Carlos Eduardo Espinal, Managing Partner at Seedcamp: European tech moved from small thinking to building for global stage

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0:32Hello and welcome back to the Scaling Europe show. I'm Steve Johnson. Today we are in the Seed Camp offices with managing partner Carlos. Thank you for joining me. Thank you for having me, sir. Well, it's an absolute pleasure to be here. How are you doing today? Awesome. Nice sunny day. People can't see it, but it's beautiful. It's absolutely beautiful. London is alive when the sun comes out. It's a completely different atmosphere and vibe. Look, I want to get straight into it. You've been investing Seed Camp for 15, 16 years, in total nearly 20 years. You must have seen the ecosystem change and evolve in a whole number of ways.

1:00When you look at the European ecosystem, what would you say has been the biggest way that the ecosystem has leveled up since you started investing? There's like five layers to that question. But I think that the most amazing layer is that I think we've broken through this mindset that people used to say that Europeans had, which was like small thinking, small outcomes. Like that's been so shattered now. and I still go to events where people still talk about that but in my experience at the sort of founder level that we engage with like it's just not true anymore you know there was maybe a trope there you know in the early 2000s and whatever but like that's been such an amazing change over the last 20 years and that's and that's really a testament to all the founders that are European that have succeeded on a world stage you know whether it be Daniel Ek or Daniel Dines or whether it be Victor from Synthesia or Nick from Revolut, like all these names have just put such a mark on the world that you can't hold back as a European founder and say, this is only a local thing.

2:04So that's probably the biggest transformation. After that, I think Europe found its footing as building innovations that the US doesn't always build first or may not be able to for structural reasons or might be just differently equipped to build out stuff. So that's why you saw the fintech revolution born in Europe because of the currencies and the way that money moves across all the different nations, right? You're seeing the birth of AI in Cambridge and Oxford, even though of course the US has its own scene, But it's, you know, those are big centers of innovation. A lot of them in France as well, media, arts, everything else.

2:46So I think it's just amazing to see how much Europe has crafted its own flavor of innovation that is outstanding. And we just continue to see more and more of that. And where do you think Europe is still lacking? Where are the gaps in the ecosystem that we still need to grow into or level up? Yeah, I mean, I think generally speaking, at the highest level, it's probably growth capital. Yeah. in sort of financial markets liquidity. In that way, we're not going to digress into geopolitics here, but we're very much as an ecosystem still linked to the US tech ecosystem. And whether that be the financial markets at exit or whether it be the late stage growth capital in venture capital, there's still very much a linkage there.

3:31And when Seedcamp was founded, it was almost like an ecosystem play, right? where everybody was kind of getting together to support the growth of this new thing, to help the ecosystem. And you're right, the growth capital is a huge gap. Have you ever thought about, would you ever consider like a scale camp as opposed to a scale camp? Yeah, series A camp, series B camp. Yeah, to help plug that gap that is still here, you know, decades later. Yeah, it's interesting. One of the privileges of having worked with a lot of companies is that you learn that the best companies play to their strengths and stay within the authenticity of who they are and what they are.

4:09And I've had the privilege to meet some of the best growth capital investors. That's not our DNA. And I think that there's something for you to be excellent at something. You need to have it be part of your DNA and sort of the way you operate, the way you evaluate companies and stuff. So I think it's something that we've discussed internally. Like, what does that look like? We do help our companies with our pro-ratas for their growth, But that's not the same thing as like being a growth funder or like being an ambitious, you know, Series B investor onwards. So that's a very different philosophy, different psychology, different personality, if you will.

4:47Do you think that's been one of the strengths that you've maintained? Because often, you know, I'd say the traditional VC route is that you start at an early stage and small and then you try and raise bigger funds and you move later as well as earlier so that you can back the winners. you can double down, you can do all the way to pre-IPO. Whereas you're probably one of the few funds that has really stayed laser focused on staying early stage. Do you reckon that's given you an advantage over others that have started early and moved late? I don't know that it's an advantage as such, because it's not necessarily designed as a sort of like a SWOT analysis of where do we sit and how does somebody do, what should we do.

5:25it's more of like okay this is what we know and then there's peripheral circles or sort of concentric circles around what we know so for example um the three main values that drive us are that we're a teamwork centric uh organization in other words like there isn't one star player like yes we have titles but that's not how we operate our founders engage with multiple of us at any given time it's not like one partner or whatever um we are community centric as you said You know, we still lean in on that. We still involve a lot of our community to help our companies. And we're entrepreneurially driven in the sense that there's nothing that is off-piste for us to experiment or try or do within the boundaries of our stage and what it is that we do.

