EP 139 - Marc Penkala - Why European Startups Must Think Bigger: Lessons from a Top VC on Turning Failure into Fortune

Many European startups are trapped in a mindset that limits their potential, aiming for millions when they should be thinking in billions. But what if this conservative approach is holding them back from global success? In this episode, Marc Penkala, a leading venture capitalist, reveals the secrets to breaking free from this limiting mindset and how embracing calculated risks can lead to extraordinary rewards.

🎙️ What's in the Episode: 

1️⃣ Mindset Shift: Learn why European startups need to aim higher and adopt the billion-dollar mindset that drives U.S. success. 

2️⃣ Contrarian Strategies: Discover the power of going against the grain in venture capital—why the best deals often come from the least obvious places. 

3️⃣ The Role of Failure: Understand how embracing failure as a crucial learning tool can pave the way for long-term success in both entrepreneurship and investing.

👤 About Marc Penkala: Marc Penkala is the driving force behind Altitude Venture, Europe’s first SME Tech Fund. With a wealth of experience as both an entrepreneur and investor, Marc is on a mission to revolutionize the European startup ecosystem by challenging traditional norms and pushing for bigger, bolder ambitions.

💡 QUOTES: 

(01:13:14) "European startups think in millions, while U.S. startups think in billions—think bigger." 

(01:19:01) "In Europe, we focus on what could go wrong; in the U.S., they focus on what could go right." 

(01:40:50) "The best companies are created in down markets where money is scarce, and innovation thrives." 

(01:07:48) "The more often you're wrong, the higher the actual output of your fund."

(00:43:34) "When the tourists arrive, you should leave."

⏰ Timestamps: 

(00:07:05) Lessons from Early Entrepreneurial Ventures

(00:14:31) The Reality of Entrepreneurship: Embracing Failure and Persistence

(00:19:26) The Tough Decisions in Venture Capital: Investing vs. Divesting

(00:26:30) Building Relationships: The Key to Successful Fundraising

(00:34:30) Unveiling the Full Picture: The Business of Guiding Emerging Funds

(00:39:03) Choosing the Right People to Journey With

(00:43:08) Timing is Everything: The Importance of Market Dynamics in VC

(00:43:34) The "Tourists" in Venture Capital: Recognizing Market Exuberance

(00:51:26) The Untapped Potential of the SME Tech Market

(00:53:32) Fundraising in a Down Market: The Power of Relationships

(01:03:33) Is Europe Ready for Mega Funds or Better Suited for Micro Funds?

(01:13:13) Think Bigger: The Difference Between US and European Startup Mentalities

(01:21:35) Risk Aversion: The Key Difference Between European and US VC

(01:31:37) Fostering European Innovation: Overcoming Challenges and Seizing Opportunities

(01:38:10) The Importance of a Long-Term Vision in Venture Capital

If you're ready to rethink your approach to startups and venture capital, this episode is a must-watch. Subscribe, comment, and share to help us bring more insightful content to you for free.

👀 Stay Tuned: 

Watch the entire episode to unlock the strategies that could transform your startup's trajectory and help you achieve extraordinary success.

Transcript

00:00:00:00 - 00:00:39:01

Christian Soschner

Did you know that the best companies often be marching down markets where money is scarce and innovation thrives? In this episode, Mike pantalla reveals the contrarian strategies that's turned challenges into opportunities in venture capital. But here's the twist. Most are too focused on potential pitfalls, missing out on the moves that could lead to extraordinary success. The fear of failure can be paralyzing, but real progress happens when risk is met.

00:00:39:03 - 00:01:02:03

Christian Soschner

And on. Imagine this the deal everyone's excited about might be the very one to avoid. Mike Piccolo explains why outsized returns often come from taking the road less traveled, and why European startups need to shift their sights from millions to billions.

00:01:02:05 - 00:01:16:10

Marc Penkala

the awkward thing about venture capital isn't nav speeches or try to explain to someone. Just imagine, you know, a doctor, a lawyer, a pilot or any of, like, these, very, very important, jobs.

00:01:16:12 - 00:01:20:03

Marc Penkala

Do you think you're going to be successful if you're wrong? Most of the time?

00:01:20:04 - 00:01:25:10

Marc Penkala

and everybody says, this is great, still in the world, you should not do the deal. Very simple. Why?

00:01:25:12 - 00:01:29:24

Marc Penkala

the moment this happens, you literally have to stop investing because the tourists arrived.

00:01:29:24 - 00:01:33:23

Marc Penkala

We see the best companies being created in venture capital are created and done.

00:01:33:23 - 00:01:34:15

Marc Penkala

Market.

00:01:34:16 - 00:01:45:20

Christian Soschner

Mike then call out the force behind Altitude Venture, Europe's first semi tech fund offers a fresh perspective on what it takes to succeed in venture capital.

00:01:45:22 - 00:02:08:13

Christian Soschner

With extensive experience both as an entrepreneur and an investor. Mark is pushing the boundaries of European startups, challenging time to think bigger and aim higher. Altitude ventures is at the forefront, driving innovation by packing companies ready to break out of the traditional mold.

00:02:08:13 - 00:02:22:02

Christian Soschner

In this episode, you will discover why European startups need to shift their focus from millions to billions, and the mindset that's holding them back.

00:02:22:03 - 00:02:29:15

Christian Soschner

How to spot when the market is flooded with tourist investors and why? That's the same. To proceed with caution.

00:02:29:15 - 00:02:39:18

Christian Soschner

The vital role of failure in achieving long term success in venture capital, and how taking calculated risks can lead to remarkable returns.

00:02:39:18 - 00:02:45:05

Christian Soschner

Before this episode starts, remember to subscribe, comment and share.

00:02:45:05 - 00:02:49:22

Christian Soschner

Your support helps deliver more valuable content. Like this.

00:02:49:24 - 00:02:57:17

Christian Soschner

Now get ready to dive into a conversation that could transform the way you think about venture capital and entrepreneurship.

00:02:57:17 - 00:03:15:11

Christian Soschner

Don't miss this in-depth discussion. The insights Mark shares could be the turning point in your approach to investing and building successful companies. Watch the full episodes to uncover strategies that thrive in even the toughest markets.

00:03:15:10 - 00:03:23:01

Marc Penkala

Markets. absolutely. Fantastic to see you. How is life in Berlin these days?

00:03:23:03 - 00:03:45:17

Christian Soschner

Lovely. Quick, fast. lots of things to do. in the middle of the booth. we are raising a fund. We are investing into startups. I have a very active little kid, so I can't complain of not being busy. But overall, most of the things I'm doing on a daily basis, I've been deciding by myself to do so far, and I was just doing great.

00:03:45:19 - 00:03:56:06

Marc Penkala

You have a lot on your plate. It looks like you have two kids. You, your, two sons. if I saw I side correctly on the website, why did you decide to to start two funds?

00:03:56:08 - 00:03:57:00

Christian Soschner

It would be lovely

00:03:57:00 - 00:04:11:08

Christian Soschner

if it would be two funds. And it would be way too much for one person to manage. It's not two funds to. One is just my angel vehicle. Oh, wow. I like, done like roughly 30 angel investments and some fund investments are off. And the other one is a real professional fund. So the one is just a vehicle for myself.

00:04:11:08 - 00:04:24:02

Christian Soschner

The other one, this a fund structured here in Germany and which is like consuming probably 150% of my overall capacity. I'm the only baby after my son. I'm really taking care of at the moment.

00:04:24:04 - 00:04:25:21

Marc Penkala

That's great. That's great. I was just

00:04:25:21 - 00:04:31:17

Marc Penkala

valued because he said it's just for the investments on any the vehicle. It's quite impressive.

00:04:31:19 - 00:04:35:04

Christian Soschner

of course.

00:04:35:06 - 00:04:42:24

Marc Penkala

but I would like to hear from you, your journey to becoming a b c what was what is what is what was your route to the venture world?

00:04:43:01 - 00:04:44:02

Christian Soschner

Yeah, I

00:04:44:02 - 00:05:00:12

Marc Penkala

always try to explain it, in a very simple manner. For me, my route into venture capital felt like a paid executive MBA into venture capital Y, because looking at, like, what you would cover in the typical MBA, you you get a very holistic view of the whole landscape of what there's, out there and possibilities.

00:05:00:14 - 00:05:18:24

Marc Penkala

And that's exactly what I did. I started listening to Preneur. I built a couple companies. I sold one, I bankrupted one, one is still alive. Doing very well, is very profitable. From there, I kind of moved over to the evil side, with a very simple thesis. To be fair, my thesis was in order to become a better entrepreneur, I need to understand how offices operate.

00:05:19:21 - 00:05:23:03

Christian Soschner

to understand how they think, how they evaluate why they invest, how

00:05:23:03 - 00:05:43:07

Marc Penkala

they invest. And, by just having that knowledge that implied to me that, if I build a company, I can tailor exactly, what I'm building towards venture capital. So, I, actually joined, VC in Switzerland roughly 12 years ago. And there I literally learned everything bottom up, how to invest early stage.

00:05:43:07 - 00:06:06:02

Marc Penkala

I did global venture development. I've been structuring a venture to do some company building infrastructures, and I've been working with and structuring funds around the globe. and just give me a very broad set of lots possible. so I kind of, sneaked in all these little sub segments of venture capital. And while I've been doing that, obviously you get the high risk if I can do this CVC, I can do this as an angel.

00:06:06:05 - 00:06:22:19

Marc Penkala

And that's the vehicle I was talking about earlier. So I created my own little angel vehicle because I always had the feeling if I want to be a successful angel, have to have a brand. So, ever since I've been doing, like roughly 30 investments and, mainly around the globe, all of them have one thing in common.

00:06:22:19 - 00:06:49:05

Marc Penkala

They're all at this stage, the early bets on founders and things where I had, like, strong conviction that they could work out. And, after I, left my former position, I started working with many funds and actually helped him as a commercial advisor to structure the funds. So I took all the learnings from being a VC, being an angel, being an entrepreneur, and pulled them in to, hey, I can help you to actually build a fund not only from a legal point of view, but rather from a commercial point of view.

00:06:49:07 - 00:07:09:08

Marc Penkala

Like how do you actually build the thesis, how you validate the thesis? How do you actually wrap this and put this in the deck and sell it to a piece? And how do you actually build the on the until I model the fund model and everything around it to, to make sense of what you're doing. And I think looking back, all this actually helps me to run my own fund.

00:07:09:08 - 00:07:29:13

Marc Penkala

It's always nice to be on the sideline, explain to other people what they should do as a consultant, but it's a complete different thing when you do it by yourself, because you're gonna expose yourself to a different type of risk and expose itself to a different type of decision taking. And, I think, my, my story to get to that point actually helped me to master this, in a proper manner.

00:07:29:15 - 00:07:51:05

Christian Soschner

It's a great story. That's a great story of some of the ups and the belief that it's, let's say, good assets to have both experiences. Fun as an entrepreneur and the other one as an investor. And I think also the first one as a coach is it's pretty helpful for investments. let's start with the beginning of your journey, entrepreneurship.

00:07:51:07 - 00:07:53:20

Christian Soschner

which are ready to operate.

00:07:53:22 - 00:08:11:10

Marc Penkala

When I started my very first company, I was 17, I was very young, I was naive, I had absolutely no idea. And maybe that was my biggest and strongest asset, having absolutely no ideas. I actually, built a company with my brother in the fashion industry. It was non-technical. It was not the time where the internet was up and running.

00:08:11:12 - 00:08:29:13

Marc Penkala

and the way we know it today. So that's, I was. Oh, it's over 20 years ago. I feel very old text about it. And, we actually started to buy, fashion, hire a high end fashion and actually sell it to people. And that was the time before eBay was eBay. It was a London here back in Germany.

00:08:29:15 - 00:08:47:19

Marc Penkala

And, we we learned one thing very quickly. it doesn't get a few buy, buy pieces and then sell them. You have a nice margin. so we said, okay, maybe we should consider thinking about selling a bucket so we buy a whole, collection and then sell it to somebody. you have a lower margin, but you can flip it easier and faster.

00:08:47:19 - 00:09:06:17

Marc Penkala

So it made more sense for us. So out of this, actual, company in one. But we evolved out of it. We actually created the store, we had created the wholesale, and we happened to sell that first year of university. And, I made two very important, learnings at that point. A, I was lucky, not smart.

00:09:06:19 - 00:09:32:08

Marc Penkala

that actually makes you humble. That's very important to be. I really understood that. I have to understand the basic fundamentals in business in order to make a better business. And, that's basically what I did. my second company, I was, like, little more advanced was end of my university time. And I first time got in touch with venture capital, and I built a company which was in the south space, and we did a bi solution for companies, sales, marketing.

00:09:32:10 - 00:09:58:13

Marc Penkala

So the overall aim was it was more or less the counter product group on back in the days group and said, hey, look, you can just make, like a coupon or like, like an, offering on our platform. This is the terms. You have to take them. And we said, no, actually, it's too bad. What we want to give to merchants is the ability throughout the SA solution to create sales, activities and coupons, distribute them over platforms, and then actually learn who the customers are to retarget them.

00:09:58:15 - 00:10:07:17

Marc Penkala

well, fast forward didn't work. we're raised quite some money. I did four years of learning and somebody else paid for it, and I successfully bankrupt that company.

00:10:07:17 - 00:10:08:15

Christian Soschner

question.

00:10:08:20 - 00:10:11:23

Marc Penkala

Which year was that? In between. But you.

00:10:12:00 - 00:10:13:18

Christian Soschner

2000, 11.

00:10:13:20 - 00:10:16:13

Marc Penkala

2011. Okay, okay.

00:10:16:15 - 00:10:17:15

Christian Soschner

And,

00:10:17:15 - 00:10:41:23

Marc Penkala

and so, I learned a lot and, major take for me was exactly like I, kind of sketched earlier. I probably have to understand how books work, because the next company, I'm gonna build it, I will need that knowledge. So, interestingly, the partner I'm running altitude with today, Ingo, was one of my angels, and he was assignment manager, of not partners with us in the company.

00:10:41:23 - 00:10:59:21

Marc Penkala

So I lost his money, and I lost the money from him managing it for for the VC with the way commit. And that's how we actually met. And and, fast forward many years and to the future. Well, we worked together. We be happy. We rebuilt the fund. So maybe it was a coincidence that it was luck, but, the outcome was actually great.

00:10:59:23 - 00:11:20:17

Marc Penkala

So I do believe I have a sense and serendipity. So sometimes to find something without looking for it. the third company, I actually went back to fundamentals, non-technical company body leasing and, and train driver sector. I did the styling with my brother, another co-founder, and, this company here again, but obviously doing fantastically well, very profitable.

00:11:20:17 - 00:11:41:07

Marc Penkala

And, I think at the end of the day, everybody has to find the right way into entrepreneurship. VC is not the only way. Having a company and getting it funded can be bootstrapped. It can be cash flow, best company, and you can be equally happy or even with a bad outcome. Considering dilutions, considering fundraising, all the headache you kind of go through as an entrepreneur.

00:11:41:07 - 00:12:07:17

Marc Penkala

it's a great story. It's a great story to basically about the chairman version of Gary Vaynerchuk, 20 years ago, flipping, yeah. you flipped fashion, basically, even if you understood your head. What the internet, Gary Vaynerchuk wine and yeah, exactly. And then moved on. what was your biggest learning as an entrepreneur?

