EUVC #192 Daniel Schex, FINVIA

0:00Today, we're happy to welcome Daniel, private equity and venture capital investment professional at Finvia, a leading multifamily office in Germany serving the special needs of high net worth. individuals. Finvier has 4.5 billion euros in assets under management on their platform, investing in funds and building a global portfolio across different strategies and verticals. If you're listening in and love our show, drop us a review, follow the pod and subscribe at eu.bc. And now some words from our beloved sponsor. Discover the tech and investment opportunities fueling growth across UAE, MENA and APMEA regions at Expand, Northstar and Jitex Global, now the world's largest tech and startup event.

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1:24This is a union of values. United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. New beginnings. Let's start acting, acting, acting, acting, acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Hello, everybody, and welcome to another episode of the European VC podcast. I am David, the LP Syndicate Lead, and as usual, joined by my dear co-founder, Andreas, the LP Hype Man. We are back for another episode of the European VC, straight from Superventor in Mark Penkela, our dear friend from Altitude's apartment.

2:21and we're here with Daniel Schechs from Finvia. Welcome. So let me just understand exactly. What have you been doing at Superventure so far? I arrived yesterday noon and I went to Superventure right away, had some meetings with some VCs, joined LP discussion, and yeah, that was it. Then a short but good evening event and first good day. And which evening event did you know? It was Cavalry, Pico's, Top Cap Partners, and IQ. That must have been fun. Yeah, it was fun. One bit too much. Yes. No, that's a good gag. That's a good gag. All right. Awesome. But let's get into it. Daniel, tell us your journey into venture.

3:02How did you end up at Finvia? And exactly, who are you? Yeah. So my journey into venture was pretty much like step by step. I've always been interested in three things, which is investing, which is helping others to do so, and startups. So already back then as a student, I tried all kinds of internships from wealth management and family offices, also to the investing side, like a private equity fund or a hedge fund. And so I pretty much figured out my preferences by learning by doing abroad. And I found my place in the multifamily office space because there I can work as an investment professional on the one hand, covering my investing interest, but on the other side, also advising clients.

3:51So covering both. And I'm in a team where we do fund investments in the alternative investment space, meaning private equity and venture capital, or to be more specific, buyout, growth, and VC. So VC is one of the disciplines I do there, but it's definitely most exciting world. And this covers then the third interest that I have, which is startup. And I have to get us into then, you know, the pivotal moment in your career, because I know that because we've spoken about it before. But I think that that's a very interesting one to dive into now. Yeah, I mean, I don't have like one certain super pivotal moment.

4:25But one thing that changed me a little bit as how I think as an investor was back then when I was a student, I thought, OK, I'm starting business now. I'm smarter than everyone else. I'm going to set up my stock portfolio. And so I was betting on a few stocks where I was most convinced about. Very concentrated portfolio. And at first that did go very well. But then all of a sudden, as it sometimes happens, one of these companies faced bankruptcy. I lost a bunch of money. It also ruined the return of the entire portfolio. I think I'm not the only one that experienced this. But still, so it was where I thought, OK, damn it, what did I do wrong?

5:02And obviously, I didn't think enough about portfolio construction, about basic things like diversification across different dimensions and so on. And this is where I started to think more about that. And then over time, I also realized that I'm more of an allocator rather than a stock picker. So I rather think about portfolio construction, diversification, financial planning now than about what stocks to pick. So I rather as an investor outsource the stock picking or picking the right startups to people who do this day in and day out. And I'm more taking care of the overall portfolio construction, financial planning and so on.

5:43Yeah. And that is, of course, because we're going to dive into this now, the perspective of an MFO and so on. But I just want to dive a bit more into that part where you're saying that is more my profile. Would you agree if I say that that is more the profile of the people that you will find in most MFOs and also single FOs? It's not stock pickers that are sitting there. It is allocators. It's mostly allocators. You might find some stock pickers that depends on which single family office or which multifamily office. Some of them also have large teams like dedicated investment teams like real estate, private equity, on the liquid side with stocks and so on.

