Ep 181: Andreas Helbig
How AI Affects Your Attractiveness to VCs, Are We Entering an Era of Billion-Dollar Fundraising & Why European Tech Should Stop Underestimating Itself
Andreas Helbig is a partner at Atomico, one of Europe’s leading venture capital firms, focusing on B2B SaaS, vertical SaaS, and B2B marketplaces. With extensive experience in the tech and investment space, Andreas leads Atomico’s coverage in the Nordic and Baltic regions, helping to drive innovation and scale in some of Europe’s most promising startups. One of Europe's Venture capital juggernauts, Atomico announced a massive $1.25 Bn raise across 2 funds just a month ago.
On this episode we talk about:
How AI is transforming businesses and why founders need a clear AI strategy.
Atomico’s $1.2 Billion Fund
Why startups without AI can still be attractive to investors and how to stand out.
The importance of founder-investor relationships and how they can impact success.
The differences between the US and European tech ecosystems and their potential.
Insights into how startups can scale efficiently and manage the challenges of growth.
We are on YouTube and Linkedin as well
Watch select full-length episodes on our YouTube channel > https://www.youtube.com/channel/UCP6ueaLnjS-CQfrMCm2EoTA
Connect with us on Linkedin > https://www.linkedin.com/company/pursuit-of-scrappiness/
Read the full episode transcript below
Janis Zeps (00:03.994)
Hello friends, we're back with another episode of Pursuer of Scrappiness podcast. We're building a business, running a team or just starting out in your career. We're here to bring you scrappy and actionable insights to help you become more productive. My name is Janis Zeps as always, with me here, Uldis Teraudkalns as always. Hey!
Uldis (00:18.399)
in a shocking twist of events.
Janis Zeps (00:22.128)
Before we start, another shocking reminder that you have heard multiple times, but it really helps us and it would help us if you would subscribe and follow us on YouTube, Spotify and Apple Podcasts. It helps more than you know and in exchange for that, always, you'll find a catalog of 180 episodes already there covering all sorts of topics you need to become a scrappier and better version of yourself in life and business in all areas, but mainly life and business.
Anyway, so plenty to explore if this is your first episode, Recover Evergreen Topics. And by following us, you will be the first one to know when a new episode drops on Tuesdays, as always, as clockwork almost for three years now. Spotify, Apple Podcasts, click the follow button. Today, let's dive into today's topic. And if you've been around and observing what's happening in the world of tech in the last few weeks, and I'm sure you have, 2024 has brought a very interesting and eye-catching
fundraising announcements from all over the world, US especially. Several prominent AI startups are raising now rounds of one to six billion USD, enormous amount for companies that sometimes are just months old. Are we entering a new era with these? And if your startup now aims to raise five, 10, 20 million, will you be able to compete? All those questions probably are on your mind and also ours.
We thought of addressing these questions to people providing and underwriting these checks, DVCs. they've also been raising bigger funds to fund those capital hungry startups. Closer to home, one of Europe's capital juggernauts, Atomico, actually announced just a month ago, a massive 1.2 billion raise across two funds, but still very massive raise. it's still, even exceeding 100 million fund is a very...
achievement for a fund. this clearly prompted our curiosity about what's actually going on, how this capital will be deployed, how are investors actually looking at your product, if AI is part of it or is not part of it, does it affect your attractiveness? So yeah, today we're very happy to have someone from Atomico to answer these questions and more. We're happy to welcome Andreas Helbig joining us today. Hey, Andreas.
Andy (02:37.656)
Hey, and as I say all this, thank you very much for having me back on the show. This time virtual, last time in a small room in Riga. I'm not sure what I prefer, but it's great to be back.
Janis Zeps (02:42.458)
Yeah.
Janis Zeps (02:47.312)
No, it's awesome that you're back, actually one of the returning guests. We don't have that many. And as true as you mentioned this, we first met in Tech Chill with a very different setup that we normally have in person. Yeah, Andreas is partner at Atomico. He's focusing on B2B SaaS, vertical SaaS, B2B marketplaces. And he's also leading Atomico's coverage in Nordic and Baltic regions. So exactly the area that most of you are, I guess, very interested in. We spoke first actually.
2022 if you want to scroll back episode 64 in our feed very interesting time when capital was But it investment climate was changing after after kovit boom, I guess interesting memories, but like today we will discuss the
Uldis (03:26.716)
in that room it was changing as we were speaking it was it was you know in the air
Andy (03:29.624)
Witnessing history.
Janis Zeps (03:29.764)
As we were recording. And today what we want to discuss, obviously the giant 1.2 billion raise that Tomago has just announced. We will talk about the ubiquitous AI presence in startups. How does it affect your attractiveness? How do investors look at startups that have or don't have AI in their pitch deck? We'll discuss differences of US and European scene a bit.
And also we'll delve into what has made Atomico so successful over the years and also maybe what challenges are top VCs facing in 2024. A lot to unpack. So yeah, let's kick off. Just to maybe to warm up. In 2024 now, when VCs look at the startups and their pitch decks, do you consider startups that don't have AI in their title or pitch deck in some form?
