Ep#20: Founder-Investor Fit with Chris Tottman - Notion Capital

I come from the stable of be first, be different, don't be better, better mousetrap, who cares? I think if you be the first at doing something, or you can be radically different and transform, you know, do something in a way that's transformative, then. Then you've got a real chance, I think. But if you're. If you're a better version of Vanilla Ice Cream, I mean, you're in the so what? Territory.

Welcome to Startups Decoded, where we uncover what it really takes to build and scale startups. I'm Andy Walsh, founder and strategist. Each week we will bring you actionable insights and real stories. Let's dive in. Hello and welcome back to Startups Decoded. Today our main topic is founder and investor fit. And in 2025, that topic has never been more topical, in lack of a better term. And to welcome today a special gu, Chris Tottenham from Notion Capital. Welcome, Chris.

Hey, it's good to be here. How are you?

Yeah, good, very good. We've been flirting with this conversation for a little while and I'm glad we got it booked in and we were just chatting before the show. You're a man who doesn't like to do meetings, which I've got a lot of respect for. So to get some time, I feel like I'm one of the lucky few.

Yeah, I'm very anti meeting, which is why I get to chair quite a few meetings, because they know you're either contributing to the meeting or you're extracting value from the meeting. But if you're doing neither, why on earth are you in the meeting? Because they're just so expensive. When I imagine all of the people zooming into somewhere, you know, maybe sitting there in their pajamas with like a, you know, a business shirt on top and. Yeah, I mean, I just think it's just an incredible waste for entrepreneurial businesses when it's kind of meeting overload. So I kind of made the decision to be anti meeting about seven, eight years ago. So Monday and Tuesday are back to back, but Wednesday, Thursday and Friday are left pretty open.

It's the way it should be, too. And I think the remote work culture, and it's not our topic today, but just quickly, I think the remote work culture has demonstrated that we don't need to be around each other all the time. But I think meeting cadence has been a bit of a victim of that. It's too much. And I've gone from 45 minutes to 30 to 15 minutes with meetings, and I get through all the things I Need to. Because everyone has an urgency to focus on the main things.

Yeah, I think that's right. I think that's right.

Anyway, we're not here to talk about meetings. Not very sexy. So Chris, the topic today around founder investor fit is pretty broad. And as I said up at the start, the relationship that a founder has with an investor can be different pending whether you're coming in early as an angel or going late at series C, series D if you get a board seat. There's a lot of things that go behind that, but just help folks understand a little bit. As far as your background, I always curious on where you came from in the sense of your path into venture and what led you on the start of your journey.

Yeah, well, I entered in the old fashioned way in 2008. We had a particularly big exit. We'd ridden the way where we'd all connected to the Internet in the late 90s. And so everyone for the first time became vulnerable to email bought viruses, so malware hidden in spam and email. And we built a security proposition to solve that problem. We had an ISP so like a CLEC in the US that was connecting companies to the Internet and that gave us the opportunity to find this vulnerability and that became the first really, really big European SaaS business in generation one of SaaS. So from 2000 to 2008 we went from 0 to 150 million of subscription revenue and we sold that and we, it's very typical of us, we announced notion the day after the acquisition was announced, obviously pissing everybody off in the transaction. But we thought, hey, we can't miss this PR wave. So, so we sold the company. We had 50% of the cap table. So you know, we had a lot of money to deploy B2B. SaaS was like 1% of B2B it spends, you know, so from a thesis perspective, we thought that it would be like 50% in our lifetime. So you've got this situation where you've got like hundreds and hundreds of millions of dollars being spent with hardware, software and system integrators that is in the wrong place. And we saw that transitioning to these completely new vendors that were built, you know, predominantly from conception on the cloud. And so that was the thesis at the time and we wanted to ride that wave. So fund one was $30 million of our own money. And yeah, so we bought our way in and with the view to raise money from lp, so we're now deploying our eighth fund. So we have five venture funds, three opportunities funds and so we invest over the whole life cycle to kind of series B, series C. So we can angel co invest. We do a lot of discovery deals before product market fit or things that are really binary. They're either going to work or they're not. You know, you either make some money or you lose it all. Typically the majority flagship fund is investing at series A and series B. So that's, you know, where we predominantly focus our resources. But today, you know, for the last 12 months we've probably invested in a deal every single week. But those will be predominantly those angel co invest deals that we do super early on. It's been a bit, been an incredible ride for the last 16 years.

It seems to be really common and there's a lot of solo funds that are opening up in the last 12 months. A lot of people doing that are exited founders. And candidly, do you think to be a good VC that you need to be a founder first?

Statistically, definitely not. So you know the makeup in the US vis a vis the percentage of check writing vc. So partners that are really writing the checks is more like 60 to 70% are ex founder operators with the rest pretty much coming from, you know, big four consulting, banking, M and A backgrounds. Whereas in Europe I haven't looked at the stats recently but it would be low. 15% were founder operators that have created their own fund. It just takes time to sort of figure out that balance. And you know, I've worked with, with VCs that are extraordinary from both camps. So I think founders just have to be like, just really diligent about who they want to, who they want to have around the table and the reasons me intentional about the reasons why they want those individuals more than those firms. To be honest, you know, it's a marriage. I think I have a phrase which is like the two biggest things of wealth creation and wealth destruction is your life partner and your business partner, you know, and the VC that you have around the table is going to be one of those business partners. So you know, you, you really, you really want to get in, you really want to get into bed with them or you don't, you know, so, and sometimes there's a lack of optionality and you've got to maybe take the, the, the right offer for you at that, at that point in time. But I don't, I don't think the data suggests that the bankers can't fundamentally outperform the founders and the operators. I don't, I don't think that stands out. I mean they're just, just extraordinary investors that, that, that, that founders can tap into.

