Nov 27, 2024 · 1h 13m · news
Klaus Hommels: Why "Portfolios are Merely a Construct to Make LPs Happy"? | E1231 · 20VC with Harry Stebbings
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In this deep-dive podcast episode, venture capitalist Klaus Hommels, founder of Lakestar, challenges traditional investment norms and shares his philosophy of active, high-conviction relationship-building while addressing Europe's structural funding crises, the critical need for defense technology, and the stories behind his legendary early tech bets.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 19.8% of the talking time here. How this is scored →
Harry as informed peer 2.9 Guest teaching 4.2 Guest disagreement 1.9 Harry pushing back 2.5
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:42 Rejection of Defense Portfolio Limits
Klaus flatly rejects the quote from Anduril's founder that defense is not a category, citing Uber's initial small TAM estimation as proof of market expansion.
Hardest push from Harry ▶ 11:57 Pushback on European Innovation UnderfundingHarry directly challenges Klaus's thesis on European innovation underfunding by arguing that too much cash is chasing too few quality deals, causing inflated valuations.
Biggest teaching moment ▶ 28:31 Startling Defense Vulnerability RealitiesKlaus stuns Harry with specific military facts, noting Germany and the UK have only four days of ammunition and US fighter jets require remote US clearance before starting.
Harry holds his own ▶ 19:46 Dismantling Pension Fund Allocation RealitiesHarry demonstrates industry knowledge by challenging pension fund check size dynamics, arguing large allocations force commitments into mega-funds with uninspiring 2x returns.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| The True Essence of Venture Capital | 1 | 2 | 0 | 0 | Harry opens with an warm introduction and asks about Klaus's Puma stock origin story. Klaus explains how his grandmother inadvertently launched his investing career by offering to cover his stock market losses. | |
| Early Investment Mistakes and Humility Lessons | 3 | 3 | 2 | 4 | Harry challenges Klaus's rule of taking a pause after big investment wins, arguing that early success should prompt double downs on outlier assets. Klaus clarifies his position by differentiating opportunistic money from deep founder alignment. | |
| The True Definition of Venture Capital | 2 | 3 | 2 | 2 | Klaus defines venture capital as acting like outsourced business development rather than dictating from an office tower. Harry asks about the transactionalization of founder relationships, which Klaus gracefully reframes. | |
| Content Creation, Self-Promotion, and the Evolution of Venture | 2 | 6 | 3 | 2 | Klaus mocks self-promoting investors sitting in Soho House while explaining the macro mechanics of European venture. He details historical banking regulation shifts that dropped innovation funding from 4 percent of GDP down to 0.5 percent. | |
| Structural Shifts and the Quality of European Technical Talent | 5 | 4 | 3 | 6 | Harry directly rejects Klaus's macro underfunding thesis, arguing Europe has too much capital chasing too few quality deals. Klaus responds by distinguishing short-term cyclical market noise from deep structural improvements in technical talent. | |
| The Liquidity Crisis and the Frankfurt Stock Exchange Photo Anecdote | 3 | 4 | 2 | 2 | Harry queries the lack of local European stock liquidity, leading Klaus to share a story about Deutsche Börse attempting to charge 400,000 euros for an IPO photo opportunity. | |
| Reforming Capital Pools and Pension Funds | 5 | 6 | 3 | 6 | Harry pushes back on Klaus's pension reform proposal, pointing out large US pension checks end up in bloated multi-billion-dollar funds delivering mediocre returns. Klaus counters by showing even average fund yields beat current European retirement models. | |
| Geopolitical Risk and Deep Tech in Defense | 4 | 5 | 4 | 5 | Harry cites an Anduril founder's opinion that defense cannot form an independent portfolio category. Klaus outright rejects the premise using Uber's market expansion history and criticizes traditional portfolio constraints. | |
| Sovereignty, Munitions, and Europe's Vulnerabilities | 3 | 7 | 2 | 2 | Klaus educates Harry on severe European defense vulnerabilities, citing specific stats including four days of ammunition supply in Germany and UK and foreign operational controls over sovereign weapons. | |
| The Geopolitical Defense Spending Debate | 3 | 4 | 2 | 3 | Harry probes European defense spending inertia and political hurdles. Klaus acknowledges Donald Trump raised valid points regarding European defense free-riding. | |
| Procurement Bottlenecks and Economic Repercussions of Defense Spending | 4 | 6 | 2 | 3 | Harry asks if shifting GDP spend to 3.5 percent is realistic. Klaus presents study findings illustrating how defense capital allocation generates direct domestic GDP and tax recovery effects. | |
| Effective Defense Capital Allocation and the Future of Prime Contractors | 3 | 6 | 1 | 2 | Klaus calculates market capitalization potential for defense tech and compares prime defense contractors to distribution-heavy pharmaceutical giants. | |