Andy (04:24.6)
Yeah, I think that was a fantastic question. The short answer is yes. And there's going to be a longer and hopefully slightly more thoughtful answer provided as well alongside that. Look, I think it's fantastic to see a real paradigm shift. And if you think about technology and its real purest sense, right? It is enabling something, it enabling a workflow and automation
doing a thing that just wasn't possible before. And I think AI is one of the things where we're really seeing that this is actually live and this is actually happening and it is helping so many professionals around the medical domain, each and every one of us if we're, I don't know, using JetGPT to plan our vacation or for lawyers, throughout supply chain management, there's like so many aspects, so many applications that we're seeing where AI is having a massive impact.
Which is not entirely new. I would say I think it has definitely been accelerated ever since chat GPT-3 came out but Where and well clearly made it made it more more suitable and more more palatable for the masses and really yeah spiked a a true innovation And true innovation spirits amongst great founders building great products and therefore I think
anyone who's building, anyone who's in business needs to answer a question to themselves on what AI means for them, how they can use it to run their business more efficiently, add new products, find a wedge to sell your core product. There's so many aspects and so many things of what you can do. And I think it is a great sign in founders to identify these trends. I don't think it's that hard to identify AI as a trend, but to identify these trends and then
make them most useful for you. Either you have it at the core or you have it a bit more in the periphery of your value proposition. But it is relevant that you have an answer on what that means for you as a business leader. And this is the way that we're looking into this. So as you jokingly asked the question, I think we would always still consider businesses that don't have AI in their very core or in their tagline whatsoever, because there's still so much opportunity outside of AI as well.
Andy (06:43.926)
But if you as a founder, if you don't have a clear answer on how AI is changing your business or how you can use AI to your advantage, these are exactly the kinds of deeper conversations that we're having with founders in order to figure out how they're leading their business, how they're thinking about building the company. so yeah, this is the answer on that. But I think even if AI is not in your tagline, even if AI is not in your core product,
There is definitely still hope to be able to raise rounds, even though, I think what you hinted towards and happy to dive into that, it's clearly a bifurcation of the market on where AI products can just attract more investor interest, can command higher valuations, just by the sheer virtue of them having a large potential to fundamentally change an industry. And that's the market that we're in right now.
Uldis (07:38.583)
Well, I think it was just a great point you make that that even if you don't have AI in your pitch deck, I mean, you have you need to have it in your strategy, either how you are going to use it or how you're not going to use it and how it's not going to destroy your business by others using it. So I think that's a great point. And there's different layers of AI and how it's being applied. And I was wondering, how do you think about, you know, true innovation versus
just a smart application using, you know, something somebody else did and packaging into the nice way. Yeah. And without much, say, without much, let's say, own intellectual property, but packaged in a, in a way that it sells and they will show you attraction and it sells, but you clearly understand that it's not defendable because they haven't innovated almost at all.
Janis Zeps (08:15.176)
building something on top of OpenAI.
Uldis (08:35.967)
Like how do you look at such cases?
Andy (08:39.754)
That's a super interesting question because there so many layers to that and I could probably talk about that for ages. So please stop me in my tracks. But I think there's so many different forms of entrepreneurship, just so many different forms of how businesses can be built. Some of them are really operating on a very foundational layer, building a true foundational model for languages, for translation as one of our portfolio companies, DBL for example is doing.
Overs are building a domain model, really taking still quite fundamental research, but applying that to a specific domain. And others are, as you were saying, just quote unquote on the pure application layer and are only making use of the technologies that are provided through other sources, through other, well, technology suppliers, if you will, if you think about this in very old ways. And I wouldn't discriminate, and think it's a very, I think it's actually,
It would be a cruel thing to say that one is better than the other or wars one is more More interesting than the other or one is worth more than the other because there's so many ways of how you can build and how you can run a business I think if you're very technical when it probably makes sense to to to apply your talents in a in a way of how you try to drive a bit more more fund foundational or infrastructural Value, but if you are more execution driven more iterative
type of founder, type of personality, then there's also like we would most certainly consider cases that you might initially call a rapper to use the word that everyone's using. And I think every business is a rapper of sorts, depending on how thick the rapper is. And it can be a fantastic stepping stone into a wider product suite, right? Like you can make, I don't know, you automate a certain smaller piece of the value chain like
I don't know, like certain document ingestion throughout the supply chain, just to give an example, where you're completely relying on other fundamental technologies in order to build that kind of product. But then you could use that, I don't know, to build a data exchange hub throughout the supply chain. And that is an actually, so with the first product is your wedge in, and then with, we're actually going towards the suite. So there are so many ways of how you can build this. And I think it's always very easy and very cynical to say, my God, it's just a wrapper.
Andy (11:00.888)
And it depends on the thoughtfulness and the strategy, it depends on how entrepreneurs are thinking about sequencing their product roadmap. And then there can be innovation on so many different layers, so many different aspects. And in the end, you always have to think it from a use case perspective, from a user perspective, like is what I'm doing really driving value for my customers? Is it really driving an ROI?
Is it really making a meaningful difference to what is out there, what they could do with incumbent products? And that is the question that you have to ask yourself. And there's so many ways of how to achieve that. And there's so many ways of how you can build a fundamentally great business. yeah, and I think as you were hinting towards sort of the wrappers, think a wrapper can be a fantastic stepping stone towards a wider product suite, as long as this is presented as a coherent.
coherent story, a coherent ways of how you scale your business.
