Why European Founders Are Afraid to Sell the Future (And How to Fix It) | Deep Tech Investor Matt Wichrowski | Fly Ventures Partner

0:11Hi, everyone.

0:12Matt Oxley:I'm David Rose with USXP. Welcome to the Scaling Stateside podcast, along with my co-host and co-founder, Matt Oxley. we are on a mission to help founders from UK and European venture-backed tech companies better understand the U.S. expansion process and the U.S. venture fundraising process. With that, we're having a series of conversations with founders who've already made the expansion journey to the U.S. and with VC partners who are funding U.S. expansion for the portfolio company. And today, we're very excited to have with us Matt Wachowski from Fly Ventures. That's part of our conversation.

0:47Matt Oxley:Matt, please introduce yourself and tell us where in the world you are today. Sure. Hi, everyone. Very nice to be here. I am, my name is Matt. I'm one of the three partners of FlyVC, FlyVentures, which is a first-check VC built for technical founders that other funds are afraid to back. And that's sort of our primary focus. I'm calling today from California where my home base is, But I do split time between the West Coast and the UK, mostly London, with a little bit of smattering across Europe, which I'm sure we'll get to. Yeah. All right. And one thing we always like to ask, Matt, what was your first paying job?

1:31Matt Oxley:We go way back to the beginning. Yeah. The first one I was able to think of, which I mean, I don't know if it was a job as much as a side hustle when I was 11 or something. um i started like a like a car detailing business or something i mean business is loose it was you know going around and you know you clean up stuff and it was extremely unscalable obviously but i was also that's that's a real hustle that's a lot of work yeah it was a hustle it was a hustle for sure love it i love that i love getting everybody's answers because everybody that we we tend to interview is a hustler and you can tell that they're starting off at like 10 11 is the is the years that they start when you start to like you get a little i want to spending money all right okay this thing called money i can actually put it to use and make bad decisions that's cool that's awesome yeah there's definitely a trend there so matt what i'd love to do obviously you've you've alluded that you you you split your time because you know i'm sorry but i sleuthed you it's Chicago to London Business School, then Entrepreneur First, and then Boston.

2:40And now, obviously, you're West Coast, but you're splitting your time. What was the first draw? What was that first moment? Obviously, it was London Business School. But then from a kind of professional venture perspective, what drew you back? Can you talk us through that kind of? Back to the States? No, back to London, whether you stayed there. but also what what took you to this transatlantic kind of role and position you've got so as you alluded to i i grew up in in chicago or the burbs and and you know after after college or uni or depending on who's listening i spent time in chicago properly as part of that role which you know we can get into i did the consulting thing specifically sort of my focus was international supply chain, strategic sourcing, procurement, et cetera.

3:29So that brought me around the world quite a bit. It was in a very different time, a very pro-globalization, which is possibly dating me, but nevertheless. But kind of after a stint, I realized that wasn't the career path for me. I wanted to make a transition and I had discovered venture. We could talk about that more specifically if that's of interest, but suffice to say, I kind of fell, I found this asset class that I hadn't previously been super familiar with. I studied finance in undergrad and I was drawn to alternative assets at the time, but in the Midwest, that's private equity and real estate, which didn't exactly entice me as a career path.

4:08And so I went the way I did. But as I was sort of thinking what's next, because I didn't think consulting was the right path forward, I came across venture. I think there was a lot of different things. And I wish I wrote down sort of the discovery process, but I didn't. but certainly, you know, the writing of Brad Feld and Mark Suster and Fred Wilson. And it was the rise or the start, I should say, of Andreessen Horowitz. And anyway, I just kind of fell in love with this asset class. And I still am pretty proud to say I did. So I knew I wanted to kind of transition and transition careers. And I decided to use grad school as a catalyst for that.

4:44I knew I wanted to go into venture. And I knew I also wanted to get out of the States for a while. I wanted to, you know, I had kind of gotten this taste of international business and just sort of seeing different cultures. And the U.S. has a lot of amazing attributes, but it is quite insular. And that's probably even more true in the Midwest. So I knew I wanted to kind of have a stint outside. So when you when you factor in like you want to go to grad school, you want to get into venture and you want to be international and a school that kind of is worth the investment, frankly. it's not a huge list, to be honest with you.