Yeah. And I don't want that to come across as me saying that if you're a VC and haven't been a founder, you won't succeed. It's just a topical question at the moment. I ask everyone the same question because I think it's really interesting on the shift that we're seeing and to set up a good foundation for today in our conversation and that collaboration and not all investors are built the same and you could invest even at a late stage with a startup and not play a functional role as far as a board seat or contributing, it could just be a follow on investment, supporting a lead investor who has a board seat, et cetera. So those dynamics are very different for notion capital. Do you have a rule within your thesis as far as do you do lead investments? Only at that later stage are you doing follow on how do you operate in that sense of one, the investment but two how you work with those founders ongoing?

Yeah and that's a good, good a good point. I mean from a firm it's quite easy to kind of figure out the sorts of things that we, you know, we like to invest in, how we invest, where we invest. So we're a European wide fund. So typically 90% of everything we invest in is going to be a European headquarter business. Many in the early stage flip to the US because let's say they've, they've joined speedrun A16Z or they've joined Y Combinator so they typically have their corporate structure moved to the US that, so that irrelevant of that. Well we would still invest in those businesses. It's always about something that's transforming a business. So we don't do any consumer investments and we're very interested in the revenue model. You know, because we have this SaaS heritage. Then we're very, very interested in what we would classify as like repeat recurring reoccurring types of revenue models where there's high levels of consumption, there's high margin and the less known in the market consumption based pricing is the most typical. Now rather than let's say seat pricing that you would have got 15 years ago. And so you'd see our strategy where that technology is transforming business could be almost within a factory or in hardware, not purely in software. So software just becomes a very important part of the overall value proposition to the buyer. But it isn't necessarily that, you know, the only thing we're investing, for example, you know, we've got, we, you Know, we're invested in a, in a drones business in Germany called Quantum Systems. And you know, 10 years ago that would have been unlikely. Today it's very typical. We've invested in a highly automated factory for example, which think of it as like an entire vertical stack. It just happens to be, you know, a factory. And so the opportunities for that from a margin perspective and also from a technology perspective perspective to be repurposed for other ways is extremely exciting.

Yeah. The interesting thing that I've seen is businesses that through the shift in AI are able to multiply and scale at a rate they weren't previously able to do. And investors investing in companies that they typically wouldn't look at. And I was chatting to Mike McCombie on a previous episode and he's a solo GP and he's invested in a lot of those for structure based companies where they can see huge opportunity to be first to market, to beat competitors who are still operating like it's the 1990s. And I'm fascinated by that. And even business marketplaces of people that have existing businesses that are selling them for cheap because they want to retire, don't know how to adapt and change. It's fascinating to see that happen alongside brand new businesses are leveraging AI in ways that we haven't seen before.

Yeah, I think that's right. I mean, just like politically minded people live in a bubble that doesn't really impact many people on the streets. It's the same with the technology world. We live in this bubble where we think, oh, there's this app that's going crazy where it's a new way of doing something that everyone's been frustrated with before, let's say, you know, prompting the ability to create a website, you know, and all of a sudden there's this just incredible hype and level of unmet demand on using something that's extraordinary in historical terms, like the lovable app, for example, for creating websites or apps, and you just start to mop up huge amounts of that latent demand. And a lot of the app AI companies obviously we love the application layer, that's typically where the majority of our investments would go, is that you get a huge amount of demand but then you get low utilization and, or low usage and sometimes you get quite a high degree of churn. And so you'll see quite a lot of AI investments that you know, that hyped up and then they, then they hype down and so sorry about that. So, but yeah, I mean we're just in this extraordinary era Today, where, you know, the tools available to people, you know, are just incredible compared to the tools that we were using before. And so you are going to see these kind of extreme hype cycles also you're going to see obsolescence happen much quicker, right? So something's going to go hot and that's going to make a whole bunch of other vendors obsolete. But it's also going to mean that the cycle is going to be that much faster. For example, in a venture fund, you might think of it as a 10 +12, but if you look at the averages, whether it's European, B2B or the averages, it sometimes takes 15, 16 years to fully realize that fund. In an AI world, you know, you think you might be able to go through two or three cycles in, in 15 years. So I think it's very, it's just such an exciting time at the moment. The VC model is quite straightforward. You know, there's source select and support. You know, the game is really changing on the, on the, on the source side. Right. Some things that you may have been excited about a year ago, you just can't get excited about today. You've got this new cohort of companies that are growing extraordinary fast, unprecedented levels of scale, like OpenAI's level of scale within the time period that it's happened. Obviously there was a very, very long layup for a period of time which is common with deep, deeper tech. And just like you may have got with crypto investors, you know, three or four years ago, where it hyped up and then came down, you know, we'll see a little bit, a little bit of that in, in the AI world. But you know, take, take the 90s. You know, I had, I would have seen a pitch at the time which is my IP enabled fridge that would replace the milk when it was running low. I'm not sure I needed that. I'm, I'm not sure I could even buy it today, 25 years later. So there was this huge hype of companies that were selling stuff on this thing called the Internet. And you wouldn't have said that the guy that put books to be sold online was going to become the titan for the next 25 years. And there's Amazon to a T. So I think a lot of us think we know what's hot and what's not, but history tells us that, you know, no one really knows what's going to ultimately be hot over a longer period of time and what's not. We just know that it's going to be like 2% get to the other side, 98% don't. And in that 2%, there's a very, very small percentage, which is where, you know, the people of the future, these are the things the rails that trade is happening on, that your life is happening on, that your communications are happening on. Right. These are the people that follow.