Uldis (12:02.459)
I think it also weaves into this question of intellectual property in general. When we started some years ago in business and business school and you get these kind of sample pitch decks and things investors would care about, know, TAM and even exit strategies, which I think is a bit ridiculous to ask for somebody who doesn't even have a company for exit strategies.
But one of them was also intellectual property, right? And I think it might discourage some entrepreneurs thinking that they don't have much intellectual property to defend. has the mindset of VCs also kind of changed or has it never been very like intellectual property focused? Because if it's a rapper, then you know, besides branding, there's not much intellectual property to defend, right?
Andy (12:54.145)
you.
I think it's hard to generalize it over the market because there's different types of investors that are prioritizing different aspects. think the way that I think about it personally is, and also just generally outside of Tomico, that we like, defensibility, the best defense is always if you execute really well. Like it is as simple as that and you can have a very low defensibility product on paper in theory, but if you just out-execute everyone, well, you're going to win.
And so, no matter like who comes up as a competitor, no matter if it's large corporates copying your value proposition, no matter if there's, I don't know, like a plethora of new YC or whatever startups that are coming up and trying to attack you, as long as you're out there, as long as you are the best ones at understanding what the customer wants, as long as you're the best ones at hiring, as long as you're the best ones at going to market.
Well, it doesn't matter. It might make your life a bit harder, but it is what it is. I think it depends on what you're building. think if you put your energy towards protection or towards expansion as a founder, I think a very interesting intellectual challenge. And I would argue that focusing on expansion more so than at protection, you're the young upstart. What is there to protect? There's two founders in a room in the beginning. What is there to protect?
And so really focusing on growing your business and less focusing on defense and more focusing on expansion, think is personally the way that I think about it. Where of course that doesn't mean that defensibility is irrelevant. There is a conversation to be had with founders around what are the aspects of the product. Maybe you start off as a rapper, but then you build, I don't know, your own custom LLM.
Andy (14:47.64)
so that your results become better and your value proposition becomes better over time. So there's so many ways of how you can add defensibility over time. And so it warrants a conversation, and I think it is an important conversation topic, once again, to be able to figure out and to work and collaborate with a founder on how they are thinking about scaling their business, as opposed to, well, yeah, like, I don't know. It's just an application layer SaaS product.
That's not how we think and defensibility can definitely be created over time and it warrants a conversation and yeah, if you focus on only patenting things at the very beginning and not focusing on growing your business, you're probably not focusing on the right things.
Janis Zeps (15:35.898)
Yeah, and in the end, that's what a lot of these AI companies are kind of saying that what they are building is something more like electricity or internet that you can plug into and you can build your businesses on top of and the six million that OpenAI raised, maybe they can do some, have more impact than I guess every company individually trying to put it together. we kind of get to this
Uldis (15:48.065)
you
Janis Zeps (16:05.401)
question about massive resources needed to develop this and being poured into this. With DCI, some companies like OpenAI, massive raises now, one of the OpenAI ex-founders, well, always a founder, who left in, I think, June or May and then in September raised one million round, Ilya Satskova, billion, sorry, I can't wrap my head around, right?
Uldis (16:28.011)
billion billion.
Andy (16:29.228)
Yeah.
Janis Zeps (16:33.945)
What's happening? Will there be... Is this leaving out lot of businesses from the game now, almost? If you're not worthy of a billion raise, can you even compete? Can you still go for 5 million, 10 million? How do VCs see the game?
Andy (16:54.306)
Yeah, I mean look.
Uldis (16:54.315)
Maybe the VC thought that there was a dollar devaluation and they added like three zeros, you know.
Andy (16:57.784)
We would hope that the investors would catch that during the diligence. But I mean, look, there's only that many ex-founders of OpenAI who can probably command these types of round sizes and these types of valuations as they're going out to start their own business. I think it's still quite secretive and there's a lot of speculation on what it is that he's building. And so therefore I...
I don't think I'm qualified enough to really speculate on what was the driving forces besides the very, very, very impressive founder profile, of course, for that particular round. And I think there's a lot of, if there's great founders starting businesses, we always think that's better for everyone because that is what keeps the ecosystem flywheel going. This is where great talent gets hired, great talent gets developed, great talent is in leaving companies, starting own businesses, et cetera.
think there's no point in, as a founder or as an investor, to jealously look at OpenAI or at Ilya in this case a bit more early, raising these massive rounds. Because in the end, that benefits the entire tech ecosystem. And there's still enough capital available. And I think also as a founder, you need to have, and I think that was one of the ideas that we spoke about in the last episode, you need to have a bit of this.
positive naivety, you need to have this ambition. like, yeah, like we might be just two people in a garage or two people in a room or two people on Zoom or wherever, but we're here to change the world. And that always takes like a certain very positive degree of naivety and ambition to it, which I always think is fantastic. And I think fundraisers like that, shouldn't deter the great founders and they won't deter the great founders.
We know that like there's still so much capital available for them. There's still so much in the market for grabs Can decide not to directly compete with Ilya. I think that's fine And if you build a great business You could should focus on the things that you have under your own control as opposed to to jealously looking at our fundraising grounds, I guess
Uldis (19:12.479)
How are you going to deploy your own fund if there's no Ilya available that you can just give your whole fund to him? So one ticket and guaranteed a trillionaire. So what do you do?
