GP/LP Roundtable on The State of European VC Fundraising | E297

31:18So I just think that's outside of most human ability to say, hey, we executed in this asset area very, very badly. And if you apply that to venture, venture is hard. You know, it's a hard business to get right. If it was easy, everyone would do it. And so I think when you compound those factors, even for the best, it's quite hard to get right. And then most big institutions don't execute it well. And I always found, final comment, when I built some Greenfield LP programs, started from zero. In year one and two and three, it's pretty easy because you've done a study. You have a lot of enthusiasm about investing and you're meeting new people you could work with, and it's great.

32:05The problem comes in year four, five, six, when all this money's gone out, nothing's come back. You probably have a bunch of J curves. And then everyone's sitting around the table going, geez, we put all this money and we got nothing to show for it. What? Oh, we've done a terrible job. And then you have a board change or CEO change and they stop the program. And you get that, you know, that conclusion that you described, Kati, which is we shouldn't do this. This is, I hate to say, this is where Europe and the US are different because a lot of the US has just been doing it longer. So you have a lot of LPs that have been doing this for decades and they can say, well, look, you know, there are times we did well and times you did badly, but on average it works.

32:50So we don't like doing badly, but we kind of understand that there will be a cyclical nature to it. I mean, one thing when having looked at those two columns of quotes from the GP side and the LP side, most of them are just two sides of of one and the same story.

33:12Massive layoffs on one side equals a lot of talent available on the other side. This is where this partnership between allocator and manager emerges from. That there is two sides of this story. And that's on one side the privilege to be working on that side of the business that you get that inevitably that longer term perspective from those LPs that really understood how venture works. So two things are super important to understand and both might go against human nature. One is that super long-term perspective. Humans always tend to overestimate short-term effects and underestimate long-term effects.

34:01Second is power law. Power law is against human nature. Human nature is a bell curve. Everything is average. Average doesn't work in venture. So you can be in top quartile fund and still miles away from the best. But still you are in the best quarter of the market. What is assumed you do well, but this is like in motorsports. You could be in the fastest car and still miles away from the champion. Like we are now able to monitor every weekend in Formula One. I'd love to ask you all about how you have kind of managed to straddle the understanding of someone who really gets VC, meaning you, and then talking to an LP that has that mindset that I just described just before, right?

35:06Where you guys, venture doesn't work. All these huge companies are blowing up. We have a long list of mistakes that have been amplified in the media. this perspective also looking at the stock market and seeing the tech stock taking a hit especially of course in the beginning of the tech recent, how do you as a manager that knows all the because they're an inventor and they understand the dynamics how do you best kind of straddle that perspective to the other side? I think what worked for us And this is specifically when speaking to, say, LPs who are not from the institutional slash professional sector of the market, not folks like you, Christian, but that other very important part of the market, which is usually associated with family offices.

36:07They come from different backgrounds. They are on the learning curve themselves. I think what is key is to not lecture them in how venture works and this is only our way and no other. It's more like helping them understand venture in their own words and put it in context in their own world. So there is many, many parallels to be drawn between venture and any other given other asset class. real estate, for example. Show me the J-curve of a real estate investment. That's the worst J-curve on the planet. It's far worse than ours. It goes vertically down in the first year. You start off with minus 10%, the rub-up costs.

36:53But everybody crams into real estate and sees this as the longest term and safest asset class. But if put in perspective, that can be eye-opening to many. Or for example, this one, I very vividly remember that conversation with that one family office we had who had exposure already to private equity and to large, you know, global large brand names, but still had not had the chance yet to get in touch with SeedStage Venture and there's a consequence, understand how this works. So I put up a parallel to his timber and forestry investments. It works exactly the same, just 10 times faster. Yeah, and I think it's a great thing to actually think about what is the context or the background of the LP that you're talking to.

37:46I think that's key from any VC. And if they have questions, even if they are questionable or a bit weird, ask for one whose daily work is in venture. I think a star should be very considerate or VC should be very considerate around how they actually answer that has a clue because otherwise people will not learn by it. And it is a difficult asset class. As Joel also just mentioned, you also alluded to here, you need to be there for the long term. The feedback loop is so complex and so long, even longer than mobile folks where like you have visibility after four or five, six years. If you're a real estate investor venture and would like to see some results after four or five years, like the best that you can get is some up rounds.

38:31who are the co-investors, of course, also running in when they raised the last round of evaluation of WAP and all those kind of things, which are a bit more sophisticated. But otherwise, the visibility, the DPI, also the dynamics. We can definitely feel that ourselves as an organization, how we have grown the last, like since 2019, with regards to cross-fund investments. How are they working? In buyout, maybe people will think it can be very complex, at least, when you're doing cross-fund investment in a buyout with regards to getting some carry or some exit realization and stuff like that. But in venture, you can actually be a double down on investment that you think very highly of.

