The Lowdown | 18.11.22
Read on for LP perspectives on raising in the current market, the democratization VC, Seqouia & the SBF scandal, diversity & the launch of Unruly Capital 🤘
Welcome to this week’s edition of The EUVC Lowdown 🗞️ The newsletter that dives into the headlines in European Venture with some of the key people of the industry. Today, we cover:
Listen & subscribe to the accompanying Lowdown podcast here 🎧 where we dive deep on the FTX scandal with Scott Newton, Denis Vuckovac, Dan Bowyer, David Cruz e Silva, Andreas Munk Holm and the always magnificent Cathy White at the helm 🎙️.
Do let us know if you have news, opinions or GIFs you want us to share on the Lowdown! We’re here to amplify the EUVC community 📣
This week’s partner 💞
This newsletter is brought to you in partnership with Vauban, a Carta Company 💪 Vauban is the easiest way to launch & run your venture investing. An all-in-one integrated solution to form syndicates, VC funds, & co-investment SPV programs built for scale and has facilitated over $1bn of capital invested in companies such as Revolut, Bolt and AirBnB.
If you haven’t yet checked it out, Vauban is now making it even easier to launch your angel syndicate with their new product called Atom. With Atom, angels can band together to launch an SPV for just $2K + 2% of the raised capital (up to US$200K). To learn more, go to Vauban.io/euvc/ and mention EUVC for a loving treatment!
We run a sub-community of European syndicate leads, so if you’re looking for some sparring, don’t hesitate to reach out! We’d love to get to know you.
with 💖 David Cruz e Silva
This week’s events 🥳
Next up is our virtual event with our PR-guru Cathy White where we explore you may land a cover story - by other means than backing a business like FTX 🤭 Join us as we explore the slightly more sustainable route of building relationships with the media and sign-up below to stay in the loop as we reveal more insights and details on this event as we get closer to the date 😍
This week’s podcasts 🎧
The European VC #129 Frederik Groenewegen, 415 Capital
Today we are happy to welcome Frederik Groenewegen, Co-Founder and General Partner of 415 CAPITAL. He has been an investor in more than a dozen of innovative medical technology companies and currently serves as a Board Director at Cardiac Success and R3 Vascular.
In this episode you’ll learn
How Frederik and his family’s experience aat position in MedTech led them to building 415 Capital
How 415 Capital is leveraging a proprietary commercialization and distribution platform to win the best deals
What Frederik has learnt from Fund I and how the team is adapting for Fund II
How Frederik thinks about COVID as well as the current market’s impact on the MedTech space
The European VC, #128 Bogdan Iordache, Underline
Today we are happy to welcome Bogdan Iordache, General Partner at Underline VC. Bogdan is also the founder of HowToWeb, the go-to conference for startups and investors in CEE. This year’s event in Bucharest Romania was amazing, we were able to do a shit load of live interviews and host some of the craziest EUVC dinners. Will we be seeing you in the next ones?
In this episode you’ll learn
How sticking to the vision of a fund for 5 years can lead you to become one of the best emerging funds in Europe
How asking friends “Who would invest in my fund?” can pop the “well I would!” answer if your timing is right
How fundraising is an exercise of building trust and identifying & expanding circles
How Bogdan’s fund is tailored specifically to access the best deals in Underline’s target geo and verticals
Why the most important element of selection is the team and what that means in reality
This week’s GIFs & Memes 🙊
VC snuggling in after Slush marks the ending of ‘22s event season
VCs making use of their expert pattern recognition
Leaked childhood footage of Sam Bankman-Fried
FTX saga over the past week, explained in Pizza 🍕
by David Citron
This week’s LP syndicate news 💸
My next act: democratizing Venture Capital
The last few weeks, Jason has been vocal about his devotion to democratize access to VC, so I wanted to share some of his thinking on this.
I've been lucky enough to participate in almost 20 venture capital funds as an LP -- limited partner -- over the past decade.
