Dec. 21, 2020

Raising from overseas investors, by Pascal Unger from Darling Ventures.

Raising from overseas investors, by Pascal Unger from Darling Ventures.

Pascal Unger, Managing Partner at Darling Ventures talks about raising money from non-US-based investors and who should try this strategy, we also spoke about raising money for funds and how funds approach their fundraising. Touched onto San Francisco being not the center of the startup universe anymore and much more.


Pascal's Twitter (super useful for founders) - https://twitter.com/PascalUnger

Darling Ventures: https://www.darlingventures.com/

 

Transcript

And today's a guest speaker with hunger managing partner at darling Ventures and today we'll talk about raising money from overseas investors specifically raising money for the fund,

and also investing on early stages in startups.

All over the world and in San Francisco specifically. So Pascal, let's kick it off by you giving us some background on yourself and on darling Ventures.

Very happy too and I'm excited to talk to you today so I'll start with myself. I grew up in Switzerland, as you can probably tell by the accent and that's 1 does living up to the stereotypes. I do have a background in finance.

My 1st, job out of school was at the Boston Consulting Group and Switzerland working in the banking practice.

They're doing that for a few years. I decided that I wanted to get out of an industry that was very slow moving and going through a lot of struggling consolidation.

And as a, as a consultant, working on, these type of projects is typically not a lot of fun.

So, I applied for company internal office, transfer to the US and New York and San Francisco, and ultimately decided to turn down my my favorite city in the world in New York, and go to San Francisco to be able to make the transition to tech.

And so I did another couple of years at the in tech on the West Coast, working with all the big tech companies focusing, predominantly on sales, and go to market intend within about 12 hours of getting my green card.

I handed in my resignation as soon as my visa wasn't tied to my employment anymore and joined Daniel at darling Ventures industry as a principal. And then I moved up to partner with the new funds that we started investing out of our leaders here.

And I'm like, this had been in the works in a while. So as soon as I got to San Francisco and new, that didn't want to spend the rest of my life and the large corporate environment.

And so,

every every minute that I had,

I tried to sit down with startups and different venture funds just offered my time and working with them doing topics on weekends to get a bit of a better idea of what early stage investing in company building was,

like,

kind of as as as a consequence of that Daniel eventually offered me to join him at Darlene Ventures as the 1st employee.

And so it was a hard 1 to turn down. Once I had my green card and was able to make that switch.

And so you mentioned was founded by Daniel darling, he's in Australia when she came to the US to work in tech, and after a successful exit in a mobile ad tech space, we looked at the ecosystem from international investors perspective.

So an international family office and international individual.
Usually are a lot of people overseas,
whether it be in Australia,
or in Europe they realize that the US is still the best market for venture capital,
and for investing in startup but it's actually very hard for them to get access to this market, especially at the early stages where the fund sizes are typically quite small.

And so that's part of the reason,

why is because the best funds that kind of kept their phone sizes and say,

at the early stages there,

they can raise more than enough capital in the US and the ones that have been around for a while the good ones,

they don't really taken in any new capital, so,
for a family office,
which is quite removed from the action, it's very hard to get in.

So you have a bit of December selection where the only wants to come overseas lesser from there, have a good reason to be there. The only wants to go overseas to fundraiser the ones that can't really base enough capital in the US.

And then on top you have a lot of the cultural differences that kind of add to the being lost in translation.

So, Daniel decided without having any prior experience in the venture world to start his own venture

capital firm in San Francisco, initially very small.

The 1st fund was, it was a 2M dollar fund just to really learn how to how to be a venture capital is filled up the networks, build up the deal. So.

And grow kind of the brand of the firm,

and then he did a 2nd,

and once he felt that then that Darren Ventures was at a place where he had that that he was able to grow the firm and to now kind of a more proper preceed from that 20 approach me and asked me if I wanted to join and we had actually

known each others and since we're a little kids and I can probably say that I was actually the 1st non Australian investors in darling mantras.

Right?

When he,

when he got started,

because I was when I was at the time,

and it's always has an opportunity to have someone on the ground in San Francisco that I could call up,

kind of ask what's going on in the world of early stage technology and so, today all of our lp's are from Australia from Europe,
and we're currently investing out of our 3rd fund,
which is 30M dollar fund.

Nice. That's really cool from 2 millions to 30 minutes. That's impressive. Nice work there. So, 1st question, would you invest in through darling Ventures?