6:09Now, what's really interesting about your question is that we've thought about it. Like, we've thought about how do we expand? How do we do this? How do we do that? And everything has to fall within that. So for example, with the community of the things that we could do, community being one of our values, it's like, well, how do we support emerging managers? That falls within that because they're part of our community. But, you know, having a growth fund that just focuses on sourcing growth companies, it's kind of outside of that. So that's kind of how we think about it. And if that, you know, from the outside looks like a competitive advantage because we've focused on something, then it's more of a side effect rather than like, you know, saying, you know, this is the thing that is going to differentiate us from other people.

6:50Got it. Okay. And I'm curious to also touch on like how SeedCamp has changed more broadly over the last 20 years because the ecosystem has changed a lot. How has SeedCamp had to change to sort of match the change in the ecosystem? Oh yeah, it's been massive. You know, it's like one of the things that really fascinates me about life is how much you can look at key moments and decisions that are like pinpoint decisions where it totally changes the trajectory of everything you've done. I'll give you one example. We've had several but I'll just give you one and then we can kind of play with others.

7:28there was a board meeting roughly around 2010 2011 where we were deciding whether or not we were going to clone a model coming out of the u.s that our colleagues and friends at tech stars were doing tech stars at the time was doing this amazing work uh expanding internationally you might recall they had um a barclays accelerator they i mean there was just so many so many success stories coming out of tech stars yeah and we were still early days trying to figure out what our value proposition was to the market. We were only three years old at the time. And we were kind of enticed into potentially copying slash joining the Techstars network and effectively following their model, the way that they batch companies, the way they do things.

8:14And it would have been totally logical to do that. They had something that worked and we were still trying to find our feet. And I remember very vividly, we had a board meeting, several of the people that you might have seen on our website that were original members of the Seacamp family. Saul Klein, one of the co-founders of Seacamp was in that meeting and we discussed this and the decision was we're not, we're going to go our own way. It was scary because at the time we didn't know if that was the right choice, right? Like you have something that's very clear cut, you know it works and other people are doing it and then the opposite isn't this like clear strategy, it was this sort of like ambiguity.

8:52It was like, hmm, we're going to lean in on the ambiguity, but not necessarily know where we're going. And that was such a, such a liberating moment because it forced us into having to invent our own way. And what happened was that we learned that the European ecosystem works very differently than the US one, which drives companies to like Silicon Valley or like one, one state where everyone speaks the same language. With model wasn't going to function for us. And so like in retrospect, that was a huge turning point. Another turning point for us was when we decided that this idea that acceleration, so the idea of acceleration was born in 2007, like you still see Y Combinator being referred to as an accelerator.

9:37That whole idea was when there was a certain structure of company, where there was a need to educate as part of growth. And the two things would combine capital, education, support. And that was the accelerator. And around 2015, there's so much democratization of how to scale a company. You know, Reid Hoffman did some great work there. There was a lot of stuff about how to work a company. We had to get rid of that. And so if you look historically in Seed Camp, there was this transition where people were calling us Accelerator, where we were saying, actually, no, we're seed fund. We're seed fund because whilst we will do some of the things that Accelerator does, we're not going down that path.

10:19And so those are just two tangible examples of course corrections over the history of seed camp that sort of shaped us and sort of the decisions we've made. Interesting. And when you look at the way that things are moving, even the last few years, it feels like deals are moving quicker, valuations are getting higher. It feels like, especially in the market at the moment, it's a lot more competitive have you had to change in the last few years to match that either going earlier or moving faster to try and match the pace yeah so i mean you're i'm sure you're familiar with the the ooda loop right so you observe you orient you decide you act and one of the things that we do every year is go through the cycle of like okay what's going on uh what should we be doing yeah um what kind of decisions should we be making as a function of that and then let's execute them.

11:05And so if you look at the values that I mentioned earlier, one of them is intrapreneurially minded. And so it just means that we don't hold sacred cows in the organization. There's no product that we can't get rid of. We used to have a product called Seed Camp Week. We loved it. It was amazing. It was a lot of fun. We got rid of it. It just didn't work anymore. And so, yes, every year, like during COVID, we had to adapt. Post-COVID, we adapted. Now things are moving a different way. We had a meeting yesterday about sort of how do we structure deals in an AI world where the grounds look different than they've done for the last three years.