5:20So that brought me to London. And that's what brought me over in 2014. And since I've had a foot, if not both feet in Europe, European tech ever since. The brief stint that I did in Boston was just because my wife had gotten to grad school for writing different careers. So I, you know, we obviously went together and we stayed there for It was like 18, 20 months or so, but I was still working for EF and I was still doing that back and forth. And then back to London and now U.S. again. One of the things, again, I was sleuthing you and loving doing that, admittedly. And one of the one of the kind of captions, I'm just going to read it out that you say in your bio is.

6:11I've worked in the UK slash EU startup ecosystem since 2015 and I've seen first time how European founders are held back by the scale and ambition of local capital which is why you split your team I just wondered if you could unpack that because I think we hear this a lot so just from your perspective I just wondered if you could unpack that yeah it's definitely been a very consistent aspect of my venture career at EF. I experienced it in a different capacity. Now I fly, I've gone to realize it is more complex than just as simple as investors are and as ambitious, but nevertheless, it is true.

6:55And to be honest, this is actually what, I mean, this is what fly got started on, you know, in 2016, I joined in 2020, which we can talk about that too. But the kind of fundamental premise for why the fund started was this perceived and very real gap between the talent and the caliber of European talent, specifically in our case, European technical talent, and the caliber of early stage so-called risk on capital. That is a durable issue for Europe. And it's something that can be corrected in a multitude of different ways. But how we address it specifically within Fly is try to establish our funds such that we can properly capitalize at the day zero first check earliest stage the founders that we're lucky enough to back to allow them to get to something significant and also position ourselves both from a network perspective and you know in my case geographically to be the first and possibly last European check or at least, you know, lead investor.

8:04Yeah, obviously it depends on the type of company we're talking about. In some businesses, you really need to be stateside. In some businesses, you must be stateside. That is the only market. And in some cases you don't have to, but typically speaking, it's a good strategy to have a very kind of globalized view from the get-go. And then just maybe a kind of follow-on question about the founders that you invest in, because obviously you're going early, you're in deep tech. What do you look for and what trends have you seen in founders that are successful in making that transatlantic journey? Because I'm sure you've seen some succeed and some fail.

8:52What are the trends that you're actually seeing and the patterns that you see in successful founders? Yeah, I'd answer that in two ways. I think the first, and this is true kind of across the board, outside of a stateside capacity. There's a lot of different ways to sort of cut this, but internally we use this term like animal founder. And there's a couple of different sub-archetypes, but generally speaking, it kind of symbolizes or articulates, excuse me, a feeling you get when you speak to this individual, their drive, their grit, their hunger, the speed and depth of which they think and respond to questions and et cetera, et cetera.

9:35Just really, you know, you could call it hustler attitude. You could call it fierce nerd. There's a bunch of different aspects of it. But that is a really consistent attribute that we use as an evaluation criteria across the board. It's even more important, I should say, if you want to go stateside. Because net-net, that type of behavior is more common in the U.S. So that's the first thing. I think the second thing, specifically to stateside, in my experience, the biggest lesson is founders don't go early enough. I think that's the big thing, which is slightly counterintuitive, or maybe is at odds with the conventional wisdom that I had heard, even kind of in my earlier days of European tech, which would be, you know, establish the market in your home country, get to a stable base.

10:32and then move and that's sensible in a lot of ways but i think that the the market and the the tech tech ecosystem at a global level has just matured and accelerated to the point where you can no longer take that staggered approach in most cases so you're saying that the market has evolved so therefore speed you you think of net is now of essence in yeah I mean, companies are companies are being formed faster than ever. More companies are being formed, but like by orders of magnitude, even, you know, five years ago, there is more competition for attention. There is more competition for buyer wallets, for venture funding, for talent.

