Why Your Fund Model Should Not Rely on $10BN+ Outcomes

So I started my journey in high school in the first step towards investing, was I imported iPhones from The UK, unlocked them, refurbished them, resold them, which then really opened my eyes to entrepreneurship, one. And two, some of the money I made invested in Apple stock, $2,008.09, which I guess taught me two things. One, you can make money online. Two, if you believe in something and you put the money behind it, then that can work out for you. I didn’t it was very little money and I actually took it out pretty soon after for vacation with a girlfriend.

At the time that this was happening was at 2008, and when I started studying, I read about a group in Berlin called Team Europe, a company builder pretty similar to Rocket, smaller. They built Delivery Hero and a couple of other outcomes. And they had a small seed fund on the side with €6,000,000, and that was managed by Pavel, who was later one of the founders of Point Nine. And so I reached out to them, sent them a cold email, asked if I could do an internship.

This is in 2010. Pavel got back to me and came to visit a town close to where I was studying in Germany, and I had a conversation with him. He liked what I did with the iPhones. I actually just had invested in a company called BeReal and said it was that model, on a bigger scale, venture funded. I was just one person. And so I think we hit it off, he offered me an internship. I worked with him for a couple of months and then continued working for them part time as I finished my studies in 2011, 2012.

And then when I graduated university, they decided to spin out this fund. And Christoph, who was an LP in the fund, joined as a cofounder, and they started Point Nine. And I was the young kid that was around and lucky enough to be the first person work with them long term. And so they were still raising the first institutional fund, which was the one after the €6,000,000 seed fund as part of Team Europe. And I was just thrown in trying to help them wherever I could, sourcing, evaluation, evaluating, writing deal mamos.

So that’s how I got started with Point Nine. The next step, because this was when we actually talked last during ’15, and so this was where the year that we invested. Probably, I started beating my own deals that year. So was, three years after I joined. And then in 2016, I was recruited by Insight and moved to New York. There, I ended up being for, I guess, 2016 to 2019 investing a little later than Point Nine. Point Nine was early stage seed and insight, the biggest venture fund out there, one of them.

With 20,000,000,000. 20,000,000,000. Yeah. It’s pretty wild. Worked with Insight and was leading series a’s mostly for them, both in enterprise software and then some of the consumer subscription companies that we’re gonna talk about. And in 2019, I decided to leave and start Adjacent, where I’m now at the firm that I founded and which is an early stage fund that is investing across both Europe and The US.

Let me start by talking about the time of getting these companies to scale. Right? So you’re saying that there’s very few data points for good companies. The ones that we consider good are multibillion dollar companies. Right? So how long do you think it takes for a company to get to maturity? Let’s say from founding or seed. Like, let’s say IPO level I major equity. Years. Yeah. Something like that. So the App Store launched subscriptions in 2011. This is twelve years ago. So the first companies that were started around this model, like the Calm, which was 2012, which is eleven years ago, they just get to the level of maturity.

Back to what I was saying about m point nine and Insight, I realized that there’s much less benchmarks and companies to point to, but I think they’re emerging just now. The time to get to scale in this model has just been achieved and if you look at USV, their first fund just wrapped after eighteen years. Right? And so I think that we are seeing the emergence of these benchmarks and I started thinking about these companies in 2015 and so I understand it from the outside looking in and being obsessed with SaaS and comparing it one to one and looking at the differences, which there are downsides of this model.

I don’t wanna Eulogize. Yeah. I don’t wanna argue the opposite. There are downsides and there are benefits, and I’m happy to talk more about both. But I’m just saying, this is a new model. Our willingness to pay for software on a subscription basis was pioneered by the Netflix as a Spotify, and this is something that happened before some of the episode dynamics on the episode, but the first models that emerged later that have the software like margin profiles of 80%. Those are eleven, twelve years old.

Right? Maybe Duolingo you can argue that they started a little differently and then they shifted around, but even their acceleration, the revenue only started pumping in the last five, six years. My argument, we are just starting to see the fruits of this new thesis coming to be. If in five years, there’s not more companies that we can point to that look the same or better, probably I was not as right as I think I am. Right? So I’ll admit that, ever early. However, I have enough confidence based on what I’ve seen that we can get to multibillion dollar outcomes.

Right? I don’t know about 10,000,000,000 outcomes. But I think one, two, three, four, five billion dollar companies, we have them. Today, we have them.

I love to tell you my review. Obviously, hear these concerns about and think about it a lot. So first, I want to again just emphasize that I arrived at this model through SaaS. Right? So we went from the first four or five years of my career, learned early stage SaaS investing from Point Nine, and then I learned later stage SaaS investing from Insight, are probably two of the best firms in this area. Right? And so what does make a SaaS model good? SaaS model is great because it is high margin revenue, recurring from day one, and global in terms of the distribution.

All these three things also apply to these mobile companies. Right? The difference as you point to is that we have a higher churn Yep. True, is a problem. However, the insight that we’ve had with some of the first companies we invested in is that the churn is usually high in the first year, and then from the second year on, it looks very much like SMB SaaS churn. Once somebody is a habitual user of the product, typically they just don’t decide to rip it out of their life.

Right? So if you look at year one, say you lose 50% of the customers. Right? Then year two, from the remaining 50, the next year maybe it’s, I don’t know, 40%. Yeah? Is it though 50 or is it 80? The companies that I work with have at least 50. The 50. And then journey. And if not, then I made the wrong decision based on two early data points. But it’s 50. And I have companies that have 80 or 90. And there’s usually some nuances to that.

