Earnest Sweat 00:04
Welcome to Swimming with Allocators,

Alexa Binns 00:05
the VC podcast from the LP perspective,

Earnest Sweat 00:08
with your hosts Alexa Binns

Alexa Binns 00:10
and Ernest. Are you ready? Let’s dive in.

Henrik Reimavuo 00:14
Thank you for having me. It’s an honor and a pleasure.

Alexa Binns 00:17
Awesome. You sort of entered this industry as a very eager teen, volunteering at Slush, which I believe is one of the largest startup conferences to date.

Henrik Reimavuo 00:32
Yep.

Alexa Binns 00:33
What was it sort of that originally made you think this is where I belong? Like this is what I want to spend some time doing.

Henrik Reimavuo 00:41
Yeah, for sure. It’s a great question, and I would say that I was always a planner’s guy, and my plan was to do something completely different. And it’s always the case with people on your podcast as well who talk about their interest in the world of venture that it’s always serendipity. So my plan was to do something completely different, and then I had a guy who just brought me into the team at Slush. So I joined in 2015. I said as a volunteer in the investor investor group, I was heading to the meeting area. So I got to meet many of the people who ended up actually working together with me at some investments and so forth in a later stage. But honestly, it took me at least four years to really understand that this is what I want to do, and that was after a stint in investment banking, which I always thought was going to be my thing, and I was pulled back on onto the team then to head the investor operations of the of the the conference in 2019. And then, sort of in the first few calls, the first one I ever had was with Sir Michael Moritz or Mike, as we close friends call him, was that okay? This is pretty special. I was a naive young 20-something and got to talk to these ledgers of the industry and thought that okay, this is this beats you know aligning logos in in PowerPoint and doing Excel. So this for sure could be something for me in the future.

Earnest Sweat 02:41
Henry, you were telling me in the pre conversation that that first conference was kind of mind blowing. There were 25,000 attendees, about over 2000, almost 3000 investors, and you saw something like 3 trillion AUM in the room. What did that vantage point teach you about how capital actually flows?

Henrik Reimavuo 03:20
Yeah, it’s also one of those brilliant, brilliant questions. I think, of course, events are quite unique. It’s a small touch point in a year for which most people come around just to have fun, to be honest. But of course, whatever we think about for the year is always very much driven by narrative. So in 2016 or in 2015, when I was a volunteer. It was all about decarbonization. We had Chris Socka on board. I got to meet him. It was really cool. That was the whole narrative that we were talking about. And then going forward from that, we went into Web3. During my year, it was more on that spectrum already. So it was all about narrative, and that was pretty much what we learned as well. If you know, we reach out to the investors early in the year to understand what they want to talk about, and they are always very strong. There was always a topic that someone wanted to talk about, and once again, 2016 as a volunteer, all about decarbonization, future of the planet type of conversation. But what we then of course also understand is usually those are not the companies that grow up to become great out of those vintages, but that was strongly sort of my first touch point was that it’s it’s always story. We are storytelling animals, of course, and that was clearly the number one thing that I took away from it, which is I think more evident always in hindsight, as things tend to be.

Alexa Binns 04:38
Yeah, it’s an interesting exercise to think if infrastructure or maybe energy are the topics of today. What’s the topic next year?

Henrik Reimavuo 04:51
Yeah, for sure. And it always changes. We do even though it’s a you know game of patient capital, and we invest over a horizon of at least 10 years plus. For companies to actually start growing well, it’s still something where we have that mindset of a short temperament in essence and short attention span, maybe to put it more more more more well, and you know the storyline can change. It can be one conversation on CNBC where suddenly you know Anthropic is going to be the first company to be at at an ERR of a trillion, and then suddenly you know there’s a conversation by someone at Palantir who then you know shuts down the whole conversation. Now again, that’s going to be blown off the water. So it’s just how it is, and of course BCs as a whole, they’re just as good, not as their next investment, but the last podcast that they heard. So it’s always like these narratives change a lot, and that was clearly something that we also felt as one once again, you know, 20 somethings. We just set a narrative for the year, and that was sort of the story that we wanted to tell the world. And luckily, some people wanted to be part of that, and it was quite nice for us to experience for sure.

Earnest Sweat 05:59
You told me early on in the job you got to meet a lot of legends in the industry, and now your goal is to back future legends. Is there anything from those initial kinds of meetings that you took away from what makes a great investor that you look for today?

