20 VC 048 What Do VC's Really Add To Startups with Christian Claussen, Managing Partner @ Ventech

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Christian Clausen, a managing partner at Ventech, discussing the value venture capitalists (VCs) add to startups beyond financing. Clausen emphasizes that VCs should provide strategic support at critical inflection points, rather than just operational assistance. He is skeptical of VC firms with large in-house service teams, suggesting that specialized external services might be more effective. Clausen advises founders to perform thorough background checks on potential VCs and observe their interactions during the negotiation phase to gauge their true value. He also shares insights on Ventech's investment strategy, focusing on early-stage and early-growth companies, and reveals his latest investment in Speex, a bootstrapped SaaS company. The episode concludes with Stebbings encouraging feedback on the focused, theme-driven conversation.

Summary Notes

Introduction to Christian Clausen and Ventech

  • Christian Clausen is a managing partner at Ventech, a venture capital firm with offices in Munich and Paris.
  • He has 16 years of experience in investing in innovation.
  • Christian leads Ventech's investment activities in the German-speaking regions of Europe.
  • He serves as a board member for Pickanova and TV Smiles.
  • Christian wrote an article on the value add of VCs to startups, which is a focus point for the podcast episode.

"Christian is a managing partner with Ventech, a VC firm with offices in Munich and Paris. He has 16 years of experience in investing in innovation and he leads Ventech's investment activities in the german speaking regions of Europe."

The quote introduces Christian Clausen and his role at Ventech, providing context for his expertise in the venture capital industry and his relevance as a guest on the podcast.

The Role of Venture Capital and Value Add

  • The podcast will focus on the value that venture capitalists (VCs) bring to startups.
  • This topic is in response to audience requests for more specific discussions on aspects of the venture industry.

"Today I'm thrilled to welcome Christian, who wrote a fantastic article on the value add of vcs and what vcs can bring to startups."

The quote sets the stage for the main discussion topic of the episode, emphasizing the importance of VC contributions to startups.

Hiring Screen's Role in Team Building

  • Building a great team is crucial for creating a successful company.
  • Hiring Screen's algorithm assists in finding suitable candidates for job positions.
  • The host, Harry Stebings, personally benefited from Hiring Screen's services.

"Well, this is made so much more easy with the use of hiring screens algorithm which finds the most suitable and relevant candidate for your job."

Harry Stebings explains how Hiring Screen's algorithm has been helpful in his own experience, highlighting the importance of efficient hiring processes for companies.

Christian Clausen's Background

  • Christian started in the VC industry in 1997, inspired by Netscape's IPO.
  • He has a background in telecommunications with operational experience in the European telecoms industry.
  • Christian initiated a corporate fund within Siemens and later joined TBM, a leading transatlantic VC in Germany.
  • He has been investing for 18 years and has invested in approximately 30 European startups.

"I actually started my life as a VC about 18 years ago in 1997, old man by now triggered by actually by Netscape's IPO."

Christian discusses his entry into the venture capital industry, which was sparked by the excitement around Netscape's IPO and his subsequent career development.

Ventech's Investment Preferences

  • Ventech focuses on early-stage and early-growth investments.
  • Early-stage investments are for unproven business models with some traction.
  • Early-growth investments are for companies with a somewhat proven business model but uncertain market size and scalability.
  • Ventech's investments vary between France and Germany due to competitive and money supply differences.

"At Ventech, we speak of early stage and early growth. We do both."

Christian describes Ventech's investment strategy, which encompasses both early-stage and early-growth companies, providing insight into their approach to VC funding.

Geographical Investment Strategies

  • Ventech finds more early-growth opportunities in Germany due to less competition.
  • In France, Ventech tends to invest more in early-stage companies.
  • The difference in investment stages between the two countries is attributed to the competitive landscape and money supply.

"We find more of these early growth companies or opportunities in Germany, where we can hop on board, and in France, in tenants, you go more early stage."

Christian explains the geographical nuances of Ventech's investment preferences, highlighting how market conditions in France and Germany influence their strategy.

