E530 | Jörg Binnenbrücker, Capnamic: Capnamic’s €1B Exit, Flywheel Thinking & Building a DPI-Minded VC Firm

0:00What does a 55 times return look like in European venture capital? It was over a billion, way over a billion, and it was 55 % on the fund. But here's the uncomfortable truth about making money in venture. You know, the word founder-friendly is sometimes a little bit mistaken. Founder-friendly and you don't care about distribution, it's easy. But if you are looking for returns, it's getting harder. So how does Capnamic consistently beat the odds? Jurg breaks it down to four simple principles. The most important for me is the word of mouth from founders. Founder-centric processes to engage with the co-investors we like.

0:34Action over marketing. Their investment threshold? Nothing less than extraordinary. We always think about at least 10x if we invest. But what really sets them apart isn't just the numbers. It's a culture that balances relentless ambition with wisdom. I try to achieve something in between. Michael Jordan, discipline, Yoda, balance. And Jörg's final message to founders everywhere? Go out and start good businesses and don't think every business will be capitalized by venture capital. Discover the mindset behind Europe's exit of the year and why thinking like a champion might be exactly what your business needs.

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3:19Jörg, welcome to the European VC Podcast. Hi, good to have you. This episode has been almost six months underway because you won the exit of the year as part of the European VC Awards for the exit of LeanIX. It's true, yeah. We've heard about it. We were very proud, but we couldn't make it to the ceremony because we had our own thing going on on Mallorca. I think it was golf tournament or something like that. Yeah, something like that. Yeah, something like that. And we sent Natalie, our prettiest and smartest girl on planet. And she took it. You gave me the biggest heart attack on the day because we were just getting like everything was rolling.

4:06And then I was like, fuck, like we had started and everything. And then it was like, where's Natalie? And I was like, is she not here? Then I called you up 20 times, but you had something going on. I couldn't get a hold of you, couldn't get a hold of her, tried a bunch of different people. Then all of a sudden, there she was right in front of me. And no one noticed that we actually, we had Chris Wade, and I can't remember who, go on stage to kick it off together with Anubau or Michelle from Tactic, the sponsor of the award. We had them go on stage and start addressing the audience about how amazing it is that you've won.

4:44and I was still out there frantically calling you, trying to figure out where Natalie was. But we managed, and I don't think anyone noticed that we didn't have our ducks entirely in order there. To be honest, I saw the UK numbers on my cell phone and I was thinking there's another placement agent trying to sell me something, something hard. So I'm not answering. I'm not answering because then I'm in a sales call. I don't want that. I don't have time for that. And that's why I was not answering. But Nathalie was prepared. She had everything in place. And she was very proud to hold the trophy and the thumbstone on stage.

5:26And now it's standing right in front of me in my office. I'm looking on it every day. So I'm not forgetting to find the next Lena Eads. I absolutely love it. And behind you, you have Michael Jordan. And on your left, you have Yoda. We cannot see Yoda. Tell me a little bit, because you said, I have these photos because they remind me of what I'm trying to achieve or who I want to be. Tell me a bit about that philosophy. Yeah, this is a long story. It began when I was pretty young. So I played basketball and my idol, my goat was Michael Jordan because of his dynamics and his discipline. He's eager to win, his willingness to win.

6:04And I was a big Star Wars fan. And I loved Yoda from day one because of his balanced, ethical, very wise character. And I try to achieve something in between with my work and with what I'm doing with the startups. So I tell them it's hard. It will be hard. You will miss a lot of shots before you make the shots and keep on working. but always think about winning, winning the market, winning the category but be balanced, have a culture in your team and play wisely. Be on the good side, not on the bad side and that's somehow the story and I look on them every day so I'm not forgetting because in these hectic days today it's sometimes pretty tough.

