EUVC Newsletter | 20.02.23
The GP/LP blame game, Zombie VCs, The relation model that's killing VC, have everyone gone chatbot crazy? A chart to evaluate efficiency efforts and story of a nation at war.
Welcome to the newsletter that rounds up the week in European Venture from a GP/LP perspective.
Firstly, a heartfelt welcome to the 106 newly subscribed venturers who have joined us since our last post! If you haven’t yet subscribed, join the 7,787 angels, VCs and LPs that do 🤗
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Table of Contents
This week’s events 📅
The Rise of Angel LP Syndicates 😇
Date April 11, 2023 | 15:00 - 15:45 CET | Venue LinkedIn Live
Affinity Campfire Conference Berlin
Date February 28, 2023 | Venue Factory Berlin Görlitzer Park
Lohmühlenstrasse 65, 12435 Berlin
This week’s podcasts🎧
The European VC, #155: Jon Coker, Eka VC
Today we are happy to welcome Jon Coker, Founding Partner of Eka Ventures, an early stage venture capital firm that invests in Seed and early Series A consumer technology companies building sustainable economy. Jon founded Eka alongside Camilla Dolan to build a leading venture firm that integrates impact investing with mainstream venture. Prior to Eka, Jon has spent 11 years at MMC Ventures, ultimately as Managing Partner and led venture investments in 17 companies, been the investor representative at the board of 21 companies.
In this episode you’ll learn:
Everything about assessing founder development capacity and the pillars of self-awareness, impact awareness, systems and process thinking and speed of self-development
Jons views on coaching and coaches in venture capital and the difference between looking for A players and Growth Mindset founders
How Jon and Eka build their founder assessment around honest interviews that uncover the story and person behind the startup
Why Jon has seen more value taken away by VCs than added by VCs
The European VC, #154: Diana Florescu, mediaforgrowth & Piyush Puri, Brand Capital International
Today we are happy to welcome Diana Florescu and Piyush Puri. Diana is the CEO and Founder of mediaforgrowth, a media for equity advisory firm, specialised in Series A to pre-IPO media capital fundraising. Piyush leads the Brand Capital International team in Silicon Valley as Vice President of BWI, the strategic investment arm of The Times Group – India’s largest multimedia conglomerate.
In this episode you’ll learn:
How media for equity came to existence as a category of venture investing and why media companies are increasingly active in the space
The story of Times Group of India and it’s journey to investing media capital in more than 900 brands over the last 18 years
What the typical media for equity deal looks like and how media is priced in such deals
The UrbanTech VC, #12: Lessons Learned with Katharina Junglass & Mark Harré from 2bX
Today, we're happy to welcome you to the hosts themselves as guests! Listen to 2bX‘s two GPs reflecting on the second season of the UrbanTech Podcast, including learnings from their past five guests, urban challenges and possible solutions. Enjoy being part of a very honest, personal and fun conversation between two co-founders and get to know their pure dynamic.
In this episode you’ll learn:
That having a gender focus is important & worth the effort
Why we should interrupt more - or not
Why it’s hard to balance ‘enough time’ and ‘enough insights’
GIFs & Memes 🙊
Fundraising these days be like 👇
VC sharing ill-heard wisdom to founders 👇
Quack says: let's all back a climate fund this year 🌍
Angel LP Insights: Portfolio construction
Our very good friend Marc from āltitude wrote a great post on Angel Portfolio Construction we wanted to share. Not many thinkers like Marc around so worth taking note here! 👀
It seems like people (including me) love writing about fund portfolio construction. But it’s kind of hard to find great construction approaches to angel portfolios - for many reasons both are not alike.
𝐇𝐞𝐫𝐞 𝐚𝐫𝐞 𝐬𝐨𝐦𝐞 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐜𝐞𝐬 𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐚𝐧𝐠𝐞𝐥𝐬 𝐚𝐧𝐝 𝐟𝐮𝐧𝐝𝐬:
Structure: Evergreen Vs. Closed-End
Investing: Personal Liquidity Vs. LP Money
Approach: Opportunistic Vs. Thesis Driven
Decision: Gut Feeling Vs. Conviction Based
Measure: MOIC (Asset) Vs. TVPI (Incl. Fees)
Sourcing: Network Vs. Dealflow Strategy
#Angel investing is an asymmetric bet, you either lose most of your money or you are lucky enough to realize incredible out of this world multiples. To give you one outstanding example, Peter Thiel made a 2.200x return from his half-million Dollar early-stage bet in Facebook, which returned roughly USD 1.1 billion.
