The last two years have been brutal: discovering a market need, building the product fit, testing it (omg does it work?!) and launching it. Unlike a mobile app prototype-- which for zero dollars a splash page can be set up with fake screenshots and nobody bats an eye -- setting up an investment fund, particularly a fund-of-funds, requires copious amounts of legal paperwork and it’s about 100x more paperwork than any standard venture capital fund is required to do. We’ve done this, and at the same cost of a VC fund that’s around $50MM in size. Add in immigrating to Europe, dealing with LPs (investors) from all over the world and a diligence process that would make any American VC pass out: if I knew how hard it would be from the beginning, would I have done it again? Probably not. But once a soldier is in the trenches it’s too late to ask why, instead, how do I win? Taking a Silicon Valley approach to European venture investing is one of the greatest blessings and advantages I think my firm has, and like anything new and disruptive it will not look or act the way everyone suspects.
Venture capital by definition is an asset class that attracts a certain personality type. The industry is built on hype and that is both what is fantastic and tragic about the space—you want fund managers who can hype and communicate quickly, to pump up and evangelize their investments, in this case their startups. At the same time, VC fund managers are the first to panic if not texted back within minutes, smaller funds are often disorganized, and depending on the fund size (usually the ones $100MM or under in size, particularly the ones around $30MM) are the first to send both love and hate. To not understand their own documents and to stress. With experience this gets better over time; its not something that be rushed, downloaded, or learned. As a fund-of funds specializing in early stage venture capital, the thng which is most valuable to investors who are large institutions is getting into smaller VC funds. At the same time dealing with smaller VC funds can be painful, and thus my value as a FOF manager is often to absorb the pain. And like most debut fund managers I’m learning at the same time as investing, yet instead of making mistakes on startups (usually $250,000 a pop) I have to learn how to make mistakes on entire VC Funds ($5MM a pop). If that isn’t enough to make your stomach curl, image what it’s like doing this, half-way across the world from all your family and friends, and sometimes in a different language. Gulp.
Europe is a B*tch
The other day our Amsterdam office was too cold and I needed to turn the temperature down. To do so, as I was told, I would need to read a 57 page PDF manual on the building, find the reference to temperature control, find the mobile app mentioned, download said mobile app, get a login username / ID from the building, email with IT to get it activated, revisit the mobile app, and about five hours later I was finally able to turn the temperature down my office. While running a fund. If this is not symbolic of what it’s like doing business in Europe, I don’t know what is.
Everything which should be simple here, isn’t. Getting talent is impossible or hard. Any time I have made an estimation of any timeline I have been off, and if you try to get upset or put pressure on anyone around you in Europe, the Silicon Valley "VC hype" attitude does not work at all. People take holidays. People do not like stress. There is not a Postmates around the corner. You cannot use most on-demand apps in Europe to fill any gaps… you are completely on your own. When you are in a country dealing with different cultures and languages, with 1/1000 of the resources you are used to it’s not fun and if you even try to “American complain,” the first response you will get are blank faces.
Working in venture capital in Europe is like being on Mars
explaining why people need to dig into the dry dirt to put in plumbing pipes:
until someone experiences running water, its very hard to sell
Europe is Opportunity
On the flip side to America, Europe is filled with massive opportunities. Most Startups here come out the gates with revenue. The idea of being venture-backed is novel and companies here are more sustainable in their growth. There are a couple of European startups I have been mentoring, who are high growth with sometimes 100,000 mobile app users or $100,000 a month in reoccurring revenue. You can tell them to meet with VC firms -- but they don’t, they build. It isn’t until the actual moment they need capital to speed up growth and have hit a wall that they call. Just this morning a startup called me “what should I do? I think we need venture capital?” It was tough to respond because I had introduced nearly a dozen venture capital funds to this founder over the last two years, which he could have cultivated a relationship with. Instead he took one meeting and hit a dead end. Now he asks “how do I raise money?” I felt choked up. He’s had all the right contacts and over a year to get closer to these relationships but that’s not how Europe works. Europe is skeptical. Europe is paranoid. Europe does not like newcomers. Except when it’s time (sometimes too late) to raise money, European founders panic… what should I do? And it’s hard to explain that they have had the solutions in their hands the whole time. This is Europe. This is where things currently stand.
Europe has Capital, But it’s Different
Netherlands, for example is one of the world’s richest countries with massive amounts of capital in reserves.Its banks, pensions, and family offices are just now getting around to what the U.S figured out a decade ago. It doesn’t mean Europe is late, on the contrary I think Europe is getting ripe. Now instead of spending weeks of time and dozens of thousands of dollars circling investors in San Francisco, European founders can raise money locally which means no waste of time AND no ridiculous and over-hyped startup valuations. Europe is cash-on-cash, the only points here which matter is money not users. You could have two startups doing the same exact thing, one in Germany and one in the U.S and while the European one might have a lower company valuation they will make the money go further and have an even better chance of an exit because European investors are not expecting a 20X on an overhyped valuation but 10-15x on a REAL income related valuation. For this reason and others I actually think both Europe, and Netherlands specifically, is geared up to make a great amount of profits in venture capital; it just needs to get its momentum. It’s the reason why early movers in the European VC space are on top and why as of recently, Europe has more Unicorns (billion dollar company valuations or higher) than ever before and maybe even more than the U.S itself.
