E480: Evan Finkel, Carmen Alfonso (Cocoa) & Andreas Holm: Fundraising Fog, LP Red Flags & the Real Meaning of “Edge”

27:02What is it that like, how did, how did it come to the belief that this is your superpower? And then how does that actually translate to the job you want to do, which is to be a venture capital manager. And if you can't really figure that out, probably not going to be a good superpower to go to market with. I actually think that there's a hidden wisdom in using the word superpower. The point with superpowers that it's one that not everyone has. It's unique. It's unique. Well, it's not just that it's unique, right? Because there's so many people that are unique. I think we're all unique. We don't all have superpowers.

27:35Yeah, no. The superpower, it needs to be unique. So, superpower, I agree. But my point is that venture, just as backing, just as being a founder building a breakout success is going to require an outlier, being successful in venture as a VC also requires that you're an outlier. So, part of my recent data behind EUVC was coming from a firm where, to be honest, people were not anyone with superpowers. They were not outliers. Yeah, they could manage a bit of money, got the backing of the state. That's all good and well. But that does not make them in any way the people that are going to create a breakout fund.

28:22My point with creating UBC was if I can create a podcast where I bring these people on the on the podcast that actually have superpowers and show to the rest of Europe, to the LP base, to everyone in the industry, to the founders, what does a great VC sound like? What do they talk about? How do they think? I was hoping that that would then help us elevate the ecosystem so that some of the people that do not have superpowers but are still in venture would be weeded out in time. Because I saw that we really had a problem with a situation where we don't have a lot of communication or public speaking by VCs in Europe compared to the US.

29:05So you had this benchmarking of European managers up against the US managers that the average US manager does not transcend to getting to the European airwaves. You would only get the Sequoias and the Marc Andreessen. And everyone can kind of justify not being Marc Andreessen. That's okay. I'll give you my money, even though you're not Marc Andreessen. I think you're still a pretty incredible person. So everyone could kind of justify not being that. But by having a podcast that says this is the best we have in Europe, there's not a lot of justification to be bagging a second rate manager, honestly, because we have a lot of great managers that are fundraising constantly in overlapping verticals, in overlapping markets.

29:51So there's no reason for an LP to be bagging a secondary manager. There's no reason for a founder to necessarily have to take money from a second rate manager. And honestly, there's no reason for people to want to join firms or build firms that end up being second rate. And we have too many of those, both in Europe and also in the US. I think it's absolutely as like there's a reason why we have what's it called the returns distribution that we have in venture that's because we have a lot of people that are not outliers we have a lot of firms that are not outliers either they were once and they're not anymore or they just should not have been inceptive and that I really hope that we can solve by being more ruthless about what great is because I honestly think that it is very clear whether someone is an outlier or they're not.

30:45And that is a question too. I want to ask you that question. To what extent, Evan, as an LP, do you think that you in the first meeting knows, does this GP have a superpower or not? Is this GP an outlier or not? Yeah, so it's a good question. I will answer it. But before that, I just want to say, right, if you don't have a superpower that allows you to succeed in venture, that doesn't make you a bad person. It doesn't make you less than, right? It's just, is there sort of like individual career fit? Is this the right career where you are most set up to have the highest likelihood of success? I think that's the question you're getting at, right?

31:25It's not like, oh, you don't have a superpower. You're a bad person, right? Like you may have lots of superpowers. They just may not express themselves best in the context of being a venture manager. And I don't think there's anything wrong with that. Like carving pumpkins. Right, like carving pumpkins, right? It's like there are many respects. Like we are sort of told what are our superpowers supposed to be, like in what and what's the path. And just there's this process of embracing what you're really uniquely good at, even if it's carving pumpkins, you know, like some people are uniquely good.

31:55Like, I mean, even if you are an outlier in venture, there's nothing compared, could we say, to being like a doctor who can save lives. It's like, we all just need to focus on what we're really good at, regardless of what we're supposed to be doing. I agree 100%. Yeah. So I think that's like, that's one thing, right? Which I think like people should really understand, right? Like nobody here is trying to like insult anybody or treat everybody as less than, right? It's really just like, can we spare you the pain of going to market when it's not going to work? And you as a person, how are you thinking about what the best opportunities are for you, given your particular brand of superpowers?

