VC #282: Jonathan Sibilia, Partner at Molten Ventures on exit strategies and their role in VC

27:56And they will also help you fix your business before going to an exit. Because there is one thing that is for sure. If there are skeletons in the closet, a buyer will found them in the due diligence. And you might not know that it's a skeleton. We can help, well, not me personally, but your investors can help you with that. It's also about being aligned. Most of the exits don't happen because shareholders and founders are not aligned. Alignment is not something that you create overnight. It's something that you create over time. And timing. Timing is critical, right? In an ideal world, you would time your exits strategically to take advantage of market trends or favorable economic conditions.

28:39We are not in that environment. So how do you time your exits? This is something that is not trivial. So, you know, again, work with your founders, with your entrepreneurs as a GP and as an entrepreneur, work with your VCs. This can only be successful if it's done in collaboration. And be prepared. This is about being ready for due diligence, for financial reporting, legal compliance, have proper governance, especially if you're thinking about going public. We can talk about that. For me, an IPO is not necessarily a liquidity event. But at the end of the day, it's about creating a story, right?

29:16We are all storytellers, especially when we are selling a company and use your VCs. The question that I'm always asking myself is, would I buy my own company? And if you can't answer that question positively, it means you have to work on it more and more and again, or maybe wait. But that's a critical question. You said, you talked a bit about driving an exit process. This is, of course, the one place where you can maybe add some criticism to European mentoring, the state of European mentoring, that many VCs haven't tried that. Could you add some words from your experience about what is it that, you know, are there any resources, any places where you'd say this is actually a good resource that you should listen to or read or whatever?

30:03You know, what would be the things you'd say to a GP that, you know, haven't done this before? And you can see they're really, really good. They're super exciting investment strategy, but they're definitely backing on the exiting experience side. Now I want to try and help them get to the next stage there. And it might be a bit controversial too here. If you look at where startup exits happen most frequently, it's after Series A. And I'm not saying it's at Series B. It's not happening after Series B. It's happening right after Series A. That's about this very interesting piece of data from Carta, actually.

30:40And what they're saying is about in 2022, and I think 2023 is about the same thing, but 30 % of the companies that had a successful exit in 2022, 2023 were post-Series A stage. Less than that, 25 % or 26 % was from Series B to Series X, B+. And the rest was seen in early stage. So the first piece of advice, and this is something that I'm applying to myself as well, is, and by the way, most exits happen between$100 and$300 million, right? But I think because we are coming from an environment where valuations were very high and the bar is always higher and higher and higher, everybody is going for the moonshot, for the unicorn shot.

31:27And I think this is why, you know, also we are not probably not being opportunistic when it comes to an exit. It's perfectly OK if you're an early stage fund manager and you invest in a company at 25 or 30 million pre to sell for 250 or 300. Right. Sure. The company is doing well. And you might think that you have a shot at a billion dollar valuation in a few years. But you don't know what you don't know. and market conditions can change, acts of God, as we call them, another war is striking us, investors' morale coming down. There's many reasons why it could go wrong. So what I want to say is, what does success look like?

32:13What does great look like as an investor? Go back to your initial thesis and don't forget, this is where most acquisition happens. Don't always hope for a higher price, a higher valuation. You know, greed is not good. Do you have any pointers as to how one might think through that 10x exit scenario where you're looking at selling something and taking the rewards while you have them versus staying in? Because for a long time you've said, you know, go big or go home, right? Eventually you don't realize exits. I don't agree with that. go big or go home. Yeah. I think there is a very interesting middle ground here, which still is showing decent return for investors and their LPs.

33:04I don't think it's my might. I don't think it's black and white. No, no, exactly. And that's exactly what I think you hear too rarely, right? And I think that that's what we learned now or the European ecosystem learned through the tech reset. There's actually a good point in realizing the gains when they're there. Your question is about... Any decision heuristics to try and make that call, right? Because when you're looking at the situation, how do you determine whether now it's one of those things where I should actually realize half of it now or all of it? Yeah, yeah, yeah. So this is where I wanted to get to.