00:12:07:19 - 00:12:15:07

Christian Soschner

Failure is the biggest success. So, I think there's there's a there's many types of entrepreneurs out there. There's some entrepreneurs who are very lucky in the beginning,

00:12:15:07 - 00:12:23:12

Christian Soschner

and they over estimate how smart they are. And they've just been lucky. So A, B, C as well as entrepreneurship, it's

00:12:23:12 - 00:12:28:14

Marc Penkala

a lot about timing. So I'm thinking about Groupon, thinking about Facebook, thinking about many companies.

00:12:28:14 - 00:12:46:20

Marc Penkala

These companies have been there before. They didn't work because it was not the right market for these companies. And, some people just have the right timing, maybe not even smart. And they're lucky to sell a company. And, a small fraction of them, they, they get this hybris. Hey, I was so smart. I can do this again and then realize, well, they can't.

00:12:46:20 - 00:13:07:21

Marc Penkala

There's a certain subset of people who can, built multiple companies and they're they're constantly successful, have a very high hit. They tried, but to be very fair, the likelihood that you build multiple companies and actually sell them and build like great sustainable businesses, it's not very. So, for me, looking back, yeah, I think timing is a very important aspect element.

00:13:07:23 - 00:13:29:12

Marc Penkala

and failure is the bigger success that's, looking at all the big failures in my life, many of them turned into very great things, such as I failed with the company I was running. But one of the investors, I actually happened to work with him for over ten years, and now we build a fund together. So if I wouldn't have failed, maybe I would have done something very differently.

00:13:29:14 - 00:13:32:09

Marc Penkala

And so it's a matter of perspective how you perceive failure

00:13:32:09 - 00:13:36:22

Christian Soschner

and what do you do out of it? and we have this weird mentality in Germany, and

00:13:36:22 - 00:13:42:13

Christian Soschner

it's very contrary to, to how the gas works. The failure is something that, you felt didn't work.

00:13:42:13 - 00:13:58:13

Christian Soschner

You're not smart enough. You're not good enough. It's like, no, totally not you. You have to fail. And, that the principle of resilience fast. You actually get up again and do it again. That's important. And entrepreneurship. Nobody will ask you how much cost of failure when you have this one home run. It's totally

00:13:58:13 - 00:14:02:24

Christian Soschner

fine until it paid off, unless you learn and don't do the same mistake twice.

00:14:02:24 - 00:14:28:15

Marc Penkala

we were talking about, failure culture, and I totally agree to what you said that, it's very rare that entrepreneurs get it right on the first shot. And I think it was managed by price and investor from India, who resembles the style of Warren Buffett, said, when you look at the corporate world, 90% of startups are gone after three years and, 10% to survivors.

00:14:28:17 - 00:14:57:16

Marc Penkala

Only a few make it to the public markets. And when you look at the companies on the public market, they've been five years, ten years, 15 years, 20 years. After 20 years, almost all companies are gone. So I think entrepreneurship is basically, expecting failure, expecting networking, expecting that at some point in time it might be wise to send a company, and also when the company goes public, it might also be wise to not move with the company and start something new.

00:14:57:18 - 00:15:20:22

Marc Penkala

And I think it's, I totally agree on this. In Australia, it's very rare that, people like this idea of failing and, entrepreneurship is basically, ten straws. you pull it on and you give a chance of 10% of, pulling the right one. And there is a different Elon Musk. But, in your story, what what, I found intriguing is, you didn't give up.

00:15:20:22 - 00:15:38:03

Marc Penkala

You kept track. you created multiple successes. And, similar to Elon Musk and then decided to leave entrepreneurship and move into the venture world. But, I was how was the transition from one side of the negotiation table to the other side?

00:15:38:17 - 00:16:03:03

Marc Penkala

as I said, my my main idea back then was I would really like to understand how this is work, not only to, build better companies which stand for venture capital, but moreover, to better understand how they invest and why they invest into companies. And, as I said, my my thesis worked on had a small flight and take me one year took me a decade to actually learn how they operate because there's so many facets and different ways on how to work.

00:16:03:03 - 00:16:22:00

Marc Penkala

You can be an angel. It can be my privacy. It can be because to actually see you can be a secondary VC, and all of them have a very different mindset. How to approach investing. So, what what kept me, thrilled about this whole industry is I was allowed to invest globally. Markets behave differently. I was allowed to invest, across different times.

00:16:22:02 - 00:16:44:13

Marc Penkala

We had great up markets where there there's just unlimited money for like, stupid ideas. And, now we in a different market, where there's not unlimited money and only the great ideas get money and the default mindset. default life mindset is the more important capital efficiency is more important. So, for me to transition into venture capital and staying in venture capital was the most natural thing.

00:16:44:15 - 00:17:06:07

Marc Penkala

And referring back to failure, it's a very important component of investing and working with entrepreneurs on a daily basis. If I would have never built a company, how can I authentically sell to an entrepreneur? I can help you. I never walked in your shoes. I never raised a single dollar, I never failed, I never succeeded like you will always be, pointed out like you don't understand.

00:17:06:12 - 00:17:23:06

Marc Penkala

You're giving me money, but you have not done this. You know it's not experienced as you don't know how the pressure is. And if you have actually experienced that yourself, well, if somebody is just finger pointing at you, it's like, no, you don't understand. Like, no, no, I do. I did this, bankrupted the company, I lost money from others and yes, I did.

00:17:23:06 - 00:17:43:07

Marc Penkala

I actually, built the company and I sold it. I know the process and I know the ups and downs are not challenging. It is an immense mental mind space thing. So, I think it makes you simply more authentic and, honest, actually listen to you if you can tell them from real war stories, if you just always have been on the sideline.

00:17:43:09 - 00:17:59:21

Marc Penkala

Yeah, it's, you know, it's like a doctor who never done the surgery. It's nice that he know it all on paper. but like, in a moment of a crunch, it's not going to be super helpful. So I think, it was very valuable to fail and to succeed along the way. It's not a no to become a better VC.

00:17:59:23 - 00:18:22:01

Marc Penkala

And I think that's, you've seen it in a couple of 10:10 years. The rise of operational VCs, X founders, exited founders and entrepreneurs actually becoming deceased. Are they the best VCs? I don't know, you still have to learn how to do VC, but you obviously understand how to actually build companies and you know what kind of mistakes you've done and you know how long it takes to iterate.

00:18:22:03 - 00:18:30:08

Marc Penkala

And that's very valuable knowledge to assess a company in order to derive whether this company can be successful at some point.

00:18:30:09 - 00:18:43:13

Christian Soschner

Yeah, that's a big question too. You need to know how to drive a formula One race car to coach Formula one drivers. but yeah. What's your take on that?

00:18:43:15 - 00:19:08:19

Marc Penkala

I wouldn't say you need it. I would say it helps. so let me put it this way. Just imagine, you you are a doctor, and, you have always been, having patients and which are kids? Can you be an equally good doctor for grown ups? Probably not. So, it behaves very similar when you think about, like operators, which tend to be CS.

00:19:08:19 - 00:19:33:02

Marc Penkala

You're a great founder. You know, how to build, companies, and maybe you even succeeded and sold the company even maybe like an outlier case, it doesn't necessarily make you a great VC. It makes you get great entrepreneur return. VC doesn't make you a great VC. So venture capital and especially when whenever we onboarded, new employees and and my former job are like and our fund altitude.

00:19:33:04 - 00:19:52:15

Marc Penkala

One thing you can do in venture capital is fast technology. It's all about experience. Seeing different cycles in the market, seeing how things behave, knowing set methods, knowing how to actually keep companies alive, and, actually having the experience to say, okay, I'm going to fund you again, I'm going to pull the plug and, actually write this company off.

00:19:52:17 - 00:20:12:18

Marc Penkala

This is something you don't learn and pay for the something you don't know. That's the perk. You have to do it. And, that, the awkward thing about venture capital isn't nav speeches or try to explain to someone. Just imagine, you know, a doctor, a lawyer, a pilot or any of, like, these, very, very important, jobs.

00:20:12:20 - 00:20:14:15

Marc Penkala

Do you think you're going to be successful

00:20:14:15 - 00:20:24:01

Christian Soschner

if you're wrong? Most of the time? No. You don't lose your job immediately. If you're pilot, you crash the plane, you lose your job. If you're a doctor and your patients keep on dying, I'll lose your job.

00:20:24:01 - 00:20:29:22

Marc Penkala

If your lawyer can never win a lawsuit, you lose your job. As a VC, you're more often wrong than right.

00:20:29:24 - 00:20:50:01

Marc Penkala

And there's an inverse correlation between being wrong and being successful. So the more of you wrong, the higher the actual output of your fund. And this is something you don't learn by knowing it. You learn by experience. so great entrepreneurs are not necessarily great, fund managers that can become great some managers, but it's the next.

00:20:51:01 - 00:20:59:01

Marc Penkala

Highest emotional sights, of a VC. How do you how do you, experience that?

00:20:59:03 - 00:20:59:17

Christian Soschner

It's funny,

00:20:59:17 - 00:21:19:02

Marc Penkala

when I speak to founders, they think they have the hardest life. And they surely do have. It's it's tense, and emotionally, it's a roller coaster because, like, whenever we raise around, founders are super excited and happy. And I was kind of remind them, like, look, after the race is before the race, you're going to be out anytime soon.

00:21:19:04 - 00:21:43:14

Marc Penkala

the thing about venture capital is it's super easy to invest. There's one downside. It takes very long to see if the company's going to work. Can be six month, can be ten years. Many companies of which I thought these are going to be the outliers in my portfolio, turned out to die. And the companies where I thought, oh, this is not going to work turned out to be the ones which worked very well.

00:21:43:16 - 00:22:05:20

Marc Penkala

So here again, you're more often wrong then you're right. Being VC, the toughest part is not taking the decision to invest. The toughest part is taking the decision to divest. So if a company is not doing well, how do you keep it alive? Because you have still have the idea of feeling this can be something all you do, you stop funding it and this will determine whether the company is going to be successful.

00:22:05:22 - 00:22:19:15

Marc Penkala

So pulling the plug, knowing when to leave the cap table, knowing when to exit, knowing when to refund. These are the tough questions. Investing is the easiest one. That's the first part of the journey. So what most entrepreneurs thinks like

00:22:19:15 - 00:22:24:00

Christian Soschner

is so easy. You just manage money, you invest in the companies, and you lean back and sit and wait.

00:22:24:02 - 00:22:26:24

Christian Soschner

Yes. No you don't. you have a portfolio of

00:22:26:24 - 00:22:44:12

Marc Penkala

30 or 50 companies. Just imagine you're running a second or third generation. You're sitting on a portfolio of 5200 companies, but you kind of try to actively manage. So if you just have these 50 companies, you will likely have 10 to 20 funding rounds per year where you have to decide, do I participate?

00:22:44:12 - 00:23:03:19

Marc Penkala

I don't participate, companies dying, you have to manage this. You sit on boards, so you need literally constantly a firefighter. And one thing which people try to neglect as a founder, most people are thinking about fund managers. When you raise an emerging fund 30 to 50 million, you can, compared to raising a pre-seed fund of 30 to 50.

00:23:03:19 - 00:23:22:17

Marc Penkala

But you have you ever tried that? That's not easy. You have the same challenge. People don't believe you can do it. You don't have to track that business. You have to speak to a lot of people so they give you money. It's not a walk in the park. and it takes a lot of endurance to actually go to the value of tears to get to the point.

00:23:22:19 - 00:23:25:16

Marc Penkala

And, you know, again and VC, everybody looks at successes.

00:23:25:16 - 00:23:31:18

Christian Soschner

Nobody looks how people got to that point. And years, five years, 15 years of prior experience to

00:23:31:18 - 00:23:40:15

Marc Penkala

actually just start. So after all, I would say it's equally tough, even though it seems like a shiny nice job to just sit around and manage money and throw it into

00:23:40:15 - 00:23:41:17

Christian Soschner

complaints.

00:23:41:19 - 00:24:05:16

Marc Penkala

Yeah, it takes a lot of FaceTiming both sides, founders, entrepreneurs. And this is you mentioned sales, selling, getting people to invest in fans or companies. I think people need to learn that it takes a few hundred calls until you get to a meeting. And, it's also the expectations that I see very often. The market is, Christian, you know, so many people, you know, so many VCs.

00:24:05:22 - 00:24:27:19

Marc Penkala

just introduce us since, in two weeks, we have the money down on a bank account, and we give you something for that, and then it doesn't work. That way. It doesn't work that way. Can we dive a little bit deeper into a sales process of that of a venture fund? and also your perspective as an entrepreneur, how much effort and time it really takes, to get around closed?

00:24:27:21 - 00:24:28:20

Christian Soschner

Yeah.

00:24:28:20 - 00:24:32:07

Christian Soschner

So as an entrepreneur, as a fund.

00:24:32:09 - 00:24:42:08

Marc Penkala

let's start with entrepreneur and then move on to the fund so that people see both sides. And, but the reality is, since not The Shining, it's in white armor. Who gets everything done in two weeks?

00:24:42:10 - 00:24:43:21

Christian Soschner

Yeah, yeah. So,

00:24:43:21 - 00:24:59:09

Marc Penkala

well, as an entrepreneur that there's multiple sets of entrepreneurs, the experience one, the serial entrepreneur was done it before. He knows how to do it. He knows to whom to speak to. So the more tailored you are to know, you more, you know, your customer, which is, yeah, you invest for the better.

00:24:59:14 - 00:25:18:02

Marc Penkala

So there's a first time entrepreneurs would just call it and say, I'm going to speak to 100 VCs, neglecting whether they invest in the stage, neglecting whether that stuff and that you and that industry looking for these kind of business models. So just going broad, that's the worst thing you can do. Why? Because you're wasting your time. Your time is the limiting factor.

00:25:18:02 - 00:25:43:22

Marc Penkala

You have X amount of which you can work. And if you spend them on the wrong targets, it's a waste of time. Right? So the farther you go, the more you understand. Well, I have to be very tailored, very specific. Who's investing? Who's my target? and the hit rate is just going to increase. So if I know, hey, these 50 VCs to early stage in Germany and, SaaS companies or B2B, B2C, whatever you want to classify yourself in, the likelihood that you're going to find one might be funding you simply hire.

00:25:43:24 - 00:26:11:15

Marc Penkala

But if you take 160 of them as B2C, well, well, you still do 100 emails, but 60 would have not been necessary. So, raising funds, is a very strategic beef. You really have to know what traceable, traceable trace and symbol over, you really have to understand, how to address these people thinking about going to professional VCs again, ten, 20 deals a day.

00:26:11:15 - 00:26:32:23

Marc Penkala

Opportunities. They pass a 90 immediately one they look at this accumulate over the years. So they kind of look at maybe hundred deals, something like doing 5 to 10 deals if they're a very active investor. So you have to consider how to pay, how to get the attention. And and the only golden way is a woman deduction. So looking at my own deal flow people just coldly approach me.

00:26:32:24 - 00:26:49:24

Marc Penkala

The only chance that I get back to them. The best deal so appealing that I actually really want to learn more. The same deal would have a ten times higher likelihood that I just pick up my phone and say, let's jump on a call if somebody I know refers me to that founder. So the cold way is going to your network.