39:09And usually do not really lead the round, the valuation. So many things that venture folks are feeling that are so natural, doesn't come natural from thinking when you're a buyout fund or buyout folks, LP, for instance. So therefore, I think that's a key takeaway when you speak to people which are trying to tip their toes into venture. And I think, and maybe you can also allude to that, Joe, like who is the one who have actually been hit through a trust or interest in venture? Because I think these are the ones who have either invested in the late stage VCs in the peak market, or who have actually started out a few years before with early stage focus managers, and then their portfolio have been reset and actually been hit.

39:52Because I think our time has been perfect just to sum that up or in that and my note there because we started out in 2019 but like our first three years what we have invested in there only like one third to 40 % of that is actually cold right now, right? Because that is an issue in tickets and then a follow-on investment. So for us, it's not because we tried to time the market. We can talk about that because we had another view on that for example early stage and not late stage. So much in the flow of capital. We were a bit reluctant to do that but our timing in that sense is just perfect where I think people who have been just like three or four years before that and now see the result that they were looking for have really been reset or one or two charged up.

40:36Joe, I want to call on you because you were about to say something before and Christian threw your bones. So please take it. Well, there's a lot of good stuff there. So I was wanting to jump in about six times already. When Daniel and Christian are going, I guess maybe I'll not repeat, but part of your question on ways is about LP management. So, you know, LPs are investing their money with managers because that manager has a specialist expertise. They're basically hiring that team to manage money for them. And my experience of LPs, you could divide them into two types. One is the type that really wants to understand and through the managers they work with, through us, learn.

41:24And so we think our job is to help them. Whatever they're trying to do, they're trying to understand and learn the market. They're trying to do more in the market, more investments. They're trying to co-invest. Whatever they're trying to do, I think part of my job is to help them. So we just think spending time together when they want it is important. And we make time for that. You know, and that's not every manager. Some managers give me the money, leave me alone. We kind of take the opposite position, which is if you, you know, we're fanatics about this market. We love it. It's a passion for us.

42:00And if you're excited about it, too, that's quite easy to spend time together. Even down to, well, don't take my word for it. Let's go talk to a CEO of a startup. and understand the problems and challenges they're having. Let's talk to some VCs and so on. Then there's another type of LP, which is basically saying, hey, I don't have time. This is like a little part of what I do. Dear manager, please take my money and do a good job, and I'm going to check in with you, you know, in paper four times a year and probably in person once a year. And that's okay, too. I think, you know, fair enough, so long as we can have a sensible conversation about the puts and takes I think, you know, what you guys were saying, I totally agree with most financial assets there would be investing in have commonalities in venture.

42:50The couple of weird things about venture, most assets have a single finance moment. In buy it, you buy the company, right? You're dumb. You own it. You do what you're going to do with it. And there may be, you know, debt packages and whatever. But in venture, you're financing the same company again and again and again over time with different risk reward profile, with different amounts of capital, with different investors coming in. It's not one route, it's a syndicate. And I think if you're totally new to venture, that's kind of weird. Where else does that happen? Now, I think that when we discussed the venture space is so diverse as well.

43:26So we have seen over time that various sub-sectors of venture capital were outperforming, but you never know which one. So for instance, at some point, biotech is performing super well. Actually, biotech is the one that is super interesting. It's probably the most high risk. But if you look at Cambridge Associates data, it's actually over time is by far the best IR over time. But then there are some other sectors where everyone thinks, well, it's so hard to do them. Like, let's say, deep tech or materials. And most of the time you see very conflicting. don't return years they are completely shooting through the roof so doing venture from whatever country and whatever perspective i think people are doing this very much for diversification purpose and for just probably exploring or believing in something like let's say clean tech or deep dead like trying to bring the world somewhere further.

44:27So I think it's a good conversation to have all the time. So we, for instance, right now in Latin America, a lot of capital is sitting and it's very hard to implement this capital locally. So many are looking for alternatives and they saw suddenly that some of their local companies financed by the US VCs are shooting through the roof and they're suddenly, wow, VCs are very, very interesting. And they're starting to look at opportunities in Europe. So I think these are the conversations that actually spark the opportunity and also spark interest, which we try to build on. But it's true that it's very hard to have this original conversation.

45:08It's always an opportunity that drives investment in venture capital.

45:17I mean there were two, both, Katrina and Joe. The key word I think was conversation. Before speaking with an LP, prospective LP, eventually considering committing to your fund, make sure he then they properly understand the nature of private markets. This is not how public equity markets work, where I can buy a push of a button, buy and sell. And the target that I buy has no say in this decision. Every deal is a result of a negotiation. It's hard to get in and even harder to get out. And private markets are private by nature. There is no information available other than you surface that information.

46:10in public markets, you read the newspapers and you get an idea how Microsoft is doing. You will not get this when investing in emerging tech companies aiming to disrupt Microsoft. And before trying to convince someone to invest in venture, make sure they understand how private markets work and how much money in the recent decades has has flown into the private markets. And this is not only due to the central bank money supply over the past 15 years, that's an even longer term trend. Companies stay private for longer. Just look at Stripe, they called off the IPO, so much expected IPO again. They stay private for longer.

