An interview with Michiel Kotting: Early investor into Vinted, Fiverr and Personio

0:00Michiel Kotting:Hello and welcome to the Scaling Europe show. I'm Seb Johnson. Thank you so much for joining me. If you like what you see, please like, comment, subscribe. The more engagement, the more visibility, the better guests I can get and the better coverage I can provide of the European tech ecosystem. I would also like to say a huge thank you to my sponsors, Checkout.com, one of Europe's leading fintechs, and it is where the world checks out. And SurrealDB, the multimodal database for AI agent, which is partnered with thousands of the leading organizations, including the likes of NVIDIA and Samsung. So if you like both of those, check them out in the links below.

0:32Michiel Kotting:Thank you very much. I'm here with Mikheel, a partner at North Zone and a longstanding VC in the European community. Thank you so much for joining me. How are you today? I'm great. Thanks. Thanks for inviting me. it is my absolute pleasure you've been both building and investing across europe for two three decades is that right yeah although the building started in the u.s i i was lucky enough to uh after a start of my career in boring consulting to go to the u.s to do an mba there and really fall in love with entrepreneurship and get got caught by the the bug and moved out to the valley uh to start my first company amazing in my first my first three years of working was in consulting um and it got to the point where i just quit my job i had nothing to go to but i knew i had to be in startups and i wanted i was like i have to get the earliest stage startup i can possibly find um yeah when i started my career um the only few people that joined startups people were asking them couldn't you find a job in a real company so a lot has happened since and and for the better.

1:38Michiel Kotting:Well, you've been building and investing for a long time. Let's just go straight into the state of the ecosystem. How are you looking at the state of venture in tech, specifically in Europe? And how has it changed? And how has that changed your job, I guess? I mean, first of all, I think we're living in incredibly exciting times. I had the luck of sort of starting my career in tech during the birth of the internet. And that was an amazing time and a lot changed. And obviously, there was a huge, huge hype and then a bubble bursting. But everything that we were expecting happened and even more intensely.

2:15And I think this is bigger. And being able to be in the ecosystem at a moment like this is incredible. And, you know, it was interesting because if you look back in, call it, the last 15 years in tech in Europe, it's like in 2010, it was super nascent. There were only a couple of big deals. There were only a couple of firms out there. And basically 80 % of anything tech-related was happening in the Valley. And you needed to be based next to Oracle to be able to be successful. And then I think in the decade that followed, thanks partially through the cloud and through the app stores, et cetera, you could create companies from everywhere.

3:00And by the time 2020 came around, 80 % of tech activity or unicorns were created outside the valley. And then come October 22, when GPT-3 came out, this big moment happened. And all of a sudden, everyone felt they had to be back in the valley again and had to be sitting next to OpenAI and being at all the meetups where everything was happening. So for a while, it seemed like, hey, this is an incredibly exciting time, but it's only going to be in California. And obviously, we all know that 90 % of usage of Gen.AI is outside of the US. And I think we're seeing the pendulum swing back again. And we're seeing companies bloom everywhere.

3:46and we're seeing that sort of, especially the last mile of, hey, the AI is powerful today, but how can you really make it work and really implement it is happening everywhere where companies are and where consumers are. And so, therefore, two years ago, it seemed like, okay, this is a super exciting time, but is Europe that exciting? But I would say, I would argue, yes, we're now seeing that it is.

4:11Michiel Kotting:Yeah, and especially we're seeing, I think, a lot of excitement I mean, a lot of amazing European companies come out of the application layer. Yeah, but I would say it's at all layers. And I also think for me, and obviously we talk about this all day long, first between ourselves and where do we need to invest and with entrepreneurs, but also to our LPs and saying, okay, what if you look at sort of the platform shifts are of course what feeds our industry. And this is clearly a very large platform shift, but I think what is special about it, it's not a single wave, but it's several waves on top of each other.

4:44And we're only three years into it, but I would say you've already seen sort of three mini waves where the first wave was really around language models and it was all about, okay, now you can interpret text and you can summarize it, et cetera. And I think then we had a very clear sort of mental model of saying, okay, you have the foundational layer and that's for the hyperscalers and it's for the big infra players like nvidia and then you have sort of a tooling layer that was still sort of forming and a lot of the uh vc activity was at the application layer and especially sort of outside the value that the valley that seemed to be where things were going on but i'd say in a second wave we got reasoning and and sort of uh attention windows etc and now we're in the third we're seeing a lot more autonomy and now you see the blending of the different layers right you see uh you know small models being fit for purpose you see edge computing you're seeing biological models so it's i don't think it is as simple anymore to say oh you know what it's the big guys that do that create the foundational models and here we're just creating the applications yeah and i think

5:57Michiel Kotting:that's true we're definitely seeing um even people like hugging face um there's another one recently that's also going for like the hyper verticalized models right so it's like very specific use cases instead of the kind of the broad large language models um but of course european ecosystem more broadly or or looking at your job have you felt that your job has changed or maybe maybe not the way that maybe not the fact that the job has changed but the way that you do your job has that changed in the last three three years i mean i think sort of always we've as a generalist vc like I said earlier on in Europe there wasn't that much market and so therefore it was easy to be a generalist and I think in the last decade we've seen with an explosion of the ecosystem that the founders want you to be specialist in what they're doing and so as a firm that is generalist in nature the individual partners become increasingly specialist on specific topics and if you look at the movement in the last decade, the areas where software and data are playing a big role have expanded a lot, right?

