EP 126: Owen Reynolds is Changing the Game: Risk, Returns, & the Future of Tech

🚀 Navigating the Future: Owen Reynolds' Blueprint for Venture Capital Success!

Join us in this riveting episode as we explore the visionary mind of Owen Reynolds, a leading figure at Teklas Ventures, renowned for his strategic foresight in the venture capital arena. Delve into how Owen's innovative approach is not just navigating, but pioneering new pathways for startups to scale from groundbreaking ideas to global phenomena.

🎙️ What's in the Episode:
1️⃣ The Hardware Revolution: Owen discusses the critical role of hardware in catapulting technological advancements beyond current limitations.
2️⃣ Sustainable Energy for an Addicted World: Insights into the quest for cleaner, more sustainable energy sources to fuel our future.
3️⃣ Europe's Hidden Gems: Unveiling the untapped potential within Europe's tech landscape and the unique opportunities it presents.

👨‍💼 About Owen Reynolds:
With a profound background in venture capital and a keen eye on industrial and energy sectors, Owen Reynolds stands at the helm of Teklas Ventures, steering investments towards automation, robotics, and sustainable energy solutions. His passion for marrying innovation with sustainability drives his mission to foster startups that not only succeed financially but also contribute positively to society. Owen's philosophy revolves around embracing risk for monumental returns, setting a new benchmark in venture capital.

🎥 Immerse yourself in this enlightening episode to journey into the future of venture capital with Owen Reynolds. Discover the strategies shaping the next wave of startup success and innovation with Teklas Ventures.

💡 LINKS TO MORE CONTENT
Host: Christian Soschner

📌 Quotes:
(00:07:45) "If I could do this for the rest of my life, it would be incredible."
(00:17:11) "I invest in people that scare me a little bit."
(00:43:03) "We can't get big capital flows without doing above market returns."
(00:52:06) "Expecting market returns demands a mature set of founders and asset managers."
(01:10:03) "Creative destruction is part of a healthy ecosystem, revitalizing it for future cycles."
(01:24:33) "Every investment opportunity has its own risks and return profile, requiring a calculated approach."

⏰ Timestamps:
(00:07:45) The Genesis of a Venture Capitalist's Passion
(00:11:50) Envisioning the Future of Startups
(00:17:11) Owen Reynolds on Seeking Founders Who Challenge Him
(00:25:15) Discussing Modern Portfolio Theory in Venture Capital
(00:42:04) Measuring Success in Venture Investment: Returns, Impact, Technology
(00:43:03) Prioritizing Returns in Venture Capital for Sustainable Impact
(00:43:49) Navigating ESG: Beyond Compliance to Genuine Impact
(00:50:24) Investing in Down Markets: Overcoming Fear with Strategic Capital Allocation
(00:59:16) Navigating Investment Strategies
(01:10:03) Creative Destruction in the Venture Ecosystem
(01:13:27) Navigating Venture Capital in a Shifting Market: Strategies for the Future
(01:22:21) Envisioning the Venture Landscape: A Mature, Grounded Future for Startups
(01:24:33) "Every investment opportunity has its own risks and return profile, requiring a calculated approach."
(01:25:45) Exploring the Limits of Software in Technological Advancements
(01:27:57) Envisioning a Future Shaped by Diverse Energy Sources and Sustainable Innovation

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Transcript

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Christian Soschner 0:00

In uh today's rapidly evolving tech landscape, the uh boundary between uh the possible and the impossible is constantly being redrawn. But what fuels this relentless drive for innovation? It's all about envisioning a brighter future, says Owen Reynolds. Dive into the mind of a visionary as we explore the future of technology, investment, and the untapped potential of Europe's tech scene.

Owen Reynolds 0:36

I definitely think that we've not hit the limitations of software on everything for sure. I mean, look at the AI explosion. We'll see you know how much of it works and how much of it is just fantastic software that was going to be written anyway. Um, but we we will need more hardware, plain and simple. We have bigger challenges to overcome than we perhaps ever have, which means that our willingness to make mistakes, make errors, burn capital, frankly, but hit those big successes at the same time. And I want to see more of that brilliance being brought to market, brought to industry, brought to applications, brought to use cases, and really explored. So get out there and do it. Feel free to touch base with me if anybody wants any of my ideas about how to do that.

Christian Soschner 1:17

Owen Reynolds is a key figure at Teclos Ventures. He brings a wealth of knowledge from the front lines of venture capital. With a keen eye on the future, Owen and Teclos Ventures stand at the forefront of driving innovation in the industrial sector, pushing the boundaries of what's technologically visible. In this episode, you will discover the critical role of hardware in the next generation of tech, why the future of innovation relies on more than just software, the importance of energy innovation, how sustainable energy sources are key to our technological addiction, Europe's untapped potential, the unique opportunities and challenges within Europe's tech landscape, the venture capital perspective, insights into the venture funding landscape and what the future holds. And finally, a call to action for founders, encouragement for European founders to think big and make a global impact. And remember, your engagement helps this podcast bring more valuable insights to you. So subscribe, comment, and share to support the show and help me deliver more insightful content like this episode. Now, let's dive into the full episode and uncover the future of technology and investment with own Reynolds. I mean it's my fourth year of podcasting now, and I started in 2020 inviting past speakers to a Christmas and New Year's recording. And the first one was three hours, the second one I think was uh about six hours, and the third one was eight hours.

Owen Reynolds 3:06

So wow, okay. So you've been you've definitely broken world records. Um I probably won't have enough content to be to be a world record breaker, but I appreciate your confidence in me.

Christian Soschner 3:18

I think we fight enough contents to talk about.

Owen Reynolds 3:22

That sounds good. Um yeah, then we can we can dive in. Thank you for the detailed questions too. It makes it super easy. And um kind of flop through some of the some of the things, but they're mostly um you picked up on a lot of the elements that I sent over in the emails, and I think it was that's a lot of material that I've been thinking about um for months and years in a lot of cases.

Christian Soschner 3:43

Yeah, that's great noise. I I checked also your profiles. There are a lot of articles uh on the internet. You had a great podcast with uh European VC about uh about the second. I think you bring a lot of expertise and experience to the table.

Owen Reynolds 3:58

That was an odd one. I happened to work down the street from them years ago, and uh I so had an insight into the way that these regulatory agencies work.

Christian Soschner 4:07

So now I'm looking for the so we started live streaming right now, and uh let's just just just move through the questions and go ahead. You were from the US originally. Did I uh did I get it right? You're not European by No, I'm not.

Owen Reynolds 4:23

Um I am from Chicago in the US, if you couldn't tell by my my giveaway accent, and um but moved here to Europe about five years ago um to join a firm that really had a close thesis to what I was looking for. So have been um investing out of Luxembourg but across Europe as well as the US um for several years now, and um and now have actually joined the the LP and GP side of the table. So I've I'd always been a GP, but now also an LP as well over the last few months.

Christian Soschner 4:52

Let that let me ask you the most pressing question that I have on my mind. I mean, usually I recommend um investors and European companies to go more towards the United States. What brought you to Europe? Uh with what idea did you come from the motherland of capitalism and investing uh to Europe?

Owen Reynolds 5:13

Um it's an interesting journey and not entirely like most VC's career journeys, not entirely intentional, um, a lot of luck driven, let's say. But my wife is actually from uh not too far from Luxembourg. So as we were flying back and forth for for family, um, I got introduced to a team that was close by that happened to be doing um an impact-oriented fund in 2018 that was also financially driven. And I'd been in impact investing, like old school impact investing in the US, I was very fortunate to work with an OMIDIA fund there. And it was just a combination of finding the right thesis uh in a team that I wanted to join. And the geography for me was kind of up in the air. Um, having family nearby helped. So um, so made the decision and then made the decision to stay um kind of continuously over the years and doubling down on the interesting ability I realized that I that I have to pick out um talent. And I think part of it may be culturally driven, and I'll admit, um, I think a lot of US managers, a lot of managers when they're picking out Series A, B, C companies, um, oftentimes they're looking for startups and companies that can go and raise um capital in the American market. So by having come from that environment, it um has has at least given me like a baseground to compare what um what kind of teams I think will be able to raise in that same environment that I natively come from.

Christian Soschner 6:38

No, I definitely agree. I mean, your expertise here in Europe is gold. Uh, many people need it to understand how they need to structure their story to be ultimately then able to raise capital from bigger funds. Uh, in Europe, we mostly don't have um many big funds that can play in the deep tech areas. What's interesting to me is what led you to venture capital. When did you make the decision that uh becoming a venture capitalist is the right path for you?

