Julien-David Nitlech (IRIS): What Exotec taught IRIS about backing deep tech that lasts

0:00This episode is brought to you with Luxembourg Venture Days, back on the 14th and 15th of October. It's where Europe's venture community comes together, private capital, corporates and high-growth startups, all under one roof at Lux Expo, The Box. Last year, 3 ,400 attendees, more than 400 speakers and 330 plus investors actively scouting deals. We'll be there with the EUVC studio recording on site if you're building, raising or deploying in your this is your room. Had to venture-days.lu and do tell them that EUVC sent you. After 10 minutes into the meeting, I knew I wanted to spend my life following these guys because like it made sense.

0:43So if you go too deep to a lead, the risk is you have a vision, but is the market ready for that vision that you never know. So building a firm is renewing the people on a regular basis, empowering them, giving a chance to their thesis, choosing them properly. They need to have a vision about how they're going to build venture, and their vision needs to challenge, contradict your status quo. Perhaps that will be our fifth life, as I told you. I don't think we've been eternal. I think we've died many times and been reborn many times. Perhaps we'll die out of what we do and then be reborn much more systematic and bigger, as you mentioned.

1:18Julien-David Nitlech:This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. JD, Iris has been around forever. It's nearly 40 years if I'm not wrong. You've lived through Black Monday, the dot-com crash, 2008, the European debt crisis and the 2021 growth bubble. And now AI, almost every firm from that vintage is gone. And in that time, you've backed Exotec, a French warehouse robotics company that most people would have passed on and watched it become one of the most important deep tech outcomes in European history. I want to ask you two things. One, introduce yourself to everyone, tell your story because I didn't know about you until we hit each other.

2:01And then secondly, I want to understand what it is that you see in companies and in deep tech and in Europe that other people haven't seen for a long while. So first of all, Andreas, thank you for hosting me. As I told you, it's a real pleasure to be with you. It's being among people who matter. So thank you for hosting me. Me, I'm JD. I'm managing partner of Iris. So I'll do two stories. mind is I was this bland French student during engineering school end of the 90s and I was trying to figure out what I wanted to do with my life and something that would last and make sense and I chose tech. I had affinities for tech but the truth is I thought it would truly change the world.

2:42We're in 1998, 1999 so it was the first bubble coming but the truth is I thought it would be meaningful. It would change people's life. I thought you'd have phones that would do everything. I thought you'd have robots, I thought you'd have AI, and look at where we are now. And to do that, so I've been in a large group, I've done strategy consulting, I've done startups. And 13 years ago, I crossed the path of Iris Capital at the time, which was a historical fund. Had no clue about VC. I knew about tech and startups and companies. Didn't know about the VC game, was not exactly my thing, the financials.

3:12But they told me, you know what, you should try to be an investor rather than an entrepreneur. And so I tried with a thesis that I'll explain. And so I've been doing it ever since. And I took over with the Cort and Eric Iris five years ago. We bought over it and we turned it into Iris, the next platform. So that's about me. And Iris Capital, it's a venture and growth tech firm. It started in 1986. It's had several lives. For me, the key to lasting 40 years, as you mentioned, because we will celebrate our 40th birthday, is not a continuity story. It's a continuity in the values and what I'll describe answering your second question, which is what is it about tech that we finance?

3:52But the truth is I think we've died many times and been reborn many times. You die out of the first bubble. You invested, you made a lot of money, then you make zero. Then people don't want to finance you. So you have to find new money and find new thesis. And you do that. And you make it, you get a couple of companies, and guess what? 2008 hits, and you cannot find money. So they had to reinvent themselves with corporates. There was much more corporate money in the 2010s. So that was another story of Aris Capital. and then I came in, quote Eric, and we had a story which was around vertical tech, which I'll come back to.

4:23And yeah, we performed, we took over the firm, we changed the capital, we changed the team, and this is our fourth life. So the key to continuity over 40 years is just that some bubbles say that some tech dies and some techs are born. The secret is to do it within your firm and do it without even knowing it, just because you have new generations, new theses, and you keep going. So it's a continuous change. And as for what we back, it's super simple. When I entered the VC market in 2013, I had been an operator, manager, start-upper for the past 15 years. And for me, Europe, especially French and Germany, where we've been operating since the 90s, it was super simple.

