartment. The nighttime part was hanging out with Alex and founders in the apartment. It sort of grew into this impromptu tech incubator. I, for example, realized that my angel portfolio has produced a 40 times TVPI return and I've made more from my angel investing than from my entire 13-year career at Goldman Sachs. And at that point, I realized that now is the time for my daytime and nighttime to come together.

0:38this is when we started the fund for me building a fund as a product company means running the fund as a product company which means having okrs having big hair ambitious goals like having people do things that are outside of the daily routine right things that move the fund forward for me it also means having repeatable playbooks having a repeatable way to make great investments not just relying on people right people don't scale you lose your deal flow when you lose a partner for example, you want to build something sustainable means having modes and network effects, doing things that scale.

1:16We want to empower mission-driven founders to make the world more awesome through the power of technology and love. The team is backed by 150 founders counting companies like UiPath, Supercell, as well as Sequoia. We actually already have a couple of big wins, a couple of unicorns in our fund. One, Synthesia and Oyster, both European bred We've had unicorns, Synthesia, both of them actually recently raised Series D. In fund two, we already actually see performance exceeding fund one, even though this is a more recent fund. So just based on kind of the rounds currently being completed across portfolio companies or that have already completed, we see 1.8x return on investment on 2023 vintage.

2:06And that, to me, indicates that the system that we've spent investing and building in the last several years, you know, is really taking shape. If you're thinking about founder-led platforms, fund as a product, or high-conviction Intel networks, this one's for you.

2:28this one. It's more than just an ally. This is a union of values. 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. Welcome back everyone to the European VC podcast. Today we're going to talk to Oleg and Alex both from S16 VC and I'm super excited to ask them to share the deck in just a second where we in a short and crisp format will ask them to go through everything and I will then at the same time try and shed some extra light on the things they maybe don't tell us. So guys, welcome to the pod. Yeah, thanks Andres and I really appreciate the opportunity to share our story.

3:14I guess I'll begin with a brief personal introduction and then Oleg will expand on the story and himself. I had a pretty colorful entrepreneur career year that allowed me to build business across 13 different markets, spanning US, Europe, Latam, Asia, India. I've had a lot of crazy stories, including one where I had to escape a country in the middle of a night. You know, I had a time in my life when I supported myself for almost three years by playing poker in some shady night clubs. but it all began in Russia where I was born. My dad had a lot of tiny small businesses, anything ranging from a grocery store to a currency exchange point to a bottle collection and I was always kind of circling around him trying to build a mini copy of his business.

4:15So I can say that I almost had no choice but to become an entrepreneur and when I got my hands on a computer, I started to take this entrepreneur DNA into the age of internet. 1998, my family moved to the US, where I eventually went to a university in upstate New York, Rensselaer Polytechnic Institute, where I studied engineering, computer science, and where I started my first business. It was a food delivery marketplace. Eventually, it took a really unexpected turn. I launched the business shortly before graduation. And for obvious reasons, I couldn't raise any money. I had to put the company on hold.

4:57And I took a job at JP Morgan. But eight months later, I met a BC, a Russian BC in California, who said that if I take the business to Russia, then he would invest. And I didn't think long. Three days later, I quit my job at JP Morgan. And I was in Russia. I crashed Oleg's apartment, forced him to become my roommate, made him invest in that company because that guy hasn't responded to my calls ever since. And that's how we became roommates. I ended up selling this company to DeliverHero when they entered the Russian market. We merged. and over the next decade i've built a total of four companies each next one becoming progressively bigger unfortunately hasn't built a unicorn yet but had a bunch of exits in 50 60 million dollar range and the the latest company raised almost 80 million dollars at a couple hundred million dollars valuation so we'll see where where it goes it's still active running mostly in india and about three years ago I switched to running a fund with Oleg and a bunch of my friends.

6:14I made a difficult decision to step away from my company and run the fund full-time. The reason I've done that is because I had this unique opportunity that I just couldn't pass by to build something with all of my best friends and I'm really happy I made the decision and I guess what I bring to the fund is this product perspective and really trying to build the fund as a product company, which means not just automation, which is obviously a big part of it, but also everything from the way we manage the company to the way we build our modes, our culture, our network effects, and eventually a generational company, hopefully.