Owen Reynolds 7:08

Well, I started off my professional career as a Peace Corps volunteer, which is not the usual place for most venture capitalists. And uh Peace Corps is a US program that sends um US, young US people, usually shortly after undergrad or after master's degrees, to far-flung locations, usually in developing countries. And I got to work with um with the ideation stage of uh of companies and fell in love with the entire process of creating an entrepreneurial journey and starting at that very early stage. So I was encouraging high school and university students to start startups and then realized I really love this. And I wrote in a journal at one point as I was journaling every day that if I got to do this for the rest of my life, this would be this would be an incredible thing. And I didn't know what this meant at the time, but um I went out and started my own uh startup, co-founded a sustainable construction company with a set of Peruvian investors um a few years later, and really started from that from the ground up. Unfortunately, we uh we had to pivot out of our original idea, but the company continued. And as I kind of did several cycles through other careers, became an economist, two master's degrees, I finally came back to what this was. And this was helping entrepreneurs, working at that early stage, helping them get through these different capital formation stages, helping craft their story, work through their business models, fine-tune what they're looking for in terms of candidate selection, uh, and really trying to be there for them on an everyday basis the best I can. And that is what I really love doing on a daily basis. So I found myself back in it. Uh, and as I was going into my MBA, um I had several ideas of what I wanted to do. And within about three weeks, I realized venture and startups was where I wanted to spend my career. So if I retired tomorrow, I'd probably be doing the exact same thing.

Christian Soschner 9:02

That's that's good to hear. We share a similar passion when I in the 90s I started in the 90s, uh, business management economics, and the usual path that uh people got recommended my age was uh join a big corporation, make a career. And when you are in your 50s, which in my case is uh just one year to go, uh then you can start a company. How is it in your experience in the United States, uh, what motivates young people to start companies at an early age?

Owen Reynolds 9:30

I have two answers to that. One is a macroeconomic one, and actually, not a lot of people uh uh ask that question, but I think it's an important one. The macroeconomics are such that um the dollar-driven global economy and the fact that a lot of contracts globally are um are written in dollar terms, has I think um appreciated the dollar over the natural productivity of the American population, which means that the only things that are really worth your time and effort have to be super productive, have to be more productive than the actual national level of productivity to match the uh essentially um implied productivity of the US dollar uh globally. And that means that you're driving towards extreme innovation, extreme risk taking on the um on the medical biotech fronts as well as the tech fronts and business formation fronts. So I think that's one macroeconomic driver that's kind of continued it. However, there's also just this scrappy US mentality of wanting to start things up and the fact that there is no ingrained um or had been no ingrained hierarchy necessarily. Um, and everyone comes from immigrants, like my family uh over the last from 70 to 120 years ago immigrated to the US. None of them can get jobs. So they all start up companies, and it becomes this wave every time there's new uh new immigrants into the country. Those people start companies, they follow that entrepreneurial journey, and that's become an ingrained part of surviving in America.

Christian Soschner 11:02

That's that's great to hear. That's great to hear. I think we replicate uh at the moment this model also here in Europe. You mentioned before that you love helping startup founders. And I would like to dive a little bit deeper in that area. Uh, what exactly is it that draws you to startups? Why do you love this area so much?

Owen Reynolds 11:22

I think it's the innovation, it's the fact that it's the building. And I love um, I mean, frankly, if I had gone down that route right away instead of going back to be an economist for a while, I probably would have kept going down that route and somehow got into the investing side. Um, and now I love that a lot too, because I get to work with entrepreneurs. But I love the building part. I like those early stages where it's really about um connections and uh and helping individuals build up future huge organizations and thinking through that. Let's take a company that's public right now. What does that company look like? And then working backwards step by step to day one. And what does that company at a future state look like today? And then how do we make ourselves look, feel, act, breathe, and live like this? So that we are aiming towards whether it's an acquisition or an IPO, how do we get towards there by forming ourselves at the prime level from day one?

Christian Soschner 12:20

Yeah, I completely agree to that. It's a beautiful word. Have you ever worked in bigger corporations?

Owen Reynolds 12:26

I never survived in bigger corporations. So I did, um, I spent three years working for the US government, which is about as big of a an organization as you can get, and quickly got to my uh cap of creativity. Um, I really appreciated learning how the hierarchy worked, but I also realized that a lot of the innovation and um and creativity from a lot of the brilliant people that I got to work with was often going into uh kind of politicking themselves into the gears of the organization, which were well oiled and did exactly what they were meant to do. But it I it left a lot to my imagination and how I wanted to kind of spend my energy and really kind of get back out to to the early stages of building. So I've I think large corporations are critical for the for the world. And I'm I mean, frankly, the companies that we invest in are destined at some point to be um large corporations, but um, but I've never been one to really thrive in that kind of a setting.

Christian Soschner 13:30

Yeah, but yeah, I mean US government is a huge, huge part. I had a specific reason to ask this question. Um I mean, the the I think the one of the advantages in big corporations, so like the US government, I mean, you have many people who can check tasks off the list. And when you look at uh the startup stage, basically there is nobody. There is one or two founders, and usually a business angel or a family office or early stage meanwhile, also early stage CPCs, and that's it. Uh, my question to you is how was it for uh for you moving from uh a big entity like the US government, where you have many, many, many helpers uh on teams that can uh work on tasks to the startup environment where basically also people have a lot of ideas what can be done, but need to prioritize and select those tasks very quickly that have the most impact, uh, moving them towards their goal. How was your transition from big uh companies, big corporations, uh big entities down to the very, very small ones?

Owen Reynolds 14:35

I mean, I kind of did full circle. So I started on uh on creating my like my co-founding my my first startup right after I was in the Peace Corps, and and then went to a big organization and realized wow, there's a lot of um there's a lot of focus on these individual elements. And sure, that creates efficiencies and processes, but not necessarily in in terms of growth and movement. And I I still think that going back to the those original stages, incentivizing creativity in um at a company level is essential to getting that that growth, trying a bunch of different things, not necessarily having anyone that's your boss. Um and I also see that within our companies that have taken off and have raised hundreds of millions over the years, is that they're business units that retain that creativity and incentivize that creativity and give people freedom and just create the incentives for success, are the ones that continue to have these breakout um successful products or breakout successful business lines. And it gave me, I think working at a big organization gave me faith that people in any size organization have creativity, but we just need to get it aligned towards the end goal. Um, and there, I think there's two types of big organizations. So there's the ones that do have that alignment, or it's maybe whether it's top line or margin growth or their place in the market. Um, and then there's ones that give people um a limited framework and you stick within that framework. And invariably the ones that give you that growth potential are going to be the companies that define our future.

Christian Soschner 16:05

Yeah, it's interesting. Um the the I mean the life cycle of a company that I learned in at university level was um company starts, grows, and then disintegrates at some point in time to just stop fulfilling market needs and then naturally they die, and the next wave of companies uh comes to the market. And then uh organizations like Apple, Microsoft, Amazon, I think also Tesla is going in that direction happen that seem to keep their creative touch alive, that uh don't transition into becoming a rigid big organization, but uh just keep on thriving and moving forward and keep on growing. Uh, in your opinion, um, as a venture capitalist, what uh character traits are you looking for in founders that uh give you the confidence that uh they will be the ones, the next Bill Gates, the next Steve Jobs, the next uh Elon Musk. What are you looking for in founders?

Owen Reynolds 18:46

I look for a lot of things, but I'd say the one consistency that I strive for and I push myself for is to invest in people that scare me a little bit. And what I mean is that I want people, I mean, I try to surround myself with people that are smarter than me. It's not that hard, but but I really try to find founders that are coming up with something that I'm blown away by. And I want to work with aspirational founders, aspirational co-investors. And it's not just trying to like work with the coolest people, it's trying to work with people that I for me expand expand my understanding of the way the world works. When someone comes up with an idea that I hadn't thought of or or couldn't imagine myself thinking of um that could change an entire industry or the way people live, those sorts of things are really fascinating for me. Uh and those are the types of founders that I I want to back is um there's not a lot of things that I that um that Mark Zuckerberg has said, for example, that I that's naturally um attracted to. One of them was that in an alternate universe, you want to hire people that you can imagine working for. And that's what I try to think of when I'm investing. Could I imagine working for this person? Because invariably, when you invest, oftentimes the founder feels like you're working, they're they're working for you. Really, it very quickly becomes the other way around. A good investor should, I think, be pretty hands-on, proactive, asking what the company needs. When they can't do it, tell them straight up I can't do that. I don't know how to, or I don't know anyone that can do that for you. Um, and then when you do find something that you can push on, you can help on, is dive in. And I want to be able to find someone who I can really rally behind. And not only that, I can honestly pitch to other co-investors that might come on later, to uh folks that I'm telling that should join the team because I'm saying these guys are awesome. Follow their direction, follow their lead, and we will all be able to kind of ride this, uh ride this wave. But I guess I was gonna say you were probably asking like more technically, like what do you kind of check off? Like I do I've gone towards more um more technically enabled teams, but really want to find people that both have a great understanding of technical skills as well as are able to pitch their company. Because in the end, as a CEO, you are often the chief cheerleader. Um and that, you know, at the IPO stage or post, you are the uh the one who's on investor calls defending your organization every quarter. Um, and on the ride up there, you're doing that day in and day out with the media, with your investors, maybe with your board, hopefully not with your board, but uh but those things happen and you're defending your position in the market um and really creating space for the people in your organization to be able to uh to increasingly and more autonomously grow. But you gotta understand what your industry does, what your company is doing on a technical level without necessarily always meddling, but knowing exactly when to zoom in and zoom out. And if you don't have the technical depth, I find it is difficult to be able to zoom in to some of the problem areas with the sufficient speed needed.

