Nico Wittenborn: Consumer Subscription Apps; Using Evolutionary Biology to Invest; Solo GP's | E1017

Nico Wittenborn 0:00 There's this term in evolutionary biology called the adjacent possible. And what it says is evolution happens usually as a combination of the existing phenomena and in a relatively deterministic way. So like transformers being developed somewhere within Google, somebody taking that, building that up, and creating OpenAI, then that actually becoming consumer subs application that charges 20 bucks a month, (laughs) with ChatGPT, those things altogether create the breakthrough. If you ask somebody on the street, they're like, "Overnight, AI was created, and it's living in this bot," certainly this was not the case. There were very specific steps leading to this outcome that is now perceived as happening overnight. And this can be technically like the example I just brought, but it could also be behaviorally or, um, socially, like Calm for meditation. Meditation was not as mainstream as it was when we invested, right? And so I- I try to identify these changes and then think about which companies could create a category around that.

Harry Stebbings 1:03 Niko, I am so excited for this. It was 2015 when we last sat down together.

Nico Wittenborn 1:08 Yes.

Harry Stebbings 1:08 I cannot believe it's been eight years. But thank you so much for joining me today.

Nico Wittenborn 1:11 Thanks for having me again.

Harry Stebbings 1:12 Now, this will be one of the best shows we've done because we're just gonna shoot the shit. We're gonna start as usual. I want to know how did you get into venture first and just set the stage there.

Nico Wittenborn 1:21 Yeah.

Nico Wittenborn 1:22 Um, so I started my journey in high school, not in investing, but in the first step towards, um, investing, which was I imported iPhones from the UK, unlocked them, refurbished them, resold them, which then really opened my eyes to entrepreneurship, one, and two, some of the money I made there (laughs) I invested in Apple stock-

Harry Stebbings 1:43 (laughs)

Nico Wittenborn 1:43 ... in 2008 and '09, which, um, I guess taught me two things. One, you can make money online. Two, if you believe in something and you put the money behind it, then that can work out for you. I didn't... You know, it was very little money, and I- I actually took it out pretty soon after for a vacation with a girlfriend-

Harry Stebbings 1:59 (laughs)

Nico Wittenborn 2:00 ... at the time. But it was still, it was still, you know, the learning was there. And so I... At the time that this was happening was at 2008, and when I started studying, I read about a group in Berlin called Team Europe.

Harry Stebbings 2:14 Hmm.

Nico Wittenborn 2:14 They were a company builder, um, pretty similar to Rocket, smaller. They built Delivery Hero-

Harry Stebbings 2:20 Mm-hmm.

Nico Wittenborn 2:20 ... a couple of other outcomes, and they had a small seed fund on the side with €6 million, and that was managed by Pawel, who was later one of the founders of, um, Point Nine. And so I reached out to them, sent them a cold email, asked if I could do an internship. This is in 2010. And Pawel got back to me and, um, came to visit a town close to where I was studying in Germany, and I had a conversation with him. He liked what I did with the iPhones. I actually just had invested in a company called ƒ4kauf, and that was that model but on a bigger scale, venture-funded. I was just one person. Um, and so I think we hit it off, and he offered me an internship. I worked with him, um, for a couple of months and then continued working for them part-time as I finished my studies in 2011, 2012. And then when I graduated university, they decided to spin out this fund of Team Europe, and Christoph, who was an LP in the fund, joined as a co-founder, (laughs) and they started Point Nine. Um, and I was just, you know, the young kid that was around-

Harry Stebbings 3:24 (laughs)

Nico Wittenborn 3:24 ... and lucky enough to be the first person to, to work with them long term. And so they were still raising the, the first institutional fund, um, which was the one after the €6 million seed fund as part of Team Europe, and I was just thrown in, really trying to help them wherever I could, um, sourcing, evaluation, evaluating, writing deal memos, um, not fundraising, but pretty much all other aspects of it. Um, so that's, that's how I got started with, with Point Nine. Um, the next step, because this was when we actually talked last-

Harry Stebbings 4:01 For sure.

Nico Wittenborn 4:01 ... 2015, and so this was wher- the year that we reinvested. Probably I started leading my own deals that year, so it was like three years after I joined. Um, and then in 2016, I was recruited by Insight and moved to New York, which was just after we, we had this conversation. And, um, there, I ended up being for, I guess, 2016 to 2019, investing a little later than Point Nine. Point Nine was early stage seed, and, um, Insight, you know, is probably the biggest venture fund out there, one of them.

Harry Stebbings 4:39 Yeah, uh, with 20 billion, I think, and that's one of them, yeah.

Nico Wittenborn 4:40 20 billion, (laughs) yeah, it's pretty wild.

Harry Stebbings 4:43 (laughs)

Nico Wittenborn 4:43 Um, and so worked with Insight and was, um, leading Series A's mostly for them, both in enterprise software and then some of the consumer subscription, um, companies that we're going to talk about. And then in 2019, I decided to leave and start Adjacent, which is where I am now at a firm that I founded, and which is an early-stage fund that is investing across both Europe and the US.

Harry Stebbings 5:08 So you've teed me up perfectly there with a couple of different kind of chapters. I want to start first on the institutions themselves, Point Nine and Insight, two of the most respected for different things. What's one takeaway from each that's impacted how you think and take them with you to Adjacent?

Nico Wittenborn 5:25 Yeah, um, so there's-

Harry Stebbings 5:26 (laughs)

Nico Wittenborn 5:26 There's, there's more than one. I'm gonna try to distill it. Um, the... I think for Point Nine, really the... they opened my, my eyes to the world of venture, right? So it was really... I did... I had no idea that venture e- existed as such, and I think very few people did in 2010 in Germany, right, or in Europe in general. Um, so it was really just understanding that there is an industry that invests in innovation and can make money and, you know, collaborate with the founders in a way that, that is venture capital was not clear to me. And it was really coincidental, as I said, how I actually learned about it. And so I think that whole...... you know, opening of the world, also giving me autonomy of, you know, being involved full stack in all aspects of, of investing and then leading my own deals, um, and also beyond sharing credit for those deals and being LPs in my fund later on and being supportive, I think I just... I wanted... they opened my eyes to venture, to... obviously I learned a lot from, from just being alongside them and seeing how they operated. But also I think as people, um, for me, they were, you know, they put me... somehow they put me in business, right? They, they caugh- taught me and-

Harry Stebbings 6:41 I think also the discipline. And I compare you guys. You both have quite strict discipline. You know exactly what is your type of deal. And I think both of you know what is your type of deal.

Nico Wittenborn 6:51 Yeah. I think, and, and, and I, I will draw that parallel again when we talk about my current focus. But I think that what Point Nine was really good about was, um, very early, from Berlin, investing in European founders, agnostically to geo- geography, pretty remote, even, you know, before this whole pandemic. And then also having a pretty specific focus on enterprise software-

Harry Stebbings 7:17 Yeah.

Nico Wittenborn 7:17 ... especially the SMB. So Algolia, Typeform, Kristoff, Zendesk. Um, and so a lot of those learnings I transferred. Switch over to Insight?

Harry Stebbings 7:25 Yeah.

Nico Wittenborn 7:26 Um, Insight is a very different firm. It's mature. It was... it's, as you said, a $20 billion fund now, but it was actually started as a $20 million fund in '96. But Jeff Horing-

Harry Stebbings 7:39 It was 20 million in '96?

Nico Wittenborn 7:40 Yes.

Harry Stebbings 7:41 That was the year I was born. (laughs)

Nico Wittenborn 7:43 (laughs) There you go. Yeah, I was seven. So... um, but, but what ties both together, actually, to what you said, is that in '96, Jeff Horing saw the opportunity in enterprise software. And he was the, uh, one of the first people, maybe the first person, to really bet on it. He was 26 years old at the time. Right? So that shall t- shows you something. What, what is SaaS today? What's enterprise software today? Obviously it's come a long way, but it was not very clear. It was not clear in '96 when he started Insight. It was not clear in 2010, '11 when Point Nine started. Right? These things become obvious over time and people start recognizing them as the playbooks are established and the benchmarks start to emerge.

Harry Stebbings 8:25 Well, speaking of becoming obvious over time, uh, you remember when I first did the shows, you know, I just agreed with everyone and told everyone they were wonderful. And now I actually do have an opinion.

Harry Stebbings 8:35 Uh, and when we look at the consumer subscription market and we look at the winners, we see your Calms at 2 billion, we see your Duolinos at, you know, four to five.

Nico Wittenborn 8:44 Six.

Harry Stebbings 8:45 Six now. Okay. It's been trading at four to five, it's now at a high point of six.

Nico Wittenborn 8:50 Uh, it's... b- yeah. Okay.

Harry Stebbings 8:52 Okay. Okay. So it's, it's, it's moving around.

Nico Wittenborn 8:54 Yes.

Harry Stebbings 8:54 But like, those are like the winners of winners, and they've taken decades. And I actually love consumer subscription-

Nico Wittenborn 9:01 Yeah.

Harry Stebbings 9:01 So just let me roll with this one. And I, so I want it to be a great market to invest in.

Nico Wittenborn 9:05 Yeah, yeah, yeah.

Harry Stebbings 9:05 But when I just look at the numbers, I just don't know if it is.

Nico Wittenborn 9:10 Yeah.

Harry Stebbings 9:11 Can you help me understand-

Nico Wittenborn 9:12 Yeah.

Harry Stebbings 9:12 ... is it even a good space to be investing?

Nico Wittenborn 9:15 Yeah. Um, so let me, let me, let me start by, by talking about the, the, the, the time of getting these companies to scale, right? So you, you're saying that there's very few data points for good companies, and the ones that we consider good are multi-billion dollar companies, right? So how long do you think it takes for a company to get to maturity? Let's say from founding or seed.

Harry Stebbings 9:46 Well, how do we define maturity? Is that by IPO or is that-

Nico Wittenborn 9:49 Yeah, like a, a, let's say IPO level or major acquisition.

Harry Stebbings 9:52 I would say 12 years.

Nico Wittenborn 9:53 Yeah, something like that. So the App Store launched subscriptions in 2011.

Harry Stebbings 9:57 Yeah.

Nico Wittenborn 9:57 This is 12 years ago.

Harry Stebbings 9:59 Yeah.

Nico Wittenborn 9:59 Right? So the first companies that were started around this model-

Harry Stebbings 10:02 Mm-hmm.

Nico Wittenborn 10:02 ... like the Calm which was 2012, which is 11 years ago-

Harry Stebbings 10:05 Mm-hmm.

Nico Wittenborn 10:05 ... they just get to the level of maturity.

Harry Stebbings 10:08 Yeah.

Nico Wittenborn 10:08 Right? So I think back to what I was saying about, um, Point Nine and, and Insight, I, I realized that there's much less benchmarks and companies to point to, but I think they're emerging just now. Right? So I think that the time to get to scale in this model has just been achieved. And if you look at USV, their first fund just wrapped after 18 years, right?

Harry Stebbings 10:31 Mm-hmm.

Nico Wittenborn 10:31 So I think 12 years is... I think that's a good average, but it can be 10 to 18. I don't know what, but whatever we, we, we think.

Harry Stebbings 10:38 Sure.

