The Exchanges

Q I didn't like the category, something else other than the founder. And so now I have this, and I'm kind of intrigued to hear your thoughts because, you know, You're much wiser than me. I just have this obsession on founder, um, I don't care what they do. If they're an amazing founder, they get a check from me. How do you prioritize the stack between founder, market, and traction?

A Um, in that order, uh, founder number one, uh, because ultimately at our stage, I think it's the only thing that matters. We've seen, uh, great starts get bungled badly because of, uh, founder problems. Character problems, ethical problems, values. So the founder trumps all. We've passed on a few very interesting, promising companies because we just could not see ourselves partner with the founder across the table. Secondly would be market, because everything we do ultimately needs to be able to return our fund if all goes well. We're in a sort of a high return business by taking high risk, so the high return should be there. So if it's a small market, if it's a Crowded market will pass. Uh, the traction at our stages tells us something in some cases, but it's, uh, it's, it's, it's, it's a distant third.

AI assessment note: “in that order, founder number one”

Q So why make the transition to venture then? You're a super successful angel and you're liquid.

A Great question. It was out of getting nervous because what I saw is I was able to syndicate the first couple of million dollars into these companies, but then the moment they needed anything above five, ten million dollars, there was no, uh, nobody that targeted that stage, uh, in, in our region. So I'd have to come to Silicon Valley or New York or London and convince people who didn't really understand Uh, our part of the world. So I thought if I raise a fund to focus on opportunities in, in Eastern Europe and Turkey, then, uh, I can follow on and maybe support these companies for the couple of rounds after my initial entry. Uh, because I thought if I couldn't do that, some of these companies might actually go bust. So it was out of fear.

AI assessment note: “It was out of getting nervous because what I saw is”

Q Now, I would love to start. How did you make your way into the world of venture first and come to where you are today? Let's just start there.

A I'm a founder turned investor. Uh, I started my first company in 1999 in New York. Horribly timed, arguably the worst time in history to start a tech company. Um, it was a company called Select Minds. Uh, we were building in social networking software, uh, one of the earliest, uh, participants in that space, but hit the crash pretty hard. We survived, ultimately did okay, uh, had a nice exit, and, uh, decided to move to Istanbul, which is where I grew up. I'm Turkish, born and raised in Istanbul. And, uh, initially thinking that was going to be for two years. Uh, when I moved back, I started meeting young Turkish tech companies, mostly consumer internet businesses, and got excited because I, at the time, I think I saw two things that not a lot of people agreed with me on. Um, one is the fact that people behave similarly everywhere, uh, especially in their interaction with technology, with consumer technology. So, uh, at the time, for example, people were telling me, oh, you know, uh, people in France will never buy shoes online. And I'm thinking, I look at the US, I look at the UK, and I'm like, I, that's not right. People are people, they're gonna buy shoes online. So, uh, I saw the playing out of consumer internet, uh, in the West, and looked for opportunities to, uh, partner with companies that were trying to do the same thing in the rest of the world.

AI assessment note: “I'm a founder turned investor. Uh, I started my first company in 1999”

Q What did you not do with the benefit of hindsight you wish you had done, and what did that teach you?

A We've lost, uh, we, or we, we didn't understand a few businesses. I mean, one example that's probably our biggest loss is, uh, we met Bolt, the car, uh, ailing company, and, uh, they were called Taxify at the time, a small Baltics ride-hailing company, and, uh, even though, you know, Marcus, the founder, was extraordinary, we really couldn't see the trajectory to be a global leader in that, in that space. We also had question marks about, Take rates, warranted take rates for an app where you just signal your location. Uh, we felt that the, you know, what Uber was, uh, establishing as the, as the market pricing wouldn't really warrant that take rate. So we had question marks about the market as well. So there we, what would I have done differently is maybe been more open-minded about what the ultimate margin structure of the business would look like.

AI assessment note: “what would I have done differently is maybe been more open-minded”

Q At what stage do you think, actually, I'm no longer getting paid for the risk that I'm taking, and I could put this into three more new companies?

A No, that was, that was an internal question for us. At that billion dollar valuation, we ended up deciding to write that ten million And that was, that turned out to be the right decision, but it was not a fast decision for us. Then when Sequoia led the three billion dollar next round, we sat it out. We did not participate. And then when, uh, the seven billion, uh, valuation series C happened. Was it C or C or D? I can't remember. But then we started to, uh, carefully divest. Uh, so start to, I mean, again, I, you know, this had been such a big, uh, win. For us in terms of returns, our kind of prudent investor responsibility to our LPs would be to then try to start to realize some of these, some of these gains.

