Startups in Europe are being built to win globally: Filip Dames, Founding Partner at Cherry Ventures

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0:31Hello, welcome back to the Scaling Group show. I'm Seb Johnson. Today we are in Cherry Ventures offices here in London. I'm joined by, check out the cherry. I'm joined by Philip, one of the co-founding partners. How are you doing today?

0:43Filip Dames:Good. Thanks for having me on the show, Seb. Excited. It's my pleasure, our pleasure. We're thrilled to be here. You've become one of the most well-known and successful firms across Europe. You've been investing nearly 15 years, five funds, I think nearly 150 companies now. and so you've seen a long period of time of European venture. I want to kick off by asking, what's changed? How have you seen the ecosystem evolve since you've kind of founded Cherry? Yeah, now I feel really old. But, I mean, it has changed so much and I couldn't be more excited about Europe at the moment because really the ambition level is so much higher than what it was a few years ago.

1:22Filip Dames:And, like, I mean, it's not that Europe's behind. I think it's just a little bit earlier. and when I started so I moved to Berlin to build my first startup company a company failed then joined two friends that had just started building Zalando in Berlin so that was like one on the one of the very early success cases in the European ecosystem e-commerce traditionally you had these like marketplace e-commerce companies so relatively companies that were relatively low on technical risk but rather high on execution risk so it was the the builders more like the business-driven founders that would sort of go and execute and build these like sizable businesses there's a number of good companies to come out of that phase of european tech at that time like zalando delivery hero yeah and so on and now i think we've changed to um to an ecosystem where we are building global winners from europe so the ceiling is much much higher it's no longer let's build the Airbnb for Europe or the Uber for England, but it's about building globally winning companies that are started here from Europe but can succeed anywhere.

2:32Yeah, absolutely. It's one of the first times that we've seen so many category leaders in Black Forest Labs, as a great example, Syndicia, Eleven Labs, amazing category winners here from Europe.

2:41Filip Dames:Yeah, but you can go earlier, you can say even like the Spotify. True, yeah, yeah. You know, you raised your$500 million dollar fund last year right big fund and it feels like the rate of change has increased since you went out to fundraise for that fund how have you seen the ecosystem change even more just since then i mean the level of activity is completely different like look when we started our first investments flick flixbus i think it was a three million pre money uh auto one that later ipo'd for eight billion i think it was a four million pre uh and uh the seed round was i think 1.5 maybe two million so like i mean fast forward like 10 years or 15 years it's it's like a completely different category and and we thought long and hard about fund size and what type of fund we wanted to raise and um we felt like we wanted to be able to build the leading early stage fund in europe and for that you need a relevant size because rounds are getting bigger and you need to be able to lead even the most competitive deals in the market and at the same time we we didn't want to play the um game we didn't want to go too big we want to stay very focused so cherry is a very focused firms all we do is early stage and we feel like that's also the reason why founders choose to work with us over other funds is because we've built a platform that sort of is excellent at helping you navigate that journey from idea product market fit to then being able to scale the business and i think you need very different things for that than what you need when you're in the growth phase.

4:12Filip Dames:And that's also why we've sort of kept that focus, kept the fund size relatively limited. Like we raised a total of$500 million. It's split into an early stage fund that's, you know, roughly 350 and then an opportunity fund that can invest into the winners of our portfolio, not just from the latest fund, but across that fund. So the first investment in that opportunity fund will be like a dash zero. It will be a swap, a company that grow from zero to 40 million ARR. in less than three years, into Proxima Fusion, into exploration companies, so into the winners of our portfolio. So we don't have a growth fund where we do later stage investments, but it's really focused around being the best partner in the earliest stage.

4:56Filip Dames:Got it. Double downing on the big ones. Interesting. So that's 350 million for the early stage. How much bigger do you think that early stage fund could get? Or in the future, do you think it's going to get to 500, 700, 800? Or do you think that's the right size? I don't think so. I think I'm really comfortable with our current size. Yes, we may get a little bit bigger. But I think for what we do, it is important to also stay small. I mean, we're not small, but it has to correspond to the stage at which we're investing. And yes, the ecosystem is evolving. Valuations are getting higher. Maybe the fund size has to evolve a little bit.

