E549 | EUVC Summit 2025 | Sarah Drinkwater (Common Magic) and Anthony Danon (Rerail): The Path to Success for European Micro Funds

0:00While megafunds chased billion dollar deals, the real battle for Europe's startup future is happening at the earliest stages. leading the charge are sarah drinkwater and anthony dannon two operators turned investors backing the next generation of founders through micro funds sarah founder of common magic invests where community is the competitive edge anthony co-host of the super angel podcast launched re-rail a fintech focused angel fund rewriting the rules of early stage funding As power consolidates at the top, will microfunds remain underdogs, or are they the secret weapon in building Europe's next breakout companies?

0:46All right, so we just had the proponents of the behemoths on stage. Now we have the opposition, the Rebel Alliance, the two beautiful faces here, one being a newcomer finalist in this year's awards, the other one just etching out of their criteria, so sorry about that, Sarah. Both of you are doing incredible work. You also, one thing that is very symptomatic or always the case with micro funds is, and SoloGP specifically, you have very active WhatsApps. And during Oliver Hollis' chat, and during this chat that we just had, the chat was on fire. We saw a screenshot of Oliver Hollis that said that being a solo GP is a lifestyle business and basically argued that you have to scale, otherwise you're ruining Europe.

1:45What's your take? I think Oliver and I should swap hotel rooms and we'll see where the lifestyle business is. No, I guess... Okay, that sounded a little spicy up front. I guess all I mean is that if we think about what the goal of funds is, it's not about 10xing AUM. It's always about returns. And I think at this exact moment in time, there are a lot of really interesting shifts happening in the market at the earliest stages where Anthony and I invest that I think fits. It makes the case very clear for the size of funds that we have. It makes the case very clear scaling may not look like in the future the way that it did in the past.

2:19And for me, that's an amazing way of starting a conversation is looking at this slide and saying, actually, we don't, I don't personally agree with that. No, I totally disagree with that. I think being a solo GP is like a purest form of interest alignment in some respects. And I think it's creating a product that's complementary, but that actually founders really want. And yeah, we can talk a bit more about that as well. Let's talk about exactly that. Why is it that you believe that a solo GP, a micro fund is better aligned with founders, will perform better in today's market? I mean, I think there's two ways of looking at it.

2:50You know, firstly, to Cambridge Associates point, there is pretty rigorous data around fund size, ability to return the fund. But I think if you look at it from the other point of view, you know, the European scene has matured quite a lot in the last 15 years. The best founders are always going to pick who they want. And I think all of us as angels and as, you know, I've not been a VC before, but all of us as past VCs have seen partner churn happening at larger firms. When a founder picks a solo GP, it's really about the, like, I believe very strongly in the primacy of that founder investor relationship.

3:19When they choose me and I choose then we get each other. And so I think there's something about the edge that small funds have. You know, Anthony and I both have very particular value ads that we bring to founders. If you are looking for that value ad, this capital becomes incredibly attractive. It's exactly that, right? It's a sign of ecosystem maturity. More choice is better. I think there is a position like for founders as they're optimizing for like their ideal cap tables, you know, to slide in a very focused value ad. That's where micro funds and solar GPs come to play. I think also see this personal, which you touched upon.

3:50We're seeing more and more bloated funds. I think increasingly founders don't experience that from a lot of them. And I think the purest form of like that is being a micro fund or a solo GP fund, you know, it's like you're fast, you're nimble, you're as personal as it gets, right? So. I know that oftentimes the argument is also that you have a clearer thesis, you have a clearer specialization. And that is actually not one of the things that you love to highlight the most. Can you tell us why? Yeah, I mean, a lot of people say like, Anthony's a fintech guy. Absolutely not. So for sure, I think, like for me at least, I think when you're playing at pre-seed seed, it's not about a narrow sector focus at all.

4:30I think it's about the people. It's about kind of focusing and finding the best entrepreneurs, starting something new. I think specialization has to do with like a focus value add. So going back to that, right? So like, can you have a very sharp value add that's differentiated in the market that you're trimming the founders look out for you for it, right? And for Rerail, that's fintech networks and know-how, right? So as I'm seeing more and more companies looking to utilize fintech, embed payments, lending, insurance as part of their business, no matter the sector they're at, they can come to me for that, right?

