E485 | Kamel Zeroual, Varsity: Building Europe’s Next Powerhouse Seed Fund

0:00What if Europe's biggest problem isn't talent or technology, but the size of the checks we write? And for me, it's all about having the right size of the fund as well to create, you know, the next gen of open AI, Google or whatever. While European founders dream big, they're forced to chase capital across borders. So it's quite easy to, you know, to follow them with different GPs to see how the market works in different countries. But what if one supersized fund could change everything? Yeah. So 150 is the target of the fund. We are now around 120. Be quite sizable to find, convince the next Spotify in different fields.

0:45So that's our job. We are very focused on that. Varsity's co-founders believe market reshaping entrepreneurs prove their thesis. We are looking for this kind of tech entrepreneurs who think about a new market, how they can redesign this market. But Europe's window is closing fast. So it takes time that we have 10 to 15 years in front of us, so let's do it. In an AI arms race where size determines survival, can one bold fund unlock Europe's next giants? So we feel very, very lucky to be there. Hear the full conversation on Varsity's mission to build Europe's AI champions. Stream now on the European VC podcast.

1:27Here's a few words from our beloved sponsor. Make an impact with the bank made for the innovation economy. We always take a relationship first approach, bringing passion, dedication and unparalleled international connections to everything we do. Our specialized, flexible solutions for founders, firms and funds are built on deep expertise that are designed to facilitate growth and enhance your prospects for success. HSBC Innovation Banking, connecting you with what's next.

2:01Tear down this wall. It's more than just an alliance. 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, as part of our mission to connect and champion the European ecosystem, we have brought on Cam from Varsity. Varsity was a finalist at the UVC Awards. So first and foremost, congratulations. That was quite a feat, Kayeem. Thanks, Andres, for inviting us to share what we do at Varsity. Yeah, we are pretty excited about being a new GP based in Paris.

2:48I'm happy to introduce what we do with the team we put together and the amazing portfolio that we are pushing as fast as possible to make European and more hopefully leaders in the software. So basically just to introduce myself. So my name is Cam. I'm one of the co-founder of Varsity. We launched Varsity two years ago, basically with an amazing team. We are three co-founders. In my previous life, I was one of the partners of another fund based in Paris named Serena. And before that, I started investing in 2015 in Cobrater and 50 partners. So next to me, there is Didier and Florent. Didier, we invest together in 20 companies so far.

3:41And we had a great fit with entrepreneurs. So that's why we decided all together to launch a new GP. he's an ex-banker 18 years in Société Générale and a very active business angel in France because he invested in something like 80 companies always in the early stage very very famous in the ecosystem especially in France and Florent we worked together at Serena he was working in the operations team and after that he joined Sunday, a startup pretty well backed in Paris and we decided all together to launch this new GP. And next to us we have Jennifer. She joined us something like almost one year ago.

4:30She's an ex-Salesforce and she was based in London for many years. She's going to be our international partner and she's very active in AI space and all the SaaS B2B enterprise software. And Elwar was our first employee. We worked together some 10 years ago, something like that. He worked at Alvin as well. And with all this team, we are very excited to try to back many, many great startups in Europe. We started investing in 2015, 16. So basically you have the track record of the team. me as a VC or business angels or Didier as well, very active during these times. So altogether we invested something like 70 million more than in 100 companies or something more.

5:31And so it was the continuity of the team-up that we used to work. So basically, when we launched the new fund and we've done our first raising, we keep on investing in what we do, amazing entrepreneurs. So the Portfolio Software is composed of 13 companies. Most of them, they are in AI, let's say, because you have a bunch of entrepreneurs launching this kind of new software, next generation of the previous one. So we are very excited to back Roxy or Sensinop in the energy optimization and a bunch of entrepreneurs as well in different fields. We are not specialized in one market. We are pretty agnostic in terms of sales.

