On the European entrepreneurial renaissance with Davor Hebel, Managing Partner at Eight Roads

Europe used to be the European Entrepreneurial Ice Age in 2005 when Davor joined the VC world. Join us for an inspiring conversation on the evolution of European market, with a quick look on Spain.

Patricia Borlovan

Apr 02, 2024

Transcript

No transcript...

Today, we have Davor Hebel with us.

Davor is the Managing Partner at Eight Roads, a $11bn global venture platform. The firm has over 450 portfolio companies, including 60 IPOs and many unicorns, such as Alibaba, Toast, Flywire, Chewy, Hibob, Neo4j, and Fever. Eight Roads invests in companies at scale-up stages (usually rounds A-C) and helps them win globally.

Davor runs the Europe and Israel franchise with around 45 companies and $1.5bn AUM. Davor’s investments count leaders across SaaS, consumer, digital health, and fintech sectors, including Hibob, Appsflyer, Fever, Fireblocks, Owkin, Wallapop, ScyllaDB, Red Points, Packlink (sold to Auctane), Rimilia (Blackline), Innogames (MTG), and Treatwell (Recruit).

Davor was born in Croatia and studied in the US. Davor is also passionate about sports, and he still tries to find time for some rowing, tennis, and Barry’s Bootcamp 🙂 whilst raising his 3 kids (11, 9, and 6).

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Table of Contents | Scroll ⏬ for all guest show notes ✍️

Episode chapters.
Davor’s journey into venture.
A pivotal moment in Davor’s career.
Deep dive on the European entrepreneurial renaissance.
Three biggest learnings in VC.
Take a stance.
Shout-out.
Top tips for emerging VCs who are fundraising.
Most counterintuitive learning.

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Chapters:

01:03 Davor's Journey in Venture Capital
03:50 The Role of a VC: Beyond Investment
04:12 Empathy and Support: The VC Approach to Entrepreneurship
06:05 Balancing Business and Personal Life in Entrepreneurship
06:53 The Evolution of a Founder's Role
11:22 The Future of Technology: AI's Impact
14:42 AI in Venture Capital: A Tool for Success
17:00 The European Entrepreneurial Landscape: From Ice Age to Innovation
19:45 The Growth and Potential of European Startups
22:27 US Investor Participation in Europe
24:06 Navigating the VC Landscape in a Changing Europe
30:20 Davor's Top Learnings from a Decade in Venture Capital

✍️ Show notes

We always ask our guests to write tweet-style notes for the conversation so we can share them with you all afterward. These are the words of the guest, no alterations made. Feast.

Davor’s journey into venture.

Fell in love with tech and entrepreneurship when I moved to Silicon Valley from Croatia as an exchange student and Internet was just kicking off in 1993. Ended up studying computer science and then getting a job at McKinsey in intersection of strategy and technology.
During b-school I tried my luck in entrepreneurship and learned just how hard it is to build something from nothing and decided that helping entrepreneurs would be a great mission in the intersection of technology, strategy and helping build world changing projects.
Message in b-school: build a $1bn company and then a VC will hire you. You need a job afterwards? But was lucky that in that early stages of European Entrepreneurial Ice Age I met a couple of people in London who were starting to think about building more in Europe on the back of the market recovery in 2005 and here I am 18 years later.
It has been incredible to see that in less than a generation the European entrepreneurial landscape changed so much and it is fantastic to see some of the best talent today choosing entrepreneurship as their calling, certainly wasn’t clear in 2005.

A pivotal moment.

As a kid I was very excited about team sports and building companies often reminds me of building great, and complementary, teams with a win-win attitude e.g., Jordan and Pippen on the same time is good for everyone, and Jordan alone wouldn’t win even a single title
Both my parents were world-class team sport athletes:
My Dad was an Olympic medal winner in Mexico City in waterpolo and then got his PhD in Physics and became a University Professor
My Mom was a national athlete in both diving and then handball where she became the MVP of the World Championships in 1965 where Yugoslavia won the silver medal. She then became a teacher.
In our family we always had respect for academics, hard work needed to excel in anything but also respect for collaboration that came from team sports
I developed a similar mindset first by playing handball on junior national level but then also in business where working in high performing teams like at McKinsey, Eight Roads or in portfolio companies became a passion of mine.
It is incredible how much a high performing startup team can achieve relative to the resources they have and it is the biggest source of outperformance relative to the large companies where often the interests of individuals and process bureacracy gets in the way of fast execution.
For example in companies like Appsflyer or Hibob we have seen them grow from $1m-$100m in revenue in less than 5 and 4 years, respectively and the speed of operation and team culture in both companies has been the secret sauce - sharp focus across the org, hiring the best and team spirit are present in both and great founders can embody incredible ambition whilst building a collaborative culture as well. We try to find such leaders but also build a similar culture at Eight Roads as well

