“Great founders don’t have an exit plan”: Carmen Alfonso Rico, founder at Cocoa.

14:29Carmen Alfonso Rico:Yeah, yeah. Okay.

14:30Deel:And so I love that fund returner equation because that's the moment I realized it is I had a remarkable, I like to write stuff in, actually on paper, I left that remarkable. And I wrote fund returner equals fund size divided by ownership stake at exit. And I was like, wait, stake matters and math is math and I'm not one to challenge math. But it's relative to fund size. So if you keep the fund size small, this means that you can have small ownership stakes in absolute terms that allow you to be the in-house VC for the founder, collaborate, not compete, but that are high in relative terms to your fund size.

15:11Deel:And therefore, your math works. And so if you think about the equation, this, by the way, with COCOA 2, far more obvious with LPs. With COCOA 1, they thought I was on drugs. I had this slide that explained very clearly 5 % is to a$20 million fund, what 25 % is to a$100 million fund. And you would never expect a$100 million fund to have 25 % of entry, right? And so 5 % is neither high nor low. It depends how big is the fund. And this is the insight from a fund economics perspective behind COCOA that allows me to then do what I want to do and invest the way I want to invest. Now, to your point on trade-offs, there are big trade-offs to choosing to keep the fund size small, right?

16:00Deel:But I believe that the upside outweighs those trade-offs, and I have a healthy relationship with those trade-offs because I chose those trade-offs. And so I think that there is a chance that I manage to stay small just because I see the power and I know the trade-offs. But they're hard trade-offs. And then, so that's how I kind of think about it now, to your point, what is small? I think that that's a market question. Because if rounds, I'm making this up, but like in 10 years from now, pre-sealed rounds are 20 million, right? well small changes because the limit though so your indication is the fund return threshold like the fund return threshold needs to be relative it needs to be achievable so i don't think of okay let's i'm making i'm gonna make up these numbers but let's say that today the average pre-seed round is 2 million and co-cost check is 500k m on average so that is like co-cost is 25 percent of around.

17:02Deel:Okay. If we move on to pre-seeds that are 10 million and COCOA needs to be 25%, or COCOA is generally 25%, that is 2.5 million. I don't look at it like that. How I look at it is I want my fund returner to be$1 to$2 billion. That is the fund returners I am shooting for. And so I will back solve to that, right? Now, what will change is maybe the equivalent to$1 to$2 billion is now$5 billion.

17:29Carmen Alfonso Rico:Yeah, yeah, yeah.

17:30Deel:When that changes, then I can adapt the fund size to adapt my check size. But I don't do the, I need a bigger check, therefore I need a bigger fund, because if the outcomes are not larger, and$1 billion is still$1 billion, except in likelihood, I break the model.

17:46Carmen Alfonso Rico:So the fund size will increase in line with the market.

17:50Deel:But with the outcomes, with the round sizes. Because if you do it with the round size, you get trapped into this. But your fund returner, because your round size increases, so you want a bigger check, but you need to have the same number of companies because of diversification. So your fund size is bigger. And then if your fund size is bigger and you have the same sort of ticket size in proportion, so the same stake, by definition, fund size divided by ownership stake, it means your fund returner threshold goes up.

18:18Carmen Alfonso Rico:Yeah, okay.

18:19Deel:And it might be that in 10 years we've seen so many$1 trillion companies. It might be, right? Right. And then correct. But like right now, to me, what is a likely or a fund returner where I'm comfortable is one to two billion dollars.

18:31Carmen Alfonso Rico:Yeah.

18:32Deel:I don't want the fund returner to be ten billion dollars.

18:35Carmen Alfonso Rico:Yeah.

18:35Deel:And that's how I think about being small is like when you can have fund returner thresholds of one to two billion with the checks that you're investing.

18:44Carmen Alfonso Rico:Got it. And one of the things that you mentioned is being collaborative with other VCs, especially the larger players, I guess, means that you can co-invest. Does this create another level or tier of VCs where do you find yourself competing with other smaller VCs who are all trying to go after these small checks?

19:00Deel:This is such a great question. And I get it a lot. And the answer actually is no. In theory, when you look at the market, the answer should be yes. I think it's definitely a problem for small funds in the US. And that's why I also got that question a lot, because what's happening is there are so many small funds that they're actually struggling to get their allocation. I think people are getting in, but then the following question is how much of your check size are you actually getting in rate? And if you aim for 300K and you're getting 100K, yes, you're getting in, but like... It's not enough.

19:37Carmen Alfonso Rico:Yeah.

19:37Deel:And so I got that question a lot. The reality, if you look at Cocoa's check size, actually Cocoa's check size has increased since Cocoa One was modeled, I think, in 150 to 200K. because the whole idea came from me investing$50k checks as an angel. And I thought that anything above$200k without friction, we realized fairly quickly that that wasn't the case, that we could deploy much more. And so now Cocoa, two-hour check size is$500k, and I have up to$800k. But I think that in Europe, A, it will probably get competitive. I do think, though, that if you look at the number of rounds, like it's still not so competitive that i need to fight you off in fact if anything we continue to collaborate and we bring each other on that's nice on on board because the rounds are getting bigger and as well and some of these micro fans also coco has a big 500k as a substantial check for that but like many do 100 150k so if anything we bring each other along to a complement and if you want to know my own, my proper view, and some fans are not going to like this.