We have already seen how the path to IPO can be not ideal for venture capital—it takes a lot of money and longer periods of time with no guaranteed output—yet, as most know the sweetspot for being acquired is at the $100MM or so pricing which means startups which are getting funded at the Seed level here have a shot at being acquired or exited within their next 1-3 years post funding. Not a bad setup at all. Europe is filled with capital and opportunity; it’s just a matter of connecting the dots. That’s what our fund is doing, but it’s painful. Pain is not a virtue its a value, and as time passes I realize the value of my fund is to absorb the pain. Make it easy on our investors. Make it easier on our investments.
Earlier this year, as a first time fund, we had to go through a very rigorous process to have our full fund underwritten and diligenced by a couple of the world’s largest banks. They asked for everything, every tiny paper, every notary, every line of finances. At one point there was a two letter typo on ONE page out of about 5,000 pages of stuff and we had to update that one page. That single update alone probably cost us about $5,000 between the various lawyers who had to do it. When I called around to other fund-of-funds and experienced venture funds to complain, everyone just shrugged “yup.” It wasn’t news at all and there was zero sympathy. When we had to send our entire fund’s strategy and commitments to some large LPs, including some who would replicate us if they wanted, I didn’t get any sympathy there either: “That’s how it goes.” When I further went to complain I later learned that the process my fund passed through with flying colors in six months normally takes eighteen months! A Dutch based FOF called me for lunch two weeks ago and I was super excited to ask them some specific questions about their diligence process, because we would have the same investors, and when they came into my office they asked for a job. Their fund didn’t pass the diligence that my fund had. It turns out slow and steady does win the race.
We moved into a new office space in Amsterdam. I went looking for our office invoice via email and couldn’t find it until I contacted the office, and apparently they send invoices but do not mention the building name or have the building name in the email address. If you searched an inbox looking for it, it would have never been found. We ordered printer ink online and after a week it arrived (despite paying extra on Amazon Prime) and it was the wrong size for our printer and hence useless. When we posted for job openings asking for Dutch native speakers we got 98% non-Dutch speakers; most Dutch persons with the background we wanted are instead taking the safe path of multiple masters degrees and pursuing jobs lined up by their families. When I try to explain all the obstacles we deal with in Europe to my American colleagues it simply doesn’t make sense, its unfathomable, can’t be true… but it is. And despite all this we continue to move forward. One step at a time. My fund started investing into venture capital funds last year and as the fund grows we learn more about how to adapt our strategy for a large fund of funds. I haven’t personally gotten a paycheck in the entire time of the fund; founding partners are usually the last to be paid. And so, as I get to work with my New York mentality expecting to accomplish 80 things in the day, I have learned to be content with getting 10 things right.
Are we behind schedule to launch our first fund and meet our commitments? Yes, we are. But this isn’t a mobile app prototype that I can simply trick people into downloading for vanity metrics, this is an investment fund. While Silicon Valley has the mentality of “f**k it, ship it” Europe has the mentality of “build it, and build it well.” All the roadblocks and inconveniences, in a way, seem like a system for keeping me more mindful and more thorough about how I build this fund. It is simply not worth doing anything in Europe unless you are going to do it right, do it well, and do if for the long haul. Europe is not in the mood for any short term sh*t, so leave your American sales mentality at the door, and drop the accent too if you can.
Do I feel rushed by the expectations of everyone? Of course, especially the pressure from America where all the infrastructure is already there. The U.S will never understand the movement which Europe is currently going through, and despite all these hardships I still feel excited.
Last week we hosted one of the first ever “VC Nights”in our building and in two weeks notice over 100 people came to learn, in Netherlands. Reminds me of when I moved to New York circa 2011 everyone told me New York was a waste too, and now look at that startup community? I remember calling Women2.0to mention I wanted to start hosting female founders nights and I was told there likely wasn’t enough female founders, in New York. Within a couple months we built out a 200-300 person monthly event, selling out weeks in advance.
In the meantime, we will be building what needs to happen. There’s no point in building something short-term when there is an entire continent about to break into an untapped asset class, which needs our product. I simply have to keep building. Am I late? Yup. And I’m the first one to admit it. Just like a soldier on the front lines, I see the sky clearing and the magic happening here in Europe and I if I had put my finger on it, it’s hope. The breakthrough is just around the corner.
As a professional project manager I’ve lived my life attempting to launch projects on time and on budget. In Europe however you simply cannot plan the same and make the same assumptions as New York or Silicon Valley. If we only have one shot, I’d rather be late and the best, than not in the race at all.
Afterall isn’t it the turtle who won the race against the hare anyway?
Ellie Cachette is the Managing Director of Cachette Capital Management and experience entrepreneur now living in Netherlands. For more information or links see www.elliecachette.com or www.cachettecapital.com