So our value proposition, as set to bacterial pieces that we provide them with access to early stage technologies startups initially was in the US and for this fund, we expanded our focus to all of North America.

So we invest in the US and Canada. We only invest in software startups, and we do that around 3 core themes, which are data intelligence.

So any anywhere from simple analytics startups, all the way too sophisticated firms, automation. So,

how do you automate a lot of software software and then decentralization so anything from edge computing all the way to crypto and blockchain and when we invest so,

since we are a pretty small fund,
we focus our investing on very capital efficient startups that have a real business model, or at least an initial idea about what their business models look like with that.

We stay away from pure consumers startup. So we focus our investing on B2 B and B to B to C startups.

And then, just, in terms of founders, we do, we do tend to like, very technical startup. So we do look for the main expert founders that have come across the problem that they're solving in the past lives.

And then there's a few fields that we stay away from, just because we so we do like to invest in the main extra founders. We do feel like we need a main expertise as well in the fields that we invest in until we stay away.

For example, from anything related to life sciences or cyber security, just because we don't know that those fields enough to be able to make good investment decisions.

Right, right, right. So let's speak about moving a little bit specifically moving to San Francisco. So, the founder of Darlene Ventures moved to San Francisco in, like, 2015, because the community there was much better than pretty much anywhere else.

Do you think that's still the case? Do you think that founder should still look forward to moving to San Francisco wants to pandemic is over or do you think that's not the case anymore?

Yeah, I guess before I do that, can I add anything to or something to the earlier question just in terms of check sizes and stuff you 100%. Yeah, yeah yeah. Okay.

So, and then, I guess, from from a check size perspective, so we do really want to be a 1st check investor.

So, we typically invest up to 500000 for at least 5 to send ownership of the startup and then follow on or can follow on until the Series A, and that's also the main focus of our firm.

So, we, we really try to focus how to get funds from that kind of start ups from the 1st, round of financing to very strong series. A.

And and throughout that stage, we're, we're very hands on working with the companies. It's not just ourselves.

So, with an investment of ours, you a, get, both, both founders, both partners that are involved as well as, as our advisory board of experts experts, which we have filled out.

Specifically for, for things that are relevant during the seat stage so 1, example of that is the head of pricing of of Stripe is an advisor of ours was also incentivized on the funds. Carrie and he'll come in.

And he'll, he'll talk to our, our founders about their, their pricing strategies early on, which can actually be quite impactful.

And then, even though we're a small fund, and we're not always the largest checking around, we're actually very happy to to lead rounds and issue term sheets. And we've actually done that for most of the investments that we've done in the current.

So, so, so happy to move on to the San Francisco question now.

Sorry about that. So there's a, there's a lot of debate, especially in the VC community. If you look on Twitter and stuff, whether you still need to be in San Francisco, it's it's still the place to be.

Um, I personally believe that you do not have to be in San Francisco anymore if you want to build up a successful start up.

There will always be a concentration of capital and and of startups and of expertise in San Francisco.

And it can, it can be worth making the trip out to the Bay area every now and then, but especially since called covert, and even before you could build a startup anywhere in the US or nowadays, even even anywhere in the world.

I think a,

the or the fact,

or we found actually,

even though we have a headquarter in San Francisco,

which is a beautiful converted warehouse with office space that we offer back to our founders,

even though we have that warehouse,

we have actually shifted.

To operating fully,

virtually and remote we and the fact that we invest across North America and do so very actively also shows that we're not just focused on San Francisco,

the Bay area anymore because we do believe there's a lot of fantastic startups outside of the Bay area the West coast as well.

And then, personally, personally, I decided to to treat that I expect things to change a lot throughout 2021.

And given that we do live in a predominantly virtual world, and that's a given that I do believe that you don't necessarily need to be in San Francisco anymore. I'm switching to an interesting kind of personal and professional and.

Challenge I guess,

or experiment where I'm spending or trying to spend 2 months at a time in different,

interesting startup ecosystems,

across North America then in between,

go back,

go back to San Francisco for a week or 2,

just kind of reconnect with that ecosystem.

The goal of that is, I said to kind of establish our firm and our brand, and my own person that works these different cities across the US and Canada.

That's a really cool experiment. Definitely. Let me know how that 1 goes. We'd love to hear if I get tired of being on the road, I guess. Yeah Yeah. Right.