32:28In terms of your specific question, there are definitely cases where you can see this person as a superpower. And there are a lot of cases where you can see this person doesn't have a superpower. Then there's like a smaller middle ground where it's like, I think this person may have a superpower, they may have a potential angle. Are they, is the strategy that they are, you know, trying to deploy maximizing that, that superpower? You know, do they have a superpower, but maybe they're just not as good at communicating it to LPs as they are to founders, which is also a problem. clear, but that's sort of a different problem.

33:01So I'd say there's a very small set of conversations that I have where you're like, this person has a superpower. Now, that doesn't mean we're always going to invest, right? Because we may say the strategy is just not a good fit for our portfolio, the size, the geography, whatever it is. But you sort of very intuitively feel this person is extraordinarily credible. The thesis makes a ton of sense. When you combine them, their superpower is being brought to bear on this thesis in a way that's likely to maximize the returns for LPs. And I think there's a very slim set like that. There's a massive set where it's like, thank you very much, but this is not going to be a good...

33:39No, it's not a good fit, but I actually don't think you have something we can differentiate it or you don't have a superpower that is expressing itself in this way. And then again, there's like a very small group where it's like, I think this person might have a superpower, but they might not be articulating it properly. Or maybe there are some tweaks necessary here. So I think you can filter like on call number one, either this person doesn't have a superpower or their superpower is not in venture or their strategy like 80 plus percent of the time. I think we're super lucky to have Evan being so honest because as a GP fundraising, I think like LP mindset is a black box, which I'm sure is the same if we have found their feels with a VC.

34:19like and just understanding like what LPs look like and it obviously depends on the type of LP but as you said Andreas like Integra and Evan are quite sophisticated so having access to that I think knowing what is it what are the key questions that like an LP is trying to answer when you as a GP it is like gold quick question to do to you Evan so as a GP there as a VC there are many times that there's almost like spoken truths about things that founders do that are not positive signaling, but apparently they don't know about because a bunch of them do. And I'll give an example, like dropping that you're raising a pre-seed and you mentioned that Sequoia has committed for the A, but you know, like you're just, you run away from the pre-seed and do that.

35:10Like these type of things that are saying that you've got a lot of follower capital looking for a lead, like these type of things that are signaling signals actually, and that are a bit of red flags, if anything, what's the equivalent? Like what do GPs do that goes like gives LPs like Grinch that, like the Sequoia moment kind of for me, what is the equivalent for LPs? Yeah, we could probably do a whole podcast on this. I think what's interesting is there are a lot of things that GPs do that don't really do it for me, but there is clearly like a market for them. Otherwise, I think they wouldn't do them.

35:46Right? Meaning, I don't think anybody would tell you that they think that Sequoia committed to their Series A, but they're still raising a pre-seed. If that didn't work on 90 % of GPs, like maybe you're like, this sounds ridiculous. I would guess that you are like the 10 % who's like, this sounds ridiculous. And not the 90 % that's like, oh, Sequoia is going to follow on. I better get in there. And I think that's true on the LP side as well. Like, I think these things only happen because they resonate with 90 % of LPs. So the use of unparalleled network makes me gag inside a little bit. So that's definitely one.

36:17But no, I think the things that come up pretty often are the slide that you see with people's faces. It's mid-level employees from financial services firms or fintechs or fangs. And it's like, here are all the people back to me. And you're like, that's great. But I don't know why I should invest because your buddy from college invested$5 ,000 in your fund. I'm not sure what what that means really. One that actually really gets me is when you start, you see like a long term sort of like projection. I see this occasionally where it's like fund one, we're going to raise 20 million. Fund two, we're going to raise 50 million.

36:51Fund three, we're going to raise a hundred. I'm like, one, that actually doesn't look very good to me because we want you to be consistent with strategy. But also two, it says a lot about your understanding of how difficult fundraising is. The fact that you think you're going to raise like 20 million now, And then like in two years, like it's going to be super easy 50. And then the year after that, or two years after that, we'll double it to a hundred. And then the last one, which is a little bit counterintuitive is when I see a page of like advisors, because when you tell me that these people are advisors, what I hear is as long as it's free or you're paying them, they're willing to like let you use their face, but they're not actually investing in your fund.