5:34Filip Dames:But I don't see us raising like a billion dollar early stage fund because I think the math really changes in ventures. And you know this, you've spoken to a lot of other partners as well about their fund models. I do think the bigger you are, obviously, the harder it is to return the fund. And I think we're in a sort of an optimal range to be able to do that multiple times. And we have done that in the past, but at the same time, also be relevant enough, large enough to lead even the biggest route. And when we talk about those biggest rounds, things are getting so much more competitive. A couple of companies I'm always talking about is like Eleven Labs and Agora, some of the Europe's best companies that were led and predominantly invested in by American companies.

6:15Are you seeing more competition from American firms at the earliest stages?

6:20Filip Dames:I mean, they're all here for the right reasons, right? Because there's amazing companies in Europe, right? The money goes where the best founders are. Some of the best founders in the world are in Europe. So why should they not be here? I'm actually not worried about that. I think we are in a position where we can lead and win the most competitive rounds, also against these American funds, because of our focus and because of our product. I've been a builder myself. I've started two startup companies, scaled Zalando from three people at the IPO. I think we were over 10 ,000. So we learned a lot about scaling.

6:56Filip Dames:and I think one thing that it did for me was to also think about Cherry more like a product. So I don't think about it as a fund, but I think about how can we build the best product for founders and what does that mean? How do we help them on hiring? How do we help them go to market? How do we help them in the US? And I think we do that for a specific phase and in that phase we want to be the best. That's our model. And how has that model, that product changed and evolved? You know, when you talk about helping them go to the US, we're seeing European founders move to the US much, much earlier, like the earliest possible stages.

7:32So how have you and Cherry had to adapt that founder first model for a changed ecosystem?

7:37Filip Dames:I think very good question, because I think there's very few funds that are matching the new ambition level for founders that we have in Europe. And also the VCs need to evolve, right? Not just the founders. I think we're talking about, you know, equal playing field, whether you're a sequoia from the US or an Andreessen or you're a cherry in Berlin, London, right? So you need to compete with the best. And for me, again, coming back to the product idea, we think about, like, what's the best product for founders? And maybe 10 years ago, it was not so much about go-to-market in the US. We have always had companies that moved to the US, but that used to be rather post-product market fit.

8:18Filip Dames:would be like, okay, let's open the US as a sales office, like Amboss, for example, medical, in a healthcare space, they now have an AI model for clinical decision making, working with doctors, several hundred thousand doctors around the world. They opened a New York office post Series B. That was sort of, that's a company we've invested in in 2017. Now you have founders that go straight with their seat round. They were like, you know, the go-to-market is easier in the US. We do an ink flip. but let's go and build there, which is also fine, because we need to also go with where the founders think it is best to build.

8:52100%.

8:53Filip Dames:And for that, we have to build an infrastructure that supports it on the go-to-market, on the hiring, on our network within potential customers, being able to introduce to design customers across the U.S. as well. And I think it's also you need to be in the relevant communities. And I think that's the interesting part. You have a lot of European builders in San Francisco. They all know each other. They all talk to each other. I think it's both important from, you know, a deal flow perspective. So what are the type of things that we're seeing within those networks? And then also for, you know, helping these companies succeed, right?

9:31Filip Dames:Because the learnings from someone that has gone over two, three years ago for someone that's going over now, I think that's super valuable. And we're trying to, you know, do events. We're trying to bring our founders together. We're trying to nurture these communities. that's a big part of our approach also for US. And do you see other European firms perhaps falling behind here? Because I look at somebody like Cherry, you've got really strong product, as you say, which is founder first, operator led, incredibly early. You have this, and moving very quickly. You've got a reputation for moving very quickly.