Nico Wittenborn 10:38 And so I think that we are seeing the emergence of these benchmarks. And when I started thinking about these companies, this was in 2015, and I'll talk more about how I started thinking about it, because at that point there was no benchmarks-

Harry Stebbings 10:51 Yeah.

Nico Wittenborn 10:51 ... right? There was no public company, there was no company doing hundreds of millions. And that is changing now. And so I understand it from the outside looking in and being obsessed with SaaS and comparing it one to one and looking at the differences, which there are downsides of this model. I don't want to, I don't want to, um, I don't want to, you know-

Harry Stebbings 11:08 Eulogize.

Nico Wittenborn 11:09 Yeah, I don't want to like argue the, the opposite. There are downsides and there are benefits and I, I'm happy to talk more about both, but I'm just saying this is a new model, right? Like our willingness to pay for software as a... on a subscription basis was pioneered by the Netflix's, the Spotify's. And this is something that happened before some of the app store dynamics on the App Store. But the first models that emerged later that have the software like margin profiles of 70, 80%, those are 11, 12 years old, right? Maybe Duolingo you can argue that they started a little differently and then they shifted around. But even their acceleration, the revenue only started pumping in the last like five, six years. And so my argument, we are just starting to see the fruits of this new thesis coming to be. And if in five years there's not more companies that we can point to that look...... the same or better, probably I was not as right as I think I am, right?

Harry Stebbings 12:08 (laughs)

Nico Wittenborn 12:08 So I will admit that. We e- we're early. So I consciously chose an area to focus on that I believed in strongly because of my background, having started to, to learn about, um, the iPhones and the App Store and seeing the emergence of subscription models there from 2012, then in 2015 really starting to focus on it and on the differences to SaaS and doing the first investments and then learning from that. So I think that, yes, today, I believe we're early. However, I have enough confidence based on what I've seen that we can get to multibillion-dollar outcomes, right? I don't know about $10 billion outcomes.

Harry Stebbings 12:42 Hm.

Nico Wittenborn 12:42 But I think one, two, three, four, five billion-dollar companies, we have them. Today, we have them.

Harry Stebbings 12:46 So I- I'm just gonna pose my concerns.

Nico Wittenborn 12:48 Yeah.

Harry Stebbings 12:48 And I just want you to-

Nico Wittenborn 12:49 Yes.

Harry Stebbings 12:49 'Cause as I said, I want to be a fan.

Nico Wittenborn 12:51 Yeah, yeah.

Harry Stebbings 12:51 Like I- I- I- the revenue quality-

Nico Wittenborn 12:54 Yes.

Harry Stebbings 12:54 ... is always like, it's not enterprise revenue quality. The churn is super high. Tax are highly variable. Ugh, all of these mechanics mean that-

Nico Wittenborn 13:02 Yeah.

Harry Stebbings 13:02 ... actually we should apply 2X revenue multiple to it.

Nico Wittenborn 13:05 Right. Yeah.

Harry Stebbings 13:06 How do you respond to that?

Nico Wittenborn 13:07 (sighs) Okay. Yeah, uh, I- I am- I- I love to tell you my view on this thing. (laughs)

Harry Stebbings 13:13 (laughs)

Nico Wittenborn 13:13 I obviously hear these concerns a lot and think about it a lot. So w- where do I start? So first I want to, again, just emphasize that I arrived at this model through SaaS, right? So we, we went from the first four or five years of my career, I learned, um, early stage SaaS investing from Point Nine. And then I learned late stage, lat- later stage SaaS investing from Insight, which are probably two of the best firms in this area, right? And so what, what does make a SaaS model good? A SaaS model is great because it is high margin revenue recurring from day one and global in terms of their distribution. All these three things also apply to these mobile companies, right?

Harry Stebbings 13:47 Mm-hmm.

Nico Wittenborn 13:47 The difference, as you point to, is that we have a higher churn.

Harry Stebbings 13:50 Yep.

Nico Wittenborn 13:51 True. It's a problem. However, the insight that we've had with, um, some of the first companies we invested in is that the churn is usually high in the first year and then from the second year on, it looks very much like SMB SaaS churn.

Harry Stebbings 14:05 Mm.

Nico Wittenborn 14:05 So once somebody is a habitual user of the product, typically they just don't decide to rip it out of their life, right? So if you look at year one, say you lose 50% of the customers, right? Then year two, from the remaining 50, the next year maybe it's like, I don't know, 40%.

Harry Stebbings 14:20 Can I inter-

Nico Wittenborn 14:21 Yes.

Harry Stebbings 14:21 Is it though 50 or is it 80?

Nico Wittenborn 14:23 The- so I've- the- my, my, my companies, the companies that I work with, have at least 50.

Harry Stebbings 14:30 So 50% churn is the norm.

Nico Wittenborn 14:31 And if, if not, then I made the wrong decision based on two early data points.

Harry Stebbings 14:35 Mm-hmm.

Nico Wittenborn 14:35 But it's 50. And I have companies that have 80 or 90.

Harry Stebbings 14:38 Wow.

Nico Wittenborn 14:38 Right? And, and there, there's usually some nuances to that. They're rare and they often come bundled with a hardware component or, um, a specific type of, um, service or product that is just not as, um, you know, volatile as maybe a health app could be.

Harry Stebbings 14:55 Sure.

Nico Wittenborn 14:55 So yes, we have those companies. They're rare, but you have to find them, similar to how SaaS companies, great on paper, but there's a bunch of shit companies, right?

Harry Stebbings 15:02 Sure.

Nico Wittenborn 15:02 And so you got to find the good ones, sure, um, but the way that we steer them, and this now touches CAC, is usually we always, the companies I work with, this is the adjacent companies, um, that I'm talking about, we steer acquisition so that we recover the CAC with the first year. Okay? So every time you get a yearly subscriber-

Harry Stebbings 15:25 Mm.

Nico Wittenborn 15:25 ... that pays back your CAC, you don't overspend. Very rarely.

Harry Stebbings 15:28 Sure.

Nico Wittenborn 15:28 Like on the- on the- and they- you have really have to have a good strategic reason to. But if- what that means is, if you lose 50% of your, your subscribers, but they pay for it themselves immediately, and then the other 50% actually look like SMB SaaS, if the market's big enough, that is actually a pretty solid model in my eyes, right?

Harry Stebbings 15:48 Mm-hmm.

Nico Wittenborn 15:49 And so what I push back on is, one, yes, churn is bad, but it gets better over time. It's not 50%, 50% and then you churn, but it's 50% and then actually flattens out.

Harry Stebbings 15:58 Yeah.

Nico Wittenborn 15:59 So ... And those stack over time. Even though there's a big churn in the f- beginning, they start stacking over time.

Harry Stebbings 16:03 Mm.

Nico Wittenborn 16:03 So if the market's steep enough, you can stack them to a pretty, pretty, um, high level. Second, CAC actually I think is one of the benefits of this model, that you don't have to hire a huge-ass sales force to sell your product into the market that burns a lot of money, but you actually have flexible stand- o- usually also a lot of organic, where people just, you know, you have to f-

Harry Stebbings 16:25 What- what is a good level of organic? I never know.

Nico Wittenborn 16:27 I- I mean-

Harry Stebbings 16:28 (laughs)

Nico Wittenborn 16:28 ... yeah, it- that it- that is a good question. So we- i- I tr- the, the guideline I give is 50%.

Harry Stebbings 16:33 Yeah.

Nico Wittenborn 16:34 And this is mostly for, um, not forgetting about it, right? So, um, that- does it mean that there's companies that sometimes have 60, 70, 80? Yes. And sometimes you also want to do that for a period of time if the unit economics are very good, right? Like if you can make very good returns on the acquisition spend, why do you not take advantage of it, right? Like if you have like a four, 5X, you can do it, then you just scale it up. But you want to see some component of the product, whether it's an actual feature within the product, whether it's just, I call it the power-up experience, where it's something that you show people, right, like your Oura Sleep Story or whatever.

Harry Stebbings 17:10 Sure.

Nico Wittenborn 17:10 Like there's something built into the product that accelerates paid. And I think it's really working when you see that the organics scales in lockstep with the paid. So even though you increase paid, right, your, your p- percentage of organic stays the same, 50/50, because there is some kind of reinforcing factor.

Harry Stebbings 17:28 Totally.

Nico Wittenborn 17:28 And so that's what I hope for. Um, but it doesn't always happen. Like there ... And, and obviously there's phases of companies and there's also no silver bullet. Acquisition will change all, over all the journey of the company. But I think that's like the, the, the p- point I wanted to make about CAC is one, it pays back within a few days, right? So it's-

Harry Stebbings 17:45 A few days?

Nico Wittenborn 17:46 Because the annual sub is paid upfront.

Harry Stebbings 17:48 Ah.

Nico Wittenborn 17:49 So usually it's like at day of download or like with a delay of like seven, eight days.

Harry Stebbings 17:54 Do you only do annual paid upfront?

Nico Wittenborn 17:55 The- this is the majority of the, the-

Harry Stebbings 17:57 Really?

Nico Wittenborn 17:58 Yeah, it's like 70, 80% of the conversions that we work with.

Harry Stebbings 18:01 Wow.

Nico Wittenborn 18:01 Yeah. And when I say we (laughs) , the best practices of the founders that I work with, right?

Harry Stebbings 18:05 Yeah.

Nico Wittenborn 18:06 And this is how we operate because-

Harry Stebbings 18:07 Do you, do you not find ... So I find that really interesting because like, you know, I- I'm a customer-

Nico Wittenborn 18:11 Yeah.

Harry Stebbings 18:11 ... of some of your companies-

Nico Wittenborn 18:12 Yeah.

Harry Stebbings 18:12 ... and love their products. But without being a dick, I'm less price-sensitive than some other people.

Nico Wittenborn 18:18 Yeah.

Harry Stebbings 18:18 Um,... it's fine to spend the $100 upfront for me.

Nico Wittenborn 18:22 Yeah.

Harry Stebbings 18:22 But actually, it's a lot of money for people to spend with little buying time.

Nico Wittenborn 18:25 Yeah.

Harry Stebbings 18:25 I'm surprised that actually the annual upfront is as prominent as you say.

Nico Wittenborn 18:28 Yeah. Yeah, so you, there's some tools that you use, right? There's, um, I, I have a couple of things to say about this. But the, but the first is, you, you give a discount on the annual, right?

Harry Stebbings 18:37 Yeah.

Nico Wittenborn 18:37 And so the monthly and sometimes the weekly actually, I'm seeing some really interesting data now about weekly as well, which we, we can talk about later. But the, the, the annual discounted for somebody that gets enough value from the product, in the Western world, also depends on geo, right? One of the advantages is you're in 200 countries once you go into the app store. But in the Western world, um, most people today, and this I, I, I, I think this is like a big part of the thesis that I think is underestimated, is our willingness to pay for a product that drives value. Right? So like, yes, for some people it will be, you know, expensive, but the price increases that we have seen since like, uh, let's say Calm launched to what it charges yearly today and what it will charge in five to 10, 10, 10 years-

Harry Stebbings 19:24 Yeah.