7:10It used to be sort of e-commerce and SaaS and databases and then we saw healthcare and logistics, et cetera. I would argue now thanks to AI, it's things like robotics, defense, et cetera, et cetera. So the number of topics and areas we need to cover become increasingly complex. And so we have to adjust ourselves to that and make sure how do you stay on top of more emerging fields and how do you work with external experts and internally and how do you make sure you do that. And then obviously the second part of it is the nature of everyone's work changing because of AI capabilities. And I would argue versus what is possible and how much change has happened.

7:55and that's in our job, but it's in sort of all of the knowledge jobs you see around you, there's still quite a big gap. And I feel that a bunch has changed, but I think in the next two to three years, a lot more will change. And so I would say concretely now in our job, obviously sitting on a lot of data of earlier expert interviews and having looked at a lot of companies surfacing relevant information from what you've done before can now be done through sort of language models. Obviously, sort of external lead scoring, if you will, both through external tools and tools you develop in-house has changed.

8:38Setting up the research you need to do to kind of be quick in mapping competitors and mapping a market. You know, you can do through the right kind of prompt engineering and then sort of finally creating your investment memo kind of stuff. you can start doing through text editing. I feel right now a lot of us are still doing that a little bit haphazardly and individually and tuning and tweaking it ourselves. And I think we're on the cusp of being able to build tooling more easily. And the problem, of course, with the venture fund is always you're a relatively small team and has a lot of work around deal sourcing and working with your portfolio companies, et cetera.

9:22So I think interesting stuff has changed, but I see more to come.

9:28Michiel Kotting:And do you think, going to the point about the team, I guess, which is also the very first point that you made about going from generalists, but also needing to have the specialisms in those industries. Combining that with the need for product building and adoption within VCs, is it changing the way you're thinking about structuring your team? You know, do you think, or maybe we actually need product builders in a firm? Maybe we need very specialist partners who are specifically looking at healthcare or defense. Has it changed the way that you think about how your, you know, North Zone or any firm should be structured?

10:03I think, yeah, I mean, those two things are very different, right? I think bringing in data and tech specialists, obviously, everyone is leaning more towards that. And I think overall, the kind of role of non-investment platform teams, et cetera, has been expanding and getting that right and making sure you serve your founders in the best possible way, as well as sort of get the best grip on the market is an important competitive tool. in terms of figuring out what kind of partners you want in your firm I think it's a constant battle right because if you try to say okay healthcare is really important let's find someone who's really specialized in healthcare you run the risk that that person is such a hyper specialist that no one else can follow their investment decisions and if they end up being a bad investor you've sort of firmly clicked in that you want to do that one specific thing and At the same time, like I said, if you're just a generalist, you're not going to be credible for your entrepreneur.

11:06So I'm more of a believer of the fact that good partners try to develop a thesis of what is changing in the world and what that implies for investment opportunities. and then deliberately by studying that well and building up the right network of experts and founders that they're working with, get relevant and credible in it rather than say, hey, I'm a semiconductor expert because then all you're going to do is semiconductor investments. And I think in the model that we believe in, you can jump from area to area and develop a couple of things in parallel and then still try to find the best deal rather than the best deal in X.

11:50It's the same as if you're saying, hey, we're only going to invest in France and you get the best deal in France. If you say, I'm investing globally, you hopefully get, in the end, the better kind of deals.

12:03Michiel Kotting:And the market changes as well. A lot. Web3 blockchains. If you'd hired a big Web3 blockchain expert, you'd be not sure what to do with them now. Yeah, you'd be retired. Yeah, true. true true true um and so at the investment level you know there's lots of talk about bubbles and ai bubbles and you know i think you know maybe true maybe not be true but what i think is more interesting is how it's impacting venture across europe more broadly so i've heard from a lot of founders who are raising either their second round this year or their second round in a very short space of time. And one of the things that people are saying is that our VCs, like European VCs, are now moving faster than they've ever had to.

12:48Michiel Kotting:And one of the reasons that they're doing that is because they're seeing a lot of interest from the big American VCs who are trying to get access to the European deals. And so, you know, I've heard that, you know, yeah, European VCs are trying to move quickly to match the speed of competitors from the US. Is that your case? Have you seen that? I mean, yes, yes. And it's not that it was never before, right? Because obviously during the whole fire drill of COVID, we saw deal-making accelerate to a crazy pace. And I think, and on the other hand, it's also if you really focus on something, what is going to do, what is a month going to give you that two weeks can't buy you, right?

13:30So I think in our case, you try to come in with the right kind of thesis so you know what you're looking for, what you're excited about, is really important to prioritize because we're always looking at 100 things in parallel. And the only way you can do a deal fast is by dropping everything else that you're looking at and therefore deciding which one you prioritize over everything else is a part of what is really, really important there.