Janis Zeps (19:12.689)
But in-
Janis Zeps (19:17.903)
Just one investment and all good.
Andy (19:20.504)
Exactly. Well, not that. But a version of that still whilst not deploying billions on end. Not that. No, I think it's what we're doing with the current fund or with the current funds across venture and growth is very much a continuation of what we have done in the past decades at Atomico.
Janis Zeps (19:28.912)
Hahaha.
Andy (19:49.314)
There's no people keep on asking me also privately like, like, what's new? What's changing? And I'm like, not that much. Like we, we've been, we've been a backer of the, of the European tech tech opportunity ever since, since Nicholas got out to, raise this, this fund that turned to become Atomico and that is now at this, at a six fund generation. And this has been proven, like we've seen such a tremendous growth of the ecosystem in terms of terms of size, in terms of maturity, in terms of.
people being employed in this industry in terms of the overall societal importance of the tech sector for Europe. And what we're seeing now is a continuation of that. Of course, it goes in waves. Sometimes it accelerates a bit faster. Now we definitely have a faster acceleration in the pocket of the market being AI than throughout the entire market. But we continuing to invest and just to not answer your question only vaguely and directionally. But what we're doing is with the venture funds,
We're looking to invest in everything from seed rounds up until series A, early series B. And with the Grow Fund, we're investing from series B up until pre IPO runs. So we can cover a very large spectrum. We like to think of ourselves as people who are very, very involved with the companies, who take a long time and a very deep time to analyze a company in order to then become
Uldis (21:12.872)
you
Andy (21:15.586)
the best partners for founders along their journey. Because it's a long journey. It's going to be a hard journey. And we love to build the relationships as early as possible and go really, really deep with them as we're starting. And in terms of sectors, we're generalists. AI is definitely something that is very clearly of interest to us. But it can also be non-AI. We've backed a company in robotics, Dexary, that's been very, very successful from this fund.
So there's a lot of other things that we're interested in. I think with the funds that we're having, you necessarily need to be a journalist fund. And we're very happy being that and have been sector experts or specialists for specific fields. But yeah, that's the way we're looking at it. Backing the most ambitious founders, our tagline is partnering with game changers. So we're looking for these game changers every day.
Janis Zeps (22:09.349)
W-actually-
Uldis (22:09.611)
Has there been any sector that burned you so hard that you're no longer looking at it?
Andy (22:13.816)
That is a good question. I think the true answer is no. We've seen sectors, of course, that have been hit harder by certain waves, right? Crypto Web 3 is not as hot as it used to be. There's a couple of other sectors that are a bit down if you look at overall funding trends.
maybe this is exactly where the opportunity lies. I that's probably where you can become too much of a sector specialist is when you don't see the wood for the trees anymore or if you're like, this has been tried six times before and now it's not working. I think if you start thinking like that as a venture investor, then you've already lost the game because the big opportunities are always the ones that are slightly contrarian, more or less, that are defying the odds, that are
taking a very holistic approach, changing the way that an industry works. And well, maybe taking approaches that have not worked in the past and now for certain timing reasons or because the new generation of founders is executing better, they're suddenly working. So we would never rule out a space that has taken a bit of a beating in the market and where we've also seen things not working out. I think we always need to think from first principles and be able to
Yeah, to rationalize and generalize our decision making and we'll see opportunities wherever they're not seeing the opportunities.
Uldis (23:47.319)
Yeah, I guess the core business model of Klarna is not exactly novel. One of the oldest, oldest businesses there is now.
Andy (23:52.312)
Thank you.
Well, mean, Klarna is first of all, an absolutely fantastic company. also, mean, Klarna is also, how old is it now? It's more than a decade old. And like fantastic execution, like broads, mean, yeah, lending itself. it's much more than lending now, but that's the core. Might be an old business model, but the way that they're building the product, the way that they're distributing the lending product, the way that they're now building a full-on consumer brand.
That is very novel, I would say.
Janis Zeps (24:27.489)
And I mean, obviously when putting together this massive fund, I guess you, would assume, even though your focus is in Europe, guess, but you would be looking at identifying someone like Sam, Amelia or Mira or like, you know, these type of founders. The problem for Europe though, and this is a bit bigger problem, not just related to one fund or one VC or one country. The problem for Europe though,
that when AI companies started coming out, a lot of people started pointing out that, you know, while US innovates, we regulate. Are there these opportunities, for example, in AI in Europe that would be worth a billion check or two billion check or basically, are you optimistic or not about our capability in Europe to innovate?
Andy (25:17.164)
No.
I'm a hundred percent optimistic. mean, like that's what we're doing every day. We're out there, we're speaking to the founders and it's really hard to not get excited if you're seeing all of these. think we're, there's so much opportunity, there's so much great founders getting started. So many things that can go wrong, of course, but we're so rich in AI talent. think we have like over 120,000 professionals that are employed in AI roles throughout all of Europe.
which actually exceeds the US. So actually we have more AI talent. We have fantastic universities like ETH, Oxford, what the guys are doing over in Bristol, Munich, especially combining business talent and technical talent through the CDTM program. There's so many things that are there to be excited about in Europe. And I think this slightly gloomy picture that's, or like self-loathing picture that has been...
has been created a few times, it's not particularly productive or helpful and also just neglects the opportunity that there is and neglects the fact that there are so many fantastic founders out there building businesses every single day. We need to hold ourselves back almost because there's so much opportunity out there. So very short answer is very, very optimistic. think especially on AI where it's a bit more about technical capabilities, something that we very strongly excel at in Europe.
