August 29, 2024 • 36 mins
Marius Weber, Founding Partner, and Jocke Martelius, Investment Solutions Manager of Alpha Q Venture Capital sits down with David Weisburd to discuss the comparison between US and European VC markets, strategies for conducting due diligence on emerging VC funds, and the impact of political and economic factors on European VC.
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(00:00):
When we look into the data, we see that acompany raising a seed run-in Europe has
actually the same probability of reaching aunicorn status as a company in the US.
So for us, this is actually a crucial pointbecause it highlights the potential for high
returns in Europe.
Additionally, you know, there's less capital inEurope, for sure, which means there's a little
bit less competition as a result of thisdevaluations a little bit lower.
(00:22):
We see funds are also companies, right, and GPsneeds to understand that.
And this is very because I think many of the VCfund managers out there don't really realize
that they are building a company here so thatteam dynamics are as crucial and important as
it is in startups or in other companies.
And that building a VC fund as a GP is not thefastest way to become and many of them are
(00:44):
approaching this asset just by the idea of thecoming rich fast, which is totally in most of
the cases, not true.
It's a long path of nose, a long path ofsetbacks, and a long path of not eating and
sleeping until you even know if you're anoutlier or not.
Right?
Yoke and Marius, I've
been excited to chat ever since our friend,Jordan L, made the introduction.
Welcome to the Townex Capital podcast.
(01:12):
For having me.
Thank you, David.
Thank you for having us.
Marius, you founded AQVC.
Tell me about how you went about founding AQVC.
I'm one of the founding partners, suspension,but I offer complimentary capital and I started
my career with studying law.
Left this environment quite early after even 1year, I built up 1 of the first German company
builders or co founders and another brand RANGOut founders.
(01:32):
So we co founder roughly 20 companies over aperiod of 7 years.
And parallel to that, we started our first CCfile in 20 13.
We invested also roughly in around 100 startupsnotes the early stage.
In 2021, then I partnered up with Metro basedpartners in 200 a QVC.
And so we started with a fund of VC funds afterhaving screened more than 3a half 1000 VC
funds.
(01:53):
We thought that there is this functionality incapital formation between GPs and LPs.
There's so many fund of funds out there.
Do we really need another fund of fund?
Why start AQVC?
Yes.
I think so.
And, to be honest, when we started AQVC 3 yearsago, were not that many fund of funds, to be
honest, at least not fund of funds thatreengineered their structure in a bit.
(02:14):
So our mission and vision worsen is still todayto democratize venture capital as an asset
class.
Right?
So therefore, we looked at the products themarket was offering in these days back then,
and we thought of building a product that is ormaking the access easier in networking
individuals and family offices.
And, Yoko, you joined AQVC.
Tell me about when you joined and what's yourrole in the company?
(02:36):
My background is doing pretty much fundinvestments for different organization, family
offices, you know, about management firm andalso try to raise my own VC fund.
I joined AQVC and supporting on differentthings.
Right?
Currently, we're building an LP community aswell.
You know, also speaking, we've done that with alot of other LPs as well.
Under family offices and fund of funds to sharenotes, research, deal flow, and just in
general, just build that ecosystem on wearingquite a lot of different hats as of now.
(03:00):
Marius, it's Q3 2024.
What are you looking for funds today?
Yeah.
It's a good question.
And first, it's important to know, David, thatwe invest into both emerging and established
the sequence in the kind of bubble strategy.
So when we evaluate a VC call, we take a lot ofaspects, obviously, into account, and we can
split them basically into 2 buckets, which isquantitative and qualitative aspects.
(03:21):
Right?
So starting with quantitative, maybe, ofcourse, we have to start with benchmarking the
historical performance of either the fundmanager itself went or the acting GPs
themselves.
So as a cycle from inception, over severalclosings to the
final closing, it can take 12 to 24 months.
I think typically, so this is important to takeinto account to
be able to compare apples to apples.
(03:45):
And therefore, it's important to understand howto correctly benchmark.
So before comparing, receive funds to eachother, you need to verify our benchmark exactly
sees the vintage, post loadings, start upinvesting, finally closing their different
approaches.
For sure.
The most common one is Cambridge, associatesCA, and they use for the vintage year, the
inception date of a receive.
And so once you have found the correctbenchmark vintage, it's about comparing key
(04:09):
metrics that matter.
Right?
And we'll spare you details now around the KPIexposes but combined these metrics give a good
indication inside of a fund's performance andother qualitative aspects you will want to look
at our loss ratio, fund model, portfolioconstruction, holding percentages, and the way
the fund sticks to it over time and so on.
And on the qualitative side, We do a lot ofreference calls with portfolio CEOs with LPs
(04:33):
with co investors.
We evaluate team dynamics.
We had a very close look at the investmentdecision process.
We check everything around secret sauce when itcomes to oversubscribed deals, we look at the
network, which is important for buying,selling, fundraising, and so on.
Many more things, I think, in total, plus 3digits of checking points.
And this is obviously very dynamic.
Right?
So once you are looking at the emerging managerside, the qualitative aspects are more
(04:56):
important in the relevant and the quantitativeones.
And once the fund is more established, you havemore numbers and more advertisers to do at the
very early stages, just a natural personinvesting into a natural person.
Right?
So in the emerging segment of its funds, it'snot necessary to find big brands or names, and
you need to find managers who are going adifferent way and are willing to go for long,
(05:18):
long feedback loop managers.
We look at need to understand that the hardwalk of life before becoming an outlier.
Our edge to getting to top managers maybe is weare offering unique at P value.
So we are 3 partners now, operative partners,and on top of a team of very, very experienced
founders, elocators, former GPs, and we walkedaway from founder to content bigger to GP to
(05:39):
educate with no wire outside of funding.
Of course, it helps when stepping in early on aGP's life cycle.
We've seen this year first time funds aregetting 90% less allocation than last year,
which was down from the year before.
What gets you to write a check into a firsttime fund today?
Q3 2024?
We have the mandate, right, and the question isbasically why we invest into both emerging and
(06:04):
established managers.
So Established managers obviously can provide abaseline solid performance.
Right?
So 48% I think is the statistic of the topquartile funds maintain top quartile status and
direct subsequent funds.
So this is great, but choosing carefully,emerging managers can outperform, right, And
even though the amount of funding they get inthese years, 70% of the top decile funds
(06:26):
globally are emerging or and developing funds.
So to ensure the best sector coverage, we splitbetween those both and have this mandate also
to take emerging managers by the hand and walkthem also through the journey of becoming an
institution investor one day.
Okay.
Tell me about
AQ discovery.
What is AQ discovery?
AQVC discovery is a software for GPs and LPs
in the BC in the
(06:51):
industry.
So through the platform, we're offering techand services across the entire VC fund value
chain of capital formation.
Right?
So the idea of AQVC discovery was actually bornfrom our own needs.
So we, as a fund of fund, have a massiveinbound deal flow A lot of that deal flow is
emerging managers.
I mean, which we like because we actively backemerging funds, but, you know, we quickly
(07:11):
noticed that a lot of these managers who applyfor our capital are presenting themselves very
differently.
Everyone shows their numbers and KPIs indifferent ways.
So there's really no standards or structures inplace in our industry, which makes it quite
inefficient and difficult for LPs also toreview funds.
So based out of our learnings as a VC fund andbased on feedback from other active allocators,
(07:34):
we built a solution for both PCs and LPs whereVCs can actually present themselves in the best
way possible to their potential LPs, managethose relationships, and also we support them
with LP lead generation.
So if you think about it, you know, so throughour platform and services, we function kind of
as an extension of their team.
Also, fundraising market has obviously beenquite challenging, you know, the last few
(07:55):
years.
At the same time, a lot of managers don'tnecessarily have the resources or experiencing
fundraising or broad LP networks to tap intothis is where a QVC discovery comes in to fill
those gaps.
And at the same time, you know, the platformallows LPs like ourselves to screen and
diligence fund managers much more efficiently.
And that's what it's all about to enhance thecapital formation process in the venture
(08:17):
capital industry.
You mentioned presenting information to LPs isan issue.
As an LP, what do you like to see in a dataroom?
What is the minimum viable data room that youlike to see from an emerging manager?
You need to compare one GP to another beforeinvesting into a certain sector and to a
certain geo an example, we decided to have orwant to have an impact fund in our very back
(08:38):
then early portfolio.