13:56Michiel Kotting:And then I think finally, the more complicated thing is given where the state of the market is you don't you're not always going to get all the access you want or you're not going to get and i so i'm not nervous about doing a deal fast i'm do i am nervous about doing a deal because it's super competitive and then you get you know twice an hour you can speak to the founder and there's so much you haven't experienced by by being there so a lot of the the right preparation is to get to know the promising companies early on. So you've done a lot of the work you would want to do in the deal flow already a year before, six months before.

14:34So by the time it comes to the potential of a deal, you can make up your mind faster, even better, you can try to preempt something because you're really believing it. Yeah.

14:44Michiel Kotting:And that's the other trend that I've definitely heard a lot of is that the increase in preemptions is happening at a much higher rate than has happened previously. Well, again, I feel that sort of for me, post-COVID, when everyone had still big funds and big investment teams, but there wasn't so much deal flow happening, that's the time where most of the deals that happened were going to be preemptions. Because, you know, people were starting to do the work individually and had the kind of capacity and bandwidth. I think now with the pace in which some of these AI companies develop themselves, it's more often that you see a round happen.

15:23Because if you kind of preempted three months earlier, there is so much less to go on than if you wait three months. So I think there's a lot of preemption in what do you focus on and who do you get to know well. But things are a bit more happening around rounds again than I feel than sort of probably two years ago when there wasn't as much deal flow.

15:42Michiel Kotting:Yeah, okay, got it. That makes sense. And you've had an amazing career in VC. I think I read that you led the Spotify investment at Excel. No, no, I was part of the team. No, no, no. Okay. I wasn't a partner at the time. Got it, got it, got it. Involved in Spotify, you're now on the board of Personia. Yeah, Vinted was my big one at... Oh, amazing company. Which was exciting. It was my first deal. Oh, wow, what an amazing start. It's also a little bit of the irony of venture, right? that you can do. In the end, if you look back on your career, it's probably three deals that make your entire career and they're interspersed.

16:20But yes, I've had the fortune of being involved with some truly amazing founders and it's just so inspiring to see what is possible if both an amazing group of founders and the stars align.

16:36Michiel Kotting:Yeah, it's a really interesting point. I was just making a note a bit. that like as a VC, you probably do have three deals that make your career. Yeah. And you've sort of got to just, it's almost like you've got to survive the time in between each deal, right? Until you've given it enough time to get the deal and to see it grow. What would you say those deals have been for you? The ones that have been really career defining or the ones that you're most proud of? Yeah, I would say sort of Vinted, Personio, Fiverr back in the day. Yeah. And hopefully the one that I'll do tomorrow. Yeah, amazing.

17:12Michiel Kotting:And what are you looking for? The way that you may have assessed Personio, Vinted, companies have changed a lot, founders have changed a lot, things have moved. I mean, even the core financial fundamentals of businesses in the new AI world are very different. When you're meeting a founder, you're looking at a company, what are the key things that you're looking for to try and tell you that this is one of those career defining deals? Yeah, I mean, it's really hard to summarize to a couple of points without being super cliche, but I like this sort of sense of someone has a real novel insight of where the puck is going.

17:59and then knows to combine it with a short-term vision of what needs to happen and how the bowling pins fall and be very practical about it and then combining it with some sort of deep urgency, desire, drive for stuff that needs to change. And then having a winning personality that can convince people. I think early on in my career, I felt like, Like, hey, if something was super smart and maybe the founders weren't very good at expressing it, but I got it. It got me really excited. But then I kind of realized, yeah, if you're not great at pitching it to a VC, you're probably not great at pitching it at a client.

18:43You're not great at pitching it to potential employees. So unfortunately, the Darwinistic point is you need to be a great storyteller.

18:52Michiel Kotting:Yeah. So I think a part of who we described, it's like magnetism. you know you need to be able to like attract people inspire them and really lead them in your vision um well we're almost out of time um i always wanted to ask what's been you know you talked about your you know the deals that define your career what what are the anti-deals what are the things that you've missed i mean i think for me there were two very big ones one was uh back in the day, we looked at Adyen. Oh, yeah. And we were in a competitor of theirs in the US. So we got references on them, and they were not very excited about them.

19:32And a number of reasons kind of made us feel like at 130 million, that company was way too expensive. So that was a huge, huge, huge miss. And the other one was an Israeli company that was called Adalom, where again we felt it was too expensive index ended up doing doing it and it was an amazing founder and that company was relatively successful but the amazing the more important thing was that guy then afterwards started with so it was like yeah it was the missed opportunity to go back again the second time yeah yeah too exactly so yeah um i think if you're not super upset about those things you can't do this job but on the other hand if you if you stick with that uh disappointment for too long you can't do the job either so yeah it's a bit of you need to care but

20:18Michiel Kotting:also be able to move on and keep searching for the next thing well michael thank you so much for joining me i've absolutely loved chatting you've had such a an interesting and amazing career uh yeah and one of the standout vcs from across europe so i really appreciate your time really good talking to you thank you

20:44Thank you.