Many Angels think in one dimension only - portfolio size. Interestingly there is an actual sweet spot in terms of size, research has shown that angels with 12 to 15 investments have a 90% chance of getting at least their money back. But in order to have a 90% chance of doubling your money an angel would have to increase the portfolio size to 70.
𝐈𝐧 𝐦𝐲 𝐨𝐩𝐢𝐧𝐢𝐨𝐧 𝐚𝐧𝐠𝐞𝐥 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨𝐬 𝐬𝐡𝐨𝐮𝐥𝐝 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐞𝐝 𝐛𝐚𝐬𝐞𝐝 𝐨𝐧 𝐭𝐡𝐞 𝐟𝐨𝐥𝐥𝐨𝐰𝐢𝐧𝐠 𝟓 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:
How many investments am I going to do within which term?
Am I only doing direct investments or shall I add LP investments?
Shall I diversify my portfolio across stages, verticals and geo?
What is my average entry investment and should I vary it?
Do I plan to do follow-on investments in subsequent rounds?
Depending on the degree of sophistication, network and knowledge I derived two different angel portfolio playbook:
𝐓𝐡𝐞 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐉𝐨𝐞 𝐀𝐧𝐠𝐞𝐥 𝐕𝐬. 𝐓𝐡𝐞 𝐁𝐚𝐛𝐞 𝐑𝐮𝐭𝐡 𝐀𝐧𝐠𝐞𝐥 👇
Connect with Marc here.
This week’s stories 🗞️
The EUVC Lowdown
Change Ventures launched their semi-annual Baltic Startup Funding Report this week. The Tallin-based fund’s report showed that while the number of investments has slowed in line with the global slowdown, the number of growth and Series A funding rounds were still above pre-2021 levels, showing the potential health of the ecosystem, longer term.
And data from Dealroom has shown that Lithuania is leading the CEE pack with the Lithuanian startups valued four times more than the average for the whole region.
The UK Government has turned its attention to the skies, announcing a £6.5m to back 18 space tech projects as part of a renewed growth funding initiative.
Change is happening at London-based Hoxton Ventures. Founding Partner Rob Kniaz is leaving to start a new firm focused on deeptech and techbio. He’ll lead deals from the third fund — and will continue to work from Hoxton’s London office, whilst building his future fund. Joining the team is Payton Dobbs — currently a UK general manager at Google, and an adviser to Hoxton since August last year.
GPs & LPs play the blame game 🍿🥤
So this week we saw some interesting shots fired. Let’s see the first reported by Kate Clark at The Information:
After I published last week’s column, which said limited partners were still pissed off at venture capitalists for misplaced bets made during the funding boom, my phone buzzed with a string of texts from a prominent venture capitalist.
“LPs propagated all of this.”
“They are just as accountable.”
“Who gave Tiger all the money?”
Prompting a clear comment by Hunter Walk to the article:
Michael Jackson provided some succinct commentary as always:
So, did what did CalPERS actually do? One thing they did was 👇
In 2020, CalPERS hired a new head of venture capital, Ben Lee, and tasked him with deploying $1 billion a year. CalPERS declined to make Lee available for an interview.
Last year, CalPERS committed $300 million to Tiger Global, the troubled hedge fund that was hit by tens of billions in losses. Tiger has been infamous for its rapid-fire deployment, and most of CalPERS commitment has already been spent, an unusual pace in an industry where funds are usually deployed over 10 years.
Also in 2022, CalPERS also committed $400 million to four funds managed by Lightspeed Ventures.
So who’s to blame for the VC bloat?
Well. Greed tends to creep in everywhere, so doubt there’s anyone entirely free from blame.
The Rise of Zombie VCs
Ryan Browne over at CNBC reported on Thursday that we could see a Rise of ‘zombie’ VCs. The Walking Debt could emerge over the next few year, with firms that are unable to make an impressive return for their institutional backers, focusing on managing the existing portfolio before eventually winding down.
