Beyond Consensus: Where Europe’s Next Great VCs Are Emerging

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0:57welcome to swimming with alligators the vc podcast from the lp perspective with your hosts alexa benz and ernest you ready let's dive in thank you for having me it's a it's an honor and a pleasure awesome um you sort of entered this industry as a very eager teen volunteering at slash, which I believe is one of the largest startup conferences to date. What was it sort of that originally made you think this is where I belong? Like this is what I want to spend some time doing. Yeah, for sure. It's a great question. And I would say that I was always a planners guy and my plan was to do something completely different.

1:42And it's always the case with people on your podcast as well who talk about their interest in the world of venture is that it's always serendipitous. So my plan was to do something completely different. And then I had a guy who just brought me into the team at Slush. So I joined in 2015, as said, as a volunteer in the investor group. I was heading the meeting area. So I got to meet many of the people who ended up actually, you know, working together with me at some investments and so forth in later stage. But honestly, it took me at least four years to really understand that this is what I want to do.

2:14And that was after Sint in Investment Banking, which I always thought that was going to be my thing. and I was pulled back on onto the team then to head the investor operations of the conference in 2019. And then sort of in the first few calls, the first one I ever had was with Sir Michael Moritz or Mike as we close friends call him, was that, okay, this is pretty special. I was a naive, young 20-something and got to talk to these legends of the industry and thought that, okay, this beats, you know, aligning logos in PowerPoint and doing Excel. So this for sure could be something for me in the future.

2:48Henryk, you were telling me in the pre-conversation that that first conference was kind of mind-blowing. It was 25 ,000 attendees, about over 2 ,000, almost 3 ,000 investors, and you saw something like$3 trillion of AUM in the room. What did that vantage point teach you about how capital actually flows? Yeah, it's also one of those brilliant, brilliant questions. I think, of course, events are quite unique. It's a small touchpoint in a year for which most people come around just to have fun, to be honest. But of course, whatever we think about for the year is always very much driven by narrative.

3:29So in 2016 or in 2015, when I was a volunteer, it was all about decarbonization. We had Chris Saka on board. I got to meet him. It was really cool. That was the whole narrative that we were talking about. And then going forward from that, we went into Web3 during my year. is more on that spectrum already. So it was all about narrative. And that was pretty much what we learned as well. We reached out to the investors early in the year to understand what they want to talk about. And these were very strongly always, there was always a topic that someone wanted to talk about. And once again, 2016 as a volunteer, all about that decarbonization, future of the planet type of conversation.

4:06But what we then of course also understand is usually those are not the companies that grow up to become great out of those vintages. But that was strongly sort of my first touch point was that it's always story. We are storytelling animals, of course. And that was clearly the number one thing that I took away from it, which is, I think, more evident always in hindsight as things tend to be. Yeah, it's an interesting exercise to think if infrastructure or maybe energy are the topics of today, what's the topic next year? Yeah, for sure. And it always changes. We do, even though it's a game of patient capital and we invest over a horizon of at least 10 years plus for companies to actually start growing well, it's still something where we have that mindset of a short temperament in essence and short attention span maybe, to put it more well.

5:02And the storyline can change. It can be one conversation on CNBC where suddenly, you know, Anthropic is going to be the first company to be at an ERR of a trillion. And then suddenly, you know, there's a conversation by someone at Palantir who then, you know, shuts down the whole conversation. Now, again, that's going to be blown off the water. So it's just how it is. And of course, BECs as a whole, they're just as good, not as their next investment, but the last podcast that they heard. So it's always like these narratives change a lot. And that was clearly something that we also felt as one, once again, you know, 20 somethings, we just set a narrative for the year.

5:37And that was sort of the story that we wanted to tell the world. And luckily, some people wanted to be part of that. And it was quite, quite nice for us to experience for sure. you um you told me early on in the job you got to meet a lot of legends in the industry and now your goal is to back future legends is there anything from those initial kind of meetings that you took away from what makes a great investor that you look for today uh for sure um i would say that the connective connective tissue maybe is not something that i necessarily would say is a great investor per se but it was a character trait of these people who once again the Michael Moritzes of the world and John Doris and so forth Chris Saka's they were surprisingly approachable always they were very low ego as well they sort of didn't need to be that anymore you know they had already made those status games so they didn't need to play that game anymore they were very open-minded so many of my sessions actually were about okay you know what do you want to do during the year but the rest of it was really you know them asking me proactively what are you interested in what are you going to do next are you going to do start a startup are you going to go into vc so i got them them sort of as mentors very early on so i'd say from a character perspective this this sense is still something that i think is quite interesting in venture as we know many many think that they are masters of the universe and they have to talk about every topic that's relevant to the world whether it's you know uh you know from from virology to web3, of course, or politics, Middle East.