00:26:49:24 - 00:27:10:01

Marc Penkala

CEO can give you a warm access to angels, to founders, to it or to other founders to B, C, s and so on. So you actually have to first and try throughout that and not a cold email approach, just ping somebody on LinkedIn or by and as an entrepreneur, be very mindful about how much you raise on which valuation

00:27:10:01 - 00:27:24:03

Christian Soschner

and what's realistic with it. Actually have that part. So moving this over to, to a VC, I wouldn't say it's completely different, but here again, you have to know who's investing for us to, to an emergency fund.

00:27:24:03 - 00:27:28:04

Christian Soschner

That's important. so why would I go to an institutional investor knowing

00:27:28:04 - 00:27:33:04

Marc Penkala

they invest 10 million checks into, established funds? well, maybe it's nice to speak to them.

00:27:33:10 - 00:27:52:12

Marc Penkala

but it's not going to happen. And here again, it's slightly different. when you raise a fund or funds as an entrepreneur, you raise one chunk usually. So you raise a 500 K or a million or whatever CVC you raise in steps. So you have, pretty much closing a first closing, second closing or only closing sometime the final closing.

00:27:52:14 - 00:28:11:17

Marc Penkala

So you kind of have a time span of 6 to 18 months where you actually raise the whole fund, but you raise it in small steps. so you raise the first closing, take that money, you invest. Yes. No blind pull. You saw what you've done with the money. You excite other a piece you go to that what you usually do is you go slightly up the ladder.

00:28:11:17 - 00:28:35:07

Marc Penkala

So you start with a low hanging fruit, high net individual exit of entrepreneurs, small family offices. Then you go next step, multiple family offices, fund of funds, more professional investors and then you go, at the end towards maybe institutional or governmental money. So yeah, ask if w one wants to fund type of money depending on the size of the fund, the type of the fund.

00:28:35:09 - 00:28:46:20

Marc Penkala

So you have to be very mindful who you address when whom and when. And so raising money this is very much about relationship. so it's not like you call somebody, hey,

00:28:46:20 - 00:28:56:18

Christian Soschner

hey, this is great for the fantastic idea. That's the thesis. And they kind of write your blank check and say, just for the number, it's okay. But this market. So the reality is,

00:28:56:18 - 00:29:22:13

Marc Penkala

you have to feed them. Look, we started here. Does the thesis second column. Look, we have face first checks scholars. Look, we have first checks, and we have done first investment. You have to show constant progress. You do this as well as a founder. But, in DC, raising from a piece, it's, it's vital to do it if you don't do it, if you're not good in relationship building, building confidence on the other side, you will simply fail and make some money.

00:29:22:15 - 00:29:33:21

Marc Penkala

So yes, this the process itself is slightly similar, but the magnitude and how to do it and the scope is very different.

00:29:33:21 - 00:29:59:15

Marc Penkala

Totally agree. I think, this is one of the areas that is, mostly neglected, but both sides when you fight, I mean, just up to emerging venture funds. And as a founder side, it's relationship building and, investor relations, in my opinion. you mentioned before the founders that, I'm introduction say for higher success chance a success rate then just cold emailing back both takes time.

00:29:59:15 - 00:30:20:18

Marc Penkala

You need to get in touch with the right people. You got to know them. You got to brief them. I think about I'm introduction can also be, not very helpful for a mission if it's just, someone on LinkedIn that you think to briefly and say, hey, you know this we c sent my pitch tech to this VC, and then the guy says, okay, yeah, yeah, it doesn't help

00:30:20:18 - 00:30:20:23

Marc Penkala

anyone.

00:30:20:23 - 00:30:30:02

Christian Soschner

But obviously this doesn't work. And I think I try to distinguish between like a sniper approach and shotgun approach. Let's go broad and eventually we'll hit something or you're very precise

00:30:30:02 - 00:30:39:19

Marc Penkala

as a sniper. You know, this angel, this VC, they invest in this type of business I'm running. And then you would ask for one more deduction. So you just increase the likelihood that you get an answer.

00:30:39:21 - 00:31:01:24

Marc Penkala

B have a likelihood that they actually invest with a shotgun approach, you can literally get to the same result. It's just going to be more effort. You have to pick 100 people and you have to maybe speak to many of them up the final knots. Absolutely nothing I'm interested in. So, yeah, both can work. I'm just, trying to say that you just increase the likelihood that it works better if you're more precise.

00:31:02:01 - 00:31:05:16

Marc Penkala

and, like, kind of ICP in your, investor base.

00:31:05:21 - 00:31:25:11

Marc Penkala

I dissect it in, in my words, in two stages. One is the investor relation stage, which is my mapping and the shotgun approach to approach me to people to understand what's the want, what's the needs, what drives them? And all of this information that you mentioned, which stage, vital to invest, how to to invest in which companies to do, like to invest.

00:31:25:11 - 00:31:45:09

Marc Penkala

What are their success stories? What are the failure stories? And when it then comes to raise funds, you can then turn sniper and say, okay, now I have for this 1000 contacts in my database. I've met 500 already, I know them, I know what's the want. And out of this, 520 are perfect fit. And then you can just, target them.

00:31:45:09 - 00:31:52:17

Marc Penkala

Done. But I think the I was a far, far from the venture funds. I definitely this investor relations part is completely neglected. Still.

00:31:52:19 - 00:31:53:12

Christian Soschner

Absolutely.

00:31:53:12 - 00:32:19:22

Marc Penkala

And, as a founder, I mean, what you do is you send quarterly reports and monthly reports to do an update call here and there whenever something happens. if you see a more active you want to engage is because you want them to invest to your next fund as well. You want to feed them, you want to give them investment opportunities of your portfolio, but as well off stump like investments you have not done, just because I'm not doing investment doesn't make it a bad investment, just makes an investment which doesn't fit my thesis.

00:32:19:24 - 00:32:38:17

Marc Penkala

But family office or an active fire candidates could be very interested because it falls in the ballpark. So investors relation as a, b, c that's a completely different game compared to a like, founder, because you stay on the journey with them for quite a while, you don't expect them. I think all these guys are going to invest for my next company as a VC fund.

00:32:38:17 - 00:32:44:17

Marc Penkala

Yes. You do that. Absolutely. So, you try to build that relationship and keep them tied to you,

00:32:44:17 - 00:32:51:06

Christian Soschner

in order to show them, hey, you bet it on the right horse as founder. Yes. You want to do the same thing,

00:32:51:06 - 00:32:55:16

Marc Penkala

but at intrinsic motivation, it's a different way.

00:32:55:18 - 00:33:23:22

Christian Soschner

That's a great point. That's a great point. yeah, that's a great point. It's good to know. It's good to know. I think it's, I suppose keeping that in mind. Investor relations. what advice from your starry entrepreneur venture fund. And then you decided to move one level up and support several venture funds? in the fundraising approaches, what was your biggest learning in this time?

00:33:23:24 - 00:33:42:19

Marc Penkala

when I started thinking about, how can I use my knowledge and help emerging fund managers to build their funds? I actually didn't do it by intention. It was rather I was leaving my job. And then I thought, okay, I'm going to look for a new job, and it will likely be in venture capital. so I'm going to speak to many venture capital funds.

00:33:42:21 - 00:33:58:21

Marc Penkala

So what I was doing that I realized all of them have the same approach, putting the funds to go to a lawyer to tell them, hey, look, I want to build a fund to tell you. Yeah, why? I'm 120 K I'm like, Papulex doesn't work like this in reality. But, so the narrative, so they help you on the legal side on.

00:33:59:00 - 00:34:14:14

Marc Penkala

Hey, you need to fund the medical. You need to carry entity this and this and that. And that's what you have to do. You have to go to the BaFin. So they actually cover that whole part on the commercial side, it doesn't matter how smart you are, it doesn't matter how educated you are. The likelihood that you've been in the fund before.

00:34:14:14 - 00:34:34:06

Marc Penkala

I know how to do this. You saw, what what, many mentors and advisors to for startups. I just thought, hey, I actually can do this for funds and not necessarily legal side because you have lawyers for that, not on the fund up inside because you have documented that. But on the commercial side, how do you actually build into this one core element of what I've been doing?

00:34:34:06 - 00:34:56:24

Marc Penkala

Mainly, how do you build fund models? How do you make them viable and feasible? How do you actually, build a deck which is compelling to sell? Hey, does a match between the DPS and the thesis? How do you sell and, set up your, track record? So all the stuff you basically need not actually to, not only to get going, but as well to kind of wrap it and sell it to a piece.

00:34:57:01 - 00:35:05:17

Marc Penkala

And interestingly, you have a bazillion questions along the way. And what's weird about venture capital is when you speak to other groups, everybody will give you a small

00:35:05:17 - 00:35:15:02

Christian Soschner

snippet of knowledge, but nobody will give you the whole picture because everyone thinks I have the secret sauce that's going to tell you everybody's going to throw you one LP. You might want to speak to a one

00:35:15:02 - 00:35:18:06

Marc Penkala

like, hidden gem of knowledge, but they will not give you the full picture.

00:35:18:06 - 00:35:40:12

Marc Penkala

And I said, actually, you can make a business out of that giving the people the full picture. So I actually stumbled into that and actually ended up working with many funds. And my, my main, motivation was I want to work with funds from different areas early stage, later stage, primary, secondary funds, ICT, Web3, all across the board finding was looking back

00:35:40:12 - 00:35:45:06

Christian Soschner

what I actually learned more than I gave away.

00:35:45:08 - 00:35:46:08

Christian Soschner

the things I gave away

00:35:46:08 - 00:36:00:19

Marc Penkala

valuable for, for the people I worked with, but I kind of learned how to do it differently. Why people approach challenged this in a different way. Just because I do it this way doesn't mean it's the right way. Just one option how to do. And this is what's amazing for me.

00:36:00:19 - 00:36:19:01

Marc Penkala

That's why I decided to do it for multiple years. Because, your learning curve actually is very steep in the beginning. and, you just get better at doing that. And, but at some point, I woke up some morning, I realized I'm a consultant, and I never had vision to be an consultant. So I said, well, now it's maybe time to put my

00:36:19:01 - 00:36:21:02

Christian Soschner

foot.

00:36:21:04 - 00:36:25:06

Marc Penkala

how about how was that experience waking up in the morning and say, I'm a consultant?

00:36:25:06 - 00:36:28:00

Christian Soschner

No offer. I tell you,

00:36:28:00 - 00:36:46:16

Marc Penkala

Why is it like being an entrepreneur? What can we see? it's the best job in the world. You have to step up because you have different tasks and challenges every day. to market this moving. So I really enjoyed, the journey up to this point. And, and working as a gig economy worker for funds was great.

00:36:46:16 - 00:36:53:06

Marc Penkala

I work with incredibly smart people. Most of them were smarter than me. They just were lacking the specific knowledge on how to build funds.

00:36:53:06 - 00:36:57:05

Christian Soschner

So I took my knowledge into that. but,

00:36:57:05 - 00:37:06:01

Marc Penkala

if you jump from gig to gig to gig to get Guy, you kind of lacked, that dude, the longer view, it's like, it's okay, it's this, this what I'm going to do for 20 years.

00:37:06:01 - 00:37:24:20

Marc Penkala

And I realized, no, absolutely not. And, then the morning I woke up, I was like, okay, that's that's the crossroad. Either I'm going to stay with this and I'm going to make a business out of that, or, I'm just not going to do it. I missed the opportunity to build my own fund. And, that morning I just said, no, I don't want to miss that opportunity.

00:37:24:20 - 00:37:45:08

Marc Penkala

I want to go back to the actual fundamentals investing, working closely with founders, helping them, celebrating them and investing and not being sidelined, helping other people to invest. And, that's where I was very unfortunate. Lucky that I quit, joined forces with a former colleague of mine, a good friend of mine, and actually build out.

00:37:45:16 - 00:37:48:05

Marc Penkala

And he already burnt his money, if I remember it. Right.

00:37:48:07 - 00:37:55:08

Christian Soschner

So, yes. So I have nothing to lose at, we, now we have, we have a joint portfolio together.

00:37:55:08 - 00:38:02:09

Marc Penkala

We we invested together SPC. So, I think we are way beyond the point that I actually happened to miss this. Funny.

00:38:02:11 - 00:38:08:09

Christian Soschner

How many fans did you see in your time as seven? as a fund advisor?

00:38:08:11 - 00:38:34:15

Marc Penkala

How many I've seen like this. So, like, I've seen 200. It was interesting because it was a time around like 2021, 2022. So we went upmarket. Everybody thought, I can build a fund. Lots of mutual funds. solo groups, and everybody literally started to build funds. I was in parallel. Carter came up, bunch came up, lots of solutions on how to actually easily create funds on a legal or structural point of view.

00:38:34:17 - 00:38:46:09

Marc Penkala

so what a time to be a life. I've seen incredible amount of fund X. so here again, you just collect the data, see what's what's looking good, what's working well, what's not working well, you can kind of derive your own actions,

00:38:46:09 - 00:38:53:21

Christian Soschner

funds I actively work with was roughly 20. but I really worked with over a longer period of time.

00:38:54:10 - 00:39:13:01

Christian Soschner

was ten mainly a year of limited sector time. and the other one is you don't want to engage with that. If I see a fund, even though somebody wants to pay you and you think it's stupid, doesn't make sense. I wouldn't feel comfortable just charging people money to to help them, knowing it's not going to work eventually.

00:39:13:03 - 00:39:29:09

Christian Soschner

So I focus on the ones where I had, high conviction that they would work out and, people just, I wanted to work with. And I do think that's equally important because at the end of the day, if you keep on working with people you don't like, it's not going to be to pleasant.

00:39:29:11 - 00:39:30:19

Marc Penkala

It's true. That's true.

00:39:30:21 - 00:39:32:06

Christian Soschner

It's easy to step down.

00:39:32:08 - 00:39:47:23

Marc Penkala

Now, being a CEO of your business and your own life, is very important. At the end of the day, it's, we are defined by the people. So I think, there's this whole quote on the market, on the internet, that we know that we are the average of the five people we spend the most time.

00:39:48:00 - 00:39:50:22

Marc Penkala

So it's really to select nicely.

00:39:50:24 - 00:39:54:06

Christian Soschner

Say, hey, something I constantly

00:39:54:06 - 00:40:10:22

Marc Penkala

say, and I fully agree with that. And that's why I try to be very, mindful about where I spend my time with not sounding arrogant. It's not about being arrogant, but these people will trouble you. You're going to be very similar to them. And, I always add one thing. It's like, if

00:40:10:22 - 00:40:13:06

Christian Soschner

you're the smartest person in the room, in the wrong room.

00:40:13:08 - 00:40:16:19

Christian Soschner

So these five people are not the right people anymore. You might have to

00:40:16:19 - 00:40:25:18

Christian Soschner

consider to kind of be move people. That new people doesn't mean you should remove the long term fence. That's not what I mean. But like professional.

00:40:25:20 - 00:40:54:15

Marc Penkala

And I think this makes a huge difference. I as a for venture with CEOs and also for entrepreneurs having the talent to bringing the right people together, form the right energy that can move super quick and super far and super fast compared to teams when you don't have, this, this, this level of perception that you see, okay, this, this, this, people don't work well together and they just end up fighting and and tackling over small, minor things.

00:40:54:17 - 00:40:58:21

Marc Penkala

you can easily get stuck with your team not moving forward.