6:56I guess there's also a good point about Michael Jordan for a VC specifically which is that on the game he played basketball but off the field off the court he was also a very savvy business person who made the Nike the famous Nike deal allowing him to take a share of the of the the shoe that was basically the Michael Jordan shoe yeah I think it was his mother which was really smart but he he took it and today he's one of the most successful guys because the jordan brand now is not just a shoe the jordan brand is everywhere it was at the olympic games in paris everywhere and you know you have apparel you have shoes out of nike today no still part of it but i think the most successful part of it as a as a sub brand yeah i think so too incredible okay Just let's touch base on LeanIX just a second.

7:56Could you tell us just a little bit about what they did, what allowed them to be so massively successful? And also, I think maybe specifically one of the reasons why we loved the exit and wanted it to be the exit of the year was that it really represented a very good example of a good exit in Europe in that you got real money on the table. It wasn't a deal with other moving parts in it. So it was realized gains. And it was also, it wasn't, how should I put it, a huge IPO deal that has tons of people coming in. But it's one of those deals that some might want to overlook and say, well, it's not a huge, huge, huge venture.

8:40But in fact, it's really, really solid returns for your LPs. And the multiple was incredible as well. I don't know if we can share the number, but maybe you'll say it. So I was like, for the fund, this is perfect. It's beautiful. Would it mean something for A16C? No, it would not. But for European-sized fund, perfectly sized fund for the European market, it's a perfect deal. Yeah, this is a story which starts early. So I was a tennis teacher when I was young. And the founder and CEO of Lina X was my tennis student when he was 12 years old. That's the most funny story about the deal. So I know this guy since his early days and I always admired him because he was really disciplined, hardworking, not the most talented tennis guy, but he was very good because he was working so hard and understanding so much what everybody told him.

9:34And he was an intern in a venture firm I was working and I tried to hire him for my first fund, but he decided to go to a consulting company. and then he came back to me um was it like i would say 2 14 maybe 2 2 15 2 and and told me that he starts a business with his former boss so it was the consulting of dhl a logistic group here in germany and they started the business in the software branch so the sas business software architecture management. So I've seen this before. This category is not new, but it was kind of a legacy category and it was not growing well. And I was not quite sure if this is the right deal for us.

10:27I was sure that this is the right CEO and the right founder, but I had to understand that that was the right timing to get in this category again, because everything got digitized over the years and the software landscape in the companies, in the enterprises was a mess. And to understand what they were doing is a little bit like a comparison to Google Maps. So this solution was somehow Google Maps for the software landscape in an enterprise. and you had the chance to really overlook everything when you do like M &A and what kind of you adopt to your old stack, et cetera, et cetera. And now, nowadays, the business owners are looking on this, not just the architects, not just the software guys are looking on that because it's getting more and more important what kind of solutions you have in your business.

11:21So the timing was perfect because all these legacy players had old technology, old stacks, and we had built it on everything new on the planet. So it was faster, it was agile, it was really good looking, good dashboards. So the story from day one was, yeah, working. But my first exit potential analysis on this case was like, maybe we do 100 million, maybe we do something above, but it will be 10x because the entry valuation was so low. was I think below 5 million. And the first check was like 500K plus 750 in a second milestone. So really, really cheap. I mean, there were different times, but that was the beginning.

12:10And then they kept working hard. So they bootstrapped it for two years. And I think until they had like 20 million AR, there were like 40 people. So really lean, really bootstrapped. and then we did a round with Insight and then we stepped into the US and then Goldman stepped into a little bit later. It got bigger and bigger. So we had like 80 % of all the big enterprises in Europe and like I would say 30, 40 % of all enterprises in the US which are the big enterprises, so the SMPs. Yeah, and at the end, it was like 800 people, over 100 million SaaS revenue AR. Was it sold for 1.4 or so? Was it something?

12:57I can't recall the number, but it was over a billion, way over a billion, and it was 55 licks on the fund. I mean, reinvested in every round. By not joining you in the fund, he probably made you more money than he ever would had he joined you. Absolutely. I mean, the funny story is he took one of my investment managers pretty early. Yeah. I think in year two or three of the business. So he stepped out at Capnemic and joined Lina X. So he had a good visa package and he still had some carried interest from Capnemic. So he made money on both sides when we did the exit. I mean, so everybody in our team has carried interest.