Christian Soschner 22:07

Yeah, that's true. That's true. Um, you mentioned uh not only technical skills are important to you, but also pitching skills and selling skills and also at the end of the day, business skills. I'm currently in the process of reading uh the book The Innovators by Walter Isaacson, and it was very interesting to see the story behind Microsoft in this book, especially Bill Gates. I didn't know that he was the one basically who brought the business mindset into companies, and he was the one who hired people and also took sometimes the hard calls and fired people if they didn't deliver, also negotiating tough deals sometimes with external parties while the other ones were tinkering in the background. In your opinion, you work in deep tech. At which point in time does it make sense for a deep tech founder to engage with someone who brings in the business skills into the company or expands their own skill set by doing an MBA. What is the right point in time for a deep tech company? Like Microsoft, right from the beginning, or can they stay longer in the lab and look at the business side later on?

Owen Reynolds 23:16

Having done an MBA myself, I'm not sure that that's like the recommended route I would give to a technical founder just to pump up their skills. I think there's probably a lot of other better ways of doing it and more efficiently without ever leaving the workforce. I mean, especially for a technical team, leaving the high tech space is um really cutting your what you can give back to the market significantly. So I would recommend anyone that's in the tech space to stay in it and not kind of unplug themselves. What I do like, what I got out of an MBA is a kind of an aside is that I was coming from being an economist to being an investor. And it was two totally different worlds. So I kind of had to pivot into that and learned a lot. So for me, it was worth coming out of the market. Then the other routes I would suggest though, and I think that's a great question. Should technical founders try to bump up their skills inherently, or should they try to partner with a kind of business-minded co-investor? And I think that comes down to every entrepreneur's individual journey. Like every technical entrepreneur that wants to build a company needs to, I think, design for themselves. Do I have it in me to be the front of the company? And do I want to be the front of the company? Do I thrive in that? Not yeah, not even do I want, do I thrive in that kind of an environment and that kind of pressure? Or do I want to be the one that gets to create the ideas, the one that is really driving product development and driving our team? Do I want to be working with the nuts and bolts every day? Um, and I think if you can come to a really intellectually honest answer to that and you know what drives you, then you've got the answer. And you'll already know I should probably go find a co-founder that can help me do this, but also has the enough technical depth to understand what I'm what I'm spitting at them. Or um, or yes, I want to embody that and I want to try maybe maybe um angel investing to see what it's like to in to partner with other great uh founders. I want to start um maybe taking public speaking classes on the side on the weekends to to kind of boost my ability to communicate my ideas. I want to start writing because that's a super like low, low barrier to entry way of doing it and practicing that way in terms of like getting your management skills, your speaking skills all up to par.

Christian Soschner 25:39

Or come on and podcast to practice your speaking skills. So it's so a modern way and whatever. I'm asking specifically, I mean, you mentioned in uh in the preparation material I read uh opening the aparture of capital participation into deep tech is one of your missions that you assigned to yourself. And I also started in Deep Tech in 2006, or in the life science sector, biotech sector. And um, the usual thing was whenever I drew up a business plan, it was uh we need one billion to bring this thing to the market minimum, and we need at least 100 million to bring this story to a point where we can create something like an exit point for investors, which usually in the European capital market landscape is something that not many people bought into in 2006. Um investing became better, but only in tech areas that were more consumer-oriented, not so much in the B2P world. And since you mentioned that you seem to have this mission to get more capital into deep tech um from the European perspective, uh what should we do that we attract more capital into this phase?

Owen Reynolds 26:52

And I'll get to your answer, I promise. Um, but I often think about it from um from a traditional modern portfolio theory perspective. So you think about the return, uh, the risk return profile and how that goes through all assets. And of course, the higher you get up on the curve on the risk side, the higher the returns should be. Um and we usually think of uh picking a risk tolerance and then uh the the adjacent portfolio or is the the tangential portfolio to that is the um is the optimal portfolio, and it usually includes a mix of everything from you know, if if you have zero risk tolerance, then of course you stick to just pure debt, it's risk-free. Um but if you have any risk tolerance, then you're immediately going up the curve into maybe high higher um higher yield debt, into equities, into private equities, and to real estate, into venture capital, uh, uh and eventually into crypto, maybe. Um and I think of it as a mathematical approach that if you pick your risk tolerance sincerely, then construct a portfolio that's mathematically appropriate to that. Uh and what that means is if my team is two people, then I can only go so far on that spectrum. I can only do what two people can professionally do. But if I have a hundred people on my team and enough AUM to justify a hundred people's salaries, then I can should be able to do that entire spectrum in a pretty balanced way. And what I see is that a lot of the approaches to portfolio balances are often based on rule of thumb type of uh type of approaches. And in particular in Europe, I feel like that curve is often being truncated at private markets. So we're giving a lot of attention towards debt equity markets. And that um alternative asset market is in general often truncated as too high risk for a lot of family offices, um, a lot of pension funds. And I mean, in my own country, our um social security system is based on zero risk tolerance. It is entirely invested into T-bonds, which is literally the world's reference for risk-free capital. So I'm not saying that like any place is perfect. The US isn't even either. Um, but in general, family offices, I do think, tend towards balancing this um uh this entire spectrum on the risk return profile. Now, at the family office, I'm at, I'm very lucky that when I joined, there was already the thesis of uh of investing heavily into private equity and venture capital. But that's not always the case. What that does give is for those that are willing to take the um the kind of historically mathematical approach to modern portfolio theory, are willing to go out on that curve, are willing to not artificially truncate their portfolio allocation to these fantastic returning assets, and then can do it in a way that is balanced and diversified enough, these are great returning assets. I mean, you and I have staked our careers on it. Um so I think it's our kind of part of our duties um to explain this to our incoming uh to other LPs in the market. And part of me is just as an old economist, I want to see more capital formation on this portion of the market. And I think we're all headed there. Um and I think it just needs a bit more data and a bit more pushing and a bit more risk tolerance. And I'm already starting to see more family offices um talk about capital generation instead of capital preservation. And I think that is becoming the right attitude because if we're not keeping up with this market and capital generation, you are falling behind.

Christian Soschner 30:27

I could not agree more. I could not agree more. When I look, I mean, I grew up in the 90s and it looked like Europe is at bar with the United States in the mobile market back then. When in 2023, when the the digital space is driven by the United States on the one side and also by China on the other side, they have fantastic companies here in Europe. We don't have anything. And I totally agree with what you say that the markets seem to be truncated. Um, taking risks just doesn't seem to be really a European attitude. And I always think, I mean, uh when I invest all the capital that I have in one company, in one deep tech company in the early stages, of course it's a high risk. I mean, the the rate of failure is 99%. But when I construct a portfolio uh of a hundred companies, uh the uh the probability that one succeeds and becomes the next apple is very high when I know where to pick and have access to the right inflow, of course. So when a big family office um or foundations, for example, in Austria, foundations uh seem to have 100 billion euros capital. When they invest only 1% in a deep tech fund, it's 1 billion. And with a fund manager like you, uh you can diversify the investments and narrow down the risk. Can you dive a little bit deeper into your strategy uh to the risk portfolio to make it more attractive to the risk-averse investors? What uh buzzwords do you use and how do you explain the story?

