Sep 20, 2024 · 51m · sourcery
Molly Alter, Partner (Northzone), $4B AUM | Software for Hardware, EU vs USA, Vertical AI, VC Biases · Sourcery with Molly O'Shea
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In this episode of Sourcery, host Molly O'Shea interviews Molly Alter, Partner at Northzone, discussing European VC ecosystem performance, vertical AI theses, software for hardware engineering, and key lessons from eight years in venture capital.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Molly holds 20.7% of the talking time here. How this is scored →
Molly as informed peer 3.8 Guest teaching 3.2 Guest disagreement 1.5 Molly pushing back 1.4
speaking balance: gold is Molly, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 29:13 Pushback against Silicon Valley's anti-Europe bias
The guest passionately dismisses the trope that Europe is merely a tech museum, backing her contrarian stance with strong IRR data.
Hardest push from Molly ▶ 31:57 Challenging European growth constraintsThe host challenges the optimistic European narrative by citing hard geopolitical headwinds, energy reliance, and declining demographic trends.
Biggest teaching moment ▶ 30:20 Educating on European net IRR outperformanceThe guest breaks down the quantitative reality of European venture, explaining how lower entry valuations produce superior 10-15 year net IRR.
Molly holds their own ▶ 37:42 Drilling into the hardware-software dislocationThe host leverages her LA hard-tech proximity to challenge the guest on late-stage capital scarcity and shallow talent pools.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Molly as informed peer | Guest teaching | Guest disagreement | Molly pushing back | Why |
|---|---|---|---|---|---|---|
| Icebreaker & Molly Squared | 3 | 2 | 1 | 1 | Friendly banter as former colleagues reconnect. The host asks for four venture career takeaways and the guest shares insights on firm cultures and cognitive biases. | |
| New York vs. London: Culture Shock and Pub Dynamics | 2 | 2 | 1 | 0 | Casual conversational segment discussing the cultural contrast between daytime politeness and pub culture in London. | |
| Northzone's Investment Strategy and Vertical AI Thesis | 3 | 3 | 1 | 1 | Host sets up the strategic overview while the guest outlines Northzone's check sizes and her thesis on vertical AI defensibility. | |
| Sponsor Break: Archer Aviation and This Won't Last | 2 | 2 | 0 | 0 | Host presents sponsor reads and transitions into portfolio war stories, while the guest details sourcing Frame.io through weekend video hobbies. | |
| Defining World-Class Founders: Intensity and Customer Focus | 4 | 3 | 1 | 1 | Host probes into founder qualities derived from cold-call and sourcing exposure; guest highlights customer obsession and Olympic-level intensity. | |
| Northzone's History, Scandinavian Culture, and Meritocracy | 4 | 3 | 1 | 1 | Host asks for Northzone's origin details and AUM; guest explains firm history, meritocratic culture, and resistance to VC politics. | |
| Cross-Border Synergies Between the US and European Markets | 3 | 3 | 1 | 1 | Host inquires about US versus Europe allocations; guest outlines how European early trends like mental health informed winning US investments. | |
| Challenging Silicon Valley Biases Against European Tech | 5 | 5 | 4 | 3 | Host pushes the Silicon Valley critique calling Europe a tech museum; guest counters forcefully with detailed macroeconomic and net IRR stats. | |
| How Regulation Drives European Tech Innovation | 5 | 4 | 3 | 3 | Host challenges growth ceilings in Europe due to energy dependence and birth rates; guest counters using the vegan chef analogy to show regulation breeds innovation. | |
| The Rise of Software for Hardware Development | 5 | 4 | 1 | 2 | Host quotes the guest's research paper on software for hardware development; guest explains structural change management hurdles and legacy tooling. | |
| Exploring High-Opportunity Hardware Software Sub-Sectors | 5 | 4 | 2 | 3 | Host presses on limited ecosystem liquidity and late-stage capital in hard tech; guest explains the why-now tailwinds and enterprise contract sizes. | |
| Re-evaluating SaaS: The Evolution of Hybrid SaaS | 5 | 4 | 2 | 2 | Host references compressed SaaS public multiples (5-6x); guest reframes workflow SaaS as the car delivery mechanism for AI engines. | |
| Case Study: GovDash and AI-Powered Government Procurement | 3 | 3 | 1 | 0 | Guest walks through GovDash's procurement RFP automation; host agrees and transitions into pleasant wrap-up wedding plans. |
Statements from this episode (26)
Alter: Junior VCs Can Differentiate by Exploring Complex Topics Senior GPs Avoid
“You know, there are so many opportunities to differentiate yourselves. And one of the easiest opportunities I found is to actually look into the boring and complicated stuff that, you know, more senior GPs, Don't want to look into.”
