How US VCs Actually Think (If You’re a European Founder)

25:04So that was a bit of an adjustment. But I will also say some of the best companies that are coming out of Europe, founders have that commercial ability in full scale. I look at a company like Sona Labs in our portfolio, and we're so lucky to partner with Joel. Heller Mark, who I think has, when we look at founders, technical ability, product sense, and then commercial ability and the ability to be a great storyteller. That's a very rare combination. Oftentimes you find that in multiple people in a company who collectively can carry that workload. Joel had it in just one person, and he was 10 out of 10 in all those categories.

25:41So very rare mix, but that's the type of founder that we look for point blank across the firm. This is not just in Europe or in the US, but we have one global investment committee, and that's the bar we have. And my point of bringing up the story is that those profiles, even though it maybe isn't as common yet, they definitely exist. But that's the example that I think founders of today will look to, to say, okay, if I'm pitching an American VC, this style is maybe what they're expecting. So that was a bit of an adjustment. The other thing I think, you know, in the U.S., the U.S. is a massive country.

26:14We have, you know, you go state by state and maybe some of the culture shifts a little bit. California to Texas is a lot different than, you know, maybe Minnesota and then New York. You know, these are all different. But at the same time, same federal policy that applies, the same language largely. So doing business across states, fairly easy. Doing business across borders in Europe, a little bit more challenging. hiring people, you know, if you're a Nordic space company, hiring somebody in the UK, hiring somebody in Spain, like different language, different treatment of stock options, different, maybe different, you know, some holidays are different.

26:52So it is a little bit of, there is an adjustment, I think that European companies have to go through as well on like, just, you know, everyday life and sort of sort of part of the part of the company building process. But what I would say is, I think where Europe has an advantage, back to the fact that it's, I would say it's breaking out now. I think there is a different energy for European companies right now. As I look at the best in class companies are going to all have their unique cultures. And that's not a comment on that level of company. But I think, I mean, there's all these there's a lot of stories coming out of Silicon Valley now of engineers working multiple different companies, having jobs, three or four.

27:29and the companies don't know this, but people know now how to, you know, if I'm a remote engineer, if I'm a remote product person, or, you know, I can go in the office one or two days a week, and then join this company. And the culture, when that happens is not as consistent, there's not as much of a team first attitude. I think in Europe, there's, there's a freshness to it, where it's like, we want to be the first company in this city or in this category, and put our country, put our community on the map, so to speak. And that permeates across all the people that are joining these companies. And so I think that is actually an advantage in terms of company culture that European startups have, because to be the fifth or sixth company in a market is an amazing outcome, but not the same level of excitement as if, hey, we're going to be the first ones, the trailblazers, or carry the torch for the last generation.

28:23And that, I think, is a little extra motivation. So that's the last thing I would comment on.

28:30Matt Oxley:Let's talk a little bit about investment thesis. I think a lot of, especially first-time founders, don't really appreciate the importance of that concept. And they might think, hey, you're a venture capital firm. You invest in startups. I'm a startup-binding capital. I'm going to come pitch you. Can you kind of talk to what NEAs, how NEA thinks about investment thesis, and then kind of trickle that down to how you think about it. What is a perfect deal for you look like? It's hard to say. I mean, every deal is unique. There are a handful of things I think we put more weight into, and this is probably true for a number of our peer firms as well.

29:06I mentioned Joel and the founder profile that we look for. I think if you find a truly exceptional entrepreneur, whether that's at the seed stage, where I think it matters probably more because the level of upside at the seed stage, there's less data points, but you're investing a lot earlier. So your cost basis is lower. So we put a lot of weight into the founder profile, who we are investing into and what their motivations are, what the mission of the company is as like the number one thing that we evaluate. I think at the seed stage, it's really the majority of what you're investing in because there generally isn't very well built out product.

29:42There's not a lot of data at that time. If you're investing later, we still put a lot of emphasis into the team, but we also have other data points that we can evaluate. We can look at the competitive landscape usage across different products. We can look at your year-on-year growth rate. We can look at some of your core KPIs. I come back to things. People often ask about how much revenue or ARR they should show to raise a series A or to raise a series B. Those are important metrics for some companies and in some categories, especially if you're a classic enterprise software company. But what I think is actually a better indicator is just usage.