Nico Wittenborn 19:24 ... I think it has a similar trajectory to what we've seen with SaaS companies and their ability to extract value as people are realizing what type of value they're deriving from the product. Does that make sense? So I think, one, we are surprised by how little sensitivity we see for really good products because the willingness to pay for those products is increasing quicker than our ability to-

Harry Stebbings 19:53 I, I, I don't-

Nico Wittenborn 19:53 ... understand that.

Harry Stebbings 19:54 I'm, I don't know how you feel about this one, but, um, kind of fuck schedules.

Nico Wittenborn 19:57 Yeah, yeah, yeah.

Harry Stebbings 19:57 But I love PhotoRoom, I love Caption.Zeir, I think you're in Caption.Zeir.

Nico Wittenborn 20:01 Yeah.

Harry Stebbings 20:01 Yeah. I, I have spoken to both founders, Mathieu and, uh, Gaurav, and they've said-

Nico Wittenborn 20:04 Yeah.

Harry Stebbings 20:04 ... "You make very hard product decisions very early." It's like, "Hey, pay upfront now." And I'm like, "I haven't even tried a lot of the products."

Nico Wittenborn 20:12 Right. Yeah.

Harry Stebbings 20:12 And how do you feel about that decision?

Nico Wittenborn 20:14 Yeah.

Harry Stebbings 20:14 Do you know? And they push back and say (inaudible)

Nico Wittenborn 20:16 Yeah, no, so I, I'm, I mean, I, I think there's a, that, that, that is a philosophical question. Like I, I, I can say, tell you the data as a company, so I, I invest in the best-in-class, um, subscription companies, but I also invest in the infrastructure for them, right? So RevenueCat-

Harry Stebbings 20:31 Mm-hmm.

Nico Wittenborn 20:31 Uh, Superwall, UxCam, Runway, um, so there's companies I work with there that I, that are powering these companies. So it's, I, uh, in a way it's a proxy bet for me on the, on the thesis, but it has also s- a lot of synergies, right? And so what Superwall is doing is o- optimizing paywalls. And so one of the learnings that we have from that is that the number one indicator for driving conversion is how often do you see the paywall? Right? And so that is like, it's very common sense, and you can err on the side of being annoying, which you want to avoid, depends on what your strategy is, but usually you probably avoid that. But showing the paywall does not necessarily mean you have to convert.

Harry Stebbings 21:09 Mm-hmm.

Nico Wittenborn 21:10 And so most of these are structured in a way where you have a free trial, you are being shown the paywall often, but there is a certain amount of free usage that you have. But the more often you show it, the higher the conversion will be. And then paradoxically also, the paid conversion oftentimes activates the user, right? So it's like there's some, like it's, uh, maybe the gym membership effect-

Harry Stebbings 21:31 Yeah, totally, yeah.

Nico Wittenborn 21:31 ... I'm not sure, but it really, uh, it really often drives higher engagement.

Harry Stebbings 21:36 Final one, and then I'm pro-

Nico Wittenborn 21:37 Yeah.

Harry Stebbings 21:37 I want, d- wanna move to adjacent.

Nico Wittenborn 21:38 Yeah.

Harry Stebbings 21:38 But when we look at kind of the, the channels at our disposal to acquire customers, the thing that also worries me is they're so volatile in terms of our control of them. When you look at a lot of the changes that Facebook have made-

Nico Wittenborn 21:49 Yeah.

Harry Stebbings 21:49 ... suddenly companies have not been wiped out, but had huge, huge changes to their customer acquisition channels overnight.

Nico Wittenborn 21:55 Yeah. Yeah.

Harry Stebbings 21:56 Does that not make you shit the bed?

Nico Wittenborn 21:58 (laughs) Yeah.

Harry Stebbings 21:59 (laughs) Pardon me.

Nico Wittenborn 21:59 No, I, I, that, that is, um, th- I think that is one of the major risks to manage-

Harry Stebbings 22:04 Yeah.

Nico Wittenborn 22:04 ... because you cannot be dependent on only one channel.

Harry Stebbings 22:08 Yeah.

Nico Wittenborn 22:08 Right? Um, and so-

Harry Stebbings 22:10 But it's so hard because when something's working, just go for it.

Nico Wittenborn 22:13 You do it, yeah.

Harry Stebbings 22:13 Don't get keen.

Nico Wittenborn 22:13 And, and, and I, and I, I, I think we, we, like that is, like you should do that, right? Like, you take advantage of a channel when it opens up. But then you try early enough to invest in diversification of that. And it is possible. Like, it is not the, it is not the case that there is only one channel, right? There is a few channels, and it's hard to crack the next one, but I've seen companies do it.

Harry Stebbings 22:36 Yeah.

Nico Wittenborn 22:37 Right? And so you can do it. It's hard. You have to have discipline so that you don't do it when it's too late. But it is possible, and I think, you know, the, another aspect of this, uh, this is, uh, interesting also, I think you, you touched up on PhotoRoom is, and this is I think sometimes also how I'm misunderstood is that people reduce my thesis to, um, uh, an app with a subscription, right? And I talked a lot about this because it is a big core of it. I think it's just the easiest way to get started. You write an app, you put it on the app store, it's in 200 countries, you charge annual upfront, often with a seed round, you get to tens of millions in revenue. That's crazy. Right? Like, what other companies do you have where a seed round gets you to tens of millions in revenue? I don't know. Yeah, there's other challenges to the business model, but this is not one of them, right? It's like, it's a very cash efficient way to get started. It means it's, uh, also not as dilutive if you are in the seed, and then it steps up to, you know, where some of the follow-on rounds for those companies were. And so I think the seed is a great spot to invest in these companies, and I think that the cash efficiency is a good starting point. But then it usually is only the first surface area of your product, right? Take PhotoRoom. It's a prosumer product. We started on mobile. It's in- successful not just in the US but also in emerging countries. And now we're bringing the same product to web, to teams, and we have an API that people are paying 600 digits for a year. So we start with a mobile subscription, but it evolves into much more than that, right? Because the underlying technology is what's interesting, and mobile is just the first step to get started. It can become much broader over time.

Harry Stebbings 24:15 You, you kind of dangled something in front of me there. You said, you know, that's why I think seed's a great place to be.

Nico Wittenborn 24:19 Yeah.

Harry Stebbings 24:20 And we're jumping around, but...

Nico Wittenborn 24:21 Yeah, no, no. All good.

Harry Stebbings 24:22 We said before that actually eight kind of sucks as a place to be. Now I have my thoughts around why-

Nico Wittenborn 24:27 Yeah.

Harry Stebbings 24:27 ... but as, I don't wanna lead the guest.

Nico Wittenborn 24:30 Yeah.

Harry Stebbings 24:30 How do you feel about the right insertion point and where kind of price to value is best?

Nico Wittenborn 24:37 So I, I, I, I, it's hard for me to, to really make a qualified statement across all verticals-

Harry Stebbings 24:42 Yeah.

Nico Wittenborn 24:42 ... because I, I, I can't ... It really depends, right? There's great As for sure. Um, I think there's also great As in my category. I just, I think that the best for me, that's why I chose, um, seed, is that I believe that seed is the best in terms of upside potential, downside risk, and expected future dilution, especially given that we ... I operate under the assumption that we, I have multi-billion dollar exits, not $10 billion exit, right? That is reflected in both when I come in and then how big my fund is, which is reasonably small-

Harry Stebbings 25:17 Mm-hmm.

Nico Wittenborn 25:18 ... and consciously so, because I want the strategy to work. Even if it's a $2 billion exit, it should return the fund once, twice, maybe three times. Depends on when, how, how early I got in. And so I think seed, that's why I chose seed, right? And I think the reason to expand more strongly to A would be that we have more confidence that the outcomes get bigger-

Harry Stebbings 25:38 Mm-hmm.

Nico Wittenborn 25:38 ... and we have some, you know, I guess, portfolio that warrants diversification across a number of investments. And so I think that there's a limit to how late you want to raise capital with these companies, right? And so that's also a mismatch that I have with some of the multi-stage funds, right? Because for me, if I invest at seed or A, I do seed and A, right? It's like, I would say, 70, 75% seed, and then the rest is A. So I do it, I, I also do it if, if it makes sense and if it's not a crazy price, right? But oftentimes, I think, "Okay, we invest, we build the company, we get to the significant level, we only raise follow-on funding if we really see those next chapters and those next levels of acceleration." Otherwise, let's not raise too much too early, right? Like, I'm not the one that chases high valuations. I'm actually the one that says, "Let's keep the options open," right?

Harry Stebbings 26:29 You're also not the one deciding. The founders listen to you.

Nico Wittenborn 26:32 True. Yeah. No, that's, uh, not, not always, no. (laughs)

Harry Stebbings 26:35 (laughs)

Nico Wittenborn 26:35 Which is the founders I like the most, but ... (laughs)

Harry Stebbings 26:37 Well, this is, but this is what's hard. Like you said about the capital efficiency of this business model, and I totally agree with you. The hard thing is that actually founders see, uh, alternative funding-

Nico Wittenborn 26:45 Yeah.

Harry Stebbings 26:45 ... rounds for-

Nico Wittenborn 26:45 Yeah.

Harry Stebbings 26:45 ... alternative, like, scaling-

Nico Wittenborn 26:47 Yeah.

Harry Stebbings 26:47 ... companies.

Nico Wittenborn 26:47 Yeah.

Harry Stebbings 26:48 Enterprise SaaS, SaaS.

Nico Wittenborn 26:49 Yeah, yeah. Yeah, yeah.

Harry Stebbings 26:49 They go, "We want that."

Nico Wittenborn 26:50 Yeah. No, it's, uh, I think, I mean, so I caution not to raise on too high valuations-

Harry Stebbings 26:56 Yeah.

Nico Wittenborn 26:56 ... too soon, always-

Harry Stebbings 26:58 Yeah.

Nico Wittenborn 26:59 ... because I want everybody to win.

Harry Stebbings 27:01 Um, have you been hit by the five on 25, the multi-stage product of five million on a 25 million post? You know, Andreessen pioneered-

Nico Wittenborn 27:08 Yeah.

Harry Stebbings 27:08 Dear friends in Andreessen, thank you for that.

Nico Wittenborn 27:10 (laughs)

Harry Stebbings 27:10 Um, it's a challenge.

Nico Wittenborn 27:13 Yeah. So I, I don't see them that much, and I think the reason for that is that I'm, uh, active in an area that is not that hot, right? I, I like it. You might, may, may like some of it, but-

Harry Stebbings 27:28 Yeah, I do. I do. Mm-hmm.

Nico Wittenborn 27:29 I don't, I don't really think that these firms think of these companies as moving the needle for their billion-dollar funds. And I think-

Harry Stebbings 27:38 Hm.

Nico Wittenborn 27:38 ... that this is one of my opportunities. Um, you see? Like, I think operating under the assumption that you need 10 billion, billion-dollar outcomes to move your fund is a very hard one, especially in this macro, but generally. And this has different reasons. One, $10 billion outcomes are very rare.

Harry Stebbings 27:56 Yeah.

Nico Wittenborn 27:57 They have been more frequent in the last three years, but a lot of that is not true anymore, right?

Harry Stebbings 28:01 And a lot of them are not $10 billion anymore.