Unfortunately, these funds have historically been impossible to access, even as a person of means.
They are raised quietly and deployed slowly.
If you miss the window of when a fund raises, which typically occurs in months, you have to wait years for the next fund to be offered.
You are invited into these funds if you can provide value to the firm's general partners, typically because you have expertise in a vertical, influence, or a network they benefit from having access to.
I emphasize the latter part, because that’s an important part that we seek to retain on our mission to democratize access to VC. We’re here to connect the VC ecosystem and build syndicates that create vested communities around the funds we partner with.
In fact, when we build our syndicates we do so with LPs from three categories:
The GP’s existing network of value-add investors & operators
The EUVC community, now counting 600+ investors & operators
New partners with strategic value for the fund
And consequently, we leave it to someone else to bring VC-allocations to Mr and Ms Jones. And I’m happy to see Jason being one of the frontrunners.
Keep supporting female founders
While we at Startup Wise Guys still have a long way to go, we are happy to report that so far on our Challenger Fund II which started investing in 2022, we have 30% of the teams with #female CEO or co-founders. We can't and won't stop here but small wins have to be celebrated. As a recent example, very amazed to support within our #sustainabilty Batch II in #Copenhagen founders like Fo Hussain, Julie Schack Petersen, Ilana Devillers, Ellenor McIntosh.
You are an inspiration for us and for other female founders, keep rocking and keep supporting others also 💞
This week’s stories 🗞️
Forbes: Emerging VCs Struggle To Raise Funds As Nervous Investors Park Their Money In Big-Name Firms
Kenrick Cai put out a great article on how the tech downturn (crash?) is affecting emerging VCs much harder than the blue chips. It seems like the US ecosystem (as always) is ahead of Europe in realizing that there’s a bear loose and it’s gonna rip you a new one if you don’t pay attention.
Specifically, he reports US emerging managers experiencing:
LPs drag out DD processes to the extent where the manager folds on the process
Renege on given commitments. One saw only half the committed capital come in! (#sorry - did I sign that? 🤥)
General lowering of commits to the funds (to VCs raising: you better grab that 📞 and make sure they’re still on)
According to Pitchbook, only 100 first-time funds have had success launching this year, compared to 307 last year.
What’s going on inside the minds of LPs these days?
In the article, Garth Timoll, Managing Director of Top Tier Capital Partners put it well:
“If you’re an institutional investor and you have the choice between investing in Andreessen Horowitz’s $9 billion fund versus firm XYZ’s new fund, it’s like how no one gets fired for investing in Coca-Cola stock,”
Others simply pull out of VC all together. Hear the reaction of a VC on this:
“That was the light switch for us that something has really dramatically changed in the fundraising market … When someone who’s willing to invest all this time and energy with us suddenly says, ‘We’re not sure about this space anymore,’ that was a catalyst for us to say, ‘Let’s not waste our time—let’s close our fund out.’”
Consolidation is also something you should expect:
“Typically in down markets, LPs will consolidate their commitments. If they invested in ten [VC firms] before, now they might consolidate it to five,” says Accolade managing partner Atul Rustgi, who invests in funds, adding that he expects consolidation to begin within a year.
Unfortunately, this consolidation, is likely not to favor new managers:
For the most part, LP’s venture capital budgets for next year are already earmarked for their existing VC firm relationships, according to Brijesh Jeevarathnam, global head of fund investments at Adams Street Partners, which invests in venture funds. “I think it’s hard to foresee a scenario where through 2023, this changes radically,”
So how do the professional VC Fund of Funds act? Let’s hear it from Roland Reynolds, senior managing director of Industry Ventures:
“What’s going to happen now is we’re going to figure out who are the gritty emerging managers that are willing to take on the $20 million or $30 million funds when in the past they might’ve gotten $75 million or $100 million … To me, that’s really healthy. We’re going to weed out the tourist emerging managers that don’t have the conviction to make it work with less money. Good riddance.”