Owen Reynolds 31:54

Uh I'll start one step before because I think there's um there's an on-ramp to getting to where where we are today. And the on-ramp, I think, starts with uh doing exactly what I described at the beginning, where if you're thinking about how many people you're allocating to the space and how many people your AOM justifies, then um, what is the depth into that market that you'll require? Now, to be able to do a solid um or add a solid exposure into venture, you would need either an extremely well-indexed direct fund or um a well-diversified set of GPs. And there's the probably the easiest way of starting that is going through fund-to-funds. Um, you can get immediate exposure into a broad set of uh of funds. There's a handful of great existing fund to funds in the European market now, both at the early stages and the late later stages. Early stages tend to be a little bit better performing, but have a little bit more volatility, as you'd expect. Um, but there's ways that you can immediately go into the market as a family office or as an endowment or as a pension fund and put fairly um meaningful tickets without necessarily having to risk the learning, that learning curve of picking managers. Once you kind of get past that barrier and you really if you have enough people on your team to actually pick managers, then you can start to uh to create a diversified portfolio. Um, you want to, of course, aim for the best managers possible, but also managers that you trust and believe in for the next cycle. A lot of times, you know, these are 12-year relationships, uh especially as an um we talk about a 10-year relationship as a direct investor in the startups, but the LP usually thinks of it as the 10 plus one plus one and maybe even longer. So if you are going to start that relationship with uh a GP, you do want to make sure that their next fund and the fund after that looks like it's going to be just as investable as the previous ones, that they've got a succession plan, that they've got a great bench of um up-and-coming partners and principals that will carry this firm on for a long time, and that that ecosystem that they're building is important. Then after that, um, we're kind of in it in the in-between stage. Now, um, I would always encourage, I think, um, pension funds, family offices to diversify across um across a lot of GPs and create a sincere strategy and and then really make sure that they know their timeline, they know their cohorts, they're measuring a single vintage and then closing that vintage, measuring that going forward, and then opening another vintage. Because if you kind of measure uh a kind of continuous vintage, you'll always be in the J the bottom of the J curve. And what you want to be able to see is did we have success on these two or three years? And we are we out of the J curve? Are we up into um you know above what one XTPI? And we into return territory, and then can we do it again? Can we do it again? And that leads to, I think, where you're actually asking, which is what do we do? And what we do is a combination of ballast on our portfolio. So we anchor our portfolio with managers that are aspirational for us to work with, that we um love hearing from, that are thought leaders in the space that we truly admire. And then we also um direct invest. And what that is allowing us to do is um by anchoring our portfolio with incredible managers, we A, set the bar pretty high on uh on the uh on the return side, and we uh kind of ensure that a portion of our portfolio is entrusted into a diverse set of hands. By doing that, we ensure that it's you know not just our team, but also other teams that are um taking on management. It also helps us professionalize our operations. We see amazing managers, we see the way they're reporting, we see the companies, the types of companies that they're investing into. We can get insights into different markets. Um, and that's on top of the potential. If they think we're good enough to bring us in on direct deals. Um and then on the direct side, as I mentioned, that's the bar. Like within an endowment and a family office, yes, you want to commit to a time period. But if your direct deals aren't beating the managers they're investing in, there's probably no reason to do it up from a financial perspective. And then you just need to decide is this something that our organization needs from an operational side or from a strategic side? Um, and otherwise, from a pure financial perspective, you do have to have a decent team to be able to allocate to that breath. So I hope that starts to get to the point.

Christian Soschner 36:27

Yeah, absolutely. Absolutely. I was smiling because when uh I reached out to you as uh I listened to your episodes on European VC and liked your messages, liked your voice. Uh, think you have great things to say and participate. Uh an acid uh uh addition to the European ecosystem. And after I reached out, you agreed to the podcast that we do the recording. I started my research on uh tech as ventures. And first I read Founders, well great, I know my first fund of fund of on the podcast. This is quite interesting. And then I also read that you invest directly in startups, and I said, no wait, uh funds, and uh invest in startups also, and I didn't get around this in my mind. Uh, it seems to me like a contradiction. How did what was the reason to decide at Techless Ventures to, on one hand, invest in venture funds and on the other hand, also go for startups?

Owen Reynolds 37:24

So I have the great fortune of having been brought on after a lot of that decision making was was uh formed. Uh and I'll give a lot of uh a lot of credit to our uh the principals, the family behind the fund for having kind of worked through a lot of the math basically behind it and saying we want to go into private markets, we have an edge. And uh and as some background, uh Techlis is an automotive supplier based out of Turkey, but with 12 um manufacturing facilities in six different countries and 250,000 square meters of manufacturing space. And they have uh serious kind of competitive advantages in automotive as well as um as well as robotics and automation and several ancillary areas within the industry 4.0 segment. So um they went first into the private equity markets to um to leverage the expertise, and now we're adding on to that into the venture segment. So I've um I joined earlier this year. Uh so it's been um, you know, we're still building, but a lot of the thought process on how to take on that kind of risk, segment it, um, was already kind of thought through. But the way that that we're kind of explaining it to the market is um we're using, like from a financial perspective, we're using this these investments into um into great managers as this way to anchor um our returns, be able to take on the appropriate risk that a true venture fund will have um on the on the direct side, and then um make direct investments the same way a venture capital fund would. So I'm coming from being a GP, so um that's kind of my my mindset is uh is to work with founders the exact same way. Um, whether we can take a board, a board observer seat, we're still there for uh for every part of the journey. And that is um, and that's exactly the way we want to be able to optimize across those two sides. And actually, frankly, I should say too, by um having a strategic company like TechLus, and and I'm kind of pitching this, but but I think this is true for a lot of um a lot of different corporates, is find like two or three or five things you do really well and tell your GPs and your companies, these are the things we're good at. These are the things you can call us for. And for both your GPs and your companies, you want to be a real resource for those things. And then for the other things, you just trust that by that, by the point you invest, you should be able to trust them to kind of run on their own without um without bothering them, without wasting their time, without asking too many questions, and just be there as a resource when they need you.

Christian Soschner 39:58

I'm curious now. How how would you pitch in one mini stakless ventures?

Owen Reynolds 40:04

So we've got the backing of a great corporate with uh history in automotive and um and automation, and we are building out a portfolio of uh of industry 4.0, um, using those same levels, levers of expertise, both for a set of GPs and direct investments into some of those same segments. So we want to be actively involved and we know the things that we're good at. Here are the the set the set of things we've got expertise in. And with everything else, we're willing, we're of course there as sounding boards and general um startup investors. We've been through the process before, um, but we've got it here are the here are the things that we're good at. And I encourage a lot of GPs to do the same thing, um, to tell their their founders what they're good at, what they're not, so you know who to come to, and you are part of the founder's portfolio too, and a GP's portfolio of uh of capital. And you you want to come with more than just the capital, but also bringing some expertise.

Christian Soschner 40:59

I have some fund managers in my in my um business environment that I know are currently in the process of fundraising. What's the ideal manager for you? What are you looking for in funds when you invest as a fund of fund?

Owen Reynolds 41:15

So, from our perspective, we've started at, let's say, the ground level. We um are have been aiming over the last couple of months for managers that have a long track of DPI, so uh distributed to paid in capital, which means distributions made to LPs that we can measure. Um, not a lot of funds have that. So we've limited ourselves to a pretty select uh group of managers. Um and I think that's been a good way for us to uh to take advantage of the uh of market sentiment right now and frankly um get access to great funds. I think that access, though, is available to a lot of funds. As I mentioned at the very beginning, the there's a just a lack of capital um for amazing GPs. And in the US, to get into amazing GPs, you'd have to knock down their doors or put 20 million in. And there's like there's no in between. Um in Europe, you can um, if you're kind of good at this and good at picking and good at you know adding value in the one or two ways that uh that anyone uh anyone can, um, I think there's an incredible amount of opportunities for uh for family offices, for uh especially nimble family offices, but also for pension funds to dive into this market. Um so that didn't really answer the the question, but um, but what we're actually looking for is um is now being able to extrapolate. So what does an emerging manager, for example, look like? Now that we've got you know a couple, uh a couple of funds that we've invested in that are um or or they're invested or passed RIC, um, what are the things that we're looking for? What are the what are the things that these funds, and similar to what an IPO ready company looks like on day one, what does an emerging manager that has done six funds of DPI look like at day one? And not knowing um not knowing currently what their track record is, but looking what their network is, their ability to uh to pick their uh track record, their the strength that they have in terms of making introductions, all of those qualitative analytical things that are tough to measure, but um but essential to being able to pick out the next generation. Now, I I hope we're able to do it, uh, and I think so, but um, but it's a lot of pattern recognition, just like venture investing itself.