Seed Investment Slot in Venture Capital Fund

  • Christian Clausen discusses a specific allocation within their fourth-generation venture capital fund for seed investments.
  • The fund has a total of $110 million, with one slot dedicated to "seat investments" or "seat pocket."
  • They collaborate with trusted business angels to make investments ranging from $100,000 to $250,000 in seed rounds.

"We have one slot in our new fourth generation fund, which is a 110,000,000 fund with one dedicated slot that is used for seat investments."

The quote explains the structure of the fund and its special allocation for early-stage investments, highlighting the strategic approach to venture capital funding.

Evolution of Value Add in Venture Capital

  • Christian Clausen wrote an article addressing the concept of value addition by venture capital firms.
  • The article sparked debate on social media, indicating its controversial nature.
  • Clausen believes that VCs can provide significant value beyond just financial investment.
  • He is skeptical about claims of operational value addition by VCs but acknowledges that in some cases, support platforms can be beneficial.
  • Founders are encouraged to look past marketing hype and focus on truly impactful value additions.

"I wrote this article and somehow I felt it needed to be written, and it indeed has triggered a quite lively social media controversy."

This quote indicates that Clausen's insights on VC value addition have resonated with the industry, sparking discussions on the topic.

Key Inflection Points in a Startup's Journey

  • Christian Clausen emphasizes that a startup's success is often determined by a small number of critical decisions at inflection points.
  • These inflection points can lead to either significant growth or loss of momentum for the company.
  • Clausen believes that a VC's value is most evident during these crucial turning points.

"Every startup's road to success is marked by not more than five to ten crucial turning points and the related decisions."

The quote highlights the importance of strategic decision-making at critical junctures in a startup's development, where VCs can provide essential guidance.

Typical Value Adds Provided by VCs

  • VCs can add value by facilitating smooth financing rounds, providing predictable support, and leading, coordinating, and syndicating follow-on financing.
  • They can offer expertise in adjusting a company's burn rate and implementing changes based on KPIs and scenario planning.
  • VCs can act as professional referees in resolving founder disputes, which Clausen notes occurs in about one-third of portfolio companies.

"So it's in these inflection points where I believe the value add of a VC comes in to now name a couple of things."

The quote lists specific areas where VCs can add value beyond capital, such as strategic and operational support during critical periods of a startup's growth.

Capital as a Differentiator in Venture Capital

  • Christian Clausen agrees with Dustin Dolgenow that capital alone is not a sufficient differentiator for venture capital firms.
  • The venture capital market is cyclical, alternating between buyer's and seller's markets.
  • In a seller's market, VCs face more competition and must highlight unique value propositions beyond just providing financing to win good deals.

"I think he's totally right. I mean just capital, especially in markets like today, we are in cyclical markets."

The quote supports the idea that capital is not the only important factor for VCs and that in competitive markets, they need to offer more to stand out.

Skepticism Towards VC Platforms Offering In-House Services

  • Christian Clausen expresses skepticism about the effectiveness of venture capital (VC) firms offering in-house services like engineering and legal support.
  • He believes that specialized tasks such as marketing, sales, and recruiting are better outsourced to dedicated firms with specific expertise.
  • Clausen argues that VC platforms may not provide the same level of efficiency and incentive schemes as specialized firms.
  • He is concerned about the potential internal distractions and conflicts between support and investment roles within VC firms.

"I'm extremely skeptical about that."

This quote reflects Clausen's overall doubt regarding the transition of VC firms to offering comprehensive in-house services.

"In most cases you see people playing around with that and then after a while they find out that it is much better to insource that and have these activities honed to their specific needs."

Clausen points out that companies often realize the benefits of tailoring services like lead generation to their unique requirements, rather than relying on generic support from VC platforms.

"Why in hell should they be more efficient than a dedicated firm with global reach, with long standing experience and a clear incentive scheme."

He questions the efficiency of in-house recruiting services provided by VC firms compared to specialized recruiting firms that have a broader reach and more experience.

VC Services Justifying Management Fees

  • Christian Clausen suggests that the additional platform services offered by VC firms may be used to justify the management fees they charge.
  • He acknowledges that competitive reasons might drive VC firms to enhance their service offerings.
  • Clausen implies that while having in-house services might be appealing, the real value for founders comes from different aspects of VC support.