37:30Meaning they don't believe enough to put their actual capital, like to work with you. But if you are offering them something for free, they'll take it, right? No big deal. And so I think those are the things where you start to see like, there's a disconnect between like what you think is happening, meaning I have this amazing roster of, you know, people from Facebook, Meta, who invested in my fund. And I also have this amazing roster of advisors and you're like, okay, but that actually says something about your sophistication and not the type, not the thing that you think you're site actually.

38:03So those are the types of things as an LP that I think are a big turnoff that GPs don't necessarily realize. I'm going to be very popular. No, no, no, no, no, no. I think those are... Because it's actually useful. Yeah. And they're pretty safe also. And I think it's great that you say it. I think it's also funny how there's such a big differentiation or difference between the fundraising decks that you see from managers. And I'd love to ask you how you think about that because you get if you get coco's deck in your hands or you get re-rail uh carmen's former partner anthony you have two super sleek decks like everything is just flows beautifully everything is perfect and then you can get a polish deep tech vc and it's like you've just been handed a fucking phd and it's so it's so funny because those two funds can be equally good but they're very different in feel as the LP when you receive them.

39:07How do you think about that, Evan, the importance and the primacy that's often put on DEX and the design of DEX? So I think there is a level of sophistication at this point that we have to expect, meaning this is not literally day one in the European ecosystem, right? It's still early days, right? And there's a lot that has to happen to sort of continue to grow the ecosystem. them, but it's not literally day one. And so I think as a manager, you do have some responsibility to go hire a designer, right? That's done a deck before. If you can't, I mean, if you can't do it yourself, you know, and have sort of the aesthetic of Carmen's deck, right?

39:43Like by yourself, go out and hire a deck designer, right? If you are an adult raising a venture capital fund, you want somebody to manage, you want somebody to hand you 20, 30,$50 million. There is some level of like responsibility and investment that you have to put in to show you believe in this to go spend five or 10 grand or probably even less honestly just designing a deck that looks like what a pitch deck should look like that's one piece the second piece though is right let's figure out even within whatever sort of like mangled mess i receive is there an idea here that's interesting is there a gp that has again this superpower access to a secret right it would be sort of silly, right?

40:27And not particularly, like it would not be a mark of pride for me to pass on a fund in, you know, a Polish deep tech fund that winds up doing 15X and basically fit our thesis in terms of fund size and stage, right? And sector focus because I didn't like to look at their deck. Now, if the deck is incomprehensible, then that's one thing, right? But if the aesthetics are just a little bit off and I'm like, well, I can't have a conversation with you because your deck looks a little bit messy. I think that would not be really executing my responsibility properly, but I think you have a responsibility as a fund manager to come to market with something that looks reasonably professional.

41:05It's so interesting to me because I think that LPs are different, like, animal to VC, but it's so parallel. Like I said, GP, you actually have a great sort of guide in what you expect from founders, right? Like, why do founders have to have a deck that can be like read easily, seamlessly key messages of what you do, why is it interesting and why you come across is because you're dealing with people, i.e. businesses who have cognitive overload. So they, you know, have to go through so many index and you need to cut through the noise. And it's the same a little bit as GP is pitching to LPs, right?

41:40You just want to make sure that your key message comes across. Whether like that has beautiful colors because you like colors or is it all in black or whatever. It doesn't matter. The point is you need to make sure that whoever reads it with limited attention spam can get across why they should want to meet. And that to me is also like, again, a point of self-awareness and knowledge of the context you're playing in. I actually think, Carmen, you have a perfect stat here because I think you've shared before that in your deck on the one of your last pages, you had miscellaneous extra info, and then you had a bunch of storytelling on the cocoa bean or something like that.

42:24You mean the pitch for founders? Yeah. And that's the amount of time spent on that slide, which is really not important for the fun, is very viewed, like you can see from your docs that people are spending a lot of time on that. So this is the story. I know what you're talking about. We got one institution on the LP actually and in docs and you can obviously like track it, right? And who does this do? It was spending so many minutes on that. And I checked that it wasn't like just because he left it open, which sometimes happens, right? And I was like, what's like? And it was this light of how to make chocolate.

43:00it. And I was like, oh, it must be the junior, you know, who like is born to death. And then suddenly it's like something interesting. And then I checked and he was the managing partner who's so keen. And we also got one LP. He was a tech founder, not an institutional, but saying, I don't generally do funds because I don't like the fee structure, you know, and I have my own access. But your slide about how to make chocolate totally caught me. And like, he gave us money. So I don't recommend necessarily that slide, but you need something that makes you memorable, basically, because we're going like, yeah, the noise is so loud.