Henrik Reimavuo 06:18
For sure, I would say that the connective tissue maybe is not something that I necessarily would say is a great investor per se. But it was a character trait of these people who, once again, the Michael Moritz of the world and John Doris and so forth, Chris Sakas, they were surprisingly approachable always. They had very low egos as well. They sort of didn’t need to be that anymore. You know, they had already made those status games, so they didn’t need to play that game anymore. They were very open-minded, so many of my sessions actually were about okay, you know, what do you want to do during the year? But the rest of it was really, you know, them asking me proactively, what are you interested in? What are you going to do next? Are you going to start a startup? Are you going to go into VC? So I got them sort of as mentors very early on. So I say from a character perspective, this sense is still something that I think is quite interesting in venture. As we know, many many think that they are masters of the universe and they have to talk about every topic that’s relevant to the world, whether it’s you know you know from from virology to to Web three, of course, or politics, Middle East, and and these were people who were sort of beyond that already. They were comfortable in who they are, comfortable in their sort of way of approaching the world, and I think that’s also something that we see now in managers that we really like is that they’re centered.

Alexa Binns 08:07
Yeah, what you’re describing to me feels like actual confidence, like being comfortable in your skin as opposed to bravado. That has

Henrik Reimavuo 08:17
absolutely,

Alexa Binns 08:17
I think, as shown in your thesis, that if you really are somebody who has deep knowledge on something, you recognize that you know you know better than the average person for sure. Yeah,

Henrik Reimavuo 08:33
for sure. No, I think sort of the the psychological trick is usually probably that many many VC investors still their fate is in a way in the hands of others, and and they also allocate the capital of others, which means that sort of somehow you need to complement that, and very often it is to sort of play that you’re a semi-god who understands where the world is going, and you are the one who makes kings and queens. And I think psychologically, that’s been also quite evident in many conversations that we have is that people who lack that sort of mindset that they’re in the trenches actually building and have built something concrete, they might be sort of more inclined to go that route. That’s that’s my take, and not not a psychiatrist or psychologist, but just this thought that came to mind when speaking about this.

Alexa Binns 09:20
That I think is a fantastic entree to what what you are doing today with Frame, but I don’t want to I don’t want to skip over your experience doing direct investing and also working with the Swish Insure, because I think that gives great context for sort of how you’re approaching your own fund of funds.

Henrik Reimavuo 09:40
Yeah, for sure. So yeah, my entry into venture, of course, through Slush was worse than then in Finland, so something quite local. I worked for NGP, which is the Nokia Nokia Fund. We had offices all over the world, but Nokia was the only single LP. Very sort of at least stated to not be a CVC, but a financial investor. But of course, it showed you a little bit about that corporate strategic endeavor of how you actually invest. Then the first sort of let’s say real job after university then was at a let’s say a smaller tempo driven early stage fund that had been established a year prior. Much of the LP base was high net worth individuals, but also state mapped, as many funds of course in Europe are, and we’ll probably spend a few minutes talking about today as well. The tempo there was very different. That was a fund that came from a background having run an angel collective, and those angels also ended up as LP. So it was intertwined in a very sort of active manner. Those LPs were very much involved. They ended up investing in some companies that we didn’t, which were actually pretty good in hindsight. Some of the names that you know of, and luckily we got some slices into those companies as well through those checks. So it was a really eye opening experience. And then on the other side, then the latest fund that I worked for had sent a single LP once again, but this time it was an insurer. So if you think about conservative, you obviously think about Switzerland and Swiss insurance, so that was very much the case. Nonetheless, we sort of ended up being able to do whatever we wanted, but then with a new chairman, new CEO, that started to shift again a little bit. Which then, of course, for us ended the decision to to start thinking about new things, and and then sort of this idea of a fund of fund re-emerged from from earlier conversations that my two colleagues had had already back when I was I was pre slush in 2018, so they sort of emerged together once again to to discuss this this opportunity of a fun to fun with the learners that all of us had from before.

Earnest Sweat 11:38
We spoke about this in our pre conversation, but we’ve had other guests talk about this who are also based in Europe, on just kind of what the gap is within the ecosystems compared to the U.S. And it seems like the dominant narrative is that Europe simply needs to put more euros into the asset class to kind of fill that gap. What’s your take on that?