Alter: Deal droughts and sunk costs cause severe VC cognitive biases
“There's things like discovery bias, which is sort of the notion of, I found this investment, so I love it, and it's personal to me. Or there's sunk cost bias, which is really common as well. You know, I spent three weeks in due diligence, so I love it. Or, you…”
Alter: Northzone over-indexes headcount on post-investment platform support
“North zone, for instance, you know, we have a pretty even split maybe a little over index on the platform side as well, because, you know, we care a lot about helping our portfolio companies post investment.”
Alter: Fund size does not predict internal headcount allocation
“Just the overall size doesn't tell you that much, but when you dig into the actual composition of the team, you really learn what life at those firms will be like.”
Alter: Northzone writes checks from $2.5M seed up to $60M growth
“So for check size, we start at two and a half million at the seed stage and go all the way up to 50, sixty million. At the growth stage the real bread and butter is, you know, 10 to 20, that's where the majority of our checks happen”
Alter: Vertical AI offers more exciting opportunities than horizontal or foundational models
“I'm thinking a lot these days about vertical AI and really, you know, the opportunity there being More exciting than sort of horizontal or even foundational layers in AI at the moment.”
Alter: Vertical AI moats come from workflow integrations and sector specificity
“What I see as the big opportunity with vertical software is you have these spaces like legal tech or construction, manufacturing, software for hardware, healthcare that are very specific and you can create this sort of defensibility through leveraging that spe…”
Alter: World-class company building requires rare, Olympic-level founder intensity
“Like one thing I learned from Emory, who's the CEO of Frame.io is is that there's no match for intensity. You need it. And he once gave me this really powerful analogy where he said, if I was training for the Olympics of figure skating Nobody would ask me, do …”
Alter: VC firms shouldn't be political because LP metrics are completely objective
“VC has real metrics. Like we have numbers on a page that we're showing to our LPs that we are accountable for. And obviously, you know, sometimes those investing cycles can be long. So sometimes it takes a little bit of time for the numbers to really be clear,…”
Northzone splits capital evenly between US and Europe with slight Europe tilt
“We're pretty evenly split between U S and Europe with maybe a slight a slight emphasis on Europe from a percentage dollars standpoint.”
Northzone led Spring Health Series A based on Scandinavian mental health trends
“In Scandinavia, mental health was actually a thing long before it was in the U S they're so progressive over there. And so people were taking care of their mental health and it was destigmatized. Whereas in the United States, it was still kind of, this is, you…”
Northzone backed Tandem Health after seeing US medical scribing market growth
“Medical scribing took off early in the US with companies like Abridge and DeepScribe. And we saw how quickly those businesses were able to grow and invested in a company in Europe doing the same called Tandem Health.”
Alter: European VC funding hit $30 billion in H1 2024, up 12%
“VC funding in Europe reached about thirty billion the first half of 24. That's a 12% increase to twenty-twenty-three.”
Alter: 2024 will be the third most active year for European VC
“You know, if the pace continues, I think twenty-twenty-four will become the third most active year ever for VC funding in Europe.”
Alter: Spotify and Klarna alumni founded 70 venture-backed startups in Stockholm
“Spotify and Klarna alums have spawned 70 venture backed companies in Stockholm from two companies.”
Alter: European VC funds beat North American funds in 10-year net IRR
“It's not surprising that when you, again, look at the numbers over a 10 and 15 year time horizon, European VC funds have yielded higher net IRR compared to North American ones.”
Alter: GDPR has become a global standard that actively inhibited tech businesses
“Like GDPR, which first of all has now become a global standard, so I don't think it's specific as much to Europe anymore, but You know, that definitely has inhibited many tech businesses, so there's always nuance and shades of gray.”
Alter: Hardware incumbents persist because tooling shifts require changing physical processes
“A software team can really easily start using a new task management tool or a debugging tool without having to change their desk. But a manufacturing or design team would have to really shift real world physical processes in order to adopt any kind of new tool…”
Alter: Declining birth rates and onshoring will drive software-for-hardware investment
“You have things like global onshoring, declining birth rates, which has more of an impact than you would think. And the threat of Chinese competition as well. These factors have lit a fire underneath manufacturing teams to push themselves on efficiency. And so…”
Alter: Toyota, Boeing, and Samsung pay tens to hundreds of millions for legacy software
“Toyota we found pays Matlab, fifty million dollars a year. Boeing pays Simulink and MATLAB hundreds of millions. Samsung has an eight figure contract with Atlassian.”
Alter: AI will inevitably disrupt legacy engineering and simulation software tools
“Simulation tools are going to have a moment and AI Is and will continue to come for them.”
Alter: Public SaaS average revenue growth is projected at historically low 16%
“In 2024, the average growth rate for public SaaS companies is expected to be 16%, super low, like relative to history.”
Alter: Workflow SaaS is the essential delivery mechanism for unlocking AI's value
“I think workflow SaaS is the delivery mechanism that will allow AI to actually, you know, keep its promise.”
Alter: Government spending accounts for 36% of US GDP
“36% of U.S. GDP is spent on government spend.”