10:01So you have a really strong brand and a really strong product proposition. I think the way that I see it is that sometimes some of the other big European VCs don't have that reputation, they don't have that strong product reputation, do you think there's a risk that they could end up falling behind, especially as we're seeing the ecosystem change so much, we're seeing increased competitive from US firms?

10:20Filip Dames:Yes, 100%. I think that's a huge risk. And I think every fund needs to think about that product and their differentiation. Now, there's great funds in Europe now, which has also evolved. But I would say the trajectory of ambition level amongst founders has been stronger than the trajectory of VC quality. Europe. Interesting, okay. I always want to talk about Germany specifically, you know, your background in Berlin. The Berlin ecosystem, really strong in the early days of the German tech ecosystem. Now we're seeing the shift to deep tech. Munich seems to be absolutely flying. What's your state of the German ecosystem at the moment?

10:56Filip Dames:Look, Germany is a little bit different than like, let's say, UK and France, because it's not that centralized, right? So it's not that you have Paris, where 80 % of the activity is, or like London, which is like the hub, maybe apart from like Oxbridge. And in Germany, it's a bit different because you have several cities that play a big role. Has to do also with the history of Germany, you know, Berlin being part of East Germany. So the reason why Berlin grew so fast in the beginning was because it was cheap. There was not much going on in Berlin, except for like maybe creative industries, like, you know, a lot of artists.

11:32Filip Dames:And then the farmers came and they started building because it's cheap to build. And that created that ecosystem. Now what we're seeing with sort of more the deep tech companies, where sort of Europe's evolved to and founders are now starting to crack harder problems, work on bigger things. Munich has played a really, really important role. Why? Because they have an amazing university program with TU Munich and CDTM. I don't know if you've seen the recent ranking. I think they just won the ranking for the best sort of university-backed incubator in the world. a lot of talent coming out of that school and then you have also more industry in bavaria so the big companies in germany they don't tend to be in berlin they tend to be more in the south so i think we have these two hubs i also don't believe in this like competition berlin's better munich's better i think there's amazing companies in berlin think n8n think ligora think peak think i think telly i mean there's so many good examples for berlin but then also particularly in deep tech like exploration companies there, Proxima is there.

12:35Filip Dames:And I think that's probably how you're going to also see that split evolve going forward. Yeah, and I think this year, last year, Stockholm, it felt like the big city in Europe, you know, with... Lugora. Lugora, Lovable, Santa. It felt like that was the amazing city in Europe. I really feel like Munich is going to have its year this year because of so many amazing companies. And in your portfolio, right, Proxima, exploration company. I mean, I guess let's move on to deep tech more generally. You've spoken about the renaissance of deep tech. What is that? What do you mean by that? And where's it coming from?

13:09Filip Dames:Well, I would say it's two things. The first I want to say is the wake up call that Europe's been getting through everything that's going on in the world geopolitically, whether that's the war in Ukraine, whether that's sort of the US and their sort of rather, you know, in-world focused approach. And, you know, we finally have woken up to the fact that Europe needs to build its own technology and we need to be resilient and we need to be sovereign on certain industries and technologies. And I would mention AI, of course, I would mention defense, I would mention energy. So I think that has just given a rise to, I would say, a wave of founders that are working on these harder problems.

13:48Filip Dames:They're usually slower to build, so they require more time and they also require more capital. And oftentimes you need also public-private partnerships. So you need like a company like Proxima Fusion. It could not be built just with private capital. So that also needs to work. And that's happening, right? You have the 100 billion infrastructure plan in Germany. You have a lot of programs around defense that are being started in Europe. So not only has the, I would say, the necessity of building these companies been higher, also the willingness to engage with startups as a government and, you know, use startups as sort of vendors has also increased dramatically.

14:23Filip Dames:So that's kind of the one thing. And then I think the second thing is that with AI, you know, and simulation that enables a lot of sort of the typically physics problems have also become easier and also cost to build has come down because of GPUs. So I think where you have, like, let's take Proxima as an example. They're building these highly complex stellarator fusion reactors, where the main complication is the design of the magnets and how they are coiled and how they're able to keep the plasma inside stable. And they're running tens of thousands of simulations on the optimal design of these magnets, which they just simply wouldn't have been able to do pre-AI.