Deep dive on the entrepreneurial renaissance in Europe.

One of the big negatives of the European entrepreneurial venture scene when I joined in 2005 in what I call European Entrepreneurial Ice Age was the perception that no European entrepreneur was going to build a massive company. Of course now this myth has been dispelled but also it is clear that amazing companies can come from anywhere and now we have unicorn companies in places like Paris (like Owkin), London (Hibob), Tel Aviv (AF, Fireblocks) but also places like Malmo in Sweden (Neo4j), Ghent (OTAI) or Madrid (Fever).
In fact I would like to deep dive on the phenomenon of entrepreneurial reinessance in various European market and use the example of Spain. Spain’s development as a VC power since the GFC when Spain was particularly adversely affected with during the Eurozone crisis. Today it is one of the most successful entrepreneurial clusters for us at Eight Roads - we have been prolific there with investments like Fever, Wallapop, LetGo, Red Points, Amenitiz and Packlink which we exited.
Now Spain is about a €100bn ecosystem with about 11,000 startups and compeling regional and global champions across consumer, SaaS and fintech sectors.
Spanish ecosystem displays elements of similar self-reinforcing dynamics including:
Growing numbers of role models in the market: successes like Wallapop or Fever in regional and global champions are giving other folks confidence and blueprints for success
Increasing number of young and talented entrepreneurs and executives with global aspirations
Favourable local dynamics including availability of affordable talent e.g., developers and GTM professionals as well as high livability in places like Barcelona, Madrid and other cities like Valencia, Malaga and Bilbao
There also also issues of course in case of Spain it is still understanding of equity compensation in particular (and taxation of options as income) and attracting of top management talent into the region but the winds are positive and I imagine we will see a first $10bn Spanish global champion in the next 5-10 years for example Fever.

Take a stance.

“Generative AI is not going to have the impact that people expect” - Chris Smith, Playfair Capital

Technology is usually overestimated in the short term and underestimated in the long term
Remember the first browsers in the early 90s or first iPhone around 2007 - there just wasn’t clarity what might come of it - now 20, 30 years later it is becoming clear how the world is for those two inventions alone. I think with AI s-curve we are in a similar place - we have done a number of investments in the space like Owkin in using AI for oncology drug discovery and data analysis or Eleos for mental health, but we are still early in the S-curve.
Generative AI is going to further accelerate the adoption trend. Today, the hype is prevalent and I imagine many maybe even most of the companies today won’t be around ten years from now.
But long term implications will be profound both for all the existing companies as well as new companies that get formed around new potential use cases for the technology. Objective shouldn’t be to be the first company in a space but rather the last one 🙂
The good news is that our latest survey on Young People in Tech surveying 2000 young tech employees identified that they are overwhelmingly positive about potential to use AI in their daily jobs so also I imagine we will see a new generation of AI-savvy employees that will drive adoption of AI across the enterprise. It won’t be the AI that will take your job it will be an employee who is AI-savvy that might.

Shout-out.

Speaking of Spanish ecosystem build, sending a strong prop to our portfolio CEO Laura Urquizu.
Laura Urquizu.
Laura runs Red Points, Barcelona-based global leader in using AI for brand protection, protecting companies from product counterfeiting and impersonations. Today the company has over 1,000 customers across the world, has assembled a world-class team in Barcelona, and continues to expand product portfolio to protect against any type of brand infringement.
As impressively, Laura has been a champion of the Spanish ecosystem and encouraged women to take up the entrepreneurship batton in a heavily male-dominated industry.
Laura has been voted Entrepreneur of the Year in Spain, is involved with the board of International Women’s Forum for empowerment of women and has also been part of the Spanish delegation visiting Presidents Macron, the White House, and many other global leaders as part of her focus on promoting the Spanish ecosystem.
She is also an amazing human and leader.
Props to Laura and thank you.