5:05Like we have amazing academic background at the time. Code was not done by cursor or AI. It was done by people who had to be very good. So number one, there was very good tech when there was not so good tech. So number one, you had to have a tech stack that mattered and seeing people coding at IBM, at Orange, at Vodafone. Some people decided that they wanted to do it for themselves because they wanted something that scaled, that would change things, that would be independent. The second thing is developing amazing tech is one thing, but if you don't have a market, If you don't have a way to figure out how this tech inserts itself in an existing trade, the typical sentence, this is broken, I'm going to fix it.

5:47So that's what we're looking for. We're looking for people who have both the capacity to build a tech stack that we think will be an asset, will be a leverage, will be innovative and a value, led by people who were in a market, who knew the trade, who saw something that was missing and managed to put their brick into it. If you do that, you have an infrastructure. You have something that at some point people will keep using. If you're successful, it becomes big. You mentioned Exotech. We have also Shift Technology worth a billion. We have also LeanIX, which we still want to be able to SAP. We have Kiribath for a point to be able.

6:20If it scales, on this premise, it becomes huge. If it doesn't scale, it still is part of an infrastructure, and it still can be acquired. It still can be partnered with. It still can grow. So really, what we've been financing in our thesis is people who build a tech that differentiates itself in scales on a market where they've seen the opportunity, where they think there's a trade, and they show it through early traction. If you have that, what else do you want to get? We're going to dive much more into verticals and investing in startups and building startups and that type of thing. But before we go there, I think that we should just double click on the story of Iris.

7:00And what has allowed you to stay around for so long? Because as you said, there's, of course, the fact that you have been reborn and that you've got to stay nimble and got to find your way all the time. And then there's a lot of conviction and that's called a culture and values, of course. But there's one thing that a lot of European firms or in general just VC firms get wrong is governance. How do you onboard new partners? How do you make sure that people are happy and actually want to stay there, that they don't go out and do their own thing? Can you talk a bit about the principles, maybe the things that you've seen this has been really important for you in your success?

7:41It's a very good question because you're hitting a spot here. Technology renews itself. People change, especially now. They're younger than ever. If you think that you're going to last forever, that's going to be complicated. I don't. So you need to adapt to the waves. You need to learn, which is a great thing about business. But also you need to stay on the market. And stay in the market means that when there are generational changes, it applies to you first. I am of the belief that a company is a reflection of its market, like a company that does robotics is led by people who will structure a company like a robot with compartments, with capacity to renew compartments.

8:21We're working on technology. So, A, we have to be a technology company. We need to onboard the best technologies that we see. And we're a people business driving new innovators and entrepreneurs. So that means that within our teams, we need to have new people onboarding new technologies and new visions. You need to renew the teams. So typically, when I joined Iris, I met them in 2013. The truth is I was meeting them because I thought I would start up. So I was meeting a VC because, hey, you never know. I know you. And the truth is the guys were like, you know, we've seen a lot of entrepreneurs.

8:53You should come work with us. But what they saw in me was I was 36. I had been in tech for the past 15, 16 years already. I knew everybody. I had my network. I had a vision as to what was good tech. Many of my friends had built amazing startups. And I just wanted to be part of it. So they took me in as an investment manager saying, well, you invest. It's going to be a cool game. Don't worry. It's going to be fun. It's just we're going to say no. Which they did. And it worked. They let me explore new theses. I thought everything sucked at the team because they were not daring enough, which was, of course, stupid because there were a lot of great investors.

9:26But they let me bring in my vision of innovation. and actually it stuck. And Quart and Eric and Grof had the same approach where they were approaching companies that had a real tech asset that took time to actually grow and compound. Eric did BrainCube, which was a great story in industrial. Quart did Talent, which I appealed at Nasdaq. He did like Cariba. So they onboarded young people to whom they gave the chance to actually follow their thesis, try it through. And it was disruptive. When I introduced Ledger in 2014 to my IC, Ledger was just born. Eric Larchevac came in shorts. They refused to invest, but they accepted to look at what was the future.