Right?
And therefore, we were able as, this is ourfull time job.
Right?
We were able to stream and plus 200 impactfunds that we decided we invested to one of
them.
And this is kind of the essence.
We screened more than 3000 VC funds over thelast 2 years, and we came up with an essence of
our portfolio of 19.
So it's all about data normalization andstandardization.
(09:02):
Right?
This is very important.
And This also is the crooks why not more peopleat least from the private wealth side, have the
capacity or skill set to invest more money intoour adventure capital because GPA sends you a
deck with KPIs on slide 9, and GPB sends you adeck with KPIs on slide 12.
And as, already also mentioned, there's a lotof KPIs to compare.
(09:24):
So some of them, a report in IRR grows, some inDPI net.
So you need at least the full time analysts todo the math behind it and be able to to compare
one we see to another.
Or we learned that this is one of the biggerproblems and makes capital formation very
dysfunctional or very ineffective within orbetween GPs and LPs.
And this is also one of the reasons why wecreated a QVC discovery and structured a varied
(09:49):
data standardized and normalized profile, whichwe, as a heavy allocator, which means investing
to 5 to 10 or more receive funds per year, wantto see.
So there are I think it's in the in themeanwhile on the profile plus 400 data points,
you might or able to fill in SMBC Fund.
So the depth of information is or can be verydeep.
(10:11):
And if you want to have a high data density to,you also need to provide a lot of information.
But what we look at, most, I would say, is
historical performance of the acting people.
And therefore, it's a quantitative measure, andit helps just to have very, very normalized
data, very standardized data.
And this also applies to all other LPs outthere.
(10:31):
Right?
So even other heavy allocators talking from theEuropean ecosystem right now using the platform
and are using the way we decided how fundsshould display themselves in the best and most
efficient way for them.
And also on the opposite we see funds have acertain type of capacity for fundraising,
making it more effective, especially in thesedays where fundraising is the the cash the
(10:52):
money is not just lying around, but it wasmaybe 5 years ago.
So we need to kind of do your fundraising inthe most efficient way and therefore sort out
everyone who's not interested very fast.
A quick no is almost as good as a quick yes,but nurturing over a month with a piece that
are not even fully interested It's just a wasteof time.
(11:12):
And this is why we created the way of AQVCdiscovery out it's created right now.
The best possible way to display for a VC fundand the best possible way for VC funds to
fundraise in the most effective way.
You mentioned that quick no could be veryvaluable.
A lot times you see LPs ghosting or notresponding.
Talk to me about the game theory.
Why do LPs do this?
Actually, David, I'm not very sure.
(11:33):
I think it's a, also a matter of education.
So, yeah, even if you, of course, get coldlyapproach then maybe you just not have a
capacity to answer everyone.
Right?
But if you start a conversation, I think it's amatter of good education to at least say, no,
thank you.
Dosing is something we saw developing over thelast years more and more, to be honest.
It's certainly also has maybe something to dowith the culture of venture capital in the last
(11:57):
years.
We see is today there in our opinion whereventure where private equity was standing 20
years roughly ago.
Right?
So a lot of inference, currency, a lot of notvery well done communication as the last years
were just kind of
an hockey stick in terms of performance andalmost every VC fund.
The communication was, I think, not treatedvery well.
So we cease
(12:21):
not in total or in general, but many of themneed to learn how to properly communicate in
the picture again.
Right?
Or we saw a huge correction phase in the last 2years, and many of them learn learn first time.
I think that it's not always just going up.
And therefore, our proper communication is veryimportant.
It's all about transparency and about trust,and we just need to fight back to the method or
(12:42):
way of treating each other in a very trusty andand and respectful way.
Yeah.
It's it's interesting.
I I think there's not only analogy to privateequity.
I think there's an analogy between VC andstartups as well.
People don't remember this.
When I pitched to Anderson and Horowitz for mysecond startup in 2012, they had revolutionized
this concept of saying no.
It was this revolutionary thing where theywould give you feedback.
(13:03):
And it was very smart.
And I think it was very long term greedybecause once you get that feedback, you're more
likely to come back to that firm for a secondstartup for a future round.
I think LPs like VCs, falsely believe that ifthey just don't communicate, maybe at some
point, they'll be able to come in and say yes.
But just like founders, GPs also have longmemories, and they remember who treats them.
(13:24):
And any GP, I think that's worth their theirway in gold.
Understand when somebody passes on a certainround or certain vintage.
I don't think that kills the relationship, andI think there's a false premise on that.
That basically kicking the can down the road issomehow gonna create optionality where I think
it actually hurts the relationship more thanhelp.
I totally agree, David.
You can't have everything you said right nowbecause a no is always okay.
(13:47):
I mean, there might be a GP that is a totalrock star, but just does not fit into our
portfolio right now.
And therefore, telling no doesn't mean you area bad person or your skill set is not good
enough.
It's just like it doesn't fit to us as anallocator.
And we also have a mandate towards our LPs.
Right?
So we need to have restrictions and stuff likethat.
So it's not always that you like to discreditother people.
(14:08):
It's more like, yeah, it's it's just not a fitand a good no, and think of that.
You you just said in reason kind ofrevolutionized the no in 2012.
So it's 10 plus years ago.
It's not that much water down the river sincethen.
And, also, I think, is seen or an asset classand talking also again out of the the Euro
glasses, it's a new one, right, compared toother asset classes.
(14:31):
And there needs to be development, in thisdirection.
And it's easy to go or easier to compare it toprivate equity as an envelope because private
equity just they learned the same hard way thatcommunication is everything.
It's just everything being transparent.
And also
we tried as a QVC.
And, obviously,
most of our answers are no take telling youabout 3a half 1000, we see funds we had to look
(14:57):
at and invest it into 19 means most of them,receive a note.
Right?
And we also try to find the best possible andnicest law on
the market.
And also the platform serves here as a kind ofsupport anyway.
So we we cannot support every single VC fundaround the globe with capital because we have
also limited resources,
(15:17):
right, and and portfolios to structure.
But what we can do is help you as a VC fundanyway.
And this
is what we really, really try hard withplatform making VC discovery.
So either we have capital or we have a platform
that could help you or even more.
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(15:39):
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And you're okay.
Speaking of the platform and AQVC discovery,what problem cases are you solving around?
(16:00):
Why do funds come to you to sign up?
Yeah.
Good question, David.
Obviously, there's a lot of things that we dothrough the platform.
One of the things is obviously thestandardization of data.
And for a lot of emerging managers, you know,just having a beach deck is not the best way.
And, you know, beach deck that's not created,you know, up to optimal way for sophisticated
LPs by just sharing your beach deck with LPs aswell, it's it's not ideal because usually LPs
(16:23):
read the first five pages of that beach deck.
So you need something else that allows you toshare your profile, share your data in a way
that's actually designed, based on LP needs.
So through the platform, they're actually ableto create a profile of their fund that allows
LPs to run their due diligence from start toend.
And this includes all of the, you know, fundterms to videos about the team, about the
(16:45):
strategy, news section, you know, a duediligence questionnaire.
But on top of that, funds can actually also askfor feedback through the platform from
potential LPs or LPs that decline theopportunity.
And most of VC funds or all of them have LPsthat says it's not for us right now, but let's
circle up later on when you're coming back withthe next fund.
And these are huge opportunities that busyfunds need to actually take and nurture those
(17:10):
relationships because when you're back in themarket, it doesn't help if
you don't keep those relationships warm at thatat the same time to serve some funds who
actually need it.
So we do
also LP lead generation as a service.
So we try to identify suitable LPs for theirfund.
So there's quite a lot of different dimensionsthat
comes to the platform and what we actually dowith
the funds in question.
You mentioned keeping relationships with LPs
from vintage to
(17:34):
vintage.
What's the right cadence?
What's the best practice?
Maurice, you're a fundraising expert here.
Yes.
At least the the title says that's, I think theright cadence, at least at AQVC, we right into
certain buckets of following up or nurturingprospects, potential investors from a very low
cadence, meaning just
signing up for our newsletter and just stay upto date
to a more, what, let's say, a very highcadence, which mean follow-up or following up
(18:03):
every kind of days.
So weekly, I would say on a
weekly basis.
It really depends on both.
I would say the maturity of the investor.