6:55As everyone can hear, there's a very interesting story there. And you guys have a lot of stories to share. So if anyone is interested in hearing more, I definitely advise that you subscribe to the newsletter by S16VC because you are good storytellers and you have a lot to say. And I've been enjoying following it a lot. And we will put some of the content that you've produced as part of the show notes for this episode. Olega, let's go to you, my friend. First of all, thanks for having I'm originally from Ukraine and like Alex, I'm a US immigrant kid. We met in Brooklyn, New York in 1999, graduated from a regular high school in the US, went into Harvard for my undergrad degree in economics and then got a job with the Goldman Sachs a unit called Special Situations Group that asked me to go to Moscow and help build out the business there.

7:54So I moved to Russia and my job was basically to invest in the best companies from the region and then help them grow and take them public when possible on NASDAQ or other stock exchanges. and we have done this about half a dozen times been first investors in companies like Tinkoff which is the first and the largest digital bank out of the region Caspi the same sort of digital bank out of Kazakhstan several online classifieds and many others actually and so my bread and butter was really, as I was progressing through the ranks of the investment business to, you know, find the best companies, invest in them, work with the founders to help these companies grow.

8:49And that was sort of the daytime part of my life. And in the meantime, the nighttime part was hanging out with Alex and founders in the apartment that we rented together at Schmitovsky 16th Street, which is where the name of the community and name of the fund comes from, S16. It sort of grew into this impromptu tech incubator in an apartment. It all started out with poker nights. You know, Alex needed to make a living, so we invited friends so he could make some money to pay the rent. And we then noticed that we sort of spent more time discussing startups and tech and product than playing poker during our poker nights.

9:33So we started something called business clubs where we'd invite founders to be supported or roasted by other founders on their ideas. And that's how, for example, the story of how we met Andrei Hushid, the founder of Miro, started. because we became sort of this infamous founder apartment in town. And Andrei, when he traveled to Moscow, he had enough money for an air ticket, but he didn't have money for a hotel. But we had a spare room, which we called the incubator. And he used to crash in that spare room with us. And that's how he sort of became part of the crew. And eventually this snowballed into this tight-knit global community of founders.

10:20And sort of the nighttime part of where I was doing, apart from hosting, wining, dining, and hanging with the founders was to angel invest. And it was a really amazing purse to do it from because these founders would come and hang out in our apartment. So it was a really easy sourcing channel. And that's how I ended up as an angel in more than 20 companies, including Miro, which grew to become a 17 billion dollars decacorn one of the largest you know european tech stores really over time this community spawned many um sort of decentralized projects and initiatives because you know when you bring founders together and i guess you know this uh they start things up that's just you know a natural motion of things and the advantage of our community is that everything that is started is organic and started by its members for example For example, as our ranks grew, we kind of stopped fitting inside an apartment.

11:21And so one of us raised a hand and he's now one of the partners in the fund, Mike, and said, why didn't we do a conference for founders? Because we can't fit everyone in the apartment anywhere. So we started a conference called Founders for Founders, which is now 10 years old and we're on it every year in different spots in the world. Many founders have started knowing each other for many years and became close friends and started asking the question, why do we only talk about business? Let's also, you know, talk about other things and do other things together. One of the partners started a Burning Man camp, and we run it every year now for over half a decade.

12:02Most recently, the latest project we started, and we talked about it with you, was the hotel in Portugal, where we're looking to recreate the spirit of the apartment and make it sort of like a magnet for tech founders all over Europe to come and spend time together. To share a funny story on that, David was actually, my co-founder, was actually married in that property just after you guys took it over, I believe. But everything was planned before then. There you go. It's already happening. all the all the vc guys already going there to uh to to marriages and getting getting married there and everything and what we've noticed uh what we're what we're seeing is that indeed the communities has rapidly gone global and now we have actually chapters all over the world we have you know a bulk of the community in europe but also the us uh the middle east the a in asia and that gives us really unique reach and the same thing happened with the fund it kind of evolved organically from our angel investing, you know, we like to say that founders can be in one of two states.

13:09One is without liquidity when they're sort of grinding away at their startup. And the other one is when they start having a little bit of an exit, a little bit of liquidity, and they immediately start investing in other founders. Actually, before we started the fund, we have been angel investing for many years. And at some point, I, for example, realized that my angel portfolio has produced a 40 times tbpi return and i've made more from my angel investing than from my entire 13-year career at goldman sachs and at that point i realized that now is the time for these for my daytime and nighttime to come together this is when we started the fund when we started it we realized that we really needed a platform to bring together what was already happening organically in our community, which is founders investing in other founders.

