E484 | Gloria Baeuerlein, Puzzle Ventures: Europe’s Solo GP Revolution

0:00What happens when venture capital becomes so commoditized that your euro is worth exactly the same as everyone else is. There's just too many funds out there that are too generic, that are kind of me too funds, that just try to replicate what has worked in the past. While VCs chase the same deals with the same pitch, one investor is rewriting the rules entirely. We're not going to look into, oh, you've got 10 years of that particular company, so we're going to charge you X, Y, Z. But it's going to be more outcome driven to the extent possible. Gloria Boyerlein discovered the secret isn't fund size, it's strategy first.

0:35The one thing I've seen work for me is think about your strategy first and build it around your strength. And then think about fund size. Her obsession, proving she's worth every euro invested. I want to make sure that when we go into a partnership together and when I make a commitment, that I feel like I'm the best partner for them on their journey or how I call it, I'm the best value per euro invested. As a solo GP, she's turned constraints into competitive advantage. For me, as a solo GP, I don't care about seeing everything. I literally don't. But here's the twist. She calls her biggest strength a fundamental flaw.

1:14When LPs ask me about it, I always tell them the fact that I'm a solo GP is a bug, not a feature. How does an investor turn a bug into the future of European venture capital? Join us for this episode of the European VC podcast as we dive deep into the differentiation crisis reshaping venture and discover why the solo GP model might be the answer everyone's been missing.

1:42Here's a few words from our beloved sponsor. Discover where operational expertise meets innovation. With end-to-end coverage across fund admin, tax, accounting, compliance, ESG, and more, we take care of the complexities so you can focus on what matters most. Whether it's supporting visionaries or maximizing returns for your LPs, our tech-driven and comprehensive solutions empower you to achieve your goals with confidence. Partner with Ace Alternatives to streamline your operations and elevate your fun success.

2:28This 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 Easy Podcast. Today, I have Gloria from Puzzle with me. Gloria, welcome to the podcast. Hey, thanks for inviting me. We're going to talk a bunch about the state of the current market and where we're seeing things move in the state of European venture. But before we go there, I'd just love to ask you to give us all a bit of an update on Puzzle. And to those that have been under a rock and haven't gotten the grip of what Puzzle Ventures is all about, definitely go get them.

3:03Yeah, sure. So I started Puzzle at the end of 2022, beginning of 2023, with the idea to really help founders put the puzzle pieces together. For me, the puzzle pieces would be like helping you start a company and like really get started with the operations, but then also hire the first employees, figure out who your customers are, helping you find the first customers, and then also helping you find the first investors that are backing you. I created Puzzle from my experience as both a VC at a multi-stage fund called Index Ventures, and then as an angel in 27 companies across 12 countries. And I really wanted to combine the benefits of what a VC fund could bring and what at the same time an angel could bring.

3:53And I think we're going into that later today as well. I really thought there was someone missing in the ecosystem, like that could really combine both benefits. And so now I started investing at the beginning of 2023, made 10 investments. Most of what I do is really inception round investing or very, very, very early stages when there is a product, maybe the first kind of design partners. and every once in a while I always invest in typical seed stages. All of what I do is B2B and within B2B it's really three topics. First topic is kind of infrastructure, second topic is digitization of traditional industries such as manufacturing, energy, construction and the third topic is automation of back office processes and it's always a combination.

4:48Some of them are AI native, some of them have a better value proposition because of AI because you're not just selling software, but it's also selling labor outcomes. And some of them are really traditional B2B SaaS. Everyone is talking about where is SaaS, the traditional good old SaaS going to go in the age of AI? What's your take? You obviously, with the themes that you're investing in, described here, B2B infrastructure dev tools, as you just said, digitization of the traditional industries and automation of back office process. There's a bunch of AI application there, but I can also imagine that there's a similarly large focus on SMEs compared to maybe the larger, but you can correct me there.

5:38So for me, software is not going anywhere. The question is how that software is going to be delivered and how that software is going to be priced. And I think that's what's definitely changing massively. Meaning delivery means, for me, are we going to have systems of records? Are we going to have systems of engagement? Is there going to be a front end that people are going to log into, et cetera? I don't think that's what it's going to look like. I think really it's going to be a couple of agents where you can interact with the agent as an employee at a company, and you can steer them, you can correct them, You can check on them, et cetera.