43:35And so I think that that's the point. And it also shows that you understand that, which is an important skill all over. And Vanessa GP, just think of the things that are so natural for you to assess in a founder. You're being assessed on those as well. So like just, you know, sort of back solve it or solve for that. Exactly. And I think this goes back also to the point before about like figuring out if you can get feedback from people honestly. Like just send your deck to a couple of friends like who can give you honest feedback. Not just like rah-rah, this looks amazing, but real honest feedback.

44:07And let them break it down before you go to market. I have friends in venture who have sent me decks and said, hey, like I want your honest feedback because I'm going to get it one way or the other, right? And the way I'm going to get it, if you don't give it to me, is that I'm going to waste five LP meetings and not realize that I'm wasting that because, you know, slide three is not really explaining my strategy correct. So, like, just save me, like, five missed LP opportunities and five hour or 30 minute long calls by just telling me if this deck makes any sense or if I'm getting the message across.

44:38I did that. I asked Evan to destroy my deck. And he very kindly took a lot of time to destroy it. And I am very grateful. Yeah. I mean, I think that's a big, big piece, right? And we do it too, right? We are a firm that has clients and we have to go raise money. So we have the same thing where we have to really critically assess and figure out ways to critically assess is our message getting across. And if we only went to people who were like, rah, rah, we love you. You're amazing. We would be doing ourselves a massive disservice because we want people to love us. But we also want to make sure that our message is getting across in a way that gives us the highest probability of winning some business development opportunity.

45:18On this interesting point, actually, because the idea of which I think is one of the key takeaways here is like look for brutal feedback. Actually, how does it work with LPs and referencing? any tips for GPs as they put together their reference call, like names? And also what is that like you ask? Because a lot of my references are kind enough to brief me after on what they got asked. And I find it fascinating, like the questions also that LPs ask. So what are sort of the key questions that you ask? Okay. So in terms of putting together your reference list, right? I think you have to figure out what every person is doing there.

45:57Like what is the unique angle or story that they are telling, right? Again, you don't want a bunch of people who are just like, rah, rah, you're great. You want your references to say you're great, but they need to be specific and have an actual purpose. Because if not, if I as an LP just hear a bunch of generic sort of like, they're great. I'm like, okay, lots of people are great, right? Tell me like why that greatness like allows them to win this deal, right? Or why it allows them to do this, right? Or how it actually helps me as an LP. The second one is I think like prep your references. I think sometimes you will have, let's say, founders get on reference calls and maybe they haven't done a lot of reference calls before.

46:33And they say things that they think are what the LP wants to hear or they think sounds good. And maybe they're not actually conveying the message that you want them to be conveying. Now, that doesn't mean it should be scripted, but it does mean, hey, I think LPs are probably going to ask you about X. Can you sort of like talk a little bit about that, you know, in this way? Or here's how I think I would be thinking about that kind of question. And then let them figure out their own answers. So that's now scripted, but, you know, sort of give them some guidance. And then the third thing I would say, and this really, really is applicable to Europe.

47:05So for everybody from Europe listening, listening very carefully to this part, there is a big difference between referencing I have found in Europe versus LATAM, the US and Israel, European GPs, for whatever reason, it could be cultural, it could just be because, you know, they're used to how European LPs are doing referencing. They get really upset when you do off-list references, like irrationally upset. I don't know why. Frankly, it looks extraordinarily suspicious when you hear that, like when a GP comes to you and basically throws a fit that you did some off-list references, because basically what I am hearing is I'm not upset that you spoke to the couple of people you spoke to, I'm upset that you're doing off-list references because you might stumble upon something that I don't want you to know.

47:59And so to me, I don't know what it is, but there needs to be like a European summit, maybe an EUVC masterclass on accepting that people are going to do off-list references and that they probably don't only want to speak to the people that you've already coached and that they know have amazing things to say about you. This is the problem. I didn't know this. Now you understand why this is the land of GDPR. So interesting to me, like, actually, I didn't know that this was, I think I get many screenshots of list references asking me if this is a scam. So they're just like, is this for real? Like, because there are many founders who haven't given any heads up.