20:45Deel:I think we should work much closer together and we should have a little bit of like, you know, be able to like put together solid rounds very quickly and take them down on the pre-seed. I think that the seed and the CSA becomes, but like the actual pre-seed, like we should work together more and very quickly in Nigeria will put together great pre-seed rounds for founders.

21:09Carmen Alfonso Rico:And are there certain other smaller VCs like yourselves or certain more established VCs that you like working with? And you don't have to say who they are, but what makes a great collaborative firm for you?

21:21Deel:I think that to me, it's the person. It's the person within the fund. Obviously, like there's a question of taste and different people look at different things in a founder. and there are some humans with whom you have like more overlap and that obviously facilitates like the actual co-investment. Though I do love to look at companies and founders with people who think very differently than me as well. I think then my main criteria is also by now I have enough experience being in cap tables with other funds and I know that there are certain people in this ecosystem them that we're aligned in how we think our role is, how we think of founders, protect founders, fight for founders.

22:12Deel:And that is very important because especially for Cocoa being small, you don't want to be in a cup table where you don't agree with how things are being done and you can't do anything about it because you're small. It's very important to be self-aware. And so I think that I love to co-invest with people who I know I'm like, like the capital is like safe, protected and power. And then also with people who you have fun with, like we do it for the fun. And I'm very lucky that there are lots of investors in Europe with whom I would invest day after day all the time.

22:50Carmen Alfonso Rico:Amazing. And linked to this, one of the things I saw that you'd written is that proprietary deal flow is dead. The war is not to see. The war is to win. How does Cocoa win deals?

23:05Deel:Luckily, Cocoa doesn't have to win deals. But it's a very good question because I think it is at the core of Cocoa, already Cocoa won thesis. And the market has only got more difficult on that front. But if you think about it, to me, venture is a business of access. And this goes back to the point that it is so hard to build or to get to a venture, a return company. So hard, so unlikely. And there's so many uncontrollables when you invest at PRISI. Because I invest at PRISI. There's literally nothing. Most of the time, the company is not even incorporated. And so the amount of uncontrollables that the company is going to face are so much.

23:50Deel:And then my question is like, okay, how do I increase my odds? So I increase my odds by investing in the, you know, top 0.001%. We can discuss that one percentage that is, but basically in like the absolute top. Okay. And then the follow-up question is like, how do you invest in the top 1 %? And that was my insight when I was angel investing. And at the same time, I was like a partner in a large fund. It's like the beauty when your check size is small, it's that, and your ownership stake is small, is that it's neither you nor I. It can be both of us. Versus if I own 15 % of a company, it's you or I.

24:25Deel:Because if you need 15 and I need 15 and the illusion is 20, it's not going to work. Now, if you need 10 and I need 5, it can work. And so the cocoa is all built on not having to win in terms of value. Now, there's two that you still need to win over the founder, right? Because they need to choose you. And the best founders have choice. And so there, my mechanism, and that was one of the biggest learnings at Cocoa very early on, is I have to be there very, very early. And I have to be there very, very early for two reasons, to be able to win and to be able to assess. One in Cocoa won, January 2022.

25:04Deel:Our first investment is February 2022. We got the license in January 2022. So very first investment that we looked at being able to actually invest. It was a company, Shopify for Web3, Bug by Sequoia, US team. Imagine, we had just launched. First deal. I mean, imagine. And they had signed in December, so Coco wasn't actually able to look at it back then. But we met them in January, and they were doing a location for angels. and my husband was spending insane amounts of time and money in nfts back then and he had this very bad but then returning but and he had this insane wallet crypto wallet amazing super cool and so i was using that also to like you know vibe with the founders everything and we had this amazing chat and they just on the spot it's like yeah we like you know we'll give you like an allocation over the moon like you know this is access this is the definition of access okay then they went MIA for two weeks something or like a week or rather a long time and they came back and they're like well so you know we kind of over allocated so basically they gave an allocation to everybody and we have to like you know cut down and that was my realization that Cocoa doesn't sell money like nobody is gonna talk to me for my back then 150k check now 500k check no top founder no top investor is going to talk to me for that.

26:41Deel:What I build is trust with founders and I collaborate with investors. I build reciprocity with them. And if you want to build trust with founders and you want to build reciprocity with investors, you have to be there very, very early. And so Cocoa's whole sourcing machine, Cocoa's whole operating system, which I built myself on Notion, like I was fed up with the CRMs and everything. I build drive task managers here and everything on Notion. And it's because we've got to be there first. Because if not, you don't build trust, you don't build reciprocity, cocoa doesn't have a product, right? That's one.

27:14Deel:And the other one, which has become increasingly more important, is that in today's world, one of my biggest questions is, what is actually value? Like, I'm highly confused, right? I think it's an exciting time, but it's such a confusing time because what we knew to be true in terms of value and how long it took to build has blown up. And so now the question is like, what is value? And is like what we're seeing now real value or not? And is value what we always thought it was? But we are not going to know for a few years. And we got to play now, right? And so my sort of reaction to that is like, okay, I'm going to go back to what I know to be 100 % true, which is very few people in the world can build a multi-billion dollar company.