| Capital Scaling in Deep Tech and the Neco Investment Story | 4 | 5 | 1 | 2 | Harry notes the unique multi-faceted skill sets required for defense founders. Klaus shares his investment story in Neko Health, highlighting his immediate flight to Stockholm to secure the deal. | |
| Price Sensitivity and Valuation Ethics | 3 | 4 | 3 | 3 | Klaus emphatically denies being price sensitive, arguing top companies are worth premium valuations while weak deals remain unviable at any discount. | |
| Early Spotify Backing & Non-Obvious Bets | 2 | 3 | 1 | 1 | Klaus recounts early non-obvious investments like Spotify, Skype, and Airbnb, emphasizing how non-consensus bets often appear flawed at inception. | |
| Capitalizing on Revolut's Hyper-Growth | 2 | 3 | 1 | 1 | Klaus describes how his son's enthusiasm over dinner prompted him to order his investment team onto Revolut's capital table, followed by his entry into Facebook through Matt Kohler. | |
| Preempting Rounds and the Cowboy Era of VC | 3 | 4 | 1 | 2 | Harry asks about preempting investment rounds in off-market settings. Klaus describes the earlier cowboy era of venture and reflects on major financial losses that led to subsequent lucrative wins. | |
| The Discipline of Selling and Accepting Missed Gains | 3 | 3 | 1 | 2 | Harry brings up missed liquidity opportunities like BeReal and Hopin. Klaus accepts missed peak gains gracefully using his early King.com investment as an example. | |
| Quick-Fire: Most Respected Investors and Lessons from Daniel Ek | 2 | 3 | 1 | 1 | In a quick-fire round, Klaus praises Lee Fixel and Daniel Ek, emphasizing that founder gratitude means far more to him than mathematical fund multiples. | |
| Quick-Fire: Embracing Fatalism in Unmade Decisions | 2 | 3 | 4 | 2 | Klaus shares fatalistic views on past decisions and offers candid, sharp criticism regarding complacency and societal distractions across European tech hubs. | |
| Quick-Fire: Predicting Neko Health's Potential | 2 | 5 | 1 | 1 | Klaus explains why Neko Health could surpass Spotify by contrasting the total addressable market of music with global healthcare spending. |
Statements from this episode (52)
Klaus Hommels: Venture capital isn't about sitting back and passing judgment
“Venture is not sitting in a nice office with borrowed power of LPs and playing like in old Caesar's times, thumbs up, thumbs down.”
Klaus Hommels: Having one or two standout investments makes any portfolio successful
“I'm not so keen of building portfolios. If I find cool companies that make a difference, that is where the beef is. And if you have one or two of them, every portfolio looks great.”
Hommels: Pause investing for three months after big wins to avoid hubris
“So I had a rule for long that when I had a, Exceptional hit. I would stop investing for three months because success makes you fear that you can walk over water and you needed to force yourself to have this humbling moments to say, oh no, no, no, no. That was …”
Klaus Hommels: Founder-focused early stage investing does not scale with money
“I'm always intrigued by the technology or by the founder, and this doesn't scale with money so much.”
Klaus Hommels views his investor role as outsourced business development
“Because I do want to fall in love with the founder and the business, because at the end, I'm a, I look at myself as an outsource business development guy.”
Hommels: Heavy social media use correlates with operational inefficiency
“So what I really, really despise is vanity. So there is a high correlation between people that post a lot. Or tweet a lot, or whatever. So using social media a lot, and efficiency.”
Hommels: Regulatory shifts stop European banks from financing startups
“Today the regulation has changed. Banks do not finance innovation and startups anymore.”
Hommels: Europe under-finances innovation by 8x compared to historical levels
“And in Europe, we are at all .5% of GDP. So we are under financing innovation by factor eight in comparison to the levels that made us wealthy in the fifties, sixties, seventies.”
Stebbings: Europe Has Too Few Good Startups for Available VC Capital
“When you look at deal cycles, when you look at deal pricing, when you look at quality of deals, I think we have dramatically too few good companies for the amount of cash that we have, which is why we're seeing the exorbitant prices that we are in Europe.”
Hommels: 2000s European Tech Lacked Technical Founders and Genuine Innovation
“If you think about the 2000 and early 2010, there were no technical founders. So that, and I thought lengthily about In fact, why is that? Because we had the copycat nations where the Samba brothers built the machine rocket internet, but this was basically an …”
Hommels: Top European Universities Are Producing Genuine Tech Innovation, Not Copycats
“If you now look at ETH or the Technical University Munich or the KTH in Stockholm, the quality of The founders is very, very different. You barely have any copycats anymore. You really have general, genuine technological innovation and ideas.”