6:21So this depends. But I would say mostly allocators. That's true. I mean, like, although I'm quite an analytical guy, I would say, but my biggest strength is still with people. And I think that's why I probably ended up also on the IP side, where you need a little bit of everything. And you need to speak the language of the client in the end also, right? Yeah.

6:45Take a start.

6:54I would love to hear your perspective on a statement that we hear quite often, which is most families do pre-seed seed fund investments because they want to get access to co-invest. Some do, certainly, some don't. I think single family offices, yeah, either because they want a connection or they see connection to their family business so they feel very good in that space as I said earlier or they want to do a lot of co-investments to I don't know blend down their average management fee and then in the multifamily office space yeah some do and some some don't because it depends again individually on the client as I said earlier.

7:36And now I teach to our dear audience that we're gonna to dive into the topic of what's an MFO like? What's the perspectives? How do you think about venture capital, both as an asset class, but also venture capital just in Europe? How do you juxtapose Europe to the US and all those things? So my very first question to you is, tell me, and you can either abstract this to MFOs in general or go more into Finvia, that's up to you. But tell me, how do you think as an MFO? Yeah. So it very much depends because different multifamily offices may have different approaches or single family offices. And let me talk in the perspective of a typical multifamily office rather than speaking for the entire industry and also rather than speaking for one individual company now.

8:25So typically, a multifamily office has a strategic asset allocation individually for each client, right? Because you manage the money of several people. and then this asset allocation covers all asset classes and then there is the private equity and venture capital bucket and then the investment team that covers that plays in that space if you could if you could say that and there we also have a top-down approach so we are structuring the portfolio again like how much should be in buyout how much should be in growth how much should be in vc and then within vc it's again like how much should be in the very early stage how much in the late stage we see, and then what sectors, regions, managers, and then to diversify over vintages and so on, all the classic stuff that you do as an allocator.

9:10And this is how we think. But of course, we want then access to great managers in the end, and we want to pick the right manager. Could I ask you, so you go through this process, but do you go through that, you know, you and the investment team at the MFO, and then you tell the principal, this is how we're going going to do it? Or is it more of an iterative process together with a principal? How much are you in the lead there and how much are they? Yeah. Again, this depends very much because if you have several clients, then some of them might be like large single family offices. So they are like SMA, separately managed accounts, where you work very closely with them and you set up a very individual portfolio with them.

9:50So you're then in the end doing the due diligence process, maybe sourcing the managers and you also do the cash flow planning and the ramp up planning for the portfolio and so on and there it's often then a back and forth maybe that you are in the market you you find great managers you show them to your client and then you discuss this and then it's a back and forth until you find in the end a decision but there are also clients that are like they are not that sophisticated so they have a bunch of money but they want to outsource everything So they rather give everything to you as a multifamily office and they don't want to discuss maybe a certain fund or something because they just don't have the knowledge about it, right?

10:31So there you might work a little bit differently. Or also if you set up a fund of funds, then there you are discretionary. So you do your fundraising and then you allocate to the funds and give the comments out. Just a split question. For you as Daniel and from a multifamily office perspective, what is the average allocation in venture capital, whether it's emerging managers, established, early or growth, compared to other asset classes? What is it in average for multifamily offices and what do you think is the right allocation? 5%, 10%, 30%, 70%. 70. Yeah, 70 is certainly a little bit much. Probably you have 70.

11:09No, but I would say that it depends so much on the individual client because depending on what is the risk return profile that they have, how long do they want to invest the money, how much can they take in terms of illiquidity in their portfolio and so on. But then if you have a bucket of, I don't know, 30 % PE, then a part of that is again VC. And then I don't know if you do the entire math and maybe, I don't know, a few percent of the entire portfolio of large clients than in VC. And what would you think is the right number? For me personally or for others? For you personally? For me personally, maybe like 20 % would be great or 15%.