46:57Now with an average period from foundation to liquidity, then 13 years, average, not longest. If a company does well on the venture path, they raise a round every two years. For 13 years, that makes seven rounds. A, B, C, D, E, F, G.

47:18And to wait for that liquidity. Liquidity is not only IPO. There is such a small fraction of companies that can make it through IPO. But I think the whole ecosystem has to work together to allow liquidity on the way up and not only be understood as negative signaling if a very early stage investor has the appetite to liquidate the position, say after four, five, six, seven years in, and that company is only halfway up, that should be much more understood as an opportunity for growth funds to take over. Daniel, can I just ask, Andreas is going to just jump on that there. So can I ask the group, while we're on this topic, what the group's opinion is on secondaries in Europe and the space for that now, considering where we're at in this unique time?

48:13Because at Flow, we're hearing funds coming to us every single day, either looking to be a dedicated secondary fund or looking for unique ways to provide liquidity in your existing portfolio. I'd say it's a daily event. So I'd love to get the opinion of the group overall here and on the topic. I was about to say that even though this was not the topic of the conversation, neither exit strategies during the environment or during your fund, nor secondaries. But I do think that it's a topic that is so closely linked to managing LP happiness. So let's maybe kick it over to you, Joe, for you to start us off on secondaries and also reflections on realization strategies.

48:59Well, I'm with you, Tom. Secondaries have taken off literally January 2nd. I got a deal and we get a deal two every day now. And we closed two last week. So we're a buyer of secondaries. And, you know, so as a buyer, I'm super excited about it because as you know, we all know, we have the biggest stock of venture assets in Europe ever in the history of Europe. hundreds and thousands of companies, right? And firms and so on. However, in most capital markets, you have liquidity tools. In this one, you don't. So I do think that's a big growth area. Not only do people want to exit, but also there's a nice opportunity to buy in.

49:50Actually, you highlighted one, Daniel, which is, isn't it a nice thing if early stage investors could exit at some point a late stage could pick up you know they start the clock anew they have a different different risk reward profile so and here in europe we're a little behind on the evolution of that segment of the market so in the u.s we've got a bunch of good secondary funds been operating for a very long time um then they do it very well and so there's a kind of liquidity tool there if you will in europe we have great private equity secondary funds i used to work for one. Great. And they do what they do, but they don't operate in venture for all the reasons we hinted at earlier.

50:31It's a different animal. However, we do, a few others do, and I think more will. I think actually from a peer manager's perspective, it's probably the most exciting time to be in venture in Europe. I'm on the fund side now for 13 years. I've been on the entrepreneur on taxa for another 13 years so that makes 25 years. It's never been as exciting as now. Europe is at a point where we can really make this ecosystem work if we manage to get secondary liquidity in or tertiary even or even later. So if we make that ecosystem really recycle and without recycling it's not an ecosystem. It's not sustainable, it's not an ecosystem per se.

51:19So this now is the big difference to the late 90s and into 2000, but we were not able to do this. The whole ecosystem dried out and broke together. And now we are actually regardless of market environment, inflation, yes, no, interest rates, yes, no, that's also not so important. The liquidity is there. We only need to allow it enter the system at those stages where we all would need it. And so, Tom, your question. I think it clearly 2023-04 is the year of the secondary. They have been here before, but nobody really spoke about them. That was, you know, the dirty boy of the industry. You don't lay off your companies.

52:13You're right away to the end. oops, the end came quicker than we all thought, shouldn't have been better solved. And always here we are putting active work in this and that's, you know, be prepared when the opportunity arises. And for many outsiders, this then looks like luck. It's not. But Daniel, if I can pick up on your point, it's a systematic effect, right? In other words, if liquidity is present, then a little bit like labor markets, where you have protectionist labor markets, it's difficult to hire, it's difficult to fire. Where you have fluid labor markets, then talent moves and it's easier to hire, easier to fire.

53:00And I think that same principle operates when LPs know there's an option. They may never use that option, but when they know there's an option, then they could rebalance And they're more likely to do primary, be more comfortable with primary. The same with founders. When we buy founder shares, we often talk to them about what they're doing with the money. And there's two answers. There's a range of answers, but they all fall, I don't know, 80, 90 % are, I'm buying the house that I couldn't afford before. And I'm doing startup investing, which is amazing. I mean, so we've just done one recently, and there's a founder who's built a very large, successful company.

53:42And every year he sells a little bit and he does angel deals. And I think, how cool, you know, so that liquidity is being immediately pumped back in. But we need to close by the end of next week because I have three angel things I'm doing. You know, that's how cool, you know, that's not a theoretical talk. That's really how it's functioning. Yeah, and then I think actually on maybe the last point there is a very overlooked dynamic on the sense that the portfolio companies, when VCs are then trying to find liquidity, previously it had been a bad signal, as you also mentioned, Daniel, and still is.

54:17But maybe this can also change in the current environment where the startups are actually getting profitable early on and get to break even, where additional capital for the runway a extension is less prominent and people are more willing to actually have that ownership transition rather than just a financing event or funding event right now which have been like very much in the essence of what you would always have as a fund rate, right? Well, I think it fits the whole ecosystem, right? Because if we create DPI now to the LPs, that could be a EOM tomorrow.