10:07And they could say they saw it and they could say they turned it down, which big deal, entire portfolio. So you need to onboard people. But not only do you need to onboard them, you need to empower them. It's not about like, bring me deals, I'll manage that. It's a long game. It's a game where you learn throughout five to 10 year cycle. You invest, you see what sucks, what you should have read as a limited signal. You see what works, what market changes appear and how companies adapt or do not adapt. You have a competent understanding of how your company companies, how you are on the board and do not speak too much, but try to figure out what's the key element.

10:42So you need to hire young people. You need to give them the chance. You need to give them a belief. The truth is after two years, you see the quality of deals they've brought. So if you're wrong, that's the law of the market. if the company starts to scale or bring something interesting, you're onto something. And the first thing you need to share. I won't enter the detail because it's always something people don't like to speak about, but I think that you need to share the carried interest. It's not about having 80 % of the companies and people hustling for you. It's about making sure that people learn, that they understand it's a 10-year game.

11:13I entered at 36. Here I am at 48, and one day I'll be obsolete. So people have time to grow to understand how you raise because it changes to how your company companies investing is easy. It's like being a French soccer team trainer like selecting a team. We have 70 people in France selecting the French World Cup team. There's only one coach that drives it and actually there's a very limited number of coach who want it. In our business, everybody can invest. Everybody can be cool. Everybody can hit high valuations. Scaling, addressing issues with founders, exiting, only a limited number of people do that.

11:52And it takes 10 years to know. So building a firm is renewing the people on a regular basis, empowering them, giving a chance to their thesis, choosing them properly. They need to have a vision about how they're going to build a venture, and their vision needs to challenge, contradict your status quo. They need to be daring and say, you know, you've been doing that, it's great, but the world has changed, dude. You've got to do something else. Probably because you need to work with them, so they need to be polite, but they need to challenge you. And if they do that, you give them a chance. And if it works, if their company scales, you let them scale with their companies and the organization through sharing the ownership, through driving their companies, through sharing the carriage so that they make money, so that they can buy you over, they can raise next funds.

12:34And honestly, the 40 years of our race, I think, show that. There was a first life, then it got out of the Caisse des Dépôts. Two people emerged and took it over on 21Pierre. And five, six years ago, they wanted out. and Kul Terek and I had done a decent run at generating performance over the past 10-15 years. So they let us and then actually they pushed us to take it over. So that was a great initiative. And honestly, when I hire people I raised today, I'm trying to figure out who's going to be there in 10 years to take over me. I want to ask you something about talent growth and venture and specifically on humility, because you said an important thing, which is that anyone can invest and you're absolutely right.

13:12The problem I sometimes find with more junior VCs is that they haven't been hit in the face with the humility that LP fundraising gives you. It's very hard to learn that true humility. And I can give a funny story here, an anecdote. I think that I've shared it with many and it resonates, which is that I tend to do events that are primarily partner only. And as an example, when I do an event with a group of robotics founders and robotics exited founders that are super good, super humble still, all of this, they have a beautiful profile in that sense. And I then bring together a group of VCs to come into this group of robotics founders and robotics exited founders and some wealthy people from their ecosystem.

14:05then what has happened and it's i'm using this as one case but i've seen it multiple times now whenever i accept bringing a principle they tend to rub people off the wrong way because they've almost always been a little less humble than what i would say that the partners are Do you think that this is, and I know this with firms that I truly respect, so it's not about them having picked bad people. I actually think there's a systemic thing there that it's so easy as an investor to get up on your high horse and think you're the king if you're not being constantly humbled by talking to people that are saying, no, I don't want to invest in your fund.

14:53can you talk a bit about that what you do to make sure that your own principles and associates carry humility with them when they engage with founders and other people in the ecosystem so and first i repeat i really thank you for hosting me because these are the best questions you need to ask for fun how do you maintain a state of mind i mean it's so i got so many things to say on that question i'm sorry so number one It's a job where we don't do anything. We raise funds, that's true. But then we meet people, we try to understand what they do, we try to convince them we may be a good partner so that they choose us, make a term sheet, then they drive their companies, we have boards, sometimes they call us, they ask for our opinion.