00:40:58:23 - 00:41:00:04

Christian Soschner

I always believe as

00:41:00:04 - 00:41:16:09

Marc Penkala

well, like being a fund manager as opposed to perhaps a small league can sink a great ship. So why do funds fail? Why do only 1,012% of first time fundraise a second fund? Why? What's the main reason why companies fail? Because the

00:41:16:09 - 00:41:21:22

Christian Soschner

composition of the team is not right. Yeah. Since leaving the other ones can't do it alone.

00:41:22:06 - 00:41:38:02

Marc Penkala

So going on a journey, you might be very mindful on where you want to go on this journey with, because it's a journey which is going to be very stressful. So you might have to have people on board which can actually handle the heat. And we see that with lots of teams and we say, hey, this is a great case.

00:41:38:02 - 00:41:40:10

Marc Penkala

It's just the wrong team in this case. So we can't

00:41:40:10 - 00:41:41:17

Christian Soschner

invest.

00:41:41:19 - 00:42:11:08

Marc Penkala

Yeah. Then you need to have become I mean two weeks to cash out sometimes happens in a company. And the worst thing that can happen is the CEO losing his nerves. Yeah. And, starting panicking when I look at your journey, I mean, you said that in the time 2020 to 2022, you saw about 200 funds. You've worked with, 20 funds and you had close relationships with about ten funds.

00:42:11:10 - 00:42:34:06

Marc Penkala

it seemed to me what, has to find a comparison. It seems to me like the time when Steve Jobs tried to put and not a smartphone on the market, and not a mobile phone on the market. why did you feel that, although you saw this thriving markets are there, a lot of new fans appeared with a lot of these instead?

00:42:34:08 - 00:42:45:15

Marc Penkala

in your words, don't seem to work. the market is at the peak. why did you think it was the right time to put another fund on the market?

00:42:45:22 - 00:43:07:10

Marc Penkala

it's a very good question. so looking at all the funds I worked with and looking at the market back in the days, I think the only that you didn't even need a huge justification to be in the market. Why? Because the market was very liquid. So there was so much money in the market for funds as well as for, startups that, raising money was like, not the issue.

00:43:07:12 - 00:43:31:19

Marc Penkala

So you went out, you might have had some track record a little bit and the okay too. Good idea. You could have raised funds as an entrepreneur and as a VC fund. So to be fair, looking at the macro, looking at the past 25 years of venture capital here in Europe, that's an interesting correlation. If there's lots of money in the market, Tvxq, no doubt if there's not that much a lot of money market TV prices go up.

00:43:31:19 - 00:43:58:02

Marc Penkala

Why you become more mindful where to put your money. So fundraising becomes harder, SBC fundraising becomes harder as an entrepreneur. And that's because it's harder. It's just the top people. Raising quality is going up for funds and fund openness and that market. What I found scary was I saw people raising money, founders as well as funds. So said, wow, okay, I'm people that must have a lot of conviction that this is going to work

00:43:58:02 - 00:44:00:16

Christian Soschner

or there's a lot of money.

00:44:00:18 - 00:44:08:02

Christian Soschner

And this is one saying the venture capital, when the tourism like arrive, you should leave. And this usually happens when the market's flooded with money.

00:44:08:02 - 00:44:21:20

Marc Penkala

Angels investing into companies having no idea peace coming to the landscape because they think, hey, this is the new gold trust. I have no absolutely no clue about venture capital, but let me put some money into funds and startups because I think to school this is on the books.

00:44:21:22 - 00:44:44:17

Marc Penkala

So the moment this happens, you literally have to stop investing because the tourists arrived. And I don't mean to sound arrogant manner, it's just a very dangerous time because there's too much stupid money for not good ideas. And I remember at the time very well, like when when I looked at, like that, two commerce companies and when I looked at the micro-mobility companies, I backed down as an angel.

00:44:44:19 - 00:45:07:15

Marc Penkala

So most of them decided to not invest because none of them worked. There were piggybacking on the idea that they can pull off the same thing as food delivery did. Hey, look, there's going to be ten players. They're going to consolidate at some point, they're gonna IPO. That happens. And people thought they kind of can replicate this, but roll ups thrust your models and Razr and stuff like this.

00:45:07:15 - 00:45:26:12

Marc Penkala

They thought they can do it in micromobility and they thought that they can do it with cucumbers. Eventually. None of them worked. Leading to another point, because so much about timing, when to enter and when to leave. If you missed these two points, a good story of minus. I met an angel back then and he's a dude. I have ten angel investments.

00:45:26:17 - 00:45:45:01

Marc Penkala

One of them was one of the first tickets in tier and one of the first tickets, and gorillas. So I was like, okay, all right, dude, you are an outlier. If you have these two home runs in your portfolio, I don't even care what else you have in your portfolio because it's the magnitude of outliers in a portfolio.

00:45:45:06 - 00:46:11:00

Marc Penkala

The rest doesn't matter. I said, you, you must be the smartest guy on earth. Well, he eventually didn't see a single dollar on either of them, even though he was the first investor. So he timing is everything. And, looking back and why we decided to go into a market which seemed saturate at our first question before we started altitude was does Europe need the 21st fund?

00:46:11:02 - 00:46:38:11

Marc Penkala

And the answer was no, it doesn't. The second question was, If Europe needs the 21st fund, how should it look like? So when we thought about what we want to build, we started about, linking our, expertise and track record to what we actually want to do. We looked at our track record, we deployed a lot of 100 million early stage startups and, looked at every deal.

00:46:38:11 - 00:46:59:08

Marc Penkala

It was over 500 transactions, and we said 75% doesn't need to be its early stage and that's Europe. Okay. This is something we can explain to somebody that we have experience with. Then we looked at the VC market and we figured, all right, 80% of easy money is going into B2B. That's a crowded space. Then we looked at the 80%.

00:46:59:08 - 00:47:20:18

Marc Penkala

We said the majority of that is going into enterprise. Then we're like, okay, why is that? then we looked at the nature of the funds and most of these B2B funds going off to the enterprise, 100 million plus funds. If you run a 100 million plus fund, the only way to make money is to invest. And every single investment has to have the potential to be fund three to.

00:47:20:20 - 00:47:42:17

Marc Penkala

So if you look at enterprise first, the total addressable market, that has to be big enough. And the second one is based on that, you can derive a ton of value of this company at some point, and the possibility can just return to fund. If you think about this, you realize, well, the only way to actually be successful in B2B is you have to go after enterprise.

00:47:42:17 - 00:48:06:01

Marc Penkala

Otherwise you can't return 100 million fund. To give you a little glimpse of what returning 100 million fund with a single asset means is you have to enter that company in the pre-seed stage and return almost 200 X on that company in order to return the whole fund. The likelihood of returning 200 X on a single asset is 0.0001%.

00:48:06:03 - 00:48:24:18

Marc Penkala

So either you build a portfolio of 10,000 companies or you're very good picker and you actually managed to pick up the curve. Both is difficult. So usually doesn't work out. So you have to be lucky. So there's there's a way on how to opt out. You enter a company pre-seed then you actually do a follow on seed and maybe even a follow on series eight.

00:48:24:19 - 00:48:40:16

Marc Penkala

So you can reduce to multiple to roughly 6070 on the blended view. That's how you return the fund. So going back to our story, we're like, all right we're not going to raise a hundred million fund. so maybe we have to think about that. Our primary strategy is set up the position. It has to be the fund size.

00:48:40:18 - 00:48:57:08

Marc Penkala

So we have that 30 million fund. And thinking about that, it's like if you want to return to 30 million fund, you don't need a 200 X. You rather need 50 x and the terminal value of an x. That has to be rather in the ballpark of 4 to 500 million. What does it mean? Think about a company where you actually have a 200 X.

00:48:57:08 - 00:49:22:07

Marc Penkala

That company is a 5 to $10 billion company, or you're a company. How many companies in Europe have you seen exited and traded liquidity for that piece? You can probably not name one. I can't eat so Europe doesn't have to market. Even if you can create this paper value to return this money. So our journey focused more on how can we enter the B2B market in the underserved, sector.

00:49:22:07 - 00:49:46:20

Marc Penkala

And for us, after looking at the market that was a very quick learning. Well, 90%, over 90% of the market is SMEs. Then you have five plus something percent, which is mid-market, and then you have 1% enterprise. Why would I go after mid-market and enterprise SMB markets completely underserved, even though it's a long term. So we looked at the nature of this market.

00:49:46:20 - 00:50:21:10

Marc Penkala

We figured, well, the market has many slots, but there's certain subsets in the markets which are really, really interesting. So what we learned along the way is, not everything in SMB tech works. Solve SMB tech like startups creating digital solution for SMEs. That's SMEs at tech for us. But there's a subset which works extremely well. and the subset is either a particular solution having a software solution for a specific vertical or horizontal solution, which has a embeddedness or something we can we call it it's a common term.

00:50:21:12 - 00:50:41:18

Marc Penkala

Many people don't know what those trifecta startups where startups combine multiple business models. Good example is get your gut in the marketplace, and now you have a SaaS product on top, and then you have maybe fintech solutions. By combining, you can pay increase, your margins be like ten value. And so you can reduce costs. That's how you build these great companies.

00:50:41:20 - 00:51:09:13

Marc Penkala

And it's just one of them. And what we've seen in 2023, and this is due to the nature of the market. Many founders said this is don't want to give me money unless I have traction and default the life I'm showing, strong KPIs earlier. So if you go off the enterprise so it's like it's a 12 to 18 month, so you raise money, you go out and after 12 to 8 months you go out again and people ask you, so what did you achieve when you say, I have an ally, it doesn't do the trick these days.

00:51:09:15 - 00:51:32:12

Marc Penkala

So we looked at over 2500 deals in 2023, and we realized, by clustering it by cohorts on a monthly basis, the density of B2B startups going after SMEs first increased every month. Because you can create early traction, it's easier to sell, it's faster to sell. You can bring earlier proof points, and you can show even that you're profitable.

00:51:32:14 - 00:51:52:20

Marc Penkala

And that triggered us a lot to say, okay, if we build a fund, our market gap is SMEs or startups serving SMEs with digital solutions, because a there's not too many VCs doing that. Actually, when we started, there was not a single one being SMEs first. The second one is all the B2B funds from these companies after we fund them.

00:51:52:24 - 00:52:15:23

Marc Penkala

So the big funds say we want to see industry or category leaders or these companies going upmarket into enterprise. That's what we're betting on. Industry leaders category. There's other companies which build better and the business in SMEs, and then go upmarket into enterprise. And the mindset of entrepreneurs changed going after SMEs first. So the density of great companies evolving out of that just increased over time.

00:52:16:00 - 00:52:34:00

Marc Penkala

And that was first a perfect storm. We said, okay, this what we have to do, we have to build a fund to cater to and digitalized, SMEs in Europe. And the last component is surely, how SMEs think. 20 years ago everything was fine. Revenues were going up, margins were going up. It was a great party then us.

00:52:34:00 - 00:52:53:07

Marc Penkala

At some point, Covid kept supply to where distrust and interest went up or inflation went up, and then interest that now all of a sudden all these SMEs find themselves in a position, but things are not going that well anymore. So there's two options. Either die or change something. What's the way to change digital US ultimate? Be more efficient, be more productive.

00:52:53:09 - 00:53:10:23

Marc Penkala

What's the way to go? Technology. Why is it realistic to do it now and point to the now? Very simple, because technology is at a different point with AI, ML, no cloud solution. Look solution, plug and play solutions. Ten years ago this was not depth. If you want to operate a software, you need somebody to operate. This day.

00:53:10:23 - 00:53:22:11

Marc Penkala

You just click a button and all of a sudden you're more efficient. And this is exactly what we are betting that the next wave in venture capital will be simply tech driven. And, that's.

00:53:22:11 - 00:53:31:00

Marc Penkala

Asymmetric in which you get you start your fund. And so one more when was that the birthday. The birthday. your official birthday.

00:53:31:02 - 00:53:42:00

Christian Soschner

But we started, early 23. that's when we went out. we observed the market. We started our thesis. we prepared well, we started building our community, and we started investing end of last year.

00:53:42:02 - 00:53:47:08

Marc Penkala

So I assume you raised in the app market from 2020 to 2022.

00:53:47:10 - 00:53:58:18

Christian Soschner

2022. At the very end was the tipping point where the market crumbled. So we started to go out when everyone was like, oh, we think the party's over.

00:53:58:20 - 00:54:07:15

Marc Penkala

How did you convince people to invest at this point? I mean, it was already a tipping point, the way down. Basically, it happened.

00:54:07:17 - 00:54:10:05

Christian Soschner

And I said, yeah, I think it's one of

00:54:10:05 - 00:54:24:22

Marc Penkala

the hardest thing, we have been doing and and it was not just us, it was everyone who went out in this market because it wasn't like black market. the established fund said, well, I'm not going to go out. It's it's not a good time to do so. So these people are not asking for money.

00:54:25:03 - 00:54:40:18

Marc Penkala

There were some emerging managers which did go out and but all the said, oh, okay. Well, first of all, I see all the corrections flying in in my existing portfolios. B I see that we see some not acting. Everybody kept the money and said, okay, we going to sit and wait and see what the market is going.

00:54:40:20 - 00:54:58:19

Marc Penkala

And it was a literally almost a year for fundraising for everyone, for startups and for folks. So I think the only way to raise in this kind of market is existing relationships. So people at work, which I've been working with, invested with them. They trust you and they bet on you. They don't bet on your fund.

00:54:58:19 - 00:55:09:18

Marc Penkala

They literally don't care what you do. They say, this person, this guy is a great GP, unattached of what they do and that's why they give you money. So I think the hardest thing is to actually convince the first batch of people giving your money,

00:55:09:18 - 00:55:15:00

Christian Soschner

because the second hardest thing is when you go out, everyone's like, hey, this is a smart this is, this looks great.

00:55:15:00 - 00:55:27:02

Christian Soschner

It makes all the sense in the world when you tell me about it, can you show me deals? It's like you're funny. Okay, money. And then they say, well, what about you? Come back when you do deals. So you kind of need this flywheel

00:55:27:02 - 00:55:30:24

Marc Penkala

to get going with the people from your close about the inner networks will give you money.

00:55:30:24 - 00:55:48:22

Marc Penkala

So you execute a warehouse at least the first deals. Then you go back to these guys. Hey, look, I did the first deals. This is the thesis, this is the outcome, and this is what it's exciting us. And what was important. What is important for us is you create excitement throughout deals. People buy into that. You have to track record.

00:55:48:22 - 00:55:53:00

Marc Penkala

People buy into that. You're smart and you can actually pull this off this year. You have the structure

00:55:53:00 - 00:56:02:09

Christian Soschner

You created the fund for 2021. It would have been enough to raise a fund like this 20 2324 you can have the great

00:56:02:09 - 00:56:11:19

Marc Penkala

track record. You can be the smartest person in the world. They want to see, please raise some money first from others, then show me what you've done and then come back to me.

00:56:11:19 - 00:56:29:11

Marc Penkala

And then I'm going to consider to do it. And they buy time to build conviction, to get to know you, to meet you, to show them that you can feed them with updates and, progress. So the market has a tectonic shift in how the market a p tp relationship is behaving.