7:08And these were people who were sort of beyond that already. They were comfortable in who they are, comfortable in their sort of way of approaching the world. And I think that's also something that we see now in managers that we really like is that they're centered. Yeah. What you're describing to me feels like actual confidence, like being comfortable in your skin as opposed to bravado that has, I think, showed up in your thesis around like real expertise that if you really are somebody who has deep knowledge on something uh you recognize that you you know you know better than the average person for sure yeah for sure no i think sort of the the psychological trick is usually probably that many many vc investors still their fate is in a way in the hands of others and and they also allocate the capital of others which means that sort of somehow you need to complement that uh and very often it is to sort of play that you're a semi-god who understands where the world is going and you are the one who makes kings and queens and i think psychologically that's that's been also quite evident in many conversations that that we have is the people who lack that that sort of mindset that they're in the trenches actually building and have built something concrete they might be sort of more inclined to go that route that's that's my take uh not not a psychiatrist or psychologist, but just this thought that came to mind when speaking about this.

8:31That, I think, is a fantastic entree to what you are doing today with Frame. But I don't want to skip over your experience doing direct investing and also working with the Swishinsure, because I think that gives great context for sort of how you're approaching your own fund-to-fund. So, yeah, my entry into venture, of course, through Slush was then in Finland, so something quite local. I worked for NGP, which is the Nokia fund. We had offices all over the world, but Nokia was the only single LP. Very sort of, at least stated to not be a CVC, but a financial investor. But, of course, it showed you a little bit about that corporate strategic in the mirror of how you actually invest.

9:13then the first sort of let's say real job after university then was was at a let's say a smaller tempo driven early stage fund was that been established a year prior much of the LP base was high net worth individuals but also state-backed as many funds of course in Europe are and we'll probably spend a few minutes talking about today as well the tempo there was very different that was a fund that came from a background having having run an angel collective and those angels also ended up as LPs. So it was intertwined in a very sort of active manner. Those LPs were very much involved. They ended up investing in some companies that we didn't, which were actually pretty good in hindsight, some of the names that you know of.

9:53And luckily we got some slices into those companies as well through those checks. So it was a really eye-opening experience. And then on the other side, then the latest fund that I worked for had sent a single LP once again, but this time it was an insurer. So if you think about conservative, you obviously think about Switzerland and Swiss insurance. So that was very much the case. Nonetheless, we sort of ended up being able to do whatever we wanted. But then with a new chairman, new CEO, that started to shift again a little bit, which then, of course, for us ended the decision to start thinking about new things.

10:26And then sort of this idea of a fund of fund reemerged from earlier conversations that my two colleagues had had already back when I was pre-slush in 2018. team. So they sort of emerged together once again to discuss this opportunity of a fund to fund with the learners that all of us had from before. We spoke about this in our pre-conversation, and we've had other guests talk about this who are also based in Europe on just kind of what the gap is within the ecosystems compared to the US. And it seems like the dominant narrative is that Europe simply needs to put more euros into the asset class to kind of fill that gap.

11:13What's your take on that? Yeah, so my take quite simply is just it's a it's a quality versus quantity problem. And many, I'd say

11:25the, the conversation very easy goes to the large headline figures. And of course, if you think about access, think about large companies, we're on a completely different level to the US, and we're always in competition. We think about, you know, what's the new Silicon Valley? And in the Nordics, we talk about Silicon Valhalla as one idea and stuff like this, which is funny, but we always compete. But as I said, it's more of a quality issue. It's more of a misallocation problem as well. So in Europe, as said, you know, much of the incentives are driven by those state-owned or state-backed entities who drive those incentives away from performance simply.

12:01So in my way, it's sort of the same as thinking about bridge rounds, which tend to be bridges to nothing. In my sense, many of these endeavors that we're doing in Europe is just throwing sort of good money after bad and misallocating that in a lovely way that everybody gets the chance to try doing venture. But for me, it's not really what sort of the capital part of venture or even the venture part of venture capital should be about. So my take is always that there should be a better way to allocate that capital, especially into the early stages. So not only do we have a growth capital gap, but actually it starts at the early stages.