Klaus Hommels: European pension funds invest just 0.02% in venture capital
“And the European pension funds invest oh point oh two percent in venture.”
Hommels: American pension returns far outperform German funds by retirement
“For example, if you have a normal worker that pays in a thousand euro a month at the age of 20, 20 something, and when he is 64, with a German pension fund, he has 750,000 bucks, in an American one, 3.5 million, just because of compounding of higher yielding a…”
Stebbings: Multi-billion-dollar VC funds perform poorly and max out at 2x
“They are investing respectfully in immensely large funds that everyone in the business knows will do at best two X. At best. They are enormous. The three, four, five plus billion dollar funds. And, bluntly, they're not very good. They're not great assets.”
Hommels: Uber's San Francisco revenue exceeded the total initial taxi market
“So at, look at my famous quote always is when Uber started in in San Francisco, people said, but the taxi market is only two hundred fifty million, and today Uber's revenue in San Francisco is six hundred million.”
Hommels: Venture portfolio construction exists only to satisfy institutional LPs
“It is a, it's a mean to an end. You have to build portfolios in order to get money from institutional investors. But on the way there, you make a lot of concessions.”
Hommels: Low-cost autonomous defense hardware destabilizes legacy military equipment
“You have a thousand euro drone that takes us a ten million tank. You have a 500,000 submarine, yeah, unmanned, which can take out a five hundred million The submarine, the classical one, and the same for basically every category.”
Hommels: Russia's PPP defense spending exceeds all NATO member states
“So, for example, everybody says, yeah, but Russia has the capacity or the economic power of something between Portugal and Spain. But in terms of purchase power parity, they're spending more on defense than the entire NATO member states.”
Hommels: Germany and UK have only four days of ammunition left
“The ammunition is, is a cruel one, yeah. So, so the numbers I have from the military is like four days in Germany and UK and five in France, which is 25% more, but it doesn't make a difference.”
Hommels: Hypersonic weapons reduce US presidential reaction time to 12 minutes
“So, for example, that with the new hypersonics, if they have a warhead, the reaction time of any The US president is 12 minutes.”
Hommels: US fighter jets require real-time remote US clearance to start
“Even if you buy US fighter jets, Yeah. So the way how it works is you are the owner. It stands somewhere in the hangar, and you want to, you know, start flying. You have to put it in the way where, where you want to fly, and then this data is sent to the US, a…”
Hommels: Europe cannot independently launch satellites after Ariane sold capacity
“Yeah, currently we either we get a slot in a SpaceX, yeah, with all the with all the restrictions that there are, or we have Ariane, but Ariane base lastly sold a hundred percent of the defense transport capacity to Amazon. So basically, as Europeans, we are, …”
Hommels: Trump is right that Europe naively expects others to fund defense
“Trump has a point, because it's pretty naive to think that everybody else pays and we don't need to pay, yeah.”
Hommels: 60% of Germany's 1.4% GDP defense budget goes to salaries and pensions
“Not only didn't we pay two percent but whatever we paid of the 1.4, 60% of that is salaries and pensions. It's not that you buy equipment and become more able to defend yourself.”
Hommels: Rheinmetall's Dortmund sponsorship was coordinated with politicians to normalize defense
“Rheinmetall has become sponsor of Borussia Dortmund. So this is also done, this deal, in, in sync with the politicians to bring this topic in the midst of the population and make it visible to everybody.”
Hommels: Most European nations historically spent 3.5% of GDP on defense
“I commissioned a study, so which, in which I analyzed all this kind of stuff, yeah, and so I clearly came out that in terms of threat, historically, most of the European countries have spent in the vicinity of three and a half percent. Poland is at six or seve…”
Hommels: Drone warfare will shift from single operators to autonomous swarms
“You had like one drones, yeah, that got flied by one soldier, and then you have the next development will be swarms, and then you will have be attacking swarms and defending swarms”
Hommels: European defense spending creates $50B annual market for tech startups
“Deep tech investors that have the good ties into the MODs Have a fantastic chance now, because if we think about, ah, two, two percent investment in defense of GDP, and five percent of that in, in basically in tech, buys us fifty billion demand from NATO membe…”
Hommels: Defense primes resemble pharma giants focused on regulation over innovation
“The pharma industry, if you think about innovators, they are basically a gigantic organization if it comes to distribution and regulation, but not invention. So, a big prime as Moloch in distributing because they have I have years and years of lobbying into th…”
Hommels: Relying on US growth capital compromises European tech sovereignty
“If the gross capital is always provided from the US, then basically you are abolishing your own sovereignty at that stage already again, because then you have the influence in the boards, which then comes from the big investors, which might have at some point …”
Hommels: US allocates $94B annually to defense R&D versus Europe's $9B
“The US defense budget has like, 14% R&D, which translates into ninety-four billion own R&D a year, which is, ah, allotant, which is proprietary findings that then finds its way. In Europe, it's four percent, and so nine billion.”