4:58I can help them navigate that with my network and with my know-how. So I don't believe in, at least for me, at a precedent on narrowing down the time of opportunities. I actually believe, though, you need to have a right to win. you need to be sought after for something that's very focused and being specialized allows you to do that in a larger extent let's say yeah I think I think that's that you know if I look at the funds that are most attractive to the founders that I work with it really is this mix of specialism and generalism so I always think of my thesis as being very horizontal like I am obsessed with bottom-up go-to-market and helping founders with unique distribution participation their narrative how they think about their work but I keep learning that ultimately you know any fund has to survive various macro cycles.

5:42I've invested everywhere from, you know, dev tools to crypto to consumer, you're looking for the best opportunities, you know, to build the most resilient portfolio. And I think to Anthony's point, it really is about communicating, what is this fund in the market? There are so many funds now founders have to, you know, it has to be really clear why you have the right to win and why you're the right person to partner with them. And I think, you know, promising a very particular value add, doing what you say you will do, over communicating to the market. To me, this is just a really obvious, you know, if you're launching a new fund in 23, 24, 25, you have to have that.

6:16I always think that micro VCs, solo GPs, you have a great, very interesting value proposition for the current fund iteration. But there is, I think, a bit of a sustainability issue. At least I see you everywhere. I see you active all the time. I've never opened my WhatsApp without you saying online, small dot. How can you make this work? How can an LP, how can a founder trust that just as soon as you've made a bit of money, you've made a brand, you're either on to the next thing or you'll scale, you'll move away from the model. Because who the fuck wants to travel the world constantly when also trying to build a family?

7:02So I was in SF last week and I had coffee with two different solo GPs that are running over a billion in AUM. And I'm not saying that scaling AUM is necessarily the right path for me or for any solo. But again, if you look at like an Ella Gill or a Mike Chalfin, you know, firstly, networks compound over time. Secondly, every solo GP agonizes over getting the right op structure in place. I think, you know, you and I have talked about this. I think there are always things you do at the start of your company that over time you get smarter at. I think, you know, I still really enjoy FaceTime with founders.

7:32I personally, that's where I'm most useful to them in some ways. I don't know. I think that is the tension of being a solo is ultimately you're all in because you have to be. Yeah. I mean, going back to the interest alignment, I do think you need to be obsessed about what you're doing. Right. It needs to be kind of like giving you energy, then taking out of you because otherwise it's not sustainable from the get go. I think we had talked about this before. I like the analogy you had given before, which was around being a professional athlete. Like I think very much you're in competition with yourself constantly.

7:59I think the only control variable you have, like how you allocate your time. right? You need to be kind of ruthless and iterate when it comes to that. I do think there's tips, though, like making things better. So like maybe kind of showing a few of those, like I was thinking now doing it for the second time. I mean, I have a lot more to learn from that. But I do think, for me, there's a couple of kind of hacks to that, right? The first thing when I got set up, and I would do it again was be, you know, outsource anything that's ops, like do that. Second would be kind of give leverage on my time, not through kind of throwing headcount, right?

8:29I I think that's the easy way. It's like you can be creative. You can leverage the ecosystem. You can leverage AI. I'm allergic against coordination costs. I think it's a vertically integrated game and you don't want to add layers to that. So I think your advantage is you have no IC, you have no internal meetings, you're sucked in, you know? And the positioning you have by being complementary to the ecosystem compounds, right? And so going back to what you said, I think you got to be obsessed, but then it's a tough game. Well, and you're always like, You're always trying to work out what is the thing you do that everything has to move the needle in terms of performance, right?

9:04You're not going to lose if you have, you know, you're not going to win purely based on good ops, but you could lose through bad ops. So you have to get that right. But I think to your point, it's a constant, it's fluid. You're running a one-man business in many ways. Let's stick on the scaling part just for a little bit, because it is typically at least interest aligned with the GP. So tell me, what are the levers that you can pull when it comes to scaling as a solo GP? Yeah, I mean, there's many levers. I would say AUM is the last one I would pull. I think AUM does not scale very well. I think beyond a certain point, you have to start leading, and that changes the game massively, right?