Henrik Reimavuo 12:10
Yeah, yeah. So my take, quite simply, is just it’s a quality versus quantity problem, and many I’d say that the conversation very easily goes to the large headline figures, and of course, if you think about X, it is about large companies. We’re on a completely different level to the US, and we’re always in competition. We think about you know what’s the new Silicon Valley, and in the Nordics we talk about Silicon Valhalla as one idea and stuff like this, which is funny. But we always compete, but as I said, it’s more of a quality issue. It’s more of a misallocation problem as well. So in Europe, I said you know much of the incentives are driven by those state-owned or state-backed entities who drive those incentives away from performance. Simply, so in my way, it’s sort of the same as thinking about bridge rounds, which tend to be bridges to nothing. In my own sense, many of these endeavors that we’re doing in Europe are just throwing good money after bad and misallocating that in a lovely way so that everybody gets the chance to try doing venture. But for me, it’s not really what sort of the capital part of venture or even the venture part of venture capital should be about. So, my take is always that there should be a better way to allocate that capital, especially into the early stages. So not only do we have a growth capital gap, but actually it starts at the early stages. So angel capital in Europe is roughly 20x lower than in the U.S. Pre-Ced is roughly 10 or 13x lower in the U.S. So of course, from a funnel perspective, it just leads to less growth opportunities. And then there’s a completely different thing that then, from a competitive standpoint, it’s still the U.S. funds, it’s the U.S. LPs who even fund the exciting European funds. So all of those things are then driven from a competitive dynamic standpoint towards the U.S. so there’s a few things that are happening there, but maybe maybe the quality aspect is the first.

Alexa Binns 14:10
No, it’s fascinating. You had the sort of the perspective of sitting in like one of the bigger conglomerates of Finland, as well as the Swiss Swiss insurers. So, you know these are the behemoth organizations that innovate besides the government that can really be supporting innovation. I was blown away by the stat that you shared. That I mean, it makes sense. Swiss banks have 10 trillion in client assets and roughly 25% of global cross-border private wealth. So, for now, why is it that it’s the corporates and government that are more participatory as opposed to this private wealth?

Henrik Reimavuo 14:55
Yeah, for sure. Of course, to generalize, which we’re doing here. To not not piss everybody off, I would say that it’s much about culture in many ways. So if you think about the Swiss market, what it’s doing is working perfectly. So the clients of these wealth management companies and the banks, what they look for in Switzerland, of course, is capital preservation, is the sort of you know conservative mindset of if you know just just safeguarding assets in many ways, and usually what they then do is then the incentive is to do that. You have an endowment model for your family office, and you’re focused on that pretty much. So it’s once again an incentive issue from our perspective, who are in the market of tech and innovation, but from their perspective, they’re getting what they’re they’re wanting to get. But of course, that’s changing. There are a lot of new endeavors in Switzerland, and of course, you know, broadly in Europe as well, more on the ground ground level side, but also from the government to start supporting you know the opportunity for pension funds to start investing more actively in Europe. That’s a huge issue, specifically in Germany, but also slightly in Switzerland. So there are endeavors that are taking place for sure, but still something that I think boils down to culture, where still we are you know years and years behind and many waves behind the the U.S. in terms of venture financing, even though we have the old old patrons of society from from you know the Renaissance times who have been technically venture investors since since you know hundreds of years, but but that sort of hasn’t really trickled down into into modern times.

Earnest Sweat 16:31
When we look at European ventures today and how it’s structured, which incentives do you think are actually being rewarded, and what behavior do those incentives actually naturally produce?

Henrik Reimavuo 16:48
Yeah, I think it once again comes back to it. If if governments essentially are are 40% of the capital backing these funds, and in many ways also, of course, private companies through grants and and other direct measures as well, it’s pretty evident that whatever the the governments are interested in, which usually it’s it’s policy, it’s employment, sometimes it’s it’s some some completely different different aspects as well. Then of course the incentives are going to be driven towards that. So of course for a very long time in Slush we were thinking about these themes very strongly, and I already mentioned decarbonisation, sustainability. So those were driving forces behind what, for example, the EIF wanted you to do, and of course that then led you to know many funds to try to you know form a thesis around that to fit that narrative, and of course it also leads you to be quite focused on a specific geography. Very often, if you have a regional backer, those are incentives that sort of, in my mind, tend to be quite misaligned towards performance. But once again, what you learn from all these cases is, and many of the guests on your podcast have spoken about it as well, is that you know there are pretty much as many incentives as there are investors. So two family offices get completely different incentives. Same thing for different regional backers as well. But for me, that’s very clearly the case. Is that you know it’s very often that that you you don’t focus on performance or on on actually building up sort of from the ground up a functional system of of supporting as many entrepreneurs as possible doing sort of the stuff that Europeans are great at, which is sort of deep and very hard scientific work, and that’s something that’s lacking a little bit. Commercializing that this is what, in my mind, of course, we could do a bit better in Europe.

Alexa Binns 18:32
What are some of those themes that are high priority today? Like I’m hearing defense, obviously, and cybersecurity. Can you give us a little perspective of where capital is eager to go today in Europe?

