EUVC #265: Simon Lohman on building the Cavalry Platform

34:04And also the new companies were quite actively using the app because they knew how to install it and they got the information and the context. On the portfolio level, it was powerful with founders. Yeah, right. But it was also super tough to onboard the old portfolio companies, and the more later stage companies because they don't care so much about your maybe three seed seed investors. They were used to sending either a WhatsApp or an email. No, so we actually used this app only between category team members and portfolio founders. And it kind of worked, but you had to have a moderator and you have to tag people.

34:50You have to post a lot. You have to generate a lot of content, you know, and then it's working. But if you're not doing something proactively, it's super tough to get engagement. And in the end, we also made the decision to get back to Slack because it's integrated in everyone's workflow already. And it's actually working quite better, to be honest. But it was nice to have a Cavalry branded app. And it was cheap because it was one of our portfolio companies. And we supported them back then. And it was an interesting use case. I was going to ask you about how do you run this, right? Because there's apps, there's emails, there's Excel, there's CRMs, there's a bunch of stuff, right?

35:29And I was just going to ask if you could give us a bird's eye view of how you run the platform. What are the tools that you're using, not using, and that decision? Sure. So one of the first actions that I did when I started the platform activities in 2018 was actually change our CRM system. Back then, we used Pipedrive, which was good for the deal flow management, but it wasn't so good for the platform activities. Because for the platform activities, you actually need a lot of transparency. So that was the moment we decided to actually use Affinity as our CRM. Could you give an example, Simon, of where you felt it fell short, just so we understand?

36:09Yeah. So, you know, with the affinity, you can see the emails, for example, of each team member if you opt in for it, right? And for me as a platform manager, I have to understand like who of the team is actually working with what context right now and actually also on what kind of topics and what was the last communication, when was it and so on. Because in the end, the platform person is, as I said before, the spider and the web and And we are like in the people business, you know, and we have to have good notes. We have to be prepared when we talk to people. And that was the reason I switched to Affinity because you can see all the email threads.

36:52You can see the attachments. You can actually set up reminders, you know, also for your colleagues. You can write down notes. And this is helping me a lot because I understand what is really going on, you know. And that's the reason why I can go to meetings prepared and can say, hey, Stefan, our managing partner, just spoke to you last week about this and that topic, you know, and this is super helpful. And I didn't have the chance to have the same level of transparency in Pipedrive, actually, for example. And that was the reason we switched to Affinity and we still use it. Of course, we now also implemented some more individual dashboards and we don't use the, I would say, basic version of it because we also track all our introductions in Affinity.

37:46when we started back then i used air table and for for intro tracking so how we do it is we track each introduction that we are actually making for a portfolio company and categorize it so for example if a portfolio company comes with a request to sales introductions with a list of customers for example and i do an introduction and i track it there and it's categorized as a sales introduction we also have categories like hr intro sparring in general finance follow-on finance and so on and then we track it and we also always try to to close the loop and also ask for the outcome of each introduction so in the end we also track was this introduction actually successful or not and we also even try to quantify it because especially in sales introductions customer introductions, you can get a number out of this introduction.

38:47When you do a sales introduction, is this introduction actually converted into a paying customer? If so, how much? And we also try to track this. We did this in Airtail because you can build super fancy dashboards out of it. But now we also do it in Affinity because it's now also possible. Why do you prioritize tracking it? Why is that so important to you? It's super important for us to understand how we actually spend our resources first, because we can see the numbers of introduction for each portfolio company. So you really understand your focus and which portfolio companies you support the most.

39:31another point is actually it gives you some arguments when it comes to you know follow-on rounds and so on for rather negotiation you can actually show companies and follow-on investors what you did as a lead investor as a seed investor you know i mean it's not that i put my numbers to a meeting and then show come on i did 200 successful introductions for this company please give me an over parada but it gives us the data to understand how we support it you know and then we can go strong in the negotiation we know what we did i think it's also super useful for us internally to understand actually the value add that we provide as a platform team how successful we are it's super important and especially in the in the first days of the platform it was super relevant to also provide transparency inside our VC firm.

40:30So with all the colleagues that they actually understand what we as a platform team are doing. So back then, I actually sent out a bi-weekly newsletter to all Cavalry team members explaining how many introductions we did, what were the highlights, what are the new partnerships, what kind of founders did we introduce to each other, what was the outcome and so on. And having a platform and check all the data was super helpful for me to create this kind of bi-weekly newsletters. And it's just good to have the data to understand your work and also to improve. I think what you said there is almost like the perfect segue into when I invited you to come and talk about this, I sent you an article by the information that says why VC platform teams are on the chopping block.