6:32What we are looking for is how we can redesign markets or feel new opportunities with the next gen of entrepreneurs. And for that, it's all about casting the right person in the right time. And that's what we do with the team I have just presented. A couple of words and numbers about the target of the fund. So the average ticket is 2.5 million euros. We want to be one of the main investors and get 15 to 20 % of the company and be more than an investor. We want to be a business partner with the co-founders. So that's why we invest this amount of money. We are pretty agnostic as well in terms of country we invest in.

7:25So France, of course, because most of the part of the team is based in Paris, but we can invest in all Europe. We have two companies in Spain so far, and we keep on looking for great entrepreneurs in Italy, Germany, in UK as well. And for that, we are very, very connecting with all the ecosystems. That's why your podcast is really useful for us as well, because we need to connect with each other to find out the best entrepreneurs and once again, make the difference and push these companies to design worldwide leaders. How do you, Cam, think about being a pan-European fund with a focus on Paris, where you're, of course, strongest today?

8:12How do you think about the firm evolution to really grow as a pan-European firm? Yeah, so basically, you have to start somewhere, isn't it? So when you see the motion of the VCs, big brands like, you know, Andex, Balintacta, and whatever, they all started in London, most of them, and then they spread in the rest of Europe. So we're going to do the same thing from Paris because, you know, after the lockdown, we noticed that it's quite obvious that you can invest everywhere without being in the same town. So our goal at Varsity is really to have our flagship in Paris because we learn and we base here, of course, but we do think that we have a competitive advantage here in France and that you have many, many countries in Europe with many great entrepreneurs.

9:16So we have the experience about investing in early stage and we're going to bring this experience to different countries. And for that, we're going, of course, to hire local people or to, you know, to learn as well with our companies that are going to spread in Europe. So it's quite easy to, you know, to follow them. And when they, you know, they tackle, I don't know, Germany or Italy or Sweden markets, it's quite obvious as well to keep following them like that. And what we do as well is we try to connect with each other. We share many deep flow with different GPs to see how the market works in different countries.

10:04So it takes time. So for us, the goal of this first fund is about investing something like 40 % outside friends. The next one will be probably something like 50 % and the third one will be 30%. So yeah, it takes time to make a pan-European brand that we have 10 to 15 years in front of us. So let's do it. I love it. Let's focus a bit on the track record, so to say, the investments you've done already, just to better understand, because you do say you're a SAC diagnostic, but at the same time, you also have a fintech, health tech, climate tech, and B2B SaaS focus. So maybe you could talk a bit about both the cases that you have done already, but also a bit what ties them together and why are you specifically saying that you do focus on these, even though you are sector agnostic?

11:00Yeah. So I think my job as a, I will say, I feel myself like, you know, investor, of course, but more than, you know, entrepreneurs as well in my career. I've been entrepreneurs for 10 years. So, you know, investing in early stage is all about, you know, designing company. It's about hiring people. It's about, you know, find out the first clients and help, you know, entrepreneurs to make this kind of cookie cutter table. about products, about selling. So that's why I'm not an expert about one sector. I have the experience about investing in 30 companies with my own money and 15 and now 25 companies as a VC.

11:48So this experience about being next to the entrepreneurs, always in the same period of time, early stage, with the team of co-founders, one, two, three people with the first employees, three, four, five people, 10, perhaps 15, and then have this same company to tackle the zero to one or the one to 10 or to accelerate. It's something very artisanal and very, you know, you have to craft every time. But it's always the same story. So you have to help these entrepreneurs to take advantage of the technology they built to put together as much talent as possible and help these entrepreneurs to raise as well capital to make the next round a success and push the company again.

12:45So the first investment was Rockfai in finance. So of course, VD is pretty well-connected in this market because he was a banker in other life. So it was quite obvious for Pierre, the CEO, to team up with us and to work together, especially at the beginning. And Didier was really, really supportive to the team, especially in the early months. The first six months is really critical for the early stage to accelerate in the right time, not too fast, not too slow. and put all together different types of tracks in the same time to help, once again, the business to strike the Series A in nine months or 12 or 18.