So lower maturity investors need
to be kept in a more close way to just beattached or keep them attached to the asset
class and to to your product.
And I think a higher cadence makes it easier tofollow even though the follow ups are maybe in
(18:23):
a less regular basis.
So it really depends.
And Also, this is a thing that we see as anasset class needs to learn
was for us talking to see how venture capitalfunds are able to educate their startup
portfolios in how to fundraise, how to segment,how to know
your customer, and how that the mass of theserefunds is really in or at least how less time
(18:51):
and effort they put in segmenting theirinvestor base.
So you really need to know your customer,especially in days where not 1 or 2 of 100 MLP
contacts is investing, but more 1 or 2 of 200,you really don't want to waste your time.
And Do
you think there's an eightytwenty rule to LPsand that you spend 80 percent of your time
(19:11):
focusing on on the larger writers, what whathave you found in terms of LP composition and
funds?
It also depends really when funds do or whenfunds start as an emerging manager,
as a nature of things, the biggest chunk of
the capital of the AUM comes high net worthindividuals and family offices smaller ones
than single, bigger ones and multi familyoffices up to some corporate or insurance or
(19:33):
institutional money or foundations even.
And it's also, like, with fundraising for astarter view, start with business angles,
right, and increase your check size over time.
An age of things.
And when you raise your 3rd 4th 5th generation,it's either important to increase your check
size, at least when you want to increase youryour AUM proven pitch at accuracy, to be
honest, we we like funds that are smaller.
(19:56):
It's a lot of beautiful is what we think in inmost of the cases, applies here.
And also increasing AUM for vintage to vintageis not the very best side always.
So the best case is you raise your fund and youstick to your vessel this is what every VC hunt
really wants to do.
This will not work for everyone as the high networth individuals or or smaller investors tend
to not
re up into new upcoming vintages.
(20:23):
And therefore, the time you spend, and this isback to your question.
David, the time you spend for a bucket willchange over time.
At the beginning, you will really work hard for5 hour k ticket and becoming more and more
professional or also institutional and fund
raisable as a DC file as company for for apiece, you will also start spending more time
on bigger tickets.
But the statistic, anyway, says that at least afamily office or high net worth individual
ticket comes on average after 2 years ofknowing the GP, which means you need to nurture
(20:56):
and you need to spend a lot of time on thistype of buckets and investors.
You've raised for startups for venture fundsand now for fund of funds.
Which one is the hardest?
Which one is the easiest and rank those for me?
The easy startup is easiest.
We see funds then and fund of funds is thetoughest enough to crack.
Why is that?
To be honest, David, I think when we started 3years ago and went live 3 years ago, we are
(21:19):
still also an emerging manager in terms of himbeing a front of fund.
Right?
The thing is when you start to fundraise for astartup, you really pitch and vision.
You pitch a team, obviously, we are able topitch your team as well, but the more you get
up from startup to receive front to front offront, the more disconnected you are from the
vision.
Right?
(21:40):
So the problem for a front of front is that Icannot really pitch a visionary product, more
an idea, or what I need to and we are afinancial product.
Right?
So the the fundraising is way
more neutral, way more focused on we are a goodfinancial product for you.
It really makes sense.
It's not I think for visionaries, to be honest.
It's it's hard to to sell the vision of venturecapital, which we all are getting up in the
(22:05):
morning for.
Right?
We at least have been entrepreneurs back thenand are still by heart, but pitching a vision
today is as a financial product, not that Andthis makes it just difficult and different from
raising a startup, especially in the earlydays.
Yoke, tell me about European Venture as itstands in q 3 2024.
Where's the market at?
Obviously, it's been quite challenging marketfor Europe as well, but both for the US and
(22:26):
other regions, I mean, looking forward, we'reactually quite optimistic about the future of
DC in Europe.
Firstly, as Maurice told already, you know,Europe is our whole market.
We have quite an extensive network here, youknow, everything from DC funds to angels, to
founders, and other LPs.
So, you know, this gives us already quite asignificant edge in understanding the market
dynamics and identify promising
opportunities in Europe.
I mean, it's true that Europe is lagging
(22:46):
behind us in BC.
But this is also quite natural in a wayconsidering that the asset class is actually
born in the US.
So it takes time for other regions to catch up
if they ever do.
But I would say Europe is steadily closing this
gap, you know, despite being up quitefragmented market with 20 to 30 different
(23:08):
jurisdictions and regulations.
Progress is still being made, and the assetclass is still growing when you look at on a
longer horizon.
When we look into the data, I mean, we see thata company raising a seed run-in Europe has
actually the same probability of, you know,reaching a unicorn status as a company in the
US.
So for us, this is actually a crucial pointbecause it highlights the potential for high
returns in in Europe.
(23:30):
And additionally, you know, there's lesscapital in Europe, for sure, which means
there's a little bit less competition and alsoas a result of this, the valuations are a
little bit lower.
But in general, it's a pretty good environmentto find promising fund managers who are able to
find innovating companies in Europe, and westill see innovative companies being founded in
Europe.
(23:50):
It's for sure not a perfect
market yet if it ever will be, but of course,we wanna be part of that
ecosystem and also help and support Europeanecosystem to grow.
Marius, I wanted to double click on what yousaid about diligence in 200 impact funds.
Tell me about how you went about learning aboutthe market and what did you learn through
having so many conversations?
Take me through that evolution.
(24:10):
You learn a lot especially when and you'd alsoneed to to make a difference here, David, when
you
evaluate emerging funds comparing to,established ones.
So established funds, as mentioned, thequantitative
part of the DD is way higher than thequantitative part when evaluating emerging
managers.
So in this case, I mentioned earlier, we werelooking for, yeah, emerging or developing fund.
(24:35):
And therefore, we learned a lot of people inteam dynamics and we see funds are also
companies, right, and GPs needs to understandthat.
And this is very interesting because I thinkmany of the VC fund managers out there don't
really realize that they are building a companyhere.
So that team dynamics are as cruciallyimportant as it is in startups or in other
companies and that we see funds or building aVC fund as a GP is not the fastest way to
(25:00):
become rich, right, and many of them areapproaching this asset just by the idea of
becoming rich fast, which is talkingly, andmost of the case is not true.
It's a long path of nose, a long path of sattext, and a low path of not eating and sleeping
until you even know if you're an outlier ornot.
Right?
So we learned a lot about different teamdynamics, different team settings, different
(25:23):
people being humble or not, and therefore, howto believe or how to invest in being or
becoming convinced of very young teams whereyou don't have a lot of quantitative aspects
proven to check.
This was, I think, one of the most importantlearnings for us when you do the quantitative
tracking and analysis.
It's just a matter of good and very efficientand sustainable comparison.
Right?
So qualitative one is always the one where youneed also experience where you need a feeling
for people.
(25:50):
Not only reference calls will help, but alsoyour feeling of the team.
And if they are able or in the situation thatthey can crack this, not by building a very,
very experienced and also out in some of theinstitutional company that is doing, you see,
in fund investments, and this was the cruciallearning.
How long does it take to become rich as a GP totake me through the economics?
(26:12):
It's a little didn't do or I don't have themath provided here, David, but on average,
prounding startup to exiting startup will takeyou 10 years.
It might be 6.
It might be 8.
It might be 12 or 14.
We have seen everything in the last years ofdoing venture capital as an asset just.
We had exits that were very fast We had exitsthat were for whatever reason, not that fast.
(26:33):
We know the companies were great.
And also the market and the dynamics arechanging heavily in these days.
So, I mean, as you all know, we were not see alot of IPOs, which are not profitable companies
that are not profitable in the future, but themarket is kind of changing and turning.
And I think also that private money, therefore,needs to be available because you will see
(26:55):
nature stage IPOs that we saw in the recentyears.
And therefore, I think exit horizons will alsoincrease.
So very, very fast exits, at senior of the pastwar, still, I think, of good luck in the
future.
And so you need to build really stable.
And in the best case, you can break evencompanies.
So that would take just time.
It's not the easy way to be coverage.
(27:16):
The way that I look at it, just the simple mathis just like any other business.
It requires compounding.
It's an industry you wanna go into if youreally wanna do it for 10, 20 years because
what happens is Let's say you start a fund 1,it's $50,000,000.
You get your 2% management fees.
If you do a good job deploying that in 2 years,you get another fund with 2% management.