Three biggest learnings in VC.

Founders are heroes of our generation.
They make the impossible possible and create successes from a piece of paper. We need to recognise and celebrate them regardless of the size of the outcome they generate - it is a struggle and entrepreneurship is probably too fancy of a word that makes the job sound a bit too fancy than what it is. But entrepreneurs drive most of the job growth in the economy and of course are responsible for most of the new innovation in most industries.
Also, only about 1/6 of 1% of all companies get backed by VCs so most entrepreneurs are not VC-backed and that is fine. Also, the likelihood that an entrepreneur will build a $500m revenue company is similar to getting struck by lightning.
We need to do a better job of encouraging younger generations to try their luck in entrepreneurial ventures and keep going as their first one probably won’t be the most successful one.
Success is not linear.
Founders should be careful who they choose as their investor for the journey - it is like a marriage. Whilst we have companies in our portfolio like Hibob that continue to demonstrate impressive yoy growth rates, there are many situations where there are surprising headwinds or tailwinds e.g., Covid, where companies that survive demonstrate nimbless and anti-fragility. It can take years to become an “overnight success”.
Founders should find good partners for the journey: seek out references to understand also how VCs behave not just in good times but also in those difficult times when successes are difficult to come by.
Think of it as a marriage - if it goes well you will be together for a long time and even if it doesn’t you are likely to be together for a while.
Timing is critical.
Whether it is timing of setting something up just as the market begins to form or finding the right time to exit one should pay attention to not just intrinsic facts about a business also about the time in the market. And surprisingly, the markets like today when it is harder to fundraise are often better for building great companies like Google, Skype, Uber as there is also less competition, talent is more readily available etc.
In VC there is a difference between famous investment and successful ones - famous can be a well known company, maybe raised a lot of money and everyone has suffered dilution, ultimate outcome might be sizeable say a $1bn but for some investors and even founders might have been mediocre outcome due to in valuation and amount of dilution.
At the same time, some of the best investments can be ones that “fly under the radar” for example our investment in Innogames, a free-to-play and mobile games development company out of Hamburg that raised only one round of funding with very successful but private founding team that had a successful exit only a few have heard of. Founders and investors should remember to spot the difference.

Q: Advice for your 10 year younger self.

Listen to your gut when investing, and also be patient enough for the “thesis” to work out
For most investments you can find a reason to say no and early in your career you can be too sensitive to the negative signal - it is more interesting to try and identify traits that might make a company special say founders, or early version and vision for the product, and some are not as quantifiable, they might even just be a feeling.
Establish a blueprint for success and look for some proof-point along the way. In some companies for example we realised that company might have to move up market or down market to capture its full potential but it often requires time to accomplish properly.

Q: Top tips for emerging VCs in Europe fundraising right now.

Ask yourself what imakes you different in an increasingly competitive market and how you can elevate the ecosystem with your fund. Are you good at helping founders scale, coaching them, recognising trends early etc
Lots of LPs when they call me to do a reference on a friendly fund I have co-invested with ask me “so why do I need to be in this particular fund x” so I guess most LPs will ask you the question as well…
Fundraising is 50% of the battle so just figure out a way to get there 🙂

Q: The most counterintuitive thing learned in venture.

Taking risks pays off in the long run given the upside asymmetry but most people are more inclined to think about downside protection even if they don’t realise it
Even though power law successes still rule everyone’s returns on any given day folks let risk management and fears take precedent over seeing the upside in a given decision - best entrepreneurs and investors have more affinity to sail towards perceived risk rather than away from it. There is always a reason to say no to an investment.

👋 Upcoming in-person events we’re hosting

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Fund Modelling Workshop & Mixer | 5th of June | 🌍 Berlin, Germany | Join waitlist.

European VC Awards | 4th of June | 🌍 Berlin, Germany | Get tickets.

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State of European VC Fundraising | April 10th, 2-3:30 PM | Register here.
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Hear firsthand from a true giant upon whose shoulders the European tech ecosystem stands tall.