6:19But we're not going to have like a very static front end anymore for the vast majority of applications. That also means that we won't care as much anymore about who is logging into the software. And so this kind of idea of a user is, in my view, for most categories, going to change massively. And we're not going to look into, oh, you've got 10 users of that particular company, so we're going to charge you X, Y, Z. but it's going to be more outcome driven to the extent possible right i think a lot of startups are still struggling with like figuring out what actually the outcome is what the value is that they're driving and how much they they can take of the value that they're creating but i think it's going to go more and more towards an outcome-based pricing or the revenue that they're saving or the revenue that the additional revenue they're generating and they're going to take a portion of that, which is why we're not going to see user-based pricing anymore, but more usage-based pricing.

7:23So things would look differently, but ultimately there's still going to be software or software hardware combinations below them. So I don't think software or application software is going anywhere. Do you really see the model becoming that you're charging on a output basis, so to say, a value delivery basis? Yeah, that's like not every single category. I think there might be room for some systems of record that are basically storing a lot of the data, coordinating and have different agents on top. And these agents could be agents that these systems of records built themselves, but also third-party agents.

8:07So I think there's definitely going to be more traditional ones as well. And those will be charged on a, I don't know, per revenue basis of a certain company. But I definitely see when we're talking about the agents themselves, a lot of them are outcome-based. So, for example, when I look at my portfolio, I invested in a company called Gradient Labs, which is doing customer support automation, but not just the frontline customer support, but also the back office operations that are getting triggered by those frontline conversations. And it's definitely easy for them today to charge per completed customer support call slash chat.

8:46And that's definitely what the customers also want. The question then is, which is something I'm seeing definitely a lot of my portfolio founders still experimenting with, what do you call success? So do you, for example, charge on a successful customer support interaction or on any type of support interaction? What is considered an interaction? Is it just a customer reaching out, but you're not really having a real conversation? So that's still hard to measure. I think we definitely see more and more of experimentation there. But it's definitely moving more towards what's the amount of people you can save within a customer support team or what's the amount of conversations that the software can cover for sure.

9:40You mentioned ComStruct and also I know you've invested in this space of the built world a little bit. And one thing that I know from another episode that I did with Patrick, from Patrick Hellerman, from what's the firm? Fundamental? Great guy. What he says is when you look at construction, what you really see is that everyone is used to buying on a project basis there. And for that reason, when you sell to them as a startup, that is what you also need to sell. So you come in with a SaaS model. They will not know how to buy it. And I'm just putting the pieces together here. Now you're saying that AI is actually likely going to be sold on an output basis, outcome basis, which kind of looks like a project because with a project, you buy the outcome.

10:33Correct. It's exactly what we're seeing on Cubstract as well. So one of their core features or functionalities is invoice reconciliation. So they basically take the delivery receipt and compare it with the invoice that a building material supplier sent them. And then they can see the inaccuracies because they can tell, oh, wow, they only delivered 50 kilos of cement, but I was charged for 60 kilos. Maybe I should ask for a correction, right? And here it's definitely going towards, at least going towards invoices that have been reconciled. And it's probably over time going to go towards how much money have you actually saved them by finding these inaccuracies.

11:14And it's definitely something we are going towards. It's not like how many finance people are working within the accounts receivable, accounts payable department and how many are logging in. Because everything is effectively being done in the background or 80 % of the work is being done automatically in the background. So that wouldn't be a good way to price it. but it's at least going towards number of invoices processed. Ideally, you even want to get closer to the outcome over time and look into amounts saved. Okay, so that was an AID tour that we all have to take once in a while. But let's run away from it and try not to come back to it too much and instead shift to the big topic of the changing phase of the VC ecosystem in Europe.