They’re rare and they often come bundled with a hardware component or a specific type of service or product that is just not as volatile as maybe a health app could be. So, yes, we have those companies. They’re rare, but you have to find them similar to how SaaS companies create on paper, but there’s a bunch of shit companies. And so you gotta find the good ones, sure. But the way that we steer them and this now touches CAC is usually we always, the companies I work with, this is the Adjacent companies that I’m talking about, we steer acquisition so that we recover the CAC with the first year.

Okay? So every time you get a yearly subscriber that pays back your CAC, you don’t overspend very rarely. Like, there you have really have to have a good strategic reason to. But what that means is if you lose 50% of your subscribers, but they pay for themselves immediately, and then the other 50% actually look like SMB SaaS, if the market’s big enough, that is actually a pretty solid model in my eyes. And so what I push back on is one, yes churn is bad, but it gets better over time.

It’s not 5050% and then your churn, but 50% and then actually flattens out. Yeah. So can those stack over time. Even though there’s a big churn in the beginning, they start stacking over time. So if the market’s deep enough, can stack them to a pretty high level. Second, CAC actually I think is one of the benefits of this model that you don’t have to hire a huge ass sales force to sell your product into the market that burns a lot of money, but you actually have flexible spend, usually also a lot of organic.

What is a good level of organic? I never know. That is a good question. The guideline I gave is 50%. Yeah. And this is mostly for not forgetting about it. Right? Does it mean that there’s companies that sometimes have sixty, seventy, 80? Yes. And sometimes you also want to do that for a period of time if the unit economics are very good. Right? If you can make very good returns on the acquisition spend, why do you not take advantage of it? Right?

If you have like a four or five x, you can do it then you just scale it up, but you want to see some component of the product whether it’s an actual feature within the product, whether it’s just, I call it the power up experience where it’s something that you show people, right, like your Oura, sleep story or whatever. There’s something built into the product that accelerates paid and I think it’s really working when you see that the organic scales in lockstep with the paid. So even though you increase paid, your percentage of organic stays the same, fifty fifty, because there is some kind of reinforcing factor.

Totally. So that’s what I hope for. But it doesn’t always happen, like, and obviously, there’s phases of companies and there’s also no silver bullet. Acquisition will change overall the journey of the company. The point I wanted to make about CAC is one, pays back within a few days. Right? So it’s A few days? Because the annual sub is paid upfront. Mhmm. So usually it’s like at day of download or like with a delay of seven, eight days.

The this is the majority of the Really? Yeah. It’s 80% of the conversions that we I work

There’s some tools that you use. I have a couple of things to say about this. But the the first is you give a discount on the annual, and so the monthly and sometimes the weekly, actually, I’m seeing some really interesting data now about weekly as well, which we can talk about later. But the annual discounted for somebody that gets enough value from the product in the Western world also depends on geo. Right? One of the advantages is you’re in 200 countries once you go into the app store.

But in the Western world, most people today, I think this is like a big part of the thesis that I think is underestimated, is our willingness to pay for a product that drives value. Yes, for some people it will be expensive, but the price increases that we have seen since let’s say, Calm launched to what it charges yearly today and what it will charge in five to ten years. I think it has a similar trajectory to what we’ve seen with SaaS companies and their ability to extract value as people are realizing what type of value they’re deriving from the product.

One, we are surprised by how little sensitivity we see for really good products because the willingness to pay for those products is increasing quicker than our ability to understand that.

I think that that’s a philosophical question. Like, I I can tell you the data as a company. So I invest in the best in class subscription companies, but I also invest in the infrastructure for them. Right? So RevenueCat, Superwall, UX cam, Runway. So there’s companies I work with that are powering these companies. So in a way, it’s a proxy bet for me on the thesis, but there’s also a lot of synergies. Right? And so what Super Bowl is doing is op optimizing paywalls. And so one of the learnings that we have from that is that the number one indicator for driving conversion is how often do you see the paywall.

Right? And so it’s very common sense and you can on the side of being annoying which you want to avoid, depends on what your strategy is, but usually you probably avoid that. But showing the paywall does not necessarily mean you have to convert. And so most of these are structured in a way where you have a free trial, you are being shown the paywall often but there is a certain amount of free usage that you have. But the more often you show it, the higher the conversion will be.

And then paradoxically also, the pay conversion oftentimes activates the user. Right? So it’s it’s a maybe the gym membership Yeah. It really often drives higher engagement.

No. I I think that is one of the major risks to manage Yeah. Because you cannot be dependent on only one channel.

should do that. Right? Like, you take advantage of a channel when it opens up, but then you try early enough to invest in diversification of that. And it is possible. It is not the case that there is only one channel. There is a few channels and it’s hard to correct the next one, but I’ve seen companies do it. You can do it, it’s hard. You have to have discipline so that you don’t do it when it’s too late, but it is possible. And I think another aspect of this this is interesting also I think you you touched up on PhotoRoom is, and this is I think sometimes also how I misunderstood is that people reduce my thesis to an app with a subscription.

And I talked a lot about this because it is a big core of it. I think it’s just the easiest way to get started. You write an app, you put it on the app store, it’s in 200 countries, you charge annual upfront. Often with a seed round, you get to tens of millions in revenue. That’s crazy. What other companies do you have where a seed round gets you to tens of millions in revenue? I don’t know. There’s other challenges to the business model, but this is not one of them.