So yeah, there's no point in beating ourselves up in Europe and there's no point in trying to jump into the shadow of the US. We should be very proud of what we have in tech and celebrate that and celebrate the successes that we're having.
Janis Zeps (27:03.299)
Yeah, I was always thinking... We like to.
Uldis (27:03.863)
But we're human, we want to compare. We want to compare.
Andy (27:06.136)
I know you guys are Baltic and like every Baltic company that I'm working with, we're spending half a minute talking about the achievements like, we're all on track, we're hitting our budget or exceeding our budget. And then here's 10 things that are going wrong. And then we're discussing the two hours about the 10 things that are going wrong. So I appreciate that view.
Janis Zeps (27:09.721)
Uh-huh.
Andy (27:32.96)
I think, if we victimize ourselves as the European tax sector, I don't think we're going to get particularly productive.
Janis Zeps (27:39.451)
Well, this is exactly it. It's always been a question on my mind about how much actually regulations and these things that obviously we are different than you asked there. But how much they actually affect those top 1 % of the startups that's going to make it.
because I mean, you can talk about like how easy or hard is it to start a business in country X or country Y, but would it deter the next open AI founder that, you know, it's a bit harder in Germany than it is in Estonia? Like, don't think so, right? What's your view on this? Like, you're very optimistic about Europe, but maybe you can kind of give a...
Andy (28:10.946)
Thank
Janis Zeps (28:20.099)
Yeah, some kind of encouragement to people here because the self-loathing especially about regulations exactly this is this victimization like, we cannot do this, we cannot, but like really will it deter the top companies from reaching their goals? I mean, I can't see that the ambitious founder will be stopped by that, but yeah, can you give your thoughts?
Andy (28:27.2)
I'm
Andy (28:39.382)
Yeah.
Uldis (28:41.199)
Aren't like some of the biggest companies actually regulated, the tech champions of Europe, Like companies like Klarna and Revolut and like whatnot. So maybe it's just embracing the European way. that's, you we have more licenses than you do. Haha, suck it.
Janis Zeps (28:48.302)
Revoluta.
Andy (28:49.109)
Exactly.
You're taking away a part of my answer. yes, I think if you're looking for excuses on why to not start a business, I mean, there's tons of excuses out there. If you don't want to start your business, I don't think you need to come up with many, many reasons not to. So I think you do need that, exactly the idea that I was speaking about, the sort of like...
Uldis (29:02.007)
Sorry.
Andy (29:21.272)
positive naivety, the real desire and drive to change and will not look for excuses but look for the possibilities. And so if you look at regulation and like, yeah, it might take longer to register your company than it would in the US or well, in Estonia, for example, is actually fairly fast, but in Germany or in Italy, it might take a bit longer. But if that like, I don't know.
two week waiting period and having to go to some government office is going to stop you from building your next multi-billion dollar business. Well, I don't know what that tells you about your capabilities and your ambition and your attitude as a founder. So I think there's aspects of that that are getting a bit more into excuse territory. And there's aspects of that that
Janis Zeps (29:57.066)
Now.
Andy (30:12.514)
we need to change and there's aspects of that that we all jointly need to work on as a European tech ecosystem to make things easier, right? Like I was talking about this idea of the ecosystem flywheel before that, like I think we've been talking about for quite some time, especially in our state of European tech report and the Baltics are especially, especially Estonia, sorry to call it out, but are a fantastic, real life example of this flywheel in action.
you're thinking about how to incentivize employees through stock options, that is a regulation that I think we jointly need to work on. And some countries are better at that and others are less good at that. But that's something you need to work on in order to not stop or decelerate this flywheel, but to continue accelerating it. I think it's a bit of a nuanced answer. I think there's aspects of that where, hey, if regulation is what's going to stop you,
then like who are you as a founder? And don't use that as an excuse. There's aspects of what we as a society and as like a wider tech ecosystem need to think about what makes it better. And there's aspects of how we can use regulation. think Aldous, you made this great example about Klarna and Revolut, like using regulation as an advantage and not as a deterrent because especially in fintech, like the EU regulation has actually been
very forthcoming and very positive and very welcoming towards innovation, including open banking, PSD2, et cetera, where lots of other businesses in FinTech are being built on. So yeah, I think that's the answer.
Janis Zeps (31:51.415)
Yeah, 100%. And maybe to move into a bit different topic, like, of course, you're going to be approached by lot of founders in next few months and years, right? And to help them to understand what...
Andy (32:02.924)
Hopefully, these keys reach out to us.
Janis Zeps (32:05.731)
And to help them to understand VC is a bit better. We like to ask a few questions also what's going on in the VC world and what are kind of things that you're struggling with. And for example, for this year, 2024, like if you would need to name for you as a VC in a top, top firm, what's what's challenging for you? What are the challenges in your risk assessments? What matrix or...
Uldis (32:30.615)
much money to deploy, too many opportunities to invest in things like that.