14:03It was also a great way to stay in touch and support each other as the community went global and all of the different chapters all over the world get formed. Just for everyone hearing this, you have written a great piece on your journey and your reflections on the journey of raising the fund, both the first one and the second one, which was raised here during the VC winter, a lot of it. And we'll share that on EUVC at some point as well for everyone to enjoy reading. I really think it's a great piece. It's one that a lot of emerging managers will resonate with. Yeah, it's been quite a slog. We can talk a little bit about that as well.

14:39But the vision that we're carrying forward is we want to build the fund as a platform for founders supporting other founders. So first of all, we're a community. We like to call ourselves a community of imperfect entrepreneurs. I think our troubles with today's podcast recording attest to that. And we want to empower mission-driven founders to make the world more awesome through the power of technology and love. And we see ourselves, we see our fund as a platform and the process to build that fly world of founders supporting other founders. We really look to build the fund as this sort of, if you think about the three nodes of the fund, you know, you have the LPs, the GPs, and the portfolio.

15:25We're looking to build a fund that is all founders on every side of that equation. That's been sort of the intent with which we started. I want to cover a little bit now on the fund side where we are and sort of the journey we've had so far as a business. You know, Alex and I, we are managing partners of the fund. Andrei Huisid is one of the founding members of the fund. And together, as Alex said earlier, we bring components or expertise to build a successful global founders fund. Investment strategy and execution. This is the background from Goldman Sachs and my angel investing that I bring on.

16:11Alex is a serial entrepreneur with four businesses under his belt, focused on building the founder of the product. And obviously, you know, Andrei as a founding member and founder of Miro is someone who helps us enormously with getting involved with the best founder networks in the world, in addition to the community that we're building as well. We've brought together 150 founders as our piece. We brought this amazing group from a variety of entrepreneurial journeys and outcomes from sort of midsize to, you know, some really top names in the industry. And we've been really privileged by support of guys like founders of UiPath, Supercell, Bolt, Walt, Hugging Face, and many other top companies.

17:06And we also have been honored by institutional support received by, for example, Sequoia, who invested in both of our funds. and I'm still surprised they invested in our first one because we were part-time operation. Our first fund was just 16 million, 1.6. Obviously as S16, our first fund had to be 16 million, but they really saw the potential. And yeah, like I said, their support has been incredible. And they've also invested in the second fund as well. And so really combining the founder network as well as support by top institutions as our investment partners. Just a question on the core team, because you have Andrei Kuchit, who's at the same time also founder and CEO of Miro.

18:01And anyone and everyone can see how important Andrei, of course, can be. But you can definitely also, and I've seen this in other structures, it can be quite difficult to fully realize the potential. And sometimes LPs can be a bit overpromised what an individual like Andre can really bring to the fund because actually it's more of a name than its actual involvement. What should make LPs more comfortable with the value that Andre actually brings to the team? Making him more than just a face and a name. That's what I'm asking. We are always fully transparent about his participation. And I think everybody is quite aware that he spends 150 % of his time on his company.

18:46But Andre is such a power bank, you know, that 15 minutes of his time per week, for example, can have a very disproportionate impact on the fund. So, yeah, and I think if Andre were more involved, it wouldn't be a$70 million fund. It probably would be a much, much, much bigger fund at this point. I'd love to ask you if we could go into a bit about the productization of the community and of the fund, because that's something that's quite special about your setup. If you want to go something else, we perfectly can do that. But I think this part is super interesting and it ties back to what you just described with the hotel and the community that you've built, the Burning Man camp and everything, how everything connects together.

19:32I think that's a very interesting aspect of what you've built. Maybe I can start, Oli, and you will chip in. I'll roll the slides in the meantime. Yes, to anyone who's listening in and haven't yet shifted to a place where you can watch it at the same time, you can on UWC, you can on YouTube, definitely we've got this slide running here at the same time. So if you want to look a bit deeper, we've got it there. Look, I think when most people think about the fund as a product company, they immediately think about all kinds of automations that you can implement all the AI that you can use to parse the decks to generate memos to automate routine work and this is certainly an important part of it but in my opinion it's maybe 10-15 percent it's almost stable stakes today it's not it's not what it really means to build a fund as a product company For me, building a fund as a product company means running the fund as a product company, which means having OKRs, having big, ambitious goals, having people do things that are outside of the daily routine, things that move the fund forward.

