Nov 20, 2024 · 1h 4m · news
Cem Sertoglu: Lessons from the Greatest Venture Investment in European History | E1228 · 20VC with Harry Stebbings
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Cem Sertoglu, Managing Partner at Bek Ventures, shares his journey as a founder-turned-investor, detailing how his firm turned a $16.5 million fund into a $2.1 billion return through its historic early backing of UiPath while offering profound insights into boutique portfolio strategy, risk tolerance, and founder-investor alignment.
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 21.5% of the talking time here. How this is scored →
Harry as informed peer 3.9 Guest teaching 3.6 Guest disagreement 1.5 Harry pushing back 2.9
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 5:54 Disagreeing with Doug Leone on VC commoditization
Cem explicitly rejects Doug Leone's quote and Harry's assertion that early-stage venture capital has become a commoditized, low-margin industry.
Hardest push from Harry ▶ 22:48 Harry's pushback on cash as a commodityHarry forcefully challenges Cem's philosophy of board quietness, arguing that VCs sell cash as a commodity and function primarily as marketing machines.
Biggest teaching moment ▶ 25:39 Reframing early rounds as alignment contractsCem re-educates Harry on early-stage valuation mechanics, explaining that seed checks are not financial trades but alignment constructs buying out-of-the-money call options.
Harry holds his own ▶ 13:22 Harry calling out seed stage unit economics concernsHarry directly calls out Cem's take-rate and margin concerns on Taxify at Seed, sharing his own pre-seed misses like Deel and Vanta to prove founder quality trumps category logic.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Cem Sertoglu's Journey from Founder to Angel and Venture Capital | 1 | 1 | 0 | 0 | Harry asks open-ended background questions on Cem's journey from founder to angel and VC. Cem provides a friendly overview of his thesis and career path without pushback from either side. | |
| Venture Capital Dynamics in Regional Markets | 3 | 3 | 1 | 2 | Harry brings up tourist capital dynamics from 2021 and asks whether Cem sits on the sidelines during market sprees. Cem explains how non-local VCs miss regional founder signaling nuances. | |
| The Myth of Commoditization in Early-Stage Venture Capital | 5 | 4 | 4 | 5 | Harry cites Doug Leone to argue that venture is getting commoditized by multi-stage firms taking seed rounds. Cem directly disagrees with Leone's premise and argues that top founders seek co-founder-like alignment over pure cash. | |
| The Valuation Paradox and the Power Law in Action | 4 | 5 | 2 | 3 | Harry presses on valuation discipline and mathematical impact on fund multiples. Cem illustrates the power law with UiPath, which returned 2.1 billion dollars from a 16.5 million dollar total outlay. | |
| Missed Opportunities and Investment Prioritization Stack | 5 | 3 | 2 | 6 | Harry directly challenges Cem for passing on Taxify's seed round due to take-rate concerns, arguing margin structures at seed do not matter. Harry backs his argument by citing his own pre-seed misses with Deel and Vanta. | |
| Portfolio Concentration, Board Dynamics, and the Value of 'Care' | 4 | 3 | 1 | 2 | Harry shares his own misstep passing on 11Labs over low ownership while discussing boutique firm differentiation. Cem explains why high partner concentration and care win against asset-manager VCs. | |
| Scaling Challenges and Boardroom Quietness | 4 | 4 | 2 | 3 | Harry asks about board mechanics and delicate founder communications when companies trail off sideways. Cem advocates for board quietness and disciplined preparation over constant vocal intervention. | |
| What VCs Really Sell: Time, Attention, and Capacity | 5 | 4 | 4 | 6 | Harry offers direct pushback against board quietness, arguing that VCs sell cash as a commodity and operate as marketing machines. Cem firmly rejects the framing, asserting VCs sell limited partner capacity and time. | |
| Early Rounds, Manufactured Processes, and the Comfort of High Risk | 4 | 4 | 2 | 3 | Harry discusses market dynamics like 100 million dollar seed rounds and pre-seed eradication. Cem re-educates on early-stage mechanics, framing seed investments as alignment call options rather than financial trades. | |
| GP Commitments, LP Alignment, and Regional vs. Global Risks | 4 | 5 | 2 | 3 | Harry explores how LP alignment and GP commitments function for emerging vs established managers. Cem shares an insightful LP challenge regarding high GP commitments creating risk aversion and contrasts VC global tech exposure with regional PE risk. | |
| Meeting Daniel and First Impressions of UiPath | 3 | 3 | 0 | 1 | Harry asks Cem to recount meeting UiPath founder Daniel Dines for the first time. Cem recounts Daniel's initial technical focus, pragmatic mindset, and unpolished go-to-market storytelling. | |
| Structuring the Seed, Bridge, and Later UiPath Rounds | 5 | 5 | 2 | 4 | Harry presses Cem on check sizing and valuation negotiations across UiPath's seed, convertible bridge, and later rounds. Cem outlines the 14 VC rejections, the bridge valuation dispute, and underwriting 10 million dollars at a 1 billion dollar valuation. | |