33:46my philosophy is de-risk especially in an environment right now if you're offered secondary and you think that you might have a shot at a much bigger exit maybe later well recover your cost de-risk your investment don't sell everything if you feel that you are making a mistake but take the cash if offered honestly I mean, I've seen many examples where people were going for, or investors or angels were going for the bigger game, the bigger exit, and it never really happened. But they were offered the cash. So, you know, it's never easy because, again, you don't know, right? But I think it's good discipline.

34:37Yeah. And I guess what you're saying here is recover your investment or take home. So cover your initial cost and keep a bit of upside. Yeah, exactly. Or some percentage of your fund or something like that. Use some benchmark that makes your portfolio model work or matches what you had expected and promise the LPs and then say, but we're leaving a chunk in. But the reality, Andreas, is that in today's environment, rounds are not oversubscribed and secondary is not as frequent as it used to be, which makes the point all the more valid, right? And exits don't happen that often. Buyers are not, you know, queuing to buy post-Series A startups.

35:26You really need to show something. You really need to show strategic value. Let's get out of this exit conversation and into our shout-out section. Very interesting. Thank you for your questions. Thank you. Thank you.

35:45I will ask you to give a shout out to a co-investor, an LP, or someone you just love in the ecosystem. Well, you're going to love this one. Because I want to talk about iSummer. And I don't want to talk about iSummer because they are good friends of me or because they're doing an amazing job with this event. Or I want to talk about Isomer because, you know, our asset class is collaborative and competitive at the same time. You know, on the direct side of things, one day you may be partnering with one of your peers, another VC firm. But the next day, you might be also competing with that guy. Right.

36:24And the last thing I would do, the last thing I think any Series A or B investor would do is to openly share their pipeline with their peers. So collaboration might be possible if you're partnering on deals, but this is not the nature of the game. The nature of the game is to win deals against each other to the extent collaborating. But on the funder fund side, it's very different. You know, if it wasn't for government money and the folks at British Business Bank or the EIF or the BP in France, we wouldn't have a sufficiently funded early stage ecosystem. And, you know, I wouldn't be here doing my job if it wasn't for those early stage fund managers because they are taking the early risk.

37:06And I think Isomer seems the same way. And, you know, together with other people, right? And the list is long, but together we are contributing to building a buoyant and sufficiently funded early stage ecosystem. And they are really important in that relationship. and with Chris and Joe and the broader Isomer team, you know, we are VC investors first and foremost. We speak the same language, but more importantly, we are sharing. I mean, I have, every time I made an interesting fund, I call Chris or every time a GP is asking me for an introduction to Isomer, here you go. You know, there is no competition.

37:47And I think it's quite rare to see this level of collaboration and sharing at junior level because I know my colleague Mo and Chloe get along really well and they're also sharing information and also at senior level. And frankly, you know, this is how to better help the ecosystem. And I am really, really happy that we have people like them in business.

38:12I couldn't agree more. It's a bit funny because when we first partnered up with Isomer as a venture partner, David and I, everyone, and we still meet people in the ecosystem, and they're like, well, how do you manage that? Do you not bring other LPs on, other fund funds on the podcast then? Or, you know, isn't it competitive? Blah, blah, blah. I'm always like, I haven't experienced that from a single one of you. I had one or two of the newer firms kind of asking, right? Like, what does this mean? Does that mean you don't want to feature us anymore? And of course, it was an obvious answer. No, of course, we'd love to.

38:50What we're missing in Europe is more LPs. And the people that are the most sophisticated LPs, you know, we really need them to talk as much as we can so that we build the ecosystem. So I could not agree more with what you say. I'm super thankful that you choose to give your shout out to the Iceberg gang. But I also think it's systematic of, you know, Chris has never said anything bad about it. I think he actually said, I think he said, Jonathan is one of the first people I call about anything. the problem that I have with Chris is when I see him it takes two hours and I don't do the time passing and I've missed a few meetings, I can count on that, it's all cool, thank you, I appreciate that but this is because we collaborate, this is because we exchange this is because we talk, it's rare, I haven't seen this in the direct side of things and I'm glad for this.