Speaking of traveling and going over us and specifically broad. So, since Darlene Ventures has all of.

Not from the United States question is do you think startup founders can do the same thing? So can a US base start uh, actually go out to Europe and treasuries money there.

Yeah, so that's a good question. It really depends. I guess it's the answer to kind of similar to venture funds. When you do go to different geographies. Fundraise people will always ask you why here.

Right and given, especially that there's so much capital so both for a good fund, like, why would a fund make the trip over all the way to Europe or Australia to fundraise?

If they're good enough,

basically to raise into us and the same applies to startups during general risk capital is less available,

or at least in the geographies that I know the best,

which is Australia in Europe because people still tend to be a bit more risk averse than they are in the US that especially applies to Europe.

Australia is a few years.

Um, then then Europe and that is slowly, but surely changing, but from from a startup perspective. So if you, if you're thinking about raising from overseas investors, there needs to be a very good reason as to why you do it.

So,

is there,

do you have a,

if you have a lot of customers in Europe,

or in Australia,

and you want to have the support of a local fund to kind of help them manage these customer relationships and help you manage.

Potentially the cultural differences that you're dealing with, then it makes sense.

But, other than that, or if 1 of the founders is is from overseas, and has some natural ties into the local ecosystem, that it makes sense.

But, other than that, I wouldn't necessarily recommend because it is a huge effort to try and fundraise in geography, even zoom world.

So I wouldn't necessarily recommend going overseas if that is not also or if there's not a very good reason business reason for that as well.

100% perfect device. Definitely do follow. It always make sense to go to investors overseas. If you're playing to expand your start there. If not.

Probably, it's not the best option for you, but let's talk a little more about founders and how they interact with you and orlan venture specifically. So you I bet spoke to multiple founders over this best hears.

What do you think is the major mistake that they're making while pitching their startup to, you?

So, I guess there's a lot of mistakes you can make, and a lot of the things they do really well, 1 of the things I do see them make quite a bit is that they're extremely focused on just kind of pitching you and selling.

You is actually something that I constantly have to remind myself as well when I am pitching but when I'm fundraising from L, peace and pitching to them, and typically the person that sits across from, you.

Um, as as a lot of questions in mind, and it doesn't just necessarily want to want to basically join a call where they just get, like, stuff thrown at them for 30 minutes or 40. and and then they walk away again and.

All the questions remain, and even if they ask a question, they kind of get the same. Sales pitch,
so if if if you maybe always try to put yourself in,
like,

if you were in an investors shoes,

or or in anyone shoes is kind of interested in the topic because if you get into,

as far as getting into a pitch meeting the VC will think that this could be interesting.

And so, if you are generally interested in something, then you actually want to have a discussion about it and not just be sold something.

And so, 1 of the things that that I see founders do quite a bit is is a leave no room for discussions and for in depth discussions in these pitch meetings, just to basically plan a patriot.

If you have a meeting for 45 minutes pitch for the full 45 minutes,

and then be also to just constantly being kind of in sales mode versus versus discussion mode because you don't know if you know something well,

then explain it and have a discussion about it.
Ask questions himself as well if you don't know something, it's okay to say that you don't know that.

Or if you're taking making assumptions, it's okay to say that these are assumptions you're making and.

That are these events that that's part of the risks that eventually investors willing to take if they, if they decide to invest.

Right. That's actually the cursory to go. Good salespeople. They never really sell they just talk and then BAM close.

You mentioned that founders do a lot of good stuff as well while patient to you can you name some of the trace that founders.

Tends to have yeah, so I think a lot of it and that starts way earlier to even get into a pitch meeting. So if you.

The, the, the pitch decks and the materials, and the things that are naturally gravitate to are the ones

that are that are very thought through.

That are very simple and explain something very difficult in a, in a way that I can easily understand it in general when you're pitching to a VC.

Assume, or assume that a person doesn't know the space nearly as well enough as you and so use language.

And use ways to explain it that, that anyone basically that you meet on the street or almost anyone that you meet on the street crashes, to understand what you're doing as a, as a business.

And so anyone who comes in and can explain.

To me, the sign that someone understand something really well is if they can actually explain it in a very simple way.

Actually takes a lot longer, and I, as I've told you, I do some writing on the side as well and to provide a 10 page article is much easier than a 1 page article. Which set the 10 page article.