Reading this, I recall myself being in a call last week with a first time fund team of four saying to them:
“You’re 4 people raising a 20 million fund! I almost wanna invest in you just because of that!”
Obviously, that’s not all. But it does show humility, character, and a love of the hustle I can only admire.
What will happen?
A prolonged downturn could result in hundreds of “zombie” funds, VCs say, paralleling a similar influx of VCs that emerged in the late 1990s.
“I remember a conversation in 2004 with [Sequoia chief] Doug Leone where he said, ‘We need another year of grinding downturn to really get rid of the people who don’t belong in this business.’ History doesn’t repeat itself, but it rhymes.”
Chris Douvos, formerly Princeton University Endowment
What should YOU do?
In the article, Kim, founding partner of Cendana whose firm mostly backs smaller emerging funds, advises VCs in his portfolio to close their funds quickly—even if the fund size is short of the VC’s goal—and use the time instead to build a track record by investing in startups.
Personally, I’ve found myself in conversations these last few months with managers about managing that first close. Should they lower the target and lock in the money? or be even more conservative as they might not get much more? Let us know what you think in the comments!
The European LP Perspective
To get a European perspective on this I pulled one of Europe’s OGs aside for some late-night perspectives for emerging managers 👇
Firstly Chris Wade, founding partner of Isomer Capital, made it clear to me that while he finds the media a little over-active on the fearmongering side (thx Chris, point taken 🍑🦶) and we should all remember that it isn’t that long ago since VC was out of fashion. And look what European VC has grown to become 🚀.
That said, considering the situation for first time managers, Chris points out that there is some anecdotal evidence that the fund IIs+ are taking most in times with limited supply of LP capital. In consequence, for a first time manager, the proverbial question “why does the world need another VC fund?” only becomes a more demanding question and any aspiring VC should have a really good answer to this question.
Chris also warns that LPs have grown allergic to broad stroked answers such as “early stage venture is ok“, “ technology is the answer, man“ or differing versions of “I’m a guru at investing”. You should expect the the BS detectors to be on max.
Having said all that, Chris points out that it’s important to also note that there’s plenty dry capital available, especially climate focused funds are in high LP favor, and for those gifted with a silver tongue, there’s a very real opportunity in the argument that now’s the best time to invest as only the best will be funded and they will be so at lower valuations. And remember, there is no evidence of company creation and entrepreneur flow slowing down.
Turning the attention to fund IIs and beyond, Chris stresses that some of the above apply and that funds who have delighted LP’s are getting done and, it would seem, at the same speed as before.
However, The fund II’s that were Fund I in 2020 and consequently were very quick to deploy and therefore have an immature portfolio development today (TVPI <1.0) may struggle if LP capital supply reduces.
Chris says that for funds that have a choice, delaying fund raising may make a lot of sense. And this is a very real possibility as a fund may make the choice to cut new investments and increase reserves. A behavior we’ve all been able to observe as the general deployment pace has slowed - and it seems that it doesn’t come with too big of a negative brand effect as it might have done in 2020/2021.
Calling BS on Sequoia’s SBF Article: Cathy’s take.
Oh, optics. We can all have a lot of fun looking back at the lengthy blog Sequoia wrote on SBF and FTX way back in…oh no, wait, this was published September 22nd, 2022.
It’s not a bad piece of writing - which of course, is unsurprising when it’s been written by private historian Adam Fisher, a specialist who documents the lives of technical people changing the world. The article for Sequoia is precisely that. A historical piece of writing, unfortunately, now on the wrong side of history.
While the article will work wonders to bring colour to what I’m sure will be countless Netflix documentaries and an Apple series, one section has been shared by many in the wake of FTX’s collapse. You can see a copy of that below.