28:04Deel:It's about the founder, and that's what I can assess. Okay, but then you need time. Because going back to my point, seeing if somebody is brilliant or not, we can assess fairly quickly. But seeing if somebody is a beast, if somebody is building because it's inevitable, that requires time. And so you need to be there early, ideally, like before they've even left their current job. Because that way gives me perspective to make an informed assessment. I can't make an assessment in a week.

28:32Carmen Alfonso Rico:And how do you find people like that? Like what's the sourcing mechanism to find these people who are pre-starsive?

28:39Deel:Everything. So H. Really good. So it's beautifully at Cocoa 2, the founder and operator network is starting to compound. At the end of the day, like I always say venture is network, muscle, and hustle, right? And the hustle powers the network, and the muscle is just learning. Yeah. And by a matter of time gone by, that's starting to compound. And Cocoa founders of Cocoa 2 has now eight investments. five come from cocoas network and cocoas network includes my network and the founders of cocoa that wasn't the case in cocoa one yeah right like that that compounds yeah and and most of them i had met like um you know one i had met seven years ago the other one i had met three years ago the other one a year ago like um and so that start that's pure compounding effort that's one the The other one is, so I obviously look at all this LinkedIn, you know, or less and stuff because we got to look at it.

29:43Deel:But the one that I am enjoying a lot and not systematizing by enjoying a lot is X. It's a great source.

29:50Carmen Alfonso Rico:Because also so many founders are building now in the public. Yeah, yeah.

29:53Deel:And so the thing with that is like you need to think, all right, that's one of my Christmas sort of tasks is how do you systematize it? Because right now it's me going through rabbit holes on a Saturday, you know, on X. And then like other Saturday, I won't do that because I have other things to do. And so it's like, how do you make sure that you cover the universe? Which is always like a tricky answer. But I think that those are the two places where I'm getting the highest quality. And then, of course, there's the commodity, which is all this like, you know, harmonic and WhatsApp lists that like are like.

30:29Deel:I mean, so I'm not telling you something that's funny. But I track everything. When I was very little, I was like six years old, seven years old, and it was my first school day. And I memorized my schedule, the timetable, and memorized it all. And I went to my grandfather, and I started Monday 8 a.m. and finished like 5 p.m. on Friday in Spain. You do school until 5 p.m. And he told me, he looked at me, and he was like, what a big waste of time. And he's like, why do you memorize it if you had it on paper? And I was like, huh. And so I think that we process so much information that I don't want to have to retain it in my head.

31:13Deel:And so I put everything on my notion. And I track. Like, every time that somebody sends them to me, I assign this person, this profile, this company. And I say, mention by, mention by, mention by. Okay. Because then I was like, I can thank the people. And could you not that there are so many forwards from different funds that I get that are the same, with the same writing? So basically fund one will send me, like somebody in fund one will send me like one of those like, you know, restos things. And then another fund will send me the same and it's exactly the same.

31:48Carmen Alfonso Rico:What?

31:49Deel:It's on the same profile. It's actually the same sentences.

31:51Carmen Alfonso Rico:What?

31:53Deel:But this is normal. This is because associates will trade information because our industry is trading information.

32:01Carmen Alfonso Rico:And so probably one originates it, sends it to you, and then you send it to others because we don't even bother interchanging. And they're just trying to build goodwill or something? Is that what it is? It's like share information and interesting.

32:13Deel:Which, again, it's not bad, but it just shows how the moment in which you get the same thing from different sources. Not useful anymore. It just shows that it definitely is a commodity. but you still need to look at it, right? And I do but when it comes the things that energize me are deal flow from founders and Cocoa's network and deal flow from X.

32:36Carmen Alfonso Rico:Yeah, okay. And so just going back to the quote where you said like the war is to win and you know you're not having to win the deals but win allocation. Why do you lose if you lose? What is it the founders aren't interested in that you're offering?

32:48Deel:Yes. So the main reason I lose is because I'm not there early enough. because then by then founders might not be interested in Cocoa's product. Actually, the main, main reason I lose is because I don't get to see them. And so my main problem actually is not so much like if I get in front of a founder, my conversion rate is like very, very high because the reality is that even if they don't think they need it, like being a founder is such a lonely job and you can be like, you know, the best at what you do and really not understand how venture works at that moment. and also not have somebody that you can talk to.

33:23Deel:So that was my important is, and I think a lot about this, how do I make Cocoa's proposition to founders being like founders to want it even before they know they need it, right? And if somebody makes the warm intro, that's very easy. But like when I reach out a lot cold outbound on LinkedIn, right? And some people like react very positively and I think other founders like don't connect with that proposition. I think that that's where I lose. If I get in front of them early enough,

33:56Carmen Alfonso Rico:like I generally like manage to. Why do you think that is? What is it about you or your personality that means that when you are face to face with a founder, they're like, this is somebody I want. The chocolate.