11:19You know, you can see the growth rates of the the soon to be unicorns or, you know, even like hot deals. It is markedly faster than it was a handful of years ago. Just the market has matured and become more competitive. And as a result, founders need to move faster. I totally agree. I'd just like to go back to your point you made about the animal founder. I love that because I think you speak to every VC and what they do is they have their own animal founder kind of reference. I just like to scratch a bit on that. And do you have any kind of metrics or measurement that allow you to know and score an animal founder?

12:04Or is it more gut than kind of, you know, calculation? There's no metrics. There's no metrics. There's no, it's, I mean, I should, I'm sure if I thought about some quantification, I could come up with something, but it would be, it would be part of my language bullshit. It is a gut feeling. I mean, there, there are a series of attributes that animal founders tend to have. It's a semi, semi exhaustive list and no one has all of them for sure. You know, you can be extremely almost intense in your communication and like really, really engaged and have almost like a magnetic, magical quality. Other people are more calm and steady and collected, but you just know that they're thinking a mile a minute.

12:48So there's not one specific thing. But what I would say is because we have a really small team, there's only three partners and the whole company is six people. so we the the team has been able to spend enough time together exploring this idea over like at this point probably thousands of founders and so we have a shared uh a shared understanding a second language of sorts that's that's that's really cool yeah because i mean i'm a firm believer of yeah you can put the quant scores out there but there is a gut feeling when you're sat across the table from somebody that has the passion, the knowledge, the drive, the desire, the IQ, the EQ, you just, you're attracted to that individual.

13:33So totally agree with that.

13:36Matt Oxley:Matt, talk to us a little bit about investment thesis, because you're doing first check-in. So you're probably regularly talking to founders or being approached by founders who haven't raised previously. And I think a lot of first-time founders think, oh, here's a venture capital firm, they invest in startups. I'm a startup who needs money and they chase the wrong firms a lot of times. Just tell us, tell the audience who, you know, if you're a founder out there and help them understand like what in the world investment thesis is, why it's important, and then how you think about that as a VC firm and a partner.

14:08Yeah, good question. So, you know, we are a first check VC. So first and foremost, we focus on, you know, day zero, inception stage, precede, pretty much if a team has raised any, anything beyond like a friends and family angel round, it's probably too late for us. We really do try to be that like initial catalyst check. So that's maybe one criteria, but, but more broadly, and if you, you know, if you look at our, if you look at our website, we have a phrase, something, I should memorize this by now, but backing founders that other people want to meet, but are afraid to, or don't dare to invest or something like that.

14:50I really wish I remembered it. My partner will yell at me for this. But the basic idea is stuff that is highly technical, clearly interesting, clearly ambitious, but there is a lot of risk there. And we tend to be quite high tech risk. In terms of like what we look for, we're very founder led. We don't have a hard thesis. We don't have formal thematic areas. We're not a fintech fund. We're not a crypto fund. We're not an AI fund. We are a fund meant or built, excuse me, and meant to back great, ambitious technical talent. But that does tend to gravitate into certain areas and there are certain areas we don't do we don't touch consumer that is a very different build out we don't really do marketplaces either that is an interesting area but you know that is a pretty spreadsheet based very quantitative type of way to invest and we're more about people you know we don't do things that are outside of what is realistic for a pre-seed fund while i I think it would be extremely interesting to back a modular nuclear reactor.

16:01The reality is that's like a 25 million pre-seed investment just to get off the ground. And I don't, we don't have the capital for that. What we do tend to do is a lot of developer tools, data stack, infrastructure. We do a lot of enterprise automation. We do a lot of industrial automation. And then we do deep tech or frontier tech, which is predominantly what I focus on. And that is a bit of a catch-all, but it's anything that would be kind of loosely described as really high-tech risk, kind of unambiguously large market opportunity if it works. And sort of by definition, it's on the cutting edge of the frontier of what's possible.

16:40Our most well-known investment is undoubtedly Wave, the autonomous vehicle company based in London. We co-led that pre-seed in 2017. At the time, autonomous vehicles was, I mean, it still is extremely technically challenging, but at the time, you know, that was really, really cutting edge. That's the type of stuff we like to look at.