Henrik Reimavuo 18:50
Yeah, I think I think the framing was perfect. So where capital is eager to go, I think there’s sort of the the invisible hand of the market theory in essence that capital will always find a way to be used, and as much of it wants to flow into these sections where where it can be used, and that’s also sort of from a broad perspective. Why you know foundational models are called frontier because they’re on the frontier. They need to change. They need to be new. They need to create new things, not just the foundational layer. So a frontier is something that needs more capital than the foundation, and that also you can see sort of in Europe in many ways. Not that much on sort of the model or AI and lab side. We have a couple of companies there for sure. We have, you know, devoured quite a bit of capital, but for sure it’s all about European resilience. So that’s something that sort of was sparked, of course, by the the war in Ukraine, but even more so now when Trump came back to office and and we sort of collectively lost our our minds on on both sides of the of the ocean to to you know us having to to do something about that whether it’s sort of from a structural perspective sort of reshoring industrial capacity to to Europe or then of course sort of the the the the last. Sort of defense as well, so that’s clearly where it’s going. So many times, what we see and those managers that we’re talking to nowadays as well, they used to be sustainability investors. Now they invest in weapons, which is quite fun or funny to see, of course. But that’s honestly how it is. Like that is a day to day thing, and that’s something that EIF is supporting. And once again, it’s good that they do, but it’s just very clear that the narrative shifted very strongly, and that’s where we are right now in the market.

Earnest Sweat 21:29
Speaking of fund managers, your firm’s website says that you back next gen managers who operate at the esoteric edge. What does that actually mean, Henry? Yeah, and how do you underwrite it?

Henrik Reimavuo 21:47
That’s a wonderful question, and my colleagues asked that as well when I wrote it, and we agreed that we like the sound of it. But nonetheless, what we think about with that is in many ways how we as a group operate. Everybody talks about consensus. This consensus, that, and for us, what we’re very excited about is people who can teach us something new. So we’re very, very open, open to be stupid in conversations. We want to be. We want to learn something new anytime we meet people. And very often, as we discussed, you hear the same pitch over and over again. So we are very eager to meet managers who actually think about venture from a new perspective. Hence, also the type of archetypes we’re looking at, where we’re quite open to meeting these sort of non-traditional investors, who we probably will discuss very soon. But for us, something sort of a mindset which is interesting. JT from Hydra, formerly at Andreessen, has this quote about either investing in people who are in the flow or at the edge, and in portfolio construction you need both. For us, we need both because we’re very very excited about those managers who operate in areas where they have very unique insight groups that are maybe more illegible, which is very much the case in Europe. Europe has so many different markets and so many talent clusters, which are completely invisible for outside sort of multi platforms and so forth. And that’s sort of where we want to fish. So those are the points that we like to look at quite actively.

Alexa Binns 23:19
Kudos for making us Google a word, like when was the last time I looked something up in the dictionary? So thank you, Henry. This community catalyst language that you use. How can you tell the difference between a sort of like performative community and what you’re really looking for?

Henrik Reimavuo 23:38
Absolutely, that’s a great question. I would say it’s authentic in many ways. So when we look at it once again, as you’ll notice already, I’m one for quotes. It makes a simple-minded person like me remember things better. So community catalyst is one of those things. People who actively have started building community and then sort of the investment part came as a bonus, so they build trust from the get go. They might have spent years convening up, you know, people around a certain topic, a certain geography, as is very often the case in Europe. It’s a completely, you know, fragmented market. For us, that’s actually a feature and not a bug in the European system. Once again, why we like that, and that is for me the big part. As you know, much of venture is always about chasing, and that was what I was doing a lot when, of course, I was a junior direct investor, just chasing deals, you know, going through LinkedIn and just trying to find things instead of trying to attract. And that’s one of the learnings that I that I have now also on the LP side strongly with the conversations that we have with managers who have done this, and this sort of came you know through having those conversations with those types of people, and that’s that’s one thing that we’re starting to see very strongly. So maybe sort of to add to that, you know, maybe already jump in the ship and we can take this again. But the archetypes where we look at, of course, the problem with the spin out is that you’re always competing against the brand that you left. So that’s always the competition that you have. If you’re a builder and operator, you’ll always sort of have the tattoo of the company that you built or help build on you all the time. And these sort of non-traditional managers who have built communities who are specialists necessarily don’t come from those two buckets. They’re sort of unmarked in a way, and they have the opportunity to sort of be authentically themselves and not sort of, how do you say, bagged by the legacy of what they’ve done before? Whether it would be as successful as anything. So that’s sort of how we view those things about community and archetypes in many ways.

Earnest Sweat 25:32
Now we’re going to take a quick break to speak with our sponsor.

Alexa Binns 25:35
What’s an issue you’ve been helping a founder client with lately?