So you start to stack the management fees.
(27:37):
And by roughly year 6, year 7, if you have agood fund, you've now returned 1 DPI, and now
you're into the carry.
A lot of people say fund takes 14 or 12 yearsto return all the capital.
The real question for a GP side is when youstart getting carry, and that's roughly about
year 6 or 7.
So If, and this is a big if, you know, very fewfunds actually make it from fund 1 to fund 3.
(27:59):
If you're able to get to fund 3, you get thebenefit of a 3 vintages of management fees and
you start to really get into that carry.
So it really is like, all things in business avery long term game.
You're really focused at AQVC in terms of
democratizing venture capital.
In many ways, you're going in the oppositedirection of traditional venture,
which raises from endowments and pension fundsand foundations.
(28:22):
How does your product differ for the high networth and for the family office network versus
the traditional venture capital LP?
First of all, we see thunder fund, which is afor your new product, let's say, it's just
a few years old, I think.
And this is because the ecosystem is not theoldest.
So we are talking
about 20 years now of a kind of developingecosystem of
venture capital in Europe.
And therefore, for fund of funds that wanted tostream the market and really have the
(28:51):
possibility to compare companies beforecreating portfolio.
Like we did, again, 3000 plus we see fundsscreened and
ended up with an essence of 20 roughly.
So therefore, you need enough portfoliopotential.
Right?
And I think this
is even possible only in the or since the lastyear.
So, therefore, risk is one of the mostimportant hurdles we wanted to mitigate by
(29:13):
offering fund or funding.
The second one is, I think, in transparency.
So normally when you invest into a VC fund, aclassic one will close, and it's are you invest
in a dry powder or dry clothes status.
Right?
So you invest really purely into the team.
You don't know what they will buy, where theywill invest, when they will invest with a QVC,
you receive almost
done portfolio structure.
Right?
So you immediately are diversified withinvesting or
(29:33):
with the moment you are investing.
We are an evergreen structure.
That means that once you're less today, youinvest
into everything.
You will see past.
Right?
And this also contains the historicalportfolio.
Also, of course, the upcoming lessons, butthere's fog there as well.
And we aim for starting very early fulfillingour investment strategy.
(29:55):
So we wanted to be kind of done within ourinvestment strategy in the first one, one and a
half years.
And then within the strategy grow piece bypiece.
And this is what we actually were lucky enoughto do.
So the portfolio and the strategy of theportfolio is kind of there, and it's proving
how we planned to structure the wholeportfolio.
I know we are just growing in this strategy.
(30:16):
The third aspect, I would say, is access.
So we are doing this since years in Europe, andwe have a great ecosystem.
We, I think, started earlier than others withproper communication in a good network.
So we think that also by how we can add valueto the GPs we are investing in as an LP with
our fund of fund brings us into deals wheremaybe people, family offices that don't have
(30:40):
the capacity to do this full time or even theskill set to do have access to, right, and
promise to have a better access and structure abetter portfolio than just a single multi cat
or a multi haptic office can do it.
And last but not least, the problem why many ofthe European or American sons are over to
families or island with individuals are notinvesting more or even actually foundations or
(31:01):
institutional investors in Europe are notinvesting more into venture capital as
liquidity.
Right?
So as you mentioned at David, you wait for 10,12, 14 years until the full capital is paid
back by a VC fund.
So you kind of invest into a black box and thenyou are stuck for 10 plus plus years.
And we tried with accuracy to reengineer thisproduct or the structure how to invest into
(31:22):
venture capital as a cost because venturecapital is, as we all know, the fuel of
innovation, but kind of missed in the last 20years to reinvent itself, as a product, as a
financial product, how to approach and accessthis asset class.
And this is what we try to do with the EUC.
So our product is structured as a analyst, it'snot complaining, and it even makes it
structured wise possible.
(31:43):
To exit during a year.
And we offer this twice a year in a so calledsemi liquid structure.
Visual and mission on this is that we will beable to have a semi liquid product one day
where people just can invests ECF like into aVC 500, Europe, or even globally, and more or
less enter this asset class.
It's not only one single region or one singleteam or one single industry.
(32:07):
You should be early also as a dentist or aroundthe corner.
So rather than institutional arrest so withdeep, deep pockets to be able to invest into
this very innovative asset class.
And therefore, illiquidity is necessary.
And venture capital is financial very illiquid,of course, and we will not never solve this
fully as it is an inference parent or orilliquid asset class.
But making it more and more liquid andaccessible for kind of everyone someday is what
(32:30):
we are aiming for.
You okay.
You you oftentimes compete and to get into thevery top funds.
What's the value out that AQVC brings to GPs
Good question.
I mean, if you look at the AQVCT, first of all,I mean, we have experience of being, you know,
founders, angel investors, VC fund managers, VCfund managers.
So as a group, we know the value chain from ato zed.
And we've probably seen an experience quite alot of the same hurdles or challenges that busy
(32:55):
funds face today, and meaning that we're ableto support them with different topics.
And so, you know, we can support them withfundraising strategies, helping introductions,
We're leveraging our network, introduce co andfollow on investors, and recruiting, for
instance.
And, yeah, this is something we have done inthe past.
Then, of course, all of our portfolio of oneswill get access to the ABC discovery platform
where we also give them hands on support.
(33:15):
On top of that, we are quite active on bringingmore visibility through our newsletter and
LinkedIn.
We leverage,
which we leverage quite a lot.
We actively showcase the funds and people
behind our investments.
Obviously, not all VC funds want or need anysupport from us, and that's fine too.
But those that do, we will for sure help themas much as they want.
(33:36):
And, I think that's the philosophy we follow ingeneral.
Everything we we do at AQVC.
I mean, we wanna be in value at LP, but we alsowant to support and, you know, strengthen the
VC ecosystem.
So we're producing quite a lot of educationalmaterials to both pieces and LPs out there.
Everything from fundraising guides to pitchdeck templates, to guides on fund marketing
regulations.
So I think this is such an important assetclass that we want to help to grow the
(34:00):
ecosystem.
Where do you see AQVC in 5, 10 years?
In 5 to 10 years, AQEC will be one of theleading fund in Europe and go to address as a
platform that makes capital formation withinthe venture capital asset class more official
than if someone thinks of venture capital offunds, they should think of AQVC.
This is where we want to go.
(34:21):
What would you like our listeners to know aboutyou, about AQVC, or anything else you'd like to
shine a light on?
What I want to tell emerging managers is it's atough road.
It's a tough journey.
And I think what should not be treated or whatcan be treated enough well is team.
So team dynamics choose your right partners iskind of everything.
(34:42):
And therefore, I think this is one of thethings that also makes a QVC unique, not only
that we have by ourselves a great team and agreat partnership with all our colleagues but
we also try to be for every receive fund areally good partner.
We know that it's really tough out there.
We received tons of notes over the last 15years, and we will receive another ton of notes
(35:04):
in the upcoming 15 years, for sure.
But when you have or once you have the rightpartner at your side, I think this is doable.
We as a QC want to be the partner that helpsyou as a VC fund or as an investor and to start
ups with either capital or with support on anykind.
And the mission is also not only investing andcreating profit.
(35:25):
Also, sure, we are a fund that wants and willcreate return and profit for itself.
But we also want to really support theecosystem of venture capital.
Not only, but especially in Europe.
Europe needs that and Europe needs innovationto be able to survive in the upcoming decades.
And therefore, innovation needs capital.
It's not only the idea.
(35:45):
Right?
It's, unfortunately, also capital.
What's the biggest constraint to Europe,whether it's financial, political, or however
controversial you'd like to be, what's the mainconstraint to keeping the European VC ecosystem
from reaching its potential?
I think Europe has the huge
problem besides the political side of
right hand wings becoming more and moreairtime, which is not a good development,
(36:07):
obviously, but the big problem in Europe isthat it's very factual.
So you are very fragmented.
So you have totally dozens of differentregulations.
Market team is a really an issue.
Cross border.
We have different systems, different financialauthorities.
And therefore, by itself, Europe is, per se, ahuge market, but divided into very, very many
(36:29):
smaller markets, which you need to conquer andcover somehow this is really a problem.
Also, Europe is very good in regulatingthemselves before even having started with
something, and this is also, I think, in thatmindset that needs to be changed on hold.
Thanks for jumping on.
Look forward to to continuing the conversationin person and chat soon.