Christian Soschner 43:39

Yeah, that's true. That's true. Um, with tech, as I mean, you have this very special mission to invest in startups and funds. And usually when I look at the deep tech sectors, I have three buzzwords. So it's like a trinity. You have game-changing technology, you have social impact, and uh then returns. When you look at these three uh different areas, uh, how do you measure your success in these areas at Tech as ventures? How important are they to you?

Owen Reynolds 44:08

I think any venture activity needs to be measured first on returns. And this is after coming from a long background of impact. Um I don't think we can get the world's capital environments motivated and invested, the pension funds, the endowments. Um, we can't get these big capital flows if we're not doing above market returns. And I think that is the number one lesson for both GPs and for uh for founders is that it still needs to fit the venture model. Same with um, same with infrastructure and and private equity, it has to fit the model. And the reason is those capital flows are coming from folks that have fiduciary responsibilities to their uh to their shareholders. And they need to return that capital for people to survive in their 70s and 80s and 90s, or for university students to go to university, or for families to to provide for their for the next generation. These are essential, um these are essential financial markers, and it's part of our, you know, the the intermediary's financial duty to be able to return that capital. And in addition, there's the perspective in the market that these are riskier assets. Whether that's true or not, we have to adjust for that, which means we have to be um above market return rate. So then getting to the rest of it, how do you measure the other things? Um, I think there's been a lot of froth in the market on the whole ESG and impact criteria. I've got a lot of probably unpopular opinions about it. My general thesis is if you can sleep at night, honestly. And sincerely, and you know that you're pushing in the right direction, um, and looking at scope one, scope two, and scope three from now through the next 20 years of your company's operations, where that company is going to be sourcing, where that company is going to be operating, how that company is going to be treating its people, then measuring it, I feel like is kind of a fool's errand. Um, that said, we've all got to measure it. And um, and if you want to be compliant, you've got to follow the rules. So I think it's a a mix of uh of marketing and intention. But as with so many things in this super opaque market, it comes down to you do you trust people? Do you trust the individual um founders to be running their company in the way that you also feel is uh is appropriate for your funds risk tolerance or your principal's risk risk tolerance? And do you feel the same way about the managers? Are they going to be investing? Yeah, every manager has to shift um and invest into new areas when they become available and create new theses. But do you do you expect them to be able to have um uh a way of driving their investment theses into areas that are not just only capital returning but also um ethically aligned with um with your again, your your fund and your principles behind you?

Christian Soschner 47:00

That's great. Uh making profits and conserving a good night's sleep as success criteria. That's uh that's uh genius. Uh let's tell it at profits. I mean, it it's something that I'm always surprised when I talk to investors and um uh entrepreneurs here in Europe, that it seems to come last. And when startups come to me and say, Can you help can you help us raise funds? They always say, I don't see anything in in your presentation um where you show the potential investors that your technology will not only be game-changing and make a great social impact, but also fulfill their return criteria. And can you expand a little bit more on that area? Why uh first and foremost, also venture funds and fancy funds must be capital allocators at their core.

Owen Reynolds 47:55

Or am I wrong? No, you're totally you hit the nail on the head. And that goes back to um I I actually had the good fortune of um one of the one of the partners, one of the managing partners of the first funds I was at uh at in Luxembourg. If you didn't understand um this one key point, would always ask, how do you make money? And it got me at the very early, early days to ask that same question. Okay, how does this company make money? And in the end, a company isn't self-um self-sustaining if it's not making money, of course, right? Um, and that being the the priority is something that I think was lost during the bull market. I think it's coming back to the fore right now, fortunately. And I see a lot of new founders coming, um uh kind of highlighting that in their pitch decks and saying this is how we could get to profitability. You know, maybe we don't need to, depending on capital markets, but here's one thesis. Um, here's how we at least boost top line. Here's how we could theoretically eventually get to um to margin production, uh margin generation. And I think having that kind of thought process is really important. And the reason that um I think you're entirely right to say that um first and foremost, investors are exactly that. They're investors and capital allocators. And to be able to do that efficiently um and get the big capital flows that we need to make the impact that we need and the changes we need, we need that when you're trying to give capital away or trying to give it at a reduced rate, you're actually slowing down the maturity of the uh of the risk and the return profile of an entire industry. So by expecting market returns and demanding market returns, what you're getting is um a mature set of founders, a mature set of managers. And I think we're starting to see that. There's been a whole new set of GPs that came into the market over the last few years that are heavily focused on impact, but also recognize that they are they are under a lot of pressure to generate returns. And in this market climate, they will be under even more pressure to generate those big um those big venture type returns. And same for every other private uh private asset class. So just like you said at the at the onset, this is about matching real impact to a financial model, and that's what we're bridging right now.

Christian Soschner 50:21

Yeah, I totally agree to what you say. I mean, if funds don't focus on creating returns, they will lose credibility with their investors, and when they lose their investors, they are not beneficial to their founders either because they don't have capital in the future. So they will have a hard time raise funds two, three, four, and five. And my advice to startup founders is always first and foremost, when you want to sell to an investor, tackle the return expectation and have at least a story of creative default processes you said, uh, how you plan to create returns to get the investor what they need to prove to their investors that it makes sense to go deeper into that. And the second part that I'm curious to learn or to hear from you is uh investing. I mean, it's always very comfortable to invest in bubble territory. So, for example, two years ago, I mean, we had this uh beautiful crypto bubble, web free bubble, and it feels so comfortable when everybody explains that uh the next generation of technology is coming to fruition and you see everyone investing and running into that area. And when I listen to Warren Buffett, he says it would be the most stupid thing to invest at this point in time. You should wait uh until the market collapses and then pick up the good opportunities. But the downside of investing in a down market is nobody wants to go there, everybody, everyone is scared. And when you look now on media, I mean, uh I think we probably are at the bottom of the down market because everyone is fearful, everyone is scared. And my question to you is how do you convince LPs to put money down in this market environment?

Owen Reynolds 51:58

Again, unfortunately, in our fund, the thesis was already there when I came on board, so I didn't have to tackle that myself. It's kind of cheating. Um, but yeah, I I agree. Um of course, investing in the down markets, especially when a lot of tech companies have laid off tons of workers and there's just talent um everywhere, it seems like hypothetically a fantastic time to invest. But you're right, um, getting over that fear sentiment is uh a tough barrier for fund managers. And right now, there's still that sentiment that you want to hold on to a little extra cash in case. But then when you think about what you would use that cash for, okay, if you're a pension fund, you have to meet obligations. So make sure you have enough cash budget to meet obligations with maybe a little extra runway than usual. If you usually have cash for um, you know, 18 months out to make it 24. But usually, um, if you're thinking about long-term investors and you don't have national um outlays required um on such a such a rigid deadline, then your cash allocation is really there to pick up opportunities like this. So then you should be kind of slowly, not you know, all in one go, but slowly redeploying into the market if you have um built-up cash reserves. So I think it goes back to that thing that I've said at the beginning that is uh take a an academic and mathematic approach to the um to allocation. And when you have when you remove sentiment from the equation and remove fear from the equation and start thinking about when and where we should deploy based on um financial signals, based on historic movements, this is a fantastic time to invest. So I'd encourage a lot of managers to really divorce themselves from fear and dive in.

Christian Soschner 53:49

That's that's great. That's great advice. Uh, you're an American in Europe, and it's for me a great opportunity to ask you about your perceived similarities and differences in the European venture capital market. I mean, I have my opinion on the European and the US one. I would love to hear how you see it.