13:40So for Outfit, it was a great success because we made it in only nine months. So from the beginning, there were revenue. They were at the beginning of everything. We put together the core team next to Pierre. We helped him to find out the two first clients, let's say, and to accelerate everything. So it was really interesting. And we do it every time. I mean, every time it's different because we have different sectors and we have different entrepreneurs. But that's the way of how we design and how we think about our job is really to have this kind of, you know, okay, we're going to help you to make it.

14:32Oftentimes, you see new funds come to market with a stronger vertical focus. So I'd be curious. And that's, of course, because you have a bit of a right to play when you're a specialist in something. Would you deliberately choose to be sector agnostic? I'd love to ask you, how do you think about this, how it plays out? Will it be more, should we see more and more verticalization in the ecosystem? Or do you think that there will always be room for good seed investors that are industry agnostic? I'm sure for that. I'm sure that you will always have, you know, this kind of small experts, GPs focused on, you know, like biotech or, I don't know, something very, you know, special like space or whatever with a small market and with this kind of expertise.

15:27who are connecting the dots between very deep tech or very hard understanding of the market and the go-to-market and have the entrepreneurs in that space. So I think that's something quite obvious. And on the other hand, you need in Europe to have a next gen of GPs, generalists, who can bring on the table and who are able to create a very strong brand around the early stage, tomorrow, early course and acceleration and be able to back huge success. And for me, it's all about having the right size of the fund to make it right. So to back the top 0.1 % of entrepreneurs in Europe, we compete all together with the best VFISA in the world, especially in the US.

16:33And this competition is quite unfair because, on the other hand, they have 30 years of experience. And they have funds perhaps times or three times bigger than ours. than ours and money talks. You can't compete with that. So that's why you have to have a generalist fund with at least 150 to 250 million euros for one seed fund to help this kind of entrepreneurs, help this kind of ambitions as well to create the next gen of open AI, Google or whatever. So I think it's possible, but you have to be clear about what is about. It's about the size of the check you are able to do. It's about the ability to make another check as fast as possible for the next decade.

17:29And for that, you can do it with a small sum for 50, 70 million, even 100 million is not enough. So you have to be very, you want to compete with the best and you have to have the same arguments to win the competition. So for me, you have this kind of next gen who's launching all around Europe. And we hope that we're going to be one of them based in Paris, but investing in all Europe in the next years. I want to ask you one final thing before we close, because you, as you said, you have a strong conviction that you do need a significant sized fund at the seed stage. I think that makes a ton of sense.

18:11And I think that you're right in many ways, which means that, of course, you're targeting 150 million with a hard cap of 180. But you have already managed to have incredible backing from institutions, which, of course, ties into your background. But I'd love to ask you, just talk to everyone that are listening a bit about, one, why are you so convinced that you need these big funds? Just to double click on that to make absolutely sure that people understand why you're targeting 150 million. because it is more than many first funds. Oftentimes, there are 40, 50 million, even if it's seed stage.

18:47So that's an interesting question, I think. And then the other one, talk to us a little bit about what was it that convinced all the institutional investors and strategic family offices that came in and backed you here in the beginning? Yeah. So 150 is the target of the fund. We are now around 120. We are very excited about this fundraising and the first success we got with our LPs. Basically, 150 is something critical for us, especially because you have another competition that trailed in the last year. All these business angels club slash solo GPs, all together they can invest in pre-seed round or seed round, even if they're not following the companies in the time.

19:36And that's something, it's an argument to face with the entrepreneurs. So that's why you need to put on the table more than 1 million. I mean, 2 million, 250, 3 million is the minimum that you have to put to convince the entrepreneur to open his tech table to a professional investor like us. So that's something pretty key. and once again when you see the many successful VCs in the last decade like Cléandou I mean today they are like 500 million or more but when you see the first cohort of the fund they were something like us something like 100 million the second one was 130 million and the second one is when they backed you know, Spotify and they make, you know, 10x or 13x as return.