AI assessment note: “when the seven billion valuation series C happened... we started to carefully divest.”

Q So why make the transition to venture then? You're a super successful angel and you're liquid.

A Great question. It was out of getting nervous because what I saw is I was able to syndicate the first couple of million dollars into these companies, but then the moment they needed anything above five, ten million dollars, there was no, uh, nobody that targeted that stage, uh, in, in our region. So I'd have to come to Silicon Valley or New York or London and convince people who didn't really understand Uh, our part of the world. So I thought if I raise a fund to focus on opportunities in, in Eastern Europe and Turkey, then, uh, I can follow on and maybe support these companies for the couple of rounds after my initial entry. Uh, because I thought if I couldn't do that, some of these companies might actually go bust. So it was out of fear.

AI assessment note: “It was out of getting nervous because what I saw is I was able to syndicate”

Q That's a pretty good intro to the show, isn't it? I mean, let's be honest. Uh, so I want to start on that. How did you meet Daniel for the first time?

A So Daniel had been building a company called Deskover, uh, I think since 2005 or 2006, uh, it was a more of a consulting, uh, firm, uh, that was doing custom, uh, automation and, uh, different sort of back office, uh, uh, applications for, uh, different workflows for various clients. Um, we met him in Bucharest. I think the company was 12 people, uh, when we met him, and he struck us as having, being at the right place where, you know, here's a founder who was deeply immersed in the problems that his clients were facing on a day-to-day basis. Very technical, so had a very strong Vision on the immediate problem he wanted to solve. He didn't start out with painting a ultimate picture of what UiPath would look like 10 years out as a, you know, large global enterprise software company, but he was very keenly focused on what is the next feature he would need to add, and how long that would take, and what would that solve at What customer or what new customer would that then allow him to sign? So very pragmatic, very iteration focused, very technical, very hands-on. He also wowed us on how he saw what he was building to be so applicable in so many diverse situations. And, uh, he came and convinced us that at one point every single company in the world could be his customer.

AI assessment note: “We met him in Bucharest. I think the company was 12 people”

Q I didn't like the category, something else other than the founder. And so now I have this, and I'm kind of intrigued to hear your thoughts because, you know, You're much wiser than me. I just have this obsession on founder, um, I don't care what they do. If they're an amazing founder, they get a check from me. How do you prioritize the stack between founder, market, and traction?

A Um, in that order, uh, founder number one, uh, because ultimately at our stage, I think it's the only thing that matters. We've seen, uh, great starts get bungled badly because of, uh, founder problems. Character problems, ethical problems, values. So the founder trumps all. We've passed on a few very interesting, promising companies because we just could not see ourselves partner with the founder across the table. Secondly would be market, because everything we do ultimately needs to be able to return our fund if all goes well. We're in a sort of a high return business by taking high risk, so the high return should be there. So if it's a small market, if it's a Crowded market will pass. Uh, the traction at our stages tells us something in some cases, but it's, uh, it's, it's, it's, it's a distant third.

AI assessment note: “in that order, uh, founder number one... Secondly would be market”

Q At what stage do you think, actually, I'm no longer getting paid for the risk that I'm taking, and I could put this into three more new companies?

A No, that was, that was an internal question for us. At that billion dollar valuation, we ended up deciding to write that ten million And that was, that turned out to be the right decision, but it was not a fast decision for us. Then when Sequoia led the three billion dollar next round, we sat it out. We did not participate. And then when, uh, the seven billion, uh, valuation series C happened. Was it C or C or D? I can't remember. But then we started to, uh, carefully divest. Uh, so start to, I mean, again, I, you know, this had been such a big, uh, win. For us in terms of returns, our kind of prudent investor responsibility to our LPs would be to then try to start to realize some of these, some of these gains.

AI assessment note: “when Sequoia led the three billion dollar next round, we sat it out.”

Q What did you not do with the benefit of hindsight you wish you had done, and what did that teach you?