34:08Deel:No, I don't think it's so much my personality as it is the reality. I mean, I guess like getting along with somebody and getting energized by somebody is important both ways. I honestly think is that the gap in the cap table for somebody the size of an angel, which means totally a landing incentives with you, neutral, independent, agnostic, but who understands venture and who knows everybody in venture and who is full-time and full life, basically, is a consistent need. Because the thing that is not maybe outspoken sometimes and that I understand why some founders don't want to sort of make a thing about it, But being a founder is an extremely lonely job.

34:49Deel:It's so lonely because you think about it. You're in that cup table. Okay, there's challenges. There's challenges every day, right? You can't go to your board and try to figure out how to solve it. You can go to your board for them to help you execute on a solution and to support you. But you don't go to your board to tell them you're clueless because these people just gave you big amounts of money, right? And they're supposed to know what to do with them. But the reality is you have a majority of times no clue. That's one. Then you can't go to your employees because they depend on you, right?

35:24Carmen Alfonso Rico:And for leadership, yeah.

35:25Deel:Who do you freak out with, really? Like, who do you freak out with? And you can't go to your – so your family and friends don't understand. And that's a reality. It's like they'll support you. They'll go to the end of the world, but they don't understand. And even your husband or your wife, like, they are going to tell you what they think you want to know because they want to help. And this is also not like always so helpful. And it's from my own experience. Like, I mean, I am the luckiest person with my husband, but like he's many times. I'm like, this is no objective.

35:55Carmen Alfonso Rico:They're your cheerleader, right? Exactly.

35:57Deel:Exactly. They're your cheerleader. And there's too many emotions there and too much sort of emotional investment in there. And so who do you go to? It's a very, very lonely place. And so I think that when somebody actually sort of puts that out there, I know how this game works. We've played it a million times. I can see it playing out like in the distance. And I know everybody. I think that that actually is the product more than just me. Of course, the product suits me and my personality. But I think it is like that is a needed product.

36:32Carmen Alfonso Rico:Yeah, so it's having somebody who is not big enough to be scary, willing to fight for you and be in your corner and to support you.

36:40Deel:And I don't follow on, for example, which is a big part of that. And that also means the hit you take as a founder is the hit I take. And so I'm by definition on your corner.

36:49Carmen Alfonso Rico:And is that why you don't follow on? Is it strategic?

36:52Deel:So there are two. That is one reason why I don't follow on, because if one of my biggest values is obviously helping also founders with the next rounds And even with the, you know, mess in between rounds, if you know that you don't need that person, that there's no signaling attached to that person, you can just be so much more kind of open. That's one. And also the math. To me, and this is highly controversial, I've had this discussion with so many LPs who believe that you should follow on. And there are many people who think, and that's the sort of traditional fund theory, that if you don't follow on, you leave money on the table.

37:31Deel:My answer from the perspective of a small fund at Precise, because I think stage and size matters, is, well, yes, if that's the winner. But there's a big F that assuming I'm going to hit the winner, right? And the reality is that from Cocoa's perspective, because I'm so small, I would only realistically be able to follow on on the next one, not on any other, right? And so that is the 12, well, let's say today, 6 to 18 months. Okay, if I am honest with myself, I don't think I'm a better picker. 6 to 18 months versus at the point of first investment. And not because, of course, I have more information, sure, but the number of uncontrollables that can still happen way exceed.

38:19And also then the price is multiple times higher, right?

38:24Deel:So for me, the risk adjusted return doesn't work. And then the reality is that, and this goes the beauty of not needing ownership stake per se, is that I don't have to protect my ownership stake. If I have to return a monster of an$800 million fund, I have to follow on for sure because I have to protect every percentage of that. But as COCOA, I don't because I'm operating under the assumption I get 1 % of exit. And so from a risk-adjusted return, I'm much better off buying a new chip or a new bullet, a new investment, than following on another one. Because I'm not a better picker.

39:05Carmen Alfonso Rico:Yeah, okay. That's interesting. I want to get into Fund 1 and Fund 2, right? So you raised Fund 1, I said beginning of 2022, you started deploying it. You just closed, started deploying Fund 2. Can we talk about Fund 1 first? So like, what are some of the big winners from that fund? And then I also want to talk about some of the, maybe the big misses that you didn't go into, and then also kind of lessons learned. So to start with, who are some of the standout names

39:29Deel:from fund one yes um some of the best uh comments this is again still subjective and and it's not necessarily always corresponding with follow-ons so we have a lots of follow-ons also from top funds but when i look at like the potential kind of breakthroughs of the companies that i know well and to me there's foresight data machines and which is optimization of steel making i've been i'm gonna confess completely obsessed with the company and the founders since february 2022 i'm very glad that the market and now the investor committee is starting to validate my obsession because if not i think i was i myself was going to start getting a bit concerned i remember doing fundraising it was really fun because a lot of lps would ask me to present the companies that I felt were more representative and strongest of COCOA1.

40:25Deel:And I consistently, because of stage and visibility, was presenting Foresight Data Machines and Fracta, which is semis for inference. And I vividly remember one meeting with an LP who I respect, love, but they didn't come in, obviously. And he literally looked at me and was like, why did you do that? Right? Not like, oh, wow, as in like, why did you just throw down the toilet this opportunity? And I was like, they are the best companies. And he said, but they don't have the highest multiple, which is correct. And one of them knows, but they didn't back then. And I said, but I believe that when I look at uniqueness and potential and the founders, those are the two kind of potential breakthroughs as of the information I have now.