13:47So everybody was really happy about the deal because it was a big success in the fund. We already had two very good exits. So we have been in the money already before Linax. So it went really through everything here and hit the roof. How do you think, Jörg, about carry just because we spoke about it now. You said everyone in the team has carry. I always find it interesting to just, because we have so many partner level people listening in and trying to think about how they should build their own schemes. We also obviously have the rest of the teams that are trying to think about, are we fair? Is what's happening inside our firm fair?

14:30How do you think about both the principle of everyone having carry? Is that only on the investment side or everyone also on the comms and on the platform and CFO once in one? And also, how do you think about designing it? Is it tied to one fund generation? And then if you join after the first three years or the investment period of that fund, no new team member gets part of that carry? Or could you share just high-level principles that you think or you're still trying to crack a knot and come up with the most ideal thing? So with us, everybody got carry. So not just the investment professionals, even though the platform people and the backup people, not as much as the investment professionals for sure, but everybody is in it because we, you know, try to do something within entrepreneurship.

15:23So everybody should feel a little bit like an entrepreneur. That's the way how we think. And we do it through fund vehicles. So if anybody joins him during the investment cycle, he gets some carried, but not as much as he would have started with the first fund or with the investment cycle. But there is a cliff. Yeah, there is a vesting. So it's tough. So they have to stick with us at least for two years before they get anything. And then it gets up. So I think it's pretty fair. And everybody likes it. But people are doing it differently in different funds. but my thinking is I want everybody to work on a deal not just as a backup not just as a you know co-pilot I want everybody thinking about the businesses so I need to yeah somehow incentivize the people yeah completely yeah I just wanted to bring it up because I think it's always a topic that people are thinking about we're actually we've just literally just published a research study we're doing together with Louis Lawrence from Plug and Play on exactly remuneration structures and so on in venture, which surprised me.

16:36We had 500 submissions from that email. So that made me happy. Now, okay. So, Jörg, what I want to talk to you about really is I want to dive deep on Capnamic because you're one of the very successful funds that I I think maybe people don't know as well as one might think they should, especially considering that you won the exit of the year last year, which is talk of the town. Everywhere I go, people say, are you guys the guys with the Capnemic? So for sure, we need to talk about Capnemic. And I want to dive into kind of try and figure out what's the edge of Capnemic, what's allowing you to be so incredibly successful as you've been to date.

17:18Are you ready for that? Let's try. Let's try. This comes completely unprepared for you. So to anyone listening in, do know that this is the first time I spring these questions on Yorke. My first question to you is, I want to understand how you have unique empathy for the people or the target sector that you have when it comes to founders. So what allows you to pick the best software founders in your geo, in your vertical, where you're holding yourself up against all the competitors? what is it that allows you in Capnemic to be the team that runs away with the best founders? Poo, that's a tough question.

18:06I think it's a good question when it's tough. We just have money. At the first sight, people think we just have money and can support with money. But I think it's much more than that. And this is the competitive edge. What you do besides the money or on top of the money and what kind of expertise you bring to the table. So we are, as Michael Jordan was, very disciplined in our theses and what we do. So we concentrate on a deep regional expertise in Dach, so Germany, Austria, and Swiss. We really understand the local market and our LP base and portfolio base helps us with this because we have a lot of people coming out of different sectors.

18:55We have a lot of CEO entrepreneurs in our LP base. We have a lot of corporates in our LP base, which really helps on the first steps. And we try to sell that to the founders. And what we sell in addition to that is we facilitate cross-functional exchange through our portfolio, no matter if it's the first fund, second fund, third fund. we try to set up slack groups or whatever workshops within topics so not just the CEOs not just the founders the operational guys in the companies work together and exchange knowledge which helps sometimes and leads to less failures maybe than in other cases and then what what happens is that people talk.