12:03I know this is something that is keeping you up at night. And also, I'm sure one of the recent data is behind Puzzle. But maybe let's open with the question, why is this question keeping you awake? I think I'm very passionate about thinking about differentiation, both when I look at founders and what's the unique insight that they have and how do they differentiate in a very competitive marketplace. And I actually think with AI, it's getting more and more competitive rather than less competitive. And I think the same is true for venture capital. I think ultimately, the core of what we're providing, which is capital, is a commodity.

12:44Like, my euro is the same euro than when someone else's euro, right? And so I think you need to be very thoughtful about who you want to work with as a GP. Like who are the founders that you resonate with? And then for those types of founders, why would they choose you over someone else? It's always something that I've been like super, super obsessed about and super passionate about because I don't want to feel like, oh, I just shuffled the money down their throat and they feel like they didn't really, there would have been a better partner for them who could have given them the same amount of money who would have been a better fit.

13:23And I want to make sure that when we go into a partnership together and when I make a commitment, that I feel like I'm the best partner for them on their journey or how I call it, I'm the best value per euro invested. So hopefully someone that invests 10 times as much as I do or eight times as much as I do provides more value than I do. But I try to really think through, okay, can I genuinely be helpful here? And am I really the best partner for that kind of founder, for that kind of business, et cetera. And that really depends on who you want to partner with, who you gravitate towards, what type of businesses you like.

14:07And I think you should be aware of that first and then structure your fund around it. I think there's just too many funds out there that are too generic, that are kind of me too funds that just try to replicate what has worked in the past. But they don't realize that brand is really, really, really powerful in VC. Just because you're replicating something that someone successful has been doing for the past 20 years doesn't mean that you're going to be successful with exactly the same strategy. So I'm just obsessed with finding my own way and kind of building puzzle around who I am, what I like, my strengths and weaknesses, et cetera.

14:50Yeah, I think that is very smart. I was just about to find out, because you mentioned brand, I just received a cocoa in a pink wrapping paper, a cocoa bunny from Carmen. or is it like a baby she's done that for my dear little daughter uh so thank you carmen shout out to you for that and i absolutely agree with you obviously um brand is one place to to to differentiate and carmen is one of the people that really do it well i'd love to ask you how do you then think about this differentiation point because everyone talks about the way i frame it is the way lps think about it is they call it, what's your edges of VC?

15:33What makes you different from everyone else and stand out? However, I think a lot of people have been trained to both ask that question, but also as VCs answer that question. But I don't think there's a lot that then come up with a very powerful answer, meaning that they then default to saying, well, this is my value add, or I focus on construction tech or whatever. And then it becomes a bit of a hollow answer compared to, and I did a full episode with Patrick Hellerman that we spoke about just before, about his Edge framework. And we kind of co-developed an iteration of it that is going to go out where we kind of describe it as you have these seven questions, seven layers that you want to go through.

16:20I'm really missing that depth to people's answer when I ask. But I'd love to ask you how you frame it. Yeah. So I don't think I have all the answers for everything. And I agree with you. You have to kind of go one step deeper from like, what's actually your value proposition? The one thing I've seen work for me is think about your strategy first and build it around your strength. And then think about fund size. I feel like a lot of people that I also talk to, they are thinking about, oh, how much can I raise? and then they try to retrofit the strategy into it. And in a lot of cases, I always have the feeling that they are looking into, who can I race from?

17:02What do the LPs want? And then they're creating the strategy around it, rather than this is actually what I've been passionate about all my life. This is what I've done. This is what I understand. And then look for LPs in that particular area. So I think for me, it was really important to think about, what have I seen as a VC and as an angel, and how do I think I can play to my strengths to fit in? There's probably two things that I've seen in light years as a VC and as an angel that really shaped the way I thought about Puzzle. One was that when I was at Index, which was like beginning of 16 to the beginning of end of 18, the seed funds, there was a clear division between what the seed funds would do and what the multi-stage funds would do.

17:50and very rarely would we really invest at seed stages. Like we would basically wait until the companies were close to a million AR and then we would leave the A's and the B's and so on. And then what I saw when I went to the operational side and became an angel, I saw multi-stage funds growing earlier and earlier. And I think it's a combination of them raising more capital and like raising dedicated seed funds, just index. But also it was a function of the US funds coming into Europe, starting offices here and more actively investing in Europe. And so it was all of a sudden a lot more competitive at Series A and Series B.