41:15Deel:He looked at me like, what the hell? But thankfully, like the sort of world's coming. I think Foresight Data Machines and Fractile and probably also a company called Speckle Systems that is like design infrastructures that are open source. They basically bring interoperability to CAD softwares and BIM, they allow interoperability, real-time automation and collaboration. and those three companies when you look at the founders they're in the building because it's completely they're like animals like brilliant beasts building because it's inevitable to them they have a secret a secret they're very clear and articulating right and very little competition i think fractal maybe with semis for inference the overall market is competitive their approach is quite unique but i will always remember for example with walter um investing in semis like my memo actually concluded saying this investment is crazy but not stupid yeah like literally like crazy but not stupid and he could articulate so well in what world he won like what needs to happen right what was the list of it and this is something i spent lots of time with founders trying to understand it's like describe me your future like take me to this future in which you actually win right because if things don't change sorry to disappoint you but this is not yeah exactly right and so i remember walter being like first of all inference will be bigger than training okay that now we are getting that two years ago years ago that wasn't obvious second nvidia is structurally like gpus are not structurally built to win in inference because the memory and the processor is separated so lots of like you know energy and compute gets wasted there okay third the solution is to do in-memory compute and then like you just go from very macro to very micro and i was like wow yeah like this guy is like shooting into the future but his view of the future is so clear now it might be right or wrong

43:21Carmen Alfonso Rico:then but like there's a very clear trajectory and a path and you can bet on that then you decide if

43:25Deel:you bet on that and if you bet on this person executing on those bets right and um the same with like you know thomas from foresight like optimization for steel making like thomas is a guy was phd in physics and ai this is february 2022 it's so interesting because i love so i write my mouse because i just love to go back also like in years and and and i remember writing there oh it's so unique to be phd in physics and ai because ai preach at gbt and the physical world were just snot like yeah vibing right they were not matching and this is a person who um when russia invaded the ukraine um the energy prices in europe as i remember just spiked and a lot of the steel

44:09Carmen Alfonso Rico:factories steel plants closed down because they just made no sense to keep the lights on

44:13Deel:and so thomas condemns one steel plant in hamburg to let him turn it on from 1 a.m to 5 a.m and he moved with three engineers, right? And they built the product from 1 a.m. to 5 a.m. in Hamburg.

44:27Carmen Alfonso Rico:I kept sending them chocolate because I was like, they're going to get depressed.

44:30Deel:But like, that is the thing. It's like, I don't care. Like, war, like, I'm going to build this company and I'm just going to find a way. And it's not because they're morbid. It's because they're just powered by this irrational kind of force, right? So I think that those three are very, like, they're killers of the heart. they're building unique products in very big markets like and and then in early stages also cocoa has like many interesting a cocoa one bets that are still like um a pre-seeds other style books that does like um data infrastructure for satellites data so that's that's really really cool there is embed um which is a company that basically does um software hardware integration which has gone through a lot as well.

45:18Deel:There are three Ukrainian founders, one in Ukraine with a three-year-old, one in Berlin as a refugee with a six-month-old, and one here in London. And look at this. They tried to raise November 2022, and they had a term sheet. I met them for the first time then. I didn't understand what they did at all. And also, there was this term sheet, and you asked me earlier about investors who I love to invest, and I would never interfere in the cap table building of a company. But there are certain people I rather don't be on a cap table with because I can't, you know, do like or protect the cap table.

45:53Deel:And so I decided I don't understand what they're doing. I'm not like a huge fan of the investor.

45:58Carmen Alfonso Rico:Done.

45:59Deel:But I remember them. And so in May, I pinged him and I was like, hey, how are things? And so we went for a walk. And he told me that they actually, and I had made no comment about that investor. So it wasn't like it was their own sort of intuition. they rejected that time sheet and they bootstrapped it till May. One in Ukraine with a three-year-old and then the other one in Berlin and they're around here. I'm like, wait, what? And he was like, yeah, because, you know, this is our company. This is our life. And of course, having money would totally help. But it needs to be with the right partner because this is long.

46:36Deel:And this is a difference. It's like when you see founders optimizing for long term versus shorter. and that's also what fuels them right is there's this life project because if it's your life project you're very careful in every fundraise how much and with whom because you don't want to break it right and and fundraisers can break companies and so like this is a kind of you know similar and again building in i i take if you look at cocoa one portfolio you can see insane go-to-market risk i take a lot of go-to-market risk and in and many times some risk but because what I don't take is risk, founder risk, so to say.

47:13Deel:I'm wrong in my assessment but I don't like founder risk I don't like to take and then I just trust that they will figure it out and that they are better than me at identifying market opportunities because if I am better than the founders I back at identifying market opportunities, I'm backing the wrong founders. And so that's a little bit how I think about it.