It's, it's quite similar with, with, with pitch decks and with pitching to investors.

Absolutely condensing your thoughts into something really short and quick and easy to understand. It's so hard. Dennis definitely practice that.

So, speaking of condensing big thoughts into small pictures, when you're reviewing a pitch deck that the founder sends over to you, what are the major points that you're looking at?

Yeah, so in in general, a, like, you will hardly ever see or let me start with the goal like, ask yourself what is the goal of the pitch deck goal?

The pitch deck is to get you in that 1st, meeting with the venture capitalist to basically have them ask them look at it for.

No, more than 3 to 5 minutes and think, okay, this could be combined.

Status all right. And so with that, it should be very simple to understand as I said, for someone with, with very little context it should explain quite well what you do.

I mean, some of the basics that you should always cover are, I mean, the team and red, why you why why is this divide team to do what you do and why now right? What are, what are the inflection points or what?

Why is now good time to actually start this business kind of why this right? What is what is the unique insight that you have? And why are you building this to address this?

1 if you have any traction already then then mention that for sure. As well. And I'm actually,

also always a fan of of having in there kind of what you're thinking about raising what you're trying to raise because for funds,

like,
ours who have a pretty strict fund model around, wanting to own,

at least 5% for,
for check up to 500000.

if you're way above that, then it's not a good fit now. Always want to be mindful of people's time. And I expect people to be mindful of my own time as well.

And so being able to pass based on paycheck, just because it's not a good fit for investment thesis is a good way or is a good thing as well.

I'm actually I'm just because we talked about San Francisco and the virtual world I'm currently working on, on a, on a notion page.

We're actually put a lot of stuff up there around our investment thinking and what the things are that we look for certain founders 1 day when they're interested in in reaching out to us,

that they can also see exactly what we kind of look for in startups and what our process looks like, and so on.

Nice. That's perfect. Definitely. Once you finish that or once you have the link definitely forward it to me, I'll make sure to include in the description of this episode. So people who are interested in darling Ventures or just want to figure out how the investors think.

Definitely take a look at that link. So. Another question that I want to ask you is a.

1 pager versus the pitch deck. So I personally prefer 1 pagers because it's just like short texts. No pictures.

I like just excuse me there it's searching for some keywords and that said I'm done while at each that you actually have to go over all the pages. So, what do you think for you personally what works? Best pitch deck or a 1 pager?

So, to me, both can work back to kind of the earlier point if you can.

Explain what you do as a business in a in a very simple and compelling way on a 1 pager and also cover kind of the important information that I need to make a decision. Whether or not. This could actually be a good fit for us, which you can fit that in a 1 pager then. Fantastic.

Was I said, then they're kind of 3 to 5 minutes that I typically spend on a, on a, on a deck. That's very easy to get through a 1 pager.

I've seen a lot fewer 1 pagers that.
Actually,
could could give me the information that I would have liked and so in general, the pitch decks that I receive are better than the 1 pagers,
but that kind of goes to the earlier point that we made that it's a,
it's a lot harder to communicate things into words.

Absolutely, definitely. I think that 1 pager is definitely good to start a good starting point and then you develop a pitch deck, but it's just my personal opinion, anyhow, moving on to the next topic for discussion, reaching out to investors.

So, before you actually give investor a pitch deck to look at, you have to get in touch with that investor and the keys are her interest, at least a little bit. So that they open up they.

Pitch that great. So question is what is the most creative? You've seen a founder? What's the most creative way that the founder reached out to you? Or darling Ventures in general?

That's a good question. So lately we've received a lot more very creative videos and everything that that finance has put together, which is, especially for consumer apps. So that those aren't really good fit for us.

Unfortunately, we didn't have we've even had found that the Pi to us by an internship postings that we put out. No, it wasn't necessarily be the best way to kind of get to us.

Because both kind of a VC internship as well as a job or more than 100% job and and doing both at the same time. Doesn't doesn't really work.

I mean, in the same history to say, they prefer warm intros and it's always warm. Intro is a way to basically kind of show your ability to network yourself into, into certain networks.

We don't need that. So, we made it purposely very simple to reach out to us either. Anyone can send me an email at com or on our website.

There's a link to a quick survey with the survey. We asked a couple of very basic questions again to figure out which specific for our investment thesis, or not, and ask for a deck or a 1 pager.