00:56:29:11 - 00:56:56:01

Marc Penkala

Yeah, totally. I mean, if when I reflect on the time before 2020 with the lockdowns, I thought, everything is over now. P2P pharma was anything but digital. And I thought, no way. I mean, if if people can't meet, how should they drive the business forward, then? I mean, lockdowns, the death for the industry, but they adopted very quickly.

00:56:56:01 - 00:57:22:04

Marc Penkala

So it totally makes sense what you said, digitalization, SMEs, enterprise corporates, they moved on and the market was thriving. Governments were throwing money on the markets, eventually ended up, I think at at potential MPs, institutions, they had to invest in, public markets and private markets and venture funds for biological computation. At the end of the day, and I.

00:57:22:06 - 00:57:37:11

Christian Soschner

Just to add one small thing, there is one macro which is determining how much money is raised in venture capital, which is at all times interest. So interest was, well, of course, but just think about it like, think about the nature of venture capital funds,

00:57:37:11 - 00:57:42:12

Christian Soschner

how they perform. So to percent of all funds make

00:57:42:12 - 00:57:45:05

Marc Penkala

80 or 90% of profits.

00:57:45:07 - 00:58:10:24

Marc Penkala

So you have to be a very good picker even as an LP to find these 2% to have, great companies looking at the past 25 years averaging out the TVP of answers, 1.3.4. So, it's actually not too stellar. If you kind of translate this into IRR, it's below private market equivalent. If you take the past 25 years, more money has been invested into VC funds than return to a piece.

00:58:11:01 - 00:58:29:15

Marc Penkala

So a it's not liquid, B it's high risk. C you have to be a good picker. So if I have a zero interest environment, but in high inflation, well take my money. That's why the money was flooded with but the market was flooded with money. All of a sudden we saw like oh where interest is going little and interest but inflation is going to high.

00:58:29:20 - 00:58:54:19

Marc Penkala

So obviously, interest has to go up and just went too high and all of a sudden bonds and fixed income become interesting again. Can put your money somewhere and yields 4%. Oh, you can put your money to the average or fund and yield 6 or 7%. The the the delta, the spread between the actual interest rate and what an average fund will yield doesn't justify illiquidity.

00:58:54:19 - 00:59:13:05

Marc Penkala

And the risk. So in order to justify it, you have to have a spread of ten, 15% to justify the risk. That's how the market works. So lots of, companies or lots of people who invested in to venture where they overexposed, 2122 everybody had this gold rush mentality just for money round, and then they had no money.

00:59:13:05 - 00:59:25:21

Marc Penkala

And then all of a sudden they said, well, no money's coming back because M&A market is dead, public market is dead. Everything is that nobody selling companies or buying companies. So I don't have money to reinvest. What I'm going to do is the money I have, I'm going to reallocate

00:59:25:21 - 00:59:32:12

Christian Soschner

into like secure harbors, fixed income bonds, real estate, brick and mortar, and my existing portfolio.

00:59:32:14 - 00:59:38:05

Christian Soschner

That's when the market dried up. and this year, what we're seeing is

00:59:38:05 - 00:59:53:18

Marc Penkala

either it's a mental thing. This is the new reality. So let's go back to business or the fundamentals are getting better. I think it's a mixture of both. Hey, inflation has never been as low as it is right now. For the past three years. Peak interest are gradually going down.

00:59:53:21 - 01:00:11:15

Marc Penkala

So the party on the fixed income and bond part is is over. Real estate is not an option. People don't really invest into real estate, but they collect nice rents. So liquidity is going up and therefore activity on a PE side is going up again. and this is how I try to understand, the current world and our world.

01:00:11:17 - 01:00:31:22

Marc Penkala

So, the momentum is definitely picking up to stay, but, that's a small but all the established funds, which didn't go out last year, will hit the market this year. So it's going to be crowded again, even though if there's more money, even though of the mountains death or people asking for it. So it will kind of equal out.

01:00:31:22 - 01:00:53:05

Marc Penkala

There was one interesting point in what you do, what many interesting points in both your sets up. I want to pick just one. for my next question, you said, help and the sort of trade that of our funds created in the last 20 years, only 2% created outstanding returns.

01:00:53:07 - 01:00:57:19

Christian Soschner

No, only 2% created the majority of all VC profits.

01:00:57:22 - 01:01:00:10

Christian Soschner

The majority of RBC profits.

01:01:00:12 - 01:01:23:07

Marc Penkala

But yeah, here again, you have to think about the nature of venture capital. Take the, biggest 10% funds and how much they deploy, even if they return just a small TVI. The absolute returns are very high compared all the micro funds 10 million, 30 million, 50 million. Even if you quadruple them. The fund which is badly returned are like have like bad TV.

01:01:23:08 - 01:01:23:21

Marc Penkala

So DPS

01:01:23:21 - 01:01:34:01

Christian Soschner

managing 1 billion is still returning a multiple of an outstanding outperforming micro fund. So you have to, have.

01:01:34:03 - 01:01:55:14

Marc Penkala

Yeah. But I think I mean, it me my work has been to talk about outstanding returns to talk about anything north of 20%, per year, average. So when you see, for example, and yeah, I mean, interest rate now is about 5%, 4.54%, I think there was no not a decrease. It's one hurdle rate. The next tolerate S&P 500.

01:01:55:14 - 01:02:20:00

Marc Penkala

It's about 8 to 10%. almost automatically. And I think any has I missed the opportunity to potentially and the means and the methods to win by some ETFs in the S&P 500 space. Then you have two speakers like Berkshire Hathaway with 20%. so when I think about outstanding returns, I talk about I think about 20%, 30%, 40%.

01:02:20:02 - 01:02:24:20

Marc Penkala

How many fans out there on the market in the venture? About two, deliver.

01:02:24:21 - 01:02:30:03

Christian Soschner

Some tabs to ask a contact question, realize an unrealized.

01:02:30:05 - 01:02:32:00

Marc Penkala

that's a good question.

01:02:32:02 - 01:02:34:00

Christian Soschner

So, I know many funds

01:02:34:00 - 01:02:40:20

Christian Soschner

which sit on Golden Goose's, I think sitting on six, seven, eight x TVI

01:02:40:20 - 01:03:06:24

Marc Penkala

the question here again is you have one weird flaw in venture capital. The IRR is always against your. So every year you wait. Well it's going to decrease your IRR. So many funds which actually are in the divestment period or at the end of the term of the fund in year 10 or 11, they are actually right now actually supposed to divest.

01:03:07:01 - 01:03:40:10

Marc Penkala

You can't divest. Nobody's going to buy it. And now it becomes very weird. You have these great assets. and they, maybe 18, 90%, 2 or 3 assets, 1,890% of TVI. And the value of these assets, I mean, take take simple example, take we Fox with 4.5 billion. What you going to sell this to. How how are you actually generating liquidity unless you're small fund into a secondary how and when.

01:03:40:12 - 01:04:07:06

Marc Penkala

Hello. So paper value is nice unrealized IRS nice but realized I there's not too many funds which kind of created 20% realized I are. But, here again, if you compare the U.S to Europe. Well, when the venture capital. Yes. Stopped in the 60s last century when the capital pickup became a real thing in Europe, 2000.

01:04:07:08 - 01:04:30:09

Marc Penkala

So our industry is 20 years old, our professional industry, it's ten years old. The term of fund is ten years. So we have the first vintage, which was done, professional, cycle of a fund. It's very hard to compared to the U.S it's very hard to kind of benchmark it to the U.S.. So what are we going to see in the course of the next year?

01:04:30:09 - 01:04:52:10

Marc Penkala

Is, death the reality will hit the end and you will see if the paper values actually materialize in DPS, and many of them will not. And selling is an art as well. So if you think about it like, hey, this is really cool. you build a company invested very early, you sit on this multiple fund return, valuations 2 billion.

01:04:52:12 - 01:05:14:23

Marc Penkala

You want to take it IPO, you list the company the US right. Then you have a lockup period. You don't get a green shoe. You can't sell what is happening after lockup period. The market will judge this company based on actual smoke smuggling list. Company going a company profitable. That's how public market works. Now realize take all, take all the tech IPOs.

01:05:14:23 - 01:05:49:20

Marc Penkala

Well, there's some outliers obviously, which work. Well, then you're going to realize the valuation of 2 billion is not the fair market value. So you end up not selling for valuation of 2 billion a TV. Your fund is not five, but it's rather 800 million. And the reality was so dense, that it doesn't work. So that's why I'm always trying to understand, is Europe ready for 200 million plus funds, or is Europe a fantastic market for micro funds, which are some 50 million, but you have to sell companies for 300 fine.

01:05:49:20 - 01:05:50:07

Marc Penkala

It's 500

01:05:50:07 - 01:06:02:07

Christian Soschner

million to actually get your fund back. If you don't have to make portfolio can create this 20% off. It's not possible. Mathematically, it's not possible. so,

01:06:02:07 - 01:06:07:04

Christian Soschner

I think the market still has to mature in order to show that DC is a real asset class in Europe.

01:06:07:08 - 01:06:12:06

Christian Soschner

It is for sure a lot of question. The question is whether for which fund size.

01:06:12:08 - 01:06:14:22

Marc Penkala

What's your opinion?

01:06:14:24 - 01:06:19:16

Christian Soschner

I think funds up to 100 million can work fantastically well year. It has to maturity. It

01:06:19:16 - 01:06:43:02

Marc Penkala

to accept market. It has the liquidity and these mega funds or funds which you have like in the US with 1 billion in assets under management, are very hard to return. But you have to understand the underlying economics of who is investing to these funds pension funds, endowments, institutional investors, they don't have the expectation of a 20% higher yield.

01:06:43:04 - 01:07:05:08

Marc Penkala

That's the expectation. Please return to me anything between the public market equivalent and bonds. If you constantly give me these returns, I'm going to be constantly giving you money because have the money somewhere they can't. I'll put it on the public markets and put it in real estate, public market funds, venture capital, private equity buyout, name it.

01:07:05:10 - 01:07:32:23

Marc Penkala

And one big allocation will always be venture capital, but into established funds. So what's interesting as well about venture capital is you build a first fund, you double it, triple it, you quadruple it. And what's happening it's it's always better for you. Why? Because you're de-risking, you're moving and and liquid variable carried interest into liquid fixed component which is management fee.

01:07:33:00 - 01:07:52:12

Marc Penkala

So if I have a 10 million fund, I get two and a half to, 250,000 management fees per year. Right. If I have 100 million fund, I get 2.5 million. I don't necessarily need a team which is ten times bigger, so I just increase my paycheck. So every month I'm collecting my money, which is very nice. I go to the Carey component.

01:07:52:18 - 01:08:15:01

Marc Penkala

Yes, it's easier to return a 10 million fund. It's harder to return a 100 million fund piece and 100 million. Don't expect 20% on outlier the one and 10 million they do, because for them, just moves the needle. So the guy in 100 million fund said, why would I take the risk? I'm gonna return 200 million, and I'm going to take my 20% off to 1230, which is a 20 million paycheck.

01:08:15:01 - 01:08:40:16

Marc Penkala

I just made 2 million a year in carried interest. If it would be solo GP, the guy sitting hustling every day in a 10 million fund, returning five times to fund, gets 20% or 50,000,040 million to the exit. So it's 8 million. So even though your performance has been 700% better, what you're getting as a GP, it's just a fraction of what the guy gets in 100 million fund not doing a good job.

01:08:40:18 - 01:09:01:08

Marc Penkala

The question is what's the expectation of the piece to follow you go up the ladder. The expectations on die are you changes. Just give me constant returns, not outsize. I just want to flatten the risk. That's why people go upmarket. You raise bigger funds and de-risk yourself. More management fee, more carry, less performance. That's the most awkward thing about putting capital.

01:09:01:08 - 01:09:03:04

Marc Penkala

Yeah, I know your customers.

01:09:03:06 - 01:09:04:03

Christian Soschner

It comes by nature.

01:09:04:03 - 01:09:36:18

Marc Penkala

So I think from from what they said, for me the lesson is know your customer. Know your customer. Basically I'll say fantastic customer, it's still up. And what my thought was but you were speaking. That's probably smaller. Funds cater to customers who are in the process of building wealth. Well, still in the building phase and need outsized returns while the customers, for bigger funds in 100,000,000 billion for are probably, have different challenges.

01:09:36:18 - 01:09:48:10

Marc Penkala

They need to just secure but still really have built in the past. So as long as the gets the inflation rates returns, it's fine. It's a means of diversification. So it's basically.

01:09:48:12 - 01:09:57:08

Christian Soschner

One is building the other ones preservation. Yeah. But I'm saying institutions think differently than the high net individual small family office desktop and wealth.

01:09:57:10 - 01:10:13:05

Marc Penkala

But why I mean venture funds always invest in high risk endeavors. Yeah. Basically why building huge venture fund Stan? Does it make sense? I mean, can you educate your chance in in in venture businesses?

01:10:13:07 - 01:10:17:13

Christian Soschner

Hey, that's makes sense because you have to think about the whole value chain of

01:10:17:13 - 01:10:36:08

Marc Penkala

venture capital and startups. So that's early stage. Just mid stage. That's later stage. Just call it this IPO right. So for each part of the stage need a different bucket. So the risk profile changes and the way you invest is changing. So what do you do as an early stage funds investing precede and see to optimize for two things alpha and beta.

01:10:36:10 - 01:10:56:00

Marc Penkala

You want to have or loss ratio but you want to have higher magnitude of alpha. So if you hit, you have to hike very, very hard and return your fund. Go down the road. Think about the growth fund. They offer only one thing after they stop it, you don't write off. What you have is good performing in the bad performing asset, but you don't have write offs.

01:10:56:02 - 01:11:17:06

Marc Penkala

Think about a secondary fund. Same thing, short period, only alpha. So everything you do has to survive and return at least your money. Some people return more money than you invested. This is the profit due to the short cycle. You have a very high. so thinking about venture capital, you have to cluster the stages in order to understand why a piece invested them.

01:11:17:08 - 01:11:33:14

Marc Penkala

And then you have to go beyond, funds and think about why a piece of investment these funds, if you have a pension fund element, it's $500 billion. And the allocation for the b c buckets on an annual basis, I don't know, 50 billion. What are you going to do? But 50 big small

01:11:33:14 - 01:11:36:13

Christian Soschner

funds, 1 billion in each fund.

01:11:36:15 - 01:11:47:24

Christian Soschner

You're going to be very busy finding these funds. Well, you have completely indexed the market. You have put every match in fact, 1 billion. Hey, you can't manage B, it's too much work. Seed overhead will eat your returns

01:11:47:24 - 01:11:54:11

Marc Penkala

even though you would have a blended return which might be higher. So what you're going to do is you slice the 5 billion into 50 checks.

01:11:54:13 - 01:12:07:24

Marc Penkala

Let's go. He put it into every fund. Which you think this makes sense. And exactly what he said. You quantified the inflation and you might make little more than the private market equivalent blended on the

01:12:07:24 - 01:12:15:13

Christian Soschner

overall portfolio 500 billion. It's not going to move the needle in any direction. but the money has to go.

01:12:16:02 - 01:12:25:24

Marc Penkala

Yeah. It's like, Sebastian Mallaby brought into power. No, I mean, it's not a it's fund. The funds, it's SoftBank. But it's, he titles the chapter. But SoftBank in everybody needs 100 million.