Thank you for grabbing us, David.
Thanks for having us, David.
(36:51):
For more ideas on how to raise venture capitalin this market, make sure to subscribe below.
When we look into the data, we see that acompany raising a seed run-in Europe has
actually the same probability of reaching aunicorn status as a company in the US.
So for us, this is actually a crucial pointbecause it highlights the potential for high
returns in Europe.
Additionally, you know, there's less capital inEurope, for sure, which means there's a little
bit less competition as a result of thisdevaluations a little bit lower.
(00:22):
We see funds are also companies, right, and GPsneeds to understand that.
And this is very because I think many of the VCfund managers out there don't really realize
that they are building a company here so thatteam dynamics are as crucial and important as
it is in startups or in other companies.
And that building a VC fund as a GP is not thefastest way to become and many of them are
(00:44):
approaching this asset just by the idea of thecoming rich fast, which is totally in most of
the cases, not true.
It's a long path of nose, a long path ofsetbacks, and a long path of not eating and
sleeping until you even know if you're anoutlier or not.
Right?
Yoke and Marius, I've
been excited to chat ever since our friend,Jordan L, made the introduction.
Welcome to the Townex Capital podcast.
(01:12):
For having me.
Thank you, David.
Thank you for having us.
Marius, you founded AQVC.
Tell me about how you went about founding AQVC.
I'm one of the founding partners, suspension,but I offer complimentary capital and I started
my career with studying law.
Left this environment quite early after even 1year, I built up 1 of the first German company
builders or co founders and another brand RANGOut founders.
(01:32):
So we co founder roughly 20 companies over aperiod of 7 years.
And parallel to that, we started our first CCfile in 20 13.
We invested also roughly in around 100 startupsnotes the early stage.
In 2021, then I partnered up with Metro basedpartners in 200 a QVC.
And so we started with a fund of VC funds afterhaving screened more than 3a half 1000 VC
funds.
(01:53):
We thought that there is this functionality incapital formation between GPs and LPs.
There's so many fund of funds out there.
Do we really need another fund of fund?
Why start AQVC?
Yes.
I think so.
And, to be honest, when we started AQVC 3 yearsago, were not that many fund of funds, to be
honest, at least not fund of funds thatreengineered their structure in a bit.
(02:14):
So our mission and vision worsen is still todayto democratize venture capital as an asset
class.
Right?
So therefore, we looked at the products themarket was offering in these days back then,
and we thought of building a product that is ormaking the access easier in networking
individuals and family offices.
And, Yoko, you joined AQVC.
Tell me about when you joined and what's yourrole in the company?
(02:36):
My background is doing pretty much fundinvestments for different organization, family
offices, you know, about management firm andalso try to raise my own VC fund.
I joined AQVC and supporting on differentthings.
Right?
Currently, we're building an LP community aswell.
You know, also speaking, we've done that with alot of other LPs as well.
Under family offices and fund of funds to sharenotes, research, deal flow, and just in
general, just build that ecosystem on wearingquite a lot of different hats as of now.
(03:00):
Marius, it's Q3 2024.
What are you looking for funds today?
Yeah.
It's a good question.
And first, it's important to know, David, thatwe invest into both emerging and established
the sequence in the kind of bubble strategy.
So when we evaluate a VC call, we take a lot ofaspects, obviously, into account, and we can
split them basically into 2 buckets, which isquantitative and qualitative aspects.
(03:21):
Right?
So starting with quantitative, maybe, ofcourse, we have to start with benchmarking the
historical performance of either the fundmanager itself went or the acting GPs
themselves.
So as a cycle from inception, over severalclosings to the
final closing, it can take 12 to 24 months.
I think typically, so this is important to takeinto account to
be able to compare apples to apples.
(03:45):
And therefore, it's important to understand howto correctly benchmark.
So before comparing, receive funds to eachother, you need to verify our benchmark exactly
sees the vintage, post loadings, start upinvesting, finally closing their different
approaches.
For sure.
The most common one is Cambridge, associatesCA, and they use for the vintage year, the
inception date of a receive.
And so once you have found the correctbenchmark vintage, it's about comparing key
(04:09):
metrics that matter.
Right?
And we'll spare you details now around the KPIexposes but combined these metrics give a good
indication inside of a fund's performance andother qualitative aspects you will want to look
at our loss ratio, fund model, portfolioconstruction, holding percentages, and the way
the fund sticks to it over time and so on.
And on the qualitative side, We do a lot ofreference calls with portfolio CEOs with LPs
(04:33):
with co investors.
We evaluate team dynamics.
We had a very close look at the investmentdecision process.
We check everything around secret sauce when itcomes to oversubscribed deals, we look at the
network, which is important for buying,selling, fundraising, and so on.
Many more things, I think, in total, plus 3digits of checking points.
And this is obviously very dynamic.
Right?
So once you are looking at the emerging managerside, the qualitative aspects are more
(04:56):
important in the relevant and the quantitativeones.
And once the fund is more established, you havemore numbers and more advertisers to do at the
very early stages, just a natural personinvesting into a natural person.
Right?
So in the emerging segment of its funds, it'snot necessary to find big brands or names, and
you need to find managers who are going adifferent way and are willing to go for long,
(05:18):
long feedback loop managers.
We look at need to understand that the hardwalk of life before becoming an outlier.
Our edge to getting to top managers maybe is weare offering unique at P value.
So we are 3 partners now, operative partners,and on top of a team of very, very experienced
founders, elocators, former GPs, and we walkedaway from founder to content bigger to GP to
(05:39):
educate with no wire outside of funding.
Of course, it helps when stepping in early on aGP's life cycle.
We've seen this year first time funds aregetting 90% less allocation than last year,
which was down from the year before.
What gets you to write a check into a firsttime fund today?
Q3 2024?
We have the mandate, right, and the question isbasically why we invest into both emerging and
(06:04):
established managers.
So Established managers obviously can provide abaseline solid performance.
Right?
So 48% I think is the statistic of the topquartile funds maintain top quartile status and
direct subsequent funds.
So this is great, but choosing carefully,emerging managers can outperform, right, And
even though the amount of funding they get inthese years, 70% of the top decile funds
(06:26):
globally are emerging or and developing funds.
So to ensure the best sector coverage, we splitbetween those both and have this mandate also
to take emerging managers by the hand and walkthem also through the journey of becoming an
institution investor one day.
Okay.
Tell me about
AQ discovery.
What is AQ discovery?
AQVC discovery is a software for GPs and LPs
in the BC in the
(06:51):
industry.
So through the platform, we're offering techand services across the entire VC fund value
chain of capital formation.
Right?
So the idea of AQVC discovery was actually bornfrom our own needs.
So we, as a fund of fund, have a massiveinbound deal flow A lot of that deal flow is
emerging managers.
I mean, which we like because we actively backemerging funds, but, you know, we quickly
(07:11):
noticed that a lot of these managers who applyfor our capital are presenting themselves very
differently.
Everyone shows their numbers and KPIs indifferent ways.
So there's really no standards or structures inplace in our industry, which makes it quite
inefficient and difficult for LPs also toreview funds.
So based out of our learnings as a VC fund andbased on feedback from other active allocators,
(07:34):
we built a solution for both PCs and LPs whereVCs can actually present themselves in the best
way possible to their potential LPs, managethose relationships, and also we support them
with LP lead generation.
So if you think about it, you know, so throughour platform and services, we function kind of
as an extension of their team.
Also, fundraising market has obviously beenquite challenging, you know, the last few
(07:55):
years.
At the same time, a lot of managers don'tnecessarily have the resources or experiencing
fundraising or broad LP networks to tap intothis is where a QVC discovery comes in to fill
those gaps.
And at the same time, you know, the platformallows LPs like ourselves to screen and
diligence fund managers much more efficiently.
And that's what it's all about to enhance thecapital formation process in the venture
(08:17):
capital industry.
You mentioned presenting information to LPs isan issue.
As an LP, what do you like to see in a dataroom?
What is the minimum viable data room that youlike to see from an emerging manager?
You need to compare one GP to another beforeinvesting into a certain sector and to a
certain geo an example, we decided to have orwant to have an impact fund in our very back
(08:38):
then early portfolio.
Right?
And therefore, we were able as, this is ourfull time job.
Right?