Hommels: European defense depends on VC innovation far more than US
“So, the necessity, when it comes to embracing innovation To cooperate with the VC world and VC-financed innovation is way, way higher in, in Europe than it is in the U.S.”
Hommels: Issued Neko Health term sheet same day after testing product
“I changed the direction and didn't fly to Munich. I flew to Stockholm. I was two hours later in Stockholm, had my scan, went through everything, and I issued the term sheet the same evening.”
Hommels: Price sensitivity does not matter in venture capital investments
“Because the good things, I would still do them, the good companies I've invested in, even if they were 30% more expensive, and the shit, I don't want to have it, but it's worth 30% cheaper. So the beauty is, I'm not in the buyout where buying makes a differenc…”
Hommels: VCs need meaningful ownership so wins actually move the needle
“I do think that you need to have ownership in that sense that some of the crypto funds that I'm seeing, they invest many, many, many companies, very, very small sums, so it never makes a difference if you're right. So you need to make sure that it makes a diff…”
Hommels: Spotify had no music rights when he evaluated investing
“So you could say when the time I was looking at Spotify, it was, I'm not sure, I wouldn't say it's illegal, but we had music and we didn't have the rights.”
Hommels: Skype lacked a business model when he invested
“So at the time when I invested in Skype, there was no business model, because with Skype out wasn't even invented.”
Hommels: Invested in early Airbnb after pitch from Guy Oseary
“In the case of Airbnb, it was a discussion I had with Guy Ozieri with the manager of Madonna, and we were chatting, and he basically was advertising it so heavily and tried to convince me, and I think at the end, I followed his logic, and luckily I made that d…”
Klaus Hommels: Revolut is the European tech ecosystem's biggest blessing
“Revolut is it's, I think it's the biggest blessing that we have in the European ecosystem currently as a company”
Lakestar's UK team originally missed investing in Revolut
“We basically, we missed it in, in in the UK team at the time”
Hommels Secured Early Facebook Shares via Benchmark Partner Matt Kohler
“And at that time I needed to figure out how I get into it, and then I, for two months, called everybody I knew in in In the valley, and I ended up with Matt Kohler, like a little coincidence, because I was at Benchmark as a VC, and he was with Benchmark, and s…”
Hommels lost 60% of his personal wealth on startup Wunderloop
“So my biggest yeah, nightmare, I wouldn't say, but at that time it was a pretty nightmare, was a company called Wunderloop, where basically I worked with a friend of mine, like three, three and a half years, just to lose 60% of my wealth.”
Klaus Hommels invested in King.com at a $2.5M valuation
“So I got in at king.com at two and a half million and sold something at a hundred and I could have sold at five billion.”
Klaus Hommels on managing family time while building his venture career
“I very consciously decided to be basically, during the 12, 2000, at home at five or six, Yeah, and then we had supper, then we did homework, and then I brought them to bed, and then at nine I sat down at the desk again.”
Hommels: Lee Fixel Led Tiger Global's Top Emerging Market Deals in His Twenties
“So, when he was at Tiger, so he was in MercadoLibre, he was in Yandex, he was in Flipkart, and it basically, it was A one man show on the plane, starting there was 28, 29.”
Hommels: Spotify's Daniel Ek Thinks Deeper Than Others and Holds Uncompromising Ethics
“Crazy persistence and patience. Things at least two levels more profound than others. It's very logical and it's always a very friendly and well-rounded character. Yeah. And he has uncompromising ethics in everything he does.”
Hommels claims six or seven investments returned over 100x, including one 1000x
“I have something like six, seven investment more than a hundred times money, one even thousand times, and some more like six or so in the range of 30 to 60 times money.”
Hommels: Top European founders match US drive, broader base is entitled
“So I think on the very top of the pyramid, it's exactly the same. You will, people fight like maniacs, and there is everything that you do in order to get somewhere, but I think the broader base under the bell curve is more complacent, more entitled,”
Hommels: Music is an okay market, but not monster big
“So at the end, music is not a big market. It's an okay market, but it's not a monster big market.”
Hommels: US heart disease spending rivals Apple's total global revenue
“That the pay, the sum of what the US spends on heart diseases and medication, all that kind of stuff in the US is, is in the vicinity of Apple's revenue worldwide.”
Hommels: Happiness requires pleasing both your 8-year-old and 80-year-old self
“There are two things that make me, would make me happy, and that's the final word then. I need to be proud, proud of my eight-year-old me, what I have achieved and what I've dreamt of, and proud of my eighty-year-old me. When I look back and say, how, how have…”