Owen Reynolds 54:12

Some of the things go back to that early, earlier part where there's a slight a slightly different cultural risk tolerance. And I think that's one of the more defining ones, whether it's because of those macroeconomic trends or just the kind of immigrant history of the US and uh and the lack of hierarchical order. That's other is more hierarchical order every year. So maybe that won't last forever. But um I think that uh that adds to the kind of end product which you see, which is this um tendency towards um company creation. But I think that is changing too. And I mean, I've definitely bet my career on it. That's as I mentioned at the beginning, that's why I I stayed in Europe and didn't go back, is because I started seeing this incredible talent that wasn't getting invested and was getting looked over and wasn't able to get to big invested capital, which means there's an opportunity for to help um great founders to kind of reach formation. And even founders that are well experienced and have exited from two companies, maybe they can raise their their seed in Series A from previous um uh previous investors and families that they've gotten to know along the way. But does that mean that they can get go out and raise a series B from you from the you know four or five um European funds? Or do they have to go into the global capital markets? And I think that's that's what's still um available to um for a lot of investors to to help on and uh and to a certain degree kind of take advantage of. So whether you're looking at it as um as kind of arbitrage or um or supporting, there's a gap and it probably will be filled over time. But the big I think the big um other thing that I see as being an American in Europe is the tendency towards um uh towards limiting companies to a geography. And I think that when you start to think of individual countries as geographies um and linguistic barriers as geographies, you're limiting um your company's growth. And I would encourage a lot of companies to forget about language barriers to the to the extent you can and try to follow the industrial routes. So that's easier to say from an industrial perspective than a consumer investor perspective, where like language is basically everything and culture is basically everything. But if you're thinking about the auto industry, yeah, it's gonna be predominantly German, gonna be predominantly Dah. But that doesn't mean that there aren't going to be critical Italian, Spanish, and French players and Czech and a whole lot of other uh companies, and then you have all the suppliers in Turkey, for example, uh, which I've gotten attuned to over the last couple of months, and and across Eastern Europe. When you can fine-tune your message as a startup to an industry, you pick up their um their critical dialogue and find a way to make yourself fit that. You can find viral routes that cross international borders that ignore um that only bump up into those things when it comes to yeah, the pain of doing VIT and stuff like that. But for for the most part, I think there's a lot of viral routes that are not taking advantage of that in the US are obvious because there's no linguistic barriers, but we can create in Europe across industries or within industries, across verticals and through um these different kinds of viral routes that I'd love to see explored.

Christian Soschner 57:42

Yeah, it would be great to see the European Union uh being perceived as one market. I mean, when I think about Europe, uh e-mobility, for example, it's uh genius. We have still sometimes the mindset of the 80s and 70s, where Germany is Germany, France is France, Spain is Spain, Italy is Italy. Then we decide on immobility, where basically in certain areas 95% of the value chain is controlled by China. And uh so we don't have it in Europe, and then we still still think in these uh small territorial bubbles. The second thing that I find very compelling in what you said is uh that we have a lot of talent here in Europe, but uh not enough capital. And I think this is this is a real problem here in Europa, especially we have the horizon, Horizon Europe.

Owen Reynolds 58:26

We train our dilute of capital is super important in terms of getting companies um funded. But I do agree that sometimes it can send the wrong signals that you should be focused on writing a grant, which takes a really long time to write like 50 pages or 100 page business plan that no investor is ever going to look at. Um so I I really uh going back to that initial the initial part that we talked about, bringing in more capital is really the way to into the ecosystem is really um the way to do it. And it's not that the capital is not there, it's just that the risk tolerance isn't there. And it it goes back to this sentiment that certain assets are too risky or don't have the data behind them to um to justify future investment. Um, fortunately, the same institution that I that might be um that is investing from the state, so the EIF, for example, is creating incredible data that I think is starting to that is starting to show to family funds, to pensions that this is a sincerely investable asset class. Now, you I guess I guess it would have taken a little bit of leap of faith 10 years ago for a pension fund to say, okay, this kind of looks like the way the US market looks and there's data in the US, so we can kind of port that over. Now, I don't think it takes that leap of faith. You can say these this is the data for the DOC region, for France, for Spain, for the UK for the last 25 years. And the data is just as promising that um funds that the average VC return um or sorry, the the median VC returning is above the average of any benchmark of uh public of private, sorry, public equity funds. So we should probably be overallocating into that same uh into that same profile. And if you have this risk-adjusted, diversified portfolio, you'll be able to hit those returns if you're doing it in a smart way. You have to hire professionals, you can't just do it, just dabble. This has to be like a commitment. And when new funds go into the market, they need to commit to it. Um they know that they should know that there's a J-curve that you're gonna lose at the beginning on paper, and then you're gonna gain on paper, and that the end returns in cash are gonna be somewhere between the paper high and the and the paper medium. Um, and being able to stomach that and take it from a really academic perspective is, I think, still tough for a lot of funds. I mean, just like we always said, uh, you never got fired for investing in IBM. That was you know the old saying when IBM was still uh at the top of their game. But I think the same is true for any blue chip type of investment. When you want to make um a safe investment as an investing manager, you go towards um the stable, higher perceived higher quality. And when you think about capital flows being stuck in some of those assets, maybe some of those assets are even overvalued because as I mentioned, like the the risk return profile being truncated means that inherently more assets more assets are being funneled into um into lower risk assets in Europe. So we're probably undervaluing the the risk um part of the part of the spectrum, which even creates like means that the opportunity is even bigger. So just going back to like the the basics of taking that mathematical approach, um, a real philosophical stance on what we're gonna do, commit and then measure.

Christian Soschner 1:02:33

Yeah, great words, great words. I mean, you mentioned investing in the public sectors now. Investing in Apple seems like to be a no-brainer, but going back to 1997 when basically Apple was uh close to bankruptcy and they brought Steve Jobs back or uh seizing the opportunity. Amazon in 2001, who invested in Amazon in 2001, 2000, 2001, when they lost 90% of the market capitalization. But this would be the right point in time to allocate capital, and we just miss it in Europe. This is really so risk-averse, and uh we miss great opportunities because we don't put capital down. I hope we can.

Owen Reynolds 1:03:10

I think it's changing. I think it is changing. Yeah, and I've seen more and more managers, um, they tend to be young, but not always. Sometimes I'd say there's like a middle ground of managers that are still worried about their careers. Then there's the more seasoned managers that are seriously wise, those people, when they tell you that this is that that venture and private equity is the way to invest, they shift markets. And then you have a ton of upstarts on the other side that are in their 20s and 30s and um and also seeing the the opportunity maybe from fresh eyes. And um, not that it's entirely an age thing, but um they're they tend to be the ones with the least decision-making power, unfortunately. They're the emeritus and the juniors, and we need to pressure that um towards the senior managers to to see that same vision. But I am hearing it on the market. Um, for example, I was at IPEM a couple of weeks ago, and for the first time I've been at the in the LP conference, I'd always been on the GP side, but um I got to join the LP conference for for a day, and it was fascinating. The unique, um, sorry, the universal story across all LPs was deploy to VC. And then the following day, when it's um GP and LPs, I heard from every GP, but no one wants to talk to me. And I'm talking to wonderful um aspirational GPs. And they're still saying that the LPs we heard the day before that every every other big LP that's on stage is saying double down into VC right now. Um the next day they're not they're not following that message. So there's still is this disconnect, but I feel like it's getting closer and closer and closer. And the more um data there is, the more risk tolerance there is, the more this, um, the more the message gets out there that this sector does work, I think the the more likely we are to get that capital into the market, required to eventually funnel down to um to innovation and pull people out of the lab based on capital incentives instead of uh grant incentives.

Christian Soschner 1:05:11

What's your opinion? This disconnect between GPs and LPs? Uh what's the reason in Europe that there is this perceived disconnect when you say, on one hand, LPs say double down on VCs and then the fund managers say nobody talks to us. Where does it come from? What's what's the problem?

Owen Reynolds 1:05:30

I think private markets tend to work on weird lags for a stop. Like there's no data until the end of the quarter, which you know happens. Uh, you get your data from the end of last quarter, uh, two months later. So that's part of it. And and the other is that a lot of it is uh investment committee allocation. So when you go to your IC, you're like, this is what we're gonna do. Six months ago, the market still looked like it was at a pretty risky spot. So everyone started their 2023 plan thinking, all right, let's let's pull back into cash, let's reallocate into finally high-yielding debt. But no, the real story is that this is a fantastic time to invest into innovation, invest into managers that can pick innovation. Um, so I think there's this lag as market capital markets begin to return. We've seen uh two IPOs now that I think have been indicative, not telling, but have started to indicate that the that the market's coming back, um, or at least stabilizing towards some some sort of uh uh some sort of fluidity. But it is going to take a little bit of time for investment committees to reallocate into venture capital and listen to sometimes their old investors who are saying, I see an opportunity. Um, here's why X, Y, and Z, and after three months of data or six months of data, are going back to their ICs and saying, this is what we see, this is what we need to do. Then the ICs unlock a new portion of capital allocation, and they can double down on new managers.

