EUVC #198 Stefan Walter from Cavalry 🤠 on leveraging a 250+ LP base & investing with conviction
Despite this being the first interview we’ve done with one of us dialing in from a car, we’re thankful we made it work, ‘cos damn Stefan had a lot to say. Strap in.
Rather than focusing on a particular vertical, we focus on a specific stage, which is the “as early as it makes sense for the company” stage. We invest early, often pre-product and pre-revenue.
And the Cavalry stable is full of champions, counting the likes of Afilio, Aleph Alpha, AMPECO, Anyone, BRYTER, Charm, Clarisights, Flip, Forto, Kinnu, Lhotse, Loctax, McMakler, Nory, Oblivious, Origin, Patronus, PlanRadar, Plantura, Planetly (acq. by OneTrust), REKKI, Rouvia, SERA Intelligence, ShowHeroes, Sofía, SPREAD, Upper, Usercentrics, WhenThen (acq. by Mangopay), and many more incredible companies. Check out their Crunchbase profile for a full overview.
Table of Contents
Stefan’s Journey into Venture
The Birth of Cavalry: A New Kind of Fund
Taking a stance on "VC is a people's business, and it's not scalable"
The Deep Dive
The Origins of the Cavalry name & how to turn your LP base into a Cavalry
The Cavalry System
Stefan’s shout-out to some special people in the ecosystem 💌
Stefan’s Three Biggest Learnings
Team Beats Idea.
Conviction Over Hype.
If It Seems Too Good to Be True, It Probably Is
The Quickfire Round 🔫
Think about the difference between urgent and important
Embark on your fundraise with eyes open and realistic expectations
VC can be a surprisingly tough balancing act
Vertical consumer software is super exciting.
Stefan’s Journey into Venture
Stefan's journey into venture capital is far from the conventional path.
He grew up in a small town near the Dutch border, with no immediate entrepreneurial background in his family. After studying business economics and gaining some experience in tax and corporate law, he found himself in Berlin about 15 years ago. There, he joined a startup and later co-founded his first company, an online marketplace specializing in high-quality mechanical watches.
Stefan’s story is a testament to the power of adaptability, risk-taking, and a deep-seated passion for entrepreneurship. It serves as a reminder that the entrepreneurial path is seldom linear but a dynamic journey filled with learning, growth, and exciting opportunities.
The Birth of Cavalry: A New Kind of Fund
It wasn't until he joined an early-stage investor in Berlin that he crossed paths with one of his current co-founders at Calvalry. In 2015, Stefan and six other founding partners embarked on a journey to create a new kind of fund.
Together, they launched a new kind of early-stage venture fund, the kind they wished had existed when they started their first companies. At Cavalry, Stefan and his team bring a mix to the table that only few in Europe can:
Considerable company building experience (zero to IPO, plenty of failures)
A massive network of engaged supporters (Cavalry is backed by 200+ well-connected individuals)
A very strong track record with Series A follow-on investments by the world’s top funds such as Accel, Index, Sequoia, or Benchmark.
We keep things simple. We are upfront and no bullshit. We won't ruin your life with months of unnecessary due diligence. We won't renegotiate and grind you on terms. We are long-term.
Stefan taking a stance.
We challenged Stefan to take a stance on the following quote:
VC is a people's business, and it's not scalable.
Here’s his reply:
To a certain extent, it’s true. But at the same time, we're particularly focused on approaching this problem from a specific angle.
You see, we have a ton of LPs and less than 300 million assets under management - and our platform team consists of only three to four people at all times.
And so trying to set up a structure that’s highly scalable within the framework of being a venture capital firm. This, in my opinion, sets us apart from other funds and gives us an edge. We're remarkably quick and well-organized when it comes to introductions and a couple of other topics. ‘Cause we are much quicker and much more structured when it comes to introductions and a couple of other topics out there. And we're able to actually facilitate this even before we hand out the term sheet.