01:12:26:01 - 01:12:30:17

Christian Soschner

Oh yeah. Yep. And it's absolutely accurate.

01:12:30:19 - 01:12:52:20

Marc Penkala

Yeah it's it's a challenging game. At the end of the day it's a challenging game I mean it also means for founders. as a founders they need to understand for different stages of the corporate development. what's the customers of the business are at the end of the day. And what's their expectations are to deliver the right cases to the right VC at the right time?

01:12:52:22 - 01:12:56:18

Christian Soschner

Absolutely. Okay. I couldn't agree more.

01:12:56:20 - 01:13:01:09

Marc Penkala

Okay. This is a lot of work. A lot of work to do this. This is market.

01:13:01:10 - 01:13:15:23

Christian Soschner

Here. Again, you have to always reflect the, the maturity of the market, the capital market is in kindergarten. You're, that's capacity as they already do. The first college degree.

01:13:16:00 - 01:13:20:16

Marc Penkala

We are still early. So it's, Jeff Bezos would say it's still day one. So, yeah.

01:13:20:18 - 01:13:23:11

Christian Soschner

Like, your favorite thing I heard the other day is like, the

01:13:23:11 - 01:13:39:19

Christian Soschner

mentality delta between us and, and Europe is very simple. US startups think and $0 billion companies and European, companies thinking $0 million companies. You have to have the then before you get it. But, at least it was for me. It's like, oh yeah, exactly.

01:13:39:19 - 01:13:41:05

Christian Soschner

Just think bigger.

01:13:41:07 - 01:14:10:08

Marc Penkala

Yeah, yeah. That's true, that's true. and I think also one thing that stands out, in my opinion, on the US market is, I mean, correct me if I'm wrong. I have a different opinion. Please. I think Europe is very tech driven in their approach. So whenever I talked to my small ecosystem, I have the feeling that it's all about tech and, this, this technology succeed or that's technology succeed.

01:14:10:10 - 01:14:32:03

Marc Penkala

And then fans invest in technology and IP and then have a team to move it forward. But whenever I talk to the US guys, I have the feeling it's all about the team so that they look for team establishing teams on the market that can run a company for over ten years and then build a huge success story on the market.

01:14:32:03 - 01:14:44:01

Marc Penkala

And it doesn't matter so much what tech they fit into this team. how do you see the differences and similarities between the investment approach in the U.S and in Europe?

01:14:44:19 - 01:15:02:15

Marc Penkala

the most important thing is risk appetite and risk profile. That's a very different risk profile in the US. And, I like to say that because I think it's very true in Europe, we just have the mentality of what could go wrong. Do you guys see little? Yeah, absolutely. You look at your risk, speak 200 pieces. But how do you assess companies?

01:15:02:17 - 01:15:16:20

Marc Penkala

90% of the conversation will be circling around, oh I don't know the if the GTM is going to work. I'm not sure if that's the right CTO. I'm not sure if, they actually find product market fit. I'm not sure if they can scale their sales to tech whatsoever.

01:15:16:23 - 01:15:20:02

Marc Penkala

We are members of this ecosystem. So we are the same basically.

01:15:20:04 - 01:15:23:18

Christian Soschner

Yeah. And then us you rather think about what can go right.

01:15:24:15 - 01:15:39:12

Christian Soschner

So can this be an outlier. What about if they crack this nut and become the market leader in this. what's the potential of this happens. So the mentality looking at an early stage company from a different part of the table changes

01:15:39:12 - 01:15:49:11

Christian Soschner

the whole view on things. The second component is liquidity. That's more money in the market. Think about how much money in the venture capital market in the US and how much money there is in Europe.

01:15:49:13 - 01:16:07:24

Christian Soschner

Accessibility, it's a easier be. It's more so, even companies which might not seem like the best of smartest in the world receive more money. So yeah, just a higher hit rate because more companies get funded. and, I think Europe still has

01:16:07:24 - 01:16:24:05

Marc Penkala

to learn quite a lot. It's going to take quite some time. And here again when kindergarten, then college. So it's totally fine. But we're picking up fast. That's very important to to learn and to understand. And and the mentality shift will come with next generations with experience and as well experienced managers, not only entrepreneurs.

01:16:24:05 - 01:16:47:14

Marc Penkala

The ecosystem lives on both sides of the table. And, we will eventually get that. This is the bottom line, but it's still going to take some time to actually catch up with, what I said and what people built in the US is global footprint. What people built in Europe is European footprint. So we built companies for the European market, namely one which is a global player and B2C.

01:16:47:16 - 01:16:49:15

Marc Penkala

That's not

01:16:49:15 - 01:16:49:20

Christian Soschner

lot.

01:16:50:01 - 01:16:52:19

Marc Penkala

But it's it's a bit more fun if I start trying to change the.

01:16:52:19 - 01:16:57:17

Christian Soschner

Topic. well, we're not there yet. Yet, that's what I'm saying.

01:16:57:17 - 01:17:29:14

Marc Penkala

Why? Why? we're in the same age group, basically. So we are kids of the 70s, 80s and 90s. basically, when I think back to the 90s, in developed at least gaming, the internet was still young, but I had the, the perception that Europe is taking off, Europe was leading to mobile revolution, basically my opinion, we outplayed the United States.

01:17:29:16 - 01:17:55:23

Marc Penkala

Yeah, the, public markets in Europe, I remember, were thriving in the 90s and the US most of the time. Dow Jones seemed to be flatline until the end of the 90s. very bad. We took off and I had the feeling that Europe at least is, on the equal level, on an equal level like the US or China was lacking far behind.

01:17:55:23 - 01:18:25:04

Marc Penkala

I mean, 1989 was a few years ago. The Chinese market was, seem to be like in the Middle Ages. exaggerated compared to Europe and U.S. markets. and this was the, the emotion that's, I had when I started in 2009, we had okay, the bubble burst and it was this 2008 crisis and problem. And somehow in the last ten years, I realized Europe has lost its I mean, basically Europe is playing.

01:18:25:06 - 01:18:54:18

Marc Penkala

you said the market is still young. Maybe put it in this European negative. perspective that everything went wrong, that could go wrong here in Europe. China outplayed us. Sebastian, other people describe the story nicely in his book. The Power not, the U.S. market, but that's what's thriving. And when I ask Sebastian might have been my podcast why he didn't mention Europe in his book, he said, because there is no benchmark at your, what's your opinion?

01:18:54:20 - 01:19:07:08

Marc Penkala

why did we miss that, Mark? For the reasons that we missed it? And what should we improve in future so that we can, close the gap to the US and to, to the Southeast Asian markets?

01:19:07:10 - 01:19:12:18

Christian Soschner

Yes. I

01:19:12:18 - 01:19:29:22

Marc Penkala

would nail down a narrow down to one thing. it's risk aversion. So the risk mentality, we simply don't have to again like but we when you think about venture capital this is one very awkward thing. And it is so counter-intuitive when you think about it. But if you give it a second thought, you like, yeah, actually you're right.

01:19:29:24 - 01:19:46:04

Marc Penkala

So if you look at deals and everybody looks at a deal like an a Nike and everybody says, this is great, still in the world, you should not do the deal. Very simple. Why? Because the deal in an early stage company especially doesn't have the risk profile. It has to it has to be contrary. Somebody has to.

01:19:46:04 - 01:20:07:16

Marc Penkala

That's the stupidest thing I have ever heard in my life. It's the stupidest thing. Don't do it. So when you think about venture capital funds and how they operate and how they become successful and with outside the returns, any fund about five x TV return have one thing in common. They have a very high loss. Weight loss rates range between 40 and 50%.

01:20:07:18 - 01:20:32:05

Marc Penkala

Funds which are mediocre are still good. But my bad Have a loss ratio of 30%. What does it mean? It means, you know, smaller returns on the companies which you hit. And, yeah, that leads to smaller outcomes for the whole fund. But you try to opt for less beta. But in venture capital, the power law is the most apparent thing.

01:20:32:09 - 01:20:54:17

Marc Penkala

Like one big hit, but change the whole idea. So, the top funds. But they have incumbents, not only the loss ratio, but the magnitude of outliers. So the magnitude of the outliers, which they have in their portfolio is twice as high as the magnitude of outliers, which not well-performing, fund anything between 2 and 3 x, which is already good fun to be fat and half.

01:20:54:19 - 01:21:15:06

Marc Penkala

So you have to kind of wake up and say, nope, I have to take the risk in order to create outsized returns. And the US have mastered that. They look at those, this idea, it's pre-seed. There's three smart guys to take a market, try to kind of revamp the whole market and do something differently. They receive a 20 million check.

01:21:15:08 - 01:21:29:16

Marc Penkala

We had these weird times, like here in Europe, where gorillas all of a sudden got funded, was the fastest unicorn I went there, I like all these companies, but we kind of said, oh, yeah, we have to, you know, you have to take everybody kind of jumped on this train and said, you're going to be the next week.

01:21:29:16 - 01:21:44:05

Marc Penkala

Turned out not to be, but what we like to do in Europe, oh, it didn't work. So we're not going to do it again. What the people do in the US to say it didn't work. So we're going to do it again. Till it works. But in Europe people are scared away and say what are we. Oh I'm so biased.

01:21:44:05 - 01:22:01:18

Marc Penkala

I did this already. It didn't work. I'm not going to do it again. But then you miss on the opportunities which will work eventually. And the mindset towards taking risk and accepting that risk is the biggest part. On the most important part to assess a venture capital. It's not that.

01:22:01:20 - 01:22:05:09

Christian Soschner

How can we change that?

01:22:05:11 - 01:22:37:15

Marc Penkala

here again, I can I think you can fast track it to experience it, but simply take a little more time and a certain degree of professionalism of GPS. Peace. So even if, the first professional GPS started, let's say, in 2010, you know, that the first big wave of operators, whether it's a sherry type of, fund or if it's project A or like the first one which actually built brands all the time, these companies on fourth or fifth generation, and the first one has not even be fully divested.

01:22:37:19 - 01:22:56:17

Marc Penkala

So they're not investing in a second cousin managing these companies, but they're still in cycle pooling. Hey, I can invest this fund into. Yes. Now that they have like this head that 50 years ahead, they've done this, they've seen this, they've passed this knowledge and they embraced the risk associated to venture capital. We just don't have to see.

01:22:56:19 - 01:23:01:21

Marc Penkala

So I think, we need a little more time. You can't fast track experience and venture capital.

01:23:01:21 - 01:23:03:14

Christian Soschner

At least

01:23:03:14 - 01:23:26:15

Marc Penkala

It doesn't matter in which investment area. I think this is, it's a said, experience driven. It takes 10 to 20 years to go through each single learning step. Absolutely. And not giving up. you mentioned the contrarian approach. I'm trapped in mindsets, that you said you didn't say contrarian, but you mentioned, I had to interpret it.

01:23:26:17 - 01:23:53:22

Marc Penkala

you said that when everybody says it's a smart thing to invest somewhere, you shouldn't do it. and on the other hand, it means when everybody says it's a stupid idea to invest. Now, maybe there is something in this area that you should look at. And when I look back on the artistic funds that's created outside outstanding returns, they had some sort of contrarian approach to the market.

01:23:53:24 - 01:24:20:04

Marc Penkala

Genentech, for example. I mean, I'm mostly in biotech, and, Genentech was one of these, success stories that the my opinion created the venture industry in biotech, where the fund manager, invested in an idea where everybody said it doesn't make sense. It doesn't make sense. It doesn't make sense to move in that direction. When you look at the European market from what you said is we don't have this mindset.

01:24:20:06 - 01:24:35:24

Marc Penkala

but I'm curious to learn from you is how do you convince your European and P stand to go into venture capital? I mean, you have and not a hurdle to take. Not only do we have to explain the venture world and venture model, but you also have to help them overcome the fear. How do you do that?

01:24:35:24 - 01:24:38:05

Christian Soschner

Well, I think there's many experience apiece.

01:24:38:05 - 01:24:57:03

Marc Penkala

I mean, you don't only invest in Europe to invest across the world. and the maturity of a piece, I would say almost equal to, the ones in the US. and they have risk appetite. The only thing which differs quite a lot is the actual, fraction of the allocation into venture capital.

01:24:57:08 - 01:25:16:06

Marc Penkala

So, yeah, portfolio of hundred percent in Europe. it might be only 3 or 5%. What actually goes into VC in the U.S it's way more so. It's more people and it's way more so the absolute outcome is way higher in Europe. They like venture capital. They do understand they have to have an allocation. They kind of tiptoe into the water.

01:25:16:10 - 01:25:38:16

Marc Penkala

But the actual exposure in this asset class, even though in average it's the highest yielding asset class in the past ten years, over their whole portfolio, they have the smallest fraction of that. That's very interesting. nice, service about that. Like host portfolio. I like the overall asset allocation of family office and so on. The smallest fraction is always b c highest I, it's always b c.

01:25:38:20 - 01:25:46:23

Marc Penkala

So you always have to think like hey you make the most money there. Throughout your approach you have the direction of funds but you don't increase it.

01:25:46:23 - 01:25:56:18

Christian Soschner

Here we go. So you and kind of you think that it's like bricks and mortar. So you kind of don't shift between your asset costs okay.

01:25:56:21 - 01:26:30:10

Marc Penkala

But by by I mean you if you found the statue. Right, we have Alps in Europe that has the experience. Yeah. The tap exposure to global markets, understands the venture model, understands the risks, the upsides and downsides have already experience from the past ten, 20, 30 years with their investments. See on their balance sheet. That's the venture class creates the biggest returns for their balance sheets in their investment portfolio.

01:26:30:12 - 01:26:33:15

Marc Penkala

And then they don't increase it.

01:26:33:17 - 01:26:35:13

Christian Soschner

I would I would love to.

01:26:35:15 - 01:26:36:24

Marc Penkala

Ask, does it make sense?

01:26:36:24 - 01:26:59:06

Marc Penkala

it doesn't make sense. But, I think it's a two sided, question. One is like even though the yield looks great, it's not materialized eventually. So it looks great on paper, but, didn't return yet. That's the one thing. And as long as they don't get the understanding that the money will flow back at some point, they're not increasing their overall allocation of venture capital compared to the whole portfolio.

01:26:59:08 - 01:27:18:15

Marc Penkala

So they keep it at the same level. There's two ways on how the absolute amount increases a the portfolio or the wealth becomes bigger. So there's than a 3%. But the absolute amount is coming in now which is higher. or they're just increasing stay. Well it's the same, but it just increased that part of my allocation, which means you have to divest another one.

01:27:18:17 - 01:27:32:07

Marc Penkala

Bricks and mortar. Usually you don't fixed income anything. Which is more liquid. You do. so I think, that there does as well a structural gap between how these works and how your, your works.

01:27:32:07 - 01:27:41:24

Christian Soschner

The money which is here is family owned wealth, like accumulated over many generations. This wealth is treated differently when somebody inherits money.

01:27:42:01 - 01:27:46:12

Christian Soschner

Right? and us the structure is simply different. And,

01:27:46:12 - 01:28:01:00

Marc Penkala

I think this leads to this over allocation and venture capital and of course, venture capital. I would say process more successful because you have a liquid market at the end. It's an IPO market. You have the Nasdaq. You don't have these kind of things here in Europe yet that will come.

01:28:01:02 - 01:28:02:19

Marc Penkala

But they're not there yet.