54:59Katja, you were about to come. Yeah, no, I just think that from the manager, like GP perspective, liquidity is topic number one. This is the first thing to say, so we are thinking every day about it. But it's also a complex topic because it's always a balance between maximizing the value to our LPs and actually providing value as soon as possible. and this is not always going hand in hand. Most often it's conflicting and then there is coming situations like today where it's globally a more difficult market but in Europe it feels like it's really collapsing in a way liquidity market. So basically we have to think very carefully what is the best and we're asking practically our OPs what do you want to do with our assets And actually, the answer is not very straightforward.

55:55We hear different answers. We hear sometimes, look, keep as long as you want and sell at the highest value when you can. Even if it's in three years, four years, we don't care. And some say, well, provide the DPI as soon as possible. So in this situation, it's actually like even providing to our P base, to provide the best value, we have to balance a lot of things. and and to be honest today the companies that are performing well the question is right do you do you really want to exit in this environment or you want to hold and find a better kind of the better opportunity even especially if it's an IPO candidate right so we it's definitely a question also to everyone here like what would you do um but at the same time of course when when you see that the companies, for example, are growing, but it's not anymore as long-term opportunity to hold for a long time, maybe there is a great opportunity to have it as a secondary transaction.

57:01So it would be interesting to hear also opinions around the table, like how do you see this kind of timing versus the DPI? Yeah, I think that is the key question. Money now versus money then. I have probably a controversial thought in my head. Now, as we operate in an environment of elevated interest rates, couldn't that actually be beneficial for creating DPI now? because the time value of money in an environment of elevated interest rates is far smaller than it used to be two years ago. When interest rate was zero, the infinite future profit was present value. Now it's not. And that might even bring large asset allocations to the point that they might favor an earlier liquidity than a liquidity in the far distant future.

58:09And if that is the case, I think that could get the whole recycling of allocated capital freed up, be recycled back in, going in a dimension we have not seen yet. But I think it's also back to the case that there's power law returns, especially for the early stage managers, right? So therefore, there's a few key decisions that you could have made in the last few years which would either mean death or something that you could really thrive on, right? What we at least try to ask people are like, okay, so what are your practices? What are your thoughts around it? And we think, especially for early stage managers, it's way more art than science, but at least discipline in place and then take it case by case.

58:58That's what we really like because then you actually have something that we can look back on also as an LP, making our work way easier when we're talking like five years time when the waves or the sentiment have maybe changed over time and say, okay, what could we have done differently? And yes, of course, getting some DPI is great for some LPs especially. However, what we really like is also DPI and the end of it. So you can definitely come to the case where I think VCs can't be too focused on getting DPI. But that has not been the case for many people, at least in the last three, four years or in the big group.

59:36But it had embraced as a blockchain, right? Our people have been able because of where we're in market for it. So actually distribute quite much over time. And I think those are, at least what we see here and also what we give a huge, or really appreciate is the ones that have had those talk over time. They can see the asset have been increasing very, very fast and promptly, but they have also been disciplined enough to actually take a bit out of the position over time as it have been up. Yeah, crypto is back in the game, but I think those kinds of conversations are very mature and that's what at least we as an LP really like to have.

1:00:14Joe, I'd love to ask you to come in on this, both because I remember you saying interesting things also during the upmarket. And then, of course, because you have such a large base of European VCs that you are, of course, trying to guide or at least provide perspectives to on this exact topic. Yeah, you know, I think what Cartier started and Daniel was commenting on as well, is all investors have different time value of money. And that's what, as we get a market cycle, all of a sudden that becomes relevant. You know, when we're all in the low interest rate environment and time is infinite and, you know, money's cheap, we kind of all acted roughly the same way.

1:01:07But when things change, that time value of money concept really comes out. So on the extreme end, if you're a pension fund and you have liabilities 20 years from now, well, you should hold and maximize multiple. Because multiple, we all have to remember, you can't eat IRR. Multiple is what pays people in retirement to have a great life. So, you know, but on the other end of the spectrum, if you're, you know, a high net worth or a family office or something, you may have other things to do with that money. And therefore, the trade, you could redeploy in other projects. You could start your new real estate project by taking some money out of your venture book, as we now know Daniel's doing.

1:01:51So I think we're in that moment now where everyone's kind of considering their time value of money equation. and what you know look what we're telling our vcs is very case by case so it comes down to how mature is the company and again what katya said which is selling now may be possible but it may really undervalue your star assets and ultimately be bad so i'll tell you what we've been doing a lot of lately is offering liquidity to the LPs of a fund. So working with a GP to say, hey, we'll make a price for your fund that we'd be willing to pay now. And any LP would like partial or full liquidity, well, we'll buy their piece.