12:37So angel capital in Europe is roughly 20x lower than in the US. Pre-SEED is roughly 10 or 13x lower in the US. So of course, from a funnel perspective, it just leads to less growth opportunities. And then there's a completely different thing that then from a competitive standpoint, it's still the US funds. It's the US LPs who even fund the exciting European funds. So all of those things are then driven from a competitive dynamic standpoint towards the US. So there's a few things that are happening there, but maybe the quality aspect is the first. No, it's fascinating that you have the sort of perspective of sitting in like one of the bigger conglomerates of Finland, as well as the Swiss insurers.

13:24So, you know, these are the behemoth organizations that innovation, besides government, that can really be supporting innovation. I was blown away by the stat that you shared that, I mean, it makes sense. Swiss banks have$10 trillion in client assets and roughly 25 % of global cross-border private wealth. So for now, why is it that it's the corporates and government that are more participatory as opposed to this private wealth? Yeah, for sure. Of course, to generalize what we're doing here, to not piss everybody off, I would say that it's much about culture in many ways. So if you think about the Swiss market, what it's doing is working perfectly.

14:11So the clients of these wealth management companies and the banks, what they look for in Switzerland, of course, is capital preservation. It's the sort of conservative mindset of just safeguarding assets in many ways. And usually what they then do is then the incentive is to do that. You have an endowment model for your family office and you're focused on that pretty much. So once again, it's an incentive issue from our perspective who are in the market of tech and innovation. but for their perspective they're getting what they're they're wanting to get but of course that's changing there are a lot of new endeavors in switzerland and of course you know broadly in europe as well more on the ground ground level side but also from the government to to start supporting you know the opportunity for pension funds to start investing more actively in in europe that's a huge issue specifically in germany but also slightly in switzerland so there are endeavors that are taking place for sure but still something that i think boils down to culture where still we are, you know, years and years behind and many waves behind the U.S.

15:15in terms of venture financing, even though we have the old patrons of society from, you know, the Renaissance times who have been technically venture investors since, you know, hundreds of years. But that sort of hasn't really trickled down into modern times. When we look at European venture today and how it's structured, which incentives do you think are actually being rewarded and what behavior do those incentives actually naturally produce yeah i think it was again comes back to it if governments essentially are 40 percent of the capital backing these funds and in many ways also of course private companies through grants and and other direct measures as well it's pretty evident that whatever the governments are interested in which usually it's it's policy it's employment sometimes it's some completely different aspects as well then of course the incentives are going to be driven towards that so of course for a very long time and slush we were thinking about these themes very strongly and I already mentioned that about decarbonization sustainability so those were driving forces behind what for example the EIF wanted you to do and of course that then led you know many funds to try to you know form a thesis around that to fit that narrative.

16:33And of course, it also leads you to be quite focused on a specific geography very often if you have a regional backer. So those are incentives that sort of, in my mind, tend to be quite misaligned towards performance. But once again, what you learn from all these cases and many of the guests on your podcast have spoken about it as well, is that there are pretty much as many incentives as there are investors. So two family offices got completely different incentives. Same thing for different regional backers as well. But for me, that's very clearly the case is that, you know, it's very often that you don't focus on performance or on actually building up sort of from the ground up a functional system of supporting as many entrepreneurs as possible, doing sort of the stuff that Europeans are great at, which is sort of deep and very hard scientific work.

17:20And that's something that's lacking a little bit, you know, commercializing that this is what, in my mind, of course, we could do a bit better in Europe. What are some of those themes that are high priority today? Like I'm hearing defense, obviously, and cybersecurity. Can you give us a little perspective of where capital is eager to go today in Europe? Yeah, I think the framing was perfect. So were capital is eager to go? I think there's sort of the invisible hand of the market theory in essence that capital will always find a way to be used and as much of it wants to flow into these sections where it can be used.

18:03And that's also sort of from a broad perspective why foundational models are called frontier because they're on the frontier. They need to change, they need to renew, they need to create new things, not just a foundational layer. So a frontier is something that needs more capital than the foundation. And that also you can see sort of in Europe in many ways, not that much on sort of the model or A &M side. We have a couple of companies there for sure have devoured quite a bit of capital, but for sure it's all about European resilience. So that's something that sort of was sparked, of course, by the war in Ukraine, but even more so now when Trump came back to office and we sort of collectively lost our minds on both sides of the ocean to us having to do something about that.