| Managing Liquidity: Secondary Sales and Divesting Post-IPO | 4 | 4 | 0 | 2 | Harry inquires about liquidity discipline and strategic divestment. Cem details executing secondary sales at a premium to primary rounds and reducing holding prior to the public listing. | |
| Venture Fund Structures, Succession, and UiPath Lessons | 4 | 4 | 1 | 3 | Harry asks how successful VC partnerships prevent team decay and manage public stock holdings. Cem explains why firm edge decays post-IPO and advocates building long-term firm succession over a family office structure. | |
| Rethinking Risk: Low Loss Ratios and Lessons from Failure | 4 | 4 | 1 | 2 | Harry probes Cem's loss history and downside protection mindset. Cem reflects on Fund 1's low loss ratio (3 of 15 lost), admitting it indicated they took insufficient risk on higher-upside bets. | |
| Navigating Follow-on Conviction and Cyclical Market Liquidity | 4 | 3 | 1 | 3 | Harry predicts that most 2021 vintage funds will not achieve 1x returns due to closed M&A and IPO channels. Cem agrees that vintage is the primary driver of performance but emphasizes staying committed to core strategy. | |
| The AI Wave: Applied Software vs. Foundational Models | 3 | 3 | 1 | 2 | Harry conducts a quickfire round covering AI application vs foundational models, cap table leverage, and investor role models. Cem highlights that founders severely underestimate their leverage on cap tables. |
Statements from this episode (39)
Cem Sertoglu: Bek Ventures Fund 1 achieved 20x MOIC, 85% from UiPath
“The best single venture investment, you know, 16 and a half million investments that has brought us back to .1000000000 dollars in proceeds. So fund one is 20 time multiple on invested capital. 2.7 of that is non UiPath. So about 85% of the proceeds of fund on…”
Cem Sertoglu: UiPath grew $1M to $100M ARR in 21 months
“I believe a UiPath went from a million to a hundred million ARR in 21 months. At the time that was, I think, the fastest ever.”
Sertoglu estimates his overall angel investing track record yielded a 10x return
“I haven't done the math. I can get it to you later on, but it must have been about 10 X overall.”
Sertoglu: Foreign tourist capital repeatedly rushes into and retracts from regional markets
“It happens in every cycle they rush in and then they rush out very, very quickly. And also when they rush in, they miss, miss out on the nuances of the region.”
Sertoglu: Early-stage VC cannot be commoditized or scaled with capital
“I don't think it is getting commoditized because it's limited. It's, you cannot scale it by just pouring money on it.”
Stebbings: Founders prefer fast, hands-off capital over hands-on investor partners
“Honestly, founders want quick cash at a good price, and generally don't want someone to be involved too much, is what I see.”
Sertoglu: Doubling UiPath's seed valuation would not have impacted fund returns
“For UiPath, if we'd done the seed round at twice the valuation, it wouldn't have really, you know, made a, made any difference. It would have still been a fantastic outcome.”
Sertoglu: Passing on Bolt's seed round was Bek Ventures' biggest loss
“I mean, one example that's probably our biggest loss is we met Bolt, the car ailing company, and they were called Taxify at the time, a small Baltics ride-hailing company, and even though, you know, Marcus, the founder, was extraordinary, we really couldn't se…”
Stebbings: I passed on pre-seed rounds for both Deel and Vanta
“I turned down Deal and Vanta at Preseed, and I did both the times because I knew the founders were amazing, but I just didn't like the business, I didn't like the category, something else other than the founder.”
Sertoglu: Bek Ventures' early UiPath check returned 12.5x the entire fund
“In the case of UiPath, I mean, we thought it could return the fund. I mean, it has returned 12 and a half times the fund already, so that's been, you know, very miscalculated analysis, but we do do it.”
Sertoglu: Bek Ventures partners average one to two investments per year
“When you are a small partnership, I mean, in our firm for every fund, each partner writes about four or five checks per fund. So in kind of each vintage, we're talking each year, we're talking about one or two investments at most.”
Stebbings: Passing on a 2% stake in ElevenLabs was a major mistake
“My biggest mistakes, most recently, 11 Labs in particular, is where I was like, you got like two percent, and I was like, it's just not enough. And actually two percent would have been great in hindsight.”
Sertoglu: Prematurely assuming product-market fit is the biggest scaling impediment
“I think the biggest impediment to that scale for some companies is assuming product market fit prematurely and being tempted into going into hyperscale mode prematurely.”
Sertoglu: Headcount is the easiest metric for startup founders to inflate
“First of all, ours is a, is an industry that fetishizes growth. And as you know, the easiest metric to grow for a founder is headcount.”
Sertoglu: Venture capital is the only asset class where assets choose investors
“You know, we're the only asset class where the asset chooses the investor, right?”