"And is there ever a part of you that thinks that this extra platform of services that VC firms are now offering can be boiled down to actually justifying management fees?"

Harry Stebings inquires whether the expanded services by VC firms are a means to justify the fees they charge to their clients.

"It helps explain. Yes, I know that some of the LTs are always funny."

Clausen agrees that the additional services could be a way to rationalize management fees to Limited Partners (LTs), especially considering the large sums of money involved.

"It certainly helps gives you a story to founders to say, listen, I have a little bit more than the other guys, and it's not less."

He admits that having extra services can be a selling point to founders, differentiating one VC firm from another.

Assessing VC Value Add

  • Christian Clausen advises founders on how to evaluate the potential value add of VC firms.
  • He suggests that founders should conduct background checks and seek references, similar to the due diligence process VCs perform on companies and founders.
  • Clausen recommends that founders speak directly to portfolio companies to gauge the effectiveness of the VC's involvement.

"Whether it's operational support or strategic support for these inflection moments, I think there's two things you can do. You can do background checks, references."

Clausen offers practical advice to founders on how to verify the claims of VC firms regarding their value-added services.

"I always say to guys that I'm interested, I say, listen, you can call up any of the portfolio companies in our portfolio, the ones that I've been working with, just tell me who, I give you the names and talk to them."

He encourages transparency, suggesting that founders should have open access to speak with companies that have worked with the VC to understand the true impact of their support.

Due Diligence and Deal Closing Timeframe

  • The due diligence process is essential and mandatory before concluding a deal with a VC.
  • The period between the first meeting with a VC and deal closing can range from two to six months.
  • This timeframe allows for a mutual learning experience about the people involved.
  • Founders should assess if the VC provides meaningful input and identifies crucial aspects of their business model.
  • The style of negotiating during this period is telling of both parties' approach and can indicate future working dynamics.

"That is a great time of learning about the people you're dealing with for both sides."

This quote emphasizes the importance of the due diligence period as an opportunity to understand the values, insights, and negotiation style of both the VC and the founders involved.

Ventex's Value Add

  • Ventex offers reliability, thoughtful analysis, and transparency to founders.
  • The general partners' experience, having lived through two entire cycles, brings modesty and humbleness.
  • Ventex has a strategic angle on internationalization of European companies and optimizing business models.

"I think on the soft skill side of things, reliability, thoughtful analysis and transparency to the founders."

This quote summarizes the soft skills that Ventex brings to the table, highlighting their approach to working with founders.

Christian Clausen's Reading Preferences

  • Christian Clausen is an avid reader who prefers physical books over digital formats.
  • Philip Roth is one of his favorite authors, with "American Pastoral" being a notable work that covers the universal aspects of life.

"I'm a big reader, actually, I even read books on papers."

This quote reveals Christian Clausen's preference for traditional paper books, indicating a personal choice for the tactile experience of reading.

Future of Books

  • Christian Clausen acknowledges a shift towards a paperless, Kindle-dominated society.
  • He sees the Kindle and its e-ink screen as advantageous for readers.
  • The transition to digital is seen as a different method of book distribution rather than a revolution.

"Yeah, I think so, and I'm using one myself. There's many advantages connected to that."

This quote indicates Christian Clausen's acceptance of the Kindle as a reading device and recognizes the benefits it offers.

Christian Clausen's Most Recent Investment

  • The most recent investment was in a Munich-based SaaS company called Speaks.
  • Speaks distinguished itself by bootstrapping to double-digit revenues without additional equity financing.
  • Other aspects beyond financial success attracted the investment.

"We invested in a Munich based weed company, very international, called Speaks."

This quote introduces the most recent investment made by Christian Clausen, highlighting the company's international presence and success in bootstrapping.

Conclusion of the Interview

  • Christian Clausen expresses gratitude for being on the show.
  • The host, Harry Stebings, directs listeners to the podcast website for resources and encourages feedback.
  • The host also promotes a recruitment technology service, Hiring Screen, as part of the podcast's conclusion.

"Thank you so much and we look forward to seeing you in the next episode."

This quote wraps up the interview, with Harry Stebings thanking the audience and anticipating the next episode.

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