1:02:37And so that seems to work really well. We're doing it a lot lately because it's a nice thing a GP can do for their LPs and say, hey, here's an option for you. It's not benefiting the GP directly. They're not taking in capital. It's just LP to LP sale. But I think that's something which I've done it for RLPs in the past, where I'm really helping and say, okay, I understand you have a need or an interest in whatever. And you can also get pricing at different points in time. So maybe you don't like the pricing in Q1, but maybe by Q3, things have changed and price over. That is happening a lot more now.

1:03:19I don't think that helps you. So that helps your LP. And by the way, we were just doing one now where it's basically, please buy fund one because I want the same LP to put money in funds for. So that, you know, recycling works on the LP level as well as the founding level. So nonetheless, the exit market has slowed down and we're not going to change that. So fundamentally, I think growth investors buying early stage investors is a good thing. But you come back to at what price? And, you know, most of what I see now is rounds that are companies need to raise. They tried not to raise for as long as possible.

1:04:02Now they need to raise. and they're being, depending on how urgent that need is, see a lot of not very nice deals, kind of some predatory deals. I don't know if I'm interested in what others see, but I've seen some real predatory deals lately where we know you need the money and we're going to cram down all prior investors and we're going to do this. I don't know. I don't like it, but it seems to be a feature, at least right now. Now, I know we could go on for hours and hours on this. Yeah, I think, Daniel, you called it before 2024 being the year of the secondaries. I think we could also call it the year of conversations about how to generate DPI.

1:04:45And for that reason, of course, we're doing a side event at Superventure just about that. So let me know if you want to join for a full conversation about that, because I do think that this is what's on everyone's mind. But both in the interest of time, we can get 90 minutes passed by very, very quickly, apparently. But also as a token of respect to those who came just to hear about fundraising, let's get back on that topic. And I want to just show a graph here where I am, or a pie chart or whatever we should call it, a wheel chart, where we have put together the answers that we have received from our 300 episodes that we've done on the podcast, where we've asked our VC guests, what would be the key advice you would give to emerging managers fundraising across Europe?

1:05:41And then we've taken that and broken every single piece of advice. Thank you, AI, for helping us there into some different categories. And we've got network and relationships being the really big one with 28.6%. So almost a third of the advice was really about the importance of building and maintaining strong professional relationships with LPs. And we're going to dive into each of these, but I just want to summarize for those not looking at the chart or for whom this might be slightly small. We have as the second one, the runner-up 20 % or 19.7 % saying differentiation and unique value proposition.

1:06:31So this is the age-old advice of knowing your edge, having something special that you bring to the market, being additive, not just being another B2B enterprise SaaS fund. I did not say that. The third one was consistency and commitment. So that's basically grit. It's with 19%, so very close to the one I just mentioned. Then we have a drop-off down to knowledge and expertise, which has 14%. So that's about knowing and really showing that you have an expertise within both venture capital as an industry or asset class, and you know how to be a good money manager, but also expertise within your specific vertical technology.

1:07:23And we've got transparency and honesty coming in with 11%. I think that one is particularly interesting because it's so concrete in the sense that all the other things are things that you would kind of imagine or expect, but this is a trait of your communication style and how you conduct yourself, which is a bit different from the other ones that are more skilled and things. And then the final one is adaptability and flexibility coming in with 7.6%. And that is, of course, also probably connected to the fact that we've conducted, I think, 200 of these episodes, these interviews. We've done them during the tech reset.

1:08:05So a lot of people have had to navigate a bit during that period. Let me first ask the panel here for a quick remark on the split here. Does it cause you to have any reflections at all, or do you just think that matches pretty much what I'd say?

1:08:30Good question. Good question. I do see a bit of a... I wouldn't name all those six or seven, is it, myself, but may add two or three more. But I do see a bit of a contradiction between the second large one saying expertise and specialization versus the third or fourth in line, say the green one on the bottom there, saying knowledge and expertise. isn't that to a good part very closely related these two I can tell you there's a third one missing that would be long term perspective and discipline yes absolutely discipline we have with consistency and commitment long term perspective definitely might also go in with that we could have put bundles in together with that as well.

1:09:32And likely is this well, actually, because it's that, you know, you're in this for the long term. You're not, you know, venture is not, we have a bunch, and you'll see that as well in the videos that I'll play in just a second. A lot saying that venture is not a short-term game. You're not going to get wealthy tomorrow. You need to stick through it. And it's a long uphill battle. So as to the overlap or difference between differentiation and unique value proposition and knowledge and expertise, if I should just add one comment there, the red one is purely this is about you having an edge and showcasing that edge and showing that you're meaningful in the market with that edge.

1:10:21And the other one is broader expertise across. But again, what you say, Daniel, and this type of thing, you can always debate how you break it up. Let me go to the first video that I wanted to show you. Now, Andreas is getting techie. So bear with me if I'm not very successful. Warm introductions, sadly, probably our biggest source of conversion. So always try and seek a kind of first or second degree connection to a target. Don't be too demanding when it comes to ticket size, because I think especially as an emerging manager, it's also a lot about relationship building and trust and familiarity and building this network.