18:30So you kind of knew that it would be harder and harder to get in if Sequoia would already be in. And so you're going earlier and earlier. And I concluded that I think it's going to be a sustainable picture that the vast majority, not all of them, but the vast majority of multi-stage funds will invest, continue to invest at pre-seed and seed, particularly for experienced operators and repeat founders. I don't think they do it if you've got like a 24-year-old Henrik at Comstruct or a 26-year-old Tristan at Rionic. I think they'll still struggle with that. But if you have like someone that comes out of Stripe or Monzo or whatever, they're happy to do a pre-seed and seed.

19:13And I basically felt like this would continue to be the case. At the same time, I saw that a lot of seed funds really got professionalized and were raising more and more capital. In like 16 to 18, we had the first couple of professional seed funds, like Local Globe, I think got started in 15. And then we had Cherry Ventures and you had all these funds. But they were getting larger and larger over time also because they got a lot of funding from like EIF, BPI, British Business Bank, whatever it might be. And so all of a sudden they realize, oh wow, now we also have to play the ownership game. Now we also need 10, 12, 15 % ownership, similarly to the multi-stage funds.

19:52So they can no longer collaborate. And that was definitely something I saw, that while it was very common for us to have a very close relationship with Cherry and effectively mark up all their portfolio companies, now all of a sudden they were kind of competing one level earlier. And that meant that the seed funds were really going into pre-seed territory, but also directly competing with the multi-stage funds. And so I felt like the typical round would look like you have 20 % dilution, you probably have 12 to 15 % for the lead investor, and then there was 5 to 7, 8 % left for followers. And those followers were a combination of either very small seed funds or like angels.

20:40And there was always this opportunity left. So that's definitely something that I saw that was one trend. The other trend that I saw while I was an angel was that a lot of operators started getting some money, some secondaries from the companies that I worked at. And they wanted to give back to the community. They wanted to give back to the ecosystem. They started angel investing but to be honest because they were doing it part-time and because usually their networks were quite geographically focused they were not necessarily building the optimal angel portfolio of what i would call because it would be like friends and family kind of investments and like ex-colleagues locally which makes sense if you have a very limited amount of time but it might not necessarily make sense from a portfolio construction point of view And it's also not necessarily the best setup for the founders to only have local angels, to only, if you're a German founder, to only have German angels.

21:38And so I really felt like there is a need to professionalize angel investing and to jointly invest collaboratively across Europe and bring everyone together. And for me, those two trends were kind of why I started Puzzle. I just had a thought here. I want to ask you a maybe slightly provocative question. Is it right to say that if you raise a seed fund today, your primary competition is existing seed funds and multi-stage funds? Whereas if you raise a solo GP pre-seed, your primary competitors are other angels? I think the first one is true if we're talking about application layer AI slash SaaS.

22:25It's definitely true. I think there is still significant room for very, very deep tech, like hardware focused seed funds where you will find very little competition with the multi-stage funds because the multi-stage funds, they're all generalists. And like once you go to the edge, to the edges, they're not going to compete with you at pre-seed and seed and they definitely need traction. I think for the core generalist type of investments, it's definitely true. For me, it's really mostly the large angel sometimes and sometimes the other solo GP funds. But in reality, it's quite interesting. You talked about Carmen before and I was with her on a panel recently.

23:09And we realized we're not really looking at the same stuff. It's quite interesting. so like while we look the same while our fund sizes are similar while probably our proposition is very similar the market is still so large and so broad that each of us have like different preferences of like what we're looking at and so in reality there is not a lot of overlap where we would actually compete and in 95 % of the cases we will actually be super collaborative and we can jointly at least and then there might be this one case where we're competing but none of us is obsessed about it so i would never really like even call her competition like i respect her a ton or like anthony or felix at boom or whoever it might be right but in reality in 90 95 to 98 we are really friends yeah and the reason the reason i asked gloria the question in the way that I did was in the hopes of making it maybe a little bit abundantly clear that raising a solo GP to do pre-seed is probably a better idea for a lot out there than to raise a three-man team or whatever for 50 or 60 million at the seed stage just because it's the competition there is so much easier.