30:16Look at how many people in a company, even if you're an enterprise software company, how many people are using the product? Is that usage increasing every day? Because if you see usage, you can eventually figure out a way to monetize that usage. Because if you have someone who's using your tool, that means they're getting value out of it. And so whether you're capturing that value today or you'll capture it in the future, that's one of the values, I think, of raising venture capital is because it allows you to go several years, maybe without having to focus on running a company to a profitable state.

30:45long term, all of the businesses we invest, we believe will become profitable cash generating companies. But sometimes in the short term, either you have to invest in technology, and that can be a loss making several several years, or you want to get your technology in the hands of users collect as much feedback as possible, build up a lot of affinity to a certain product. And then over time, figure out natural ways to, you know, to share in that value creation with your customer base. And so I look at our firm and then I've been trained in the NEA investment model. So I consider these things also how I look at companies, but we put a tremendous amount of weight in the team and specifically the founders who are, you know, when you're starting a company, you have it in your head, but the ability to recruit people to your company, the ability to win early customers and ultimately communicate a vision for a product and then materialize that through engineering.

31:39Those are very, very hard challenges. And that all comes from the founding team. So that's where we put a lot of our weight into. And then we evaluate the size of the market, the size of the opportunity. How much is this product different versus the rest of the, you know, either you're building a new category or you're going to displace existing spend or existing usage. So how do you think about communicating that to the people you're ultimately going to serve? Those are the things that we put a lot of weight into.

32:04Matt Oxley:Are there sectors that you specifically focus on or sectors that you specifically avoid?

32:13One of the, I think the unique things about NEA is that we have been one of the largest and most diversified investors in venture. It's part of the value prop that we offer to our limited partners. So we raise multi-billion dollar funds and then we invest that across many different sectors. And if you look at just the way our team is structured, we have a dedicated technology investing team and a dedicated health care investing team. And so, you know, we have one global IC for each of those different groups. We have our health care IC and we have our tech IC that allows us to invest in, you know, many different categories, not just tech, not just health care and go deep in those areas.

32:49So what we look for are markets that can produce billion dollar plus companies, 10 billion dollar plus companies. There are certain things that, you know, over the history of the firm and in our, you know, what we tell our limited partners that we will avoid. There are certain categories that we just don't feel like we have a lot of expertise in certain substances and things that might be addictive. We've stayed away from those categories. But if it's classic software, if it's classic health care services, biopharma, consumer categories, we've done a number of things in the e-commerce space. For example, fintech is a huge area of focus for our firm.

33:24These are all areas, I think, and if you look at our team, a lot of different backgrounds that allows us to have people who are experts in a given field and lead investments in those areas with high conviction. It's part of, again, why I think we have a very unique investing practice. And that comes back to the people who are making the investment decisions. And I have a tremendous amount of trust in sitting in our investment committees. There's a lot of times I'll hear a company and I'll have very little idea about what the commercial application is, who the customers ultimately are, because it's in a category that I've spent very little time covering.

33:57But that's where I think having the trust within a partnership is a very important thing. And many of our investments that we've made that have generated great returns for the firm have come from places where, you know, one or two people had a lot of conviction in, but it wasn't a category that was maybe always that kind of globally well known within the firm or even more broadly across venture capital.

34:18Matt Oxley:Luke, how do you source deals? I know here in the U.S., NEA is a great brand. So I think if I was raising right now, almost certainly NEA is going to be in the top list of firms I'm going to contact as a proactive outreach. You're sitting in the UK. Do you get the benefit of that great brand in InBounds? Or how are you personally sourcing deals? Yeah, it's one of the things, Philippe Chopin, who we work together in growing our European practice here. He and I talk about this a lot. Really, we feel very fortunate to have the history of the firm behind us. I mean, it's not like we're starting from square zero in building out this practice.

34:59We have the history of our firm, many of the investments that we've made in the U.S. that are well-recognized in Europe. And when we opened the office, we had, I think, 20-plus companies that already existed in the European market. So we weren't building from scratch. At the same time, we weren't here full-time until we moved over. So there was an element of just getting in front of all the local investors and entrepreneurs and communicating, Hey, we're committed to being here. We're growing our team. I've moved here. We're in the same time zone. We're committing resources. And because founders care about that, like you don't want to raise money from someone who's just going to be flying in or out or isn't going to be with you at the same time zone or a firm that isn't committed to being somewhere long term.