Indulge on the controversial Sequoia pull-out from their SBF article:
The Zoom went well for all concerned. SBF looked relaxed as he answered questions, talking, as he usually does, in complete paragraphs about topics of extreme complexity [1]. Ramnik Arora, FTX’s head of product and another ex-Facebook engineer, remembers the meeting clearly: “We’re getting all these questions from Sequoia toward the end. He’s absolutely fantastic.” Arora locks eyes with me, and I am mesmerized. Arora is intense—calling to mind a Bollywood version of Adrian Brody [2]. “Unbelievably fantastic,” he says, shaking his head.
Bailhe remembers it the same way: “We had a great meeting with Sam, but the last question, which I remember Alfred asking, was, ‘So, everything you’re building is great, but what is your long-term vision for FTX?’”
That’s when SBF told Sequoia about the so-called super-app: “I want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin. You can send money in whatever currency to any friend anywhere in the world. You can buy a banana. You can do anything you want with your money from inside FTX.”
Suddenly, the chat window on Sequoia’s side of the Zoom lights up with partners freaking out.
“I LOVE THIS FOUNDER,” typed one partner.
“I am a 10 out of 10 [3],” pinged another.
“YES!!!” exclaimed a third.
What Sequoia was reacting to was the scale of SBF’s vision. It wasn’t a story about how we might use fintech in the future, or crypto, or a new kind of bank. It was a vision about the future of money itself—with a total addressable market of every person on the entire planet.
“I sit ten feet from him, and I walked over, thinking, Oh, shit, that was really good,” remembers Arora. “And it turns out that that fucker was playing League of Legends through the entire meeting.”
“We were incredibly impressed,” Bailhe says. “It was one of those your-hair-is-blown-back type of meetings.”
Not only that, Arora says, but League of Legends is the kind of multiplayer online battle arena video game where every four minutes or so of tactical maneuvering is punctuated by ten seconds of action known as a gank—gamer slang for “gang killing”—where you and your team gang up on an enemy. “There’s a fight that happens, basically,” says Arora, who was watching over SBF’s shoulder as he answered that final question from Sequoia, “and I’m like, This guy is fucking in a gank!” [4]
The B round raised a billion dollars. Soon afterward came the “meme round”: $420.69 million from 69 investors.
☝ This is the section that raises the most eyebrows for me. Now I don’t know who or how this article was signed off by the firm, and maybe I’m being too cynical (a big part of my job), but this makes everyone involved look like an idiot. Narrative and vision are important to hear from a founder, but so is due diligence…
Sharing why you backed a company and providing a platform for them to share their story is 100% a great thing to do - and you should. But you still need to be able to step outside of the hype bubble and ask the right question, “how does this look if it all goes wrong?”
Cathy White
Add to this the fact that Sequoia quickly took down the article, making it seem a lot worse. Again, an optics issue. The internet, as we know, likes to remember. Provide the right fuel to the fire, and you create a hot mess for yourself.
So what’s the PR guru’s sage advice? 🤔
Sometimes, less is more. If you are writing about the companies you’re backing, add a little pinch of salt. Be the champion whilst remaining fair and remembering all the risks involved in VC. It could go wrong, so how do we balance what we share? Ask a few people outside the firm to read something if you’re unsure how it sounds. The article won’t just be read by LPs.
And maybe don’t write about how the founder played League of Legends during a pitch.
Unruly Capital Manifesto
Sometimes, people produce amazing manifestos in connection with their funds. The most well-known probably being Founders Fund’s. This week, our dear friend Stefano Bernardi announced his new firm with an equally (but definitely quite more unruly) manifesto. I really wanted to reproduce it in full, but to not make this newsletter, which is admittedly already too long, even longer, I’ll limit myself to outtakes from Part 1 and warmly recommend that you go read part II.
Here goes:
Part I: An ode to entrepreneurship and venture capital
Recently I've started to realize why I've been so fascinated by and attracted to venture capital […] The reason, as I believe it today, is that venture capital is one of the most important activities of man kind: the choice of how to allocate resources.