Which is very tangible value add in a time and market where everybody claims to be valued add.
Of course, I generally agree with the statement, but it's essential to consider the nuances involved.
The Origins of the Cavalry name
& how to turn your LP base into a Cavalry
The name "Cavalry" holds a meaningful origin, as Stefan and his co-founders wanted to embody a sense of collective support and impact from the beginning.
With about half of the team having a background in Berlin-based incubators or startup studio structures, they understood the significance of having a strong network of like-minded individuals with entrepreneurial experience.
Their initial DNA was founded on not relying solely on a few major investors but rather seeking out entrepreneurs turned angel investors who shared a similar background.
By combining these individuals in a fund structure, Cavalry aimed to provide founders with more than just a mere entry in their cap table. Instead, they envisioned offering a powerful cavalry of support that founders could call upon whenever needed.
The name symbolizes the united effort of a supportive network, ready to ride in and aid founders on their entrepreneurial journey.
From humble beginnings in 2016 with a modest 22M EUR Fund I raised from approximately 80 private investors, Cavalry would grow to reach an 80M EUR Fund II in 2019 and are now currently investing out of a 160M EUR Fund III, Stefan ensured they stayed true to their approach of including private investors.
Importantly, the Cavalry team are masters in actively nurturing their existing private investor base, valuing the sense of collective support and entrepreneurial alignment that has been at the heart of Cavalry since its inception.
If one thing is crystal clear from our chat with Stefan, it’s that despite the changes over time, Stefan's commitment to their original vision remains unwavering, creating a stable and supportive ecosystem for the entrepreneurs they back.
The Cavalry System
Stefan has taken a strategic approach to productizing the operational processes of Cavalry, ensuring efficient management and utilization of their 300-ish group of LPs. We tried to tease out some reflections for you to consider if you seek to productize your LP base.
Let’s start by recapping the benefits:
First, it can help you to save time and money. By automating tasks such as sending out newsletters, tracking investment opportunities, and managing reporting, you can free up your team to focus on other priorities.
Second, productizing your LP base can help you to improve communication with LPs. By providing them with access to a centralized platform where they can find information about your firm and its investments, you can make it easier for them to stay informed and engaged.
Third, productizing your LP base can help you to build stronger relationships with LPs. By providing them with a personalized experience, you can show them that you value their investment and that you are committed to providing them with a high level of service.
Now, let’s turn to the core considerations to keep in mind:
First, you need to choose the right software platform. There are a number of different platforms available, so you need to make sure that you choose one that is designed specifically for VC firms.
Second, you need to make sure that you have the right data. In order to automate tasks and provide personalized experiences, you need to have accurate and up-to-date data about your LPs.
Third, you need to have a clear understanding of your LPs' needs. What information do they need? What kind of communication do they prefer? By understanding their needs, you can tailor your productization efforts to meet their specific requirements.
As much as we all love the power of automation and smart software, Stephan recognized the need for a dedicated platform team to streamline operations. Leveraging his experience as a software entrepreneur, Stefan brought on a world-class team now consisting of three to four individuals, acting as the spider in the web facilitating connections and introductions across the Cavalry LP network.
By having mastered how to use their massive LP base of founders, execs, and business owners, Cavalry is truly set apart from most in the European VC landscape.
Stefan’s shout-out 💌
We asked Stefan to give a shout-out to someone who he felt deserved it. Here’s his reply:
Giving a shout-out to one specific person will be a little hard. I’d rather have a shout-out to all our angel LP base and also the founders of our portfolio companies who are actually also joining us more and more as LPs as well, which is incredibly valuable, not just in terms of the inputs they give us, but also that they become part of the due diligence we do. In fact, these people also source close to a quarter of all new investments we do.