It’s a very cash efficient way to get started. It’s also not as dilutive if you are in the seed and then it steps up to where some of the follow on rounds for those companies were. And so I think the seat is a great spot to invest in these companies and I think that the cash efficiency is a good starting point. But then it usually is only the first surface area of your product. Right? Take PhotoRoom. It’s a prosumer product. We started on mobile. It’s successful not just in The US but also in emerging countries.

Now we’re bringing the same product to web, to teams, and we have an API that people are paying 600 digits for a year. So we start with mobile subscription, but it evolves into much more than that. Right? Because the underlying technology is what’s interesting, and mobile is just the first step to get started. It can become much broader over time.

I believe that seed is the best in terms of upside potential, downside risk and expected future dilution. I operate under the assumption that I have multi billion dollar exits, not $10,000,000,000 exit. Right? That is reflected in both when I come in and then how big my fund is, which is reasonably small and consciously so, because I want the strategy to work even if it’s a $2,000,000,000 exit, it should return the fund once, twice, maybe three times, depends on how early I got And so I think seed that’s why I choose seed.

And I think the reason to expand more strongly to a would be that we have more confidence that the outcomes get bigger and we have some portfolio that warrants diversification across a number of investments. I think that there’s a limit to how late you want to raise capital with these companies. Right? So that’s a mismatch that I have with some of the multistage funds. Right? Because for me, if I invested seed or a, I do seed and a, right? It’s like, I would say 75% seed and then the rest is a.

So I also do it if it makes sense and if it’s not a crazy price, right? But oftentimes I think, okay, we invest, we build the company, we get to the significant level. We only raise follow on funding if we really see those next chapters and those next levels of acceleration. Otherwise, let’s not raise too much too early. Right? Like, I’m not the one that chases high valuations. I’m actually the one that says, let’s keep the options open.

No. That’s not always. No. But the founders that I like the most probably.

Yeah. I I caution not to waste on too high valuations Yeah. Too soon, always, because I want everybody to win.

much. And I think the reason for that is that I’m active in an area that is not that hot. I like it. I don’t really think that these firms think of these companies as moving the needle for their billion dollar funds. And I think that this is one of my opportunities. Operating under the assumption that you need 10,000,000,000 billion dollar outcomes to move your fund is a very hard one, especially in this macro but generally. And this has different reasons. 1, $10,000,000,000 outcomes are very rare.

They have been more frequent in the last three years, but a lot of that is not true anymore. Right? And a lot of them are not $10,000,000,000 anymore. Exactly. And so putting yourself in a position where you need that to deliver real returns for your fund is one very difficult to get high multiples on the LP dollars. Two, from where I sit in the early stage, it has always been true, you were surprised by the upside and you choose to invest in something that has a reasonable chance of becoming big enough to make sense.

But then in the outsized scenario that it becomes very big, this is the optionality asymmetry we shoot for. So I think there’s more surprising positives in aiming lower and being surprised than in wrong data points or like wrong decisions by saying it cannot get this big and then not investing. You see identity,

So the fund is I never announced the funds, and I’m inclined not to do so, but I give you all the other things of the model and you can work back from that. So the model is that I have somewhere between twenty and twenty five companies in a fund. The majority of that is seed, and seed for me is a little more flexible than how other people think about it. I also don’t care about the labels so much. Some of the c’s I’ve done and some of the a’s that I’ve done were at the same valuation.

Those labels are arbitrary to me. And so I just try to get my ownership on those 20 to 25 companies, which is with the current fund I’m investing in, it’s 10%. For the last six months, it’s actually been 11% because the macro is starting to come down. Maybe also I’m becoming more bold. I don’t know. But it’s 10% for the average of this fund. The first fund was a little different because I erred on the side of proving that I can be in good companies. So there were some companies where I have less desirable ownership.

They’re great companies. The hit rate, think, is quite high in the first fund. But with fund two, I wanted to prove I can get the double digit ownership and I am getting it. On the same side, it is probably still a bit too early to say that the hit rate is the same. If twenty twenty five companies, the check size goes between one and seven. The average One and seven.

Yeah. So the so my position currently is that I made this graph which is probably the simplest positioning graph that if you add a whiteboard here,

put it on the wall now. But I try to lead at seed and I try to co lead at a. And so what that means is that three quarters of the fund are seed within early and late seed and then the a’s that I’m doing, I usually collaborate with other funds on them. And so I I like that part of the strategy because my fund is small enough so that can do it, so that I can get on my ownership target and another fund can get on the ownership target.

At the same time, it enables the founder to have more money so that they have longer runway, which typically now I plan for three years. And it also means that there should be a pretty significant step up in valuation. We talked about this, right? I think seed and a are very good spots for this model. From b, depends. Right? What do you see the biggest jump in valuation? A From a to b. Yeah. Why do you think that is? Because people don’t like consumer subscription until it does tens of millions in revenue.

On on And Harry, fucking loves it. Yes. Yeah. Because you don’t like it when you don’t understand the dynamics and you don’t see this exponential growth. Once it goes from a few million to tens of millions within a pretty short period of time And you

Yeah. But I still am somewhat disappointed. I mean, I like when people invest in my companies. Right? I don’t wanna discourage people from it. I don’t depend on it because usually I structure the rounds in such a way that we can get to cash flow positive with a lot of those companies or with the partner fund that they have such long runway that that is an option or there’s a lot of time to prove the next round. But I think that it’s a bit of a, I guess, of a critique that I would have about VC’s is that they criticize the model until it breaks out and then they fight for it.

So for me, venture is venture that is thesis driven and early stage. I know there’s different ways of playing it. I know that there’s different stages and different skills required. I am the first one to say I shouldn’t be on a public company board. So I actually structured we can talk about this as well, but I structured my work with the companies such that I’m involved early on and I’m happy to step out once the scale that I’m not that suited for anymore. So I don’t have any ego about being on the board.

