Investors’ stomachs have been full for the last 2 years
Tensor Ventures Daniel Hastik on why quality not by quantity matters in the pipeline
Dear investors,
This is Anastasia from Emerge Club. It’s been a while since we last spoke. Welcome to the third issue of our Substack. For these biweekly newsletters, the ex-Forbes deputy editor-in-chief and ex-head of Forbes Under 30 (that’s me) handpicked great investors’ stories, global VC trends and news for the past two weeks, as well as investment opportunities and invitations for online discussions.
On September 7th, we held our thirst EMERGE Club online meetup. We invited Bas Godska, the Founding Partner at Acrobator Ventures and Karén Gyulbudaghyan, the Founding Partner at Strategic Value Ventures to discuss what’s coming next for founders and investors. The guests shared their opinion on what the future holds for startup founders and investors amidst these dramatic VC fluctuations. Check our discussion here and follow the upcoming events.
I hope you remember the rules of the Club — every issue I talk to one of the most successful and influential investors and angels from all over the world asking them to share their insights and experience. This issue guest is Daniel Hastik, Partner at Prague-based Tensor Ventures.
Traditionally, let’s start with what’s hot on the VC market. Here are some handpicked VC news and insights which attracted my attention in the past two weeks.
VC findings for crypto startups are dropping noticeably compared to the previous year. It is also becoming harder to raise funds for crypto. Although at the beginning of the year, there were at least three big crypto funds launches: Haun Ventures with $1.5bln across 2 funds, Electric Capital with $1bln for 2 funds and Andreessen Horowitz with $4.5bln. By the second half of the year, several venture firms faced difficulties to raise funds, especially after the blowup of FTX. The Information picked up the hottest deals, debuts and moves in the crypto industry. Check it here.
Venture winter is still with us and huge down rounds happen. Getir, a Turkish grocery delivery startup, slashes its valuation 4X to $2.5bln after raising $500mln from the previous investors Mubadala Investment Company, G Squared, and Michael Moritz, a former Sequoia Capital partner. The company has been struggling with money issues for months. Since the beginning of the year, Getir has withdrawn from four markets — Spanish, Italian, Portuguese and French.
Last weekend everyone on X (ex-Twitter) and Substack was talking about Walter Isaacson’s biography on Elon Musk. Opinions polarized. For example the former executive editor of Fortune Magazine Lashinsky sarcastically names Walter ‘an elegant stenographer’ saying, “He provides little analysis, next to no investigative research and positively zero condemnation for his subject’s behavior, no matter how odious it may be”. On the contrary, The Insider is neutral, saying that whether you love or hate Musk, you will find proof in the book for both. Having read all the opinions, I am set on reading the book myself. If you want to know more about the book, check some X threads.
Some exciting news comes from the West. A Japanese venture fund Nordic Ninja founded in 2019 has just raised €200m-fund and is opening an office in London. According to Sifted, the fund focuses on Series A investments with cheques between €2.5m and €10m. The main focus is on deeptech and hardware. On the new European market, Nordic Ninja will focus on the strengths of the local startup ecosystems. Who are the LPs? These are Japan Bank of International Cooperation (JBIC), a Japanese public financial institution, European investors BaltCap and Swedbank Investment Funds, as well as Japanese corporations such as Honda and Omron. It seems like the fund can offer its founders access to Japan’s corporations and business network.
Do you agree that we are facing a corporate VC boom ahead? The likelihood is high.. According to PitchBook and The Information reporting, this year Ndivia has already made 20 investments in venture-backed startups, which is a lot during the recession. For comparison, one of the most influential VC firms Tiger Global Management invested in 30 startups this year. Nvidia — quite an old company — mostly invests in AI startups. According to Kate Clark from The Information, these deals help the company to earn loyalty from AI companies because most of them are Ndivia’s customers.
That’s all for the VC news. The topic of today’s issue is Global VC trends, raising funds and building the deal flow. I talked to Daniel Hastik about the downturn in the venture capital industry, raising funds for seed and pre-seed, building deal flow pipeline and certainly about investors’ fuckups. So, giving the floor to Daniel!
💡The state of the VC market
I think investors’ stomachs have been full for the last 2-3 years. Most of the funds have been somewhat separated from what’s happening, meaning the IPOs and valuations slacking down in various segments like in the fintech or crypto blockchain space. So the market rapidly slowed down, I think maybe 30-40%.