1:11:05And then, yeah, try to get a piece of course that add value. And most importantly, and this is what I said earlier already, if a family office or a multifamily office does not give you a commitment in the first one, keep them posted over the next two or three years. give them two update calls a year. You do so much of the work already. And fundraising is something that goes on forever. It's not something you take a big break from. And I think this is the thing that is most important that emerging visees do not forget their potential piece that did not invest yet. So that was Daniel Schex and also Miss Steele from Ascension.

1:11:44I would love to ask you to both comment on what they said, but also give me your key advice within the category of network and relationships. Daniel, we already have you highlighted here and we just had Mr. Szek say, you should not treat fundraising as something that you stop in between. That is synonymous with the speed investor approach, I'd have to say. True. Fundraising never stops. So I think that approach from like, you know, also like we did it in our early years, like, you know, go out every like second, third year on a campaign. I think these times are over. The market is far too, far too big.

1:12:32There's far too, it was in terms of competition of other funds and also never, never forget the competition of the other asset classes. And that's the main competitor, actually. It's not about a fund A or B, it's a first of all, venture and all, yes or no. And the second degree question is which fund to pick. So we say there always be fundraising, ABF. And the best time to fundraise is actually just after you have successfully closed the fund. For multiple reasons, you have shown to the market that you are a product in demand. you currently have nothing to sell so the LP is not in danger of being pitched everybody wants to talk to you so actually you should travel just as much in the weeks and quarters after the close as you did before you have shared with us on the podcast before that you always put in a lot of travels right after the fund close one of them being to the Middle East region where you have a considerable number of investments and LPs.

1:13:41Yes, true. And also what Emma said in the beginning, obviously the referral or the warm introduction is best, but I would differentiate a bit. So it's great to get a referral from an LP, but the pinnacle is a referral from a fellow GP. So if a GP tells an LP, talk to these guys, this is it. So I think it's just as important to work the LP market as to create a community, an environment of a friendly network of fellow GPs who you frequently co-invest with. Early stages, later stages, same stages, like-minded people. Helps you a lot to understand the industry from an additional perspective. it. And if a GP recommends a GP, I don't know, Christian, I don't know, and Joe, what do you think?

1:14:33But I think this is it. Yeah. And I think it's very much coming back to the point that LP is also different, right? So you need to consider always who are you talking to? And you can actually take the pie chart, you also just showed Andreas, and you can probably just divide it into, right? You can tell the effects which are alluding to how attractive or good and LRVC you are. You can have some figures of performance, you have an arbitrary opportunity or whatsoever, right? A flywheel going on, whatever it could be. And then you can also take the other side of it, which is how well are you in articulating that and not just articulating and communicating how you actually with the LP in mind that you're speaking with.

1:15:14And you can tailor that both with regards to the approach, but also what you talk about and how you talk about it. And I think it shows, at least from where I sit, it shows a lot about how venture managers are when they get where I'm from. So if they're asking me what's your annual budget, like I don't have an annual budget. I said that in my introduction, which actually are very intentionally about like trying to say out loud how we are thinking about the market and the play. Right. Because then they can get that context. And hopefully we can dive into a conversation which is tailored for who we are right now in the dialogue, right?

1:15:50So rather than having those kind of discussions, which are not like, they should have a thought around like, why or how am I actually fitting in or am I not fitting into their portfolio? So if you came to us in 2020, where we just started out and we were not looking for late-stage exposure. And that's what you find working on. Like, yes, we look into that. I've had many discussions with our financial sponsor about whether now is a better timing for us to be serious about that and dive into it. We have made some follow-on and opportunity phones, whatever you like to call it. But that shows me a lot.

1:16:25So yes, it's about, of course, trying to be as good as possible and also convey that. But I think that says a lot about a manager, just as when the VCs themselves are also speaking with deal flow, right? like the companies or the entrepreneurs are the do they actually understand where the VCs are investing, what they look for and how to present themselves and not just of course it's also amazing when entrepreneurs are just heads down and doing really really good work on the startup but of course it works to have a blend of one and I think those comments that were just so from Emma and Shaggy there like warm introductions are good because they are usually from people that you think highly of So domain experts are an amazing tool to also underwrite or at least get related to other people in the business and industry.

1:17:16And of course, keep posted because otherwise I feel like this is just a selling exercise for you. And maybe that works for some people that happen to have an annual budget with your mandate. But I don't think both Adrian and also Daniel, the ones that you love the most of the LPs, aren't probably those kind of people. That's like an opportunity that you can be lucky enough to hit at the right timing when they're around whatsoever. But having those ongoingly, I think is really important. And sometimes I can feel it myself that, oh, now we have had one or two meetings, all the basic information and they have made notes about and stuff like that.

1:17:53And now we're getting to the interest part because now we can really talk about the co-investors who I, if I'm a good LP, which I like to think about, like really trying to be sophisticated. I've also didn't sense you over the time. So rather than having like a snapshot on you right now, when just like one month before your fundraising movie clip of how you are as a person, how you react with, um, or interact with, with LPs, but also how you're actually navigating such as last four years, right? Because it says a lot, not to me. So I figured out like over the years, like some people, maybe not this time around, but next time, yes, the timing could be much better.