11:45Did this perception change over time looking at the upmarket and looking at the current market? For me not, because I am working in the investment team. So I think now actually it's also a great time to do commitments. But that's my personal view. but I think when like a strategic asset allocation you should always have like your your targets that you work towards and then once you reach that target NAV you should you should hold it and then of course you can like turn it up a few percent or turn it down a few percent maybe over several years but in the long run I believe that you should you should stick to your strategic asset allocation so I wouldn't change that a lot maybe now I would turn it a little bit up but if you have a client that has capital constraints now or something it's it's the opposite so they sit on a side.

12:29Daniel, I'd love to hear your thoughts on something because you spoke a bit about relationships. I'm really curious because you have very different types of clients working as an MFO, generally speaking, and you specifically as well, I guess. And, you know, focusing on LP investing specifically, right? There's a financial perspective, but there's also the non-financial perspective, right? What do you want to get out of these relationships? And I guess, and you tell us, you enlighten me here, but I guess you have very different types of clients looking for very different types of things where you have on the one extreme the client that doesn't really care about that they don't really want to see anything they don't really want to have a relationship with these individual gps but i guess you might also have the other end where they do want to be involved and and could you just kind of share a bit how those relationships work and how you also help your clients navigate the relationships that they might want to build with the underlying gps yeah so usually if someone is a sophisticated investor then they either want to have a direct conversation with the manager or they want to have a lot of conversations with the multifamily office investment professionals, right?

13:35So that all the work you do, the fund analysis, the manager analysis, the markets and everything. And so there you work very differently. And those clients, I think, are much more time consuming also, right? But they usually then can write larger checks. And then for the ones that give everything out of hand, those, there you, as a multifamily office, you want to use also your platform. So you have some synergy effects. So what does that mean? If you source a manager, then you do not only want to give it to one client. So if you have a large SMA, again, and he asked you to source, I don't know, an emerging manager or emerging managers, that's fine.

14:15But then otherwise, you try always to source a manager and then provide it to several families or individuals, because that just makes sense as a multifamily office to use your platform then and then size. And it also makes you a more meaningful OP for every single... Yeah, definitely. That's the main point. I'm curious because one of the things that we're optimizing for when we work with our partners is we are saying, well, VC for most of the people that end up knowing about us, it's because they care about VC. And typically, it's not because they care about managers, but it's because they care about startups and innovation and so on.

14:55So the majority of the people that we have investing with us, also the bigger clients, of course, or bigger partners, they are doing it because they want to actually work with Mark. So when we're doing an investment into Mark's fund, then they're doing it, well, both with us because we've got the access and we may have, in some cases, better terms than others because we either commit early or whatever, right? All that stuff. but they're also expecting us to facilitate that connection because in the end they do it because they believe in the space and they want to know more about this space and they probably also want to get to know Medicia, Mark and Ingo.

15:34Do you have clients that are small that have those ambitions as well and do you cater to that? How do you think about that? Sure, there are clients who have, I don't know, several million in net worth. So they are usually not big enough in the old family office world to have in a family office. We try to digitize this, right? So also to give these people access to the family office services. And there are people who then pick individual funds. So they do not only do like a fund-to-fund, they pick individual funds where they know that they have higher risk and they read a lot about it, although they may be in the end just write a 2 ,000, 100, 200 ,000 euro check or something just because it's of their interest and they think that they can choose then what's best for them.

16:20So we also have that. And then, of course, you are in discussions with these clients. How many of the people you work with have intrinsic motivation to actually gain knowledge? I mean, yes, of course, you want to be successful financially. You want to have certain returns. but how many of them are just like going into that so like i want to understand how vc works this is my entry point throughout you guys i'm going to get access to emerging established managers learn from that and maybe then spin off my own strategy and take my own family office or the private money to kind of invest into these and does it differ between like the older generation and the new generation which is coming right now it differs definitely and it it then in this case It depends what is your target client group.

17:05So some multifamily office may have more like young founders who sold their company at some point, sit on a bunch of cash, and then they need help. But they are very interested then in like getting access to other strong VC managers and also direct investments, co-investments. But on the other hand, if you have industrial families or something, maybe they are interested in like the VC economy, but maybe they don't want to have then the direct investments. Maybe they do if it has some connection to their family business or something, right, where they understand the space very well. Or if you have soccer players or something, again, there are some who are more sophisticated and some less.

