EUVC Newsletter | 02.06.23

FOMO, collaboration amongst Angels and VCs, Investment thesis deep dive and saying no to founders on first call.

Jun 02, 2023

Welcome to the GP/LP newsletter of Europe🙏

Firstly a heartfelt welcome to the 421 newly subscribed venturers who have joined since our last post! If you haven’t yet, join the 9,598 LPs, VCs & Angels that do or share it with your besties🤗

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Upcoming Events

Expand North Star in Dubai - the ultimate startup and investor connector event.

15 - 18 October, Dubai

Taking place at the iconic Dubai Harbour it is the must-attend networker for any tech investor on the lookout for the next game changers, disruptors, and innovative minds that are challenging and sculpturing the tech of the future. Showcasing 1,400+ startups from 100+ countries, Expand North Star in collaboration with the Dubai Chamber of Digital Economy unites founders, VCs, techies, and ecosystem enablers creating the world’s largest startup event.

FOMO - even the champs get it…

So I don’t know if you know Carlos. If you don’t, odds are you’ve heard about him as he’s racked up pretty solid track record:

Co-found Seedcamp - check
Build it up to become the reference seed fund in Europe - check
Become a podcast influencer and grow into a Stanley Tucci look everyone but Clooney and Pitt would envy - check.

Going into SuperVenture week where we’re all flocking to Berlin to choke on canapés and indulge in the this-year-maybe-not-so intoxicating haze of venture buzz the message that even Carlos feels the dreaded FOMO of not being every where all the time.

Well, well, as we navigate through the sea of tech enthusiasts, investors, and aspiring disruptors, let’s not scoff at the all-too-familiar uniform of ambition: crisp blazers, designer sneakers, and an unwavering determination to network to the top.

In this whirlwind of pitches, handshakes, and PowerPoint presentations, this year, let’s all be a little more Carlos. Stylishly calm, open-armed and always ready to make an intro that just may change someone else’s life.

Lunar Ventures introduces The World's First Deep Tech Tracker ⚛️

LP Hypeman’s note: In all candor, the collective intellect of the 10-person Lunar squad easily rockets past the 2,000 mark. Every encounter with this crew, every dialogue, leaves me feeling as though I've been left in the evolutionary dust, like I'm still figuring out fire while they're mastering quantum physics. Honestly, if there's a group more equipped to thrust a Deep Tech tracker into the universe, I've yet to meet them. Absolutely riveting.

After two years of research, we have launched this week State of The Future, a tracker for the most important technology trends with scores and predictions!

This labor of passion combines nearly two years of work, researching over 100 emerging technologies and developing a framework to assess a technology’s potential based on six factors: viability, novelty, impact, drivers, adoption, and timing. We use our framework to assess whether a technology is under- or overrated, and share a prediction for 2030 – so you can put us on the spot and challenge our thinking!
From quantum hardware, large language models, vertical farming, and brain-computer interfaces all the way to acoustic computing – if it’s deep tech, you will find it here.
Subscribe to Lawrence’s new substack blog to stay up to date with summaries, news, and interviews as the Lunar team add to the tracker on a daily(!) basis.

Super Angel #13: Dann Bibas on the collaboration between angels and VCs

For this episode our magical co-host Anthony Danon and Dann Bibas, GM International at Public.com took us into a conversation we had to feature on this newsletter, namely the interplay between angels and VCs.

I think there's a very sort of symbiotic or mutually beneficial relationship between angels and VCs.

So what are Dann’s thoughts on LP investing as an angel? Explore below.

So not the answer Mr LP Hypeman would have hoped for! But no surprise! Many angels have yet to do their first LP commitments. However, if you’re a subscriber to this newsletter, I’m thinking you’re starting to see that there might be some advantages to it 😉

Listen to the full episode below 👇

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Latitude59 - Shattering Norms, Setting Records, and Spearheading the Future of Baltic Tech

Latitude59 swaggered into town, laid down the gauntlet, and declared total victory. Tickets were as scarce as hens' teeth, with 3,000 eager tech enthusiasts pouring in from 67 different countries. An impressive roster of 126 speakers took the stage, a staggering 62% of whom jetted in from foreign lands, and women represented a hearty 46%. This international jamboree drew in over 600 investors, a crowd of 800+ startup revolutionaries, delegations galore, a swarm of 82 journalists, a bevy of side events, a platoon of volunteers, a laundry list of partners and a pair of riotous afterparties that will go down in the annals of Latitude59 lore.