20:44For me, it also means having repeatable playbooks, having a repeatable way to make great investments, not just relying on people, right? People don't scale. You lose your deal flow when you lose a partner, for example. You want to build something sustainable. It means having modes and network effects, doing things that scale, right? So all of those things. And if you think about the three functions that a typical fund performs, it includes sourcing, assessing, picking, and managing your portfolio, helping your portfolio companies become successful. And the way we do it is, for example, we rely on our LPs and our community to bring deals to us.

21:29And for that, we build a product for them. We help them to be better angels. Like Oleg had said, our LPs are already in the state where they're mostly angel investing, or most of them are angel investing. And we try to help them to be better angel investors by building a fund in a way that they can fully engage with it. So, for example, they have a complete window into our operations. They can see how each opportunity, each deal goes through our funnel. We share with them the reasons why we decided, why we got excited in the first place and why we decided to invite a company for the first call.

22:08We share with them the reasons why we rejected the deal. They can raise their hand and participate in different ways in our process and sometimes join as NGO investors. So unlike, I guess, in most funds where you're mostly a black box, right, this becomes both fun and educational and fully transparent, which incentivizes them to send their deal flow to us. And then, you know, the whole product that we build, it provides such a value add to the founders that they're incentivized to have us as co-investors in their deal flow so that their companies are immersed in that ecosystem. That's on the sourcing side.

22:47And there is a lot of technology that makes it possible at scale, right? Obviously, a lot of AI that parses decks, that generates news feeds, that allows them to interact with those news feeds. and so on and so forth. The second one is picking companies, picking deals, right? We're a generalist fund, so we rely on our community to help us assess opportunities, right? For that, we build a social graph inside where we mark everything that we know about our LPs, namely their areas of expertise, geography, stage, sector, so that we can tap into them to help us assess opportunities. and this is also exciting for them because it helps them to stay on top of what's happening in the world right and also creates opportunities for them to angel invest to advise companies and so on and so forth and lastly i guess the most important one and the most difficult function to scale is helping portfolio companies and we have a motto inside that says that we treat every founder request as our own which is you know which can changes your mindset immensely from just helping opportunistically when the solution to the founders asks is on top of your mind.

24:00When you treat every founder request as your own, that means you just don't give up until you find a solution. We have brainstorming sessions. We log every request. We track the first time, the time of first response. We track the resolution time. We have a brainstorming session. And again, we rely on our community to help us do that, achieve that at scale, right? So we We find the best person to solve a specific issue. We have a chat where people can ask questions and our most fans on LPs can reply. And we have a human in the loop process that finds the right person to respond if there is no organic response.

24:40And again, all of that requires some technology, but the technology is simple. It's straightforward. It takes some programming, but it's almost table stakes. The most difficult part of that, the most difficult part to replicate is what we call the social engineering part of it, right? How do you actually build the culture of responding, reacting to requests? How do you build the affinity and the feeling of safety to ask for help? It's surprisingly challenging to get people to ask for help, actually, right? In the group setting, especially. way. This is where our unique history of building the community and the DNA of all the partners comes into play, being the community builders, right?

25:23And creating all kinds of opportunities for people to connect and to build affinity in the group. That's just the gist of it. I'd love to, you know, spend 10 minutes on every screenshot here to explain everything that you've built, But I'll stop here. Incredibly interesting. And I think this to me is an example of where the productization of the VC firm has been taken a bit further than what I usually see. And I think I often see the headline, and this is what I often talk about when I think about how managers can maybe improve in the ambitions that they're building and the ways they present to LPs is I oftentimes wish this red thread between them saying we're productizing venture capital as an example, or we have a community that we leverage.

26:14And then you never get this complete breakdown of the activities that are happening inside the fund and the principles that guide you and so on to understand what it actually means. And I really appreciate the way that you guys describe it and how thoughtful you are about it. I often talk about it as the flywheel of activities inside a firm. We're so asset constrained inventors, we have so little money to do with management fees, we're not big on small funds. So, making sure that every single thing interlocks and allows you to build momentum is so important, and I think that you're a great example of that.