15:36And honestly, it's what it is, it's an opinion. So based on this description, and even exits, I love when VCs say, well, I exited this company, we exited ****. I mean, like founders, mad people, we actually are the borrower. You know, it's been a long time, let's exit. But I think they've been saying their companies, they've been negotiating the future of their people, their own future. So we don't own much in this business. We don't own anything. But, and even the money we invest is not our money, except for our little part. So number one, I think humility should be embedded because we have so little leverage, so many things to do, which are obvious, but very hard to do thinking you're the best at doing them it's not as if it were like a boat race or formula one race for it it's like and like typically in france there are about 100 120 firms doing vc right now how many unicorns a year in france one two three so regardless of the how the why of your question is this is the equation so if you can take any pride out of that besides the fact that founders will say it was good working with you which is going to be your best the two rewards you can get out of this job is professional one you made money and that's rare and the second one is founder saying honestly it was great working with you because that's what it comes down to forget these two things lps are happy founders are happy you can press repeat so now moving to your question how do you ensure that in a firm first of all it's your dna i mean what I described is how I've been raised.

17:10Like when they hired me and I raised, they said, JD, you need to understand two things. Number one, you're going to push for a lot of investment, but there's an IC to decide for that. So here's your ego. And second thing, these are not your companies. You're going to be at boards. You used to operate things. You used to decide. This is not about you. It's about the founder. If you understand these two things, you can join a board. So that was the DNA that was set on the table when I joined. And it's still the DNA today. Third thing, funny story. So I've been an investment manager and I've been a partner.

17:43And of course, I kept saying, you know, I want to raise funds. I want to matter in this firm. And I accompanied companies. I accompanied the tech. We had boards. They came with issues. And I spoke and then they left. And then after my board, I went, I don't know, home, see my friends, go see a movie, play tennis, thinking I did a good job today. Then I took over IRS. And then there were plenty of papers to fill, money to find, people to convince on the market 2022 that sucked. So I called all the founders I worked with, Jeremy from Shift, Romain and Renault from Exotec, Yanis from Adot. And I said the same thing.

18:19I said, guys, we had lunch and I said, I'd like to apologize. We're working together for what, eight years, 10 years, it's been great. And each time we had meetings and you said you had issues. And I said, well, you should do this or have you thought of that? And you went back and I was like, I did a good job. And now, you know what? I have issues. I need to convince LPs. And I speak with people and they say, oh, you know what? You should do that. And then they go. And you know what? I still have issues. So I'd like to apologize because now I truly realize what it is. And each of them, they laughed their ass off.

18:54And they said, JD, you're one of us now. You're an entrepreneur. Welcome to the board. So, yeah, it's a layer cake. You start, you invest, you enjoy the ride. It's a good ride. And also you need to focus on technology. But I agree with you that the cycle is complete, that you truly have what makes an investor the moment you have to ask for money and justify it with your capability to invest in the best and to go on doing it and bring back money. The moment you do that, the money you invest is not the same. It's the same game, same people, same cool parties, same startup, same amazing innovation.

19:29But you realize that the money you got was hard to get, that if it doesn't succeed, you're not going to get any again. And that changes a little bit the picture, which for me makes sense because this is skin in the game. And moving back to my point about generational change, this is also what we share carried and shareholding of the GP so that people put their money into it. I mean, the first, what, eight years of VC, I pretty much spent one year of salary into carriage, shares, etc. So I don't think it's a comfortable game. If you're too comfortable, it gets complicated. So these are the few elements.

20:04And then we speak with people, generation change, Gen Z are different than millennials, are different than Gen X, which I am. So they're more assertive. They think they know better. And the truth is it's also good because they're already tougher. So you need to balance the cultural change that they represent with the fact that you're looking for core values, which are, you know, it's a simple business. The truth is we always have a debate with my partners. Why do you go into that business? Lots of people say to make a lot of money, which should be a driver. The answer I like is to back people who are able to do amazing things that I wouldn't have been able to do myself.

20:36That's an interesting answer. and then I think that there's on top of it that the heroes in our ecosystem or world and content world especially are all Americans and if you're anyone good in venture you obviously always have an ear to what's happening in Silicon Valley and and and not because it's more important what's happening there but just because of course you need to know you need to be aware not because that they need to teach you something but you need to be aware because it's part of the industry chatter. That then means that you can create some heroes that are not very good for you, especially not when you come and talk to real world Europe.