We were able to stream and plus 200 impactfunds that we decided we invested to one of
them.
And this is kind of the essence.
We screened more than 3000 VC funds over thelast 2 years, and we came up with an essence of
our portfolio of 19.
So it's all about data normalization andstandardization.
(09:02):
Right?
This is very important.
And This also is the crooks why not more peopleat least from the private wealth side, have the
capacity or skill set to invest more money intoour adventure capital because GPA sends you a
deck with KPIs on slide 9, and GPB sends you adeck with KPIs on slide 12.
And as, already also mentioned, there's a lotof KPIs to compare.
(09:24):
So some of them, a report in IRR grows, some inDPI net.
So you need at least the full time analysts todo the math behind it and be able to to compare
one we see to another.
Or we learned that this is one of the biggerproblems and makes capital formation very
dysfunctional or very ineffective within orbetween GPs and LPs.
And this is also one of the reasons why wecreated a QVC discovery and structured a varied
(09:49):
data standardized and normalized profile, whichwe, as a heavy allocator, which means investing
to 5 to 10 or more receive funds per year, wantto see.
So there are I think it's in the in themeanwhile on the profile plus 400 data points,
you might or able to fill in SMBC Fund.
So the depth of information is or can be verydeep.
(10:11):
And if you want to have a high data density to,you also need to provide a lot of information.
But what we look at, most, I would say, is
historical performance of the acting people.
And therefore, it's a quantitative measure, andit helps just to have very, very normalized
data, very standardized data.
And this also applies to all other LPs outthere.
(10:31):
Right?
So even other heavy allocators talking from theEuropean ecosystem right now using the platform
and are using the way we decided how fundsshould display themselves in the best and most
efficient way for them.
And also on the opposite we see funds have acertain type of capacity for fundraising,
making it more effective, especially in thesedays where fundraising is the the cash the
(10:52):
money is not just lying around, but it wasmaybe 5 years ago.
So we need to kind of do your fundraising inthe most efficient way and therefore sort out
everyone who's not interested very fast.
A quick no is almost as good as a quick yes,but nurturing over a month with a piece that
are not even fully interested It's just a wasteof time.
(11:12):
And this is why we created the way of AQVCdiscovery out it's created right now.
The best possible way to display for a VC fundand the best possible way for VC funds to
fundraise in the most effective way.
You mentioned that quick no could be veryvaluable.
A lot times you see LPs ghosting or notresponding.
Talk to me about the game theory.
Why do LPs do this?
Actually, David, I'm not very sure.
(11:33):
I think it's a, also a matter of education.
So, yeah, even if you, of course, get coldlyapproach then maybe you just not have a
capacity to answer everyone.
Right?
But if you start a conversation, I think it's amatter of good education to at least say, no,
thank you.
Dosing is something we saw developing over thelast years more and more, to be honest.
It's certainly also has maybe something to dowith the culture of venture capital in the last
(11:57):
years.
We see is today there in our opinion whereventure where private equity was standing 20
years roughly ago.
Right?
So a lot of inference, currency, a lot of notvery well done communication as the last years
were just kind of
an hockey stick in terms of performance andalmost every VC fund.
The communication was, I think, not treatedvery well.
So we cease
(12:21):
not in total or in general, but many of themneed to learn how to properly communicate in
the picture again.
Right?
Or we saw a huge correction phase in the last 2years, and many of them learn learn first time.
I think that it's not always just going up.
And therefore, our proper communication is veryimportant.
It's all about transparency and about trust,and we just need to fight back to the method or
(12:42):
way of treating each other in a very trusty andand and respectful way.
Yeah.
It's it's interesting.
I I think there's not only analogy to privateequity.
I think there's an analogy between VC andstartups as well.
People don't remember this.
When I pitched to Anderson and Horowitz for mysecond startup in 2012, they had revolutionized
this concept of saying no.
It was this revolutionary thing where theywould give you feedback.
(13:03):
And it was very smart.
And I think it was very long term greedybecause once you get that feedback, you're more
likely to come back to that firm for a secondstartup for a future round.
I think LPs like VCs, falsely believe that ifthey just don't communicate, maybe at some
point, they'll be able to come in and say yes.
But just like founders, GPs also have longmemories, and they remember who treats them.
(13:24):
And any GP, I think that's worth their theirway in gold.
Understand when somebody passes on a certainround or certain vintage.
I don't think that kills the relationship, andI think there's a false premise on that.
That basically kicking the can down the road issomehow gonna create optionality where I think
it actually hurts the relationship more thanhelp.
I totally agree, David.
You can't have everything you said right nowbecause a no is always okay.
(13:47):
I mean, there might be a GP that is a totalrock star, but just does not fit into our
portfolio right now.
And therefore, telling no doesn't mean you area bad person or your skill set is not good
enough.
It's just like it doesn't fit to us as anallocator.
And we also have a mandate towards our LPs.
Right?
So we need to have restrictions and stuff likethat.
So it's not always that you like to discreditother people.
(14:08):
It's more like, yeah, it's it's just not a fitand a good no, and think of that.
You you just said in reason kind ofrevolutionized the no in 2012.
So it's 10 plus years ago.
It's not that much water down the river sincethen.
And, also, I think, is seen or an asset classand talking also again out of the the Euro
glasses, it's a new one, right, compared toother asset classes.
(14:31):
And there needs to be development, in thisdirection.
And it's easy to go or easier to compare it toprivate equity as an envelope because private
equity just they learned the same hard way thatcommunication is everything.
It's just everything being transparent.
And also
we tried as a QVC.
And, obviously,
most of our answers are no take telling youabout 3a half 1000, we see funds we had to look
(14:57):
at and invest it into 19 means most of them,receive a note.
Right?
And we also try to find the best possible andnicest law on
the market.
And also the platform serves here as a kind ofsupport anyway.
So we we cannot support every single VC fundaround the globe with capital because we have
also limited resources,
(15:17):
right, and and portfolios to structure.
But what we can do is help you as a VC fundanyway.
And this
is what we really, really try hard withplatform making VC discovery.
So either we have capital or we have a platform
that could help you or even more.
Congratulations.
10 x capital podcast listeners.
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(15:39):
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And you're okay.
Speaking of the platform and AQVC discovery,what problem cases are you solving around?
(16:00):
Why do funds come to you to sign up?
Yeah.
Good question, David.
Obviously, there's a lot of things that we dothrough the platform.
One of the things is obviously thestandardization of data.
And for a lot of emerging managers, you know,just having a beach deck is not the best way.
And, you know, beach deck that's not created,you know, up to optimal way for sophisticated
LPs by just sharing your beach deck with LPs aswell, it's it's not ideal because usually LPs
(16:23):
read the first five pages of that beach deck.
So you need something else that allows you toshare your profile, share your data in a way
that's actually designed, based on LP needs.
So through the platform, they're actually ableto create a profile of their fund that allows
LPs to run their due diligence from start toend.
And this includes all of the, you know, fundterms to videos about the team, about the
(16:45):
strategy, news section, you know, a duediligence questionnaire.
But on top of that, funds can actually also askfor feedback through the platform from
potential LPs or LPs that decline theopportunity.
And most of VC funds or all of them have LPsthat says it's not for us right now, but let's
circle up later on when you're coming back withthe next fund.
And these are huge opportunities that busyfunds need to actually take and nurture those
(17:10):
relationships because when you're back in themarket, it doesn't help if
you don't keep those relationships warm at thatat the same time to serve some funds who
actually need it.
So we do
also LP lead generation as a service.
So we try to identify suitable LPs for theirfund.
So there's quite a lot of different dimensionsthat
comes to the platform and what we actually dowith
the funds in question.
You mentioned keeping relationships with LPs
from vintage to
(17:34):
vintage.
What's the right cadence?
What's the best practice?
Maurice, you're a fundraising expert here.
Yes.
At least the the title says that's, I think theright cadence, at least at AQVC, we right into
certain buckets of following up or nurturingprospects, potential investors from a very low
cadence, meaning just
signing up for our newsletter and just stay upto date
to a more, what, let's say, a very highcadence, which mean follow-up or following up
(18:03):
every kind of days.
So weekly, I would say on a
weekly basis.
It really depends on both.
I would say the maturity of the investor.
So lower maturity investors need
to be kept in a more close way to just beattached or keep them attached to the asset
class and to to your product.