26:50Oleg, take us to the next thing you want to say. You know, just to react to that Andreas, you know, this is why for me, as someone who's coming in from, you know, the world of Goldman Sachs and sort of the investments. It's such a thrill to partner up and build the fund together with Alex and other tech founders because sort of that product mindset that is being brought to the table combines really well with solving the biggest problem that all VC funds have. And frankly, all the entire ecosystem has, which is how can you do things at scale? How can you store deals at scale that are high quality and that have, how do you discern signals from noise at scale?

27:42For us, for example, when in terms of where we actually find deals, 100 % of our deals come from inbound and sort of the highest kind of magic that we look for the strongest signal that we look for uh when you know initially assessing a deal uh is what we call credible referral which is when a founder either as our lp or someone from a broader s16 community recommends another founder and particularly if they also want to angel invest in that founder right if somebody knows um you know someone for many years uh have seen them in different environments and you know seen how they operate and want to invest it's a much more credible signal of trust and underwriting compared to sort of like a spit dating that a lot of early stage investing is and so we by building a system that can aggregate and process these signals and leads at scale, you know, we think we can scale the business to thousands of founders and OPs and thousands of deals over the next 10 years.

28:57And then looking, you know, on the back end, you know, how we're doing on the portfolio side, we actually see that the system is working really well. Just looking at the portfolio we've made over 70 investments across two of our funds fund one and fund two fund two you know we have mentioned that we uh started investing it uh in 2023 and have done final closing fund two just this month actually over subscribing it at 17 million dollars so now have uh over 100 million dollars assets under management and around um over 14 million dollars of dry powder and we already have given the first fund was from 2021 we actually already have a couple of big wins a couple of unicorns uh in our fund one synthesis and oyster uh both european bred uh unicorns synthesis are recent both of them actually recently raised here indeed and uh in fund two we already actually see performance exceeding fund one even though this is a more recent fund so just based on the rounds currently being completed uh across portfolio companies who are that have already completed we see 1.8 x uh return on investments on 2023 vintage.

30:23And that, to me, indicates that the system that we've spent investing and building in the last several years is really taking shape. And we actually see that the returns are improving, even though the amount of time for the companies to just stay goes down. It's very exciting to see that. And in terms of where we think sort of the biggest important factor for us in terms of deciding where we invest next is what we like to call it we'll look for the next mirror size width so we look for the investment opportunities where we can see at least a hundred million dollars in ARR over we need to be able to see the scenario for a hundred million dollar ARR outcome we take that market analysis and merge it with the founder assessment from the credible referrals from our you know IC that has seven active founders you know on the IT roster and we assess that with the signals of early signals of product market fit and as well as co-investing with some of the best names in the business like sequoia glendary perkins general catalyst north zone and many others and in terms of maybe just to finish this up in terms of the fund we actually believe in diversified approach So we look to invest in around 50 companies out of each fund.

32:04We prefer an active follower role where we invest, let's say, around a$1 million check, take 4 % to 5 % average stake, with the main idea that we essentially want to be positioned and act as sort of a founder glue for the ecosystem, where we don't have to compete with strong lead investors, but we can complement them through the community and the platform that we're building. I want to add some color to what Oleg said about credible referrals, if you don't mind, because I think this is actually critical, a cornerstone of our strategy. We have a motto that we treat every founder requests as our own, but we also have the second motto that says that best deals go to best friends.

32:54what we learned and it's not an insight it's a common knowledge that everybody loves investing in people you already know right your ex-employees your ex-colleagues people you've invested in before and you've seen them execute the issue is that normally it's not scalable it's not a scalable channel i think it's one of the reasons why emerging managers tend to the well because we have this amazing network but when you start investing building a fund you exhaust that network and we feel like by building this decentralized community we have a unique opportunity to make it a scalable sourcing system right where we don't have to rely on us specifically on every partner even though we have eight partners still it's still not scalable right But when you have this large cloud of people doing all kinds of things that promote the whole community and everything kind of looks back to us, that becomes really scalable.

33:56The beauty, I guess, of what we are building is that we are a community-based fund. Community is at the core of our business, our strategy. But we are not building the community for the fund. and that's I think the big difference compared to everybody else who you know has a strategic offsides and decides oh we got to go into the community right we were building the community before the fund and you would be building the community regardless of the fund we just this is just part of how we want to live our lives I also wanted to say you didn't say it Oleg but of course the performance numbers you described we're recording this the day after the big Carta study report came out.