01:28:02:21 - 01:28:15:16

Christian Soschner

But I mean, I think when you look at the history BioNTech, Spotify, the few success stories we have, I mean, it's no problem at all. IPO, a company on the U.S. market, even with a European footprint.

01:28:15:19 - 01:28:29:21

Marc Penkala

So it's not but if you IPO, by the way, you take you be outliers here. But if you IPO or not, like small cap, not liquid market, then you have listed company in a non liquid part of the market because it's a small cap.

01:28:29:23 - 01:28:31:06

Christian Soschner

If that's true that's true.

01:28:31:11 - 01:28:36:14

Marc Penkala

Oh yes. You did an IPO and yes you own the Nasdaq listed but the volume small.

01:28:36:16 - 01:28:38:02

Christian Soschner

But look when I look at the founder

01:28:38:02 - 01:28:52:02

Marc Penkala

side I mean from what you say, I see a structural risk in Europe that we, just, look so economic power entirely. If you don't change that, if you don't allocate more capital, I mean, it means for the founders, when you compare US founders with European founders, you mentioned this 20 million Czech.

01:28:52:04 - 01:29:08:21

Marc Penkala

You have to, you have something that makes sense, and you find the funds we invest in your company 20 million right away. It doesn't matter if you succeed or not. And, if you don't succeed, they still stay in touch with you and they come back, when you have the next step. Yeah. Maybe we do something with you and then, you know, if you get.

01:29:08:22 - 01:29:28:10

Marc Penkala

But basically, very often if you give me my opinion at one point in time, as a company, you need money to play. it doesn't make sense. And when you look at the situation of European founders, very often they end up, discussing with managed funds and then have to prove the next thing and the next thing and the thing after the next thing.

01:29:28:12 - 01:29:42:01

Marc Penkala

how can we get to market? How can we get to market more liquid in Europe? Do you have, from your experience, do you have any any fun tricks that will fix it all in next?

01:29:42:01 - 01:29:43:17

Christian Soschner

Yeah. I love to have the smartest

01:29:43:17 - 01:29:47:17

Christian Soschner

answer in the world. I don't have it. I don't know.

01:29:47:19 - 01:29:49:16

Marc Penkala

Okay.

01:29:49:18 - 01:29:51:10

Christian Soschner

I would claim it's the

01:29:51:10 - 01:30:11:23

Christian Soschner

maturity, but to be fair, the public markets in Europe, even if you look at the Dax 40, you think about and it's very interesting conversation with the PE fund the other day. It's like how many of these guys will be there in 20 years? And I think 20 or 50% of the 40 will not be there.

01:30:12:00 - 01:30:14:06

Christian Soschner

So here again the structure of

01:30:14:06 - 01:30:38:16

Marc Penkala

public market is very different one as well. And the volumes we have on a public market here in Europe, very small compared to what's happening elsewhere in Asia, the US. So I think it's a very political thing as well. It's not only structure and liquidity, it's like how politics manage that regulations.

01:30:38:18 - 01:30:48:02

Christian Soschner

What, what the, what the, the one regulation be that you recommend to change to improve the situation for Europe just a little bit.

01:30:48:04 - 01:31:09:01

Marc Penkala

I think, like the best journey starts obviously, at the beginning most people are scared from building companies and most people who could potentially invest into, startups because to have the liquidity don't do it because there's no tax cuts, there's no grants. There's, like the the politics keep on cutting them down. They used to be, very positive.

01:31:09:01 - 01:31:44:05

Marc Penkala

Lateral Esop is another very big discussion here. And now it seems like we're going backwards again. and so the incentives for people investing to this very high risk, high yielding asset class are going down. And, actually, if you think about the nature of how Germany works and if you think about which is was the biggest employer in, in Europe or in Germany, startups, if you would take it as an industry, this why do you put such a small fraction of what you have in financial capabilities into that part?

01:31:44:07 - 01:32:03:11

Marc Penkala

We got better. We have TAF, we have K if W we have more institutional money. But we have to think about the whole cycle of the funding curve. It's not only like, you know, putting money to funds. You have to kind of enable angels. And many other countries, actually do have this, have tax cuts, have incentives, have to be fund and so on.

01:32:03:13 - 01:32:25:09

Marc Penkala

And I think here again, we are not there yet in Europe. Make it more appealing as an asset class will lead to more money. Going into this asset class for lead to more innovation will lead to more, companies which are global players. And one interesting thing is like we create great stuff. We we are really advanced when it comes to technology.

01:32:25:11 - 01:32:46:24

Marc Penkala

and I think we can even outcompete, many of, of them in the US. But the technology knowledge we have in Europe, but we can do is if there is something fantastic here, some smart guy or girl in the US thinks, all right, I'm going to do this. I'm just going to do it faster. I because the money stands risk appetite.

01:32:46:24 - 01:32:58:00

Marc Penkala

So look, there's a company in Europe that doing this. Let's do this here. But just let's do it faster. But before these guys in Europe think about going to the U.S, to Asia, have global

01:32:58:00 - 01:33:03:18

Christian Soschner

the market already taken.

01:33:03:20 - 01:33:12:22

Marc Penkala

So we need to talk to our politicians at the end of the day to, to change the environment, make it more entrepreneur and investor friendly.

01:33:12:24 - 01:33:14:13

Christian Soschner

As part of the equation. Yes.

01:33:14:15 - 01:33:43:10

Marc Penkala

It's part of the equation. Yeah. yeah. We currently I mean, when I look at the currently, we are living off the wealth, that our grandparents and parents built, with the companies of the 70s, 80s and 90s and, are the big stories that we see today on the stock market, on public markets. Apple. Okay. Tesla, the iPhone two cases, basically, and Europe doesn't have any of those companies, doesn't have created any of those companies.

01:33:43:10 - 01:33:48:04

Marc Penkala

I mean, so when you look at solar, it's, electrically because it's empty.

01:33:48:06 - 01:33:53:19

Christian Soschner

Yeah. And that's the problem.

01:33:53:21 - 01:33:57:07

Marc Penkala

Then we have to address the politicians tomorrow, I guess.

01:33:57:07 - 01:33:58:09

Christian Soschner

Yes.

01:33:58:11 - 01:34:13:15

Marc Penkala

Yeah. when we talk about investing, to motivate our, pension funds that we have for us in Europe, you mentioned the contrarian approach. Let's talk a little bit about this mindset. How important is it for a venture fund.

01:34:13:17 - 01:34:18:13

Christian Soschner

To have this? Perhaps a contrarian approach?

01:34:18:15 - 01:34:24:07

Marc Penkala

Now, how important is it for venture funds, to to not follow the crowd?

01:34:24:09 - 01:34:25:08

Christian Soschner

very important. I mean, if

01:34:25:08 - 01:34:42:13

Christian Soschner

you follow the crowd, you're like, Oh, it's an a very dense place. So you're exposed to competition. That's one thing. And, trying to do it like what we always try to, to do and to think about, it's like, how can we be ahead of the wave? So that's why when I earlier said, like when the tourists arrive.

01:34:42:15 - 01:34:46:00

Christian Soschner

And when you enter a market when the tourists are there, but the, it lights the market

01:34:46:00 - 01:35:05:19

Marc Penkala

so that the, the big art and venture capitalists being ahead of the curve and understanding and what side of the curve is and I think that the, the garden innovation cycle, it's a very good example. Just fantastic markets which pick up aggressively then they drop, then they mature and then they become real markets.

01:35:05:21 - 01:35:28:23

Marc Penkala

But three I there's many of them biotech even. Right. So everyone is excited. Everybody thinks they're missing on something. Then they jump on it. And then the excitement is gone because this market has eventually to mature. And then it becomes a real market. And and I think it's very important to try to identify how the next ten years will look like in industries.

01:35:29:00 - 01:35:45:23

Marc Penkala

And that's, where the advantage of many small and micro funds are. They kind of focus on the specific subset of a market to understand the market, to do the exploration thing. Okay. These are the micro trends in this market, which will determine how their future will look like in this industry in the next ten years. And they bet on them and VC.

01:35:46:00 - 01:36:08:14

Marc Penkala

Well, if I invest, I want to make sure that this company, is in a market, which is a there be relevant and see successful in ten years. So I have to have this mindset how the world looks like in ten years. And, it's very hard to kind of, kind of adopt to this approach because most offices don't have the imagination of this many cases.

01:36:08:14 - 01:36:26:01

Marc Penkala

I don't have it either. So we have to speak to experts, we have to speak to industry insiders and so on. so they invest with everyone else. So if you see the volumes are going up in this industry, people put their money there because they think all this and expect because everybody's doing this. But but what people neglect is to look left and right.

01:36:26:01 - 01:36:32:16

Marc Penkala

What's happening? next to these industries or which indices could be affected because this wave is going on and

01:36:32:16 - 01:36:46:17

Christian Soschner

we try to incorporate this mindset of like, how will the world look like, especially in B2B, particular case, in the next ten years. And we think that, the main driver will be SMEs from first time.

01:36:46:19 - 01:36:57:12

Christian Soschner

And of course there's associated risk to that. in any case, but there's a as well big associated risk to bet on what everybody else is betting on. And

01:36:57:12 - 01:37:09:03

Marc Penkala

again, come back to statistics. Well, great funds have higher loss rates. So they are more often wrong than the smaller fund, like funds which don't, work that well.

01:37:09:05 - 01:37:22:17

Marc Penkala

That means if you try to follow people who bet on something, they might be very much wrong. So you're betting on someone who doesn't even know it better than you? They just have more money to do this. Bet.

01:37:22:19 - 01:37:27:04

Marc Penkala

And you can see it. Even if I showed you one of the hottest topics,

01:37:27:04 - 01:37:35:17

Christian Soschner

not everything in AI is as fundable as it used to be one year ago. because the market is changing so fast, like generative

01:37:35:17 - 01:37:48:12

Christian Soschner

AI, that must be the like when I touch it now. Probably not. And this is a very bold statement, but I know, that that's another thing in venture capital, the circle of competence, you have to accept what you know.

01:37:48:12 - 01:38:02:17

Christian Soschner

And but you have to accept what you don't know. And both fields are good. Knowing what you know and understanding and investing into them and investing to stuff you don't understand. But then you're like, literally got tapped because it's a blind bet.

01:38:02:19 - 01:38:12:18

Marc Penkala

But if you want to play contrarian to chance, it's very high. It just needs to go into areas too. So, relatively uncharted yet.

01:38:12:20 - 01:38:36:12

Christian Soschner

Absolutely. I mean, it doesn't mean that I don't understand them. It just implies that I'm structured. You can be most fantastic a person in AI and, you know, like, well, this is an untapped part of the AI segment, but I think it's going to take off in the next five years. what do you want to invest into is before the curve starts not and it's on the peak.

01:38:36:14 - 01:38:37:13

Marc Penkala

That's true. I think

01:38:37:13 - 01:39:03:06

Marc Penkala

to me the best example is Bitcoin. I mean everybody could have become rich with bitcoin. Yeah. The I think in 2010 the price for 10,000 bitcoin was $41. now it's at 72,000. And you see the cycles this hype cycles. And when, the hype hits, mainstream media, people try to buy and try to invest.

01:39:03:08 - 01:39:06:22

Christian Soschner

As we speak. You can see it literally as we speak.

01:39:06:24 - 01:39:11:08

Marc Penkala

And to this, that this is not different. So that.

01:39:11:08 - 01:39:41:16

Christian Soschner

I would definitely say it behaves and patterns and cycles and it swings with the economy. So here again, inflation, interest rate fundraising, market try ups, market, the stock markets going up again. And that, that did this a natural component to we see the best companies being created in venture capital are created and done. Market. Where money's cars because the mindset of an entrepreneur is very different once money is a commodity vastly, accessible.

01:39:41:18 - 01:39:49:19

Christian Soschner

What are you going to do? You build a company, you burn as much you can raise more because in an apartment.

01:39:49:21 - 01:40:16:14

Marc Penkala

When I, interpret what you said, for me, the the magic of the work of a venture manager of a fund manager is is it's basically a sales skill. when the opportunities in the down market. And you need to be contrarian, but know that you have to deal very often with risk averse people. you need to be good in selling to convince them to do something against the nature.

01:40:16:16 - 01:40:18:01

Christian Soschner

It's funny. So I always say

01:40:18:01 - 01:40:35:07

Marc Penkala

like fundraising is always hard. And up my Conan Doyle market, the only thing which changes is the narrative. And then upmarket, everyone is excited. So the narrative circulating and you're missing on this great thing which is currently happening, right? The other side is lots of people are not everybody's going after a lot of money in a down market.

01:40:35:12 - 01:40:53:13

Marc Penkala

Not many people are out, but there's not much money. But you're selling the exact opposite. Look, now is the time to buy. If you want to buy into the market when the market is down exactly like an illiquid market, you don't want to buy the peak. You don't want to buy Bitcoin $100,000. You want to buy it when it's down, it's going to go up again.

01:40:53:15 - 01:41:14:07

Marc Penkala

You see the same thing. Look, when a down market entrepreneurs are humble, B so humble. Everyone is going back to fundamentals. We're going back to default a life mentality. People are looking on one KPI for capital efficiency. What can you squeeze out? Going to give you a million and an upmarket I give you a million. And then you you kind of think you're a rocket star.

01:41:14:07 - 01:41:37:14

Marc Penkala

When you create hundred thousand in revenues and double market. Yeah. Somebody gives you a million and you create 2 million revenues out of that. So capital efficiency changes because the market's not liquid. That's why best companies are created in down markets. The shift in mentality from VCs giving companies to smart founders who deploy, in a smart way.

01:41:37:17 - 01:41:57:24

Marc Penkala

It's all about selling it. Then after the entity returns, then at the end of the day, yeah, point right with the right story. How did you learn your sales skills? What is your recommendation? If somebody says, okay and you took I mean, for me, entrepreneurs and investors both need to be proficient in selling, otherwise they won't succeed.

01:41:58:01 - 01:42:00:07

Marc Penkala

What advice would you give them?

01:42:00:09 - 01:42:00:15

Christian Soschner

I think

01:42:00:15 - 01:42:19:07

Marc Penkala

there's two things. selling is, just one faction of, of the overall picture. It's brand. So brand building is equally, good. But what does people impress Halo? So people look at who you're hanging out with. People look at how exposed you are, whether it's on LinkedIn or YouTube or whatever, like whatever the medium of Twitter.

01:42:19:09 - 01:42:38:18

Marc Penkala

So people are impressed by this. Very simple things I would say. All right. So brand building and having a brand by yourself, that's very valuable. And then translating this into reading other people like there's different people like and you have to kind of try to understand very early in the process when you meet people what the motivation is and what they want.

01:42:38:20 - 01:42:56:20

Marc Penkala

Some appeasement, financial returns, others want of strategic returns, not strategic plans, but strategic, aspects which are well-known for them. And you have to piggyback on what you think the other person on the other side of the table actually is looking for. So you tailor your pitch towards that doesn't mean you should be lying, doesn't mean you should be unfaithful.

01:42:56:21 - 01:43:16:05

Marc Penkala

Not at all. Just means that you should a listen and be try to understand what the other person on the other side to kind of refine your pitch to was for text I want to hear without like I like a ping. I'm realistic and I think this is the main art. How did I learn? I don't even know if I mastered it.

