On how emerging managers can show performance with David Dana, Head of VC Investments at EIF

A conversation about emerging managers, and how to bring value to the market, how to identify your differentiating element, and stand out during the #TechReset.

May 22, 2024

Transcript

Today, we are joined by David Dana. David is the Head of VC Investments at the European Investment Fund, leading the Disruptive Tech & Innovation VC Team with 10 investment professionals. He contributed to developing the new #InvestEU financing program of the EU, aiming at ensuring the technological sovereignty of Europe.

Previously, he has been in charge of EIF investments in VC funds in France, Israel, and of the Luxembourg Future Fund. David was also overviewing EIF activities with Accelerators. Over 15 years, invested +€3.5B of capital in over 120 VC funds, mainly following deeptech strategies. Previously, spent 6 years as an investment professional at SGAM AI Funds of Funds and as a senior advisor in Corporate Finance at PWC.

David is also a regular contributor to podcasts, and speaker at industry events, an expert in deeptech fields such as AI, Space, Web 3.0, Blockchain, Quantum Technologies, Semiconductors, Tech Transfer.

This episode is part of the State of European VC Fundraising Report 👀

Together with our good friends at Isomer Capital and Floww, we’ve made a report filled with graphs, beautiful narratives, and video interviews.

Drawing from our past 300+ podcast episodes, combined with the most recent market information and Isomer Capital’s vaulted data treasures, we aim to reveal the effects of the tech reset on the European fundraising market. We also explore how top European VCs have adapted their strategies, tactics, and operational guides in response.

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Chapters:

04:03 Initial Thoughts on Emerging Managers
04:35 Evaluating Added Value and Differentiation
07:28 Challenges with Deep Tech Investments
07:50 Assessing Company Performance and KPIs
09:52 Co-Investors and Market Feedback
10:29 First Meeting and Initial Questions
11:29 Track Record and Full Cycle Experience
12:43 Challenges with Exits in Europe
14:38 Diligence and Replicability of Exits
16:13 VC Management Experience
17:47 Fund Models and Financial Theory
20:20 Importance of a Strong Fund Model
22:31 Submitting Proposals to EIF
24:10 Combining Skills Within a Team
27:42 Due Diligence for Second and Third-Time Funds
33:20 Advice for Emerging Managers

✍️ Show notes

Value proposition
Before performance can even be considered, David Dana emphasises the unique value proposition of the emerging manager. What differentiating element or added value can they bring to the market that isn’t already covered by existing players?

Technical and operational expertise
Emerging managers should have a team with strong technical and operational expertise, particularly in deep tech segments like AI, space tech, quantum, and semiconductors. This isn’t just about bringing capital to entrepreneurs but also significant added value.

VC management expertise
Besides technical knowledge, it’s crucial for the team to have VC management expertise. Understanding the VC market, how to manage a fund, and interact with investors and LPs is a must.

Track record and angel investments
For first-time funds, a concrete, extensive track record might not be available. Instead, David Dana looks for evidence of wise angel investments or involvement in successful ventures that can serve as indicators of the team’s ability to source and select promising companies.

Assessing business angel investments
Given the early-stage nature of many investments, particularly in deep tech, Dana doesn’t expect to see DPI (Distributions to Paid-In capital). Instead, he evaluates the company’s progress and potential based on KPIs like revenue and growth rate.

Case-by-case analysis of track record
There is no “magic number” of investments that defines success. Dana conducts a detailed analysis of each company in the portfolio, assessing the co-investors, attraction, expected KPIs, and the company’s development since the time of investment.

Fund model
Dana insists on a realistic and well-constructed fund model. He looks for experience with full investment cycles and at least one exit, even if it’s not profitable. Understanding the technicalities of running a VC fund is essential, and the team must show they can follow through on their strategy and promises to LPs.

Importance of demonstrating VC understanding
Dana underlines the importance of demonstrating a thorough understanding of VC principles. Teams must be aware of the basic assumptions of VC and should be able to explain any deviations from these norms in their approach.

Substance over style in proposals
Emerging managers must ensure that their pitch decks and proposals are well thought out and substantive. A poorly constructed fund model or lack of a clear strategy can lead to immediate dismissal.

The role of differentiation
Lastly, emerging managers with limited track records must clearly articulate their raison d’être. They must convince potential investors like the EIF of their potential for higher returns and their unique position in the market.

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