18:44Whether it's sort of from a structural perspective, sort of reshoring industrial capacity to Europe, or then of course sort of the last resort of defense as well. So that's clearly where it's going. So many times what we see and those managers that we're talking to nowadays as well, they used to be sustainability investors, now they invest in weapons, which is quite fun. or funny to see, of course. But that's honestly how it is. That is a day-to-day thing, and that's something that EIF is supporting. And once again, it's good that they do, but it's just very clear that the narrative shifted very strongly, and that's where we are right now in the market.

19:23Speaking of fund managers, your firm's website says that you back next-gen managers who operate at the esoteric edge. What does that actually mean, Henrik? Yeah. and how do you underwrite it? That's a wonderful question. My colleagues asked that as well when I wrote it, and we agreed that we liked the sound of it. But nonetheless, what we think about with that is that in many ways how we as a group operate, everybody talks about consensus, this consensus, that. And for us, what we're very excited about is people who can teach us something new. So we're very, very open to be stupid in conversations we want to be.

20:07We want to learn something new anytime we meet people. And very often, as we discussed, you hear the same pitch over and over again. So we are very eager to meet managers who actually think about venture from a new perspective. Hence also the type of archetypes we're looking at. We're quite open to meeting these sort of non-traditional investors who we probably will discuss very soon. But for us, something sort of a mindset, which is interesting, JT from Hydra, formerly Andresen, And he has this quote about either investing in people who are in the flow or at the edge. And in portfolio construction, you need both.

20:43For us, we need both because we're very, very excited about those managers who operate in areas where they have a very unique insight groups that are maybe more illegible, which is very much the case in Europe. Europe has so many different markets and so many talent clusters, which are completely invisible for outside sort of multi-platforms and so forth. And that's sort of where we want to fish. So those are the points that we like to look at quite actively. Kudos for making us Google a word. Like when was the last time I looked something up in the dictionary? So thank you, Henrik. This community catalyst language that you use, how can you tell the difference between sort of like performative community and what you're really looking for?

21:33Absolutely. That's a great question. I would say it's authenticity in many ways. So when we look at, once again, as you'll notice already, I'm one for quotes. It makes a simple minded person like me remember things better. So community catalyst is one of those things. people who actively have started building community and then sort of the investment part came as a bonus. So they build trust from the get-go. They might have spent years convening up, you know, people around a certain topic, a certain geography, as is very often the case in Europe. It's a completely, you know, fragmented market.

22:06For us, that's actually a feature and not a bug in the European system. Once again, why we like that. And that is for me the big part is that's, you know, much of venture is always about chasing. and that was what I was doing also a lot when of course I was a junior direct investor just chasing deals, going through LinkedIn and just trying to find things instead of trying to attract and that's one of the learnings that I have now also on the LP side strongly with the conversations that we have with managers who have done this and this sort of came through having those conversations with those types of people and that's one thing that we're starting to see very strongly so maybe sort of to add to that maybe I'll really jump in the ship and we can take this again but the archetypes that we look at, of course, the problem with the spin-out is that you're always competing against the brand that you left.

22:52So that's always the competition that you have. If you're a builder, an operator, you always sort of have the tattoo of the company that you built or helped build on you all the time. And these sort of non-traditional managers who have built communities, who are specialists, necessarily don't come from those two buckets. They're sort of unmarked in a way. And they have the opportunity to sort of be authentically themselves and not sort of, how do you say, baggaged by the legacy of what they've done before, whether it would be as successful as anything. So that's sort of how we view those things about community and archetypes in many ways.

23:26Now we're going to take a quick break to speak with our sponsor. What's an issue you've been helping a founder client with lately? Good question. So there's a few, I'll give you kind of two that are popping up all the time. So, you know, I would say one that comes up quite a lot for me lately, interestingly enough, even though I'm not an employment lawyer, although we have a very exciting employment law group, is the kind of a disagreement or a separation of one of the founders in a company. and this has been happening earlier and earlier in the lives of companies and frankly has gotten to a point where I now tell clients that you know when they're raising their first round they say hey is it a problem that we've you know had this third co-founder that's not with us anymore and the answer is no actually this happens all the time now and I don't think that your investors are going to care particularly about the fact that a third investor is not here as long as it was handled correctly with advice of counsel and negotiated appropriately.

24:30Our employment law group is working with me very closely. Rebecca, who's been on some of your podcasts, you know, is probably getting tired of phone calls from me. But it's a very kind of busy, potent area lately. And I've been guiding a lot of companies through that. And sometimes, you know, with a board involvement. And the other one I'll give you a real quick one is, you know, these days, AI and data is all the rage. So I am involved in so many discussions about licensing, selling, transferring data between companies, AI labs, vice versa, or AI labs and other AI labs. And, you know, all the exciting issues that come with that data privacy, you know, commercial considerations and damnifications and so on that, you know, we get in the weeds on.

25:23And you absolutely are a liaison of AI internally, I understand. In the AI era, has that changed how you're working? Absolutely. It has, it's really transformed the way I'm working in the kind of minutia of day to day. So, you know, I tell my clients when I, you know, theoretically boot up my computer every morning, although I never turn it off, the two things, the two apps that I open immediately are my Outlook and then ChatGPT. I now, by the way, you know, we kind of go back and forth, Claude, ChatGPT and other tools, So we're not, you know, we're agnostic to the tools, whichever one's better.

26:03But the idea is that, you know, from the first minute that I log in, it is there as, you know, an assistant to what I do. It is empowering me. I am able to do what used to take, you know, five billable hours in maybe five minutes now. It is absolutely incredible. So I'm able to do more work that way. At the same time, you know, it has not taken away any of what I think is my value add, which is the experience, the human touch, the practicality and being able to guide a client through a very sophisticated, you know, transaction, you know, negotiation and so on. What is taken away is, hey, you know, I go to a board meeting now.

26:51I have an agent that drafts my board minutes. I can send those right after the board meeting. I don't need to ask an associate. I don't need to worry about the time that it takes them. I don't need to worry about writing off that time on the bill. And so all of that stuff, frankly, you know, and this is the interesting part that we hear from clients is they say, well, you know, you guys have all this AI and how come, you know, your profits are still so healthy in the legal industry? And the answer is because we can actually do a lot more. But on an individual basis, we're able to do things quicker and more efficiently.

27:21And we see that and we are, you know, working hard to communicate to clients so they can see the kind of cost savings passed on to them. Yeah. You're getting Mike Plus. And now back to our LP interview. you. I love that framing of, you know, being marked or unmarked or how close are you to that brand and how much have you built yourself? But this idea of building community and being nodes in the ecosystem is not new. And we're starting to see more and more people with podcasts as you talk on a podcast right now. What are you looking for? What have you seen that's, that's a kind of fresh approach to community building?

28:08Yeah, that allows fun, fun managers to become more founder magnets, or just, you know, community, or just, I should say, industry thought leaders. So I would say, they're sort of the macro idea of this is IRL sort of AI can never beat IRL. Post-COVID, people want to meet, people want to go to run clubs and people, you know, on the venture side are, of course, also following this trend to meet people in real life. So events, once again, Slush is a part of that, but a lot of the managers that we think about that spend time with and we like thoroughly, they're trying to build something very specific for a community that doesn't exist.

28:49I don't know if you allow shout outs, but in Europe, we have several very interesting people have built sort of community ground up, You know, whether it's for operators who work in European high growth startups, you know, the founders always have their community of other founders. Let's say the juniors still are students, investors have their own communities, but sort of the middle layer, non-executive layer of operators really didn't have something. My former slush colleague ended up creating something, which now actually is a fund, which is very interesting. There's one gentleman who's building a really interesting community with sort of a taboo concept, which is also very interesting also from an investment perspective.

29:28So he's built a community for post-Soviet founders. So people all around the world who hail from sort of the post-Soviet bloc of the world, very often Russians that moved away from Russia several years ago or later. and he sort of created a very active community for them to meet and sort of built these nodes in different cities and different hubs around the globe to meet. And now, of course, that spurred him to make absolutely insanely attractive investments and now spinning up a fund on top of that. So something unique, you know, there's always, and for me, it's always that authenticity, whatever it might be, but that authenticity of building something which is truly sort of an extension of yourself.

30:07and once it then comes from the perspective of not trying to chase, let's say, something financial maybe per se directly, but something that comes from an inner need that you've felt. There's another one in the States as well, a very prominent, soon to be a prominent, potentially legendary fund who started with essentially a European embassy in the United States and now spinning out that into a fund, which is a terrific team. And there's a very good methodology that they're approaching this by as well. So many examples to cover for sure. Those are such cool examples and such a variety to think like government folks from the embassy world versus people with Soviet roots.

30:53A college teammate of mine has a fund around science fair alumni. Okay. Apparently they are the giantest dork in every high school across the United States. Yeah. If you're a science fair winner, you really leaned into something real nerdy real early. Yeah, yeah, for sure. For sure. I should do something for Nordic Star Wars fans or something like this. Exactly, exactly. It's a big group as well. I think that's basically like all of the comedy writers that come out of Harvard are basically they would qualify in your fund. Yeah, for sure. For sure. We'll give a little overview of what Frame is focused on.

31:34Sweet Spot is sub 100 million, mostly Europe based or with a strong European link. Can you tell us about sort of like constriction of this, like how you've thought about what the fund of funds, what's going to make a successful fund of funds for you and why you've sort of set these qualifiers? Yeah, just a quick note to firm, because that also explains a lot of what we do and how we operate. So the idea was essentially that we are firm in our underwriting, we're firm in how we operate and we want to invest in firms. So once again, the sort of quote Boe in me stated very early on that we are, you know, funds are raised and firms are built and we look to invest in those firm builders.

32:16So that's sort of the joke about the name, of course, there's an innuendo in that. But the aspect, once again, is really sort of a market need, a market pull. So we talk about a lot of what's happening in Europe on the LP side, then it's usually quite reactive. It seems to be quite passive as well very often, and it needs a signal to be allocated. So very often in Europe, what you can see is that, you know, if the EIF or one of these comes in, then you as a family officer or an institutional payer might come in and invest. And on the other side, what we also see is that these very, very interesting funds that I mentioned here and some others, they might be backed at day one by a prominent GP from a US fund or other sort of high network people around their networks.

33:01But very rarely do they have institutional backing from a European institution early on. And in many ways, we find that to be a shame. And that was what we wanted to enter the market with this thought. And also in a separate way, many funds of funds are also driven always by incentives that also, once again, tend to be misaligned towards performance. So very often they build huge portfolios and then actually make the money out of creating SPVs for co-investment opportunities into those underlying companies. So essentially their feeder fund themselves, which once again is a perfectly good business model.

33:33It's a great business model. And if your LPs want that, that's terrific. but the conversations that we had were about something completely different where we're trying to build something quite concentrated to be in a deep partnership with the fund managers that we want to work with. That's also once again an extension of who we are as people. We want to build those trusted relationships early on. We want to be able to be a same type of LP to the VCs as the VCs want to be to the founders that they back. You told me that you look for both European and U.S. firms. And with any U.S. fund manager that you invest in, you look for some type of European slant.

34:16Could you speak to a little bit of what those things you look for? Whether it's where folks are from, maybe they've immigrated into the U.S. or have some commercial relationships? Yeah. So that's the core focus. Well, then of course, we, as anybody, we're opportunistic to do other things as well. So the core is Europe. The core is managers. Whether you link to Europe, we're also opportunistically investing in the US and in sort of any fund in the US. So we can do all of that. Our take, once again, we hail from Europe. We, as I said already, one of the quotes, I'll say it again. The market is fragmented.

34:52For us, that's a feature, not a bug. We think that there are really interesting communities, really interesting people who can, you know, once again, catalyze those communities from different, you know, pools in Europe, and hence, you know, be a long-term partner from a cultural perspective as well, which in the US is slightly different. There it's a bit more, it's less regional in many ways. It's more based on sort of the industry of employment or the work that you do, or sort of the specific niche where you operate. But in Europe, you have so many cultural differences, where you can be sort of the the Swiss German or the Swiss French or the Swiss Italian person for your founder forever.

35:32And they want to keep you on the cap table because they understand you and you understand that from a cultural perspective. So that's one thing that we find very interesting. And sort of the Europe link in US, quite simply, is that many very, very interesting, like, for example, the embassy that I mentioned, many others, prominent managers in Europe have moved on to the States to invest in both markets. How do you sort of balance what you've described as sort of like being trend aligned, which is very helpful to your managers, being very like that government funding that follows the up rounds, et cetera, and being a bit counterculture and looking beyond sort of like the theme of the day.

36:20as you're assessing kind of your own balance of your own portfolio. Yeah. It sort of sounds like, you know, there's a lot of thinking there on how to be contrarian in the right way. Yeah, for sure. So the best way to do venture is, of course, to be contrarian and right. And the best way to be a venture investor is to invest in a company before its consensus, and then it shifts in the consensus straight away. So there needs to be a narrative arc behind the support around that. So much of the time that we spend with managers is, of course, understanding that if they do very wild sort of bioengineering investments to understand that there's actually sort of, you know, there might be, you know, still a taboo in that market where you don't really do that very actively yet.

37:07but there's sort of regulation that's starting to come through that's giving the opportunity to do that for example in the US with peptides and the whole craze towards sort of let's say self-medicating in a positive way for the future from a trial perspective where you see that the trend is going there there's like macro trends that are driving towards something like this lack of trust in institutions you know from a healthcare perspective as well so there's these trends that are going that route and you have a way of finding companies early on who do something let's say scientifically proven but where there's still not that sort of underlying pull from the market but it might shift so that's on that side but as said for a portfolio construction point of view you can't only do that so that's why I think the quote from JT about being in the flow or investing in into those edges it's always it's always a mix of both that you need to need to be doing once again we we're trying to build, as I said, a concentrated portfolio.

38:01We don't want to have seven funds in Europe that are doing defense or dual use. We would like to invest in what, in our mind, would be the most interesting manager in that space, which would then perform the best and actually have this sort of portfolio of sort of a missed athlete in that sense in all these categories. And that's what we're trying to build. But our portfolio construction also doesn't really come from sort of having these preset conditions of trying to fit in, you know, specific managers. But it's much more driven by sort of the talent itself first. And then we try to sort of retrofit what the portfolio construction might look like.

38:41It seems like over the last five years, we've had a real pendulum swing from LPs, specifically family offices and foundations and even fund-to-funds wanting to do more direct deals. um before we get into how that impacts fund to funds what do you think is driving that interest to just go straight to the cap table and invest you know your resources and time into direct deals yeah for sure i would say it's it's once again it's fundamentally two things um so so the first one obviously is that you know you can see the impact that venture has in in financial terms not just sort of sustainability, but in economic terms.

39:27So if you look at the market cap of the biggest companies, most of them are venture backed. Seven out of 10, last time I checked them out, might have ended a little bit with the AI issues. So it's very much that. So LPs can see that, you know, to be very horrible, once again, you know, in terms of what Mark and Risa would say, software ate the world. And to be very cheeky about it, you can say the venture fed it. and in many ways that of course then feeds into the whole notion that we want to be in in this world and invest into that world the other side of it is of course once again those companies and this industry has grown by 10x over the last 10-15 years more capital companies stay private for longer dpi unheard of you want to be in the game directly there's more access to spvs which of course might be quite costly for you but nonetheless there's more access it's also much more legible, concentration, great topic that's been discussed already, no need to rehash it.

40:21So it's easier to read the markets. It's easier to understand what companies you need to be in. It's easier to see the power law and get access to that. So all these factors for me are quite evident in why people are doing what they're doing. And once again, why that gives opportunity for, for, you know, the other side of the market who you usually cover here as well, the emerging managers to step in and sort of take this early side of the market. And what can you share with us about fees? Like whether you're passing a co-investment on directly? Yeah, for sure. So for us, we don't live by fees.

40:56We try to be, you know, long-term greetings, maybe the way to push it. We try to be incentive to line as said. That's our take on this business. It's a long-term game. There are many, many people in the industry who, of course, now are selling ridiculous SPVs and doing a big, big bank on that. And that's great for them. But for us, it's not really the way to do venture. So I said, what we're building here is sort of a, you know, co-investment loop where it's completely open, fee free for LPs. They can do whatever feels right for them to up their risk reward ratio. For us, we're fully incentivized by performance.

41:32That's the way we operate. We're a little bit more sharp on sort of upside carry in that regard as well, which our LPs are very happy with. They understand that we are sort of a performance driven fund of fund, not the feeder fund, even though we feed them a lot of like cheap, you know, fee-less investment opportunities. So that's how we approach it. It's not how the broad market approaches it. It's not that unique. It's just how we feel we can have the best impact and what also fits into our long-term strategy, which we haven't shared yet and we'll be sharing later when that's relevant. But that's all fitting into this theme that we have towards what we think a role of a fund-to-fund could be in the future.

42:14To that point, what do you think the role of the fund-to-fund will be over the next 10 years with there being such a movement towards direct deals by traditional LPs? In many ways, you could think about it as a filter with a clear understanding of the incentive structure of those underlying sort of clients, in this case, being LPs. So based on whoever your LP is, having a filtering mechanism that fits the requirements of those LPs is very interesting. So hence, most of what we've been seeing is this sort of broad indexing approach where the LPs in some cases just want to have exposure to as many companies as possible.