Nico Wittenborn 28:03 Exactly. And so putting yourself in a position where you need that to deliver real returns for your fund is, one, very difficult to get high multiples on the LP dollars. Two, from where I sit, in the early stage, it has always been true that you are surprised by the upside and you choose to invest in something that has a reasonable chance at becoming big enough to make sense. But then in the outsized scenario that it becomes very big, this is the optionality asymmetry we shoot for.

Harry Stebbings 28:43 Yeah.

Nico Wittenborn 28:43 So I think there's more surprising positives in aiming lower and being surprised than in wrong data points or, like, wrong decisions by saying, "It cannot get this big."

Harry Stebbings 28:56 (laughs)

Nico Wittenborn 28:56 And then not investing. You see where I'm coming from?

Harry Stebbings 28:59 Oh, me, identity, you're just such a European. I have Americans on the show, and they're like, "It's gonna be 100 billion-dollar company." And, you know, I had someone on the show the other day, and they said, "But if it's a trillion-dollar company, we'll all make money."

Nico Wittenborn 29:09 (laughs)

Harry Stebbings 29:10 And I was like-

Nico Wittenborn 29:10 (laughs)

Harry Stebbings 29:11 ... "Wha-" (laughs) Yeah, I agree with that.

Nico Wittenborn 29:13 Sure. Yeah.

Harry Stebbings 29:13 Yeah, yeah. Okay, so if we take that and we take this assumption that actually there will be billion-dollar companies, maybe three, four, five-

Nico Wittenborn 29:19 Yeah.

Harry Stebbings 29:19 ... but the 10 is harder. Take that back to

Harry Stebbings 29:22 the fund model. How big is the fund? How many lines, like, number of companies in the fund? Just walk me through that portfolio construction.

Nico Wittenborn 29:30 So the fund is, uh, I, I never announce the funds, and I'm inclined not to do so, but I'll give you all the other things-

Harry Stebbings 29:35 Sure.

Nico Wittenborn 29:35 ... um, of the model. And, and, you know, you can work back from that. So the model is that I have somewhere between 20 and 25 companies in a fund. The majority of that is seed. Um, seed for me is a little more flexible than how other people think about it. So I've, um, done very early seed from Opal, right?

Harry Stebbings 29:54 Huh.

Nico Wittenborn 29:54 We've done that together. Uh, Kenneth and a prototype. Um, and then I've done late seed, which is, um, company has raised to seed, but I really want to invest, and I find a way to get them to agree. And that means it's a bit of a later seed in terms of the pricing-

Harry Stebbings 30:13 Sure.

Nico Wittenborn 30:13 ... but it's not quite yet an A. And so that's where I move, is like there's some flexibility in that. I also don't care about the labels so much. Like, some of the seeds I've done and some of the As that I've done were at the same valuation, you know? Like, so it's just like, I don't ... The, those labels are arbitrary to me. And so I just try to get my ownership on those 20 to 25 companies-

Harry Stebbings 30:32 Mm-hmm.

Nico Wittenborn 30:32 ... which is, um, with the current fund I'm investing in, it's 10%.

Harry Stebbings 30:37 Sure.

Nico Wittenborn 30:37 For the f- last six months, it's actually been 11% because the macro is starting to come down. Maybe also I'm becoming more bold. I don't know. But, um, it's, it's 10% for, for the average of this fund. The first fund was a little different because I erred on the side of, uh-... proving that I can be in good companies.

Harry Stebbings 30:54 Right.

Nico Wittenborn 30:55 So there were some companies where I have less desirable ownership, um, they're great companies. The hit rate, I think is quite high in the first fund. But with fund two, I wanted to prove I can get the double-digit ownership, and I am getting it. On the same side of this, probably still a bit too early to say that the hit rate is the same.

Harry Stebbings 31:13 Sure.

Nico Wittenborn 31:13 It's just a bit smaller fund. So it's 20, 25 companies, um, the check size goes between one and seven.

Harry Stebbings 31:22 One and seven?

Nico Wittenborn 31:23 Yeah.

Harry Stebbings 31:24 That's a big range.

Nico Wittenborn 31:25 Yes. But it's, uh, I think-

Harry Stebbings 31:27 Is that seven across re- rounds or is that in one hit?

Nico Wittenborn 31:30 I, I've done ... The biggest check I've written is seven and one.

Harry Stebbings 31:33 Phew. Fuck.

Nico Wittenborn 31:36 Yeah. And it's what I would consider-

Harry Stebbings 31:38 Did your decision-making change for that seven versus the one and a halfs?

Nico Wittenborn 31:43 Yeah, so the, the, so my position currently is, um, the, the ... I made this graph which, um, is, uh, probably the simplest positioning graph, that if you had a whiteboard here I would just, uh-

Harry Stebbings 31:54 (laughs)

Nico Wittenborn 31:54 ... put it on the wall now. But it's, um, I, I, I try to lead at seed, and I try to co-lead at A. And so what that means is that, again, you know, three quarters of the fund are seed, within early and late seed, and then the As that I'm doing, I usually collaborate with other funds on them. And so especially in this market, I started doing this a year ago, but it's ... I, I, I, I think I've, I, I, I like that part of the strategy because my fund is small enough so that I can do it, so that I can get on my ownership target and another fund can get on their ownership target. At the same time, it enables the founder to have more money-

Harry Stebbings 32:32 Okay.

Nico Wittenborn 32:32 ... so that they have longer runway, which typically now I plan for three years.

Harry Stebbings 32:36 Yeah.

Nico Wittenborn 32:36 Um, and it also means that there should be a pretty significant step-up in valuation. We talked about this, right? I think seed and A are very good spots for this model.

Harry Stebbings 32:45 Mm-hmm.

Nico Wittenborn 32:45 From B, depends, right, what it is.

Harry Stebbings 32:47 Is that where you see the biggest jump in valuation from A to B?

Nico Wittenborn 32:50 A to B, yeah.

Harry Stebbings 32:51 Yeah. Why do you think that is?

Nico Wittenborn 32:53 Because people don't like consumer subscription until it does tens of millions in revenue. All of a sudden they like it.

Harry Stebbings 32:59 And then everyone fucking loves it.

Nico Wittenborn 32:59 Yes.

Harry Stebbings 33:00 Yeah.

Nico Wittenborn 33:00 Because you don't like it when you don't understand the dynamics and you don't see this exponential growth. Once it goes from, you know, a few million to tens of millions within a pretty short period of time-

Harry Stebbings 33:11 Yeah.

Nico Wittenborn 33:12 ... people forget about-

Harry Stebbings 33:12 And you have much more reliable data on cohorts, I guess, by that point, and you actually have a lot more to go on.

Nico Wittenborn 33:16 You do, yeah. But I, but I, but I still am somewhat, um, disappointed. I mean, I like when people invest in my companies, right? I don't want to discourage people from it. I don't depend on it, because usually I structure the rounds in such a way that we can get to cash or positive with a lot of those companies, or with the partner fund that they have such long runway that that is an option or there's a lot of time to prove the next round. But I think that it's a bit of a, you know, I guess a critique that I would have about VCs is that they criticize the model until it breaks out, and then they fight for it. Right? And that's, you know ... For me, venture, you know, there, uh, there's different parts of venture-

Harry Stebbings 33:57 You can say what you want.

Nico Wittenborn 33:57 (laughs)

Harry Stebbings 33:57 It's just me and you.

Nico Wittenborn 33:58 Okay. It's (laughs) true, nobody's listening.

Harry Stebbings 34:00 (laughs)

Nico Wittenborn 34:00 So I, my, I ... For me, true venture is, is venture that is thesis-driven and early-stage. And I know there's different ways of playing it.

Harry Stebbings 34:08 Sure.

Nico Wittenborn 34:08 I know that there's different stages and, and different skills required. I am the first one to say I shouldn't be on a public company board, you know? So I actually structure ... We can talk about this as well, but I structure my, my work with the companies such that I am very involved or more involved, very involved, probably subjective, but I'm involved early on, and I'm happy to step out once there's a scale that I'm not that suited for anymore, you know? So I don't have any ego about being on the board. I actually deflect boards. I take two board seats per fund.

Harry Stebbings 34:44 How do you decide which board seats to take?

Nico Wittenborn 34:48 Uh, (sighs) it's ... so, the, the ... I'm still also learning about this, okay? I'm, I'm also, I guess this now is coming up on four years as my own fund manager, so there's areas that I'm also still learning. The way that I've approached it so far is that at seed you don't need a board, I think, because you are chasing product-market fit. And so most of the time I'm in your way. The best thing I can do is share learnings from the other companies, share, you know, be a strategic thought partner, and then make introductions to other founders that have faced similar issues or solved things that you're facing right now. And so that's, that's my role. And then, you know, there's some like financing-related things and stuff like that. But that's really how I see my role. And so then from A, I think it makes sense to have a board.

Harry Stebbings 35:30 Yep.

Nico Wittenborn 35:30 Since I'm usually not the one that leads the A, I give myself, um, an option to be an observer on the board.

Harry Stebbings 35:36 Mm-hmm.

Nico Wittenborn 35:37 Which will be excellent if it makes sense.

Harry Stebbings 35:40 Mm-hmm.

Nico Wittenborn 35:40 But I'm also very happy to let people decide how they want to structure the board. I think there's part- people that invest at A that are very good. For example, um, I, I, I love USV. I collaborate with them at one of the Series A's that I, that I co-led recently was with, uh, with USV, and I was very happy to have them take the board seat, because yes, I want to learn, and I, I have an observer so I can dial in if I want. I do that usually because I also learn from it and I want the information. I have the relationship with the founder. Um, but also it's a company that will benefit from the attention of a USV partner.

Harry Stebbings 36:14 Sure.

Nico Wittenborn 36:14 And I can't give the same, right? And so I just try to be very mindful of interactions.

Harry Stebbings 36:19 Do you find it's possible to co-lead the Series A's? 'Cause that's a t- like, you know, bluntly, I think we're gonna move back to an era where venture investors go, "Shit, the outcomes are lower, and so our ownerships need to be higher." And when we did take 10% in bubble times-

Nico Wittenborn 36:32 Yeah.

Harry Stebbings 36:32 ... we now need 15, 20 again.

Nico Wittenborn 36:34 Yeah.

Harry Stebbings 36:36 You know, Ophelia, say, who I had on the show recently, won't go less than 20.

Nico Wittenborn 36:40 Yeah. Yeah, I think there's some firms that don't want to collaborate.

Harry Stebbings 36:44 Yeah.

Nico Wittenborn 36:45 And if you say that, you don't want to collaborate.

Harry Stebbings 36:47 (laughs)

Nico Wittenborn 36:48 Um, that is fine. I've consciously decided to keep my fund at a size where I can do that.

Harry Stebbings 36:53 Mm-hmm.

Nico Wittenborn 36:54 And I think there's other funds out there that believe in small funds and that are willing to do that. Um, can it change with the macro? Yes. And is it possible that somebody will start to ask for more?... yes. But then, that usually, I think also would go hand in hand with valuation expectations going down, dilution expectations going up, so maybe it fits the formula again.

Harry Stebbings 37:16 Yeah.