But you challenged me to pick one, so I’m gonna go forward to do this. So one of the people who have been sharing quite a lot deals with us is Myke Naf, the co-founder of Doodle, who’s now doing Übermorgen Ventures, but also Gero Decker from Signavio, and from our portfolio founders Anna Alex from Planetly, but these are just a few and there’s so many others I should name.
Stefan’s Three Biggest Learnings
In navigating the rapidly evolving landscape of generative AI and other technological advancements, Stefan acknowledges the potentially disruptive effects on their portfolio companies. He emphasizes the need for continuous assessment and readiness to adapt to these changes while seeking expertise in the domain.
1. Team Beats Idea.
In venture capital, Stefan's first big learning is that team beats ideas. He emphasizes that a startup's success relies heavily on the people behind it rather than just the idea's brilliance.
This understanding drives their investment decisions, focusing on teams with strong conviction, dedication, and the ability to execute effectively.
2. Conviction Over Hype.
The second crucial learning for Stefan is to prioritize conviction over hype. While certain companies may be hyped up with inflated valuations, he believes that staying true to their investment strategy, based on a genuine belief in the startup's potential, leads to better long-term outcomes.
But how do you deal when conviction and hype goes together causing you to love an expensive company? We asked Stefan:
If we believe in something, even if it’s an expensive seed round, we’ll do it. We’ve made 50 investments, so far. And for us, conviction is ranking higher than anything else.
So Stefan is all about conviction, not buying into the hype. But not riding the bull market isn’t always easy, especially when everyone else is. So we asked Stefan how he managed LP expectations through a period where the other investors who were riding the bull market’s hyped-up valuations saw their mark-ups rack up month after month.
To be honest, we didn't have a lot of discussion with our IP base. It's not like we’re doing poorly right? Like our Fund I, the 2016 vintage, this is the one where it's most realistic to see where things are actually going. And this is a fantastic fund. The thing is just, there have been others that looked even a little bit more fantastic and it's felt odd that this was the case. So we didn't have any external discussions, to be honest, but rather some internal, asking is there anything we should change? And we luckily said no.
3. If It Seems Too Good to Be True, It Probably Is
Stefan's third key learning is a cautious approach toward exceptional claims. While there may be extraordinary returns, he advises caution, as many extreme cases often fail to materialize.
He urges investors to avoid blindly chasing unrealistic expectations and maintain a balanced perspective on potential returns.
Personally, I'm quite skeptical if we’ll ever come back to the level of investments we saw in the past.
He believes that markets like what we’ve just gone through cause the risk for seed investors to become too high when valuations are inflated. When companies raise too much money, they have a lot of pressure to perform, and this can lead to bad decisions. And quite frankly, we’ve also seen examples of it being difficult for founders to maintain control of their companies when they have too much money in the bank.
Stefan hopes that the market will eventually return to a more sustainable level of investment. This will allow seed investors to take more calculated risks and support the best founders, regardless of their fundraising prowess.
🔫 The Quickfire Round 🔫
What advice would you give your 10 year younger self?
Think about the difference between urgent and important. And this is rather to the 15 year younger me, than the 10 year younger. But still, it's quite a stress that you can avoid by really internalizing that difference.
What are your top tips for emerging European VCs who are now fundraising?
I guess the cynical answer is: Ask yourself whether you really want to go out in the current market. If you do, I’d recommend you talk to people who already did it. Look for people who already went through fundraising with a GP in the current state market.
Approach it with your eyes open and realistic expectations when it comes to denominator effect and a couple of other topics.
And then be very clear about your positioning and develop your value proposition because it's just a very different market out there right now compared to 2021.
What's the most counterintuitive thing you've learned since you've been in VC?
The most counterintuitive lesson learned in VC:
Given early stage venture has 10 year feedback cycles, I was not expecting that aligning long term goals or revenue return on investment targets for the funds and short term success stories in some instances to be as much of a balancing act as it sometimes is.
Stefan’s Controversial statement
Contrary to what most believe in the current market, at Cavalry we believe that vertical consumer software is super exciting.
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