That choice, now almost fully monopolized (as most everything else) by nation states governments (and more and more supranational entities), is also practiced at small but very very effective scale by small players around the world: angel investors, venture firms, accelerators, etc. They all have a bit of a say in what gets built by founders.
I believe practicing venture comes with an ethical, moral responsibility to all of your fellow humans on top of your limited partners for what you decide to invest in. Some people decide to invest in the next deployment of scooters around towns or the next 10 minute delivery app, and I think those people are failing all of us.
Would you rather come back home to your kid at home and say: "hey! today I've invested in a company that has a slightly better SaaS sales outreach technology" (or whatever) or "today I met with a founder that might solve humanity's quest for infinite energy (proteins, plastics, etc.)"?
I believe that in our era, venture and entrepreneurship are the most impactful things you could do with your time on this Earth.
The younger generations are infinitely more aware of the shitty situation our planet and population find themselves in, and will more and more only justify working on important topics.
I've still got a lot of optimism left, and hope to keep it as I grow older. The bet here is that ingenous and crafty individuals will fill the gaps left by the old school institutions and show us and everyone else the way.
They'll rally people to follow them on their crazy journey, and figure out how the 8 billions of us can coexist peacufully and sustainably on this planet.
Like Cal Rodgers, which in 1911 completed the first coast to coast flight from New York to Pasadena. It took him 49 days!!
He crashed 16 times and broke multiple bones. He broke every possible part of the airplane, and yet he kept on going. When he got there, he said that he believed he'd see the day when it'd only take 3 days to cover the journey.
Cal Rodgers was able to see the future we have today, where we can cross the world in less than 24 hours, and tried his best to make it happen (he unfortunately, but quite predictably I'd say, died in a plane accident a few days after his trip was over).
That is a pretty unruly founder and the perfect prototype of the founders I would love to meet every day.
My day to day is an ode to entrepreneurs,thanks for all that you do, for dedicating your lives to showing us a potential future that is better than what we'd get otherwise.
Us on the investing side are nothing like Cal Rodgers obviously, but we're like the people that would assemble at each of his landings. We'll be here on the sidelines, in a much more comfortable ride no doubt, but in awe and cheering from the bottom of our hearts for you.
I don’t know about you. But that sums up my reasons for being in love with VC as well 💓
Emerge: Ditching male, pale and stale - how bridging the diversity gap in VC funding lifts the bottom line 💸
This week: Nic put a great first article of a three-part series on a topic we all need to care, think and do something about: Diversity in VC.
First, he breaks down the numbers:
Women-led startups received just 2.3% of VC funding in 2020.
In the US, in 2020, Black entrepreneurs received less than 1% of total US VC funding. In the UK, between 2009-2019, that figure was only 0.24%.
All-female teams with ethnically diverse members were the only teams not to break the $1M mark in average funding in 2021.
43% of funding at seed stage goes to founding teams with at least one member from Oxford, Cambridge, Harvard or Stanford.
But what I especially loved Nic for in the article was to publish this:
What are VCs doing about this?
In established VC firms there’s a lot of lip service paid to diversity — Deloitte suggests that the number of venture firms with diversity initiatives increased from 24% in 2016 to 43% in 2020 — but less actual action. The figures speak for themselves with little change in the number of female or Black partners. Diversity charters may be a meaningful first step to acknowledging the issue but, in most cases, it doesn’t seem to be a transformative commitment.
Where the visible change is happening is in the rise of new women and minority-led funds, investing from small first funds and heavily focused on seed and early-stage deals. Women in VC reports a spike in women-led funds in the US with 140 new women-led investment funds launched in the last four years.
One chap I’ve been admiring pioneering this space is Rodney Appaiah. If you don’t know of what he’s building with Cornerstone, I’d recommend you start tuning in.