20:38So you have to be quite sizable to, you know, to find, convince the next Spotify in different fields. So that's our job is that we are very focused on that. It's a bit funny because we participated in SeedCamp's Fund 6, which was, of course, significantly bigger than past funds. And we've both done episodes with Carlos talking about that, you know, and he makes the argument, well, if you look at the growth of valuations and round sizes, it's not a big jump at all. And then, you know, and there's a multitude of reasons. But there were, of course, many that when they announced the fund size said, huh, that's a jump.

21:23And what I think is so interesting is that now coming in 18 months later or so, we are seeing a lot of funds being raised in this size, even as first time funds. So obviously, I would not have backed them if I didn't agree with what Carlos said. But I think it's absolutely correct that we are seeing a competitive dynamic in Europe that means that there is definitely a strength if you want to go for a specific place where you just got to have that size so you can show up with the money that's required. So I think you're absolutely right in taking this stance. It's obviously not for everyone. It's not even everyone that can even raise it.

22:03So let's get to that traction point. Yeah, you're right. And I think, Andreas, there is another point is about the ambitions that you want to have as an entrepreneur. So I think we are a next gen of, you know, investors, new GPs. We back entrepreneurs with a vision, you know. We are looking for this kind of, you know, tech entrepreneurs who think about a new market, how they can redesign this market. And we have to think in the same way for our industry. So it's all about how you can think about the private equity and especially the VCs in the next 10 years or 15 years. In my point of view, you're going to face bigger maturity in terms of liquidity, in terms of how people are going to work with each other, how you can build up companies, how you can accelerate into the US.

23:05into the Europe. And this kind of opportunity means that as well, you can think bigger as a VC because the market is going to grow with perhaps much more successful entrepreneurs. And you don't have to think about your ability to raise money. You have to think about the market opportunity as an entrepreneur. So we think like that. And investors backed us for that reason, I think, because we are a new generation of investors. On one hand, we have, of course, DDA and his background. It was really an insurance for them that we are a very serious guy. We have our track record as investors, as business angels and VCs.

24:01And we convinced, you know, the first 15 million very quickly. Then we reached out to 75. Then we invest in five companies at the same time. And all this, you know, dynamic, you know, was really, really interesting for, of course, for us as entrepreneurs. but as well for the LPs because they saw that we are forcing and we are doing this, we are applying the same playbook that we were advising to our entrepreneurs. So doing many good things, many things in the same time, focusing on the talent and the talent and get the shit done as fast as possible. So it's possible to do it. It's just a matter of focusing and once again to have the right vision in this market.

24:57And I'm pretty confident about the next years. And we are going to live amazing years in terms of investors. And we are in the right place in the right time with a new generation of entrepreneurs. And with the AI technology shift, it's going to be a massive, massive change and opportunity as an investor. So we feel very, very lucky to be there. I love it, Cam. And I can only say, you know, we do the UVC Awards once per year. We have the premier LPs that are investing in the European market, scouring everything that's happening, finding the ones that really do deserve to be looked at very thoroughly.

25:44And out of that batch, we then end up with four finalists this year in the newcomer category of which you guys were one. So I think that just the fact that you made it through that diligence process all the way to the end were these highly esteemed LPs, Isomar Capital, LGD Capital Partners. Jonathan, formerly Moulton, now a Bullhound GP, Stephen Lowery from HSBC, Safina Group with Julia van Weinberg. But absolutely clear, you are doing something completely correct because otherwise you would not have been in such an elite group. Thank you so much for joining me, Cam. Thank you for your time. Thank you, guys.

26:23Here's a few words from our beloved sponsor. Make an impact with a bank made for the innovation economy. We always take a relationship-first approach, bringing passion, dedication, and unparalleled international connections to everything we do. Our specialized, flexible solutions for founders, firms, and funds are built on deep expertise that are designed to facilitate growth and enhance your prospects for success. HSBC Innovation Banking, connecting you with what's next.

26:56Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting.