Live from SaaStr Europa 2022: Stage B

We haven't come anything to solve the problem Heart to heart mind over matter Far apart or close together Deep and wider we can take it makes no difference if we make it Long as you are you and I and me we can be true we will be free we will be free we will be free. See me, feel me naked have me hold me sacred Just be here and take it Forget about the rules and let it be. Sa. Reaching out to one another there's no need to keep on running oh yes I am you and you are me we can be we will be free we will be free. See me, feel me make me happy Holy, sacred Just be here and and take it Forget about the rules and let it be See me, feel me.

Naked.

Have me hold me sacred Just be here and take it Forget about the rules and let it be See me, feel me naked. Just be here and take it Forget about the rules and let it be. Earth and fire sky and water Deeper high across the border Till you bring your preaching Love becomes our holy teacher Reaching back to one another there's no need to keep on running oh yes I am and you are me we can be but we will be free. Sam. Saving. It, Sam.

Please welcome head of dock at peak, Madeline Lawrence. All right.

Oh.

Testing, one, two. It works. How's everybody doing this morning? A little bit hungover. All right, thumbs up. See a lot of people. I know you too. You better behave yourself during this speech. Very nice to meet you guys and girls and everyone else. And I'm really excited today to talk a little bit about. Well, it looks like our title has actually changed last minute. They really put up with me in all the different changes I've asked for. But here to talk about memes and value add and what matters beyond money. And I'm going to have some fun parts and some serious parts. And I might go too fast through some parts because I want to get to the serious parts in the end because we can't just all have fun all the time. But maybe before we begin, for those of us who are here, which of us are investors? All right. Oh, okay. So this side and on the founder side. All right. A little bit more dispersed. Okay, cool. So let's see the dynamics between these two sides. When we wrap up, I want to start with saying as many people have started by saying, these are unprecedented times. I actually took the liberty to go and look it up on Google Trends. And you can see. Can you see the screens? Yes. That's big. You can see that. Apparently nobody said unprecedented before. March of 2020 and unprecedented times also affected the California capital markets. We welcomed a new normal in capital markets, and that is very small font. So let me put it in bigger font. I don't know why that works, but essentially we welcomed a new. A new normal in capital markets that essentially meant fast money and big tickets. So here you can see the average round size or sort of capital deployed month by month. And the yellow would be 2020 and the red would be 2021. And here you can see the average ticket size per round growing between the years at seed series A between 2017-2021. So we welcomed a new normal of fast money and big tickets, and we also welcomed a new normal and huge funds. Here you can see the median VC fund size per year and also per stage. And what does this mean? I think this means as a, as a VC ourselves, it's been very competitive. I myself am a. I'm a young investor and every time I knock on a founder's door, they're like, what the hell? I've had a million other people knocking at my door. What's going on? Right? We've got fast money, big tickets, huge funds. It's competitive out there. I wanted to actually test the waters and see how competitive is it really. So I did what any, you know, founder would or I did what, what gets VCs going the most, and I decided to go into stealth mode. As a vc, I publicly. Okay, let's activate it. I publicly quit my job. I didn't tell anybody on my team. Actually, our interns called me to say goodbye. Really sincerely, Right here is a former colleague of mine, also wrote me a very sweet message to wish me best on my new journey. I publicly quit my job, said that I was going to start as a stealth startup and I wanted, and I'm doing this to see how competitive are the waters. What are founders really experiencing in this world of fast money, big tickets and huge funds? And it was a very fun journey. Welcome to my 72 hours as a stealth founder. And this is very much sort of how it felt. I've actually sent this to a few founders that I've spoken to who were like, how did you find me? There's Nothing on my LinkedIn, there's nothing on my Twitter. How do you know that we're doing this? And I always have to joke. Our job as a VC is to be a professional stalker. And I very much felt that when I quit my job and went into stealth mode, I had, within 24 hours, 78k views 153 messages and two very confused managing partners. And of course, I want to. I want to preface this with, that's not necessarily normal, of course my LinkedIn is crawling with investors. Right. So it's a little bit of a biased bias pool that I'm fishing in. But this is. This is. This was the response. And I remember I had to, like, write the partners. I was like, I didn't actually quit, by the way, but I wanted to do a sort of a humorous roundup of some of the outreach that I got. Before we sort of wrap it up into maybe more of the more serious topics, I started writing down the funniest VC outreaches, including what the fuck. Maddie Sasser asked me not to curse, and I said, thank you for the suggestion. So this is my favorite. Are you just gonna start a company and not tell your best friend? This is a befriended fun, but someone that I didn't know there just texted me, send me wiring instructions, and then, just for the giggles, I was also asked to go on a cruise. And of course, I'm highlighting the most humorous ones here, but there were a lot of really fantastic and very sincere messages about wanting to join my journey or wanting to hear what I was working on. And this is an experience that a lot of our portfolio founders have had, and a lot of other founders that I've spoken to have had people knocking on their door. And essentially, you know, what's the point of me saying this? It's busy out there. There's a lot of us out there. Of course, we can't ignore the past few months. And though that, that era of fast money and big tickets and huge funds, it's a little bit changing. And I'm not going to spend too much time talking about this because I think we're all done with the topic for now, and we're going to be hearing about it for a few more months. So, of course, we can't ignore the fact that that era of the. How was it again? Huge funds, fast money, big tickets, something like this is changing, but the money, money, money still remains. Those huge funds are still there. There's still a lot of dry powder. Money as a product will continue to sort of change and be commoditized. And so I'm up here today essentially to talk about how to make sense of it all. If you have investors lurking on your door or around the corner, how do you decide? Or honestly, just speaking to an investor, how do you really tell them apart? Is something that I, as an investor myself, sometimes struggle with and together with my fund, we've tried a few different approaches to give tools to founders to help navigate the venture capital landscape. For example, I'm still a little bit upset because we can't seem to decide on one's designs. They all look very different. But one of the ways that we've tried to help founders make sense of it all and navigate this money, money, money industry is these guides to venture capital. And it's an overarching personal and professional goal of mine is to help founders navigate this black box industry. You can find any of these. We currently have them for Dach Nordics and Benelux. But you know what? Oh wait, wait, I forgot that I had this in here. These founders guide to venture capital. I created one for the, for Precede Germany. This was just to sort of whatever, break the ice. It was getting too monotonous at this point. I recently learned that precede in German means contraceptive. So you can find me as the first result for Precede Germany ranking before pre seed, the family friendly personal lubricant. And now we move on. But I mean, a map with a logo and a ticket size as these are, it only tells you so much still. Okay, we get it. This fund does mobility, this does fun tech. This one has a boring logo, this one has a fun logo. Still, in the conversations I have with founders, right, we're still largely all the same. I mean, go to any VC website, right? We're backing category leaders. We are game changers. We are innovators, visionaries, we're catalysts, partners for the long haul. We're shifting paradigms, disruption. At the end of the day, we're not too different from each other. And I struggle with that as a vc. And founders must struggle with that even more. And so I've done a few other things to help and maybe help navigate once again and the more nuanced differences between investors and how to capture that in a way that is both maybe entertaining but also true or provocative. And I tried this recently. I posted this last week or the week before. And this was a way to how to tell all investors apart by looking at their shoes. And this came from a conversation that I had, true conversation that I had with one of our portfolio founders who was fundraising in Germany actually. And he kept calling me up. He was raising sort of around beyond us. We were, you know, helping with introductions and sort of getting the next lead investor. He kept calling me up, he's like, okay, I have a conversation with this fund. What do I need to know? And I found myself sort of. I don't know, I was saying, all right, listen, they only hire people that worked at McKinsey, and everybody wears, like, a leather shoe. You know, I found that. And every time he would call me and ask me about another fund, the shoe, like, kept coming up. And I don't know if I just, like, obsessed with people's footwear that I noticed it so much, but he would call me back after the call and he'd be like, I get what you mean about the leather shoe. And I was like, yeah, I get what I mean, too. And so I actually sat down over three days and tried to plot out also with the help of some friends, to maybe see where people should go, what a shoe might say about how to tell investors apart and about their culture and about what you can expect in a conversation with a VC. And I'm speaking more at, like, the GP partner level. @ the end of the day, all the analysts wear the same white sneakers, right? But, you know, if we look at, for example, you know, the leather buckle shoe versus the. The Birkenstocks, right? I think if you walk into a meeting with an investor and they're wearing Birkenstocks versus that leather shoe, you can feel that the culture of the fund and how your relationship will then be, will be with them. Moving forwards will be different, most likely. But still, I mean, this was fun and I do think could be useful, but it is still shallow at some level. And so I'm really excited that I have the opportunity here to push through these superficial guides and these humorous guides with a bit more nuance and really get into the thick of the matter. It's hard. Be it shoes or logos or what you read online, it's still hard to tell apart investors and to see through money. Capital is becoming commoditized once again. I'm not quite sure how that's going to look like in the next 15 months, but we investors are selling a product that is the same as everybody else's product, right? A euro from X is the same as a euro from B at some level. And it's becoming increasingly commoditized as more and more investors enter the space, as there's more alternative forms of financing that you can use to fund your company. We're freaking the fuck out. We also know that capital is becoming commoditized. This is not a new insight. You can read this on the economist from, like, 10 years ago. So we investors, we know that this is happening and we're still freaking the fuck out. I'M very sorry Saster, for cursing. So then the question becomes if capital is commoditized, everybody knows this and we're freaking out about it it what is there besides money? What could an investor potentially do besides their shoes to become competitive in this increasingly commoditized market and to create a unique product compared to X, Y and Z? We're scrambling to differentiate. And here's an interesting overview from Atomico. If anybody here is from Atomico. I love your state of European tech because it means I don't have to make any graphs. But here are some of the tactics that investors are rolling out to stay competitive and unique. And this is a comparison of, I think it's the yellow is seed precede to seed funds and the blue is series A earn later. This is the tactics that VCs are rolling out in order to stay competitive and create that unique offering in 2021. So building close relationships with founders, increasing the speed of their investment process. Once again, remember that fast money providing founders with access to a network of experts, doubling down on a sector or focus. Do you remember when all VCs were changing their Twitter and LinkedIn and handle to web3aficionado or something like this? But also things like increasing their ESG focus, increasing their investment team, spending time in other locations or markets. I mean we ourselves opened up an office in Berlin and Stockholm as well as building out a platform of advisors. So this is what VCs are doing in order to help become again competitive. Even the best of us have to innovate and stay relevant. I saw that A16Z Andreessen Horowitz is hiring a Meme Lord, which I never thought that I would wake up and read, but I think it shows just how far investors need to go in order to stand out. But on the other hand, I think founders are getting a little bit pickier as well. And here's a really interesting chart and it's a comparison between what VCs think win deals and what they're investing in order to be unique versus what founders have reported matter to them. So here once again on the VC side we have things like building that early relationship like speed, like thought, thought leadership, whatever that means value added services. And on the founder side, it's actually the same topics with a bit of a different phrasing. So if you compare alignment of vision chemistry with a partner access to relevant network valuation, this is actually really confusing to read. So I just, I just circled things that I thought were interesting. Okay. And despite the fact that VCs excuse me, me. Despite the fact that VCs are diversifying their product and founders are getting picky, we're still not seeing eye to eye in that process. So if you see here, founders clearly value investors who share their vision and investors don't care. It's like bottom percentile. And on the other side, for example, VCs are really pushing value added services and capabilities, right? The idea of smart money, of bringing in in house recruiters, of whatever falls under that umbrella. And interestingly enough, that is what only 4% of founders said that they care about. So 96% of people don't care. So then the question becomes, okay, we're in an increasingly commoditized space. VCs are struggling to differentiate. The manner in which they're trying to differentiate is not really matching up to what founders actually value and accept expect. So what other ways can founders assess and select the right investor if they don't really care about the other things that they're doing? I was sitting down and thinking, okay, we could talk about what you already know and actually go into those tactics like what does it mean that investors are building out value added services or portfolio synergy or branded marketing? What, what do all of those efforts mean? What do all of those efforts mean when you try to go beyond money? But instead I wanted to go to go deeper. We've all heard this talk, we all know what speed means. And rather than seeing beyond money, I think founders should really look beneath it or through it. So VCs are going to try to do everything else. But if you just look at the money itself and what lays underneath that, it tells you a hell of a lot about the investors that you're getting into a marriage with and that you're going to be working with. And I find that what's underneath that is something often founders don't know. I'm consistently surprised about how little founders really understand the venture capital model or really what investors want. So let's get into it and maybe piss a few investors off. Let's dare to go deeper. This is a really opaque industry. And now this is the serious part. It's a really opaque industry. I have a real issue with it. There is such a steep power and asymmetry, power and information asymmetry between investors and between founders in terms of what we require to know from you. I mean, I'm sure we've all dealt with data requests and data requests and data requests. But also I'm sure you've been in the situation where you're speaking to an investor who's probably spoken to all of your competitors. They've seen the deck, they've seen the data room, Right. And they know so much more at some level that they also can't disclose to you. And you don't necessarily know how much they know. There's all these different things that contribute to this very steep asymmetry of information, which also leads to an asymmetry of power. We hold the knowledge and we also hold the money at some level. And in order to see beyond or beneath rather that money and the marketing around it, you have to know the right questions to ask. And beyond that, you have to have the courage to ask them. And this is where the spicy stuff starts. I'm going to outline four questions you can ask or four categories of questions you can ask. I realized that I actually put three twice, so stay on your toes. And I also have a few spelling mistakes because I like to keep it interesting. But here, let's go into the first topic. So the first question that you can maybe ask as a founder speaking to an investor that's not just what does your portfolio look like? Is rather, who is your boss? What does that mean? We as investors get money from someone or from somewhere that's probably a government, a corporate, an institution, a family office, individuals. Investors almost never fully disclose their LPs, their limited partners, the people that give them money. And when I was sort of spitballing or telling people the subject that I was talking about today, I was met with like a. When I said, I think we should disclose who our LPs are. And I thought that's exactly why we need to ask this question, right? We get money from someone. We get money from someone in somewhere, and we generally never say who it is. Or we have a few LPs that will sprinkle in to mention, oh, we raised from this person or this person or this guy. Let's be real here. But then there's probably a whole bunch of money underneath that that you don't really know. Could be tied to oil, could be tied to sovereign wealth funds, could be tied to, let's say you're a founder building in the sustainability space. It could be tied to, for example, Shell, right? So why does this matter? It matters because where we get money from, there's power dynamics involved there. It can affect our decision making, it can affect our risk tolerance. If you have a single lp, for example, that's like, just do what you want to do. It can also affect our culture and more something else. You should look out to as a founder is LPs oftentimes have their pot of their toe in different ponds or pots or whatever that metaphor is. So one LP will be invested in multiple funds. We actually experienced this recently with our portfolio where one LP was invested in our fund and we invested in one portfolio company and the LP actually did an angel investment in a competitor. Right. So why should you ask who your LPs are? Is we give information to our LPs, they have information rights and they could also have mixed incentives. Maybe they're investing in us because they want to indeed have that information or because they want to see what other people are doing and make counter positioning bets or things like this. This can lead to conflicts of interest and once again touching upon the oil money or where the source of that money comes from. Money has morals. So I think to me it seems clear that you would want to know a of lot ultimately whose pockets you're filling. But how do you then ask that question? Well, you could just say who are your LPs but you could also say what is their role? How diverse are they? What is the actual fund structure in terms of general ticket size, in terms of, let's say I'm not going to go too much into structure because we've got a crisp 10 minutes left. But I think you should also ask things like what level of information do you provide them? How much in detail do they know about your company? And also be critical and get to the real story. I don't think VCs have ever really been pushed to be fully transparent about their LP base. And I also don't expect that they do. But don't just ask the question once, who are your LP base? And accept the story of we raise from founders. I'm sure you raise and we do by the way, and only from founders. But people like we raise a lot from founders and probably for other funds that might say that. It's probably also a lot of institutional capital and some corporates underneath. Maybe the founders are only 30% and there's X percent something else. So keep pushing at it. Okay, like how many LPs do you have? What's their average contribution? Okay, this is like a little spicy. I recently saw this tweet and here's actually what I aspire to. I would love to work in an industry where there is complete transparency about the LPs, about the people that you are making richer at the end of the day and who I am helping to make richer by investing in you. I don't think I'll see this in my lifetime. No, that's a bit dramatic. But anyway, this is my bigger aspiration. Let's go on to number two. I would ask the question, what's in it for you? What do I mean? Ask about the fund incentive structure. I think you generally know or you've read venture deals and you understand the 220 model of invest investment, right? So you understand that we get, we participate in the upside and we get a 2% management fee and that's how we make money. But what does that really look like in practice? Venture capital is a very long haul partnership and incentive alignment is sort of essential to steering the company head and I think to having an aligned whatever. I hate the word alignment. I'm using it so many times. But to sort of be on the same side investors are. And this is, this is sort of how you should understand it, right? Investors are constantly asking for your cap table or at a later stage arguing over mere percentage points to ensure that you as founders are properly aligned for taking the company further and not getting out, you know, quick. We also argue about the size of the esop, making sure that that's big enough to support and bring on the right people. Wouldn't you want to know on the flip side, like the incentive of alignment of the VCs, we may have a 220 split, but it could be that one general partner has the full carry. It could mean that the partner that you're working with actually has none or that there's a super long vesting period and they could leave tomorrow. How would you then ask this? You could ask what's your skin in the game? Did you personally invest in the fund? That's one way that a founder, excuse me, an investor might be, you know, really, really invested in the success and the financial return of your company. Or you can ask what's your piece of the pie? Do you participate in the carry? This is a really polite way of saying what I think I would want to ask, but I think it would be maybe a bit too soon to which is what is your carry? And you could also things like what's your vesting period, what's the cliff, etc. Just turn it back and really understand are the investors properly incentivized as well. As a third point, I would ask what's your business model? We were joking all at the beginning and now I'm like really fucking serious. I warned you, right? I would ask what's your business model? Why, why do I say that at the end of the day vc, Our job is to make money into more money. That is generally the purpose of companies. But VC is, is one of the rawest examples of that truth. We get money, we return it as bigger money. And that model in order to return that is driven by outliers. I'm sure you've all heard the idiom high risk, high return, right? In order to get that high, in order to get that high return, we have a limited amount of time and a limited amount of money in order to do that. Which means that we operate under certain assumptions and we have a certain business model ourselves. In order to assure then we're able to stay in business, AKA give the return that we promised and raise the next fund. So why does this matter? Again, we have our own assumptions that inform our portfolio strategy and our investment strategy and that decides things like our resource allocation, like our sensitivity to valuation. You know, when investors are really pushing on the valuation because they're sitting there doing their homework thinking, well shit, like am I going to get fired because I'm not able to really, you know, know, get something back on this? It informs the timeline that we might have to exit. I'm sure you all have been maybe informed that you should maybe ask where they are in the life cycle of their fund because if it's at the end, you need to exit pretty soon, right? You generally have five years of active investment and then five or maybe more or less to exit those companies. Right? You kind of sign a deal with the devil when you raise from a VC because you agree to sell, you agree to liquidate. So then that's what also would affect their timeline to exit or their dependency on other investors. Right? The game that we've seen in the past has been a lot of VCs depending on other investors to sort of write up on paper returns. You come in at a nice pre seed valuation, some flashy American fund comes on and they're like, let's hike this valuation up. They're able to fundraise based on that on paper return. It's all these things relate to the VC business model. I'm rambling a little bit, so let's get to the how and move on. So how would you ask about that VC business model? You would probably ask things about, okay, how many investments have you done? How many investments will you do from this fund? What is the life cycle of the fund? These are pretty standard. What is your risk and return profile? That's an open question. I don't even know how we would answer that. Or you could ask, what are your key assumptions? You might have heard that sort of like classic 10. If a VC invests in 10 companies, they assume 6 are write offs. Maybe 1 returns the fund by x or whatever, 3 return it by 2x. Right. So I would encourage you to ask what are your assumptions? And then if you want to really push it, you could go, what drove your past performance? As in one or two. Right. What was the realization of those key assumptions in the past funds? Or you could go, what is your past performance? I have never had a founder ask what our IRR is. I also don't know if we would disclose it. And that's partially the issue anyways. So now moving on to the second part. 3. This is a bit of a curve ball. It's actually a question that I always ask to founders in order to understand the culture of their fund. I'll go, how do you celebrate? And you'd be surprised. I mean, I work in Germany, so you'd be surprised how many people are like, we go to, to dinner and I'm like, fun. But how do you, how do you, how do you, how do you celebrate the success of your, of your employees? Right. How do you celebrate big milestones? How do you celebrate birthdays? All of those very soft things. To me, they inform what it would be like to work there, if they're going to be a good employer, if they're able to hire and retain great talent, if they have, you know, you know, human values. And so it's a question that I ask and, but I need to say is ask about the fun culture. You know, VCs say it's all about the team. And I'm sure as a founder it's a bit hard to understand who you work with because it can be a bit of like a VCs are like a collection sometimes of lone wolves that work together. But we do have an internal team and how we treat and structure. That should say a lot about the people that you're going into business with. So you, of course, you know to talk, talk and maybe ask yourself about personal chemistry. Do you want to have a beer with this person? But what about the wider team, the wider dynamic, the wider structure. A lot of points on this one. I don't think I have to talk too much about why, because I just did. But these are ways that I've learned to understand looking at other investors or also that when I look at founders, what I might do, I would examine things like hierarchy and bureaucracy, two words and concepts that I do not like and do not thrive in. You can already get a feel for hierarchy and bureaucracy in the process. You can look at employee turnover, how long have people stayed and left, right, examine their well being. You could look at the team member profiles, the new hires. You can ask how you celebrate. You can ask what are your okrs? What's your most important metric? They might say the success of our portfolio, then ask again and they're going to say irr anyways. You can ask what's your hiring roadmap? Are there going to be enough people there to support you as the their portfolio grows and as you might need them through difficult times? And maybe a bonus tip is you can tell a lot by a team page. And I'm not saying this pejoratively, but you know, crisp white shirts, for example, team pages where the fun fact is the golf handicap or it's ordered by seniority. You know, managing partner here, intern here. The office managers aren't even on the page that to me, I'm not working with those people. I'm sorry. Particularly on the office managers who are not even on the page. Chris, White shirts can look good every once in a while. So I've got a giant red clock here telling me that I have a minute and 43 seconds left. So I'm going to wrap it up. These are four ways beyond the shoes and beyond these logo guides that you can help make sense of what's going on. You can help make sense of the people that knock at your door or the growing community of investors. It feels like everybody and their aunt has a fund these days. I'm not sure again how that's going to move forwards, but these questions will always remain important. I believe, and I just can't believe that nobody's ever asked them and you might not get answers to them. Like, I fully don't know if our partners would say what the percentage stake is for each of the individuals. But I hope we can work toward an industry where that is something that is disclosed because it's important. So let's wrap this up. 55 seconds. I've got it. My top takeaways are it's an imbalanced and opaque industry. There's a very steep asymmetry and power and information between founders and investors. It's hard to tell investors apart. It's hard to really understand what they want and what they're in it for. We investors are indeed scrambling to be differentiate. We're trying to create a competitive offering in an increasingly commoditized space, which is money. In order to see beyond money, or rather beneath money, what you need to do is dare to ask those really critical questions about ownership, about compensation, about incentives, priorities, and culture. And don't forget about their shoes. Thank you.

In the days when those in power still continue to try Stopping the light coming through the darkness people rise up Causing voices to be heard above the violence, above the madness Giving hope to survive. Sa. It. I come with a message. Don't listen to the message Madness step on so will it try to control you Creation in the sight of a child is where it begin Bringing freedom release Bringing hope to life. Sa. You rhythm and. You. Got feel it. Sam.

Here. 1, 2, 1, 2, 1.

1, 2.

1, 2, 1,2, 1, 2. This position is. Elaine Simone.

Hi. Hi.

This is our AV team. We're just gonna get you set up with some mics real quick. One microphone for. Yes. There's three of you. Is Hyundai.

Oh, no.

He had to leave early. So just two. Perfect. Two mic. Yes. This is for you.

Perfect.

Mic check with this microphone. All right.

Here? Not here.

Okay, Here.

All right.

All good. Okay. Just here.

And then.

I'm Catherine, by the way. Nice to meet you both. Love meeting you.

Yes.

So just during the Q and A.

Perfect.

Yeah, I'll just be running over. Thank you. So you can talk with your answers that I'll take care of. Running around.

Got it.

Yeah, I think we can give it. Yeah, it's really nice. Like, I'm sorry. I just found this. I could have worked it here for sure. Okay.

Okay.

You have to speak in like this, not like this.