A We've lost, uh, we, or we, we didn't understand a few businesses. I mean, one example that's probably our biggest loss is, uh, we met Bolt, the car, uh, ailing company, and, uh, they were called Taxify at the time, a small Baltics ride-hailing company, and, uh, even though, you know, Marcus, the founder, was extraordinary, we really couldn't see the trajectory to be a global leader in that, in that space. We also had question marks about, Take rates, warranted take rates for an app where you just signal your location. Uh, we felt that the, you know, what Uber was, uh, establishing as the, as the market pricing wouldn't really warrant that take rate. So we had question marks about the market as well. So there we, what would I have done differently is maybe been more open-minded about what the ultimate margin structure of the business would look like.

AI assessment note: “what would I have done differently is maybe been more open-minded”

Q What should they know that they don't know?

A They should know that I think venture capital has made the mistake of following private equity in terms of LP allocation categorization, and in private equity, Regional investment strategy ultimately is exposed to the regional macro dynamics, whereas in venture capital, because the outcomes are typically global outcomes, you're, uh, you may have, you may be hunting in a region with certain macro dynamics, but the outcomes are never impacted by the macro. My, my portfolio is a global portfolio. My outcomes are American outcomes, you know, London Stock Exchange outcomes, you know, acquisitions by global tech companies. They're not, uh, outcomes that are subject to the turbulence of whatever, you know, country that founder team may be coming from.

AI assessment note: “They should know that I think venture capital has made the mistake of following private equity”

Q Why do they assume it prematurely? Do they have the wrong data? Do they have the wrong objective? Do they just believe the hype? What is it?

A I think it's a combination of all, all the three you mentioned. Uh, 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. And, uh, it, it, Creates this sort of perverse validation sense. They've just raised a large round very successfully. They have the budget, they put out the ads, they hire the recruiters, and off to the races they go. And of course, when you're especially on the go-to-market side, if you're scaling your go-to-market team, then you give them a script, and they start working off that script. If that script is not A perfect fit for where that company is at the moment, then the sideways trailing, uh, starts to, starts to happen. And, uh, yeah, uh, losing the ability to adapt and iterate, especially on the go-to-market side is, is what we've seen as the, as the biggest cause of that kind of sideways, sideways trailing off.

AI assessment note: “I think it's a combination of all, all the three you mentioned.”

Q What should they know that they don't know?

A They should know that I think venture capital has made the mistake of following private equity in terms of LP allocation categorization, and in private equity, Regional investment strategy ultimately is exposed to the regional macro dynamics, whereas in venture capital, because the outcomes are typically global outcomes, you're, uh, you may have, you may be hunting in a region with certain macro dynamics, but the outcomes are never impacted by the macro. My, my portfolio is a global portfolio. My outcomes are American outcomes, you know, London Stock Exchange outcomes, you know, acquisitions by global tech companies. They're not, uh, outcomes that are subject to the turbulence of whatever, you know, country that founder team may be coming from.

AI assessment note: “They should know that I think venture capital has made the mistake”

Q Why do they assume it prematurely? Do they have the wrong data? Do they have the wrong objective? Do they just believe the hype? What is it?

A I think it's a combination of all, all the three you mentioned. Uh, 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. And, uh, it, it, Creates this sort of perverse validation sense. They've just raised a large round very successfully. They have the budget, they put out the ads, they hire the recruiters, and off to the races they go. And of course, when you're especially on the go-to-market side, if you're scaling your go-to-market team, then you give them a script, and they start working off that script. If that script is not A perfect fit for where that company is at the moment, then the sideways trailing, uh, starts to, starts to happen. And, uh, yeah, uh, losing the ability to adapt and iterate, especially on the go-to-market side is, is what we've seen as the, as the biggest cause of that kind of sideways, sideways trailing off.

AI assessment note: “I think it's a combination of all, all the three you mentioned.”

Q I think one thing that I think about a lot is wealth and how that impacts on investor mindset. Does the fact that you are now incredibly wealthy make you a better investor? In other words, are richer investors better because they only see upside? You did very well from your angel portfolio and from being an entrepreneur before. Do you think richer investors are more successful?

A I think being, so it, it should help with the, with that risk, uh, equation. Um, we think a lot about, uh, GP commitment size. Uh, we have a very high GP commitment in the fund, and, uh, what is it? It's, uh, it's close to 10% of a, of a two hundred and fifty million dollar fund. Um, and, uh, you know, we, we were very proud of this, saying that, look, you know, this shows our confidence in, In, you know, in what we're doing and it gets us aligned with our, uh, with our LPs. A very experienced LP challenged me on that and said, uh, wait a minute. I don't like that. I have, you know, what I'm allocating to you, to your fund is the highest return, but the highest risk part of my portfolio. So I don't want your team nervous because you personally have a lot of money in this fund. I want you to take very, very high risk, uh, investments as long as the return is there. Will this high GP commitment make you nervous, make you more risk averse? I thought that was a brilliant challenge, brilliant question. Um, so I think, uh, it, it kind of plays out on, on both sides.