Sertoglu: VCs sell time, attention, and portfolio capacity, not cash
“I think our, what we sell is not our cash. The cash is available. It's I mean, the seed and a rounds are flush with New capital coming in all the time. So I think what we sell is our time and attention and capacity, and we're selling one of those 20 slots in t…”
Sertoglu: Seed and Series A Rounds Are Alignment Contracts, Not Investments
“The early rounds are not real rounds. There are contracts where you're demonstrating alignment around, around a target that is very far out ahead. I mean, every early stage check, you're buying a very out of the money call option on these businesses. So it's n…”
Sertoglu: We intentionally disagree with founders during term sheets to test dynamics
“We usually try to disagree with the founders in the term sheet process at least once so that we kind of see the dynamics of what happens around that.”
Sertoglu: Bek Ventures Passed on Rushed Deals, Not High Valuations, in 2021
“In 2021, when the market was in a frenzy, we would never categorically pass on evaluation, so we've written very expensive checks in that period, but we would categorically pass on not having enough time to understand the business and digest the opportunity”
Stebbings: $5M checks at $25M valuations were 20VC Fund 1's worst performers
“The worst performing segment of our seed portfolio on our farm one was five on 25, because they had too much money too soon, there was a lack of focus, a lack of urgency, and actually they struggled to raise their next round because it was already at too high …”
Sertoglu: Bek Ventures partners committed nearly 10% to their $250M fund
“We think a lot about GP commitment size. We have a very high GP commitment in the fund, and what is it? It's close to 10% of a two hundred and fifty million dollar fund.”
Sertoglu: Holding Emerging VC Managers to High GP Commitments Is Inexcusable
“I think that's inexcusable to hold a young emerging manager to that to that hurdle.”
Sertoglu: Founders originating from Eastern Europe typically lack executive polish
“Our Eastern European-rooted founders are not polished.”
Sertoglu: Every single European VC passed on UiPath at least once
“I think that every single European VC has passed on UiPath at least once.”
Sertoglu: VC reserves exist for overlooked companies that defy standard molds
“And that's what we, that's what our reserves are for. Our reserves are for those companies that will be misunderstood by the market or overlooked by the market because they don't fit into the mold.”
Sertoglu: Earlybird passed on UiPath's $3B round and began divesting at $7B
“Then when Sequoia led the three billion dollar next round, we sat it out. We did not participate. And then when the seven billion valuation series C happened. Was it C or C or D? I can't remember. But then we started to carefully divest.”
Sertoglu: Earlybird sold UiPath secondaries at a premium to primary rounds
“I mean, our secondaries were all at a premium to the primary round. So there was, each round was so oversubscribed that we were able to actually sell at a premium our share class you know, shares that are at a lower class on the liquidation stack.”
Sertoglu: Earlybird returned 3-4x its fund via UiPath secondaries before IPO
“We were still the largest shareholder going into the IPO in the company but you know, we had also realized you know, already, I think Three, four times the fund at that point.”
Sertoglu: Early-stage VCs lose their edge once a startup goes public
“Once the stock is public, we felt that we have lost our entire edge in trying to Manage that investment. And I think as early stage investors, our job is to then leave that decision to our LPs.”
Sertoglu: 10-year fund life is too short for early-stage VC funds
“I think a 10 year life for a seed and a Focused fund is too short. This is evidenced by the fact that almost, I don't know a single early stage VC fund that was liquid by year 10.”
Sertoglu: Earlybird should have participated in Sequoia's $3B UiPath round
“In hindsight, we should have participated in that three billion dollar round by Sequoia.”
Sertoglu: Bek Ventures' Fund 1 returned capital on 12 of 15 deals
“In fund one out of 15 investments, only three of them did not return capital for us. Now, six companies are still live, but we expect to make money from all six of them, so they will not be lost. So we will have made A positive return out of, on 12 out of 15 i…”
Sertoglu: Downside protection terms like liquidation preferences are overrated
“I think it's overrated. You know, as I mentioned before, our deals, our investments, are not real investments the way you go by Apple shares on the stock market. They are long-term contracts around a vision, and ultimately it doesn't really move the needle tha…”
Earlybird Funded UiPath's Bridge Round When Other VC Funds Refused
“We've done, I mean, the bridge round at UiPath, no great fund was touching the company, and we had to build our conviction internally.”
Sertoglu: A VC Fund's Vintage Is the Single Biggest Predictor of Performance
“I think a very humbling fact is the biggest predictor of a fund's performance is its vintage.”
Sertoglu: The majority of 2021 vintage venture funds will not return 1x
“I haven't seen the underlying data. I would suspect that is probably the case. I, I'm afraid that is a right prediction.”
Sertoglu: All five recent Fund Three investments are AI companies
“So, of course, every investment we've made out of Fund Three, the last five investments, are all, in one way or another, AI companies.”
Sertoglu: Founders underestimate cap table leverage and overnegotiate terms
“Founders usually underestimate the leverage they have on their cap table. They negotiate things for very obscure situations, etc. I think experienced founders know that it's their company, and they will have a lot of flexibility around managing things when it …”
Sertoglu: Sign funding rounds if success probability increases beyond dilution
“For the founder, I think the most important thing is probability of success. You know, Is this round that I'm closing? Is this gonna impact my potential of getting where I want to get to? As a percentage, will it make up for the dilution I'm suffering? So if I…”