41:22And that's, of course, about the corner market and the fact that, well, as fund sizes shrink a bit and we have to tighten the build, it's oftentimes the platform team that gets the X. And you just said, well, I was always proactive about making sure that everyone understands the value of the platform team. obviously not because of job security. But I do think that it's worth asking you, why do you think that this is? Or do you think that, how do you think about it at Cavalry? Is the platform team absolutely integral? Or do you see that, well, it is for us actually in the end an extra value add activity, but it's also one that we know in a time like this, We're keeping an eye on whether we really do get what we want out of it.

42:17And also what you generally hear, because I'm sure you know a bunch of other heads of platform. Yeah. So that's a really interesting question. Yeah. I just asked you to comment on job security inside Cavalry.

42:31That's always interesting on a podcast. So first of all, I think my situation is special because I came from the investment team and was the first hire inside the team that was not working in the investment team anymore and actually built up the operational team at Cavalry. Now we have nine people on the operational team, which is quite a lot for our AUMs. No, but it's super interesting because you can imagine we were quite early in the European ecosystem with this platform function, actually. So a lot of partners and other funds came to me and asked about my experience, especially in the hype market, everyone wanted to build up a platform.

43:14They had the resources, they had the money. So they reached out. And I have to say that every VC platform is unique because it really depends on your network. We had Cavalry. We now, over all our vehicles, we have almost 300 unique LPs. So we have a lot of resources that we can leverage. We have a lot of people with very interesting backgrounds and expertise. but there are other funds that maybe have let's say 10 10 lps or so and most of them are pension funds or you know institutional investors like insurance or so and they cannot help you so much on the operational side of things and the business development side of things because they don't understand the early stage market you know they won't help you with their customer introduction sparring in general they they are not entrepreneurs you know and then i think the platform doesn't make too much sense but because every platform is unique we in general in europe we are super collaborative and we help a lot i already mentioned this global vc platform community you can literally ask any question and they help you so that is super nice and and and you help there a lot but it's i made the point because it's so important that you have a you know certain standing inside your own firm as a platform in the investment team and the buy-in from the managing partners because if you don't the pot the portfolio companies might tend to always come to the investment team and ask for support and not to you as a platform manager so you have to have a strong relationship to your investment team.

45:01They have to support you. They actually have to sell you early in the process, even before they are a portfolio company, before we sign a term sheet, you know, and have to introduce us. And then we have to deliver pretty early, actually. So what I always like to do is after the first introductory call, I do the first, you know, into this company because it gives you credits and also trust. And then people tend to come back to you over the journey. And this is super important. And if you're not so well positioned and if your value add is not clear, the best companies won't work with you. They will go to the investment team and that's it.

45:51And you should avoid this. And that's why it's so important to have a buy-in and also show your work internally because when you can show that you're doing great a great job and actually really add value the investment team is also promoting you and this is super super important right and yeah you're related to the article i just want to say one one word about it because times are different now and we already mentioned it in the beginning you know capital efficiency is now more important than growth. You have to be careful with your money. It's not easy to raise, especially for later stage companies in this market.

46:32But I think if the platform is a good platform and really adds value and is able to give you paying customers, for example, as a portfolio company, the VC platform is actually crucial because it gives you more leverage on the revenue side. And if you actually increase your revenue with the contacts from your VC via a VC platform, you have a longer run rate and you don't have to raise money in this market. So I actually think the opposite can be true if the VC platform is really helping and if you have a good network to actually leverage it. Because why I can do it here at Cavalry is because I have so many good contacts and so many LPs that really want to support and work with us.

47:22And I think other funds maybe don't have it. And yeah, I mean, with us, it was quite organically that we have so many entrepreneurs, SLPs on the front, right? Simon, you said something along the lines of what you don't want is the entrepreneurs always reaching out to the investment team for support and value add. However, you know, for me, it's quite clear using a tool like Affinity, which is what you use that. it's quite easy and quick to have transparency so that everyone is aware of the interactions of the information blah blah but at the end of the day it is a member of the investment team that is sitting on the board and and and during the board meetings right and this is more of a question not so much of data or infrastructure or platform but much more about relationship right because the relationships are very different based on the interactions that you have right and so how do you manage that in cavalry like because it feels like sometimes it might be a bit of a fine mind especially in softer issues so absolutely one thing is i need an intro to potential clients whatever intro comes helps another thing is well i'm actually having a hard time as a founder it's it's super interesting because every team member of the investment team also works differently with their portfolio companies you know it's also a lot of personal style but we try to to have like clear processes here at cavalry and of course i always have to sync with each investment team member for each portfolio company how we want to support what is like the focus for the company at the moment and so on what i also like to do is i have access to all the reports of the portfolio companies and there's actually always a section saying requests for investors or like you know where you can support us and stuff like this.