Techstars CEO Maelle Gavet said “We expect there’s going to be an increasing number of zombie VCs; VCs that are still existing because they need to manage the investment they did from their previous fund but are incapable of raising their next fund,”
“That number could be as high as up to 50% of VCs in the next few years, that are just not going to be able to raise their next fund,” she added.”
Michael Jackson said, “The fundraising climate for VCs has cooled considerably, so many firms won’t be able to raise their next fund.”
“We’re going to see a lot more zombie venture capital firms this year,” Steve Saraccino, founder of VC firm Activant Capital
In the past two to three years, a flood of new venture funds have emerged due to a prolonged period of low interest rates. A total of 274 funds were raised by VCs in 2022, more than in any previous year and up 73% from 158 in 2019, according to numbers from the data platform Dealroom.
LPs may be less inclined to hand cash to newly established funds with less experience under their belt than names with strong track records.
“LPs are pulling back after being overexposed in the private markets, leaving less capital to go around the large number of VC firms started over the past few years,” Saraccino said.
Del Johnson: The Relationship Model Is Killing Venture Capital
Del wrote an important piece for The Information last week going through the research and applying his own reflections from a stellar career as both a VC, LP and angel.
“To bring about real change, new venture capitalists must evaluate their own assumptions about why disparities exist and how best to implement fixes—a process that includes reconsidering the wisdom of relying on established firms for mentorship, resources and funding. Deference to existing venture capitalists not only cedes market power to actors known to spread harmful biases, but gives those same actors undue power to dictate how or when reform can take place.”
😡 Frustration has built over the homogeneity of venture capital, as research shows bias in the industry leads to negative economic consequences and underperformance.
🤷♂️ Activism has yet to make a dent in VC's dismal diversity record and insiders continue to insist they do a good job.
✊ To make progress, diversity efforts must challenge industry conventions and assumptions, while actively disrupting the status quo.
👊 To effect meaningful change, VCs must reach outside their personal networks.
Read the full story here.
David Peterson, Angular Ventures: Has everyone gone chatbot crazy?
David Peterson put out a nice and controversial view on his blog this concluding irrevocably: “I just don’t buy it." It’s a short and punchy one, so I’ll reproduce it in full. And don’t forget to subscribe to his newsletter to stay in the loop 👀 !
Has everyone gone chatbot crazy? Large language models have taken the (tech) world by storm, and all of a sudden it’s 2016 again.
Case in point, more and more, I’m seeing predictions like this one from Amjad Masad (CEO of Replit):
I do understand the allure. This kind of computer-human chat interaction brings to mind a certain kind of optimistic science fiction…the hero asking their AI copilot questions and getting prompt, if a bit sardonic, replies. Luke Skywalker chatting with C-3PO. Tony Stark bantering with Jarvis.
I just don’t buy it.
This prediction imagines a world where these systems will be able to perfectly understand free-form natural language input. But I think what has happened with Stability AI, Midjourney, DALL-E and now chatGPT is more likely. In an effort to get better, more fine-grained results, users will undoubtedly start to “engineer” their prompts. Prompts will get more stylized, with more precise semantics, depending on the domain of the request. And as the prompts get more specific to the domain, they’ll become just another version of “code.”
Some users will become fluent in this new coding “language,” as we’ve already seen. Others will default to a hybrid experience…prompting to get 50% of the way there, and manually doing the rest themselves. And others still will just stop using the text box all together in favor of doing the work themselves.
Why? Because the empty text box is…intimidating. It’s the lowest common denominator user experience. It’s where you land as a product when you have no idea what the user will want, so you give them as many degrees of freedom as possible. This is why Google starts with a text box…you can search for anything! But the vast majority of products are much more constrained than Google.
Rather than an “empty text box,” I imagine we will start seeing more “predictive UIs” that stay in the context of the work being done. Here’s an example of what I mean:
Galileo AI is a “copilot for interface design” which can turn natural language into “high-fidelity designs.” In other words, Galileo takes the “empty text box” approach. Give it a simple text description, and Galileo gives you a vector-based design that’s ready for Figma.
Genius takes a different approach. Genius is an “AI design companion,” but it doesn’t require you to prompt it with natural language. Instead, you just start designing, and Genius jumps in to complete the design alongside you.
The former is undoubtedly incredible, but feels like the parlor trick. Not something you’d use everyday. The latter, on the other hand, folds seamlessly into your day-to-day work as a designer.