19:45So word of mouth from founders is decisive for us. We want to be bespoken as a very fair, a very hard investor, which really helps and is there in tough times and helps in expansion for good times. So this is what we're really aiming for. And I think everybody tells that story. So we are not very loud in the market. We try to have spokespeople out of our own organization that really talk very positive about us, network, LPs, founders. So this is our goal to try to have a competitive edge in some processes that are really competitive. I'd love to explore the regional focus. you also have an inclination for B2B and SaaS, but you're also curious in other sectors.

20:45I'd love to explore and unpack that a little bit where you're seeing that focus to maybe, what's the edge case? Are there places where you're saying, yes, we'll do it if we meet them, but we rarely meet anything in super deep tech or crypto is not our space. So we just say no automatically, even though it's from Germany. How do you think about that? Yeah, I think, I mean, as a venture capitalist, you're an opportunistic guy. So we always keep our eyes open for the best entrepreneurs. And if the best entrepreneurs we met are not in our core sectors, we still are eager to invest if we had our diligence through partners and experts, etc etc so i would say the founder is coming first the sector is coming second i mean we are very broad in sectors so i mean for instance we are now very very active in climate tech uh since since one or two years so we have like uh fintech we have sas businesses we have robotics, we have industrial.

22:00We have almost everything in our portfolio, but there is a pattern in the companies from the stage, how they try to go to market, and what kind of sounder DNA we have in the businesses. So this is more what we're looking in than just the thesis in a sector. I want to ask you about founder DNA as well and what you then look for. But I do want to ask you first, are you feeling in any way a squeeze from the rise of the specialists now that you are a generalist? I would say it's more another co-pilot, another co-investor. We love co-investors. So this is a very important part for us for deal flow and exchange.

22:51and it's good to have experts. So I don't feel a squeeze. In climate, there are a lot. And there's a lot of climate funds. Yeah, there are a lot of climate funds. So I don't know if they have enough deal flow for this kind of sector, if there are so many. I'm not sure about it, but I like the sector because we have to do something in that field to have venture capital in 20 years, 30 years from now. So let's focus on that. That's very important because nobody else would do it than the startups. The startups, they change the world. So it's good, but I'm not sure if the market or the opportunity for these many funds is big enough or if you fund the wrong setups maybe.

23:40But I'm not feeling squeezed at all. I'm not feeling squeezed. not from prop tech, not from climate, not from, I don't know, sustainability in general. So I think it's a good way to work together. And everybody loves the general players because we help so much in expanding and go to the U.S. and go to market and building up the organization because we have seen it for so many years. And they can bring in the expertise in the sector. So that's pretty good. Let me ask you about that founder DNA that you described, that this is what you're looking for. Could you be a bit more specific on the points that you're looking for?

24:21Is it just Michael Jordan and Yoda mix? Yeah, right there you go. We want boldness, but on the other hand, we want a balanced team. We want a balanced guy. We invest mostly in teams, not in single founders. but there's always one strong spokesman which we try to understand in depth i want expertise in the sector i want experience i mean at the end of the day it's it's a gut feeling it's it's always a gut feeling so you make your check marks on the question is and you know on paper he looks really good and the pitch is really good and he has seen everything he was was a consulting company etc etc but at the end it's like okay do i trust this guy that he will be transparent with me whatever happens and do i trust this guy to make a huge business to really grow from nothing because we invest really early from nothing into something meaningful and what is his yeah, a way of thinking and why is he starting this business?

25:33This is really important for us to really understand why. Is he in for the money? Is he in for the business? Is he in for the sector? What's going on? So it's the most critical question in our diligence. So we work with some experts, some psychological people that really look into the people because it's so hard. You know, everybody tries to be the best of him when he pitches. But is this the real guy? Is this the real girl? Is this the real founder? I need to see him when he is maybe a little bit buzzed. So I try to go out with them before I invest and I try to give them something to drink and talk to them to different topics, not just the business, to understand the way he thinks.