11:37But we're also cognizant things go through cycles. And so like part of this sort of adapting is like adapting in advance of change, adapting to change, but not adapting permanently when you know that there's a cycle coming. Yeah, yeah. I think that's really interesting. It's being aware that this is, you know, approaching probably the peak of the market and that this is probably as fast as things are going to get. I always want to touch on, you know, CTCAMP has always been sector agnostic, right? You've always had a very wide range of investment times. You've seen a lot of success in fintech, but that's not been, you know, necessarily intentional.

12:12I was wondering, like, has that, is that, do you see a world where that becomes a disadvantage now that we see tech in Europe moving towards more deep tech, whether it's defense, models, chips, where a lot of founders are now, they want more, you know, maybe like academic experience within that field with the people they're getting on board with? You're right. It has its moments when it feels like a disadvantage and has moments when it is an advantage. So I'll give you an example. If you just use medical metaphors, for example, you've just asked me a question like in a world where we need more oncologists, more cardiologists, is there any point for the GP?

12:49Well, I think that we're more like in the pediatric stage of like company development. Like there's some very unique characteristics to early stage companies. And if you're a specialist in that, that applies equally to a company that's in deep tech as much as it is a company in quantum. Yes, we do have a big enough network of companies in each one of those things. So, for example, one of the benefits of having 100 investments per fund is that you're inevitably going to have like we have one of our robotics companies here. We have a portfolio of about eight robotics companies. That's still more than a lot of funds.

13:24So whichever way you look at it, you have a compounding benefit of having a network around specific themes. But that also gives you insights into the stage of a company's development that has its own unique challenges. That stage is usually when founders are starting to hire externally for the first time. There's a transition of institutionalizing the culture that was usually driven by two people, training up those people, incentivizing them, dealing with founder dynamics, dealing with early customer growth, pricing. All these issues are issues everyone goes through. And so if you get really good at it, your tolerance for it, what things can go wrong is different than somebody who's only gone through it a few times.

14:03and also you know what is a distraction and what isn't and you know where to focus the time and energy and money rather than chasing other things that sometimes is more particular to later stages. Yeah, interesting. I think it also goes to the point that you mentioned about cycles. You know, like I swing to other VCs who are also sort of segment agnostic and their point was we don't want to bet big on one industry now. I specifically asked would you look at hiring a GP with defense expertise or something and they were saying well defense is big right now but you don't know in two to three years And to your point, it's like if we are good at the core similarities of every business, then we'll always have a place you can build a really big, long firm that can outlast all the cycles, which I thought was really interesting.

14:47Are there sectors that you are investing in today that you wouldn't have invested in 10 years ago? Yes. One of the benefits of being almost into our, you know, almost that second decade of working is that it's afforded us flexibility to be able to invest in hard segments. So yesterday we closed an investment, our second investment in space technologies. Amazing. And we know that the time to maturity there is going to be, you know, at least six years, baby, before they have something that's completely viable. Yeah. That would have been unforeseeable for us. It would have been, in early days, would have been impossible to even conceive of.

15:24That's an example of one. Robotics is another. These are investments that are typically going to take a long time, probably going to require a lot of money. But I think now we can start playing with that. It's also the times, right? The times have changed. The technologies are much more mature. And maybe now is the time for that. So I think the whole venture world is also, So, I mean, the question applies to me and it applies to other people as well, because I think we're all going through this transition right now. We're trying to think, OK, if the middle, which is where LLMs are playing, is consuming more and more concentric circles outwards of what's available for startups to create, the fringes, which is really intersection with hardware, is that where we safely can play as VCs?

16:06So that's, I think, is being hashed out right now in the markets. Yeah, it's interesting that for sure we're seeing the trend more in the VC world more broadly. But it's interesting that you feel like you now have the ability to do that personally in a seed camp. Is that because you've kind of got the goodwill with LPs because you've proven yourself and now you're able to take those longer term bets? I think it's a combination. Yeah, I think that's one of them. I think it's also because we now understand how to mitigate the risk associated with that because I think it's both, right? You need to be able to identify when a company is doing well enough and how does that look like over stages.