So, I actually personally reviewed that survey on on a regular basis.

So,

there's no need to really be creative around how to reach out to us but I basically encourage people to evolve and figure out how to reach out to us to spend the time they make their materials a lot simpler or as

simple as possible before sending them to us,

and maybe just.

Please very quickly check if you're kind of within our investment scope or not.

Absolutely more and more venture capital do this, you know, like, where would you use the warm intros importance in general networks? So, like, for us, for example, it makes you use way.

Always, even if I know some founder, they forward me someone else's pitch deck. I'm like, here's the link to our website. There is application process. We go through the same exact application process, no matter who you are. So, there is more and more of that.

So, 1st, step before reaching out to and partners, and whoever works in the venture capital, check their websites.

Most likely the application is right there and it's like, super simple to follow and now that we've covered that last 2 questions. 1st 1 is going to be. What's your general advice to founders of early stage companies who are looking for money right now?

Yeah, well there's a lot of things to highlight, I guess, but oh, yeah fundraising is tough.

And fundraising is time consuming, and if you wanted to go, well, you need to be well prepared. You need to be very strategic about it.

And you should also get enough reps in and try to listen to all the feedback that you get throughout the process.

It can actually, you can actually learn a lot, not just fundraising, but also about your business and how to build it throughout such a such a fundraising process.

So, what I mean, as I said, in order to be well prepared, as the pitch decks ready have potentially 1 pager, ready also think through a list of what funds you want to reach out, reach out to.

So, with all of our portfolio companies, prior to them, going out for a fund, raise a work through their fundraising materials with a lot of it is around. I guess I'm making the same point.

A lot of times for a lot of it is around just making their materials a lot simpler.

Specifically, if you're the main expert on something, there's a 1M points, you want to bring across someone who's new to that. And a lot of that is not relevant especially if your goal is, it's just to get into a meeting that a very deep diligence process.

And, yes, that becomes relevant, but that's not in the beginning. Then we put together a list, quite a typical long list of funds that we want to reach out to and how to best get to them and what they've based on.

What they focus on based some of the investments that they've made,

and so on to tackle as many funds where it's in their investment thesis as possible and potentially,

before before we get to the top 5 funds that we want to tackle in a few other ones.

1st, just sort of found this can actually pitch the fundraising a little bit because it gets better with every time that you do it.

And so, yeah, and then I said, listen to feedback. So everyone will tell you different things, start the process and it's very easy to ignore it when you're in kind of sales mode that goes back to the point about, like, tried to lose the sales mode.

And have more discussions, because they'll actually learn a lot from, from having these discussions. And even if if a venture firm doesn't end up investing, there's always simply a thing or to even take away, which helps your business down the path. And if it's a good discussion.

And the folks on the other side thought that this was actually quite interesting, even if it's not a good fit for them too much more willing to actually help you make additional introductions versus if you're just.

100% yes, that's another benefit of having a discussion of sales page. Perfect device there. Now we're moving on to a last question of today's episode, which is a call to action. So Pascal, what's the 1 thing you want to do?

As soon as the episode is over? Yeah,
so the,

so,
the,
we're actually at the moment very close to make an investment in our 1st, investment in the mental health space and it just once again made me realize, especially in the time that wouldn't have been when we spend so much time,
be on the screens and the camera and everything,
and it's incredibly important.
Not just take care, take care of your physical health, but also your mental health.

And so, with that, I guess my call to action is if you're sitting at a desk, get up, go outside, go for a walk, take those 15, it's especially you given that you're in L. A. right down inventory a bit of sun and just make sure the.

That yeah, that that you really take care of of your mental health, because it's very easy to just work 7 days a week, these days and, and not think about anything else and that's not very sustainable in the long run.

100% always saying, avoid the burnouts don't work after, you know, give yourself some time that you work in your state sell some time where you just completely ignore emails calls. Whatever. It is just relax.

And also, I read an article just this morning saying that 11 minutes of workout per day really extends your life expectancy.

So try that make sure to go to the description of this episode Ali bunch of links that becka mentioned probably best elsewhere. And also the application form to the darling Ventures as well, as the notion page about.

How darling Ventures looks at start so definitely take a look at the description at this episode and as usually have a great day.

Pascal Unger

Managing Partner at Darling Ventures