39:45Yeah, I agree, I very much agree And I think that there's maybe a similar thing. And I think you've backed many emerging managers with that strategy as well, the co-invest strategy. I'd love to ask you how you think about that strategy and whether you see similar dynamic there. At least that's what I feel. And that's why I kind of naturally gravitate to liking them. Because they're not forced into a posture that's sometimes a bit down. So my perspective is that I'm seeing this ecosystem as you always have to hand over the keys to someone else, no matter where you are in that kind of value chain.

40:26If you are a seed investor, you would hand over the keys of your companies to a Series A investor. If you're a Series A investor, you would hand over the keys to your company to someone like me doing B rounds. and we will hand over the keys to a buyer or a growth stage fund or a pre-IPO investor. So you're only here for a certain period of time. My goal, and again, going back to that platform play, what Molten is doing is to make sure that we have a solution for follow-on capital for all those early stage businesses. And I know being an investor on the direct side of things, how much time it takes for an entrepreneur to raise capital.

41:08It's a year on the road where you kiss frogs. I mean, with me, literally, because I'm from France. But it's a year that you're not spending time growing your business. It's a year you are on the road. And if we can be of help to fast track those rounds by being a partner with our funds, well, I think we have done something important. For every pound that we've committed to the fund of funds, which is about£150 million. We've deployed one pound, more than one pound actually, in the company that came from the funder fund, originated by one of our fund partners. And I think that's a good ratio. So it works for us.

41:47We are building that bridge between the early stage world and the late stage world. And we're helping those entrepreneurs to fast track their round and spend more time on what matters to them, which is growing their business. Just before we go into the next segment, and it's a bit connected and a weird place to ask you, but I just thought about this whole narrative side to retail investors on the stock market. What have that taught you in terms of making everyone understand the world of venture? Because that's a big question, right? Well, I would say that's our mission. You know, our mission is to democratize retail investing into our asset class.

42:32And it's also my thesis, right? That's why I invested in a business called Crowdcube. I'm a proud board member for more than seven years now. It's exactly the same philosophy. How do we make our asset class attractive to more people? Because a lot of people are very curious, if not excited. But I think investing in one or two companies is just not the way to do it. It's a numbers game, right? It's about being exposed to different things. That's what we do. That's what Crowdcube is doing. That's also what my esteemed colleague now, Nick Brisborn, is doing at Forward, right? This is why we were a backer of Nick Brisborn early on.

43:15Not only because he was an esteemed colleague from my DFJ days, DFJ's pre-days, but also because he was doing things differently. He went public with his early stage model forward at an IPO, I think, in 2018 or 19. And I thought that it was amazing. This is exactly, you know, my philosophy, my almost like my my the cornerstone of our investment thesis, which is, again, to make sure that all of us have access to exciting venture capital opportunities, because access was usually, you know, where things went wrong. How? Yeah, I would love to invest in technology. How do you find how do I find those deals?

43:52I'm not a professional. I'm a surgeon from London or I'm a vet from Manchester. And I would love to invest in those companies, especially the one that makes sense to me. So that's why, you know, I'm trying to encourage those approaches, those models. Yeah, I couldn't agree more. We actually just not too long ago had Stefan Pulse from Unfer on the podcast as well. And of course, one of the great... Very interesting play to hear. Democratizers, yeah. Absolutely. Same idea. Now let's get into the three biggest learnings from the last 10 years of your life. I'm looking very much forward to this. I'll start with a professional perspective.