16:41And it takes time to build that up internally. Got it. Okay. And your last fund,$180 million. It's a very big fund, your biggest yet. What have been some of the advantages or disadvantages of raising such a large seed fund? Yeah. Well, the funny thing is that it seems large, but when I see some of our peers in the industry raising very large ones, I don't even know what large is. anymore. Like it's really hard to tell with seed funds being in such a wide range. The way that we look at it is very simple. I mean like it's super simple. We have to invest in 100 companies per fund. That has been our model since the very beginning.

17:15And one of the key things that we have to decide to is do we do something like YC which has like a fixed amount over structured deal over a period of time or do we adapt to the market? And we're not YC in not in an apologetic sense just like we have a different strategy different thing so what we're doing instead is we're adapting to the market right so the market at the moment for ai companies obviously commands a different cache at inception and hardware as well because of the cash demands of the company yes so in order to do that multiplied by 100 you need to have the right amount of capital now what we try to do is not scale beyond what's necessary in other words just because we could raise more money we know that that is not the best thing to do so ironically we're we're actually restricting how much we could be um independent of what people's interests in making our funds bigger would be so it is a funny dilemma it's like you phrase it as if it was big it could have been bigger but it's not the wisest thing to do interesting and how has the overall LP landscape changed and this is fund six and again your funds have got bigger one of the things I'm always really interested to hear about is the European LP landscape.

18:28It feels like one of the real bottlenecks for both European VC and growth capital. How have you seen that LP landscape change? I mean, in 18 years plus, it's like it's been massively transformed, right? Before, when C-CAM started, I mean, it was a collection of VCs that put money together to fund us. Like it didn't even, this idea of institutional VCs didn't happen. Whereas now you have, countries have sovereign wealth funds. You have increasing number of pension funds that are willing to invest in venture. You have an increasing number of family offices that are actively interested in venture, whether it be through the younger generation of the family, or whether it be just the fact that they've seen enough successes that they want to be part of it.

19:07You have US fund of funds that are coming to Europe because they realize that there's an opportunity there for arbitrage relative to US funds. So there's like this huge ecosystem of people who are willing to fund. And there's a whole emerging category of emerging fund of funds. I'm sure you've heard of Allocator One and those guys are doing some really amazing stuff and thinking through this challenge how do I enable more funds to grow and to be more innovative rather than not be hampered by the structures of old LPGP relationships so I think we're seeing a complete transformation there there's more to do of course but it's been massively transformed in the last 18 years Amazing, it's great to hear it's one of the things that VCs are always saying we need to do more especially that pension funds and unlock but it's good to hear But yeah, I mean, it's easy to forget how far that ecosystem has come in the last 20 years.

19:57I want to talk to you a bit about your journey personally. You know, you have been investing for nearly 20 years now. You've been through lots of cycles. You've seen industries kind of rise and fall. How have you changed your style of investing? How have you become a different investor over the last 20 years? Yeah, I've gone through, let's say, maybe three major changes in how I think. the first one was entirely tech driven so my prior job was in cyber security and one of the things that I loved about my early career was that I got to play with a lot of cool stuff but the challenges with that was that I was fixated on really cool stuff I was fixated on what something could be or what could do and I couldn't see past it so it took me a while to look into what the team, the people behind the idea and how they would execute.

20:51And so probably the first five years of my investing career were wasted on this sort of product driven perspective at almost at the cost of understanding the team. So then for the next decade plus I focused entirely on the team and trying to understand like the dynamics of people. Venrex, which I'm sure you're familiar with, the VC fund recently did a study around what the attributes are of good teams. There's another book by Patrick Lencioni called The Five Dysfunctions of Teams. I've got fixated on that and I've written several blog posts around team dynamics, co-founder dynamics, and trying to understand what makes a really good team, what makes a functional team, how they scale, what is the mindset, what's the dynamic.

21:37Also including how do you build up that capability internally? How do you coach for it? How do you fix it when it's wrong? And it's been hard. I must admit, I kind of came full circle on that. I thought that it was something that you could transmit into functional teams when you saw dysfunctions. The reality is, after having seen that whole phase of development, it's been more of selecting the right teams. Once a team is the wrong team, rectifying it is near impossible. so it's like selecting the right team after all that research and all that conclusions i just like okay just pick the right teams but at least i feel like we have a better grasp on that and i think right now what i'm going through is um what a lot of other people are going through is we had maybe 20 years 30 years of of what software is and what does that look like and how is that priced and and how does it relate to hardware there was some transition of that in the last decade this transition to hardware being abstracted out in the cloud but it still felt relatively tangible because we still have laptops and other devices but now we're increasingly entering this phase where like software is personalized you can make it you can derive it you can integrate it and all that is is like changing the way that we think about products and what does products look like And so that's what I'm going through right now is like, okay, well, this is why the robotic stuff, the space stuff, the defense stuff, they're all like really interesting manifestations of this sort of revival of that whole sector.