24:34You have a lot more optionality. So when I look at my 10 investments, three of them are with multi-stage funds from the get-go. Four of them are with seed funds. And three of them are just with either micro funds, solo GPs, et cetera. And so I can fit into everything. And I really have to care about, do I want to work with this founder? And then obviously, if the allocation would be too small, I would also be like, ah, it doesn't make sense anymore. That hasn't happened so far. I can really completely focus on that. Like, do I want to work with this founder? Do I believe in the mission, et cetera?

25:08And not about anything else, really. But then let's drill down on this, the model of the solo GP then, because I actually don't think we've spoken enough about that on the podcast. And there's not a lot that have your type of experience coming from a multi-stage fund to then, you know, and then at the same time have done angel investments to then say, okay, I'm going to go full on pre-seed. Because that is a very unique perspective to invest from because you've seen how index operated, you've seen the decision-making processes, you've seen how they describe themselves to the market. Can you tell me a bit about, reflect on the operating model of a multi-stage firm or even just a seed stage firm and being a solo GP?

25:53So it's all about, as a multi-stage firm, especially when you have a brand in the market, You basically need to see everything and you need to look at everything and take everything seriously. For me as a solo GP, I don't care about seeing everything. I literally don't. So for me, it's about I need to get an idea of where the market is at. I need to get an idea of what other people are looking at. But then I'm actually doing a lot of references top of the funnel. and I'm like cutting things out super top of the funnel so I can take a couple of high quality intros and high quality conversations and really focus on figuring out with like maybe about 20, 30 founders a month whether I want to work with them or not.

26:43Versus if you are a multi-stage firm, everyone wants to talk to you and you get a lot of pings and you probably have to look at everything and you kind of need to be a little bit paranoid to some extent, right? And so it's a very different way of operating, to be honest. And then at the same time, you also have to look at different stages. So it's not a single shot. You can also invest at later stages. So there's always a reason for you to pass on something. Because I can always feel like, I want to see more, and then I can correct my mistakes later down the line. I don't really have that. Like, I'm kind of, for the vast majority of companies, there is one round that I can really invest in when they're successful.

27:24because there was a company recently that I looked at a pre-seed, and then within six months, they waste like a$10 million seed now. And definitely the$10 million seed is not something I could look at. So if they're really doing well, there's no way for me to correct my mistakes, which is very different from a multi-stage fund. And so they can think about things in a very different light. And then the third one where I think they're very different is something that kind of frustrated me, but I can understand where they're coming from. For a multi-stage fund, a unicorn accident is no longer cutting it.

28:00The funds are just so large that they really, really need to back the decacorns, the generational companies, et cetera, because otherwise the fund model doesn't work. And so they're very sensitive on ownership, but they're not sensitive on valuation because they don't care whether they invest$4 million or$5 million to a company as long as they can get the ownership and then deploy more capital over time. And that's obviously very different for me. So probably the one company or the one type of company that I can invest today in, that they can invest in is really like the foundational models, the companies that are raising at like$100,$200 million post-money valuation at pre-seed.

28:43I understand why it makes sense for them and their fund models because they can deploy more capital over time. And it just doesn't make sense to me. I don't need the branding versus if you are a multi-stage fund, it's really important that you can signal that you are in the vast majority of the relevant companies of a certain generation, right? And so you might be thinking about valuations differently than I will need to think about things. One of the strengths, as you describe, is for you that you don't have to look for these necessarily banger hitters that all the multi-stage firms will love.

29:22But it also means, and this is a funny question, right? Because the fact that you're not looking for those overhyped assets also means that you don't as naturally end up in the same deals as these big logos that everyone loves to throw around. How do you think about that? And I'm asking you, like I'm maybe putting the words in your mouth because there's only one right answer and that is all I care about is DPI. But the reality, however, is that, you know, venture is very much of a game where you are trying to match your fundraising narrative and everything connected to showing traction before you have DPI to then also having the investments that really do end up returning money.