15:06Filip Dames:So it's both. I think you have the tailwind politically, the whole idea of European sovereignty, and then you also have the technological advancement that can sort of push a lot of the deep tech ideas forward much faster than it used to be the case. And do you think the ecosystem is set up in a way that's going to enable this deep tech renaissance to flourish, or do you think there's more to be done? No, I think it's happening. I think I see it every day. I think exciting companies like look at an ICEI, look at the exploration company, look at a housing in defense, also quantum systems. I mean, we're seeing like amazing companies being built in Europe within sort of the DTECH space.

15:48Filip Dames:You know, defense was a big theme or is a big theme, obviously, with what's going on in the world. But around that energy space, I think we are looking at a super exciting decade for Europe with regards to like deep tech outcomes. I'm like, I'm super excited. Amazing. And I think we're seeing a lot more governments do great stuff in procurement. Yeah. Like actually buying stuff. Yeah, buying stuff, trying stuff, you know, not having to go through this whole like procurement mess that takes years, but rather experimental budgets. That's a big part of also why young companies in, let's say, Helsing were able to also generate revenue relatively quickly.

16:27Filip Dames:That's also really changed. So let's talk about Proxima. Also, you've got an amazing portfolio of D-Tech companies that include companies like Proxima, but also like micro robotics and Robito, chip companies, exploration companies. You are really investing in all the categories. So I want to go, let's just picked Proxima. They've just announced their amazing power plant, which is going to be amazing, right? And so I want to know, like, how does Cherry source, invest, get excited about a deep tech company? And so if we can use Proxima as an example, like, you know, how did you find that company?

17:00What about you excited them?

17:02Filip Dames:Yeah, so I mean, Proxima, first of all, I think the MOU that they've just signed is amazing. Because I mean, imagine that Germany leaves Fission Power, decommissions the power plants and now there's this fusion company that basically moves in to an old nuclear power plant and like rebuilds it with fusion first amazing and if that works i mean like the the power of this this business could be like it could have a really like a global impact on energy like it's it's it's the ultimate way of producing reliable durable clean energy and we all know it's a few years out and it's a really really big problem to solve and we're not saying we have But just that this is possible and this is happening in Bavaria and the Bavarian state says like let's put up to 400 million to support this Is I think something that just It's become a bit of a joke, you know, like Germany's nuclear power, you know, yeah become a bit of a meme the way it was all shut down And now it's like actually maybe Historically that's gonna be have been the right bet, right?

17:59Filip Dames:If this comes out and like I wish we still had nuclear power plants I think we would have solved a lot of other probably that's a different discussion, but you're right I mean, it's like pro-innovation in a way that is new. Like, I can imagine five years ago. Yeah, 100%. And I mean, you asked how we found them. So I think it's very first principle. So we spent a lot of time in energy. What you described, why we decommissioned nuclear, I think has caused a lot of problems. Because I'm like super pro-renewables. Like, let's build all the renewables in the world. Solar is going to be huge. But the problem with renewables is the volatility.

18:28Filip Dames:So we need baseload. We need reliable baseload. Right now, it's no longer gas because of Russia. And coal is dirty. we are firing up coal, which is actually terrible from an environmental standpoint. So we need reliable baseload. So we have looked at the problem and sort of decided to make one bet on the future of energy, which is Proxima. And then we also made a bet on the how do we actually, how do we mitigate that path towards, you know, having free energy, free clean energy when we have, you know, 100 fusion power plants around Europe, which is going to be a while. so we invest in a company called co-power in munich and actually helps companies manage the energy volatility by installing battery capacity in front of the meter behind the meter and basically when energy is cheap you take it from the grid if energy is expensive you take it from the battery and you have like a system that sort of optimizes your spend and takes out the peaks of your energy so that's much more short-term companies already generating tons of revenue and we need these solutions as well before we can say hey energy is free for all which by the way i don't think it will ever be i think we will just need much more of it i think it's just not that energy is going to cost nothing i think it's going to be that we are just going to need so much more energy that it will be cheaper but will not be free yeah interesting otherwise approximately also wouldn't be a good business well no business would be good right giving it away for free And so when you assess some of these companies, these are highly technical, complex subject matters.