By the way, you probably interact with “predictive UIs” every day without even realizing it. Google’s autocomplete in search, Gmail and Google Sheets, for example. We’ve all had little AI copilots helping us out, but they were such a natural part of the user experience, we didn’t even notice!
In sum, I don’t think we’re entering the second age of chatbots, but I do think we’re entering the age of creative copilots…and there will be completely novel, collaborative user experiences to match their newfound, LLM-powered prowess. Yes, sometimes these copilots will use text boxes. Sometimes they’ll leverage voice input. And sometimes they’ll just watch us work and lend a helping hand when it makes sense. I don’t know exactly what they’ll look like, but I’m certain they’re going to be much more enmeshed in our experience as users than George Lucas or Stan Lee and Larry Lieber ever could have imagined.
Gaining efficiency - is it worth the time?
We all know Lincoln would use 2/3’s of his time gaining efficiency if you gave him a task. But what’s that number really?
This week, I saw the below picture in an article from Chain of Thought on a VC who’s slowly automating his job - worth a read if you’re into automations for sure.
But even if you’re not, it might help you find the time to deal with the problems that we’re all too busy to get fixed. I know it helped me get started on some stuff I had been procrastinating on.
Maybe it’ll help you get some overdue stuff done too?
With those words, have a great start of week 😊
The Information: How Ukraine’s Tech Companies Evolved to Survive a Year of War
The Information wrote a truly inspiring piece on the entrepreneurs and operators of Ukraine. Head on over to The Information’s Big Read for the gripping story of six entrepreneurs and a nation.
As the war enters its second year, the tech community in Ukraine remains resilient, with founders and entrepreneurs continuing to find ways to survive and thrive in the midst of the chaos. Through creativity, hard work & determination, founders and operators are working to create a better future and a brighter tomorrow.
This week’s funds 💵
Section powered by Cathy White.
London-based Ocean 14 Capital announced that following an injection of fresh funding from Ingka Group it has now raised €130 million of its target €150M fund. The Ocean sustainability fund will back 20-25 growth-stage ocean restorative businesses in the next 3 years. According to the OECD by 2030 the ‘blue economy” will generate $3Tn in value.
Startup Wise Guys announced the first close of a €45M fund, with €25M in the bank to invest and expand around Europe, Africa and Latin America building on last year's roll out in two southern European locations: Italy and Spain. At least 200 startups should benefit from the new funds as part of its accelerator programs.
The European Investment Bank (EIB) group and the governments of five EU countries have announced a new €3.75bn fund of funds to invest in VCs that back European scaleups. The group is targeting a €10bn fund-of-funds to retain European growth talent, and Spain, Belgium, Italy, Germany and France have all committed.
This week’s hires 👩💼
Section powered by the InnovatorsRoom.
EUVC is hiring a junior to midlevel IR. Hit up David to apply 💌
🇬🇧 Northzone - VC Associate - London
🇬🇧💻 SAGANA - Investment Manager - London, Online
🇬🇧 Omnea - Founding Commercial Associate - London
🇩🇪🇬🇧 Founders Factory - Founder & CEO - Berlin, London
🇩🇪🇬🇧 Speedinvest - VC Associate Fintech - Berlin, London
🇬🇧💻 Ahren Innovation Capital - VC Associate - London, Online
🇪🇸 Elewit Ventures - VC Associate - Madrid
🇩🇪💻 REHAU - Investment Manager - Munich, Berlin, Online
🇩🇪 Cherry Ventures - VC Analyst - Berlin
🇩🇪 True Growth Capital - Co-Founder - Berlin
🇩🇪 Enpal - Associate Strategy & CEO Office - Berlin
🇩🇪💻 Vorwerk Ventures - Visiting Analyst - Berlin, Online
🇩🇪 Visionaries Club - Visiting Analyst Internship - Berlin
🇬🇧💻 Mountside Ventures - Finance Associate - London, Online
🇨🇦 Intact Ventures - Principal - Toronto
🇩🇪 1Up Capital - Analyst Internship - Hamburg
🇩🇪 UVC Partners - VC Analyst - Munich
🇩🇪 Strategic Business Innovator Berlin - VC Fund Managing Partner - Berlin
Thx for reading and being awesome 💗 we love you for it.