Michael Podolny 25:40
Good question. So there are a few. I’ll give you the kind of two that are popping up all the time. So you know, I would say one that comes up quite a lot for me lately. Interestingly enough, even though I’m not an employment lawyer, although we have a very exciting employment law group is the kind of a disagreement or a separation of one of the founders and a company, and this has been happening earlier and earlier in the lives of companies, and frankly has gotten to a point where I now tell clients that you know when when they’re raising their first round, they say, hey, is it a problem that we’ve you know had this third co-founder that’s not with us anymore, and the answer is no. Actually, this happens all the time now, and I don’t think that your investors are going to care particularly about the fact that a third investor is not here, as long as it was handled correctly with advice of counsel, negotiate appropriately. Our employment law group is working with me very closely. Rebecca, who’s been on some of your podcasts, you know. I’m probably getting tired of phone calls for me, but it’s a very kind of busy, potent area lately, and I’ve been guiding a lot of companies through that, and sometimes you know with a board involvement. And the other one I’ll give you a real quick one is you know these days AI and data is all the rage, so I am involved in so many discussions about licensing, selling, transferring data between companies, AI labs, vice versa, or AI labs and other AI labs, and you know all the exciting issues that come with that data privacy, you know, commercial considerations, indemnifications, and so on-that that that you know we get in the weeds on.

Alexa Binns 27:28
And you at Sidly are a liaison of AI internally. I understand. In the AI era, has that changed how you’re working?

Michael Podolny 27:39
Absolutely, it has, it’s really transformed the way I am working, in the kind of minutia of day to day. So you know, I tell my clients when I, you know, theoretically boot up my computer every morning, although I never turn it off. The two apps that I open immediately are my Outlook and then Chat GPT. I know, by the way, you know we kind of go back and forth, Claude, Chat GPT, and other tools. So we’re not, you know, we’re agnostic to the tools, whichever one’s better. But the idea is that you know, from the first minute that I log in, it is there as you know an assistant to what I do. It is empowering me. I am able to do what used to take, you know, five billable hours in maybe five minutes now. Incredible! It is.

Speaker 2 28:29
It is

Michael Podolny 28:29
absolutely incredible. So I’m able to do more work that way. At the same time, you know, it has not taken away any of what I think is my value add, which is the experience, the human touch, the practicality, and being able to guide a client through a very sophisticated, you know, transaction, you know, negotiation, and so on. What is taken away is, hey, you know, I go to a board meeting now. I have an agent that drafts my board minutes. I can send those right after the board meeting. I don’t need to ask an associate. I don’t need to worry about the time that it takes them. I don’t need to worry about writing off that time on the bill. And so all of that stuff, frankly, you know, and and this is the interesting part that we hear from clients is they say, well, you know, you guys have all this AI, and how come you know your profits are still so so healthy in the legal industry? And the answer is because we can actually do a lot more, but on an individual basis, we’re able to do things quicker and more efficiently, and we see that. And we are, you know, working hard to communicate to clients so they can see the kind of cost savings passed on to them.

Alexa Binns 29:37
Yeah, you’re getting Mike Plus, and now back to our LP interview.

Earnest Sweat 29:43
I love that framing of you know being marked or unmarked, or how close are you to that brand, and how much have you built yourself? But this idea of building community and being nodes. The ecosystem is not new, and we’re starting to see more and more people with podcasts. As you talk on a podcast right now, what are you looking for? What have you seen that’s a kind of fresh approach to community building? Yeah, that allows fund fund managers to become more founder magnets, or just you know community, or just I should say industry thought leaders.

Henrik Reimavuo 30:28
Yeah, so I would say there’s sort of the macro idea of this is IRL. Sort of AI can never beat IRL. Post COVID, people want to meet, people want to go to run clubs, and people you know on the venture side, are of course also following this trend to meet people in real life. So events, once again, slush is a part of that. But we, a lot of the managers that we think about, that spend time with, and we like thoroughly, they’re trying to build something very specific for a community that doesn’t exist. I don’t know if you allow shoutouts, but in Europe we have several very interesting people who have built a sort of community ground up. You know whether it’s for operators who work in European high growth startups. You know the founders always have their community of other founders. Let’s say the juniors still are students. Investors have their own communities, but sort of the middle layer, non executive layer of operators really didn’t have something. My former slush colleague ended up creating something, which now actually is a fund, which is very interesting. There’s one gentleman who’s building a really interesting community with sort of a taboo concept, which is also very interesting, also from an investment perspective. So he’s built a community for post-Soviet founders, so people all around the world who hail from sort of the the post Soviet bloc of the world very often Russians who have moved away from Russia several years ago or later and he sort of created a very active community for them to meet and sort of built these nodes in different you know cities and different hubs around the globe to meet and now of course that spurred him to make absolutely insanely attractive investments, and now spinning up a fund on top of that. So, something unique, you know. There’s always, and for me, it’s always that authenticity, whatever it might be, but that authenticity of building something which is truly sort of an extension of yourself. And once it then comes from the perspective of not trying to chase, let’s say something you know financially maybe per se directly, but but something that comes from an inner need that you have felt. There’s another one in the states as well, a very prominent, soon to be a prominent, potentially legendary fund who started with essentially a European embassy in in the United States and now spinning out that into a fund, which is you know a terrific team, and there’s a very good methodology that they’re they’re approaching this by as well. So many examples to cover for sure.