26:22sometimes I really I'm really shocked and sometimes I'm really there and say this is a wonderful guy I want to work with him so and this is mostly the timing when I decide okay let's do this Do you have some stories about where you've been so shocked that you walked away on the basis of one of those nights out Yeah I have this but I'm not sharing this because it's too personal but I was shocked because he was he felt and this is good he felt like a brotherhood after some hours with me uh i'm a social guy so you can talk to me about everything but still i'm an investor and i want to make a business with him so he needs you know to be a little bit reluctant right so and he was open up you know it was clear to me that this guy has some problems right so yeah and he's a super cool dude but he needs to solve the problems first and then maybe start the business again most of the times wonderful people they behave you know they don't drink too much they say stop I'm not drinking anymore would you say that if you had run a more standard process meaning one that did not maybe involve going out with this person would you say that you would do you think you would have uncovered this part of him?

27:47I would not. Because in a meeting room, people are different. I mean, in a podcast, I'm different than in the bar. Just so everyone knows, before we hit record, Jörg was very unpleasant. No, you're absolutely right. So now, I want to then, just to put in a comment, everything you've said makes me super excited about the rest of this episode. Because when I meet managers that say we're journalists, say that, well, I can smell it, I know all that stuff, but don't give me a super... Because there's some GPs that come to you and they're like, I've done fintech for 15 years. I talk to all these whatever people.

28:41This is exactly how the sector is going to move, these are the technologies, all that stuff, like the typical specialist sales talk, then you can really understand, okay, there's something here, right? Whereas your description is one of those that always make me, okay, everything is contingent on the capacity of York. And also then, and that's what we're going to uncover in the rest of this conversation, how you're building the firm to execute incredibly well, because you are not guarded by a lot of modes around that you do something that no one else does, so to say, right? You have competition from everywhere for the deals that you want to do.

29:26So the deal, the differentiation, the edge needs to come from something else than where you're focusing and that you did X or Y or Z before. So I think that's super interesting to uncover and that's what we're going to go into now. What I want to ask you then is about, I want to uncover a bit the reps you've done as Capnamic. So meaning both what you've done as a team so far within B2B and SaaS and Germany specifically, but also the processes, the activities that you're undertaking as Capnamic that allows you to become much better than anyone else in this space. So within the vertical and thesis that we've just described, what are the activities that are making you much better than anyone else every day?

30:16I mean, at the end, everything is about track record. If you do fundraising as a VC, you got compared to everybody in the market. And so you have to show that you did something repeatable which works out and i think we can do this as we have already uh in the first in the first fund we already have three unicorns and two of them already distributed fully one already partially distributed still some other good uh assets in the books in the second fund we can clearly see the outliers and the ones who get over 10x so uh in the third the third fund is pretty young so it's too early to tell but so I think the people can see that we made our reps that we did it right and to get there everybody in the team learned a lot so we have a lot of experience in the in the in the partnership so we have my partner I started academic with was at 3i he started in 97 to invest in businesses he did everything from IPO to to trade sales and early stage, late stage growth, whatever.

31:31Olaf was with Target. He was an entrepreneur before. So he did a lot of good deals. And Christian now, who started as an analyst with us, is so smart. And he did it already in our portfolio, one of the best deals, staff-based, which shows that everybody's learning from everybody here. So I don't, it's not about Jörg. It was maybe at the beginning I started it. What I did is I tried to explain what the culture should be with any investment manager in the team. So I want everybody to involve with the founders. I want everybody to be not the best friend, but to be a reliable partner in the business for years.

32:14So we do hire people we know. So most of the investment team started as interns with Capnemic. worked with analysts and worked their asses off to investment manager for years to really get the culture fit perfectly in the head. There were some starting businesses by themselves. We are invested. So we have two former investment managers. They started businesses, one in HR tech and one in sustainability, rec tech, I would say. We invested in both because I know these guys. I really trust these guys. I like the businesses. They made the analysis. They did everything what we need to see. Other former investment professionals are in different funds because they got partners.