The Investor Day, the prelude to this audacious tech extravaganza, saw 400+ investors, with their ears to the ground and their fingers on the pulse, gathered from the four corners of the globe – from the stars-and-stripes heartlands to the samba beats of Brazil, the morning calm of South Korea to the northern fjords of Norway, all the way to the rainbow nation of South Africa.

The coveted Latitude59 pitch competition cash stash was divvied up amongst three lucky startups this time around. Flowstep walked away with the biggest slice of the pie, a cool €600,000. Cino bagged a respectable €500,000, and ÄIO Tech pocketed €150,000. In sum, Tera Ventures and Estonian Business Angels Network EstBAN doled out a record-breaking €1.25 million investment, the highest ever in the Nordic and Baltic regions. Hear the story behind this investment pool in our pod episode going behind the scenes:

In the wise words of Latitude59's fearless leader, Liisi Org:

Numbers are great, but we weren't just playing a numbers game anymore. We always aimed to be bolder, not bigger. To tackle the issues that really count. Our goal was to make you rethink the startup world. It's not just about pink unicorns and the grind anymore. It's about making an impact, and recognizing the responsibility of the tech sector to drive that change."

Mark your calendars: next year's Latitude59 is set for May 22-24 in Tallinn. Don't dawdle – early bird tickets are already up for grabs at a steal, so head on over to www.latitude59.ee to secure your spot.

Saying no to founders on first call

by Lomax Ward, GP of Outsized Ventures.

Let me tell you, my friends, Lomax Ward has created a video series which is a rare gem—a testament to authenticity, vulnerability, and unflinching honesty. It slices open the chest, exposing the raw core of the venture capital world. Lomax, in his unwavering candor, addresses founders with a sincerity that resonates deeply. He bares his soul and invites us to peer within, unraveling the layers that define this enigmatic industry. And for that, Lomax, I extend my heartfelt gratitude.

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In a realm often shrouded in façades and carefully crafted narratives, Lomax's willingness to be genuine is a breath of fresh air. By sharing this video, he offers a glimpse into the reality faced by founders brought upon by VCs, and in doing so, he illuminates a path towards greater understanding and empathy.

It takes courage to expose the truths that lie beneath the surface, and Lomax does so with grace and integrity.

Watch the past and future episodes here.

Investment thesis deep dive: How āltitude closes the SME Tech Gap

Through Automation and Sustainability Technologies

LP Hypeman’s note: While I wrote in our post announcing that we’re backing āltitude, venture fund investing isn’t about 3x or 5x, but about YOUx, we are of course still looking for that handsome multiple. So in this installment, I wanted to share a deep dive on their thesis, which I think will make you both understand why we’re so hyped about them, but also give you a much better understanding of how to approach investing in the SME tech gap.

Feast your eyes, this is good 👀

Introducing the āltitude Investment thesis

// We are Thesis-Driven with Thematic Elements.

>> At āltitude, we focus on early-stage B2B software technologies targeting SMEs, as we recognize the pressing need to bridge the growing Tech Gap. <<

We envision a remarkable opportunity to invest in scalable solutions that address the automation and sustainability requirements of SMEs. To guide our investment decisions, we have identified a “Magic Quadrant”, where the B2B software providers we are targeting reside — the very place where we can find our metaphorical Cerberus, the magical three-headed dog from Greek Mythology.

In Greek mythology, Cerberus is a multi-headed dog that guards the gates of the underworld.