44:32I think we mentioned this before. So I'll go back to that. Take the cash when offered. This is the first thing that I've learned from my 14 years in VCs. If I look back where we had to make those decisions, as an angel personally or as a professional investor, You know, don't settle for maybe more tomorrow. You know, de-risk your investments. Take the cash if offered. Remember what great looks like. Go back to your initial investment thesis. Is that what good look like? So that's number one. Number two, and this is an interesting one. A great idea is not a business until you make the first sale.

45:16And that is something that I live by, right? Our job as venture capital investors, our IP, I would say, is our ability to pick winners from the rest of them. That is our only IP. That's our product. So our job has to be almost like professional skeptics. But it's increasingly hard because most of the entrepreneurs we meet every day have true conviction that they will change the world. And they're also usually fantastic salesmen. So you can sit here all day hearing those pitches and your head will spin and every opportunity is exciting and tastes like the last. So, you know, it's a bit about like investigative journalism in a way.

46:01We spend our time to decipher what the GP is telling us and assessing with our prism if it's good or not. The judge of peace here is can you sell? You know, it's great. I agree. But can you sell? And when I started my career as a venture, as a VC investor, I remember those days, I thought everything was amazing. I wanted to invest in every company that came to see me. And the next phase was actually the opposite. Everything didn't pass the bar. I was a skeptic. This is never going to work. And now I've got a bit more of a balanced view. But I always go back to that point, right? It's a great idea.

46:43It's not a business. unless, and I'm not even going to say the first million dollars, the first sale, you know, proving that you can sell. But that's another thing. What's the fund investing equivalent in terms of it's not a great, it's not a great, it's not a business until, or idea is not a business until you've made a sale? Oh, but you mean from a fund perspective? Yeah, is that it's not a great fund until you've had an exit? No, I think it's different with funds, in my opinion, because, I mean, our whole game is about people. We invest in people. People are our key assets. Companies are people and people are companies.

47:28But I think, you know, when you are investing at a later stage, it becomes very much about numbers, unit economics, addressable market, your ability to gain market shares, your ability to go back to a profitable state or be in a position where you can raise. So it is about numbers. When you are investing in a fund, it's only about people, especially when the track record is limited. So I think then the answer is, what do you do that is different? What makes you unique? Because there's a lot of people out there raising money, a lot of smart people with, you know, vested experience as operators, as venture capital investors.

48:13Some of them are, you know, even coming from a very, very different background and they're all super interesting. But they're all saying the same thing, which is we have a great network. This is what we do. What is really unique? You know, how do you stand out from the crowd? What makes you different? I think this is, you know, what makes me tick. Do you agree, though, that it's okay that the way you're different is actually that you're better? In the sense that I think, if I'm very honest, I think that the venture model, even though it is well-known and quite well-described, what you need to be good at to be a good venture investor.

48:55And sometimes, yes, you want to be etty or you want to be able to say, this is exactly where I'm different from others. But sometimes you're just a really, really good fintech investor that's networked to all the right people. And that's what makes you different. It's not that you have to come up with something etchy and unique. It can also just be that if you claim that you're the best fintech investor with the best network, well, then I just need to be able to pick up my phone and call the first 10 fintech investors that I know and respect, and they'll all mention your name. All true. I would add to that your ability to understand the future.

49:37You know, this is something that I quite like. Entrepreneurs are the only time travelers that I know. You know why? Because most people live in the present, and the future is actually an extension of the present. But the future is coming fast, all fully fast at us now. We talked about Gen.ai before. And how do entrepreneurs win? Entrepreneurs win when they break free of the present and they fast track the future. What happens is their ability to ride on those inflection points that we've mentioned before, cost of AI, access to mass auditions, cloud computing, and basically force the incumbents to react rather than the other way around.

50:25We're talking about those big companies out there. So as an investor, you should ask yourself the question, how do I understand the future? Because there is something that is for sure that the next category leading companies are probably raising a seed round today. How do you understand this? And at the end of the day, it's all about conviction. It's all about believing in what you do. It's a hindsight industry at the end of the day. So you'll know if you get it right or not four or five times from now. But I think that's what makes you different also, is your ability to look at the future with a different type of lenses.