And I think a higher cadence makes it easier tofollow even though the follow ups are maybe in
(18:23):
a less regular basis.
So it really depends.
And Also, this is a thing that we see as anasset class needs to learn
was for us talking to see how venture capitalfunds are able to educate their startup
portfolios in how to fundraise, how to segment,how to know
your customer, and how that the mass of theserefunds is really in or at least how less time
(18:51):
and effort they put in segmenting theirinvestor base.
So you really need to know your customer,especially in days where not 1 or 2 of 100 MLP
contacts is investing, but more 1 or 2 of 200,you really don't want to waste your time.
And Do
you think there's an eightytwenty rule to LPsand that you spend 80 percent of your time
(19:11):
focusing on on the larger writers, what whathave you found in terms of LP composition and
funds?
It also depends really when funds do or whenfunds start as an emerging manager,
as a nature of things, the biggest chunk of
the capital of the AUM comes high net worthindividuals and family offices smaller ones
than single, bigger ones and multi familyoffices up to some corporate or insurance or
(19:33):
institutional money or foundations even.
And it's also, like, with fundraising for astarter view, start with business angles,
right, and increase your check size over time.
An age of things.
And when you raise your 3rd 4th 5th generation,it's either important to increase your check
size, at least when you want to increase youryour AUM proven pitch at accuracy, to be
honest, we we like funds that are smaller.
(19:56):
It's a lot of beautiful is what we think in inmost of the cases, applies here.
And also increasing AUM for vintage to vintageis not the very best side always.
So the best case is you raise your fund and youstick to your vessel this is what every VC hunt
really wants to do.
This will not work for everyone as the high networth individuals or or smaller investors tend
to not
re up into new upcoming vintages.
(20:23):
And therefore, the time you spend, and this isback to your question.
David, the time you spend for a bucket willchange over time.
At the beginning, you will really work hard for5 hour k ticket and becoming more and more
professional or also institutional and fund
raisable as a DC file as company for for apiece, you will also start spending more time
on bigger tickets.
But the statistic, anyway, says that at least afamily office or high net worth individual
ticket comes on average after 2 years ofknowing the GP, which means you need to nurture
(20:56):
and you need to spend a lot of time on thistype of buckets and investors.
You've raised for startups for venture fundsand now for fund of funds.
Which one is the hardest?
Which one is the easiest and rank those for me?
The easy startup is easiest.
We see funds then and fund of funds is thetoughest enough to crack.
Why is that?
To be honest, David, I think when we started 3years ago and went live 3 years ago, we are
(21:19):
still also an emerging manager in terms of himbeing a front of fund.
Right?
The thing is when you start to fundraise for astartup, you really pitch and vision.
You pitch a team, obviously, we are able topitch your team as well, but the more you get
up from startup to receive front to front offront, the more disconnected you are from the
vision.
Right?
(21:40):
So the problem for a front of front is that Icannot really pitch a visionary product, more
an idea, or what I need to and we are afinancial product.
Right?
So the the fundraising is way
more neutral, way more focused on we are a goodfinancial product for you.
It really makes sense.
It's not I think for visionaries, to be honest.
It's it's hard to to sell the vision of venturecapital, which we all are getting up in the
(22:05):
morning for.
Right?
We at least have been entrepreneurs back thenand are still by heart, but pitching a vision
today is as a financial product, not that Andthis makes it just difficult and different from
raising a startup, especially in the earlydays.
Yoke, tell me about European Venture as itstands in q 3 2024.
Where's the market at?
Obviously, it's been quite challenging marketfor Europe as well, but both for the US and
(22:26):
other regions, I mean, looking forward, we'reactually quite optimistic about the future of
DC in Europe.
Firstly, as Maurice told already, you know,Europe is our whole market.
We have quite an extensive network here, youknow, everything from DC funds to angels, to
founders, and other LPs.
So, you know, this gives us already quite asignificant edge in understanding the market
dynamics and identify promising
opportunities in Europe.
I mean, it's true that Europe is lagging
(22:46):
behind us in BC.
But this is also quite natural in a wayconsidering that the asset class is actually
born in the US.
So it takes time for other regions to catch up
if they ever do.
But I would say Europe is steadily closing this
gap, you know, despite being up quitefragmented market with 20 to 30 different
(23:08):
jurisdictions and regulations.
Progress is still being made, and the assetclass is still growing when you look at on a
longer horizon.
When we look into the data, I mean, we see thata company raising a seed run-in Europe has
actually the same probability of, you know,reaching a unicorn status as a company in the
US.
So for us, this is actually a crucial pointbecause it highlights the potential for high
returns in in Europe.
(23:30):
And additionally, you know, there's lesscapital in Europe, for sure, which means
there's a little bit less competition and alsoas a result of this, the valuations are a
little bit lower.
But in general, it's a pretty good environmentto find promising fund managers who are able to
find innovating companies in Europe, and westill see innovative companies being founded in
Europe.
(23:50):
It's for sure not a perfect
market yet if it ever will be, but of course,we wanna be part of that
ecosystem and also help and support Europeanecosystem to grow.
Marius, I wanted to double click on what yousaid about diligence in 200 impact funds.
Tell me about how you went about learning aboutthe market and what did you learn through
having so many conversations?
Take me through that evolution.
(24:10):
You learn a lot especially when and you'd alsoneed to to make a difference here, David, when
you
evaluate emerging funds comparing to,established ones.
So established funds, as mentioned, thequantitative
part of the DD is way higher than thequantitative part when evaluating emerging
managers.
So in this case, I mentioned earlier, we werelooking for, yeah, emerging or developing fund.
(24:35):
And therefore, we learned a lot of people inteam dynamics and we see funds are also
companies, right, and GPs needs to understandthat.
And this is very interesting because I thinkmany of the VC fund managers out there don't
really realize that they are building a companyhere.
So that team dynamics are as cruciallyimportant as it is in startups or in other
companies and that we see funds or building aVC fund as a GP is not the fastest way to
(25:00):
become rich, right, and many of them areapproaching this asset just by the idea of
becoming rich fast, which is talkingly, andmost of the case is not true.
It's a long path of nose, a long path of sattext, and a low path of not eating and sleeping
until you even know if you're an outlier ornot.
Right?
So we learned a lot about different teamdynamics, different team settings, different
(25:23):
people being humble or not, and therefore, howto believe or how to invest in being or
becoming convinced of very young teams whereyou don't have a lot of quantitative aspects
proven to check.
This was, I think, one of the most importantlearnings for us when you do the quantitative
tracking and analysis.
It's just a matter of good and very efficientand sustainable comparison.
Right?
So qualitative one is always the one where youneed also experience where you need a feeling
for people.
(25:50):
Not only reference calls will help, but alsoyour feeling of the team.
And if they are able or in the situation thatthey can crack this, not by building a very,
very experienced and also out in some of theinstitutional company that is doing, you see,
in fund investments, and this was the cruciallearning.
How long does it take to become rich as a GP totake me through the economics?
(26:12):
It's a little didn't do or I don't have themath provided here, David, but on average,
prounding startup to exiting startup will takeyou 10 years.
It might be 6.
It might be 8.
It might be 12 or 14.
We have seen everything in the last years ofdoing venture capital as an asset just.
We had exits that were very fast We had exitsthat were for whatever reason, not that fast.
(26:33):
We know the companies were great.
And also the market and the dynamics arechanging heavily in these days.
So, I mean, as you all know, we were not see alot of IPOs, which are not profitable companies
that are not profitable in the future, but themarket is kind of changing and turning.
And I think also that private money, therefore,needs to be available because you will see
(26:55):
nature stage IPOs that we saw in the recentyears.
And therefore, I think exit horizons will alsoincrease.
So very, very fast exits, at senior of the pastwar, still, I think, of good luck in the
future.
And so you need to build really stable.
And in the best case, you can break evencompanies.
So that would take just time.
It's not the easy way to be coverage.
(27:16):
The way that I look at it, just the simple mathis just like any other business.
It requires compounding.
It's an industry you wanna go into if youreally wanna do it for 10, 20 years because
what happens is Let's say you start a fund 1,it's $50,000,000.
You get your 2% management fees.
If you do a good job deploying that in 2 years,you get another fund with 2% management.
So you start to stack the management fees.
(27:37):
And by roughly year 6, year 7, if you have agood fund, you've now returned 1 DPI, and now
you're into the carry.