Janis Zeps (32:32.291)
One ticket, mean like one ticket is...
Andy (32:35.896)
I'm going to give you a very personal answer, if that's alright. think one of the things, like Atomic has now been around since 2008, we as a firm have existed and I personally have been in venture for the last almost 10 years. And so we've reached a point where we have a lot of learnings, we have a lot of things that have gone right and we have a lot of things that have gone wrong. And I think the biggest challenge in venture is pattern recognition, which is a very double-edged sword.
On the one side, like it enables you to, to assess businesses faster and to, yeah, to spot mistakes or, or potential reasons for failure earlier. But on the other side comes a bit back to what I was saying before, right? Like not seeing the wood for the trees and discounting companies just because hours have tried in a certain space. So like thinking about us and thinking about how do we pattern recognize, how do we apply our learnings whilst not being, whilst not overfitting.
to use the ML term, whilst not overfitting on a way too small sample size. Now just take one example and this company, they were in SMB sales and they didn't get their go-to-market right because SMB is a bit harder to get rights than an enterprise and so we would never invest in SMB sales. So that would be the wrong conclusion to take. So I think for us and for myself as a personal answer is to make sure that we derive the right learnings from the experiences that we're having.
But that we always keep a steady and open mind in order to not overfit, in order to have pattern recognition guide parts of our judgment, but also ensure to call it out where pattern recognition is jumping to conclusions and is more potential bias than an actual fact-based approach.
might not be necessarily the answer that you had expected. that's really one thing that's really, really front of mind and one thing that we're also working very closely together as a team to hold each other accountable, to identify patterns in our thinking, and to work together as a team to jointly evaluate opportunities.
Janis Zeps (34:47.054)
Yeah, no, it's a very good answer actually, a deserving topic for a longer conversation, because our brain are wired to recognize some patterns. I know you see a certain type of car.
Andy (34:53.592)
We are ML models. we are, are, are ML models to an extent. We're original AGI.
Janis Zeps (35:00.897)
Yeah, we're doing shortcuts here. And yeah, I would imagine that can make a huge difference. Sometimes you can write somebody down who resembles somebody, some startup that you viewed a few years back when you were in I don't know, bad mood or under stress. And now it's like, you know, it's really hard how our brain can play with us, I guess. But you mentioned 10 years in this space, right? You have seen some cycles and ups and downs. I was just thinking so
Actually, yeah, last few years have been interesting. We spoke in 2022, really interesting time. remember actually back then in that event, we recorded 10 episodes and by the time we published the last episodes, the climate has changed already. So we thought of maybe not even putting them out because it was really changing that fast. But anything that surprised you in last three years about what has happened with some industry or something that some kind of learning that you didn't expect?
Andy (35:53.336)
Take a question.
Andy (35:59.202)
Good question. Good question. Anything that surprised me? think the acceleration, not AI in itself, but the pace of the acceleration of AI, I think has been surprising to see how quickly this has hit mass adoption, to see how quickly entrepreneurs have
come together and scramble together to apply this new tool and shape this into new ideas. I think that is one of the more recent surprises, if you will. Not the fact that AI is around and it's an interesting piece of technology. think we've been investing both as Atomico, but also me as Andy. We've been investing in AI for the past 10 years, plus years.
And, but the pace of acceleration has been a surprise. I think there's, and the one thing that never stops to surprise me, I think if I zoom a bit out over the cycles, it's just the innovative power of entrepreneurs is something that you can always rely on, is something that you can always bet on. No matter the market cycle, great founders are gonna make great things happen.
And that is therefore, think if you zoom out and it's like, yeah, sometimes we've been feeling up, sometimes we've been feeling down. But, but this, this, is the one, one steady thing that I think keeps us going is that we're investing in the, in the, in the brain power and in the execution power of fantastic founders. And that is just accelerated. Like there's so many more great founders, so many more interesting opportunities.
If we would apply the same bar that we're applying now, if we would have applied that a couple of years ago, we've done a lot less investment. So the average quality has gone up, the number of companies has gone up. So betting on entrepreneurs generally is, I think, always what keeps you steady throughout any market cycle.
Janis Zeps (38:08.456)
Actually, acceleration and the velocity is a good dimension because it's always like, I know where this phrase originally comes from, things happen slow until they happen very fast, When you reach this...
Andy (38:20.492)
Yeah, I Hemingway. Reggie Lee and Sunlee.
Janis Zeps (38:24.661)
And I'm just thinking about the speed of AI and also following the news. You sometimes on a random Tuesday, you have, I know, a new video model dropping that two years ago would grab all the headlines, know, like Hollywood level movies are now like, but it's just like Tuesday's news. When you talk to founders, how important is actually, you know, if you build a solution with today's mindset, it almost can be outdated in three months or four months, right? How do you...
Andy (38:33.528)
Thank
Janis Zeps (38:52.357)
protect against that. do you look for founders to kind of make sure that they can adapt to the speed?