Alexa Binns 32:49
Those are such cool examples and such a variety to think like government folks from the embassy world versus people with Soviet roots. I have a college teammate of mine who has a fund around science fair alumni, and apparently they are giant dorks in every high school across the United States. Yeah, and that’s if you’re a science fair winner, you really leaned into something real nerdy real early. Yeah, yeah, for

Henrik Reimavuo 33:19
sure, for sure. I should do something for Nordic Star Wars fans or something like this. Exactly, exactly. I think,

Alexa Binns 33:26
I think that’s basically like all of the comedy writers that come out of Harvard are basically they would qualify in Europe. Yeah, for sure, for sure.

Alexa Binns 33:37
We’ll give a little overview of what Frame is focused on. The sweet spot is sub 100 million, mostly Europe based or with a strong European link. Can you tell us about the constriction of this, like how you’ve thought about the fund of funds, what’s going to make a successful fund of funds for you, and why you’ve sort of set these qualifiers?

Henrik Reimavuo 34:01
Yeah, just a quick note to the firm because that also explains a lot what we do and how we operate. So the idea was essentially that we are firm in our underwriting, we’re firm in how we operate, and we want to invest in firms. So once again, the sort of quote Bo and I stated very early on was that we are, you know, funds raised and firms built, and we look to invest in those fund firm builders. So that’s sort of the joke about the name. Of course, there’s an innuendo in that. But the aspect once again is really sort of a market need, a market pull. So we talk about a lot of what’s happening in Europe on the LP side. Then it’s usually quite reactive. It seems to be quite passive as well, very often, and it needs a signal to to to be allocated. So very often in Europe, what you can see is that you know if DIF or one of these comes in, then you as a family office or an institutional payer might come in and invest. And on the other side, what we also see is these very very interesting funds that I mentioned here and some others. They might be backed at day one by a prominent GP from a U.S. fund or other sort of high net worth people around their networks, but very rarely do they have institutional backing from a European institution early on. And in many ways, we find that to be a shame. And that was what we wanted to enter the market with this thought. And also in a separate way, many funds of funds are also always driven by incentives that also, once again, tend to be misaligned towards performance. So very often they build huge portfolios and then actually make the money out of creating SPVs for co-investment opportunities into those underlying companies. So essentially, they feed or fund themselves, which once again is a perfectly good business model. It’s a great business model, and if your LPs want that, that’s terrific. But the conversations that we had were about something completely different, where we’re trying to build something quite concentrated to be in a deep partnership with the fund managers that we want to work with. That’s also once again an extension of who we are as people. We want to build those trusted relationships early on. We want to be able to be the same type of VC LP to the VCs as the VCs want to be to the founders and to the founders that they back.

Earnest Sweat 37:00
You told me that you look for both European and U.S. firms, and with any U.S. fund manager that you invest in, you look for some type of European slant. Could you speak a little bit about what those things you look for? Whether it’s like where folks are from, maybe they immigrated into the U.S. or have some commercial relationships.

Henrik Reimavuo 37:25
Yeah, so that’s the core focus. With them, of course, we as anybody were opportunistic to do other things as well. So the core is Europe. The core is managers with a link to Europe. We’re also opportunistically investing in the U.S. and in sort of any fund in the U.S. so we can do all of that. Our take once again: we hail from Europe. We, as I said already, one of the quotes I say again: the market is fragmented. For us, that’s a feature, not a bug. We think that there are really interesting communities, really interesting people who can, you know, once again catalyze those communities from different, you know, pools in Europe, and hence, you know, be a long-term partner from a cultural perspective as well, which in the U.S. is slightly different. There, it’s a bit more. It’s less regional in many ways. It’s more based on the industry of employment or the work that you do or sort of the specific niche where you operate. But in Europe, you have so many cultural differences, where you can be sort of the Swiss German or the Swiss French or the Swiss Italian person for your founder forever, and they want to keep you on the cap table because they understand you and you understand them from a cultural perspective. So that’s one thing that we find very interesting, and sort of the Europe link in the U.S. quite simply is that many are very very interesting, like for example, the embassy that I mentioned. Many others, prominent managers in Europe have moved on to the states to invest in both markets.