48:38I'm like, oh yeah, thank you. I'm so sorry. You have to spend the time because actually I must say, I really struggle asking for references. And I think it has to do with the fact that I put so much value into people's times because I'm so time constrained. That having people using the time. And I know sometimes they really want to and they're excited that they can share. And I appreciate it. But it's really hard for me to ask people to do that. But the funniest thing I've got is just people checking whether it's a scam. It's like, is this for real hours? That is pretty funny, actually. Evan, how much weight do you even put on listed references?

49:15I don't put that much weight on them, which is a big part of the reason we do off-list references. Now, I still will speak to on-list references, although almost exclusively founders, because I think that if you ask the right questions, can get to things that, you know, they're telling you things that are useful to you, but they don't necessarily realize, like, are giving up too much, right? Like, I think if you probe and poke in the right ways, you can get information that's helpful to you, even if you have to pull it out in more discreet ways. It's also important to say that, at least how I think about referencing adventure is, I'm not looking for dirt necessarily.

49:55Obviously, I want dirt to come out, but I'm really just trying to understand who is this manager? Does how I understand this manager also reflect how other people that I respect understand this manager? As an example, I'm not a big deep tech guy. I don't know much, you know. So for that reason, I need to talk to people that I already have diligence. I've already come to the conclusion. This guy is one of my go-to guys in defense. Okay. Then I want to hear his perspective on this new manager. Yeah, yeah. I'm not, to be clear, right? But we're not leaking this stuff to page six afterwards, right?

50:30Or whatever the European equivalent, right? Like, I want to know what kind of situations has this manager faced? How have they dealt with those situations? when things are going well, what is their behavior profile? How do they react? How are they involved when things are not going well? How are they involved? How do they, right? So it's not about dirt. It's just about, you want to deeply understand because you are, you are investing in the manager's ability to access, to source, to diligence, to win allocation, to grow, to exit. And so you need to understand, like, maybe they're really good at accessing.

51:05Why did they win this allocation to a deal, right? They came in late. They didn't have the most attractive term sheet. So you really want to understand from a founder, like why and how, right? And is that transferable and is that generalizable? So it's not about dirt, right? It's just, there are specific things that only a founder can tell you and founders speak, right? It's a small world and they know. And so what you want to know is, do I really believe that this founder feels in their bones that this was the right choice and that they would recommend that to other VCs. And so I think there are ways to poke and prod and get close to those answers, but you need a holistic perspective.

51:40You need to speak to founders who are on the official list because those are the ones with the best stories and where the company has gone really well. But you also need to speak to founders where the company failed, right? I reach out a lot of times off list to references where the company failed because I want to know when things were going poorly, how did this VC react? What was their level of involvement? Did they say, you know, lose my number or were they with you till the end? Did they try, were they still a valuable, would you recommend them to other founders? Right. I want to know, like when things were going well, like how was FEC involved?

52:14What did they do? What was their value prop? But when things were going poorly, did they abandon ship or were they still involved? Did they still try to be useful? You know, what's, what's sort of like the, their role and their responsibility when things are not going well, not only when they're going well. I'll tell you a funny story on references. I don't, again, I really struggle asking people for the time. So I'm not good at coaching or even telling them what to do. And when they ask, I'm like, oh, tell your truth, you know, whatever your experience was. I'm going to take on Evan's feedback for sure.

52:42But it's so funny because I had this USLP speaking to references and then we meet for dinner. And they go like, so you have to tell us, what was this theater? And I was like, what theater? And they're like, yeah, display. You took all these founders too. And this was two years ago, a year and a half. I took all the co-co founders to see Dear England because I thought you had so many like kind of tips, but I haven't forgotten, but it was clearly not front of mind, you know, like fundraising and everything. But apparently he was like, every founder, they mentioned Dear England. And I was like, oh, but is that this is how little I coach.

53:22But again, how important to Evan's point. It is like the little, like the everyday things like that actually do make a difference for founders. And that's probably what also comes up in references, even in the less expected or the most unexpected ways. Evan and Carmen, thank you once again for joining me on. We are finding the name for this little weird podcast series. Today, I think I want to call it fundraising chatter or something like that. You know, you call it the truth serum. Or the truth serum. whatever name it ends up getting guys thank you so much for joining me for it to everyone who listened in today i hope you enjoyed our conversation about brutal feedback lp don'ts and lp referencing we promise there'll be much more of this type of chatter on the eubc podcast.