I actually deflect boards. I take two board seats per fund. How do you decide which board seats to take? The way that I’ve approached it so far is that at seed, you don’t need a board, I think, because you are chasing product market fit. Most of the time, I’m in your way. The best thing I can do is share learnings from the other companies, be a strategic thought partner, and then make introductions to other founders that have faced similar issues or solved things that you’re facing right now.

And so that’s my role, and then there’s some financing related things and stuff like that. But that’s really how I see my role, and so then from a, I think it makes sense to have a board. Since I’m usually not the one that leads to a, I give myself an option to be an observer on the board, which will be exercised if it makes sense, but I’m also very happy to let people decide how they want to structure the board. I think there’s part people that invest at a that are very good.

For example, I I love USV. I collaborate with them. I have one of the Series A that I co led recently was with with USV. And I was very happy to have them take the board seat. Yes. I wanna learn, and I I have an observer, I can dial in if I want. I do that usually because I also learn from it, I want the information. I have the relationship with the founder. But also, it’s a company that will benefit from the attention of a USV partner.

Sure. And I can’t give the same.

Yeah.

Yeah. I think there’s some firms that don’t want to collaborate. And if you say that, you don’t want to collaborate. That is fine. I’ve consciously decided to keep my fund at a size where I can do that. And I think there’s other funds out there that believe in small funds and that are willing to do that. Can it change with the macro? Yes. And is it possible that somebody will start to ask for more? Yes. But then that usually, I think also would go hand in hand with valuation expectations going down, dilution expectations going up, so maybe it fits the formula again.

But I can only talk about how things are today and from where I see them, it is possible, actually desirable by a lot of founders, by me, and I just have to be early to those companies so that I can play a part in forming how the round comes together. Nico, how price sensitive are you? One piece of advice that Jeff Horing, the founder of Insight gave me after working with me at Insight for a while was that his only comment was, don’t be so cheap.

And you can take that to the extreme and become too generous. At the same time, I’ve been being fair without being cheap or generous. Yeah. Right? And so the way I approach it usually is that I have a conversation with the founders about what is reasonable from both ends and then try to find a solution. And it hasn’t happened yet that didn’t work. What does it mean? Does it mean sometimes I’m too generous?

We’re serving founders. Long term, we will only be successful if the founders that we work with are happy with how we’re collaborating with them. Does it mean that there’s some tension sometimes between what you require in your fund model and what the founders require or want? Yes. But I think that the start of a partnership ideally is being open about your limitations or things that you need to be feeling good about this, and then finding the common denominator. I cannot say in this scenario specifically, but the way I would approach it is think about what I would like, then really understanding what they’re coming for and they’re optimizing for, and then trying to fit that together as good as possible.

And that might not always be possible, in which case you’re gonna have to make a decision if you go with what you perceive to be better for the company or for you. But I would say long term, I would decide to choose for the benefit of the company.

Yeah. And this is, I think, core of what I think we should be betting on as early stage investors, which is the relative development of these markets. Right? The way that a growth investor looks at it is at the static. Right? They need to understand the size and the benchmarks and make it fit their formulas and then it has to add up and make sense. These are driven investors need to understand the magnitude of change in a specific segment or demographic or behavior and then bet on that.

Yeah. No. I’m not saying I would have at all. I’m just saying I think this is exactly where Insight and Alpha and so on so so much comes from, understanding not to what it looks like today, but what it could look like in ten years. Right? Totally.

Hey, man. It happens. I think most regrets that we have as investors are the companies we didn’t invest in. Sure. And so what does it mean? Does it mean that we have to see more companies? It usually means we have to be better at making decisions on the companies that we see. So I think one of the differences obviously of our approaches is you have this and a platform and huge network and you have a lot of volume. I try to stay away from volume consciously.

This is the first time I talk about Adjacent public for you. And the reason for that is that I actually am very mindful of my capacity and this is both time, but specifically mind space for making these decisions. Because I think that every investor has a bigger regret of anti, and so it’s not about seeing everything, seeing more, it’s actually about seeing better in the small n, I think. And so to your question, did I not pay up and regret it? I I honestly, nothing comes to mind.

I’m not sure if that means it didn’t happen or just that I didn’t obsess about it enough afterwards. I think I’m willing to break my own limitations if I really believe.

The the I don’t wanna take the full credit for it, but this is one of the reasons why that this is the case. When I was with Point Nine and reinvested in Revolut, it was both outside of the focus Yeah. That it’s a mobile consumer app. It had just closed the seed round with Baudetin, so there was no actionable opportunity and the only way to get in was actually forcing them to take more money at a step up in valuation, which was I think at the time the highest valuation we had accepted at Point Nine and also led to the lowest ownership that we had at least for seed.

It was a great decision. So what does it tell you? I think that part of the frameworks that we set for ourselves are litmus test for the conviction to break them.

Yes. This and I’m not saying I’ve mastered this at all. Right? I recognize it, but I’m still trying to get better at it. But I think it’s the rigidity of the model needs to be there so that breaking it is actually meaningful.

The term solo GP, I think, also when you started was not yet a thing. But the way that it happened for me was really that I became confident in what I wanted to do. Early stage, Europe, US, consumer heavy, software heavy, some SaaS and some other, but that was what I wanted to do. And I wanted to do it in the way that we’ve discussed here today and it was not clear to me where I could do that. And I didn’t want to do it somewhere where I felt like it didn’t fit the positioning of the institution.