20:01How do you assess the founders? Are you looking for people who have come out of amazing universities? Are you looking for people? There's an example of James, who's just raised$200 million for Olex, a chip company. He's not necessarily got an academic background in this space, right? But he's an amazing entrepreneur. What kind of founders do you look for when you're looking for, or how do you assess the founders that are solving problems in these really hard spaces?

20:23Filip Dames:So I think it's very clear you can't build a fusion company without the relevant background. So it's not the straight from school, let's go type pharma that maybe you see in some of the application AI stuff. So you need deep, deep expertise. And on the other hand, you need the ability to break down a huge vision into parts and deliverables deliverables and then hire the team to go step by step by step and also, you know, bring the best people in, which, you know, Proxima, you have people from, you know, from SpaceX, from Tesla, from Commonwealth, like from basically really like the best engineering talent globally is building this company in Munich.

21:05Filip Dames:And that's, you know, one aspect of backing our founders, looking at her or his ability to recruit the most amazing talent around them. And then we want to see, you know, rather, yes, okay, you need to have some experience. You need to have deep understanding of the space you're building in. But you also need to have this, you know, growth mindset in a sense that nobody can build a company, like a large company, like Proxima Fusion or any other company, really. You could say the same about the Flixbus guys. When they started, they were coming out of BCG and they did not have a lot of experience in company.

21:46Filip Dames:But if you see them now, they're on stage. They're these amazing founders. So you need to look at people that have a fast trajectory, like a growth mindset. And you trust them that they will be able to learn fast and sort of grow with the ambition of the company and hold the four together. It's going to be messy. It's going to be fast. It's going to be way too much responsibility, way too early. So we need people that are able to manage that. and so we spent most of the time yes when I looked at Proxima I had to go deep into the rabbit hole I spoke to over 50 people probably in the divisions finding out about the difference in the different reactor designs Tokamak versus Stellarators who's building what, who's the expert in the space so we really like it took us some time which in this case we had because it wasn't like a crazy fast moving round so we really could spend time with the company with the product and with the founders.

22:41Filip Dames:And then the most time we spend is on them, actually. So we have dinner. We look to have conversations with people that work for them, have worked for them in the past, try and get data points and references and see, like, are they built to build something like this? And I think that's the most important part of our job. Do you like going deep? Is that a fun part of your job is, like, okay, going super deep on this industry? I love it. I love it. I think it's one of the biggest privileges that we have in our job. And I think if I look at my Zalando time, I was eight years basically in the tunnel.

23:15Filip Dames:So all I cared about was e-commerce. And, you know, how do we build the best customer experience in Europe for, you know, fashion? Yeah. And now I can, I have the luxury of saying, all right, let me spend four weeks on Fusion and go as deep as I can. And I think that's amazing. Amazing. And like I said, you've got companies in all these amazing deep tech categories, so you're very close to a lot of it. When you look at the ecosystem, you look at the companies that are coming up, where do you think Europe is still underfunded? Yeah, I think if you look at the very large rounds for some of the companies in deep tech, then you see that that money is usually not coming from Europe, but it's coming from the US.

24:00Filip Dames:And I think that's something that Europe needs to fix, because I think what's also ultimately cannot be the goal is that, you know, we have these amazing companies in Europe, but all the shareholder where you go to U.S. investors or U.S. LPs, frankly, if you look at funds. Also, now we have a lot of U.S. money, which is fine, but I think Europe needs to step up also there. So the value that we create here is not going elsewhere. I think that's still the gap that I see in Europe. A lot of people are working on it. There's bigger funds. You know, just the last two weeks ago, one got announced. There's also a lot of public initiatives where a bit mixed.