Nico Wittenborn 37:16 Um, I don't know, but I- I- I can only talk about how things are today. And from where I see them, it is possible, actually desirable by a lot of founders, by me. Um, and I just have to be early to those companies so that I can play a part in forming how the round comes together.

Harry Stebbings 37:34 Niko, how price sensitive are you?

Nico Wittenborn 37:37 So the- (laughs) I would say, um, so I give you one, one piece of advice that Jeff Horring, the founder of Insight gave me after working with me at- at Insight for a while, was that he- he basically, his only comment was, "Don't be so cheap."

Harry Stebbings 37:53 Yeah.

Nico Wittenborn 37:54 And you can take that to the extreme and become too generous. At the same time, I believe in being fair without being cheap or generous.

Harry Stebbings 38:06 Yeah.

Nico Wittenborn 38:06 Right? And so the way I approach it usually is that I have a conversation with the founders about what is reasonable from both ends, and then try to find a solution. And it hasn't happened yet that that didn't work. And so what does it mean? Does it mean sometimes I'm too generous? Maybe.

Harry Stebbings 38:28 Do you ever worry that you structure rounds to fit your fund strategy and not what's optimal for the company? What I mean by that is like, I'm looking at like co-leading an A now and the company want 15 on 80 post. And actually for me as a fund, that's kind of uncomfortable. I'll be writing a seven and a half check alongside another co-lead, versus what would be much better for me, which is an eight on 45, 50 post. Okay? Where I'd be writing four, four versus seven and a half, big difference in check.

Nico Wittenborn 38:57 Mm-hmm.

Harry Stebbings 38:57 Now, it's not actually best for the company that they raise that small amount, it's better that they raise the bigger amount.

Nico Wittenborn 39:03 Is it?

Harry Stebbings 39:03 But for ... You could argue both ways, but they very much argue for big. (laughs)

Nico Wittenborn 39:08 Okay. They have a preference.

Harry Stebbings 39:10 They have a preference for sure. But my point being, because of our cap fund sizes, and we're both-

Nico Wittenborn 39:14 Yeah.

Harry Stebbings 39:14 ... in the same ballpark of fund sizes.

Nico Wittenborn 39:16 Yeah. Yeah.

Harry Stebbings 39:16 Um, it's better for me that, do you see what I mean? Do you ever worry about that? And how would you advise me there actually? Really interesting.

Nico Wittenborn 39:25 I think we're- we're in the- we're serving founders, and I think that long term, we will only be successful if the founders that we work with are happy with how we're collaborating with them. Does it mean that there's some tension sometimes between what you require in your fund model and what the founders require or want? Yes. But I think that, uh, the start of a partnership ideally is being open about your limitations or the things that you need to be feeling good about this, and then finding the common denominator. Right? So I cannot say in this scenario specifically, 'cause I'd probably lack some context, but the way I would approach it is, think about what I would like, then really understanding where they're coming from and what they're optimizing for, and then trying to fit that together as good as possible.

Harry Stebbings 40:19 Yeah.

Nico Wittenborn 40:19 And that might not always be possible, in which case you're gonna have to make a decision if you go with what you perceive to be better for the company or for you. But I would say long term, I would decide to choose for the benefit of the company.

Harry Stebbings 40:35 Niko, don't be so cheap. What's the time when you've turned down a deal because it was too high and you've lived to regret it? It's a compliment to the company, so you can say it.

Nico Wittenborn 40:45 (laughs) Yeah, let me think. Um, if there is one.

Harry Stebbings 40:48 I've had many, my word.

Nico Wittenborn 40:50 That you pass on because of price and you ended up regretting it?

Harry Stebbings 40:54 Lea- uh, well, I mean, I did and then, you know, the current situation happened.

Nico Wittenborn 40:58 Hmm.

Harry Stebbings 40:58 And now the company's turned out to be, you know, not such a good company. (laughs)

Nico Wittenborn 41:03 Okay. Yeah. So I think, I think there's just, um-

Harry Stebbings 41:06 I really regret Riverside. Oh, fuck me.

Nico Wittenborn 41:09 Not doing it? Ah.

Harry Stebbings 41:10 Was it a valuation question?

Nico Wittenborn 41:11 Fucking Oren Ziv, who I love, like-

Harry Stebbings 41:13 Yeah, he's great.

Nico Wittenborn 41:13 ... amazing dude-

Harry Stebbings 41:14 Yeah.

Nico Wittenborn 41:15 ... brought it to me and I said, "No one will do this. You know why? 'Cause like 90% of podcasters don't earn more than $100 a month. It's $50 a month."

Harry Stebbings 41:22 Yeah.

Nico Wittenborn 41:22 "No way." We use it for every virtual-

Harry Stebbings 41:25 And where were you wrong there?

Nico Wittenborn 41:27 Wh- why was I wrong? I was too cheap.

Harry Stebbings 41:29 Too che-

Nico Wittenborn 41:29 Well, no, I was too cheap and I didn't think the market size was what it was. I didn't see the evolution of the mar-

Harry Stebbings 41:34 Right.

Nico Wittenborn 41:34 I just saw podcasters-

Harry Stebbings 41:35 Yeah.

Nico Wittenborn 41:35 ... as a static market.

Harry Stebbings 41:36 Yeah. Everyone in-

Nico Wittenborn 41:37 And this is, I think, core of what I think we should be betting on as early stage investors, which is the relative development of these markets, right?

Harry Stebbings 41:48 Mm-hmm.

Nico Wittenborn 41:48 It can never be the static. The- the- the- the way that, uh, a growth investor looks at it is, is at the static, right? They need to understand the size and the benchmarks and make it fit their formulas, and then it has to add up and make sense. We, I think, me, these driven investors, I think need to understand the magnitude of change in a specific, you know, segment or demographic or behavior, and then bet on that, you know?

Harry Stebbings 42:18 I totally get you. I did not anticipate that marketers and sales leaders would also be content creators within companies.

Nico Wittenborn 42:24 Right. Yeah. Yeah. And I, and I, I'm not saying I would have at all, I'm just saying I think this is exactly, this is where Insight and- and- and Alpha and so on co- so- so much comes from, understanding not what it looks like today, but what it could look like in 10 years, right?

Harry Stebbings 42:38 Totally.

Nico Wittenborn 42:38 Yeah.

Harry Stebbings 42:39 So that was mine where I'm like, "Oh." And it's also the most horrible reminder 'cause I use it every day. (laughs)

Nico Wittenborn 42:46 (laughs) But it-

Harry Stebbings 42:46 I turned down Descript. I turned down Descript. And I turn them also down every round. It wasn't... Fuck. (laughs)

Nico Wittenborn 42:53 Hey man, it happens. I think, I mean, this is actually a- a good, um, also, I mean, so I think most regrets that we have as investors are the companies we didn't invest in.

Harry Stebbings 43:03 Sure.

Nico Wittenborn 43:04 Right? Sure. And so what does it mean? Does it mean that we have to see more companies?... it usually means we have to be better at making decisions on the companies that we see.

Harry Stebbings 43:16 Yeah.

Nico Wittenborn 43:17 You know what I mean?

Harry Stebbings 43:17 I do.

Nico Wittenborn 43:17 And so, so I, I think one of the differences, obviously, of our approaches is you are, you have this and a platform and huge network, and you have a lot of volume.

Harry Stebbings 43:29 Yeah.

Nico Wittenborn 43:30 I try to stay away from volume, consciously. Right, this is the first time I talk about Adjacent publicly for you. (laughs)

Harry Stebbings 43:37 Very kind.

Nico Wittenborn 43:37 And I guess for Adjacent. But still, it's, it's the first time and the reason for that is that I actually am very, very mindful of my capacity, and this is both time, but specifically mind space for making these decisions. Because I think that every investor has a bigger regret portfolio of anti-, and so it's not about seeing everything, seeing more, you know, like, it's actually about seeing better-

Harry Stebbings 44:01 Mm-hmm.

Nico Wittenborn 44:01 ... in the small end, I think, in my strategy. Um, and so to your question, did I... Just, this was a bit of a diversion, but did I not pay up and regret it? I, I, honestly, nothing comes to mind, so I'm not sure if that means it didn't happen or just that I didn't obsess about it enough afterwards. I think I'm willing to break my own limitations if I really believe.

Harry Stebbings 44:31 Can you tell me when you've broken your own limitations?

Nico Wittenborn 44:34 Th- this, I don't want to take the full credit for it, but I, this is, uh, one of the reasons why th- this is the case. When I was with Point Nine and reinvested in Revolut, it was both outside of the focus.

Harry Stebbings 44:47 Yeah.

Nico Wittenborn 44:47 Right? It's a mobile consumer app. Um, it was, actually had just closed a seed round with Balderton.

Harry Stebbings 44:53 Mm-hmm.

Nico Wittenborn 44:54 So there was no actionable opportunity and the only way to get i- um, in was actually forcing, forcing (laughs) them to take more money.

Harry Stebbings 45:04 (laughs)

Nico Wittenborn 45:04 Had a step-up in valuation, which was, I think, at the time, the highest valuation we had accepted at Point Nine and also led to the lowest ownership that we had, at least for seed. And it was a great decision. Right? So what does it tell you? I think that part of the frameworks that we set for ourselves are a litmus test for the conviction to break them. You know?

Harry Stebbings 45:29 Mm-hmm.

Nico Wittenborn 45:29 And this is a very, you know...

Harry Stebbings 45:32 It's a very hard one because you want to have the elasticity to break them without it becoming the norm.

Nico Wittenborn 45:37 Yes. And so you need... This, and I'm not saying like I've mastered this at all, right? I, I recognize it, but I'm still trying to get better at it. But I think it's the rigidity of the model needs to be there so that breaking it is actually meaningful. You see?

Harry Stebbings 45:57 I totally see.

Nico Wittenborn 45:58 Yeah.

Harry Stebbings 45:58 I totally see. But I think another thing that's actually part of that is a partnership. A partnership reminds you that you broke the model, Mikko, and fine, but that is the exception. It's very easy for us as solo GPs to lull ourselves-

Nico Wittenborn 46:11 Yes. (laughs)

Harry Stebbings 46:11 ... into, "Wow, I mean, it's an, it's an exceptional (...) , an exceptional opportunity." So I do want to ask on the, you mentioned that kind of constraining your own kind of, uh, time and view of the world. Like, how do you assess the rise of solo GPs?

Nico Wittenborn 46:27 Uh, if so, um, the term solo GP, I think also when you started was not yet a thing.

Harry Stebbings 46:36 Yeah.

Nico Wittenborn 46:36 Right? So it's not like we came out and said, "We want to be solo GPs."

Harry Stebbings 46:39 (laughs)

Nico Wittenborn 46:40 At least for me, I don't know, it didn't happen that way, right?

Harry Stebbings 46:42 (laughs)

Nico Wittenborn 46:42 Um, and obviously we were not the first. I also don't want to claim that. You mentioned Oren Ziv. I have huge respect for him.

Harry Stebbings 46:48 Yeah.

Nico Wittenborn 46:48 I saw him-

Harry Stebbings 46:49 Amazing.