Alexa Binns 39:14
How do you sort of balance what you’ve described as sort of like being trend aligned, which is very helpful to your managers, being very like that government funding that follows the up rounds, etc. and being a bit counterculture and looking beyond sort of like the theme of

Henrik Reimavuo 39:40
the day

Alexa Binns 39:40
as you’re assessing, kind of your own balance of your own portfolio, yeah. It sort of sounds like you know there’s a lot of thinking there on how to be contrarian in the right way.

Henrik Reimavuo 39:56
Yeah, for sure. So the best way to venture is, of course, to be contrarian and. Right, and the best way to be a venture investor is to invest in a company before its consensus, and then it shifts into consensus straight away. So there needs to be a narrative arc behind the support around that. So much of the time that we spend with managers is, of course, understanding that if they do very wild sort of bioengineering investments, to understand that there’s actually sort of an you know there might be, you know, still a taboo in that market where where you don’t really do that very actively yet. But there’s a sort of regulation that’s starting to come through that’s giving the opportunity to do that. For example, in the U.S. with peptides and the whole craze towards sort of, let’s say, self medicating in a positive way for the future from a trial perspective, where you see that the trend is going there. There’s like macro trends that are driving towards something like this. Lack of trust in institutions, you know, from a healthcare perspective as well. So there’s these trends that are going that route, and you have a way of finding companies early on who do something, let’s say, scientifically proven, but where there’s still not that sort of underlying pull from the market, but it might shift. So that’s on that side. But as said, from a portfolio construction point of view, you can’t only do that. So that’s why I think the quote from JT about being in the flow or investing in those edges. It’s always a mix of both that you need to need to be doing. Once again, we are trying to build, as said, a concentrated portfolio. We don’t want to have, you know, seven funds in Europe that are doing, you know, defense or dual use. We would like to invest in what, in our mind, would be the the most interesting manager in that space, which would then, you know, perform the best and actually have this sort of portfolio of sort of a missed athlete in in that sense in all these categories and that’s that what we’re trying to build, but but our portfolio construction also doesn’t really come from sort of having these preset conditions of of trying to fit in you know specific managers, but it’s much more driven by by sort of the talent itself first, and then we try to sort of retrofit what the what the portfolio construction might look like.

Earnest Sweat 42:05
It seems like over the last five years we’ve had a real pendulum swing from LPs, specifically family offices and foundations and even fund of funds wanting to do more Direct deals. Before we get into how that impacts fund of funds, what do you think is driving that interest to just go straight to the cap table and invest, you know, your resources and time into direct deals?

Henrik Reimavuo 42:36
Yeah, for sure. I would say it’s once again fundamentally two things. So the first one obviously is that you know you can see the impact that venture has in financial terms, not just sort of sustainability, but in economic terms. So, if you look at the market cap of the biggest companies, most of them are venture backed. Seven out of 10, last time I checked, might have ended a little bit with the AI AI issues. So, it’s very much that. So LPs can see that you know to to be very horrible once again, you know, in terms of what Mark and Resa would say, software ate the world, and and to be very cheeky about it, you can say the venture fed it, and in many ways that of course then feeds into the whole notion that we want to be in in this world and invest into that world. The other side of it is, of course, once again, those companies and this industry have grown by 10x over the last 10, 15 years. With more capital, companies stay private for longer. DPI unheard of. You want to be in the game directly. There’s more access through SPVs, which, of course, might be quite costly for you, but nonetheless, there’s more access. It’s also much more legible. Concentration, great topic that’s been discussed already. No need to rehash it. So it’s easier to read the markets. It’s easier to understand what companies you need to be in. It’s easier to see the power law and get access to that. So all these factors for me are quite evident in why people are doing what they’re doing, and once again, why that gives opportunity for for you know the other side of the market, who you usually cover here as well, the emerging managers to step in and sort of take this early side of of the market.

Alexa Binns 44:09
And what can you share with us about fees, like whether you’re passing a co investment on directly? Yeah,

Henrik Reimavuo 44:18
yeah, yeah, for sure. So for us, we don’t live by fees. We try to be you know long-term greedy is maybe the way to push it. We try to be an incentive line of scent. That’s our take on this business. It’s a long-term game. There are many many people in the industry who of course now are selling ridiculous SPVs and doing a big big bank on that, and that’s great for them. But for us, it’s not really the way to venture. So as said, what we’re building here is sort of a you know co investment loop where it’s completely open, fee free for our LPS. They can do whatever feels right for them to up their risk reward ratio. For us, we’re fully incentivized by performance. That’s the way we operate. Rate we’re a little bit more sharp on sort of upside carry in that regard as well, which our LPs are very happy with. They understand that we are sort of a performance drive and fund of fund, not the fee feeder fund. Even though we feed them a lot, like cheap you know, fee less investment opportunities. So that’s how we approach it. It’s not how the broad market approach is. It’s not that unique. It’s just how we feel we can have the best impact, and what also fits into our long-term strategy, which we haven’t shared yet, and will be sharing later when that’s relevant. But that’s all fitting into this theme that we have towards what we think the role of a fund of fund could be in the future.