23:14So that's the bit that I'm struggling with right now. And that's the bit that I'm focusing on from a personal development point of view. That's interesting. And given that the change in the, you know, we're talking about space tech and these hard technologies coming back. Have you seen the way that these founder profiles or these team profiles, have they changed and how you're assessing them? Has that changed to reflect the changing ecosystem? Yeah. So it's kind of fractured into three. I mean, this is like overgeneralizing here, but it's like into three buckets. Right. And these buckets have existed in different ways, but it's becoming more polarized.

23:49So one of them is, let's say, the experienced operator who left a tier one company and most likely has the credibility. You don't know at the onset whether or not they have the right entrepreneurial mindset, but at least they have the pedigree. Then you have people who are in the industry but are not necessarily from a startup, but they're leaving, they're starting something. So you're more worried about whether or not they get this sort of startup speed, but they have the connections. And that works really well for innovations in oil and gas, innovations in space. Any of those hard industries, logistics, there's more of that kind of founder than there is in the previous category.

24:31And then the third one, which is increasingly happening with more AI tools, is a super young person who isn't from the industry, who's trying to disrupt an industry they sort of don't really understand, but that they're learning so quickly because they're enabled with all these things. And that's probably the one that's the most challenging to sort of assess because you're just assessing raw ambition with absolutely no perception of all the challenges ahead of them. But in some cases, that's kind of what you need. So those are like the three loose buckets that we're seeing right now. It's just not – each one of them has its own fallacy.

25:07And that third bucket of these young, incredibly ambitious people who want to take on an industry that they have no experience of, how do you go about assessing somebody like that? So each one of our colleagues have a different heuristic.

25:24Remember when we were talking about the experiences of being a specialist generalist? So we're specialists in early stage. So what we're looking for is people who can attract teams, retain team members, build an organization. So that is a requirement. There's no such thing as a one-man startup that scales. So you need to be, as an original founder, somebody who's capable of inspiring and bringing people on board. So that's an easy one. The second one is, even if you're new to the industry, if you can't identify the key players and you don't know who they are and how they interplay with each other and how you're going to plug into that, that's usually like a yellow flag.

26:07And then third is, is this person capable of building what they're saying? It doesn't have to be, especially now with so many cool tools, you don't have to be necessarily the most technical, but it's like understanding what it is that the product is. And the way that people communicate what a product is is interpreted differently by different colleagues. Ultimately, I'm looking for language that implies execution. right the words i'm looking for is an execution mindset with clarity of purpose and use of funds it's like this is that what i need to do in this order and it might fail that's fine but if i don't have visibility on that therefore the timelines for production timelines for execution and launch are going to be completely muddled and you might find yourself a year from now with nothing interesting okay so accommodation of like that first one is i guess like magnetism ability to attract great people uh and understanding the market and how they fit in even if it's a market that's new to them.

26:58And then that sort of like bias to action, execution mindset. Interesting. I want to talk about content in VC. It's like very hot. Everyone's talking about media in VC. I feel like you were very early. You had a blog 25 years ago. You started blogging way before anybody else. You run a bunch of your own podcasts here at Ccamp. What's your view on the role of content and media in VC? Yeah. I mean, first of all, I think there's a transition people have had from education to perhaps like internalization to now content marketing right so i started blogging as a way of sort of processing ideas um there's a there's a series of blog posts that i wrote about co-founder disputes for example and it's because it you know it's you when you have a team like we have a small team of 20 people you know i've been working with reshma for 18 years just like Like we've had our squabbles, right?

27:57And so I've chosen to written about those squabbles as something that other people can get benefit from. We have a perfectly great relationship, probably one of the longest partnerships in Europe. But yeah, like when we got into arguments, like how did we settle them, right? And so those blog posts are a way of internalizing that learning and then passing it on to others. That's different than like intentionally creating a campaign for promoting oneself as such. And so that's how my blogging began. It began as a way of processing ideas and thoughts and forcing myself to structure them. So I find myself now in awe of people like Harry Stebbings and Matt Turk and people are so witty on socials and have amazing campaigns and are asked to be on.