9:42It should be a very conscious choice. I think, you know, it was talked about before. I think if that's your aspiration, there's ways going there, but that wouldn't be my preference. I mean in contrast I think there's like if I think about myself for example right the number one lever I would pull would be my fintech network so if you think about my day-to-day a lot of like my proprietary sourcing a lot of the way I diligence that's different to others a lot of the support I bring to the table to the founders is that fintech network so can I make that more scientific can I have someone make that a science for me that's that scales everything for me that's the first lever the other lever I was thinking about because there's always the personal tendency but what if you're now 45 and you have a family and you're just alone again and you just need the resources?

10:25I think there's ways of scaling AUM that's not focused on the upfront fund. So you can capitalize on the more intimate relationship you build with the founders from the get-go, from the initial position you have, by unlocking disproportionate amounts of allocation Series B onwards. And that's a way of potentially doing a select fund, a continuation fund. I don't know what the vehicle that incarnates that. But I think there is ways you can actually scale AUM. but I wouldn't do it on the core fund itself. Yeah, I think it's also, it's not that scale itself is necessarily bad. It's more that we now have enough data around funds that started small, had incredible results in their first couple of funds.

10:59And then over time, that becomes really hard to, you know, that, the performance becomes hard to scale. And I think the, if I think about funds I admire, where we have enough data, so often it's about them right-sizing their fund size to the point where the strategy really sings. And I think for most first funds now, you know, you're still in the process of kind of really assessing the market and what the market right now needs. And so looking at the micro funds right now in the market, it feels clear that some will scale the AUM, the Trabway, some will merge. I think it's too early to know. I certainly have a very strong point of view around where, like I don't want to scale the AUM drastically.

11:31I really want to focus on mastery in this very particular domain because it feels to me that that's where I can uniquely add value over the long term. But again, you always have to when you're launching a new fund. And I don't love the term franchise personally. It feels to me a bit like Burger King. And that is not appealing as a GP or as a founder. And I think the work is always like, how do you win with the next fund? How do you keep performance where you want it to be? And how do you optimize your time endlessly for performance versus everything else? Sorry, one more thing. I don't think we win by 10xing AUM in Europe.

12:05I think we win by extreme performance. Getting smarter faster. You say that the test of a great intelligence is by having two opposing thoughts in your mind at one time. We didn't manage to have that in one panel. We managed to have it two by two next to each other. I hope you will have the intelligence to connect the dots between these two opposing views. Thank you so much. Before you go, I just want to give a massive shout out to the partners who made the EAVC Summit and Awards possible. So please do not tune out. We're partnering with these firms because they're great people with offerings that we know from our friends in the ecosystem are truly world class.

12:46First up, I want to give a big thanks to HSBC Innovation Banking. They helped us in SAP the awards in the very beginning. And truly, they are the leading bank for anyone in European venture. There's a reason why everyone knows them. Google Cloud, they were our venue hosted the summit. What a team, what a big effort they put on to help us. We're hugely grateful. Make sure to reach out to Arabella or Oksana at the Google Cloud team to hear how they can help you as well as your portfolio. Massive credits goes to them. Ace Alternatives. We have so many friends in the Berlin ecosystem partner with these guys.

13:21Just the best fund ops team around. And as with any good restaurant, where the locals are is also where you get the best service. And now they're expanding across Europe. So they're definitely someone to talk to. Hainspoon, they're longtime partners of ours in both our own legal work. They're great supporters of us here at EUBC, and I definitely think that they are one of the go-to legal teams to have in your corner. CW Communications, our dear friends who helped us secure CNBC, Bloomberg, Financial Times, and many more for this summer. It's a joy working with Dan and Kathy and the team. Fundcraft, Digital Native, Full Suite, Lux Headquarter, and a great partner as you grow your firm out of Luxembourg.

14:02definitely a fund admin to consider in your stack. I can only say that the team are incredible to work with. I'm very thankful that I've gotten to know them. I think they're one of the up and coming fund admins that you want to be thinking about. Portfolio IQ by Synaptic. You may know them for the Discover tool, which is branded on a Synaptic, but Portfolio IQ is absolutely a product you should know because there's no one that understands intelligence better than this team. And finally, Goodwin. They are a truly world-class legal partner you can trust. They're hands-on, business-oriented, and expert in everything and anything transatlantic.

14:39So those were our partners for the summit and awards. I know this might've been a bit long and boring, but really, if you have these guys on your side, I don't think your firm could be in any better hands. And also, they're helping us do what we're doing every day for you.