35:42Having that kind of change across your board, let's say you're two or three years in a building a company, that can be very disruptive. And so it's one of the things that's unique, I think, also about NEA, the longevity of people, the time people stay within a firm. And we have this approach. We say crawl, walk, run, where we're very deliberate about our actions and we're not going to, you know, all of a sudden scale up really quickly and then scale down really quickly. Sometimes you need to we move quickly with markets, but we don't make the commitment to a place and then decide to pull out, you know, after one or two years.

36:13So we're here for the long haul, for sure. And I think that that really matters to the local, you know, investor and founder community. In terms of sourcing, though, I think the last two to three years, we've spent a lot of time trying to communicate to, again, the local seed networks in some of the best and proven markets across Europe that we do have our office here. This is our investment focus. These are the kind of companies that we're looking to invest in. And we also spent a lot of time trying to build that first sort of foundational layer of new investments once we open the office. And I think looking back now over the last three years, we've put a lot of that foundation in place.

36:54I think we feel very fortunate to have gotten to know several of the leading GPs of top seed funds across Europe who have been very helpful to us in how to think through shaping our practice here, how to be helpful to founders here. And then also just ideating on different investment categories. And then we also are fortunate to partner with some of the, I think, best in class companies and best in class founders. You look at Sona Labs and Joel, Synthesia, you know, with Victor and Stefan, Eleven Labs and everything that Mothy's building there and a number of other companies. These tend to be some of our best references and ways in which we can win that next great deal.

37:33And so we feel very fortunate to have that foundation in place. But that's also that's oftentimes where the best deals come from. Founders will communicate to, you know, they all see the potential in the next great founder. And then they'll refer that founder to a given firm or an early seed investor who sees a company in a place that maybe people weren't looking before, but they backed that first company. And then, you know, in three or four months of investing, they see the performance and they send us a message on WhatsApp or a call and they say, hey, you should go meet this company. and we'll get on the plane, you know, the next day or even same day, fly out and try and meet that company because the pace of deal flow now is incredibly fast.

38:09But that tends to be, I think, the network piece is where, because every venture firm, we're all tracking the same things. People are all doing the same data practices, looking at, you know, different, there's places you can find unique signal, but the period of time that that signal stays unique for is very, very short. I think now, because with the speed at which people can find different data sources and then get insights out of that data. But what I think is differentiated is the relationships piece. And that's where your reputation in the market, your founder references, and your relationships with early investors really matter.

38:43And we've been spending a lot of time trying to build out a lot of trust at that layer. Just a quick question for me. As we inferred earlier, one of the things that we really like to do is talk about the human side of it as well. So I think there's a couple of questions I have for you around how did you find going from the US to the UK? What was that like? What blew your mind? What did you have to learn? But then I think the follow on question is what guidance would you give any European founder looking to make that journey over to the US? Yeah. First part, I mean, I have a love for a TV show called Ted Lasso.

39:24And I was lucky because Ted Lasso was sort of season one, two, and three were unfolding as I was moving over. And that show is basically an American football coach who moves over and coaches Richmond FC, you know, and he's kind of like a fish out of water, but like it makes it, there was a good humor and, you know, things about the different culture clashes. And I feel like I was living Ted's experience sometimes as I was adjusting

39:49Matt Oxley:to the culture here. One thing that was, I think for me was surprising. London is a very British city, but at the same time, it's so international. And I've met people from all over the world. It's been an amazing experience, but I feel very lucky to have met people who have similar, like they were living in a part of the world that was not their home initially. And so that's a point of connection with people. I also was very lucky, you know, someone I consider a very close friend, Peter Specht at Creandum. He and I were actually flatmates for a year. And so we both moved to London at the same time, he for Creandum and me for NEA.

40:22And we were opening our offices respectively for each of our firms. We actually now have offices like four buildings from each other. It's his birthday today too. So shout out to Peter on his birthday, but he was amazing, like not just professionally, but as a, as a friend introducing me to all of his friends here in Europe. And some of those people have become some of my closest friends now. And I think that's part of, I think back to when I was at, you know, back in college. And I, I, I think I mentioned some of the coaches that I played for and how they were mentors in a way. And one of our I played for two coaches who are, you know, top three wins of all time in college baseball.