And I also didn’t feel like earning my place in another institution because you’ve been at firms and it’s it takes a while. There’s hierarchy, there’s Well, I think I’m unemployable, to be honest. Yes. And so I think the same for me. I’ve been employed and I’ve I’m grateful for the time and the learnings, but I also always operated in a very autonomous way. And I think I’m getting better with the ability to fully find my own style. I need that space.

I think you’re absolutely right that partnerships can be one of the biggest reasons for it not working out Sure. Especially if it’s a forced partnership. Right? And so when I decided to start a firm, it was not I will do it by myself. It was just, okay, wanna start a firm. Who do I do it with? There’s a small list of people I would like to work with, but one, they’re all great firearms. Two, we never really worked that closely together, maybe it’s better to co invest forward.

So it was not, I wanna be by myself, I’m gonna go do it. It was, I wanna do this and I don’t wanna rush into anything. Start this way and then see what happens. And so it was a very organic way of getting there and now I’m quite comfortable with it. I don’t even know if it will stay like this forever to be honest. But what it just shows is that there is people that benefit from being able to fully follow their own thesis. And I will also say that as a person, I’ve suffered in the past from very negative feedback on my deals.

So I’m sensitive as a person, I guess, If I have a strong opinion on something and that gets mistreated in some way, whether it’s aggressive or just passively, I think that will change my opinion or at least give me a lot of frustrations in some sense. In the early stage where it’s a lot about having a pretty unique perspective on something that is not a consensus driven thing, but is really aligned with you believe it and nobody else. Solo GP is for the right person a very good fit for the early stage.

And I think most consensus driven models at the early stage, unless it’s a very aware and mindful partnership that really supports each other and can all see the complexities of human interaction, I think it’s maybe beneficial to just have one opinion as long as you’re right more than you’re wrong. How do you deal with decision making, deal decision making? It’s tough on your own. Yeah. I guess you have to find your own process, and I think that there’s just different types of people. I think there’s some that really need to test their conviction with other people, and then there’s others, and I think I’m included in that set that really challenge themselves all the time, but also with their opinion on the deal.

How do you challenge yourself with your opinion on a deal? First, I have to actually have a hypothesis and have one opinion. Right? So this is before I even challenge myself. I think the core of how I operate is that I have a bunch of frameworks and like ways of looking at the world and technology that I’ve taken from the twelve years that I’ve been in investing and refined to make it fit my style and I apply them every single time. For example, founders is like actually interesting is I don’t think I have a great framework for evaluating founders.

At the same time, I think I’ve worked with amazing founders. I think a more instinctual thing where I’m attracted by a certain type of founder and they are attracted by me.

I I am happy to mention some names. I just this is part of why I don’t have a framework is that I think that there’s so many different ways of being a good entrepreneur. There is a fit of an entrepreneur with a specific topic or with a specific company, and then the ability to, you know, just push that to the limit. So I guess ambition is one of the factors. Right? It’s like, how driven are you? What’s driving you? How ambitious can you be? Do have a worry with ambition that it can come over time?

Yeah. As opposed to other people, I don’t think that everything is set from the beginning. Yeah. I’ve I’ve invested in founders that told me, we wanna scale to 10,000,000 and then we’ll see. Right? Like, nobody else would do that. But because I believe that if I’m right about what I call the adjacent possible, which like is like for me this overarching macro driver for a company that is happening independently of the company and pushing them forward significantly, I think if you’re in that rush, you reconsider if you sell at 10,000,000 or if you keep going

Yeah. So this is I mean, it’s one of the reasons the firm is called and we were three questions deep here, so I don’t we might have to go back into the former questions after. I called the firm adjacent because there’s this term in evolutionary biology called the adjacent possible. What it says is that evolution happens usually as a combination of the existing phenomena and in a relatively deterministic way. So we’re somewhere and based on what is available at this point, the combination of the things usually lead to the next step.

Right? So like transformers being developed somewhere within Google, somebody taking that, building that up and creating OpenAI, then that actually becoming consumer subs application that charges $20 a month with JetGPC. Those things altogether create the breakthrough, which if you ask somebody on the street, they’re like, overnight AI was created and it’s living in the spot. Certainly, this was not the case. There were very specific steps leading to this outcome that is now perceived as happening overnight. And so my belief is that understanding some of those components and where they could lead to actually can give us some understanding of the companies that can be built in the next ten years or that really benefit from a trend.

And this can be technically like the example I just brought, but it could also be behaviorally or socially, like calm for meditation. Meditation was not as mainstream as it was when we invested. OPAL. That’s why my thesis with OPAL was that screen time management. We’re just learning how to deal with these phones. They’re always in our hands. We’re talking to each other and we’re looking at our phones. It’s not a healthy behavior. Right? And depression’s on the rise in the West. I think technology and the way we’re using it and the way it’s disconnecting us from each other has a role to play in that.

And so I I try to identify these changes, current macro changes, and then think about which companies could create a category around that. And so I believe that those companies benefit from growth drivers that are much more meaningful than any execution.

Is that fair? I don’t know. I’m not sure. This is also something I learned from Jeff Horing. He talks about software in a way that is coded experience. So like most software being workflow solutions are actually an understanding of how you can make processes better in a specific industry or in a specific workflow and then encoding that in something that automates a lot of that. And now the automation of this is coming to the next level with AI and this will happen both in enterprise application but also in consumer applications.