49:09And I'd really like to read this and then proactively reach out to the portfolio company, always, of course, sync with the investment team member and try to help on these topics. So this is something that I do. But you actually touched a very interesting point. And this is, as a platform team, you have a different working stream with the portfolio company in comparison to the investment team, because the investment team is also sitting on the board. They actually set up OKRs. Sometimes they can be the bad cop and have to ask the questions that are not always fun. And I, as a platform team, working on a different level with the portfolio founders, and sometimes they are much more open to me.

49:58And when it comes about emotional and personal questions, they are much more open and I can support also more on this kind of questions where they might be, I wouldn't say afraid, but not too open to the investment team members. And this is actually a level of transparency that is super helpful for us also to understand the mood and the challenges of the portfolio companies and gives us extra information that can be very useful also in terms of decision-making. Shall we invest in the company in the next round? And so that's super helpful. And now I said in the beginning, we hadn't the function of HR communication and so on.

50:46But as of today, we have a real team in place. So we have some people with expertise in HR. So we have Adriana, for example, on board, who is supporting our portfolio companies in terms of HR, hiring processes, ESOP programs, and so on. And she's also sitting down with the HR managers, but also with the founders of our portfolio companies. And she also has another level of transparency and conversation. So in the end, we come from different angles and we have a lot of information about the company, which is super helpful because in a typical VC relationship to founders, you only have the board perspective and the investor-founder relationship.

51:29And I think we have a little bit more through our separated working streams. I love that answer. And I could go on for hours with follow-up questions, but now it's time for our shout-out segment.

51:48Simon, I'd like to ask you to give a shout out to a co-investor, an angel or an LP for being awesome. And of course, do share that story if you can with us. Yeah, so this one is tough. I mentioned that we have 300 LPs. We have a lot of co-investors. I want to shout out a lot of people in the platform team. It's all about people in business. But one LP who actually is special, I would say, is a private investor called Christian Duve. He was the first partner, one of the European partners at the law firm called Freshfields. He actually was also the supervisor for the PhD of one of our CEOs of a company called Brighter, which started as a legal tech back then.

52:37And he invested in our fund. He's also a professor at the University Heidelberg. He also invited me as a guest speaker there. So he's actually teaching law, but he's also doing, you know, financial classes on the weekends for his students. And I think that already shows that he's always going the extra mile that is really connected. And he really likes to educate people. and he's kind of a role model. He introduced me to a lot of other interesting people, to a lot of other investors, angel investors, to a lot of companies. He supported a lot of our portfolio companies. So yeah, I really want to shout out him.

53:18He promoted me a lot during my career here at Cavalry. So yeah, that's super nice. And then I know that you also have a huge shout out to the Global VC Platform community. And just to everyone who has listened in, We will, of course, link to that community on EU.vc when we publish the article so that you, you know, if you've been thinking up until now, I need to search for that. You know, just go on the show notes, then you'll have it there. And then you say something about Hannah as well from Dawn. I love to just now, you know, we're running like, I guess, at our 60th minute or so, and we're way beyond the usual time.

53:57But Zamin, I want to give you all the ability or the time here to give your shout outs, because I think it's such an important part of our industry. Yeah, absolutely. So Hannah is also a role model for me. She's working at Dawn Capital, which is a European venture fund based in London. They just raised a big, big fund in this market. So that's quite remarkable. Hannah was also heading the investor relations team at Dawn but now with the new fund generation got promoted to partner as well and she's also a co-investor so with Cavalry we have some co-investments with Dawn Capital and she's supporting us so much with introductions to potential IPs with people that she really likes to work with and she was such so helpful with how to fundraise, actually, how to communicate to LPs, how to engage with LPs.

55:00So she supported me on the one side with valuable introductions to very good and exciting people. But on the other hand, also on strategic things and also actually operational things and investor relations and how to work with your LPs. So yeah, I really want to shout out her as well. and she's doing a fantastic job there.