41:01And when they each retired, they were, you know, I remember them getting asked questions about, you know, what is the best win you ever had or what was the your favorite memory? It wasn't never about a specific win or a specific outcome. It was about the players they coached and the coaches that they coached with and the relationships they built over 40 plus years of, you know, being, building a program like Stanford baseball and then, you know, seeing all the players that come through and then the careers that they would have on the back half of their playing days. And that really stuck with me.

41:32And I think that's what I think is true of venture as well. and finding people like Peter who can introduce you to people and are just good quality humans who are like, for me, I don't think I would have had as easy of a transition if it wasn't for people like that. So I have a lot of gratitude for that. NEA also was incredibly supportive in helping making sure that I had what I needed as I moved over. And then honestly, one of the surprising things is, I mean, the world is so connected today. I think about my mom who moved from Belgium to California when, you know, early in her life. And back in the time where you didn't really have all that you couldn't FaceTime somebody you couldn't get in a plane as easily as I can today and be home I can fly home and be home in like total travel time 13 hours Heathrow Express to the airport you don't check a bag you walk onto the plane like pretty pretty with pretty good certainty it's a nine and a half 10 hour flight and then on the back half you hop in an uber in your home in an hour like it's pretty amazing to be able to go across half the world in in that short amount of time and it's only gonna I think get closer and more and more connected.

42:34But that's been great to experience. I think it's another reason also why, as I tell European founders, it might feel daunting to move to the US, but the world is incredibly connected and you can keep that connectivity if you put in the effort. One thing we were very conscious about doing, and I have been at the firm for five years when I moved over, Philippe, who joined us, he came from a different firm. And so we were, you know, but he had all the local experience. He'd been investing in Europe for, I think, 10 plus years by the time he joined us. So when I tell when we're helping advise companies that are opening offices in the US, we advise something similar, you have your founding team, someone who knows the culture of your company who knows what you're looking for in a new hire, pairing someone like that with someone who's from the market you're moving to.

43:18Now, neither of you are starting from score zero. Like if I moved here and try to do it all by myself, I'd have to build net new relationships with it, you know, the entire market while building out the practice. And Philippe, if he were to do it all on his own, he'd have to learn NEA's culture and all of our investing committees and how do I communicate this to the firm, et cetera. But if you work together, if people feel like I had the NEA culture and experience because I had been five years in the firm and Philippe had the Europe investing experience. And so pairing that together was much more efficient than trying to build either of those from scratch.

43:53We tell our companies the same thing. Take one or two people who are part of your core founding team, have them spend a year or two, or maybe, you know, 10 plus years, if everything works out well, opening that net new office for you, and then find someone who can be a co-leader of that firm or that office that has unique domain and geographical expertise. And then merging those together, I think is a good way to expand. But yeah, there's a lot of things that have been surprising, but it's also been an amazing just life experience to live in a new part of the world and all the cultures that I've been able to experience and founders that we've met and friends that I've made.

44:29And I feel very lucky to have had that experience so far. What's the one thing you miss? Breakfast burritos. So like, I mean, I have my, that's a funny answer. Obviously my family, my friends, eight hours. Well, I say it's not that, but it can be a little bit frustrating because you wake up, everyone's asleep back at home and then you go to your office, you're working when they wake up. They come home from work and you're getting ready to go to bed. So it's not like the, it's easy to connect. I miss that a lot. I miss the beautiful sunshine and the ocean and all the, my favorite cycling routes.

45:06But my like business idea is to open up a breakfast burrito, like little stand in Soho. I feel like, have you ever had a breakfast burrito by the way? Yes. This is the most California food in my opinion. And it's the most incredible thing. You don't expect it to be incredible, but then you have it. You're like, Oh, all of this is in this. And it tastes that good. And if you make it well, like, because I, there's a handful of here in the UK, I've tried almost all of them. And I got to tell you, they're like one out of 10. I have a friend in the US Mojo, my another shout out to a good friend. And he is, he makes the best one I've ever had.

45:37And if I could take his recipe, and just open up a little, it's not that complex, you just need eggs, black beans, some salsa, avocado, cheese, like maybe if you want to put in some like bacon or something, you can have that as an option. And then you just roll it up into a burrito. Like, and it's very, like you could deliver it super well. You don't need to have any sit down areas. It's very good for takeout. It's super fast to make. So I feel like as a business, it could be really, I would invest in that. So I think I want to start one next year. I miss that a lot about California. Yeah.