And so I think that a lot of the value that has been built in software over the last twenty years has actually been in the application layer that takes these breakthroughs and just verticalizes them for a specific use case or a specific customer demographic and monetizes them. The way I look at AI from an adjacent perspective is we’re gonna have companies that are already consumer subscription companies that are implementing this to make their products even more sticky, more functional, and give features that were not possible before.

I that’s how I look at it. I’m also just trying to find the angle that kind of fits my thesis. Right? Sure.

On a high level, I don’t have any doubt that there will be innovation. If anything, it will probably keep on accelerating. There will be venture. I think there will be innovation, and I think the model will persist. How the industry is structured, I don’t have a crystal ball. From what I’m seeing today, I think the next few years will be pretty difficult for most firms. I think the big ones have become too big. What happens to them? It depends on the firm. It’s certainly hard to make a blanket statement, but I think that fund sizes will go down.

I think people will leave. If you have carry in a $3,000,000,000 venture fund, is that worth a lot today? I

Yeah. I agree with you. And I think LP’s agree with us. At least LPs for sure agree with us. Yeah. It’s a question of time from a LP perspective to put pressure on these funds that they need to see data that those type of vehicles can create the same type of outcomes. And I’m actually cautiously excited about this period, which is maybe a weird thing to say, but I think it’s this is like earning your stripes also. Right? It’s like how do you actually navigate this scenario?

And I think as small funds investing early, we have a benefit there because I do believe that it’s still the best place to be. The risk is the highest, but the opportunity on the upside as well.

I guess you have a point that this is happening. At the same time, it’s a temporary issue, right, where these funds, they have to also work on their growth funds that are sitting untouched. Otherwise, Right? They’re not raising it. I guess they have some flexibility, but

Okay. So this is why I’m not so worried about them being really difficult for us in the sea. They’re worried about other things right now. For sure. Right? Like their core existence is in peril if you describe it like this. Right? And so will they come down and just fully focus all of their energy in competing for seed? Is that really what will save them? No. But

Okay. So this is also, I guess, true. I’m not a big brand fund and I’m not trying to be. I, in fact, think that I’m working with the person that actually thinks those firms are the establishment. I actually don’t think I should be competing for a seed round with where the founder is trying to get a big brand name on board in the seed. It’s not their core business. It’s a defensive strategy Sure. To keep ownership in the companies that will be big outliers. Right? It’s a strategic part of their game that leads to hopefully the core being more successful.

This is all I do and it’s I’m fully focused on it. I’m the founder of the firm, you only get me and I move faster. That is appealing to a certain type of founder. It’s not appealing to all founders and I accept that and I don’t try to be in all those processes. So it’s very rare that I actually come up against one of these firms because I don’t think we’re shooting for the same type of founder.

So one thing I’ve actually noticed is that the European founders care about having a US investor. They really do. Yeah. Yeah. But this is also something that Even the shit ones.

Yeah. I guess I’m European. Right? I think it’s a little sad that we have this, as Europeans, this bias towards The US investors are clearly better.

say. The idealization. That being said, I’ve met many more investors that I’m impressed with in The US than in Europe.

That’s the hardest thing. What we discussed is a lot of what I’m thinking about. Right? It’s like, how do we make sure these companies can realize their full potential?

Not all, but, I mean, let’s see. Right? I think the best ones will go public. I I would just wanna stress this. In this current macro, they have a much higher multiple on their revenue run rate than comparable SaaS companies. Duolingo. Duolingo. Like, this is me. But it surprises everybody else because this But if you can practice

Me too. I agree. But that seems to not have arrived in the general multistage firm investors mindset. And so my hope is that in a few years we have more examples and so it will open the door for smaller IPOs but more IPOs. And so I think that will happen. The best of them will do that and I have companies in the portfolio I’m confident we can do it. And so the others, yes, there will be a M and A roll up. In fact, I’m not stupid.

I also realized that there will be an opportunity in rolling some of these up because they are reaching some of them are reaching a ceiling, but they’re very highly profitable. Right? Yes, 10,000,000 but 3,000,000 in EBITDA common. And so you roll up a couple of these, it becomes a very interesting financial thing. Right? And so I’ve invested in three companies that are doing that. I have the best of them, I have the infrastructure and then I have the hedge which is let’s take the ones that don’t work.

And so I think it will happen. I think there will be acquisitions. I think there will be a lot of big firm. The one example is Rocket Money bought Truebill for kinda 1.5 or something like that billion, which might have been early because I think they’re still accelerating. I have a competitor in the portfolio that’s building around AI first They call Chargeback that I think can take them on. It’s a huge market. But I think that there will be a lot of companies that want to own that type of customer relationship.

Right? They will have millions of subscribers that are heavily engaged with a product in a certain demographic. That’s strategic value. I also think Spotify, Netflix potentially are interested in some of those more content focused companies at one point, maybe even interactive ones that are going into gaming more and things like that. So I think that there will be strategic acquisitions, I think there can be financial acquisitions and I think the best of them will have public outcomes. But anyways, this is one of the things I’m worried about trying to navigate.

Right? It is also clear to me that we have few data points because of what I’ve seen and because of the thesis that I have formulated over the last eight years, I believe more than others that it will happen, but I will be much more comfortable in five years if there’s four more firms we can talk about.

Why is it? I don’t know. I think, I mean, for me, I grew up with my mom and I didn’t have a father figure. I did go on on vacations and I saw him. He was involved. He was not like an absent, absent father, but he lived many hours away and I think that made me just find my own path more and be comfortable with my own worldview and decision making. I didn’t have so many other role models either, I would say.