43:01What we've heard from some LPs that invest into fund-of-funds, they say that what they actually do is they would hope to just have a 1x return on the fund-of-fund. But they want those companies, those direct investment opportunities that they get to sort of be then that sort of pre-filtered mechanism of already sort of following them for a while, understanding from the inside of what's happening with those companies and then sort of picking and choosing companies. Our view, of course, is that it's very hard to sort of pick and choose and get into those best cases, because usually founders want to have someone on the inside, someone close by, some reputable people on board who's done this, you know, from the inside.

43:38So usually that ends up being a very sort of strategic approach. And for us as well, specifically in Switzerland, very often, you know, venture, in essence, from a family office side, is very sort of strategic and very business development oriented as well. We operate in the exact, you know, same business line as your principal interest is. So for us, you know, that's still going to be something that a fund of fun can do quite well in the future just by sort of doing what their own LPs sort of want them to be doing. And our approach is, of course, to do that, but with a more sort of deep relationship.

44:12But still have, as we do with these, you know, benchmarks and so forth with the emerging manager map, have a broad scope of understanding the market, you know, try to make good introductions. But then us and our focus is quite deep then instead. Firm Capital has made a couple of these great resources. You just mentioned the emerging manager map. Another I would recommend everybody take advantage of is the benchmarking tool, vcfundbenchmarks.com. You pulled together all this data, what PitchBook, Carta, Cambridge Associates. What would you say are some takeaways for you having built this tool on who's top quartile?

44:53Yeah, I have a toggle around that as well, which when you click it, it shows you which metrics actually show you as top quartile. So you can just export that and send out your LPs or the broader universe or, you know, your mother and dad to show off as a joke. And then if you don't happen to be top quartile, there's a message for you as well. So we try to be a little bit cheeky with these things. But in many ways, of course, it falls back to the same thing that, of course, you know, whether it's, let's say, you know, the new ways how founders talk about ARR or, of course, how VC managers talk about Moik, there's always something underneath.

45:31And so this for us, you know, it was sort of, it's something, everything that we're building is usually, it's an internal tool that we then feel that we want to externalize and usually do something like more or less serious about that. And with that benchmark, it was the same thing. Every conversation we have, everybody's talk cordial. So that doesn't even matter. And we don't really look at the numbers. Once again, we're trying to understand the person, what's driving them, what fears they have, strengths and weaknesses, and do that in a much more rigid way. So this is sort of an easy way for us to just chuck the managers in there, compare themselves and see, and for us also to see their actual performance.

46:08I think we should end on this last question. You joked in our pre-conversation that Fins make poor salespeople because they say it how it is. What's the most transparent thing you wish more LPs would say out loud? Well, they should just answer their messages, for one. It's pretty funny. And then the other side is just saying no. It's something that for us came from what we did in direct investing as well. I'm a notorious people pleaser who have worked through that a little bit and saying no all the time and venture helps. But for us, what we tried to do was always say no face to face. Like as soon as we knew that this is not going to work for us for any reason, be very transparent with saying no for what the real reason is.

46:50And it's always a human issue. Many ways, of course, there might be a portfolio construction thing and yada yada. But usually it's a human issue. and try to be as honest as possible with these things. Once again, while we talk about this sort of proactivity, directness, transparency, which for us is lacking. So just answer your mails, that's one thing, and be honest with what works for you, what doesn't. Even for us, when we're talking to LPs, and once again, we're completely fresh into this line of work, it's really surprising how few people actually just tells us what's interesting. Because once again, we're trying to build this understanding of who's doing what, where we can be helpful.

47:28You know, once again, while we built these tools as well to be able to supply our friends with that type of, you know, relationships and connections that are useful for them. But usually that's very difficult with LPs. We're very secretive, specifically in Europe. So in the U.S. it's, of course, slightly different. It's more financialized. In Europe it's very, very secretive in many ways. So just answer your mail. Just say, you know, hello, not for us. No, in any of the, you know, 30, 40 languages.

47:58Yeah, there's an AI tool that can help you with that. For sure. Henry, thanks so much. Appreciate everything you're building for this community. It's really fun. It is my pleasure and honor to be part of this. So thank you very much for inviting me. Appreciate it. See you later, Allocator. After Portfolio Tile, investing with a smile.

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