1:18:32Now, just a quick comment on the word that we missed from the video. It was sadly the highest conversion from the one introduction, which is nothing surprising, but it's interesting that this word was there. so I think it talks also a little bit about how things move in the networking circles and we see also in the venture capital investment the same thing so it would be good to think about actually how to navigate these kind of circles as well because people know each other from universities and so on and sometimes there is lack of welcoming for people who come from other backgrounds so this is what we observe It's just a comment on this, like I picked up on this word, sadly, in the video, but otherwise it's kind of, everything makes sense.

1:19:20You're absolutely right. That word was in there. Joe, you're about to say something. Yeah. Can I argue that I do it with fear in my heart to this very smart and experienced crowd, but can I argue a point, which is, I, you know, we all like the warm intro, GP to GP is the most powerful, of course. However, I wonder if you actually look at, you know, getting the meeting versus getting the investment. Something Christian was hinting at, you know, half of the decision to make an investment in a fund, the buy decision, half of it is what the fund is doing and the quality of the proposition. But an equal half of it is what the LP is buying.

1:20:03So to me, the warm intro is simply getting your foot in the door. It's opening the conversation. But I really wonder if you could do an analysis on what's actually closed, if that would be a high probability. And I'll give you, you know, real examples from our world. We meet people where we have a great connection. We really see the market in a similar way. We can help them. But, you know, something using, now is not the moment. We're not yet allocating to VC. So wonderful, warm, you know, I love you like a brother conversation. And then the reverse has also been true. We've just met some groups, one of our favorite big institutions from the U.S.

1:20:45that invests with us. And, you know, I think we think we're rock stars. But actually, I think they were looking for what we do at exactly the moment we met. And it wasn't that we were somehow amazing salesmen. I don't think we are. It's just that they were kind of searching and hunting. How do I access your wheel for the solution at work? It wasn't a warm intro. It was a random event at the buffet. It's like, can I get one more of those chicken fingers? But I think that's a perfect analogy. And also like Hambridge Jacobson from Papal. Have also been on your podcast and also talking about how it's almost as dating.

1:21:23And that's also what you're missing now here, right, Joe? It's not like a one-night stand. It's a marriage, right? And I have 20 funds and I will make commitments to over the next three years. I'm not just going to make a spring prayer whatsoever. or just because I got a wall intro, but yes, because I'm, my interest is spiked because I have one who I have a high conviction and budget said nice things about it. Right. So therefore I think folks would be really considerate about that and not be too pushy actually, even though some funds can be desperate to get some capital. Being human and balanced and is really beneficial, especially over time.

1:22:01I don't think, I only think you can underestimate how the industry is like that, especially also just focus on the pie chart that you just showed on Twitter, right? Like this is also a networking game. People know each other and what people think about you over time, it also says a lot about you. So I think LP, even though GPs to GPs, warm intro are great, then LP is also talking together, right? So if you are burning your own current relationships or are way too aggressive or hyping up your fund rates or whatsoever, then I need to discount what you're saying to me way much, way more than what I actually like.

1:22:36So being transparent and being warm, really being conscious about people are speaking together and not trying to hype it up as it was in 2021, where even the fund rate from the funds were really, really quick. We are also having more time, very fortunate, to do our diligence. And when I'm digging in as an institutional LP, it's a huge, let's say, bet from my side too. I have those 20 investments that I'll make over the next few years. And I have a core book right now. I take reals very serious. So therefore, I have an investment memo I should make, I should present it for an IC and all those kinds of things.

1:23:11This is just not something we just do by left hand or something like that. So yes, it needs how you really build that trust and also that interest and conviction to go forward in a relationship. Now, I really do want to show off my tech skills and show videos. So please, guys, let me do that. We will go to the next one, which is differentiation and unique value proposition. And I would pick Joe to be the first one to comment on it afterwards, because I know you have a good perspective on presenting your fund as a product. But let's first watch this small video. don't compromise on what you think makes you unique lps might be tempted to shape you to what they know but don't let that be the case please do not be generic lps are overwhelmed they hear pitches all the time for example there are too many funds whose investment thesis is limited to underrepresented founder it's unlikely to carry you because it's not enough in itself right so whatever angle you take please don't be generic i think today you have to find what you're uniquely good at and ways to stand out and force yourself to hone that value proposition until it feels quite differentiated this is not an exercise in fitting the slide deck it's like understanding exactly what you're best at and demonstrating it people need to understand what their own kind of what their own wheelhouse is i often talk about big ventures like you're kind of mining gold veins.

1:24:44And once you find that gold vein, whether that's a particular kind of insight you have on a market or a smart, like a network that you have, double down on it, double down on your own weirdness, double down on your own experience set, run against the crowd. Yeah, be contrarian and sort of don't look over your shoulder too much. I think we as an industry do that too much. And that's the advice that gives any emerging investors. So those were the videos. Joe, will you give me a quick comment and then we go on to the next one? Because I do want to cover the first three big ones on this before we run out of time.