Tying this to the earlier topic of funding for emerging VCs slowing down, Andre Charoo, founder of Maple VC put it well:
“At the end of the day, the most diverse set of capital in venture is in the emerging manager space … We were a driving force to bring capital to a diverse set of founders. Now, that’s likely to be reversed.”
And as Daryn Dodson, managing director of Illumen Capital, which invests in funds of people from disadvantaged backgrounds said in the Forbes article:
“When I talk to women and people of color emerging managers, a lot of them are just trying to process the fact that they’ve been outperforming their peers and not understanding why they’re not getting more allocation relative to their performance.”
So if you’re an LP reading this💗 I hope you’ll remember this bit of the equation as well. Now back to Nic’s article:
Our own back yard
It’s clear to us at Emerge that there’s no magic bullet but there are steps every VC can take, including us. For real change to take place, the roots need to be deep and institutional rather than one-off initiatives, deeply embedded in your culture to succeed. Crucially, we think these initiatives must take less of a deficit-model approach, which is concerned with fixing ‘what’s wrong’ with founders from underrepresented groups rather than fixing the system that holds them back. The key message here is basically don’t blame your pipeline — look at everything you do in creating your pipeline and optimise it for the widest deal flow possible.
We’ve embarked on a conscious diversity journey here at Emerge. For the last eight years, we’ve had an open application policy, but there’s a lot more we can do consciously to improve the diversity of our deal flow. Plus, we want to help our portfolio to create diverse teams from the start.
If you are interested in this topic, do follow Nic to get the next parts of the series.
IN PART TWO of the series, in a few weeks time: practical guidance for founders on how to build in diversity from the start and avoid building up a diversity debt
IN PART THREE of the series, practical guidance for VCs on how to build diversity into their pipelines and teams — all the non-obvious things you need to consider.
This week’s funds 💵
🇸🇪🇬🇧🇩🇪 EQT Ventures - €1b, fund 3, early-stage - Stockholm, Berlin
🇬🇧 LeadBlock Partners - €150m target, fund 1, crypto - London
🇳🇱 PureTerra Ventures - €60m, fund 1, water - Amsterdam
🇮🇹 CDP Venture Capital SGR - Fondo Nazionale Innovazione - €50m; €700m target, first close, late-stage - Rome
🇲🇹 Prediction Capital - €30m, fund 1, consumer, fintech - Malta
🇨🇭 BackBone Ventures - CHF 20m target, fund 1, diversity - Zurich
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This week’s hires 👩💼
Rare opening on core team of Emerge: Investment associate 🔎
The Emerge team are looking for a new Investment Associate, whose mission will be to source and build relationships with outstanding founders at the earliest stages of company creation.
So if you’re: Passionate about education. Fascinated by startups. Strong relationship builder. 2-4 years experience in venture capital, private equity, investment banking, management consulting or an edtech startup. We strongly encourage candidates of all different backgrounds and identities to apply.
If this sounds like you, learn more about this role here. If you know someone that may be a fit, feel free to reach out to the Emerge team and let them know!
🇩🇪 adesso SE - Investment Analyst / Manager - Berlin, Hamburg
innvtrs.com/3O5lHwg
🇩🇪 Shell Ventures - Investment Director - Berlin
innvtrs.com/3O5Dbsx
🇫🇷 360 Capital - VC Analyst - Paris
innvtrs.com/3hK4pbV
🇬🇧 Conviction VC - VC Analyst Internship - London
innvtrs.com/3Afb844
🇩🇪 Speedinvest - Visiting Analyst Marketplaces & Consumer - Berlin
innvtrs.com/3hOPPjh
🇩🇪 Dieter von Holtzbrinck Ventures - VC Analyst - Cologne
innvtrs.com/3TpIfJb
🇫🇷 Revaia - VC Internship - Paris
innvtrs.com/3TEGnfS
🇸🇬 Epic Angels - VC Internship - Singapore
innvtrs.com/3UuugDo
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Thx for reading and being awesome 💗 we love you for it.