Andy (39:00.268)
I think that brings us exactly back to idea from before that the best defensibility is always sheer execution power. It's sheer moving forward. is taking whatever innovation comes your way within your sector or left and right and applying these learnings very quickly. And I think what we're one of the qualities that we're looking for in founders is founders who can adopt fast, who are willing to test hypotheses, who have a plan, a sequence, right? Like one of the things that we talked about earlier.
but who are also not afraid to completely scrap these plans in the light of, we've seen that working. And so we should double down on that. So we trying to explore that and there's no silver bullet and like, I don't know, these are the top two questions to figure out if a founder is able to have to change and is resilient, but it is a joint conversation and it is why, where we spent time with founders before, it is why we build relationships.
with founders long before we invest because we want to see them grow to give a couple of examples of how they have adopted to change, how they have changed parts of their strategy, how some of their original thesis have played out and somehow some of their original thesis has been disproven and how they're reacting to that. So we're taking that very closely into consideration, but there's no one silver bullet on how one can figure this out.
except for maybe this grand idea of execution and moving forward is probably the best strategy to defend against any new entrants, any incumbents that's going into your space, any Cambrian explosion of startups that are competing with you. You just have to out-execute everyone. You just have to work hard and be smart about it.
Uldis (40:54.283)
There's one question that is bugging me ever since Jan said that there is going to be companies approaching you in the next months and years. So this game is kind of like dating to me, know, VCs companies like popularity contest, dating some high school, maybe type of, of dynamics going on. And I'm wondering like at this level, right? The best companies always have competition for investors and the best investors have a competition for, from.
from companies. And in your case, I don't know if you have the data, but you know, on a gut feeling level, out of the deals you have done, who has made the first step? Is it the companies coming to you or is it you going to the companies?
Andy (41:37.272)
It's a good question. think there's also aspects of where the dating analogy breaks. Like you wouldn't want to create a portfolio of partners probably and she wouldn't. Maybe you're right. Maybe we shouldn't discriminate. But in any case, like who has made the first step? It's such a hard thing to say.
Uldis (41:48.043)
Well, it depends on the culture, you know, we're open-minded.
Janis Zeps (41:48.467)
Yeah.
Janis Zeps (41:53.772)
Some guys are trying, but not advised.
Andy (42:06.07)
I mean, some opportunities, some companies that we are investing in, some of these processes are super competitive and we are doing everything that we can in order to get in front of us. And sometimes we're investing in companies where everyone and their dog has passed on from our competitors. And so it is so incredibly hard to tell. think there is, I mean, there's a lot of
Very good other venture funds out there. so the competition level, think, generally has increased. And I think that's very good thing because that keeps us on our toes to constantly improve. And that is a great thing for founders because they the option to choose. I think, I definitely think that's, like, if you will, of that balance between investors picking companies or founders picking investors has definitely shifted towards more founders picking investors as opposed to the other way.
But it's still a mix, a little bit of both. But in the end, is a, that's maybe coming back to an analogy, but it is a, need to mutually choose each other. you need to, you're going onto this journey that might be over a decade long, and it's very hard to fire your board member, and it's very hard to write off or not talk to a portfolio company anymore.
so you have to be, you have to be in it in the long run. And that's why, so I keep coming back to this idea of, of that. like to build relationships over time. love to speak to founders as early as possible to get to know them and so that they can get to know us. Cause if you're in a, in a speedy and competitive process and like in three days, I guess anyone can like put stacks together and be, exciting and be, be very interesting, but is it really.
would you on the basis of a couple of interactions really pick the partner that you want to work for the next 10 plus years with? So I think there is a mutual benefit in getting to know each other and building that relationship over time, both for the founder and for us, of course, as well.
Janis Zeps (44:16.204)
And actually, talking about Atomic, I found you guys have been no secret very successful. And even one stat I found one out of six of your portfolio companies supposedly have a value of over one billion. Of course, I don't know which stages matters when you invest, right? Sometimes it might be worth already a billion, but still very impressive, right? And you said also like you've been doing more or less the same thing as always, but what is the secret sort of thing or what has, you mentioned relations.
Andy (44:44.12)
Yeah.
Janis Zeps (44:46.157)
relationships, that's probably part of that. if you would have to say like what has made you to convince these startups to give you this allocation and put it on your table instead of going, like you said, a competitive landscape to any other VC.
Andy (45:06.55)
Yeah, well, thanks for the kind words. And I think it is, I think what it is, is it is a reflection of the culture, the fact that we do value relationships over transactions. we are there, like we're not this like spray and pray type of investor who, I don't know, drops into a board meeting, has not read the materials and then you'll never hear from them again until the next quarter. So we are really...
trying to develop very deep relationships with them. I love it when I get with the founders that I'm working with, that I get to the stage where they can just call me out of the blue being like, I don't know, the sales guys just quit. What are we going to do? Should we backfill? Should we redirect the search? Whatever. So I love to get to the stage. And that's, think, a clear reflection on building relationships over transactions, which affects the picking, the evaluation periods. Because we know the founders much better, which
hopefully should help our judgment to improve. But also for the founders to know us better, to see if we can actually be helpful. But then also that transpires into the relationships, into the portfolio relationships and working with them. We have a fantastic platform team. I know every VC claims that, but we really do. They do make a massive, massive impact for our portfolio companies. I like it's rare that you're...
pretty average series a fundraise, sorry, sorry to say, ends up on the headline of fortune.com. And that's the work of our platform team. It's very rare that someone comes in and teaches your senior engineers on how to run interviews more effectively. And these are, it's just like a combination of lots of seemingly small things, but then really, yeah, really add up over time.
and then hopefully lead to a good output. But it is having to put in the work in every single bit. I think the statistic that you're putting out, I this is also a big responsibility. And it's our goal to make that even better. And we love to keep working on that. We're working on really formalizing the way that we assess companies in a better way, formalizing the way that we work with companies in a better way.