In our context, Cerberus symbolises successful B2B software solutions that target SME customers but might have the potential to address Enterprise clients as well. The significance of small and medium-sized enterprises cannot be understated. Globally, they constitute 90% of businesses, contribute to two-thirds of job creation, and play a vital role in the seamless operation of global supply chains. Projections indicate that SMEs will experience a compound annual growth rate of 7.5% between 2022 and 2027, with IT spending on cloud-based categories expected to surge from USD 600 billion in 2022 to USD 1.0 trillion in 2027.

Importantly, this timeframe aligns with the duration of our fund. Governments worldwide recognize the need to foster SME development, as approximately 600 million jobs will be required by 2030 to accommodate the expanding global workforce. Consequently, SMEs have become a high priority for many governments. Despite their immense impact, however, a significant number of SMEs have yet to fully engage with environmental, social, and governance topics.

This is primarily due to their lack of knowledge, access to appropriate technology, educational resources, and the necessary mindset to initiate such efforts. Considering the mounting regulatory pressure, addressing these challenges is likely to become a priority in the near term. Additionally, SMEs are grappling with their digital and sustainable transformation endeavours, particularly in adopting automation technologies that enable their core business to remain competitive in the market.

// The Cerberus is our Holy Grail of Investments.

>> We aim to become the missing link to successfully master the SME challenges of the next decade. <<

In our classification, we consider SMEs with 20 to 1,000 employees and annual revenues of up to EUR 500 million as our sweet spot. These businesses face a range of challenges that they must overcome to maintain a competitive edge in the market.

/ Value- and Supply Chain Management
One crucial area where we expect to witness the emergence of technological solutions is in Value- and Supply Chain Management. The effective management of these chains is vital for organisational success, as it directly impacts productivity and profitability.

/ Leverage Software
However, SMEs often have limited financial resources and a shortage of qualified staff to oversee the entire process. Therefore, it is essential for them to leverage software that can minimise errors and inefficiencies, enhance transparency, and enable proactive measures and corrective actions.

/ Efficiency
Improving resource efficiency is another key aspect for SMEs. By maximising the output of available resources without risking overuse, businesses can achieve a Pareto optimum. To achieve this, SMEs need to gain insights and implement measures that enhance both productivity, profitability, and the sustainability of their processes.

/ HR - D&I
SMEs also face challenges in the realm of Human Resources, Diversity, and Inclusion. Skilled labour shortages, increased competition for talent, and a new generation of workers with higher expectations present unique hurdles for these businesses. The solution lies in adopting an employee-centric approach that fosters a positive and inclusive workplace culture, improves the overall employee experience, and aligns with the values and sustainability concerns of millennials and Gen Z employees.

Employees increasingly seek clarity on their employer’s ESG policy and its alignment with the organisation’s mission and values. ESG regulations loom on the horizon, with many larger SMEs expected to comply with EU regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation by 2026. Ignoring these impending regulatory burdens is counterproductive.

/ ESG Compliance
Proper management and reporting of ESG requirements can be resource-intensive, making it crucial for companies to gain transparency regarding their social and environmental footprint. Effective implementation necessitates a top-down and bottom-up process that engages management and employees in unison. To avoid excessive bureaucracy and the need for costly experts or management consultancies, SMEs should embrace best practices and leverage appropriate tools.

/ Productivity
Productivity improvement is often hindered by a lack of measuring processes in SMEs. This is frequently linked to a lack of process digitization. When data cannot be readily prepared, analysed, and evaluated due to paper-based systems or outdated software, decision-making relies more on experience or intuition rather than timely quantitative data.

/ Process Optimisation
As ambitious competitors catch up, SMEs cannot afford to shy away from digitization in the near future. Process optimization ties together the aforementioned challenges, gaining even greater significance in a dynamically evolving environment. Technological advancements, upcoming regulatory requirements, new competitors, economic downturns, and macroeconomic factors necessitate constant observation, analysis, questioning, and to some extent, automation of processes. The foundation for this lies in digitalization.

>> Organisations that fail to embrace digital transformation risk losing relevance and eventually disappearing. We firmly believe that these digital transformation challenges can be conquered through the adoption of automation and sustainability technologies. <<

These are the thematic elements we incorporated:

SME Challenges — Sustainable & Digital Transformation.