21:15Because it's one thing you and I, because we know that, okay, you're posturing now, you're acting like you're to math on the All In podcast, all good for you. Someone who is from the outskirts of Denmark has built a multi-billion euro robotics company. He will not think like that when you come and tell him how robotics work. I absolutely agree. And founders, it's also another way to rebound on what you just said in your question. Founders, they know. I mean, there are so many courting them buying coffees. So some of them only care about how big your ticket size, how great your brand, how international.

21:53Some of them figure out that it's going to take a while to build and they want to build with people that they can talk with and it won't work it. So I still think there's a segmentation, people have access to any kind of money. They choose their money. And this is perhaps the moment where your values can stand out. And US values are great. And once you have a company that goes international, I think you need these guys. But building companies in Europe, it's a slightly different setup. The start takes a little bit longer. You have not so fast access to commercial trade because you're in France, you need to go in Germany.

22:22You're in Germany, you need to convince these UK people. The scaling takes a little bit longer and then suddenly it pops up. And so this part may require also a culture that understands that markets are equal. Yeah. KD, now I want to talk a bit about Exotech because I've referenced many times robotics now. I come from a robotics part in the Danish ecosystem. And I think it's a very interesting case study for how you think and what you've done in the industry. Because, of course, Exotech is now a 2 billion plus company. but in the beginning it was not an obvious bet at all. I'd love to hear a bit about when you first met the team, what you were thinking, and then let's talk about the journey from there to here.

23:10So it's a textbook case of what we do. So thanks for taking this example. I heard about Exotec in 2016, 2017. They were starting. They were all building very ugly robots. You can see the YouTube of their first Skypod, which was complex. It was super early. It was pre-seed to be honest. So I passed. I was at the end of the 2012 fund. I didn't meet them. I knew about them. I really liked the topic. And okay, I said like, yeah, it's very early. It's unlikely. And while closing it, at the time we were, we stopped. We were investing in Israel where a partner of ours in 2017 offered that we look into fabric at the time, common sense robotics.

23:49So I had the time we're raising a new fund and the time was not managing partners. So I was spending less time on fundraising. And when I look at Common Sense for Viddick, what struck me was there's a market. I mean, there's a market for innovation. There was a question about automation, given the increase in retail, in short distance, grocery ordering. This will make sense. It's just that the fabric model, which was great at the time, was very concentrated. You had to invest a massive amount of money to have a full house and serve customers kind of like who could do work. So I felt it was a bad ratio and then I forgot about it.

24:24In 2017, I go to Lille at an event from France Digital, and I get the chance to meet Romain. It was a 20-minute meeting, but this is how this business works. In these 20 minutes, Romain arrived. First of all, he looked at me, scanned me about, like, what is it that you do? Will you understand anything? I said, so I explained what I understood about hardware. I had spent 10 years of my life doing hardware at Orange, building phones, regulating them, building platforms on top. So I spoke and I looked at his eyes and was like, okay, it's worth talking to you. You'll understand. Then he told about what he was doing.

24:58And when it says, he was like, listen, I was doing logistics and robotics and Renault was working at the same firm. So both had done GE and they had done logistic companies. And Renault, he was, so Romain was doing more software logistics. Renault was doing robots. And at the time they're like, we saw Amazon buying Kiva for 700 million. And honestly, it was very disappointing. Kiva is a bad solution. It's only one degree of mobility. We could do better. We can do a two degree mobility robots. The throughput would be amazing. So yeah, we left the company and we built that. So remember what I told you about way back.

25:35People who have an amazing technology background in Romain, when he spoke, it was code. I could see the code. And then he explains that he's done the market, he's done both. And honestly, Kiva is disappointing. And he explains to me. And the worst part is, I understand. Like, I'm not in his business, but the way he speaks is so precise. And I'm an engineer. Like, yeah, well, he's right. Like, he should do that. So at the end of these 20 minutes, I was like, listen, great. Like, if you do anything, call me because I believe in you. February 2018, I received an email saying, well, we spoke. You seem to understand.