17:02Matt Oxley:How do you think about timeframes? I mean, if you're deep tech investing and it's a really long shot, it's a really hard technical problem. What are your what are your timelines or what do you what do you communicate to an LP? Like this is going to be something one day. How do you think about all that? We have a very, so it's a good question. This is a little inside baseball for listeners, but a typical venture fund, and we fall into that very cleanly, is it's usually a 10-year vehicle, 10-year window. So usually that has the ability and it's pretty standard, especially at the pre-seed and seed stage.

17:37You extend that to another two years. And it's very common for funds that have great winners that are waiting for exits. Just to take an example, I would imagine anyone that has SpaceX in their portfolio is probably just waiting that out. And so you could have a 15-year time frame. So we take a very long view. We do not think about when can we expect an exit that is not in our mindset is not, frankly, it's not relevant for the stage that we invest in. You know, more important is, is the market sufficiently large to really generate a massive opportunity that has both aggregate size as well as growth rate.

18:19And there's a little bit of a trade off there depending on the situation. And then, of course, you know, we have to also think about what is the follow on appetite for this? To some extent, that's not not to some extent, to a large extent that gets back to Matt's earlier question around being in both geographies. and then you know it's kind of incumbent on us to to sort of be very well versed in where the general market is and where the technological frontier is because what we want to be is sort of pre-consensus you know you don't want to be too early you don't want to be too late you want to be kind of 6 12 18 months a little early and then everyone sees the potential and then we're in the we're in the driver position or our founders are i should say matt if so you find a deep tech

19:06Matt Oxley:company, you like the founder, you like the market space. How in the world do you approach technical due diligence? Like, how do you know if like what the founder is telling you is even possible or may even work? I mean, that's a really tough challenge. How do you approach that? It is a challenge. It is a challenge. It is a challenge. It is something I have iterated on quite a bit over the past six years. So there's two main ways. I mean, first and foremost, the 90 plus percent of the investment is predicated on the caliber of the founders for sure so we do spend as much time as possible trying to assess and get a feel for are these individuals great but that doesn't mean you don't do the technical due diligence the market due diligence as you said So one way is you try to cultivate a broad and deep network of researchers, practitioners, people from the space.

20:07And so that does tend to gravitate a little bit into certain domains. I've spent a lot of time exploring and investing in robotics. robotics, I think I have a particularly strong network within the robotics space across the US and Europe. So I am both, I think, pretty well versed, but also I can diligence something pretty quickly because of that. But that's an investment in time. And then the second also investment in time is reading a lot and thinking a lot. And I have a newsletter where I try to share what I'm reading about. And then that creates conversations in very serendipitous ways. So broadly, I think I really believe in the prepared mind approach to investing to the extent that it makes sense for a pre-seed.

20:52And then, of course, having a really strong expert network that you can call on to sort of supplement because you can't know everything. And there's always going to be areas that I didn't plan on investing in this, but I love this team. And so I need to figure out if this makes sense.

21:09Matt Oxley:One other question on the investment front. Just curious, if you're going off these pretty early stage companies, what are your best sources of deal flow? That is literally finding the needle in the haystack. How do you source those deals? The best source is network, always. It's the biggest channel for us across the board, across all three partners. and it by far has the best hit rate in terms of will we actually invest in this? I mean, network is a broad topic. That's other investors, that's founders in our portfolio, founders that we may have passed on, but really like that's angel investors.

21:48That's random, as I said, those sort of due diligence experts or whatever that might know somebody. So you're constantly cultivating and nurturing that. But of course you can't just, I mean, many investors do, I think it's extremely foolish to just wait till something hits your inbox or WhatsApp. You have to go to events. You have to hunt on LinkedIn. You have to kind of constantly be doing outbound as well. But for sure, the warm intro game is definitely the best game to play. And just to follow up on that, because, you know, what I heard was you believe in a kind of prepared mind philosophy.