/ Automation Technologies
Artificial intelligence, process automation, cloud / data intelligence, no code & low code solutions and workflow technologies pay into solving most of the pressing challenges such as (i) value and supply chain (ii) hiring / D&I (iii) process optimization.

/ Sustainability Technologies
Decarbonization, energy & renewables, mobility & logistics, water and wastage and ESG management primarily pay into solving (i) ESG regulations (ii) productivity (iii) resource efficiency.

/ The Interconnection
Notwithstanding, both automation and sustainability technologies have a strong interconnection with various dependencies, such as (i) artificial intelligence & water and wastage (ii) data intelligence & decarbonization (iii) workflow technology & ESG management, among many others.

// The SME Tech Gap is Real and Underserved.

>> We believe that great B2B technology startups start with SMEs as their primary target customer and either succeed in capturing massive market shares as an SME solution or grow into fully fledged enterprise solutions over time. <<

Successful SME focused start-ups: e.g. HubSpot, Slack, Beekeeper. Hybrid Cerberus start-ups: e.g. Personio, Zoom, Shopify.

That’s why we are deeply in love with identifying Cerberus startups, tomorrow’s SME B2B software outliers.

In the current macroeconomic climate, technology has become a crucial factor for survival, determining future growth and competitiveness for many businesses. SMEs are being compelled to undergo digital and sustainable transformation, leading to a rise in early-stage startups addressing their specific challenges.

Traditionally, VCs have exhibited reluctance to invest in the SME segment, citing various reasons such as:

/ Perceived small total addressable market (TAM)

/ Insufficient terminal value to justify the fund size

/ Assumptions of high churn rates with low return on investment (ROI)

/ Concerns about SME spending during economic downturns

/ Longer sales cycles compared to consumer products, but shorter than enterprise sales cycles

Here is a comparison illustrating how investors have traditionally perceived Consumer, SME, and Enterprise solutions:

*Consumer Vs. SME Vs. enterprise customers.*

However, we believe that significant market drivers are already in motion, and there is a misapprehension about the most attractive type of SME customers for the next decade:

/ Digitally native SME ownership
The majority of entrepreneurs are in their forties to fifties, with small business employer owners and co-owners primarily falling within the 35 to 44 (25%), 45 to 54 (31%), and 55 to 64 (26%) age categories. Over the next decade, a new generation of business owners will emerge.

/ Varying levels of churn
While the smallest businesses may experience churn rates of 3% per month or higher, mid-size SMEs exhibit almost zero net churn, considering both upgrades and downgrades, as well as cancellations (Quick-Ratio). Thus, having a balance of larger SME clients can prove to be a viable and lucrative business model. For example, a verticalized solution that caters to both SMEs and specific departments within enterprises.

/ Job losses and evolving sentiments toward the future of work
Economic downturns often give rise to new entrepreneurs identifying promising market gaps and new multi-billion market opportunities.

/ Dominance of Infrastructure as a Service
The retail sector has already witnessed the significant impact of IaaS through platforms like Shopify and Etsy.

/ Opportunities for upselling and geographical diversification
By understanding these changing dynamics and seizing the opportunities they present, we can bridge the SME tech gap and enable the growth and success of SME-focused software start-ups.

/ Emergence of new technologies
New technologies such as generative AI, to name one of the most popular at the moment, are transforming businesses and giving them an unmatched advantage over those companies that are resistant to change. This pressure is increasingly leading to either adapting or becoming uncompetitive.

>> At āltitude we believe that the market perception of investing into startups targeting SMEs is changing, driven by factors such as digitally native SME ownership, varying levels of churn, job losses, dominance of infrastructure as a service, emergence of new technologies, and opportunities for upselling and geographical diversification. <<

Overall, we aim to be at the forefront of closing the SME tech gap through investing into automation and sustainability technologies, leveraging our innovative early-stage investment strategies combining collaborative investing with lead ticket, as well as our unique dealflow approach via Open Angel, Trojan Network, and Maven Networks.