55:25So now let's head into our three key pieces of advice section. And Simon, I would just ask you to give us your top three pieces of advice and then we'll go through them. Yeah, so the three pieces, I think it's a little bit structural. I hope it's not too boring, but it's super important. You're German, we expect nothing less. so it's super important that you that you work strategically from the beginning i would say this is the first advice the second advice is to also build clear and scalable processes so scalability is also a huge and an important topic when it comes to platform activities and the third point is that you should set up a culture with first work principles actually and this is more like how you position yourself towards portfolio companies and how you want to work with them but this is super important as well I would love to just ask you to go further into this importance of defining the strategy for the platform because you touched on it in the beginning knowing these four strategic goals but since you are as structured as you are I'd love for you to just walk us through how would you do that?

56:48What are the core things to remember when you're defining that platform strategy? Yeah, I think define your platform and your platform strategy is a topic that we touched on before. So things that I said, this platform strategy matrix is super helpful because there you can actually define your platform. You can share it with your team members. You can even let team members actually do the same exercise and let you rank the 10 components. And then maybe you see that you have quite a different approach and view of how the platform should actually work and what are the goals. If you do it with all your team, you will see that for some people in your team, I would say deal sourcing is maybe more important than supporting your portfolio companies and so on.

57:44So this is super important to have an aligned strategy from the beginning. And maybe then you have to do a discussion with the wider team about it if it's not all on the same page and the same direction. so I think this is super important and then as I mentioned before start to work data driven from the beginning track your activities because to do it in the aftermath it's like super hard you should do it from the beginning you should communicate about it I mean I did a bi-weekly newsletter via email back then you can also communicate on Slack or you do like a call once in a month where you tell a little bit about your activities and so on.

58:29But I think that is super important to have a strategy to define goals and then focus on reaching these goals and not do everything. Because in platform, you know, portfolio companies can come to you with every request. Investment team members can come to you with every request and you really have to focus your time. And this is actually the most hardest part of the job in the beginning. A lot of people that started the platform role in VC come to me and say, what the fuck, I'm overwhelmed. I have so much to do, so much on my plate. How do I focus on the most important topics? And then I say, okay, did you actually define your goals of the platform and so on?

59:18Did you actually discuss it in the team? And if not, I always advise to do that first, because then you can always say if someone is coming to you and say, hey, can you please support portfolio company XYZ in that topic? You say, yes, I could, but it's not part of our goal, actually, that we define together. And this is super helpful. Right. So in terms of capacity management. And then we can also actually touch on the second topic, you know, scalability. because scalability helps you to reduce your manual work and gives you more capacity and more free work time. And what you can do, for example, is what we did also at Cavalry is to set up a Notion page, for example, which is kind of a knowledge platform where you document a lot of benchmarks and experience that you have and you just share it with other portfolio companies so that you have a lot of information and experiences already just on a Notion page that you can share.

1:00:27You can also document a lot how you can support and what kind of topics you can support, who is the best contact person for which topic. You can also show your AP network already. You can give transparency or provide transparency on other portfolio companies. You can provide all the partnerships you have on this platform and so on. So use software to automate processes and to have scalable processes. Also, when you do an onboarding with a new portfolio company, what we want to do now, or we think about it at least, is to record a Loom video, which is the most important topics, and then just send the Loom video as an onboarding.

1:01:12Because actually, it's always the same. Of course, every portfolio company has maybe more detailed and unique questions. But in the beginning, there are some repetitive information that you could share with a Loom video and so on. So really try to be creative here, use a lot of software. We also actually created the platform pitch presentation towards founders, where we actually showcase how we support, what our network is, successful case studies, how we supported other portfolio companies in the past, stuff like this. I think that's super important because you don't want to have like texts frequently, cords with your portfolio companies, let's say every two weeks, and then you have blocked 30 minutes of the time of a CEO of a very promising company, and then you are there on the Zoom call and actually talk about nothing.

1:02:13You don't want to block this time. You always have to respect the time of these people. So I always try to automate stuff and then really just reach out when there is real value and being a little bit more ad hoc, right? I think that's also super important. And expectation management, right? From the beginning, you always have to say, How do you want to work with me? What kind of support do you need? Where should I not support? You know, it's super, super important because there are also different levels of experiences with founders. You know, you have some serial entrepreneurs. They know where they need you.