Earnest Sweat 45:42
To that point, what do you think the role of the fund of fund will be over the next 10 years? With you know there being such a movement towards direct deals by traditional LPs.

Henrik Reimavuo 45:55
Yeah, in many ways, you could think about it as a filter, with a clear understanding of the incentive structure of those underlying sorts of clients in this case being LPs. So based on whoever your LP is, having a filtering mechanism that fits the requirements of those LPs is very interesting. So hence most of what we’ve been seeing is this sort of broad indexing approach, where the LPs, in some cases, just want to have exposure to as many companies as possible. What we’ve heard from from some LPs that invest into fund of funds, they say that what they actually do is they they would hope to just have a 1x return on the fund of fund, but they want those those companies those direct investment opportunities that they get to sort of be be then that that sort of pre filtered mechanism of already sort of following them for a while understanding from the inside of what’s happening with those companies and then sort of picking and choosing companies. Our view, of course, is that it’s very hard to sort of pick and choose and get into those best cases because usually founders want to have someone on the inside, someone close by, some reputable people on board who’s done this, you know, from the inside. So usually that ends up being a very sort of strategic approach. And for us as well, specifically in Switzerland, very often you know venture in essence from a family office side is very sort of strategic and very business development oriented as well. We operate in the exact, you know, same business line as your principal interest is. So, for us, you know, that’s still going to be something that a fund of funds can do quite well in the future, just by sort of doing what their own LP sort of wants them to be doing. And our approach is, of course, to do that, but with a more sort of deep relationship, but still have as we do with these, you know, benchmarks and so forth. With the emerging manager map, have a broad scope of understanding the market. You know, try to make good introductions, but then us and our focus is quite deep. That is dead.

Alexa Binns 47:56
Firm Capital has made a couple of these great resources. You just mentioned the emerging manager map. Another I would recommend everybody take advantage of is the benchmarking tool VCFFBBInchmarks.com. You pulled together all this data. What PitchBook, Carda, Cambridge Associates? What would you say are some takeaways for you having built this tool on who’s top quartile?

Henrik Reimavuo 48:24
Yeah, I have a toggle around that as well. When you click it, it shows you which metrics actually show you as top quartile. So you can just export that and send that URL piece or the broader universe or you know your mother and dad to to show off as a joke. And then, if you don’t happen to be in the top quarter, there’s a message for you as well. So we try to be a little bit cheeky, cheeky with these things. But in many ways, of course, it falls back to the same thing. That of course, you know, whether it’s let’s say you know the new ways how founders talk about ARR, or of course how VC managers talk about Mike. There’s always something underneath, and so this for us, you know, it sort of is something. Everything that we’re building is usually an internal tool that we then feel that we want to externalize and usually do something more or less serious about that. And with that benchmark, it was the same thing. Every conversation we have, everybody talks core, also that doesn’t even matter, and we don’t really look at the numbers. Once again, we’re trying to understand the person, what’s driving them, what fears they have, strengths and weaknesses, and do that in a much more rigid way.

Earnest Sweat 50:10
I think we should end on this last question. You joked in our pre-conversation that Finns make poor salespeople because they say it how it is. What’s the most transparent thing you wish more LPs would say out loud?

Henrik Reimavuo 50:25
Well, they should just answer their messages for one. It’s pretty pretty funny, and then the other side is just saying no. It’s something that that for us came from from what we did in direct investing as well. I’m a you know notorious people pleaser who has worked through that a little bit, them saying no all the time. In venture helps, but for us, what we tried to do was always say no face to face. Like as soon as we knew that this is not going to work for us for any reason, be very transparent with saying no for what the real reason is, and it’s always a human issue. In many ways, of course, there might be a portfolio construction thing and yada yada, but usually it’s a human issue, and try to be as honest as possible with these things. Once again, while we talk about this sort of proactivity, directness, transparency, which for us is lacking. So just answer your mails. That’s one thing, and be honest with what works for you, what doesn’t. Even for us, when we’re talking to LPs, and once again we’re completely fresh into this line of work, it’s it’s really you know surprising how few people actually just tells us what’s interesting because once again we’re trying to build this understanding of who’s doing what where we can be helpful you know once again what we built this these tools as well to be able to supply our friends with that type of you know relationships and connections that are are are useful for them, but but usually that’s very difficult with LPS. We’re very secretive, specifically in Europe. So in the U.S. it’s of course slightly different. It’s more financialized. In Europe, it’s very very secretive in many ways. So just answer your email. Just say you know hello, not for us. No, in any of them you know 3040 languages.