AI assessment note: “it should help with the, with that risk, uh, equation... it kind of plays out on, on both sides”

Q So when you finally build that conviction to go, you know what? We want to buy Daniel and we want to do this. What did the deal look like?

A He was raising one and a half million. Uh, initially we thought we should do the full one and a half million. I mean, this is a hundred and fifty million dollar fund. We would have, uh, been able to, uh, write that check. But then we thought, uh, this is a big enough vision, uh, that this company, Also, I mean, you know, at the time he was struggling to raise. We showed the company, at that first seed round, we showed it to 14 funds to co-invest with us. Credo ultimately, uh, came in with a half a million check. We led with a million dollars, and then Seedcamp joined us with a 100,000 dollar check. So it was 1.6 million raised. I believe it was just south of seven million pre. Um, so that was the, that was the initial round.

AI assessment note: “We led with a million dollars, and then Seedcamp joined us”

Q I think one thing that I think about a lot is wealth and how that impacts on investor mindset. Does the fact that you are now incredibly wealthy make you a better investor? In other words, are richer investors better because they only see upside? You did very well from your angel portfolio and from being an entrepreneur before. Do you think richer investors are more successful?

A I think being, so it, it should help with the, with that risk, uh, equation. Um, we think a lot about, uh, GP commitment size. Uh, we have a very high GP commitment in the fund, and, uh, what is it? It's, uh, it's close to 10% of a, of a two hundred and fifty million dollar fund. Um, and, uh, you know, we, we were very proud of this, saying that, look, you know, this shows our confidence in, In, you know, in what we're doing and it gets us aligned with our, uh, with our LPs. A very experienced LP challenged me on that and said, uh, wait a minute. I don't like that. I have, you know, what I'm allocating to you, to your fund is the highest return, but the highest risk part of my portfolio. So I don't want your team nervous because you personally have a lot of money in this fund. I want you to take very, very high risk, uh, investments as long as the return is there. Will this high GP commitment make you nervous, make you more risk averse? I thought that was a brilliant challenge, brilliant question. Um, so I think, uh, it, it kind of plays out on, on both sides.

AI assessment note: “it kind of plays out on, on both sides.”

Q That's a pretty good intro to the show, isn't it? I mean, let's be honest. Uh, so I want to start on that. How did you meet Daniel for the first time?

A So Daniel had been building a company called Deskover, uh, I think since 2005 or 2006, uh, it was a more of a consulting, uh, firm, uh, that was doing custom, uh, automation and, uh, different sort of back office, uh, uh, applications for, uh, different workflows for various clients. Um, we met him in Bucharest. I think the company was 12 people, uh, when we met him, and he struck us as having, being at the right place where, you know, here's a founder who was deeply immersed in the problems that his clients were facing on a day-to-day basis. Very technical, so had a very strong Vision on the immediate problem he wanted to solve. He didn't start out with painting a ultimate picture of what UiPath would look like 10 years out as a, you know, large global enterprise software company, but he was very keenly focused on what is the next feature he would need to add, and how long that would take, and what would that solve at What customer or what new customer would that then allow him to sign? So very pragmatic, very iteration focused, very technical, very hands-on. He also wowed us on how he saw what he was building to be so applicable in so many diverse situations. And, uh, he came and convinced us that at one point every single company in the world could be his customer.

AI assessment note: “We met him in Bucharest. I think the company was 12 people”

Q Final one for you. Are you worried by liquidity markets today? You know, we've seen M&A markets close up. A lot of competition, uh, prohibits M&A happening today. We've seen IPO markets, you know, almost shut down entirely. Are you worried about that?

A If it's a sustaining trend, I am, I suspect it's not. I think markets are cyclical. I think, you know, uh, exuberance will come back. Uh, we've started the rates, uh, change direction recently. You know, we'll see what the FTC governance will look like post-election. So I think those are cyclical. I think it'll come back. Um, great companies, uh, are defined by sustainability that, that, They're, uh, they're not gonna, they're not dependent on the mood of the markets. Again, you know, the, the outcomes are very dependent on the vintage. You know, the, uh, I think a very humbling fact is the biggest predictor of a fund's performance is its vintage. Uh, so, you know, irrespective of how.