51:05You always hear fund investors, good fund investors, say it's about what makes you unique. And then that kind of can leave an emerging manager thinking, I'm looking at my deck and it reads great network, great picking skill, great. Yeah, but if everybody is saying the same thing, how does it make you unique? Exactly. That's what I mean. that it's not that you have to have, you know, you don't have to pull a body wrap it up to be a good VC. It's just about what you're really, really good at. You're really, really good at. You're not mediocre at it. You're the fucking best in Europe. Unique is one thing.

51:42It's more about what makes you different. Yeah, exactly, exactly. Now, you had another one, which we didn't cover yet. It's, I always ask, why don't settle for uncertainty? I like that one because I think it speaks to your curiosity and your refusal to settle for uncertainty, which in both startup investing, but definitely in fund investing is absolutely integral. I agree. And, you know, personally, I'm always trying to make choices that put me against my own comfort zone. I think as long as you're uncomfortable, it means you're growing. Uncertainty is part of that. again success is about understanding uncertainty betting on it and getting it right and if you get it right what is the magnitude of your rightness?

52:35That is the next question people don't like uncertainty people like their routines but I don't think or I don't know if that's where really truly you're put to test I think people are much better when they're outside their corporate zone and this is again This is your IP, your ability to get it right. Now let's get into our quickfire round because in there we have what your top tips for emerging VCs is, so we need to be able to spend some time there.

53:15But let's start with the first one, which is what advice would you give to your own 10 years younger. Buy more Bitcoins 10 years ago. It's really a good one. I did buy a few, but not enough. No, more seriously. This is about trusting your talent, your ideas, your instinct. Again, in this line of work, your IP is your judgment. This is your product. This is your key asset. And if you don't trust yourself, nobody will trust yourself. The first thing is trust Trust yourself, trust your talent. I'll tell you a story. Back in 2001, I tried to start my own company, my own website. I was still at school.

53:55I was doing that with a friend of mine. And it was a student network, very much like what Facebook has was three or four years later. So what we had is we were taking pictures of people in parties, in business school parties. And we gave them the ability to comment on them. Oh, you kissed that girl. And you think we didn't see you. And then we put it out there. And we could see a lot of engagement in the school. It was called Planet EM. And we started by saying, okay, maybe we have something here. And we went to a few people who were trying to raise 5 ,000 euros. And we failed. But I knew deep down that we had something.

54:33And again, we had all the like. We had the like button. I like this or I will receive more of this. And it just disappeared because we couldn't raise 5 ,000 euros. And then we all went to banking and I have a different career. And I'm looking back at this as an interesting moment of my life because I didn't trust that we had something good because I couldn't raise the money. It was not even a lot of money, right? 5 ,000 euros. I'm pretty sure we could have found it. We really tried. But that killed our motivation. You know, people don't believe in it. It means it's never going to work. We should have trusted more our instincts and what we were doing.

55:10So I think, you know, follow your dreams. Remorse is always better than regret. At least you've tried, but trust yourself. The other thing that I would have given myself 10 years ago is probably, you know, I think most people overestimate what they can do in one year and underestimate what they can do in 10 years. Sense of urgency is always good. It's good stress. But is that really urgent? Just take a step back to think carefully about things and, you know, just give yourself time. It's not a race. It's a marathon. It's a marathon with a lot of hurdles. Don't get me wrong. But it's definitely not a sprint.

55:47And maybe I was too impatient. I was too fast. So, yeah, that's what I would say. Now, what are your top tips for emerging VCs across Europe for fundraising? Yeah, so we talked about this before. You know, ask yourself why you are truly differentiated, what unique you bring to the table, because people will like that. If you don't have track record, fundraising might be an uphill battle. It's not over again. We backed people with limited track record. It exists, but we're not talking about 10 deals. Track record can be compensated, in my opinion, by exceptional vision and talent in many different ways.