Opening a new fund is almost impossible these days, LPs are more reluctant actually to deploy their capital. Commercial and enterprise-level LPs are not giving that much money to new funds. There are always 1-3 big topics overall for the fund perspective in let's say three to five years. Everything used to be about blockchain, now it's all about AI, and I think as soon as you hear this, you know the topic’s bygone already. So, it's very hard to predict what's going to be the next step or the next hit. Another thing I see is aggregating funds into each other, especially from a smaller perspective — $10 to $30 mln. And the bigger funds are actually deconstructing themselves. Sequoia set up separate funds for each of the verticals, for example, global geographical footprint — one fund for Hong Kong and Southeast Asia another for Europe.
So it's interesting to see maybe the operational part of this process. The bigger you are, the more deconstructed you'll be, so managing will be much more challenging. The smaller you are, the more chances you’d rather join somebody with more experience and move together.
💡Starting a VC fund
If you are a first-time fund manager, it's almost impossible to raise because you have no traction, no visibility on the market and no name. Things are easier if you are a successful entrepreneur and you join with other LPs. If you are a second or third-time fund manager, I would say it's roughly 30-40% more difficult to raise than it used to be before. Although the money is minted in surplus now and inflation is going up, people are allocating their capital into different slots. Despite this, you can still raise money for the fund from individual, not institutional investors. If you have a bunch of friends who exited their technology companies during the last three to four years, they still have money. So if you know them, it's obviously easier for you to raise funds. But I would say if you want to build a solid portfolio of LPs, you definitely need to have institutional investors and a more sophisticated approach to building a fund.
💡Building a deal flow pipeline
We go by quality not by quantity. We go by certain networks to be honest and go by what we call ‘local mafias’ — to successful entrepreneurs and to early-stage founders who build their new companies after successful exits.
One of our strategies relies more on the trust and present network, fellow investors’ network as well as angel networks which generate their fair share of deals. We’d rather hunt than be hunted. We invest in deeptech and specifically in quantum computing. The investor pool is not that big as you have for ecommerce or marketplaces. You have to be a node in the network, then you have trust and you can work with those companies more closely and we’d rather wait and hunt. There are a lot of deals, but it is nowhere near the 10X of last year.
💡What to look at when you invest: tips for the investors
history, reputation, references
how many times the particular founder went through harsh business events in his or her life
relocation experience, studying in a different language
having a family and kids, which shows the ability to overcome troubles
knowledge of the subject, so he or she has to know what he's talking about
the purpose why they are doing it
These points are 70-80% of success. Product can change, market can change, numbers can change, but not the charisma, ability to lead, soft skills, knowing how to hire and fire people, and how to talk to people. We would bet on these things in the seed stage. If we go up, obviously, Series A and beyond, we value the skill of building teams, being able to calculate things, delivering product excellence, which become more important. But if it's a seed-stage founder, we definitely look at the characteristics of the founder itself.
😮A fuckup story
Almost all portfolios of the VCs are full of fuckups. Most of the stories you read in Forbes magazine are pure PR. I’ll share one from our perspective. In my last fund, we had a company which was in the travel tech business. It's a classic story of when COVID-19 hit, the founder basically collapsed. He had 35 people in the company and being an equity holder, I personally had to help him actually fire half of them on my behalf. The irony of the situation was most of those people had never seen me before.
We sometimes also underestimate other investors in the pool. So when we were asking about the seed stage, I would urge to actually have the same due diligence on other investors in the company. We had many fuckups in this field. Sitting on the board meetings and not actually being in line with other investors and kind of shooting for our own references, that could be it.
Daniel will be at EMERGE in a fintech panel together with speakers from Revolut and Checkout.com. You can have a personal chat with him, and that's a good reason to purchase your ticket now with a 30% discount! Use a special promo code for tickets — CLUB30.
Thanks for reading! Feel free to express your interest in specific topics you'd like to see covered in Emerge Club’s newsletter. Many thanks to everyone who has filled out our first survey. If you haven’t shared your thoughts about this newsletter and topics you’d like to discuss, please do it! The EMERGE Club newsletter survey takes just a couple minutes to complete.
I’ll be happy to hear from you.