47:33Carmen Alfonso Rico:And what about, you know, what are the misses? Maybe you had an opportunity to invest in some great companies and those are the things that like keep you up at night mortify me um i think the biggest

47:44Deel:miss of cocoa one and the most defining as thing it has made me think so much and change so many

47:51Carmen Alfonso Rico:things 11 labs i thought you were going to say that for some reason yeah that's so interesting

47:55Deel:and like what what turned you off the company so yeah it's not the company so it's what did i do wrong and i realized um actually through um 11 labs and also through fundraising cocoa too that many times and inadvertently i don't think we realize it but we investors get into this mindset of looking for reasons to not invest rather than reasons to invest and it's a very dangerous game because if you think about venture and you can afford investing in the wrong company but you cannot afford missing one. And so actually it's a paradox that we actually get into a mindset of looking for reasons to not invest, i.e.

48:37Deel:to pass, when that's the riskiest thing that you can do, right? Why do we do that? I felt so much about it. I think that we do it because we have cognitive overload. We're completely overwhelmed by the amount of information being thrown at us, by the speed of how things move, and also in particularly in the case of people running their own funds, by execution. Execution is a trap. Execution is a trap because it gives you the dopamine, but you're not thinking, right? You're getting shit done, and passing becomes a shit. Like, it actually, you have, like, almost when you decide to pass on a company, sometimes if you've done all work, it's like a painful, excruciating thing, but otherwise it's like you feel relief.

49:18It's like, how wrong is that?

49:20Deel:But it's because you get it out of your desk, and that's very dangerous. And so with 11 Labs, it was the week of my wedding so I was definitely on execution mode and my mistake and so I remember and I passed for reasons I actually have it framed in my office I frame lots of stuff and I have this child with a friend of mine and who's a partner in one of the top top seat fans in Europe and we were talking about 11 labs and we both sound so smart you unbelievable like you know I talk about go to market you know he talks about competition and it's just like and you look at it like here are two morons looking for reasons to not invest because at pre-seed passing because of go to market is just i mean it and like who like me i who pardon me like and back then they were doing dubbing for creators so completely different right but six months after there was tragedy

50:17Carmen Alfonso Rico:and that changed everything.

50:19Deel:And it's not that Chargipit made them. It's the founder's ability to leverage that made them. And so my investment decision was wrong because I didn't correctly assess the founders. And I went to the go-to market and I went to a competition and who cares about that when it's completely unknown and you've got the founder. And likewise, the same applies with the first ever angel investment that I did, which was Hopin. Hopin was an incredible pre-seed investment decision. and it was travel, which everybody, like travel plus the events, so the non-ticketing. But he was incredible at Precise. Then COVID came.

50:57Deel:He leveraged COVID. Then COVID went away. He didn't leverage that. And so it was a bad CRC investment. It was a great Precise. Amazing, yeah. But because of the founder, like I could have passed on GoToMarket also there. I could have passed on like, you know, time for events or whatever. and it's just like we look for reasons to not invest rather than for reasons to invest and at series a go-to-market is a very valid reason at pre-sit are you kidding like how so i have it framed in my office being like and then now every because of not in notion i have these deal pages right like so a page per company and the cover notion allows you to just it's like a dumbo flying so to remind me that like to have big ears you know and do the work to understand if the founders

51:45Carmen Alfonso Rico:are potential killers with heart no that's an amazing story i mean i can't imagine pains me yeah but it's good i think you need those misses right correct you need those needs to change i've changed so many things yeah and well and that kind of leads on to fund two right so you know fund two deploying it this year you announced it a few weeks ago how was that process and how different was it to raising your second fund versus raising your first fund very very very different and

52:10Deel:probably in an unexpected way so cocoa one we raised it q4 2021 peak of the market yeah like people were genuinely throwing money at you and we raised 36 million in six weeks and we wanted 15 it was wild and it wasn't us it was the it was genuinely like i remember vividly in the pipeline, we would have somebody estimated check size 250K. Imagine, 10 minutes into the call, 2.5 million. It's like, what?

52:40Carmen Alfonso Rico:How? Like, crazy.

52:42Deel:It was wild, right? Cocoa, two very different market, very, very different market. And also, so very different market one. Also, my bets, to your point, are non-consensu. There's many of them. and the ones that you've asked me, like, who do you really have insane conviction right now? There are non-consensus. And non-consensus also based on that building value takes time. Like, building semis for inference is not something that you do in one year and you go to, like, you know, six figures or ten figures, whatever. And so the challenge in venture is that you are playing a game and you aim for levels of value that takes very long time.

53:27Deel:So you're playing a long-term game because you can't build the value that we need in short term in general, but you raise every three years. And so the incentives break a little bit, right? And like it impacts your risk taking. And so I looked at that and I was like, damn, like how do I manage this? because I want to build an LP base that allows me to take insane long-term value risks, right? And so that's why I, A, decided I wanted to build a very institutional LP base, though I fairly quickly realized I had to go to the U.S. to do so. And COCOA 2 is a fund that is 93 % institutional, 64 % U.S., right?