Christian Soschner 1:07:42

of uh of business model versus um versus expectations from bankers but i think in either case like showing that the that it just didn't get destroyed or was able to get to uh that it's able to get to markets i think was a good sign and it means that it also means that the capital formation machinery is kind of getting back to getting back to to work which i think is important yeah i think it's always a good time to invest uh so there's uh there's nothing i think one of the european problems that i see that we have is i mean also e-mobility coming back to that uh um to that area i think one thing that we tend to do that is probably different to the united states is we lock in very early so uh climate change is the big problem here in europe is a big problem in the united states but when i look at the united states it seems to me they are more open to diversify their investment and say okay let's play around with tech and see who's winning and in europe we locked in very early that we want to have uh when it comes to mobility when it comes to cars we want to have electric vehicles that's it and we want nothing else which is uh locking in on one technology very early and you mentioned before that there is this disconnect between GPs and LPs and I've just thought maybe this is also the problem that when the LPs say we double down on VCs they select a handful of VCs and then everybody invests in uh in one fund and don't diversify uh across more funds do you see such a dynamic or is it uh just uh uh there's kind of two different two different parts there so I'll I'll do the I'll I'll try to answer the second part first the um I think diversifying into a lot of different GPs is a bit of a uh a team power so a man and woman power type of a question do you have the team size and breadth to cover cover markets and I think uh going back to to what we talked about earlier is if you have that uh sincere allocation and you decide we're gonna do this and commit to it and there has to be a team component you need to know how many FTEs are on this to be able to make it make it happen and they have to have some experience in the field.

Owen Reynolds 1:09:47

And of course they have to be sufficiently diversified. That said I think there's a little um well quite a bit of um of focus on let's say to quality and as markets sink as there are more opportunities and less capital on the markets it means that capital tends to um tends to be allocated to the highest performing assets and the highest performing teams and I think that's natural it's also probably healthy for the ecosystem in terms of what does the European GP ecosystem need it needs amazing teams that are able to consistently overperform pick and form the best companies serve on the boards of the best companies repeatedly and if we're focusing capital towards those entities I think that they're that's probably a healthy thing for the ecosystem. What it also does is it kind of mixes up a bunch of the maybe underperforming teams there were a lot of great managers in some of those underperforming teams but what that um ends up doing is if those underperforming teams have to kind of slow down or shut down probably the the managers the the managing directors are sticking on or the maybe the one or two founding partners are sticking on but it means that the juniors or the mid-level partners that are super hungry for deals and might have been adding great value um some of those some of those players are now loose in the ecosystem and can be picked up by either new um great funds that existed or new and up incoming funds. And I think that creative destruction is part of a healthy ecosystem and is uh one of the reasons that the booms after the bust are so robust is because things are kind of shaken up and they get reoriented in a way that is not as ossified as at the at the peak where you're just expanding every balloon out there. Now we're popping the balloons rebuilding making stronger balloons and re-blowing them up probably in the next the next bus uh boom and bust cycle um so the other part you asked about I think was was lock-in in terms of technologies and uh in terms of US and Europe uh yeah US tends to go more more by market signal and less by directive that's not always the case I mean look at the IRA the um the inflation reduction act in the US is pretty um pretty di like pretty pretty much points you in one direction so I I think some of that is uh is kind of coming to uh or kind of converging uh between the the two continents said there there is still this tendency towards directing a single industry um and there's certainly downsides towards towards you know are EV is the answer to the future i my my personal sentiment on that is actually increasingly under question my um my wife is a filmmaker and her new project is uh is tackling this exact question what's happening on the ground um you know where are these minerals coming from and it's this um all of these hidden uh hidden corners of the world often populated by land connected and indigenous people that are actually the ones that have been safeguarding these um uh these places of where natural resources sources are hidden for millennia and now are at the front lines of deciding the the future for our sustainable future and then how sustainable is that so having markets decide in the end has like these downsides where sometimes those areas get exploited and hopefully markets can react quicker though than um and correct for those sorts of things than uh a policy uh could I couldn't agree more I think also that the power of the markets is uh to be very selective to select what's working and uh I really hope that we don't and from what I understand so I wasn't in the European landscape at the time um but I I understand that yeah after the last kind of financial upset there was uh a long dry period where everyone was just kind of trying to survive and I think going back to the that increase in data I would be pretty surprised if that were the case going forward. As I mentioned like what I heard from other European and US VCs about um or LPs about investing in a VC at at IPEM a couple weeks ago I don't expect that to be the case and I I think that the there's sufficient data on European VC now that this is an overperforming sector which means underinvested and arbitrage opportunities exist that I would that I expect enough smart capital to remain on the market. That said the time uh the time horizons have changed and instead of doing two year funds or three year funds we're talking more and five year funds. And I think that might slow down the the investing cycle for the near term I think we'll probably get back to that maybe three year median but um but in the near term uh it seems like a lot of investors have indeed slowed down um which also means that the funds that are doing deals it tends to be like the partners and the managing partners that are making decisions and a lot of the juniors are not always able to to make the decisions because there's just not enough capital to be doing 10 deals a year maybe they're doing five. So I think that changes the the market a lot. But in the end, again in after all the pain of reshuffling the deck there's going to be a lot of great talent out there. So I encourage everyone to just be hopeful um and maybe it's the American in me but I'm uh hope springs eternal in me and I think venture investing and the tech ecosystem is all about uh envisioning a better brighter future and I mean if we're not seeing that I don't think like I don't think you have the right mindset to be in this game and I think um a lot of the the like the best people in the market are super ambitious and have great expectations for the for the long-term future are super doubtful about what's gonna happen tomorrow or the day after uh and that's just the the mindset to to kind of adopt during these um during every market cycle especially during the peaks and for sure during the trafts as well you mentioned you mentioned time horizon a couple of times um and you invest in deep tech what's the the the right time horizon when someone wants to go into deep tech I think that 10 year time horizon of a traditional vc fund is already pushing on the on the clock quite a bit um that said it's also a good impetus to um to rein in uh to rein in founders that may not otherwise feel pressure to to find um an exit window and especially for underperforming companies this kind of goes back to one of my other kind of differences between Europe and and US that I'll always probably push on is the ability to liquidate companies and I mean in the US sometimes founders that have raised 20 million they'll return half the capital if they think they need to shut down the company and that's okay. I mean frankly it's better for the VC's returns if they don't burn through all of it for the for the next five years that you're sitting on the board trying to figure out how to make this work. If it is clear to the founders that this isn't going to work and you can retain your reputation and go back and raise capital later, by all means do that. But in Europe it is very difficult to shut down a company very difficult and painful to fire people. I I think for most organizations that's incredibly important and very beneficial for the general environment makes it makes family life better it makes stability better. But when it comes to the high tech and high risk environment of startups there needs to be carve outs and I think being able to like adjust for that um across different business models and maybe sizes of companies um would help the liquidity of talent and that we see in Europe.

Christian Soschner 1:18:42

Yeah winding down companies is not so much a tradition here in Europe uh it seems and it's always perceived like uh going bankrupt which is uh traditionally culturally a little bit difficult I totally agree with that talking uh coming back to time horizon uh there was a notion I think two years ago I think Sequoia was one of the funds and with some Horowitz also that decided that they are going to longer time horizons 20 or 30 years. What do you think about this approach to set up funds with a very long time horizon?

Owen Reynolds 1:19:12

Like the Sequoia Heritage Fund right yeah um I think there's um I think what they did was really smart. I mean they have a dedicated team for it that is separate from the investing team um and what that means is it's basically like a handover. It's not necessarily the same fund because I'm not a public market investor. I use the public markets to learn from frankly um and listen to earnings calls to like make sure that I'm kind of still in touch with what the big capital markets are looking for. But it's a very different skill set. And I don't think every fund can do this. Now the the funds you mentioned are they behemoths and able to to manage a lot of things incredibly well. Plus they often cater to very very long-term investors they cater towards endowments and um and pension funds specifically um these and you know end to the end type uh type time runs and I going back to the the original question on deep tech it is I think these these timelines these kind of artificial timelines are still constructive um for the majority of funds they still set an expectation a general market expectation that X timeline is the you know the time to to either return or not um and then there are these select funds that are able to basically create their internal secondaries pool that can pick the best and liquidate the others the actual existence and growth of the others of like the real secondaries market I think is also a really important way to help um create liquidity in this field. And it seems to have been like a big boost over the last couple of years taking advantage of down market sentiment um GPs that needed to liquidate portfolios companies that needed or investors that needed to liquidate companies all those sorts of things and I'm hoping that in the long run that short boost of a window that has uh skyrocketed the secondaries market creates a really robust secondaries market that is not significantly discounting but is appropriately discounting assets and allowing both VCs to to cycle money in and out which helps um their LPs which maybe have a different risk profile than secondaries investors and then helps kind of recycle that into the same stage of investing. Is it happening so often secondary investment is it um from what I understand it's taken off um I mean it's still nascent I think it's still in the early stages for sure but I mean before 2020 it it was something that you never even heard of it was a um an exotic product and now you know you you meet secondary investors I hear a lot of people that have secondary funds and I think it's a clever thing to do for the market. I mean there are a lot of opportunities and right now if you're a fund at year 12 and you have three assets left you just have to keep begging your LPs to uh to keep it on and you know if they're another 2x potential DPI waiting behind you or you know another 2x the fund's value then of course they'll say for sure but if it's a nominal uh part of the portfolio maybe 10 20% of the portfolio and still is taking the time of the of the managers at those points it's probably more time effective to um to liquidate and find a secondary opportunity. So I in general having that kind of liquidity of talent liquidity of capital and ability to shut down startup and shut down companies painlessly I think is great for the ecosystem. And um I do see pressure to make that happen and but it's not quite there yet.