17:41Some want to know more. Some just want to give it out of hand. So the share always depends on what multifamily office are you talking about. We have clients across all of these sectors that are just totally or all these segments, right? So there are industrial families. There are the young founders. There are the soccer players. There are people who inherited money or something. And it's actually quite individual than what they want and also what you can provide them. So, of course, a large client, you can provide pretty much everything. If it's a small client, then there's also like some red line where, okay, how far can you go then to do all the work to give them access to something very individual that you can maybe not leverage for your platform for the others, right?

18:28Which type is your favorite? The one which is asking you and loves to understand or the one just says, Daniel, look, this is 40 million. Just deploy it as you like. Yeah. I mean, as I work in the investment team, I love to have sophisticated clients and to discuss with them. So because you can also go much more into detail. And if you have clients that do not care so much about it, then you're also doing a lot of groundwork. You are like explaining very basic things about asset class. And sometimes you don't even have to go into detail because it's just too much for some. Right. So for me personally, I love to have deep discussions with sophisticated LPs or clients.

19:06But on the other hand, of course, if you want to scale up your business, then it's also good to have clients where you can make faster decisions and it's not so much back and forth. Do you ever have families that send you deal flow in the sense that they say, ah, Mark reached out to me. I kind of have you guys to deal with that stuff, but I met with him and I think he's pretty interesting. Yeah, we do. We do have clients that send us even pitch decks that sometimes are not allowed probably, but I don't want to say anything wrong here. But yeah, they send us names or managers or also like direct investment opportunities where we should have a look at.

19:50And then it's again about like what can you do and what can't you do? I mean, we are talking to so many managers. So I think that it's better that we source for them. But of course, also it helps us if they know someone where we didn't look into so far and maybe it's interesting. And then we set up a call. So this also happens from time to time. That's interesting. And maybe it's a good segue into the next topic, which I really wanted to dive into, which is how would you think about how emerging managers and established managers in Europe should approach an MFO? And then where are you seeing them generally maybe going about it in the wrong way or thinking wrong about your process and how things actually are being done and so on?

20:33Yeah, I think two things. One is like how you approach a family office or multifamily office. And then the other one is like, how do you interact with them when they committed to you or if they didn't commit to your fund? Like, how do you go on then? So the first point, how to approach like, yeah, shoot an email or a LinkedIn message or at an event or whatsoever. and then if they get back to you great if not then send a follow-up email or or link the message but don't send five within two weeks because that's then just you burn it and then usually like offer an intro call which is great so that's very basic right but which is great but the thing is then also like we get emails every week and not only one or two but a lot so there's also not the time to do so many intro calls.

21:26So now the question is like, how do we distinguish between who do we want to talk to and who not, or we just don't have the capacity to do so? So explanation of the strategy, of course, is great, but then usually a lot of VCs do that, like, or emerging VCs with a short text on the email or LinkedIn. And I think what maybe would be a great idea, I would love that at least, but that's my personal perspective, to also offer to share some information, like a one-pager where you have an introduction on yourself, your background, your strategy, if you can share anything on the track record or so, because that helps them to very quickly gain an overview and finding out if this now is something where you want to spend your time for the first call instead of just jumping into a one-hour intro call with everyone, right?

22:16That's what I would say there. And then if a family office gave you a commitment, then And of course, keep them posted. So quarterly reports are great, but it's not enough. So at least twice a year, an update call, or maybe offer it every quarter. Maybe they don't even take it then, but twice a year, I think, is good, two or three times a year. And transparency and honesty is super, super important there. And then show your investment thesis on a certain company. And then in the future, let's discuss how that played out, the good and the bad examples. and even if a company, a multifamily office does not give you a commitment right away, then also still stay in touch with them.