54:15Deel:and it has like Sapphire and three U.S. endowments. But because I wanted to make sure that I could invest in certain bets in Cocoa 2, that by Cocoa 3 might not have paid off, right? Or that some, you know, usual suspect multistage fund is still not incentivized to take that level of risk. But that I believed in because I believed in the founders and I wanted to be able to do that. And that's how I built Cocoa 2 LPBs. it was not easy and it was not quick uh but i'm very happy i'm very pleased now no amazing you

54:51Carmen Alfonso Rico:you're already deploying it and you know that seems to be going well um i always want to talk about your view of the whole european market it's interesting to work out some of the lp base coming from the u.s it seems that's the way for pretty much all european funds it seems and that's something that i'm i'm really passionate about because i think all the value gets captured ultimately by the US pension funds and endowment funds. But what's your view on the ecosystem more broadly? You know, when you look at European tech, it seems to be having this amazing breakout year, specifically in a lot of optimism and a lot of ambition.

55:22Carmen Alfonso Rico:What do you think that we need to do across the ecosystem to take it from where we are today to that next level? Something I do think about,

55:33Deel:because my mandate and my fiduciary duty is to return the fund, like to basically return money to LPs and as much as possible. I said earlier, venture is a business of access. My access is in Europe. Like I think I don't kid myself. Every time I meet a founder, I ask myself, why am I seeing this founder? Why would they choose me? Why would co-investors choose me? And if I don't have a strong answer to that, I don't invest, right? And so then the question is like, okay, how do you play Europe and Europe and the U.S.? My, and this is not necessarily politically correct or popular, but to me, Europe has exceptional raw talent.

56:15Deel:And by exceptional, I mean equally good as like U.S. like talent, not only technical, just raw talent, like pre-everything talent. Now, the U.S. is a much better place to build a business. And the challenge we have here is that the U.S. is a much better place to build a business. and that compounds every day because every day that you're building a company in a place that's a better place to build a company, compounds. And so this playbook that we used to have of like building your app and then go by series B, maybe worked in a world that didn't move so fast and where not everybody could build the same, right?

56:51Deel:But the idea, how I put it to founders, because I also try to be respectful with life choices, but is, okay, where do you need to build? what do you need to win over? Do you need to win over the US to win? If the answer is yes, it's like, okay, which is generally and so forth, from where do you build that right to win? Because I do expect every founder to be wherever they build the strongest right to win. Like that's basic. Exactly. And so the challenge we have in Europe right now is that a lot of the times the answer is in the US, right? And I call this the great migration. I spent a lot of time in the U.S., specifically in San Francisco.

57:34Deel:And I've been doing so consistently for the last three and a half years. March this year, I literally came up with these things like, this is the great migration. I saw so many European founders there. Many of them will come back. But it was incredible, right? And I think some for the right reasons, some for the wrong reasons. But the U.S. is a better place to build a business. And so you're like, okay, how do we make Europe an equally good place to build a business? Because if not, you're always going to be at a disadvantage, right? And there is a combo of many things. I think one of the things that is very interesting in the U.S., particularly in San Francisco, is the density of talent that knows how to scale companies.

58:15Deel:I think that that's one. And that is a flywheel that just takes time, and that will take time. but that's something that we need to make sure we foster and preserve is like talent that knows how to scale companies and that has done it a couple of times because we don't have that in europe so much and that's one the other one is the buyers are much better like they take much more risk and they sign faster like you know i have companies that started in europe and have moved the founders have moved to the u.s because it's just something they get pulled yeah the market pools yeah they they in the US they pay much more they're much faster inside it's just so that's it and then third and this is a you know cultural kind of thing I think this is a personal opinion but San Francisco and San Francisco has improved a lot in in the past year but this is a CV that exemplifies in the most like in the wildest like survival of the fittest kind of infinite upside, infinite downside.

59:17Deel:And I think something happens to you when every day you see infinite upside and infinite downside, because it's different. Like the pool, like when you know where you can end, here or there, like you just, you know, kind of go different. And also the other kind of way I put it is more things happen in the world when you think everything's possible and you're willing to put money on fire to make it happen, right? So if you think about it, the best example would probably be whenever, you know, we realize we've got ahead of ourselves with AI and like there's sort of a correction. I'm sure in Europe, there'll be plenty of comments focused on how much money has been wasted.

59:58Deel:For sure. Right. Inevitable. We love that. Now, in the U.S., probably the argument will be like, yes, but we needed to burn all that money to get here. Because you do not get here without burning all that money.

1:00:13Carmen Alfonso Rico:Right.

1:00:14Deel:And so I think that just more things happen in the world when you think everything's possible and you're just willing to set money on fire for it. And here we're not willing to set money on fire for it.

1:00:22Carmen Alfonso Rico:Yeah.

1:00:23Deel:And you see that with the companies and the funding. And then that's also why then the Series B, Series C funds come here and deploy the money. And that is like we are going to have to change that. And I don't think public money is going to change that.