Let’s say it this way. I now have one kid. I’m expecting a second. It’s very important to me to be a good father to the family, both a husband and father to my kids because I think it really did hurt when I think when your dad leaves at a young age, it just leaves a mark. And I think that’s part of where my drive comes from. I don’t think it’s all of it. Right? I think there’s genetics and serendipity and how things play out and so on, but we grew up with very little money.

And my mom had three kids from different fathers by herself. When I grew up, that was also there were limitations. I tried to just have agency and independence.

Yeah. So there, I have to disagree. You believe people are good? Yes. I I actually I’m an optimist, and I do believe that people are ignorant and in pain and suffer because of how others have treated them or because of their circumstances. But I don’t think it’s their fault. I think it’s just the product of their environment. And so I think that at the core, we all want to be happy, loved and grow. Only few people have the ability to do that. I was lucky to escape.

I’m I don’t want to make it sound like I had I had everything that I needed. I never was hungry, and my mom, I know, loved me and that there’s much worse upbringings. So I don’t wanna go there. Nico tracked across the desert with nothing for the show but London. Oh, it started. No. Also, now in Germany. Right? So this is also what are we complaining about? I’m a white man that grew up in the Western world. Right? So there’s very little things. But still, do I have some trauma from how I grew up in my circumstance?

Yeah. And it fought me, and that’s everybody has those. Right? Sure. And so I think I don’t think for me money is any ultimate goal. I need money to be independent and have the freedom to do the work that I want to Do children make you more hungry for money? It’s something we just very flat on the hedge. I actually am quite concerned about people that grew up grow up with too much money. I think that it can be very harmful Yeah. For kids to be too pampered.

And so I want to provide security for my family, and I really enjoy being able to take my wife. We went to Japan recently as a baby moon with her next baby and went to nice hotels and that’s I feel very grateful that I’m able to do that and I really appreciate it. It’s not that I really don’t take that for granted at all. So I’m proud that I achieved that. At the same time, I don’t have a number in mind. I don’t think that more money will make me any happier.

I don’t think I need more money to make my kids happier. Like it’s really not what’s driving me today and I think what changed with the kids more understanding that I think it makes you think even more long term in some ways because you want the world to look good for your kids and so you think about things that might happen beyond your like next lifespan, whatever it is. Mhmm. But I think that also, for me, I think that had a positive impact on where I want to focus my investments.

Right? And do I want to be in a company that I wouldn’t feel good about telling my daughter about? Good question. Chris Zachary says that one.

Yeah. Kids and this is a bit of a rational way of saying it, but I think kids are a very smart invention by nature or forcing function to Got force us to think long term. We’re all and like, especially us. Right? We’re like solo GP’s, startup firm, no. No. No. We think a lot about ourselves. We’re like, we have a lot of ego. This is everybody, but I think us as well. So it’s like learning how to think about other people. It’s a process. Right? And VCs are not the best at it.

And so awareness of we’re part of a whole, this is my family, these are my friends, these are the companies I work with, these are all the employees that they have, this is all the customers that we’re touching like a lot of people’s lives Uh-huh. Indirectly. And there comes a responsibility with that of making sure that we do our part so that all of this doesn’t only serve ourselves, but also the broader community of people even beyond that. So I try to think more broadly about how we fit into everything else.

Yes. I am also an egoistic person in some ways, and yes, I want to be successful, but I try more and I think kids are one of the ways that this has changed for me to have a broader perspective.

Point Nine. Why? One, I like them. Two, the returns are great. And three, I think they’re doing it in a way where it’s very founders focused, smart, low ego. I think I was very lucky to start my career with them because my I come from a family of artists and I think it’s a very unique thing to have people so low ego doing so well. I agree with that. You can invest in a Series A fund. Which one do you do? USV? I’m a big fan of how they’re operating, thesis driven, good people, diverse, not just isolated venture people, small funds, high returns, certainly also a model.

I would probably say founders fund because I also respect their approach a lot. But I think they found a focus. They are willing to think independently and act on that without too much concerns about what other people think, which can be controversial, but I think overall will serve them well. Also, they’re the only ones that cut their fund size in half proactively when the macro changed. So they went from, I don’t know, 1.8 to 900,000,000 Yeah. In two funds. Right? So it’s it’s a good way to do it.

Right? Because all of a sudden, you operate on its different constraints, then you still keep the next fund in the back pocket. So I I think they’re quick to adapt. I think they have a really good way of appealing to founders, and I think they really act with conviction. I know from multiple investments, this is also public, that they’ve put a very big percentage of their funds Oh, yeah. To one company.

And this is personal, but it’s having another kid, I think, because it took quite a while to get over the sleep deprivation of the person. And so really just a year ago that we started talking about, should we maybe have a second one? And in the end, like, I think the and everybody says you forget about the first year, maybe two years where it’s more difficult, and all the the love and growth of the child really makes up for it. But that’s something

I do feel content right now. I will say that, like every other human, I have faces where I don’t. And I think it’s something that we have to also talk about more because I think one of the problems with social media is that it has become a highlight reel of of Right? We are social animals that compare ourselves to others. And so that’s BeReal, right? One of the thesis for me at least was like, it’s kind of cutting through that and it’s like, no, what are you doing right now?

I think that is something that I would hope we just are more open about that some of these changes just don’t lead to us being content with ourselves or just comparing ourselves to others all the time and not having you real human interactions but just like digital world. And I’m a tech investor, right, so I’m like, I’m pro technology. I just think we have to learn the right way of dealing with it because I was kind of thrown into the Point Nine Waters when I was super young similar to you.