AI assessment note: “If it's a sustaining trend, I am, I suspect it's not.”

Q What are the biggest ways that founders and VCs become misaligned?

A I think, you know, we usually try to, uh, sort of disagree with the, with the founders, uh, in the term sheet process at least once so that we kind of see the dynamics of what, uh, what happens, uh, around that. But, uh, so usually what, uh, what we see companies sort of Go in the wrong direction and the board dynamics go in the wrong direction is if there was a lot of tension in the, in the early round discussions, if this was a very contentious negotiation around specific, uh, governance terms, et cetera, sometimes that leaves a bad taste in the mouth on both sides, and there's this, uh, lack of trust that is in place as soon as the investment is done. We've had very few cases of this, But it's a very, uh, negative environment to operate in.

AI assessment note: “contentious negotiation around specific, uh, governance terms, et cetera, sometimes that leaves a bad taste”

Q Final one for you. Are you worried by liquidity markets today? You know, we've seen M&A markets close up. A lot of competition, uh, prohibits M&A happening today. We've seen IPO markets, you know, almost shut down entirely. Are you worried about that?

A If it's a sustaining trend, I am, I suspect it's not. I think markets are cyclical. I think, you know, uh, exuberance will come back. Uh, we've started the rates, uh, change direction recently. You know, we'll see what the FTC governance will look like post-election. So I think those are cyclical. I think it'll come back. Um, great companies, uh, are defined by sustainability that, that, They're, uh, they're not gonna, they're not dependent on the mood of the markets. Again, you know, the, the outcomes are very dependent on the vintage. You know, the, uh, I think a very humbling fact is the biggest predictor of a fund's performance is its vintage. Uh, so, you know, irrespective of how.

AI assessment note: “If it's a sustaining trend, I am, I suspect it's not.”

Q to add, someone else might have something important to add, and it might be a valuable exchange of perspectives. But then also caveat that with it's also a sensitive topic. It's maybe personal towards the founder that it might be a criticism In a bad way. And I want to be just respectful of not throwing them under the bus, so to speak. How do you balance between the two?

A First of all, I think the, the board dynamic should, the healthy board dynamic is one where with all the board members around the table, but also in one-on-one conversations with the founders as well. So I think it's very difficult to, uh, have that conversation come up for the first time in a board setting. If it's sensitive like that, I think, you know, the valuable relationship With a founder that the board member or the VC has should allow for, uh, a better introduction, better timing, et cetera, for that, uh, sensitive topic. But, um, you know, I think beyond that, uh, again, uh, as long as you're choosing what important few topics are carefully, then, uh, bringing them up should not, should not be a problem.

AI assessment note: “very difficult to, uh, have that conversation come up for the first time in a board setting.”

Q What are the biggest ways that founders and VCs become misaligned?

A I think, you know, we usually try to, uh, sort of disagree with the, with the founders, uh, in the term sheet process at least once so that we kind of see the dynamics of what, uh, what happens, uh, around that. But, uh, so usually what, uh, what we see companies sort of Go in the wrong direction and the board dynamics go in the wrong direction is if there was a lot of tension in the, in the early round discussions, if this was a very contentious negotiation around specific, uh, governance terms, et cetera, sometimes that leaves a bad taste in the mouth on both sides, and there's this, uh, lack of trust that is in place as soon as the investment is done. We've had very few cases of this, But it's a very, uh, negative environment to operate in.

AI assessment note: “if this was a very contentious negotiation around specific, uh, governance terms”

Q to add, someone else might have something important to add, and it might be a valuable exchange of perspectives. But then also caveat that with it's also a sensitive topic. It's maybe personal towards the founder that it might be a criticism In a bad way. And I want to be just respectful of not throwing them under the bus, so to speak. How do you balance between the two?

A First of all, I think the, the board dynamic should, the healthy board dynamic is one where with all the board members around the table, but also in one-on-one conversations with the founders as well. So I think it's very difficult to, uh, have that conversation come up for the first time in a board setting. If it's sensitive like that, I think, you know, the valuable relationship With a founder that the board member or the VC has should allow for, uh, a better introduction, better timing, et cetera, for that, uh, sensitive topic. But, um, you know, I think beyond that, uh, again, uh, as long as you're choosing what important few topics are carefully, then, uh, bringing them up should not, should not be a problem.

AI assessment note: “very difficult to, uh, have that conversation come up for the first time in a board setting”