A lot of people say fund takes 14 or 12 yearsto return all the capital.
The real question for a GP side is when youstart getting carry, and that's roughly about
year 6 or 7.
So If, and this is a big if, you know, very fewfunds actually make it from fund 1 to fund 3.
(27:59):
If you're able to get to fund 3, you get thebenefit of a 3 vintages of management fees and
you start to really get into that carry.
So it really is like, all things in business avery long term game.
You're really focused at AQVC in terms of
democratizing venture capital.
In many ways, you're going in the oppositedirection of traditional venture,
which raises from endowments and pension fundsand foundations.
(28:22):
How does your product differ for the high networth and for the family office network versus
the traditional venture capital LP?
First of all, we see thunder fund, which is afor your new product, let's say, it's just
a few years old, I think.
And this is because the ecosystem is not theoldest.
So we are talking
about 20 years now of a kind of developingecosystem of
venture capital in Europe.
And therefore, for fund of funds that wanted tostream the market and really have the
(28:51):
possibility to compare companies beforecreating portfolio.
Like we did, again, 3000 plus we see fundsscreened and
ended up with an essence of 20 roughly.
So therefore, you need enough portfoliopotential.
Right?
And I think this
is even possible only in the or since the lastyear.
So, therefore, risk is one of the mostimportant hurdles we wanted to mitigate by
(29:13):
offering fund or funding.
The second one is, I think, in transparency.
So normally when you invest into a VC fund, aclassic one will close, and it's are you invest
in a dry powder or dry clothes status.
Right?
So you invest really purely into the team.
You don't know what they will buy, where theywill invest, when they will invest with a QVC,
you receive almost
done portfolio structure.
Right?
So you immediately are diversified withinvesting or
(29:33):
with the moment you are investing.
We are an evergreen structure.
That means that once you're less today, youinvest
into everything.
You will see past.
Right?
And this also contains the historicalportfolio.
Also, of course, the upcoming lessons, butthere's fog there as well.
And we aim for starting very early fulfillingour investment strategy.
(29:55):
So we wanted to be kind of done within ourinvestment strategy in the first one, one and a
half years.
And then within the strategy grow piece bypiece.
And this is what we actually were lucky enoughto do.
So the portfolio and the strategy of theportfolio is kind of there, and it's proving
how we planned to structure the wholeportfolio.
I know we are just growing in this strategy.
(30:16):
The third aspect, I would say, is access.
So we are doing this since years in Europe, andwe have a great ecosystem.
We, I think, started earlier than others withproper communication in a good network.
So we think that also by how we can add valueto the GPs we are investing in as an LP with
our fund of fund brings us into deals wheremaybe people, family offices that don't have
(30:40):
the capacity to do this full time or even theskill set to do have access to, right, and
promise to have a better access and structure abetter portfolio than just a single multi cat
or a multi haptic office can do it.
And last but not least, the problem why many ofthe European or American sons are over to
families or island with individuals are notinvesting more or even actually foundations or
(31:01):
institutional investors in Europe are notinvesting more into venture capital as
liquidity.
Right?
So as you mentioned at David, you wait for 10,12, 14 years until the full capital is paid
back by a VC fund.
So you kind of invest into a black box and thenyou are stuck for 10 plus plus years.
And we tried with accuracy to reengineer thisproduct or the structure how to invest into
(31:22):
venture capital as a cost because venturecapital is, as we all know, the fuel of
innovation, but kind of missed in the last 20years to reinvent itself, as a product, as a
financial product, how to approach and accessthis asset class.
And this is what we try to do with the EUC.
So our product is structured as a analyst, it'snot complaining, and it even makes it
structured wise possible.
(31:43):
To exit during a year.
And we offer this twice a year in a so calledsemi liquid structure.
Visual and mission on this is that we will beable to have a semi liquid product one day
where people just can invests ECF like into aVC 500, Europe, or even globally, and more or
less enter this asset class.
It's not only one single region or one singleteam or one single industry.
(32:07):
You should be early also as a dentist or aroundthe corner.
So rather than institutional arrest so withdeep, deep pockets to be able to invest into
this very innovative asset class.
And therefore, illiquidity is necessary.
And venture capital is financial very illiquid,of course, and we will not never solve this
fully as it is an inference parent or orilliquid asset class.
But making it more and more liquid andaccessible for kind of everyone someday is what
(32:30):
we are aiming for.
You okay.
You you oftentimes compete and to get into thevery top funds.
What's the value out that AQVC brings to GPs
Good question.
I mean, if you look at the AQVCT, first of all,I mean, we have experience of being, you know,
founders, angel investors, VC fund managers, VCfund managers.
So as a group, we know the value chain from ato zed.
And we've probably seen an experience quite alot of the same hurdles or challenges that busy
(32:55):
funds face today, and meaning that we're ableto support them with different topics.
And so, you know, we can support them withfundraising strategies, helping introductions,
We're leveraging our network, introduce co andfollow on investors, and recruiting, for
instance.
And, yeah, this is something we have done inthe past.
Then, of course, all of our portfolio of oneswill get access to the ABC discovery platform
where we also give them hands on support.
(33:15):
On top of that, we are quite active on bringingmore visibility through our newsletter and
LinkedIn.
We leverage,
which we leverage quite a lot.
We actively showcase the funds and people
behind our investments.
Obviously, not all VC funds want or need anysupport from us, and that's fine too.
But those that do, we will for sure help themas much as they want.
(33:36):
And, I think that's the philosophy we follow ingeneral.
Everything we we do at AQVC.
I mean, we wanna be in value at LP, but we alsowant to support and, you know, strengthen the
VC ecosystem.
So we're producing quite a lot of educationalmaterials to both pieces and LPs out there.
Everything from fundraising guides to pitchdeck templates, to guides on fund marketing
regulations.
So I think this is such an important assetclass that we want to help to grow the
(34:00):
ecosystem.
Where do you see AQVC in 5, 10 years?
In 5 to 10 years, AQEC will be one of theleading fund in Europe and go to address as a
platform that makes capital formation withinthe venture capital asset class more official
than if someone thinks of venture capital offunds, they should think of AQVC.
This is where we want to go.
(34:21):
What would you like our listeners to know aboutyou, about AQVC, or anything else you'd like to
shine a light on?
What I want to tell emerging managers is it's atough road.
It's a tough journey.
And I think what should not be treated or whatcan be treated enough well is team.
So team dynamics choose your right partners iskind of everything.
(34:42):
And therefore, I think this is one of thethings that also makes a QVC unique, not only
that we have by ourselves a great team and agreat partnership with all our colleagues but
we also try to be for every receive fund areally good partner.
We know that it's really tough out there.
We received tons of notes over the last 15years, and we will receive another ton of notes
(35:04):
in the upcoming 15 years, for sure.
But when you have or once you have the rightpartner at your side, I think this is doable.
We as a QC want to be the partner that helpsyou as a VC fund or as an investor and to start
ups with either capital or with support on anykind.
And the mission is also not only investing andcreating profit.
(35:25):
Also, sure, we are a fund that wants and willcreate return and profit for itself.
But we also want to really support theecosystem of venture capital.
Not only, but especially in Europe.
Europe needs that and Europe needs innovationto be able to survive in the upcoming decades.
And therefore, innovation needs capital.
It's not only the idea.
(35:45):
Right?
It's, unfortunately, also capital.
What's the biggest constraint to Europe,whether it's financial, political, or however
controversial you'd like to be, what's the mainconstraint to keeping the European VC ecosystem
from reaching its potential?
I think Europe has the huge
problem besides the political side of
right hand wings becoming more and moreairtime, which is not a good development,
(36:07):
obviously, but the big problem in Europe isthat it's very factual.
So you are very fragmented.
So you have totally dozens of differentregulations.
Market team is a really an issue.
Cross border.
We have different systems, different financialauthorities.
And therefore, by itself, Europe is, per se, ahuge market, but divided into very, very many
(36:29):
smaller markets, which you need to conquer andcover somehow this is really a problem.
Also, Europe is very good in regulatingthemselves before even having started with
something, and this is also, I think, in thatmindset that needs to be changed on hold.
Thanks for jumping on.
Look forward to to continuing the conversationin person and chat soon.
Thank you for grabbing us, David.
Thanks for having us, David.
(36:51):
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