22:55I think that's super important because yesterday I actually talked to a partner of a very well-known seed fund in Europe and he said raising the largest fund ever in the last 12 months is not the fundraising efforts we did in the last 12 months, it's the fundraising effort we did in the last 12 years, right? And that's the point. So stay in contact because fundraising is not something that you do once and then you take a big break. And then in three years you start again. That's a huge mistake. I mean, it's sales 101, but it's still a lot of emerging VCs, I think, forget that they constantly have to update everyone.

23:33It has to be efficient, of course, but I guess that's something you have to have the right set up for. If there's one single piece of information I could give to you as an emergent manager and have one email and one shot, what would be the one you would love to read which gets you hooked? So say, yes, I want to pick up my phone and jump on a call. Is it something about myself? Is it about the fund? Is it about the why? What's the thing driving you which gets your interest? One information is very difficult. if I have to pick one information then it's something about you I would say because in the end it's always the people who matter and a brand is great in the end but people are the ones who are doing the deals but usually I would say besides very short background information on you it's also like what is the strategy because again if you think from the perspective as an allocator you have to be like okay what do I currently have a need for?

24:27Do you have a need for early stage VC? Do you have a need for late stage do you have need for any other asset class so you have to you have to also make clear like what is your what is your strategy and if you have a track record already then put some that sounds like a lot of pieces that's a lot of pieces i was like all right i'm gonna send you my resume my track record my deck as well and some background on the thesis a short sentence on on on personal background and then strategy how valuable is or how important for you is track record is it the benchmark is it the the bouncer which actually gives you access to to finvr and and yourself or is it like yeah it's okay if you have one but if you're a newbie just have been an angel and a auto operator before it's it's fair as well so when you manage money for others you are usually a bit more risk averse than if you manage your own money simply because of the fact a lot of those clients, they are like, wow, I'm already invested in PE.

25:26And by the way, I read something very cool yesterday or the day before yesterday on LinkedIn. I don't know who posted it. It must have been you. Oh, it was cool. And he said his fundraising effort, something was like, PE and VC are not the same, but both are private equity. And that's actually the reality when you talk to the client. You talk about PE and then you always mean buyout and growth. And then when you talk about VC, you talk about VC. So, but to get back to the point, when you manage money for others and then those people are already invested in PE and then VC is often something new for them and you first have to educate them a little bit also on the asset class unless it's a very large SMA, as I said.

26:07but then the thing is like if you pick an established manager with a large team, institutional setup, a long and strong track record, then you de-risk it somehow, right? And then if you choose emerging managers where you're like, okay, I can get better returns there. If things go well and everything works out, then in 10 years the client comes back and says like, great job, but you also say, yeah, but is your job right? If things do not go so well, then he comes back, he looks at the portfolio and he points at you and he asks you, why did you choose a first time fund rather than an established manager?

26:48And now like this didn't go so well. So there's the risk that you have as an allocator. And so personally, I might do something different with my money. So I would love to give, I mean, I'm not super wealthy, but if I was, then I would give more money probably to emerging managers. But when you manage money for others, you have to be more careful. And then probably you look at a good track record and choose some established managers. And then the emerging VCs are something that is the satellite investment. What is the perceived threshold in terms of IRR, MOIC, whatever you want to take as a measure for a principal or like somebody who's giving you money to allocate that he would say this was a fantastic investment?

27:32Is it the private market equivalent? Is it the peer vintage numbers? How do they benchmark saying, hey, this was great? Is 7 % great? Is 30 % great IR? What is it? So how we benchmark is we cut everything into vintages, and then we look at the peer groups. So we use like pre-quill or something, right? This is how we benchmark, and this is also how I think that private market funds should be assessed, and you should judge them on that way. But most importantly, that they don't lose money. and then I don't know we have the PE like the buyout like returns the VC like returns and if it's somewhere in that range that's fine and if you have a great vintage then you want better returns if you have a bad vintage then of course if market goes down you simply cannot save yourself from it So a minimum of double digit lower bound IRRs would be like hey this is a great No it has to be double digit in VC I would say So one question I have is so I really like when GP-LP relationships, I like when they start very much on this perspective, the GP trying to understand the LP expectations, right?