Andy (47:29.144)
in a more systematic way. yeah, this is a responsibility to continue working on ourselves, I guess.
Janis Zeps (47:39.677)
And well, another thing always good to use opportunity to ask, know, we speak to two guys who are also very busy and very productive and we like to learn from them, right? And maybe in terms of what we discussed AI, so last few years, are there any kind of productivity tools or hacks you have discovered that just helps in your really practical daily life? Because I'm sure, you know, if there's something interesting and if you share other people can also, you know, copy those tricks.
Andy (48:03.042)
Thanks.
Andy (48:06.68)
Yeah, two answers maybe on that. One is like we also have a fantastic in-house engineering and intelligence team. So they have done a bunch of really, really cool AI products that we can use to like summarize like previous interactions with the company, doing competitor research, et cetera. So that is actually very, very cool, but that might not be incredibly useful for anyone on the call, but it is probably the single thing that has made the most difference for me.
Janis Zeps (48:37.439)
Maybe it will become a new product at some point or you're not doing...
Uldis (48:40.287)
I hope you still show up to your own meetings though.
Andy (48:42.712)
Yeah, well, maybe we spin it out and sell it out. I'm not sure if that's the right strategy, but it is actually really fantastic. We try to be very data-driven, and think that is one of the aspects where that really affects our personal productivity. The other thing, I mean, it's very simple, right? It's just use ChatGPT religiously almost, yeah? It's like you use it like you're...
It's it just gives us such a good indication on even simple things right like okay, tell me like what have been recent you were speaking a bit about about Acquisition and exit strategy I mean, it's it might not be something that entrepreneurs think about on a daily basis and probably shouldn't think about on a daily basis But it's clearly something that we are considering. So I just Pinpoint me to like three similar transactions be that large investment rounds in that space or be that be that acquisitions be that IPOs. It's like some
some really cool things that you can do and sometimes it works and has a good answer sometimes it doesn't and but if you don't ask you don't get a reply so for me it is really really using that and another simple thing this is of course the opportunity for a shameless portfolio plug around me receiving I don't know what's that messages that I don't want to forward in German or in other languages that I don't want to
forward to my English speaking colleagues, so I'm using DeepL, because I can't be bothered to translate that myself, because it is actually doing a much better job than I could. So that's just like tiny bits that you can use. If you have a silver bullet on like magic, knowledge hub, productivity hack, if you find that throughout this podcast, then please do let me know, I'm under hunt myself.
Janis Zeps (50:30.04)
But good that you mentioned actually chatGDP. It's like we didn't, people almost, exactly, but almost before that, you had Google, so you had almost no excuse to ask questions that you Google, right? And now, especially like if you talk in any context at work or whatever, you kind of almost, it's a filter. Like if you haven't chatGPT'd it or something, well maybe you're, yeah, did you even?
Andy (50:33.526)
It's simple, but it's great.
Andy (50:41.932)
Yeah.
Andy (50:52.78)
Yeah.
Uldis (50:54.411)
Did you even try?
Andy (50:56.6)
It's just a bit long of a word in order to turn this into a verb, Like, chat, that doesn't roll off your tongue, does it?
Janis Zeps (51:00.687)
I don't know, we need them.
That's not...
Uldis (51:04.181)
Yeah, it doesn't. The chat, let's call it the chat.
Andy (51:07.872)
A.I. I don't know.
Janis Zeps (51:11.287)
Tremendous conversation and we're very happy to reconnect again and I think this episode has extracted a ton of value from you and we're really happy that you can share it. Thanks Andreas and yeah, to the listeners, we will see you in one week. Thanks.
Andy (51:32.056)
Awesome, stay Scrappy.
Uldis (51:32.916)
I also got extra value from pronouncing the D-PEL right. I was absolutely convinced that it's D-PEL. I've been using it for a while. So thank you for that.
Andy (51:39.032)
It's extra, it's extra confusing that one of the one of the seed rounds that we that we we one of the companies that we partnered with is called deploy. So so my, my autocomplete is getting slightly confused, both in their very different stages, but in their own regards, really fantastic companies and definitely name similarity, but now they're there.
Janis Zeps (51:40.845)
Yeah, everybody calls it Deepo.
Uldis (51:52.641)
Haha.
Uldis (52:03.211)
Hopefully their founder names are not the same for your emails, not to get lost.
Andy (52:08.245)
Exactly, I think we've learned. We know the founders, we build relationships, right? So we shouldn't confuse them.
Uldis (52:15.177)
All right, dear listeners, we also built a relationship with you by coming out every Tuesday. So stay tuned.
Andy (52:21.953)
Hahaha
Janis Zeps (52:24.036)
hoping to bring you something you can't judge JPD or Google. All right, thank you, bye.
Uldis (52:27.839)
Yet, All right. Thank you, guys. Bye.
Please note that the transcript text is AI-generated. We apologize for any potential errors or inaccuracies. Thank you for your understanding.