Nico Wittenborn 46:50 ... in, in, um, Palo Alto three weeks ago and I learned a lot from him as well, just talking. Um, and he's also scaled our model to some extent, which is, we can talk about after. But the way that it happened for me was really that I became confident in what I wanted to do, which was early stage, Europe, US, consumer heavy, software heavy, some SaaS and some other, but that was what I wanted to do, and I wanted to do it in, in, in the way that I've, you know, we've discussed here today. And it was not clear to me where I could do that. And I didn't want to do it somewhere where I felt like it didn't fit the positioning of the institution, and I also didn't feel like earning my place in another institution again.

Harry Stebbings 47:40 Yeah.

Nico Wittenborn 47:41 You know? Because I don't... You've been at firms and it's, it takes a while, right? You need to... There's hierarchy, there's politics.

Harry Stebbings 47:47 Well, I think I'm unemployable to be honest.

Nico Wittenborn 47:49 Yes. And so, I think the same for me. You know, I've, I've, um, be- been employed and I've, you know, I'm grateful for the time and the learnings, but I also always operated in a very autonomous way, and I think I'm getting better with the ability to fully find my own style, and I need that space.

Harry Stebbings 48:13 I totally agree and w- I mean, it brings so many ways I could take that. But I, I think the concern that I have on the solo GP model, one thing that pisses me off there is when, you know, LPs say, "Well, you know, you're getting hit by a bus and you're fucked." And then I'm like, "Well, yes, and I'm not gonna worry about it then, so (...) ."

Nico Wittenborn 48:25 Mm-hmm.

Harry Stebbings 48:26 Um,

Harry Stebbings 48:27 but it's like, you know, number one killer of partnerships is actually partnership breakups.

Nico Wittenborn 48:30 Yes.

Harry Stebbings 48:31 And you're like, "Well, it's quite hard for me to argue with myself that much."

Nico Wittenborn 48:33 Yeah. Yes.

Harry Stebbings 48:34 Um, so I think people forget about that.

Nico Wittenborn 48:35 Yeah.

Harry Stebbings 48:35 My question to you is does it scale?

Nico Wittenborn 48:37 Yes.

Harry Stebbings 48:37 Three funds down, 20 c- 20 to 25 companies. Fast start-

Nico Wittenborn 48:41 Yeah.

Harry Stebbings 48:41 ... deployment cycles. You're at 60 to 70 companies in five years?

Nico Wittenborn 48:47 Right. Yeah, so, um, the, the, the, before... I, I wa- want to answer this question just before I think you touched also on something here with, um, being solo and the risks of it, but then also the benefits of it, right?

Harry Stebbings 49:00 Yeah.

Nico Wittenborn 49:00 Because, um, I, I think you're absolutely right that partnerships can be one of the biggest reasons for it not working out.

Harry Stebbings 49:08 Sure.

Nico Wittenborn 49:09 Especially if it's a forced partnership, right? And so when I decided to, uh...... start a firm, it was not, "I will do it by myself." It was just, "Okay, I want to start a firm. Who do I do it with? There's a small list of people I would like to work with, but one, they're all at Great Firearms. Two, we never really worked that closely together. Maybe it's better to co-invest for a while." So it was like, it was not, "I want to be by myself. I'm going to go do it." It was, "I want to do this and I don't want to rush into anything. So let's do, start this way and then see what happens." And so it was a very organic way of getting there and now I'm quite comfortable with it. I don't even know if it will stay like this forever, to be honest. Right? Like, I'm young. I'm, you know, four years in. Like, maybe in 15 years, the world looks differently, right? Maybe in five, maybe in ten. I don't know. It's just, um, I, I understand things change and maybe this is one of the aspects that change, perhaps. But I think that what it just shows is that there is people, I think, that benefit from being able to fully follow their own thesis. And I will also say that, as a person, I've suffered in the past from very negative feedback on my deals. So I'm, I'm sensitive as a person, I guess. And so if I have a strong opinion on something and that gets mistreated in some way, whether it's, um, aggressive or just passively, um, I think that will change my opinion or at least, um, give me a lot of frustrations in some sense. And so I think that in the early stage where it's a lot about having a pretty unique perspective on something that is not a consensus-driven thing but is really aligned with you believe it and nobody else, I, I mean, sometimes some other people but like-

Harry Stebbings 50:57 Sure.

Nico Wittenborn 50:57 ... you know, fewer than actually do believe, I think solo GP is, for the right person, a very good fit for the early stage. And I think most consensus-driven models at the early stage, uh, unless it's a very aware and mindful partnership that really supports each other and, you know, can all see the complexities of human interaction, I think it's maybe beneficial to just have one opinion as long as you're right more than you're wrong.

Harry Stebbings 51:27 How do you deal with decision-making, deal decision-making? It's tough on your own.

Nico Wittenborn 51:36 Yeah, I guess you have to find your own w- your own process and I think that there's just different types of people. I think there's some that, that really need to test their conviction with other people.

Harry Stebbings 51:49 Mm-hmm.

Nico Wittenborn 51:50 And then there's others, and I think I'm, uh, included in that set, that really challenge themselves all the time, (laughs) but also with their opinion on a deal.

Harry Stebbings 52:01 How do you challenge yourself with your opinion on a deal?

Nico Wittenborn 52:04 I try to just, um... Well, so f- first, I have, like this is... First, I have to actually have a hypothesis and m- and have one opinion, right? So this is before I even challenge myself. I think the, the core of how I operate is that I have a bunch of frameworks and, like, ways of looking at the world in technology that I've taken from the 12 years that I've been in investing and refined to make it fit my style, and I apply them every single time. Some of that is very consciously and some of that is probably a, a little, um, subtle and, and, and just instinctively at this point, right? For example, founders is, like, actually interesting. It's like I, I don't think I have a great fa- framework for evaluating founders.

Harry Stebbings 52:47 Huh.

Nico Wittenborn 52:47 At the same time, I think I've worked with amazing founders, right? And so I think it's just, um, that is, I think, an more instinctual thing where I just have a, uh, I'm attracted by a certain type of founder and they are attracted by me.

Harry Stebbings 53:00 Who's the best founder that you've worked with?

Nico Wittenborn 53:03 (sighs) The best founder.

Harry Stebbings 53:05 I can say mine easy. It's Lior and Akim at Triple Dot Games in London, or Triple Dots Studios. I've never seen execution machines like it.

Nico Wittenborn 53:13 Yeah.

Harry Stebbings 53:13 Speed of execution, never miss their fucking numbers. They are just execution-oriented like no one else.

Nico Wittenborn 53:21 Yeah. Yeah, it's a, I mean, I, I, s- let me... It's not... I, I am happy to mention some names. I just, it really, I think there's so many, like maybe this is part of why I don't have a framework is that I think that there's so many different ways of being a good entrepreneur, right? Like, so I, I think that there is a fit of an entrepreneur with a specific topic or with a specific company and then the ability to, you know, just push that to the limit. So I guess ambition is one of the, right, like factors, right? It's like how much, how driven are you? What's driving you? How ambitious can you be and you-

Harry Stebbings 54:02 Do you ever worry with ambition that it can come over time? And when I just say that, like when I started this show, I told myself, "When I get a job as an associate at Balderson, I have made it."

Nico Wittenborn 54:11 Mm-hmm.

Harry Stebbings 54:11 My life is done."

Nico Wittenborn 54:13 Right.

Harry Stebbings 54:13 And like now, I want to change the whole way that Vanish is structured. (laughs)

Nico Wittenborn 54:17 Yeah.

Harry Stebbings 54:17 And (laughs) and we talked about it earlier-

Nico Wittenborn 54:19 Yeah.

Harry Stebbings 54:19 ... about some of the things we're doing. Like, ambition came over time-

Nico Wittenborn 54:23 Yes.

Harry Stebbings 54:23 ... through turning over the next card.

Nico Wittenborn 54:24 Yeah. I think that, um, yeah, I don't th- I, I, as opposed to other people, I don't think that everything is set from the beginning.

Harry Stebbings 54:31 Yeah.

Nico Wittenborn 54:31 Right? Like, so I do, like I've, I've invested in founders that told me, "We want to scale to 10 million and then, um, we'll see." Right? Like, which nobody else would do that, um, because it's not... But because I believe that if, if I'm right about the, what I call the adjacent possible, which, like, is, like, for me, this overarching macro driver for a company that is happening independently of the company and pushing them forward significantly, I think if you're in that rush, you reconsider if you sell at 10 million or if you keep going because, you know, like, you-

Harry Stebbings 55:02 So, so this adjacent possible is like a macro tide which carries companies' momentum beyond?

Nico Wittenborn 55:07 (laughs) Yeah. So-

Harry Stebbings 55:08 What is that? Help me understand that.

Nico Wittenborn 55:10 Yeah, so this is, I mean, it's one of the reasons the firm is called, and we're, we're three questions deep here, so I don't (laughs) might have to go back into the, the former questions after. But-The, so the adjacent, um,

Nico Wittenborn 55:21 I, I call the firm Adjacent because, um, there's this term in evolutionary biology called the adjacent possible. And what it says is that evolution happens usually as a combination of the existing phenomena and in a relatively deterministic way. So we're somewhere, right, and based on what is available at this point, the combination of the things usually lead to the next step.

Harry Stebbings 55:50 Mm-hmm.

Nico Wittenborn 55:50 Right? So, like, Transformers being developed somewhere within Google. Somebody taking that, building that up and creating OpenAI, then that actually becoming consumer subs application that charges 20 bucks a month (laughs) with ChatGPT. Those things altogether create the breakthrough, which if you ask somebody on the street, they're like, "Overnight, AI was created and it's living in this bot." Certainly this was not the case. There were very specific steps that were leading to this outcome that is now perceived as happening overnight. And so my belief is that understanding some of those components and where they could lead to actually can give us some understanding of the companies that can be built in the next 10 years or that really benefit from a trend. And this can be technically, like the example I just brought, but it could also be, um, behaviorally or, um, um, socially, like Calm for meditation. Meditation was not as mainstream as it was when we invested, right? Um, Opal, that's why my thesis with Opal, um, was that screen time management will become... We, we're just learning how to deal with these phones, right? They're always in our hands. We're talking to each other and we're looking at our phones. This is, it's not a healthy behavior, right? And depression is on the rise in the, in the West. This, I, I'm not saying this is only because of this, but I think technology and the way we're using it and the way it's disconnecting us from each other has, has a, has a role, uh, to play in that. And so I, I try to identify these changes and, you know, current, um, macro changes, and then think about which companies could create a category around that. And so I believe that those companies benefit from growth drivers that are much more meaningful than any execution.

Harry Stebbings 57:40 I, I totally get you and agree with you. I, I (laughs) I want to ask on the consumer subs element there.

Nico Wittenborn 57:44 Yes. Yep.

Harry Stebbings 57:44 Just getting back to it, but like, I've seen so many consumer subs that are leveraging OpenAI models in particular.

Nico Wittenborn 57:49 Right.

Harry Stebbings 57:49 And it's, uh, what all investors say is, "Listen, there's no proprietary data models here. You're a thin layer on top of someone else's model."

Nico Wittenborn 57:56 Yeah.

Harry Stebbings 57:56 "Not interesting."

Nico Wittenborn 57:57 Yeah.

Harry Stebbings 57:58 "Done."