01:43:16:07 - 01:43:37:24

Marc Penkala

but if you speak to people every day, if you have six calls, an average of for at least six calls with people get pretty good at that meeting. People understanding people like what they hang on, knowing how much to speak or when to be silent. And, I think that's the at reading other people there.

01:43:37:24 - 01:43:51:19

Christian Soschner

I look at, Germany and Austria. It's tinkering with technology, and the teams need at least one on, on board who enjoys being amongst people, being out on the market and, talking to potential customers constantly.

01:43:51:21 - 01:44:12:15

Marc Penkala

Yeah. So this I think it's the same, it's something startups and in France, you have to have this one very exposed person who likes to be in the spotlight, likes to read for, it, to speak and, if you don't have to succeed and, sales makes the whole machinery go round if you don't have to work.

01:44:12:20 - 01:44:13:14

Marc Penkala

Not as a VC.

01:44:13:14 - 01:44:15:09

Christian Soschner

and not another system.

01:44:15:11 - 01:44:24:12

Marc Penkala

Important advice. at least get one on boards of a team. It doesn't matter if it's a fun to write. startup. once I have, speaking to talking to people.

01:44:24:14 - 01:44:28:16

Christian Soschner

Or get enough money so you can, pay someone.

01:44:28:18 - 01:44:57:07

Marc Penkala

That's the second round. It's the second draft. bases need to be good at predictions. When I look at, Europe today and with all the challenges we face currently, laws, interest rates, the aftermath of the lockdowns with supply chain disruptions, I think it's sometimes here that they are still there in some, some sectors. Where do you see the venture landscape in five years?

01:44:57:09 - 01:44:59:02

Marc Penkala

Just just guesswork.

01:44:59:04 - 01:45:02:06

Christian Soschner

Yeah, yeah, yeah. and

01:45:02:06 - 01:45:22:19

Marc Penkala

unfortunately, I see it exactly where it's been two years ago. What we like in venture capital is, we like to be shocked when things change, and we like to forget that we have been shocked. So you, you, you might look back and say, 21, 20. Why were people so outrageous about investing into these crazy companies, which all didn't work?

01:45:22:21 - 01:45:54:01

Marc Penkala

Well, how could we have been so stupid? There was so evidence going to happen. And then five years ago, look at this company. Let's give them 50 million in a seed round. This is great. It's going to be working out all perfectly fine. So people forget that's, that's a problem. So I do assume we will see in five years down the road very soon, the market, as we've seen, in the past years, that from everyone being very humble, very modest, going back to fundamentals, you know, and buying at the right, KPIs, we're going to move more into.

01:45:54:03 - 01:46:14:06

Marc Penkala

All right, let's forget all about this because to market has become more competitive. And that's here again. It's unfortunately the nature of the market. More money in the market means more competition, means time between rounds is decreasing, means rounds are getting bigger, means valuations are getting higher because people outcompete each other with higher term sheets. Item sheets with a high valuation.

01:46:14:08 - 01:46:35:21

Marc Penkala

And, that's the beauty about a down market. Less money, less pressure, more time, more conviction building better deals. And, it's the money is flowing in again. It will stack, stack, stack until we have this weird situation that you have, I don't know, X billion dollars in dry powder is only in Europe, which has to go somewhere.

01:46:35:23 - 01:47:01:24

Marc Penkala

It will attract stupid people, building stupid companies, receiving money. Just stupid money as well. And the great people will be hunted down by the great funds with outside valuations and droughts. Which leads to the next problem. You have to create $30 billion company to actually make these companies somehow, relevant in terms of returns. And, it has been like that will be like that.

01:47:01:24 - 01:47:15:00

Marc Penkala

And, if I would say whether we learned out of the last, I would call it friendly correction, or, step back. maybe. Yes. But I thought.

01:47:15:02 - 01:47:18:20

Christian Soschner

Let's keep playing the game. Is this how we grow at the end of the day?

01:47:18:22 - 01:47:33:24

Marc Penkala

Indeed, indeed. But but I mean, it happens in the US as well. It's not a European phenomenon. Right. So and, here again, people live up this FOMO. They are afraid that they missed this next big deal. So they take stupid decisions.

01:47:34:02 - 01:47:57:17

Marc Penkala

When I look at the tech markets, in the last 40 years, Europe, US, and now we have, emerging markets, I mean, Southeast Asia is very big. I mean, and, hello. And also that's, the Middle East, as a thriving venture scene, Saudi Arabia, Dubai, they attract a lot of capital and, it's all over the internet currently.

01:47:57:21 - 01:48:07:22

Marc Penkala

So many, so many people traveling to these regions. how would you position Europe in this global game? What are our strengths?

01:48:10:11 - 01:48:35:12

Marc Penkala

very simple. We have, intellectual and technology advantage. So in certain sectors AI, machine learning, quantum cyber, biotech, longevity. We have certain edges with very, well educated spin offs, coming out of great universities. So the intellectual property we have in Europe so a bigger strength, our biggest weakness is we don't have too much capital to do it.

01:48:35:14 - 01:48:53:01

Marc Penkala

Going to Middle East to have a lot of money. They have a lot of capital. It's endless somehow. but they don't have the talent and they don't have the ecosystem to build great companies. So eventually money will always flow where the talent is. So that's what we've seen as well. Lots of money is coming from Middle East to Europe.

01:48:53:01 - 01:49:08:08

Marc Penkala

A lot of money is coming from the Yes to Europe because that's where the talent is. when you look at us, they have somehow both they have strong talent and they have the money. That's why this market is like kind of a perfect match when you think about, Latin America, more and more education is coming in.

01:49:08:08 - 01:49:27:14

Marc Penkala

People from Latin. I go to the US, it's the backyard, get the education, but get companies what they've seen in the US and replicate them. Money from the U.S is flowing in. So that's why this market has been striving for that. Yes. If you look at Southeast Asia, they don't have that is still very emerging. like similar like Latin America, but they don't have the U.S as a backyard.

01:49:27:19 - 01:49:45:24

Marc Penkala

They have China's a backyard China market. So accessibility for capital, it's becoming lower throughout politics. So this market will still eventually thrive. But I think it will, do so slower due to the lack of actual talent and due to the lack of money, which is actually nearby. Either it's in Singapore, it's international or Hong Kong. I've done it.

01:49:45:24 - 01:50:06:22

Marc Penkala

This in China, which is still kind of locked up. so the perfect storm definitely is in the US because to have both and both is accessible, right? That, Europe has just to pick up, their pace when it comes to actual liquidity in the market for these kind of cases, because we have to talent, we have to market and we have to the the chance to build companies.

01:50:06:22 - 01:50:10:16

Marc Penkala

But the global footprint, we just don't have the risk of.

01:50:10:18 - 01:50:15:23

Christian Soschner

It's a great opportunity for fans at the end of the day then and for piece.

01:50:16:00 - 01:50:38:18

Marc Penkala

what a time to be alive to build a fund distance, investing in a down market with this kind of intellectual property. We having over here, let's guys as money. so, everyone who asked us to raise a fund these days and deploy it in the course of next ten years will likely have above average, returns.

01:50:38:18 - 01:50:50:07

Marc Penkala

Asma, I definitely believe that. Yeah, I believe that as long as we don't shoot in our own knees, and we keep the markets growing and setting regulations. Right. I'm pretty sure that Europe.

01:50:50:09 - 01:50:55:19

Christian Soschner

Has a certain degree of political, securities, but, let's see about that.

01:50:55:21 - 01:51:22:09

Marc Penkala

When it's really amazing talking to you. You know so much about the venture market. I'm really impressed. And, I love learning from you. we have eight minutes left. I know that you have some, I do applications as well. in this game of investing, when potential apps and startups listen to your episodes, let's talk about how you position your fund in the market for the next ten years.

01:51:22:09 - 01:51:28:09

Marc Penkala

What kind of startups are you looking for? And what's the promise that you can make to any piece?

01:51:28:11 - 01:51:29:02

Christian Soschner

Yeah.

01:51:29:02 - 01:51:56:20

Marc Penkala

So first of all, we thought about like, when we, started thinking about altitude. What kind of fund are we going to build? It's to serve one hit wonder. it's just something we're going to do for the rest of our lives. We hope so. and, how our future fund is going to look like. And we looked at many funds and how they succeeded and became what they are, how they build as a brand to community and an ecosystem for themselves and to just a small set of these funds have managed to do it successfully over multiple vintages.

01:51:56:20 - 01:52:18:10

Marc Penkala

A good example is point nine Sustainable Park. You always do what you've done, Oaks and source and marketplaces with the same size of funds. So one thing was pretty clear for us. We want to say in the same ballpark we are, we want to master, this domain. We want to, gain domain expertise and want to become, the go to fund for SMB tech in Europe, Europe.

01:52:18:10 - 01:52:53:05

Marc Penkala

I think here again, it's when in the kindergarten stage of where the market's going to develop. So our value proposition two towards a piece is by building a brand, by building the community and by building the domain expertise and knowledge, we will be eventually to go to fund for early stage startups to actually receive funding for. Because even though you're a very small founder, and you have a great idea, you will be lacking eventual part of, what you need to become successful at an early stage, especially in SMB, when the second tier, it's mostly about go to market.

01:52:53:07 - 01:53:13:12

Marc Penkala

It's your cock and LTV ratios. it's churn rate, it's average contract values, and actually how to master this in combination. So what we are specializing on is not giving money. There's a lot of money in the market. Why are we getting into rounds. And even though there's no VC, all the VC may be trying to get to this round is exactly that particular domain.

01:53:13:12 - 01:53:32:19

Marc Penkala

Expertise and knowledge. Beyond that, we have very strong financial modeling and building strong, compelling financial models for the startups and helping them to enable them. And last but not least, as we like in this industry for over decades, we have very well networked. So we have access to the funds, which actually by nature to the following funding.

01:53:32:21 - 01:53:46:04

Marc Penkala

And this is just a value proposition we're doing. We build a platform going hand-in-hand with the community after domain expertise, plug this into the startups and then build great companies, which we can hand over to bigger B2B funds to be investable.

01:53:46:06 - 01:54:01:13

Christian Soschner

It's great what you describe yourself as, more a Warren Buffett style of investor leaning back, waiting for for the money coming in, or more an activist, investor that's, actively manages, companies and portfolios.

01:54:01:15 - 01:54:21:22

Marc Penkala

Yeah, I, I'm total fan of active management. active management has a limitation. You have to pick the right founders who want to be actively managed. There's founders which have the high risk. They can do it all by themselves. They don't ask for help. I would always be a little scared to invest in them. even though they can build great companies, we will never enforce somebody to work with us.

01:54:21:22 - 01:54:38:20

Marc Penkala

If somebody is so mature and good and we can help them. We were the first fund raising our hands and stepping back. we would call on it. We are as active as we can be if we allowed to be. So and I think, SBC, at some point you have to be active, especially when it comes to divesting.

01:54:38:22 - 01:54:57:22

Marc Penkala

So you have a very simple mandate to take money from people, invest in startups, and you have to return the money at some point. So at some point of time, the course of the cycle of a fund, you have to actively start thinking about divestment. So what many funds two estate hire divestment managers, people coming from PE, from public markets?

01:54:58:02 - 01:55:17:17

Marc Penkala

we are very exposed trying to think about how to divest a portfolio. And this will be a part side of being active, an investment period, being very active in the divestment period to kind of make sure that in time. So the term of the fund, you can actually create liquidity for your piece. And so I would consider myself more active than lean back.

01:55:17:17 - 01:55:34:19

Marc Penkala

Just you know, there's two philosophies companies get bought, okay. Companies are being sold at the Leaf and venture capital. So you have a natural limitation time, that companies are, being sold. So you actively have to proclaim to sell these companies.

01:55:34:22 - 01:55:44:02

Marc Penkala

What's what's your secret sauce then how do you cover then the potential bias, constantly that you are in touch with, potential, acquisition partners?

01:55:44:04 - 01:56:05:20

Christian Soschner

Yeah. As I said, like, we are building a very strong network, especially in PE. So we love our space in particular because of that, the actual buyer is a buy and build consolidation strategy from piece or corporate buyouts. And as we're not depending on having like 3 billion exits, on public markets, our natural exit is strategic buyer peace consolidation.

01:56:05:22 - 01:56:26:12

Christian Soschner

So we're building, networks and strong strengths with exactly that part of the ecosystem to have not only access to them, but actually to accelerate the selling or the acquisition process at some point. So for us, it's the same target group as our, startups. They sell to SMEs. And these SMEs are the likely, buyers from these companies or enterprises.

01:56:26:14 - 01:56:36:05

Christian Soschner

And the other hand, it's piece and that's what we kind of build our networks, to be prepared at that point, once we are like in a position to divest, hopefully.

01:56:36:07 - 01:56:48:05

Marc Penkala

That's great support for startups, then they can focus on building their customer base, building that tech, and you support them. Then, further down the road to capitalize on the assets they have built?

01:56:48:07 - 01:56:49:23

Christian Soschner

We hope so. At least.

01:56:50:00 - 01:56:55:09

Marc Penkala

I believe that in the last three minutes. Mark, is there anything you would like to address?

01:56:55:11 - 01:57:06:08

Christian Soschner

No. We covered so many topics. and so many great questions. So, it would be hard to, to add something which is missing because there was nothing missing in my house, at least.

01:57:06:10 - 01:57:30:22

Marc Penkala

Mark, I love this conversation. You have such a great knowledge about venture investing. in Europe and globally. I have a lot of questions that I could ask, but, maybe we have a follow up, in one year or so and see what happens. Stand in the world. Upside laughed every single minute. And I wish you all the best for your fans, your startups and moving forward.

01:57:30:24 - 01:57:38:05

Christian Soschner

Because it was my great pleasure. Thank you very much. I really enjoyed it. And it's incredible how fast these two hours kind off.

01:57:38:07 - 01:57:40:18

Marc Penkala

And time flies when you have fun.

01:57:40:20 - 01:57:42:17

Christian Soschner

Right? Thank you very much.

01:57:42:19 - 01:57:46:24

Marc Penkala

Mike. Enjoy afternoon. Have a great time. See you. Bye.

01:57:46:24 - 01:58:17:11

Christian Soschner

In today's episode, Mike and Kayla shared game changing insights on how the best companies are born in down markets. The importance of thinking in billions rather than millions, and wiping rank more often can actually lead to higher returns. Human capital. He also reveals the contrarian strategies that set successful investors apart. Hence the critical mindset shifts needed for European startups to truly compete on a global scale.

01:58:17:13 - 01:58:33:21

Christian Soschner

If you found value in this episode, make sure to like, comment, and share. Your engagement helps the show grow and brings in more incredible speakers like Mike will deliver these powerful insights

01:58:33:21 - 01:58:35:15

Christian Soschner

for free for your listener.

01:58:35:14 - 01:58:54:23

Christian Soschner

Remember, success isn't about avoiding failure, it's about learning from it. Taking bold, calculated risks. The road to extraordinary achievements is often paved with setbacks, but those who persistent adapt are the ones who ultimately thrive.

01:58:55:00 - 01:58:58:15

Christian Soschner

Keep pushing boundaries. Stay curious and think bigger.

01:58:58:16 - 01:59:07:13

Christian Soschner

Thank you for listening. And until next time, stay motivated and keep reaching for those billion dollar goats.