I just had to find ways to be good with a lot of things and change and like probably overwhelmed in some ways. And so I just really tried to find the right balance on things and like do the exercise and read and have time for my friends and my family and take vacations and just not be fully consumed by this drive we have, but really have the drive be one of the components of my life. Who’s the most valuable board member that

There’s a couple that come to mind. The one that I want to single out because I just really appreciate him as a person and what he can add is actually not a VC, but it’s the founder of Belkin, Chad Pipkin, who is sitting on the backbone board with me, which is a company

Yeah. Venture. Wow. And I’ve had so many Falcon devices. Yeah. He’s a legend, man. So he bootstrapped the company and sold it for billion to Foxconn. He was one of the first to do accessories for Apple devices. And this company Backbone that I’m working with, they’re on the West Coast, and it’s a gaming device for your phone. So you slot your phone into it and then you have a software layer on top of it that you pay a subscription for which turns your phone into a mobile gaming device.

So it’s a Nintendo Switch but it costs $99. And so it’s a great product, the hardware angle and then the software angle. And actually, I invested before they did the subscriptions with the pitch. Let’s do the subscriptions together. And so now it’s both a hardware and a subscription company. And I’m a gamer, so I I enjoy it a lot. I usually have it with me when I travel, and this guy is probably one of the smartest about hardware. What I appreciate is just like his operational experience and what he can add in an area that I have no idea about.

I learned a lot from it. He’s also very kind as a person, very good at sharing credit, giving compliments, also being very direct and pushing on things that are not good in his eyes. He has seven kids. He was one of the first people to tell me that it took him years. Seven kids to not have kids? No. I mean, don’t know how he’s doing it. I mean, it’s crazy. Right? Think about that. I can’t imagine. But he also said it took him many years to learn how to distance his person from the business.

I’ve never been able to No. And I’m I’m not there. The business. Yeah. And so but part of the growth is being able to do both. Right? Except that you started it and that your self worth and ego is tied up into the company in a big way, but then also going out of it and being able to drop it and not having it determine your mood and going to your family or your partner or your friends and not having them feel it so much.

Yeah. I agree fully with this, and that’s also my approach where I think people fall into the trap of being busy. Right? You’re gonna see every company, every conference, read every blog post, tweet every time. Right? I think that Listen to every 20 VC. Pod at at least they learn something. Right? I think it actually is a you know, there’s a medium where people learn because it’s a conversation. So I actually think it’s beneficial. Yeah. I learn a lot from it. But then I think that, like, some of my best ideas or breakthroughs or thesis I get when I’m sitting in my desk and I have no appointments for three hours and I just can let my mind go.

Or maybe even not even in the office, I’m taking a walk through London between my meetings, right, and I see how people are using some kind of gadget or whatever. It’s on the tube. I see how people consume my media Right. Type of games and Yeah. Like, wow. Harley, we’ve had him on. Mhmm. We worked inside together. He’s like watching mainstream US TV to get a sense for what the consumer thinks about, hears about It’s the advertising. So I think you find your ways and your style to be creating those thesis and I think for me it is not being busy all the time.

Last one, sorry, I’m belaboring this, but I think this is also important is like, I used to always be on all the time and I still think I’m on most of the time. Right? Like I’m checking my emails in the morning, in the night, but we had a coaching session at Insight and there was a guy who was like, that’s sad. You have to take a view that like a athlete, there’s three seasons. There’s preparation, training, then there’s performance, the race, and then there’s rest. And I I really adopted that where I think that there’s sprints where you just have to go.

Right? Whether it’s like the right company comes along and you just jump on it. Whether it’s a fundraise. Right? Whether it’s something in that regard, you just have to be there for it. And there’s preparation for it. You wanna do it in a thoughtful way. You wanna be mindful about it. You wanna get your ducks in a row. You wanna make sure that there’s enough to talk about. Blah blah blah. And then there’s also rest. Right? I don’t feel guilty for going on vacation and for a week turning off my phone.

I mean, that’s an exaggeration. I don’t Go there. Don’t quite get there, but like, I have, you know I left it at home on the wall. Yeah. Yeah. No. No. No. But a few days, like I’ve like, when we were in Japan, I really for five days and I checked my emails. And I think that’s important because I come back and I’m so energized. Right? And we have to also be able to do that.

Yeah. I think the next five years will be very similar to the last four and that I just keep on doing what I think will be very good. Do we have another partner? I would assume not, but not there’s probably not a 0% chance. So I’m not operating and I’m also very transparent with you, with LPs about this. Is the way that I talk about this is that there’s a small group of people that I would be interested in exploring this Yeah. But it’s a very small universe.

I want it to happen organically because my role model, again, Pablo Christoph at Point was that Christoph was an LP in the Point Nine fund. We co invested in 30% of the deals of that fund, and then they decided to do the fund together. Right? So there was trust, there was co investments. So I I I’m very You need the trust. You need the And you need to have this feeling of the collaboration is powerful and works and complementary and as a person you get along, there’s so many aspects to it.

So am I open to it? In theory, yes, for sure. But I have no rush in doing it and I also know that I give up and give a lot to that person because we’re already somewhere. And so giving up flexibility, independence, decision making, all the economics, Right? There’s a high bar to be crossed for that. So I would assume no, maybe yes, we’ll see. But I think the more important is there has to be more data points for consumer subscriptions in five years from now.

If there’s not, I’ll have to reconsider my strategy. And if there are, I think the portfolio will be very good.

No. I’m very happy to be back and enjoyed it, and see you in eight years.