Nico Wittenborn 57:58 Yeah, I, I, I-

Harry Stebbings 57:59 Is that fair? I don't know.

Nico Wittenborn 58:01 I, I'm not s- I, I'm not sure. Like th- uh, this is also something I learned from, from Jeff Horning. He talks about software in a way that is, um, coded experience, right? So like most software being workflow solutions, or actually under- an understanding of how you can make processes better in a specific industry or in a specific workflow, and then encoding that in something that automates a lot of that. And now the automation of this is coming to the next level, right, with AI.

Harry Stebbings 58:34 Yeah.

Nico Wittenborn 58:34 And, and this will happen both in enterprise application, but also in, in consumer applications. And so I think that a lot of the, the value that has been built in software over the last 20 years has actua- actually been in the application layer that takes these breakthroughs and just verticalizes them for a specific use case or a specific customer demographic and monetizes them. So the way I look at AI, and I'm, you know, I, I actually have a lot of like, I think it's super interesting what it means for consciousness and because we know, we know nothing about what, like, consciousness actually is, right? And so there's no telling what could lead to a consciousness emerging because we don't understand what it causes in a human, right? So there's like, there's a lot of very philosophically very interesting, I think, things happening there beyond the wow of what the technology enables today. Um, but I, the way I think about it from a, uh, an, an Adjacent perspective is we're gonna have, um, companies that are already consumer subscription companies that are implementing this to make their products-

Harry Stebbings 59:33 Right.

Nico Wittenborn 59:33 ... even more sticky, more functional, and give features that were not possible before.

Harry Stebbings 59:37 I totally get you. So it's existing players who already have existing data models, uh, and proprietary data sets-

Nico Wittenborn 59:42 Big user base.

Harry Stebbings 59:43 ... that can then leverage them. Yeah.

Nico Wittenborn 59:44 Yeah. I, that's how I look at it, but it's certainly, I'm also just trying to find the angle that kind of fits my thesis, right?

Harry Stebbings 59:52 (laughs)

Nico Wittenborn 59:54 So that's how I have to operate.

Harry Stebbings 59:55 Of course.

Harry Stebbings 59:56 Komass, when we project out to the next, like, 10 years of venture, what do you think the market looks like then? Like, like, it's changed so... I think this has been the most, you know, defining five years of venture of the last 50 years of venture, actually, when you look at the different models and innovations that have arisen. When you think about the next 10 years of venture, what do you think the venture model and world looks like?

Nico Wittenborn 1:00:17 So I, I, uh, uh, on a, on a high level, I don't have any doubt that there will be innovation. If anything, it will probably keep on accelerating because of, you know, more adjacent possibilities. Um, so I think that there will be venture. I think there will be innovation. And I think the model will persist. Um, as how the industry is structured, I don't have a crystal ball. From what I'm seeing today, I think the next few years will be pretty difficult for most firms. I think the big ones have become too big, and I think a lot of-

Harry Stebbings 1:00:53 What happens to them?

Nico Wittenborn 1:00:55 It depends on the firm. Uh, it's certainly hard to make a blanket statement. But I think that fund sizes will go down.

Harry Stebbings 1:01:03 Mm-hmm.

Nico Wittenborn 1:01:04 I think people will leave because if you have carry in a $3 billion venture fund-... y- th- is that worth a lot today?

Harry Stebbings 1:01:12 I don't think that realization's hit, by the way.

Nico Wittenborn 1:01:14 No.

Harry Stebbings 1:01:14 Listen, I'm super candid. It's one of the reasons the show's been successful is I kind of forget that cameras are turned on-

Nico Wittenborn 1:01:19 (laughs)

Harry Stebbings 1:01:19 ... and so I just speak freely. But, uh, you know, I'm actively trying to hire partners, investors, anyone talented who can invest. (laughs)

Nico Wittenborn 1:01:26 Yeah.

Harry Stebbings 1:01:26 Um, they still buy that their carry at the $2 billion fund is worth 30 million on a 3X fund.

Nico Wittenborn 1:01:32 Yeah.

Harry Stebbings 1:01:32 I'm like, "Trust me, you ain't shooting 3X on that $2 billion fund."

Nico Wittenborn 1:01:34 Yeah, yeah. I agree with you, um, and I think LPs agree with us. Uh, at least, I mean-

Harry Stebbings 1:01:40 LPs for sure agree with us. (laughs)

Nico Wittenborn 1:01:41 Yeah, and so but, but that means, right, like, it will ... it's a question of time whe- uh, from, from a LP perspective to put pressure on these funds, that they need to see data that those type of vehicles can create the same type of outcomes. And maybe they could in the last 12 years that we were i- in venture, right, or I was, and I, uh, admittedly also, like, it, it was a whole bull market run, right? So I, I see that and I'm actually, you know, cautiously excited about this period, which is (laughs) maybe a weird w- thing to say. But I think it's ... this is like earning your stripes also, right?

Harry Stebbings 1:02:17 Correct.

Nico Wittenborn 1:02:17 It's like how do you actually navigate this scenario? And I think as small funds investing early, we have a benefit there, because I do believe that it's still the best place to be. The risk is the highest, but the, the, the opportunity on the upside as well.

Harry Stebbings 1:02:30 I, I don't think seed is a great place to be right now, man.

Nico Wittenborn 1:02:32 Yeah.

Harry Stebbings 1:02:32 And I am a seed investor with you, but I'm saying this because, you know, bluntly, I think A and B, A, B, and C, no one wants to deploy big dollars.

Nico Wittenborn 1:02:38 Yes.

Harry Stebbings 1:02:38 All the multi-stage funds just don't wanna put cash out the door, but they all wanna be in market, so they're all moving earlier and earlier to seed. They're telling their principals and associates, "Hey, go write some seed checks-"

Nico Wittenborn 1:02:46 Yeah.

Harry Stebbings 1:02:46 "... while we deal with this m- morass of shit on the board of all these companies."

Nico Wittenborn 1:02:50 Right.

Harry Stebbings 1:02:50 Um, bugger.

Nico Wittenborn 1:02:52 Yeah, I th- (laughs)

Harry Stebbings 1:02:53 And that leaves this massive inflow of capital-

Nico Wittenborn 1:02:54 Yeah.

Harry Stebbings 1:02:54 ... that's less price-sensitive to seed-

Nico Wittenborn 1:02:56 Yeah.

Harry Stebbings 1:02:56 ... and it makes our jobs harder.

Nico Wittenborn 1:02:57 Yeah. Uh, yeah, I mean, f- uh, I guess that, I g- I guess you have a point, that this is happening. At the same time, it's a temporary issue, right, where these c- um, these funds are not ... they have to also work on their growth funds that are sitting untouched, right? Otherwise they're not raising it. I guess they have some flexibility, but at the end of the day-

Harry Stebbings 1:03:19 I don't think they're touching it for a while. Remember-

Nico Wittenborn 1:03:21 Probably true.

Harry Stebbings 1:03:21 ... remember, a lot of them had to increase their GP commits to get the new fund sizes, so every time they do a count call, they have to actually-

Nico Wittenborn 1:03:27 They have to put it themselves, yeah.

Harry Stebbings 1:03:27 ... shift 5, 10 million themselves.

Nico Wittenborn 1:03:28 Yeah, that's a, that's a good point.

Harry Stebbings 1:03:29 On top of that-

Nico Wittenborn 1:03:30 Yeah.

Harry Stebbings 1:03:30 ... they committed to your fund-

Nico Wittenborn 1:03:31 Yeah.

Harry Stebbings 1:03:31 ... to my fund, to 10 other friends' funds-

Nico Wittenborn 1:03:32 Yeah.

Harry Stebbings 1:03:32 ... and then they borrowed against the carry watermarks at the super high prices-

Nico Wittenborn 1:03:37 (laughs) Yeah.

Harry Stebbings 1:03:38 ... from SVB and FRB.

Nico Wittenborn 1:03:39 Okay, and so this is why I'm not so worried about them being really difficult for us in the seed. They're, they're worried about other things right now.

Harry Stebbings 1:03:45 For sure. (laughs)

Nico Wittenborn 1:03:46 Right? Like their core existence is in peril, if you would describe it like this.

Harry Stebbings 1:03:52 Sure, yeah.

Nico Wittenborn 1:03:52 Right? And so will they calm down and just fully focus all of their energy in competing for seed? Is that really what will save them? I'm not sure.

Harry Stebbings 1:03:59 No, but they deploy their team to. They deploy that-

Nico Wittenborn 1:04:01 Yeah.

Harry Stebbings 1:04:01 ... 28-year-olds from HBS.

Nico Wittenborn 1:04:02 Yeah, but, okay, but did they start those funds?

Harry Stebbings 1:04:05 No, but they come with an big name, big name brand-

Nico Wittenborn 1:04:09 Yep. Th-

Harry Stebbings 1:04:09 ... and they put five on 25 down.

Nico Wittenborn 1:04:10 Okay, this is ... And so this is also, I guess, um, true, and I think where I am consciously trying, actually, not to be is I'm not a big brand fund and I'm not trying to be. I, in fact, think that I am working with the person that actually thinks those firms are the establishment. Does that make sense? So I actually don't think I should be competing for a seed round-

Harry Stebbings 1:04:42 With those firms.

Nico Wittenborn 1:04:42 ... where the founder is trying to get a big brand name on board in the seed, which I think has ... I mean, they, they can be a good fit, I guess, in some, in some rounds and for some topics, but it's not their core business, right? It's a defensive strategy-

Harry Stebbings 1:04:58 Sure.

Nico Wittenborn 1:04:58 ... to keep ownership in the companies-

Harry Stebbings 1:05:01 Yeah.

Nico Wittenborn 1:05:01 ... that will be big outliers, right? So it's a, it's an, uh, it's a strategic part of their game that leads to, you know, hopefully the core being more successful. And so this is all I do and it's ... I'm fully focused on it, I'm the founder of the firm, you only get me, and I move faster. That is appealing to a certain type of founder. It's not appealing to all founders, right? And I accept that, and I don't try to be in all those processes. So it's very rare that I actually come up against one of these firms, because I don't think we're shooting for the same type of founder.

Harry Stebbings 1:05:39 Who cares more about the brand name firms, American or European founders?

Nico Wittenborn 1:05:44 So, uh, one thing I've actually noticed is that the European founders care about having a US investor.

Harry Stebbings 1:05:49 They really do.

Nico Wittenborn 1:05:50 Yeah.

Harry Stebbings 1:05:50 Yeah.

Nico Wittenborn 1:05:51 But this is also something that-

Harry Stebbings 1:05:52 Even the shit ones? (laughs)

Nico Wittenborn 1:05:53 They're like, "Oh, wow, tier three-"

Harry Stebbings 1:05:56 But it's the US.

Nico Wittenborn 1:05:56 "... but they came from the Valley."

Harry Stebbings 1:05:57 Right.

Nico Wittenborn 1:05:58 (laughs)

Harry Stebbings 1:05:58 Yeah. I think this is ... I, I mean, it's, it's a little bit, um ... I guess I'm European, right? I was ... I grew up in Germany and I also ... I mean, I don't know, I feel myself, I, I'm a little bit between the worlds. I've also ... I, I went t- mm, I, I spent a year of high school in, in, in the US and, like, you know, lived there for the past, like, six years or so, so I, I do feel both. Um, I, I think it's a little sad that we have this, as Europeans, this bias towards the US investors are clearly better. Yeah.