1:00:35Carmen Alfonso Rico:Yeah, yeah. Well, I see it's linked to the risk in the buyer culture as well. there's just such a more a propensity to hold on to money and whether it's buying software or investing in great companies people are just much significantly less willing to do it exactly but

1:00:50Deel:because also we probably have less to win yeah the upside is lower and less to lose yeah and so what's your incentive like when you can win everything and lose everything like it's worth

1:01:01Carmen Alfonso Rico:taking a bet maybe yeah interesting well thank you so much for joining me i want to finish on some quickfire questions if that's all right of course um what you know piece of media book podcast newsletter would you recommend that either a founder or a VC starts listening to as they're

1:01:16Deel:going to 2026 I'm a Yankee completely but um I'll actually give a few books patent breakers incredible uh when the wizards stay up late at night I think it's called also like the origin of internet as I thought patent breakers is amazing for founders and then if you want to understand how business think i think harry does an amazing job at the 20 bc but i also particularly enjoy a podcast like invest like the best i really like uh those interviews and i love the stretchery newsletter from ben thompson just because it's analysis it's not just news it's like analysis the generalist does a great job newcomers i am completely young you're you're on

1:01:57Carmen Alfonso Rico:the wall love it um and then what is the number one deal that you've been most proud of it doesn't have to be the best performing but maybe something where you've played the biggest role in helping or maybe it was the hardest one to get allocation something where you you look back on it and it can be in your whole career but that's the one that you really think about as you know i did that founder proud that was a you know i played an important role the one where i kind of you know

1:02:19Deel:that has been most defining and was hopping and hopping was most defining for two very different reasons but i owe a quarter hopping as in i would have never have this insight on being able to work with founders this way if I hadn't met Johnny and I spontaneously will have built that kind of relationship so that from that's the very origin of Cocoa I mean if I didn't know it back then um and also I didn't sell so I didn't make any money interesting right and which was also an incredible learning as well and obviously lots of people like you know I mean what a crazy first deal. I mean, 250k at 2.5 million post was the pre-seed in 2019.

1:03:05Deel:And people are like, oh my god, you know. And I honestly think that if I would have lost, my husband says this is just me making myself feel good about it, but that if I would have lost salt, A, I don't know if cocoa will exist. But also, I don't know if I would have the same hustle and the same hunger because we're all humans. And I don't know if I would be in Luton at 4am sitting on the floor on my laptop if i would have sold like home yeah yeah time so maybe it's a distorted dysfunctional like way of looking at it but i'm actually very very grateful to that company for all the good and all the bad because it just made so much really defining yeah it's

1:03:45Carmen Alfonso Rico:interesting i spoke to another vc and they said they were investing in a second time founder who had built a company that was valued to like 700 million and then it almost collapsed but and and And they said that this, that brings out the beast in them. You know, when you've had all this money or wealth on paper and then you lose it, the drive that that gives you, the fire that that can lie under them. And they said, this is like an immediate back. You know, if that founder has that fire to get back to it. Exactly. Because you've touched, you've been so close to see you lose it all. That's a great one.

1:04:18Carmen Alfonso Rico:um and then what advice would you give to somebody who you know has followed your career path and is really interested about into breaking into vc what what should somebody be doing right now to try and

1:04:29Deel:elbow their way in i think it's a very difficult time to um jim it's a very different to like 10 years ago um i honestly would give to whoever is like thinking of adventure or about any other thing is like do the work to know yourself to identify your superpowers to accept those superpowers even if they're not the ones that you think that you should have like for me the iq was a condition of self-worth and i realized actually it's much more eq what is unique like identify your superpower and build around it and find a job a career like a purpose that is around that superpower. Because there's actually talking about posts, there's this beautiful post called Differentiation by the not-so-boring guy.

1:05:16Deel:It says, build your own personal monopoly. Like, everything else, like, if you're going to be average on something, AI can be average, anything can be average. Just, like, identify what it is and just go hard on it. And if it's venture because you're great at networking and you're very analytical, go for that. But if it is, like, something completely different, just be, like, have the courage. to take a path that is built around your superpowers. Because if not, like, you know, you're never going to stand out. And you're not going to be fully kind of aligned and connected to it.

1:05:48Carmen Alfonso Rico:And last two questions. If you were given five million pounds tomorrow to start a new company, what would you start?

1:05:55Deel:I think this goes back to what I said earlier. Like, I don't see a world in which I don't build cocoa. It's like genuinely impossible. So like when GSC acquired La Familia, I got this question a lot. And people were like, oh, would you sell cocoa? And I kid you not, like stomach aches.

1:06:10Carmen Alfonso Rico:Like, it's just like, are you like, what?

1:06:12Deel:No. And so like, it's inconceivable. I mean, I'm helping my husband by helping. I mean, I'm supporting him build like a mobile dog grooming business. And that's really fun. But I just, I can't like, I actually think if I had an answer for that, I would be in trouble. Because if there was something else I would want to do, like, I would have a problem. And this is probably for founders. like maybe if we turn it into something productive to them it's like because it's a great question it's like choose whatever you build do it because you don't see a world in which you don't be like yeah there's nothing else there's nothing else because if there's something else if you have like oh i could do this and if it doesn't work i can do that don't do it honestly like too hard

1:06:50Carmen Alfonso Rico:and then final question if you had the same amount of money to invest in any private company from as early to as late as you like what company would it be i think the next um i would obviously like

1:07:04Deel:their founders like you know thomas or walter thomas from foresight walter from fractal who i would put my future in but i think the answer to that is the next investment that cocoa will make because i am a pre-sit investor like i don't follow on because i'm not a great picker after I don't put SPVs up until like very late because I'm not a great CRJ investor I'm not a public stock investor so it's just the next

1:07:29Carmen Alfonso Rico:you just put more into the pre-season amazing well thank you so much for joining me I've loved it this was so much fun thank you