1:25:20Yeah. So my quick comment is your fund is a product like any other product in your portfolio you're advising. It has features. It has benefits. And any LP that's met lots of funds has a wide choice of products. So why is yours better? So there's a BMW. There's a Mercedes. There's a Volvo. They all have features. They all have something different. And you need to highlight those aspects. I think what they're commenting on is your strategy. Going after a certain type of company, a certain type of founder, whatever, whatever. Do something that you have a superpower in. But then when you're explaining it to the LP, you've got to make that clear.

1:26:00We're doing this. But also the second part, which is because it has value. You know, we're not just pursuing this type of company because we like that type of company, because we think they can be big and important tech companies and whatever. So you have to have both, right? We're doing something others are not. Therefore, we're a good add to your portfolio. And we're doing that something because it has high potential value. Beautiful. Now let me put on the next one, which is on consistency and commitment. So this is all about showing grit. when harry stebbings and i started stride we were getting no money and people thought the team was weird with the young guy the only guy and it was actually more difficult than people might realize and at some point we put ourselves in this kind of mindset of deciding not to fail it doesn't mean you're not gonna fail but it was like a mindset of hey we're just gonna make this work it's gonna take however long we're gonna do however many leads but it was probably the most helpful thing that we did was to really go there and kind of hold that success mindset.

1:27:06And again, it doesn't mean you're going to make it, but it's a great prerequisite. Well, the main and the most important tip is to stick to it. Don't give up. Just do your work. Whatever possible. Be creative also. Try to think of potentially other help. Try to find other LPs that other people may not think of. and the main thing is of course focus on your track record and try to to build that because that's that's the key parameter that lps will look at along the way so grit anyone who wants to take us out with a comment around how tough it is to be in vc and we can all close this sobbing Yeah, I think, you know, launching and running a fund is an entrepreneurial effort, just as any of the founders in your portfolio.

1:28:03I've done both. It's practically the same, it's just a different business model. And obviously, all that, you know, Carlos, Colin, Fred said there, all is true. no question these guys know what they do no for no reason they are considered to be to be among the best

1:28:31don't be generic and that's probably what it gets down to but then you have to put everything else in right be consistent in what you do in not being generic build out find your niche build out the expertise, generate that proprietary superior deal flow, select well often enough. We all know that eight of ten go under that we pick and stick with it. If you're trying to be generic and opportunistic, inevitably you end up trying to time and trail the market and that does not work. That does not work.

1:29:14If I may? Yes. I think it's true in venture capital more than in anywhere else. We cannot control the outcome, but we can control the process. So we don't really know what happens in the markets, but we know, actually all of us know

1:29:33intrinsically what would be the right thing to do and how to do. So if we build this, there's very high probabilities that we will hit more the right things than the wrong things. And I think this is what we need to try to continue to build up. Because like in healthcare and everywhere, we cannot really control all the outcomes, unfortunately.

1:29:54Katja, thank you so much for not leaving us on a depressing, sopping note, but rather say that as long as we stick with it, we will be successful. Now, before I close and pass the word on to Tom, I just want to let you all know that, of course, you can go to flow.io slash race to sign up for the report. You'll get it in your inbox as soon as it comes out. We're also putting out quite a few episodes on the podcast specific to this topic. All of them talking about how, as an example, Daniel and his team at Speed Invest managed to raise their fund, their latest fund during the tech reset. We also have HV Capitals, Rainer Macauland, where we talk about their latest massive fund raise and a ton more.

1:30:45So definitely this is going to be an exciting coming month. Tom, please take us out of this space. Cool. So thanks to all of our guests today. It's been really, really wonderful conversation. I think lots and lots of insight. And we could probably talk for hours about this. But for, as Andreas already said, for more information on how Flow is partnering with VCs on all of the topics we spoke about today, whether it be raising or administering your fund or running your fundraise or technology institutions for the VC space, just go to flow.io and my team will be happy to help you guys out. Thanks very much.

1:31:22Beautiful everyone. Thank you. If you love this, definitely go to EU.BC, subscribe, wire some money to us. You can go in there and say, I love this. Please, I want to donate half my child's savings. Break the piggy bank, everyone. Thank you so much for tuning in. We love you all. This episode is part of a series dedicated to raising venture funds across Europe. and come together with the launch of the State of the European VC Fundraising Report. Together with our friends at Isomer Capital and Flow, we've spent the winter digging into our past nearly 300 episodes, as well as the latest market data and Isomer's vaulted data treasure, to uncover how the tech reset impacted the fundraising market in Europe, and how leading VCs across the continent have changed their strategies, tactics and operational handbook.

1:32:11Filled with graphs, beautiful narratives and video interviews, providing an entirely new and engaging experience you can enjoy for hours on end. Don't miss it. Pre-register to get it at flow.io forward slash race. That's F-L-O-W-W dot I-O forward slash race. Your venture journey redefined.

1:32:36Tear down this wall. It's more than just an alliance. This 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.