46:07Matt Oxley:Luke, as we're wrapping up here, coming close to the top of the hour, how should UK or EU founders be thinking about the US market? When they come to you to pitch, is that something they should already have traction there? Is that something they should have a plan to? What are you looking for as an investor from founders regarding the U.S. market when they come to you to pitch? I'll say two things. First one is we get asked a lot, like, when should I move my company to the U.S.? And what I come thinking back on one of the things we talked about earlier about there's a lot of components you can you have available now in Europe to build a company.

46:44I think you can build a company and have it be in Europe for the longevity of the company's life and be globally successful. What I think matters is focus on your competitive advantage. People hear about and feel the allure of Silicon Valley. And you might be a seed stage company. Let's say you're a seed stage founder from Stockholm and you move your company to San Francisco. Now, that might be the right decision for you if you have a network there. And if you have the ability to meet investors, the ability to meet customers and to recruit engineers. But if you don't have a network at all in San Francisco or in Silicon Valley, just moving there, I don't think it's going to help advantage you.

47:19You're going to have to build a network from scratch. You're going to have to meet net new customers from scratch. But if you had just built your seed in Series A kind of stages of your company in Stockholm, for example, let's say you grew up in that city. Several of your friends are now heads of product or heads of engineering or heads of finance at other companies. They can be your first customers. or maybe some of those people that you knew in your first job can be some of your first hires. Like think about your competitive advantage and that network that you built like your early life and your early career in is part of that competitive advantage.

47:53So get those early easy wins. Then when it comes time to series B, I think that's when you have to show, okay, now we have the ability to be truly global. Let's land some of those logos in the U S let's land some of those logos in the UK and more broadly across the world. That's also where having an investor, like a firm like NEA can be very helpful. So we love to partner with companies that the seed Series A and beyond, but Series A and Series B is our sweet spot because that's where I think you can really help shape a global presence. If you're going to go from, let's use the same example, Stockholm to New York, to San Francisco, and you don't have a network there, having a firm like NEA that has one of the longest histories of investing in venture, one of the largest portfolios, argue, like you look at some of our exits across that, you know, you know, the history of the firm, we have touch points to so many different parts of the tech landscape and healthcare landscape that for a founder, like think of us as a co-founder in that way, we can be that founding like relationship for you in the US, help introduce you to net new investors, help introduce you to that head of engineering or head of sales, who's going to open up your, you know, let's say your New York office or your San Francisco office.

49:00And, and that's part of what we've built the last, almost 50 years now for the firm doing. And so I think that's why I think it makes sense for European companies to partner with firms like an NEA. We have the office in London. We have people on the ground here full-time building with you in Europe and more broadly across the region. And then we have a team in the US who are amazing in each of their own fields. And we all work together for the best outcome for the company. And so that's how I would think about going from, We know whether you're in London or Stockholm or Munich or Berlin or any other city and then ultimately expanding to the U.S.

49:38That tends to be a very, I think, successful playbook.

49:42Matt Oxley:Luke, this has been really great. Thank you for making time to talk with us. I'm sure the founders listening will appreciate your insights. This has been really great. Any parting thoughts for founders that we haven't talked about? We want to squeeze in real quick before you run. Just give us a call. I mean, I think sometimes, too, I have heard people worry about, am I ready to talk to a firm like NEA? Am I ready to talk to any of the other firms that we would compete with or partner with that have similar sizes to us? And I think it's never too early. We love meeting companies. When you have an idea, maybe you haven't even left your current role yet, but we can help ideate with you.

50:23We can help think about some of those early hires. And then we may not invest at that first stage, but that's a, for you as a founder, you get to feel for us as an investor and us as a firm. And then we can also understand your vision and your journey better. And oftentimes we might meet a company at the seed series A and then lead the series B or see the pre-seed and seed and lead the series A. But my final thought is it's never too early. So please, please do ping us. We're, Philippe and I are both here in London and traveling to, you know, many other European cities. So either drop us an email or call us on WhatsApp.

50:56I think my number is even on my LinkedIn. So please reach out. And we're always looking forward to having great conversations.

51:03Matt Oxley:Great, Luke. This has been really great. Thank you again for making time to talk with us. Really appreciate it. And we will see you soon. Thanks so much. Thanks, guys. Bye-bye.