56:35But again, what makes me really, really interested is somebody that is coming with a very different, truly unique approach. What I like to see in GPs is what I just mentioned before, which is people that are really trusting their instinct. You know, we have something special here. I call it then how you execute it. I call it the three Ds, you know, drive, determination and discipline. Part of getting an edge is to stay focused. It's not an easy thing, actually, when, you know, sectors and investments overlap with each other. And, you know, you see quite a few managers going slightly off-piste, which is easily understandable.

57:15Right. I think it's important also to break your own rules. Don't do it all the time because the rules matter, but have that flexibility. And the last thing that I would tell them is don't raise more capital than what you think you can deploy with discipline. You know, we've seen it in our program, a firm that have returned and raised significantly higher size funds, but it doesn't necessarily need more performance. I think what it means is less discipline. One thing is for sure, you'll be back on the road in two or three years raising for the next fund. The question that you have to ask yourself is, you want to be pushed to deploy or you want to do that with discipline?

57:56And, you know, if I give you out of 80 funds, I think the average size of our fund is about 70 million pounds, 7-0. I think that's a good size for a two to three people investment team. Of course, if you hire more partners and you're becoming a 10 people team, you can deploy more capital. But again, it's all about discipline. Now, what's the most counterintuitive thing you've learned in venture? Again, this is going to be controversial, but I think the most counterintuitive thing in an industry where ego is usually very high is that we are not the kings of the lands. VCs are not the kings of the lands.

58:34We just count it. This is all about entrepreneurs. And this is all about our ability to help them grow their business, hire people. Obviously, we're not philanthropists, so we need an exit at some point, right? We, most of the time, we are making it about ourselves. and I don't think that should be the case, which is why I usually shy away from those events, podcasts and stuff like that because it's not about me, it's about my entrepreneurs. It's about the people that I'm trying to serve and help. That is so true in mainstream media as well. I think we're accepted a little bit because we only talk to investors for other investors to hear.

59:12So that's what we should spotlight. But I fucking hate hearing the Dragon's Den and Lion's Den and whatever these programs are called, where you have, you even see front page pictures of the investor in the middle and then the founder group gathered around them. Like this was about the investor making the bet. What the fuck? Thank you. Thank you. I couldn't agree more with this. It's about them. Everything that we're doing is about them.

59:44Before we close, I want to ask you to give us your uncommon belief that most people around you do not believe in. That's the one sentence that you asked me. That's exactly. Well, I think we will also finish on a very controversial thing, which goes back to what I was saying before, right? And my statement is the unit of ego per dollar return is higher in VC than in any other asset class. Explain. You talk to many different people looking for capital, right? And the only thing that they are, and they're all great, and I'm sure they're great, right? But the only thing they talk about is track record, track record, track record.

1:00:27When it comes to dollar returns, there's not a lot of people actually in our ecosystem that have a truly great longstanding track record of returning proper capital to their LPs, especially in the early stage world. There are a few, and I'm glad to say that we've backed them. But what I'm hearing is a disproportionate sales pitch compared to what actually has been done, which makes me think about this line, right? You're talking to people and you're like, wow, that's amazing. You must be so rich. Well, actually, no, I haven't returned a single dollar to my investors. Well, maybe the sales pitch is a bit too pushy.

1:01:06I don't know. But this is something that I truly believe in. And again, it would be controversial. I'll get a deal for that online, but that's okay. Jonathan, thank you so much for speaking some truth with us here. Thank you so much for being a judge at the European VC Awards. Everyone tuning in, please do go and nominate all the great VCs that you believe we have in the ecosystem. Please do. This is important. Absolutely, absolutely. Thank you so much, everyone who tuned in today. I hope you enjoyed the episode as much as I did. But if you did, do make sure to drop a review, go on EUVC and subscribe if you haven't done so already.

1:01:44Thank you.

1:01:48Tear 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. Let's start acting.