Christian Soschner 1:22:59

I also think I mean this this should be the core DNA of every entrepreneur find out quickly whether your idea works or not. If it works double down and convince people to double down with you. And if it doesn't work shut it down destroy it and go to the next I think and move on very quickly I think this is mandatory and the secondary uh investment thing I mean also when I started in the area in 2006 nobody did it and it was also I always got the answer no we don't do it. No it does never and in the last two years it seems really uh to become a bigger and bigger movement on the market I hear it more often it's it's very interesting but let's focus the the last part of the podcast uh on the future and how the future looks like I love this part because as also mentioned already we should envision a bright future how do you envision the venture landscape in five to ten years where is it heading to where do I see the venture landscape heading in five to ten years I see a lot of great new founding teams coming to the market again with this kind of mentality that we have to get to maybe not um company profitability but we've got to get to unit economic profitability or the business is not working.

Owen Reynolds 1:24:18

So what I expect to see is a much more mature set and I don't mean like mature in terms of age I think a more mature mindset and a more grounded mindset of founders over this next cycle and that's what we saw over the the previous cycle and we saw some of the biggest um the biggest companies founded in in down markets. So that I think that kind of resilience and um and fortitude towards unit economics and the focus at those early stages will create a really robust uh really robust cycle this time around. In addition Europe is a bit less cyclical than the US already I mean there's much more focus on B2B um and B2B is more stable. You get SaaS contracts those are not rolling off like people would rather rather pay their SaaS contracts than keep the lights on. And that can add to to some of the stability the robustness of the uh of the investing market and so those are some of the things I'd expect to see now some of the things things I hope to see are in an increased risk tolerance um again more of this kind of down to the basics feet on the ground mathematical approach are we doing what what the models say we should be doing or are we doing what our own models say we should be doing or are we just going oh I think we should probably invest this amount and that's what I see a lot of investors doing is using their own sentiment as gauge and that is definitely not the way to do it like in in terms of investing in general um having a clear headed approach to this investment opportunity given the given the time horizon and all all the information you can gather today is critical. Instead of thinking about um am I riding this wave or how do I feel about the rest of my portfolio or am I underwater or overwater don't be too confident don't be too scared. Every investment opportunity is has the ex um has its own risks and its own return profile and that needs to be measured in a calculated way at every single point in time differently. Yeah and meditate more often don't throw everything away like I said I agree um let's come to the technological part of the future question um which technologies will define the future we had digital digital wave in the last 10 to 20 years how does the future look like what are your uh picks in the promising technological landscape I'm very lucky to be in a fund where I think we can get a lot of uh a lot of shots on goal um in exactly the areas that I think are are taking off and we have an industrial focus on our um on our fund and in my previous investing we'd large I'd largely been been focused on software and and we I'd pushed into a little bit of industrial tech but on the software side and I definitely think that we've not hit the limitations of software on everything for sure. I mean look at the AI explosion but we'll see you know how much of it works and how much of it is just fantastic software that was going to be written anyway. But we we will need more hardware plain and simple to be able to to take um the same astronomic leaps that in product in uh in tech productivity that we've seen in the last couple of years. So if we want to keep that up the risk profile will be different. I mean I think getting back to one question you had earlier that I may I didn't really take advantage of at the time was the difference between um the difference between between huge exit um hardware and small exit hardware. And I think there's um a s a select group or maybe even a big group of companies that do have a venture profile but will not be over the 500 million exit. And that still deserves venture financing if it um if founders are willing to take the low valuations at day one knowing that their exit windows are uh are maybe limited. And so going back to like some of the technologies specifically that I expect to take off in addition to uh to general hardware is automation. As we're seeing just more people more um of the workforce taper off um I think that's one of the areas that's required both on the software and hard um and hardware front there's also we need to find more energy sources. I mean um I I like the the German idea that uh of addiction like this energy zoosting is one of like being addicted almost to uh to energy and when you see someone running around with a plug looking for where do I get my next juice like we are as humans we've made ourselves energy addicted addicted and um so we need to find more better cleaner more sustainable energy resources and as we talked about earlier real sustainability um I'm not sure what that means. That's why I partner with people that are a lot smarter than me but there's there's going to be more things on the market. And what that means is our risk tolerance as a society needs to be greater. We have bigger challenges to overcome than we perhaps ever have which means that our willingness to make mistakes make errors burn capital frankly but hit those big success Successes at the same time along the way are needs to be heightened and fine-tuned. And that's where I think we're we really need to get to is every fund needs to sincerely consider their place in the ecosystem. Where's their hotspot? Every fund has by nature, by their size, by their LP base, by their GP's abilities, has their own risk return profile and their own ability to do X deals of X size into Y categories with Z, Z amount of parameters. Find your place in the market, fine-tune that spot, and then serve that part of the market with capital. And if you do it right, those funds that hit that sweet spot will be great returning funds. And not only we'll be able to fund amazing talent with very different profiles along the trajectory, but they'll also be great returners for the LPs, which will bring more capital into the ecosystem.

Christian Soschner 1:30:36

Yeah, focus, focus usually helps. Focus usually helps creating great returns and staying focused also in tough times. Let's imagine that one of the other LPs listens to this episode and gets motivated to look more at the deep tech space. Um, what's your one-minute advice to them?

Owen Reynolds 1:30:57

My one-minute advice to let's say an LP that hasn't invested in a VC yet. Take it slow, plan, commit, execute, and measure. Do all those in the same planned process that you have, and there are promising returns. So take that measured approach and explore the market and see whether your um principles and your risk tolerance are willing to take it. But there's a huge opportunity out there.

Christian Soschner 1:31:59

Especially in Europe. It's an undersourced market. So there's a lot of opportunity, a lot of talents. Oh, and at the end of our podcast recording, would you like to address a point that we didn't tackle uh yet? Would you like to uh send your message out into the internet?

Owen Reynolds 1:32:16

You really highlighted my key message, which is um adding to the capital formation uh in the deep tech sector and being able to work with great managers. The one last thing I'll I'll uh end on, perhaps, is the reason I keep seeing so much hope in Europe is that there is this incredible technical expertise. But I would encourage founders, get out there, share your ideas, do not be afraid. There are brilliant people that I run across every day, and they're not always able to explain their ideas. So if people want to make an impact and have a big splash, go out and do something big, do not think small. And I would encourage, especially European founders, to not think about what's in their lab, but take what's in their lab and see how big you can make this, how big you can grow this. What is the industry where you can have the largest impact? And that is, I think, that the type of sea change we need to say, see at the ground level. And we're starting to see. I mean, I get to work with founders that are thinking like this, they're taking an idea and making it massive. Um, and I feel honored to be able to work with them. And I want to see more of that brilliance being brought to market, brought to industry, brought to applications, brought to use cases, and really explored. So get out there and do it. Feel free to touch base with me if anybody wants any of my ideas about how to do that.

Christian Soschner 1:33:39

Oh, and thank you very much for these uh encouraging words. It's good to see your positive energy, your positive attitude and enthusiasm here in Europe. We need it. We need people like you.

Owen Reynolds 1:33:50

Thanks so much, Christian. I really appreciate the time and certainly a pleasure talking with you.

Christian Soschner 1:33:55

Thank you very much for this uh great recording and have a great weekend. Bye.

Owen Reynolds 1:34:00

Thanks so much.

Christian Soschner 1:34:01

And that concludes our insightful discussion with Owen Reynolds. Today we have journeyed through the intricacies of venture capital, the undeniable impact of deep tech, and the vibrant future of the European venture scene. Thank you very much for joining this conversation. If Owen's words sparked a new idea, inspired a change, or simply resonated with you, please spread the word. Your support is invaluable. Liking, commenting, and sharing helps this podcast to grow and ensures that I can continue to bring you conversations with the minds shaping our technological future. It's your engagement that makes this possible. Remember, every share counts. Pass this episode along to someone in your network who could benefit from owns insights. Together, we can and will foster a community of innovation and growth. Stay tuned for more episodes that promise to enlighten, inspire, and motivate. Until next time, keep pushing boundaries and dreaming big.