1:02:53Then you have some first-time founders straight out of university. They are also overwhelmed with all the information and the support you are offering. And they maybe also struggle to focus on how to work with us. So be a coach and help them and have clear processes. It's also super important here. I love how Simon, I feel like you could go on if we let you. We are running out of time. Yes. Truly. Yeah, sorry for that. No problem. No problem. I think everyone listening, especially those thinking about platform or actually building a platform will benefit a lot from that. And I'm sure Simon would be available to chat.

1:03:30Anyone that's seriously looking at this. And I'm sure he's very easily reachable. for us he was at least but now it's time for the quickfire round where we will ask you three quick answer questions and now the quickfire

1:03:54simon what advice would you give your 10 year younger self i would say patience and long-term thinking you know i'm still impatient and i always was and i wanted to be as successful as soon as possible you know yeah because you only you only you only truly broke into vc at 40 right

1:04:16right no so um what you really learn in in early stage venture investing you know we are in the I would say, most private corner of the ecosystem. We invest in pre-seed and seed. So we have the longest feedback cycles you can imagine. Sometimes it takes you like 10 or even more years to really understand whether your investment and your work was successful or not. So I learned long-term thinking and patience, right? It's the same with platform. You support some companies. You actually think they're doing a great job. It's one of the best assets ever. And then they are not able to raise it. But you still spend a lot of work.

1:05:01And yeah, that's still important learning, but maybe not the best financial outcome. But this is something that I really, really learned. And I have to say to my younger me that you always have to think long term. You know, it's boring because everyone says it and everyone says it's not a sprint, it's a marathon and so on. But it's really true. You know, it's really true. And in platform, every contact is actually can be an important contact in the future. So you have always think about building up and managing relationships in a long term perspective. You know, and this is also a principle that we at Cavalry like.

1:05:44we actually implemented the favor box which which means you always want to be helpful for a person before you ask for advice and you always in terms of you know quantity you always want to be more helpful than than the other so we also already tried to track this one so how many introductions did we do for a specific person how how many introductions did he for us to manage this and um to always have a balance there and and in the best case do more for for the specific context so that's also super important and i learned uh doing my time in venture and what are your top tips for emerging vcs across europe in terms of of fundraising because this is my my my responsibility and job here at cavalry at the moment it's super important that you communicate clear and open i think it's the point that i mentioned when we talked about valuations so even if it's maybe not the best news communicate about it and tell lps why you made the decision and what you're thinking about this is because it helps the lp to understand your thinking your way you you approach things and this builds up trust and this is the most important I would say attitude or no no like the most important value in the relationship with a piece so be clear in communication always maybe call your your most relevant a piece and also ask them for advice on their opinion and try to involve them in as many activities as possible I always like to involve a piece into our DD processes as a reference because then they also understand what kind of companies we look into, how we think about it and so on.

1:07:45And this is maybe the most important advice I would give to people that fundraise actually and expectation management from the beginning. Don't promise things that you can actually not keep. Finally, what's the most counterintuitive thing you have learned since you've been in venture? Yeah, that's maybe also a little bit boring because I think more people said that before, but the power law, like the classical Pareto principle that you have in venture is quite counterintuitive for some people. So it just means that maybe you invest in 10 companies and if you have one hit or two hits, it can actually drive the entire fund performance and you can really successful with one hit and nine companies going bankrupt, you know?

1:08:34And this is hard to understand for most people that are not working in VC because they always try to have a balanced portfolio, you know, companies shouldn't die, you know, they support all companies. But, you know, the one hit is so much more important than the other companies in venture, at least for the return.

1:09:01Thank you, Simon. And everyone, if you enjoyed this episode of the EUVZ podcast, do drop us a review, follow the pod and subscribe at EU.vc. And now some words from our beloved sponsor. AppyDay is the leading all-in-one ESG platform for GPs. Central to AppyDay's philosophy is that ESG for your portfolio companies must be relevant and value-adding, making you a partner to your companies, not adding more reporting burdens. Appiday offers AI-led ESG reporting, full SFDR compliance, including disclosure templates, EU taxonomy, carbon accounting, due diligence assessments, and most importantly, tangible tools to help your companies like ESG resources and policy templates.

1:09:47See why over 1 ,000 portfolio companies leading Article 9 funds and$100 billion of AUM trust Appaday to manage ESG and sustainability across their ecosystems. Take a free product tour at appaday.com or book a No Obligations ESG VC strategy session with one of their experts.

1:10:12Tear down this wall. It's more than just an ally. This is a union of values.

1:10:27The nature of a problem requires a European response. Europe is a story of new beginnings. New beginnings. Let's start acting.