22:26you're always kind of obviously out there thinking about what is next you know if you if you're doing that and offering kind of obviously a prepared mindset philosophy how do you connect with people that are kind of because you're going to want to invest in technology that meets where your kind of methodology is going how do you find them i think you know my approach is to try to put out a beacon of this is what I'm interested in. This is what I'm thinking about. And hopefully that in whatever way it takes form will connect me with someone. So as an example, I spent, I spent a lot of time, you know, talking about drug delivery and thinking about that as, as an interesting area that can sort of fall nicely within this sort of tech bio sub segment.

23:22Bio is a tricky place to invest for a number of reasons, but that was an area that I had spent time on. You speak to people, et cetera, et cetera, that kind of gets out. And as maybe another investor, maybe a founder who meets someone who is working on this interesting approach to, in a portfolio case, engineered capsules for gene therapies. And then you should speak to Matt, I don't know if he's speaking about this. And because I've thought about that, I can also have a richer, deeper conversation with founders than someone coming in cold. That's really cool. Because you're kind of laying track with your newsletter, with your thought kind of process, pushing that out there in market, laying track for when the right connection does.

24:05That's the hope. I mean, that all sounds extremely strategic. Like sometimes it doesn't work. No, but to me it's like, Dan's like, right. You've got it together. I mean, it's more put together than other things that we've heard. So congratulations.

24:23I'd just like to take us to scaling stateside and just coming back to the kind of the transatlantic kind of pathways. And, you know, just speaking to our audience and, you know, European founders, especially, I think, if they really are thinking about moving to the U.S. in, you know, about 12 months, what should they be thinking about now to prepare? If they're thinking about moving to the U.S., interesting. Interesting. I mean, there is just a bunch of there's a bunch of block and tackle that needs to get done. This isn't a particularly interesting answer, but it is true. I mean, you need to get your ducks in a row if you need to have.

25:09Are you going to like are you going to do a U.S. flip? That takes time, especially depending on the country you're in. Do you have to deal with visa stuff that is unfortunately becoming a little more challenging now? um do you have a network that you can pull on or are you kind of cultivating that network from basically when you start um i mean do you have customers there or is that the is that sort of a different um approach entirely so there there is block and tackle stuff that that needs to be done there's also a bunch of you know a bunch of you have to get your personal life set up right and i think this actually does run into run founders into friction more times than not i mean embedded in your question they are moving to the u.s and so even in that you are in that circumstance like they're already far ahead of the game because they are moving which means they have made a decision if they're you know 20 something and they're on their own or something It's obviously like relatively straightforward if they're maybe older or they have children or a partner or ailing parents or like life happens.

26:21It is what it is. And so there is a bit of a dynamic that needs to be sorted there. And it is not uncommon for founders to have to really plan that out and to have conversations with their family and et cetera, because it's not nothing. But, you know, fundamentally, I think that's that's the big thing. And then there's a whole bunch of more specific things around how do you raise and do you go, you know, do you go periodically or do you go more strategically, shall we say? But yeah, if they're moving, I actually think they're kind of ahead of the game. Yeah, and I can't agree with you more about that personal side of it.

26:58So from moving my whole family there for 10 years, that was something that, you know, I didn't take lightly, but also I underestimated the impact on my family and therefore personal life. You know, you're moving to a country that is foreign to you. There is no friend network. There is going to be no family. You're very isolated in a culture that seems familiar, but is not familiar. so I you know I really do talk about you've got to learn American you've got to take the time to really understand how to do business in America but it sounds the most stupid thing in the world to say but learn American and really kind of embrace it and engage it and you know NCAA Final Four basketball it's like you know you've got to be learning the social nuances that go with it it sounds so stupid but it's it's true you've got to treat it like you know a UK individual moving to Germany or France.

27:54It's like embrace the culture, learn the language, understand the nuances that will really help you and set you up. That's always been my kind of biggest guidance to people. So I think it really does kind of, you know, layer on what you're saying. I guess my kind of, you know, next question is about setting up the organization. So, you know, people have kind of gone there what we tend to believe in is that founders really should be kind of the first people on the ground do you do you agree with that do you have kind of any 100 100 i think they don't have to be the only people and it doesn't have to be both founders and in many cases you have a i sometimes call it a split brain setup where you might have usually the ceo and the CTO will stay in whatever the home base is because there's a technical team and it's like,