Nico Wittenborn 1:06:27 Because-

Harry Stebbings 1:06:27 Idolization, let's say, actually.

Nico Wittenborn 1:06:28 Yeah, idolization.

Harry Stebbings 1:06:30 Yeah.

Nico Wittenborn 1:06:30 That being said, I've met many more investors that I'm impressed with in the US than in Europe, right? (laughs)

Harry Stebbings 1:06:37 100%. Have you seen how few investors I have on from Europe?

Nico Wittenborn 1:06:40 Yeah, yeah.

Harry Stebbings 1:06:40 (laughs)

Nico Wittenborn 1:06:40 Yeah, that's true. Um-

Harry Stebbings 1:06:42 You very kindly said that you were speaking here for the first time. You're, like, one of three in 3,000. (laughs)

Nico Wittenborn 1:06:46 That's crazy, yeah.

Harry Stebbings 1:06:48 Which says, which says something.

Nico Wittenborn 1:06:49 Yeah.

Harry Stebbings 1:06:50 I, I get that. What's the hardest thing with Adjacent for you today, Nico?

Nico Wittenborn 1:06:53 The, the, the thing I'm ... I mean, what we discuss is a lot of what I'm thinking about, right? It's like, how do we make sure these companies can realize their full potential?

Harry Stebbings 1:07:02 Yeah.

Nico Wittenborn 1:07:03 Right? Like, can I ... Like, I, I'm pretty-

Harry Stebbings 1:07:06 Do you think the majority of your access will come from PE roll-ups?I'm just looking at-

Nico Wittenborn 1:07:11 No, yeah.

Harry Stebbings 1:07:11 ... like all these companies. What do we do with this-

Nico Wittenborn 1:07:14 Yeah.

Harry Stebbings 1:07:14 ... enormous �<|th|>

Nico Wittenborn 1:07:16 Not all, but I mean- I mean, let's see, like right, le- the, I think the best ones will go public. There's- um, there's now a- a Duolingo that's ... and I just wanna stress this, in this current macro, they have a much higher multiple on their revenue run rate than comparable SaaS companies.

Harry Stebbings 1:07:32 Duolingo is it?

Nico Wittenborn 1:07:32 Duolingo. Or that, that-

Harry Stebbings 1:07:34 That doesn't surprise me.

Nico Wittenborn 1:07:34 But it's a, but th- but it's, but it surprises everybody else, because this is supposed to be the model-

Harry Stebbings 1:07:39 But if you compare it to like a bill.com which is at like a 1.6 X revenue multiple.

Nico Wittenborn 1:07:43 Yeah.

Harry Stebbings 1:07:43 If you were to compare the two, on like future cashflows, I would absolutely lean towards Duolingo.

Nico Wittenborn 1:07:50 Me too, and I agree. But that seems to not have arrived in the general multi-stage firm investors' mindset. And so my hope is that in a few years, we have more examples, and so it will open the door for smaller IPOs, but more IPOs. Um, and so I think that will happen. The best of them will do that, and I have companies in the portfolio I'm confident we can do it. Not sure that it will happen, but I- we're on the track. And so the others, yes, there will be a- a M&A roll-up. In fact, you know, I'm not s- stupid, I also realize that there will be an opportunity in rolling some of these up, because they are reaching, some of them are reaching a ceiling, but they're very highly profitable, right? Like yes, 10 million, but three million in EBITDA, common. And so you roll up a couple of these, it becomes a very interesting financial thing, right?

Harry Stebbings 1:08:38 Mm.

Nico Wittenborn 1:08:38 And so I've invested in three companies that are doing that, so I have the best of them, I have the infrastructure, and then I have the- the hedge, which is like, "Let's take the ones that don't work." And so I think it will happen. I think there will be acquisitions. I think there will be a lot of big fir- like the- the one example is, um, Rocket Money bought, um, Truebill-

Harry Stebbings 1:08:57 Yeah.

Nico Wittenborn 1:08:57 ... for like, I don't know, one and a half or something like that, billion, um, which might've been early because I think they're still accelerating. Um, we have, I have a competitor in the portfolio that's building around AI first, that, called Chargeback, that I think can take them on, it's a huge market. But I think that there will be a lot of companies that want to own that type of customer relationship, right? They all have millions of subscribers that are heavily engaged with a product in a certain demographic. That's strategic value.

Harry Stebbings 1:09:24 Yeah.

Nico Wittenborn 1:09:24 Right? I think. I also think Spotify and Netflix potentially are interested in some of those more content-focused companies, at one point maybe even interactive ones, going into gaming more and things like that. So I think that there will be strategic acquisitions, I think there can be financial acquisitions, and I think the best of them will have public outcomes. But anyways, this is one of the things I'm worried ab- trying to navigate, right?

Harry Stebbings 1:09:44 Mm.

Nico Wittenborn 1:09:44 Like I- I think it is also clear to me that we have few data points. Because of what I've seen and because of the thesis that I have, um, formulated over the last eight years, I believe more than others that it will happen, but I will be much more comfortable in five years if there's four more firms we can talk about.

Harry Stebbings 1:10:02 Where does your anti-establishment vibe come from?

Nico Wittenborn 1:10:06 (sighs)

Harry Stebbings 1:10:06 You're a hipster, you're cool, like the clothes, the shoes, the ￡​ people don't see it but like you're an anti-establishment. I am too, but I look like a posh boy. (laughs)

Nico Wittenborn 1:10:15 (laughs) I don't know. I- I think it's a ... I think if you're starting your own firm in your 20s, I was 30, you're like trying to go ￡-

Harry Stebbings 1:10:25 I was 22 with the first fund.

Nico Wittenborn 1:10:26 Right. So you're- you're, I think that's-

Harry Stebbings 1:10:28 I'm like Wayne Rooney

Harry Stebbings 1:10:29 for venture.

Nico Wittenborn 1:10:30 I think it's not about what you look like, it's about like what you do, and if you do that then you go your own way in some respect. And I think that is something, by the way, that I think founders respect, right?

Harry Stebbings 1:10:39 Yeah, really.

Nico Wittenborn 1:10:40 Because you're not an associate or a principal, even a partner that was hired into a firm at- with a cushy salary, but you took a risk, you built something, and you're trying to, you know, be m- be also empathetic towards the founders that are doing the same thing. So I think that's one of the- the big strengths of our model. Why is it? I don't know. I think, I mean, for me, I- I al- I think I was pretty ... my, I grew up with my mom, and so I think I didn't have a father figure around. I did go on- on, you know, in, when I, when, on vacations and I saw him. He was involved, he was not like an absent, absent father, but he lived many hours away and in the end I think that made me just find my own path more and be comfortable with my own worldview and decision-making. And I didn't have so many o- other role models either, I would say. And so I think that-

Harry Stebbings 1:11:35 When you look back now, do you- do you wish you had?

Nico Wittenborn 1:11:38 I, did I ... would- would I h- uh, let's say it this way. I now have one kid, I'm expecting a second, and it's very important to me to be a good father to the family and- and both a husband and- and a father to my kids, because I do think it really, um, I think it really did hurt when-

Harry Stebbings 1:11:59 Mm.

Nico Wittenborn 1:11:59 ... I think when your dad leaves at a young age, it just leaves a mark.

Harry Stebbings 1:12:02 Yeah.

Nico Wittenborn 1:12:03 And I think that's part of where my drive comes from. I don't think it's all of it, right? I think there's- there's genetics and- um, just, you know, serendipity and how things play out and so on. But I- I certain- I also, we grew up with very little money, right? My mom had three kids from different fathers by herself. Um, and when I grew up, that was also, there were limitations, right? And so you, I think I just tried to, those things like, I tried to just have, um, agency and, um, independence. Well, I'm, I don't want to make it sound like I had like ... I- I had everything that I needed.

Harry Stebbings 1:12:37 Hmm.

Nico Wittenborn 1:12:37 I never was hungry. I had my mom, I know loved me, and you know, I think that there's much worse upbringings, so I don't wanna, um, go there. But I just think that finding- (laughs)

Harry Stebbings 1:12:51 Nico trekked across the desert with nothing but a sherbet lemon.

Nico Wittenborn 1:12:54 (laughs) Yeah. That's how I started. No. Oh, certainly not. And in Germany, right? Like, so this is also like, what- what are we complaining about? I'm a white man that grew up in the Western world, right? So there's very little things. But still, do I have some trauma from how I grew up and my circumstances? Yeah, and it formed me, and that's, everybody has those, right?

Harry Stebbings 1:13:10 Sure.

Nico Wittenborn 1:13:11 And so I think, I don't think, for me, money is any ultimate ...... goal. I need money to be independent and have the freedom to do the work that I want, to-

Harry Stebbings 1:13:25 Do children make you more hungry for money? That's something that we (laughs) spoke about on Message.

Nico Wittenborn 1:13:30 Yeah.

Harry Stebbings 1:13:30 But like-

Nico Wittenborn 1:13:31 I-

Harry Stebbings 1:13:31 ... kids change a lot.

Nico Wittenborn 1:13:32 I think, I mean, what changed, uh, actually I think, I mean, and I'm still a young dad, right? My, my daughter's turns three this month.

Harry Stebbings 1:13:40 Uh-huh.

Nico Wittenborn 1:13:40 And, um, my son will be born in one and a half months, so also still learning there. But, uh, I think it didn't make me m- I, I actually am quite concerned about people that grew up, grow up with too much money. I think that it can be very harmful-

Harry Stebbings 1:13:58 Yeah.

Nico Wittenborn 1:13:58 ... for kids to be too pampered. And so I want to provide security for my family and I really enjoy being able to take my wife, we went to Japan recently as a babymoon before our next baby and like went to nice hotels. And that's, I feel very grateful that I'm able to do that and I really appreciate it. It's not that, I really don't take that for granted at all. So I l- I'm proud that I achieved that. Um, at the same time, I don't have a number in mind. I don't think that more money will make me any happier. I don't think I need more money to make my kids happier. You know? Like it's really not what's driving me today. And I think what changed with the kids is more understanding that, I think it makes you think even more long term in some ways because you want the world to look good for your kids. And so you think about things that might happen beyond your, like next, you know, lifespan, whatever it is.

Harry Stebbings 1:14:59 Yeah.

Nico Wittenborn 1:15:00 But I think that also, for me, I think that had a positive impact on where I want to focus my investments, right? And like, do I want to be in a company that I wouldn't feel good about telling my daughter about?

Harry Stebbings 1:15:10 It's a good question.

Nico Wittenborn 1:15:11 Yeah.

Harry Stebbings 1:15:11 Chris Sackel always says that one.

Nico Wittenborn 1:15:12 Yeah.

Harry Stebbings 1:15:13 Am I, am I proud to tell my children that-

Nico Wittenborn 1:15:14 Yeah.

Harry Stebbings 1:15:14 ... I invested in X company?

Nico Wittenborn 1:15:16 Exactly, yeah. And that's, and I think so, so I do, I, I think kids, and this is a bit of a rational way (laughs) of saying it, but I think kids are f- are, are