20 VC 087 From The Investors Of Spotify, TrustPilot and Klarna with Jeppe Zink, General Partner @ Northzone



In the 87th episode of "20 minutes VC," Harry Stebbings interviews Yepe Zinc, a General Partner at North Zone, who has played a pivotal role in establishing their London office and has a focus on fintech, SaaS, marketplaces, and mobile sectors. Yepe shares insights on the evolution of the European tech environment, emphasizing the digital economy's growth, and the shift from infrastructure to applications and services. He also discusses the state of venture capital in Europe, noting the alignment of VC talent with entrepreneurial realities and the cyclical nature of investments. The conversation then turns to the fintech space, where Yepe highlights the industry's ripe potential for disruption due to legacy banks' service gaps and the attractive margins in banking services. Despite current frothy valuations, Yepe is optimistic about the availability of development capital to accelerate innovation. He also touches on the success of Nordic tech companies, attributing it to a combination of structural factors and a culture of success breeding success. Lastly, Yepe emphasizes the importance of momentum and continuous performance measurement in startups, offering a glimpse into his investment philosophy and deal sourcing approach.

Summary Notes

Introduction to the 20 Minute VC Podcast

  • Harry Stebbings introduces the 87th episode of the 20 Minute VC.
  • He notes that if all interviews were 20 minutes, there would be 29 hours of content in the back catalog.
  • Harry introduces guest Yepe Zinc, a general partner at North Zone.
  • North Zone has investments in companies like Spotify, Trustpilot, and Bloglovin.
  • Yepe Zinc has focused on fintech, SaaS, marketplaces, and mobile, with investments in Wallapop and Space Ape Games.
  • A competition giveaway is announced for signed copies of Brad Feld's book "Venture Deals."

"I'm Harry Stebbings and this is the 20 minutes VC. And do you know this is the 87th episode?"

Harry Stebbings is the host of the 20 Minute VC podcast, and he is introducing the current episode, emphasizing the extensive content available from previous episodes.

"Yepe is the general partner at North Zone who have investments in just some of the most unbelievable companies, including the likes of Spotify, trust, Pilot and Bloglovin, just to name a few."

Harry introduces Yepe Zinc, highlighting his role at North Zone and their notable investments, indicating the influence and success of the firm in the venture capital industry.

"All you have to do to be in with a chance is head over to the website at WW dot, the Twentyminutevc.com all in letters and sign up for our newsletter."

Harry promotes a competition for listeners to win a signed book, providing a call to action to engage with the podcast's website and newsletter.

Yepe Zinc's Route into Venture Capital

  • Yepe Zinc discusses his unusual entry into venture capital.
  • He started as a junior analyst in corporate finance at Deutsche Bank.
  • He worked under Frank Catrone, who was a successful tech banker at Deutsche Bank before leaving with most of the team.
  • Yepe and a few colleagues proposed buying business through pre-IPO principal investments.
  • This strategy proved profitable, leading to more focus on principal investments over advisory business.

"I probably had a slightly unusual way in. I was working as a junior analyst in corporate finance at Deutsche bank."

Yepe Zinc explains his non-traditional path into venture capital, starting from a junior analyst position at a major bank.

"The principal investments were way more profitable business than the advisory business."

Yepe notes the success of the principal investments strategy, which led to a shift in focus at Deutsche Bank, and indirectly influenced his career trajectory towards venture capital.

Evolution of the European Tech Environment

  • Yepe Zinc has observed the European tech environment over 17 years, witnessing two full cycles.
  • He has seen the shift from focusing on connectivity infrastructure to applications and services.
  • The digital economy's growth, from less than 100 million people online to over 3 billion, has been a significant change.
  • The VC landscape in Europe was sparse before 2000, with early VC firms adopting an integrated VC buyout model.
  • Many early European VC firms failed due to being too transaction-focused and removed from entrepreneurial realities.
  • There is now better alignment between VC talent and the entrepreneurial scene in Europe.
  • Over 90% of VC firms in Europe from 2000 have either died or cannot raise new funds.

"The overriding factor has really been the rise of the digital economy."

Yepe describes the primary factor in the tech market evolution as the dramatic increase in the number of people online and the prevalence of smartphones, which has shifted the focus in the tech industry.

"I think if you look at the vcs now in Europe, finally you have the talent within the vcs much more aligned with the entrepreneurial scene."

Yepe observes that the current VC talent in Europe is more in tune with the needs and realities of entrepreneurs, indicating a positive evolution of the VC industry.

"So hopefully that's very different."

Reflecting on the past failures of many European VC firms, Yepe expresses hope that the current VC environment has improved and differs significantly from the early 2000s, suggesting a more sustainable future for venture capital in Europe.

Venture Capital Investment Strategy

  • Venture capital (VC) fund cycles typically last at least ten years, encompassing both upturns and downturns.
  • VCs should anticipate market cycles and manage value through these fluctuations.
  • The quality of exit markets at the time of selling portfolio companies significantly influences the success of a VC's vintage years.
  • Successful investments can be made at any point in the cycle, as exemplified by investments in Spotify and Avito during different market conditions.
  • Strong companies can weather market cycles, while weaker ones may not recover.

"So typically you will have at least one up and downturn in a single fund cycle. So your job really as a VC, is to make sure to anticipate it and manage value through upturns and downturns."

This quote emphasizes the inevitability of market fluctuations within a typical VC fund cycle and the importance of strategic management through these periods.

"And if I look at our current biggest winners, Spotify and Avito, we invested in the around and Spotify just before the party finished in September of 2008, when the bull market was still very strong. And Avito, we invested in 2010 in the deep bear market."

The speaker highlights successful investments made at different points in the market cycle, suggesting that good investment opportunities can arise regardless of broader economic conditions.

Current Market Cycle Analysis

  • There is a perception that the market may be at its peak, but this view is too generalized.
  • Valuation bubbles are present in certain subsectors and late-stage VC investments.
  • Non-traditional VC investors, referred to as "tourists," are contributing to inflated valuations.
  • These non-consistent players are expected to exit the market during a downturn, which may indicate we are in a "frothy" time.
  • However, the overvaluation is not uniform across all sectors.

"I think he felt we were all the way at the very peak. Right now, I think that's too blanket a statement."

The speaker suggests that the assertion of being at the peak of the market cycle is an oversimplification and that the situation is more nuanced.

"I see a lot of valuation bubbles in certain subsectors or in late stage VC investments, and that's really because you have a lot of tourists coming in, like hedge funds and other non consistent players putting money into the VC game."

This quote explains the cause of valuation bubbles in certain areas of the market, attributing them to the influx of capital from non-traditional VC investors.

Attraction to the Fintech Space

  • Fintech is a key investment theme due to the discrepancy between customer expectations and traditional banking offerings.
  • Banks have been slow to innovate, presenting a ripe opportunity for disruption.
  • Fintech companies can potentially achieve higher margins compared to other sectors like e-commerce.
  • The cost-to-revenue ratio in banking services is favorable for driving substantial margins.

"So the reality is, from a service side, it's a very ripe market to disrupt."

The speaker identifies the banking industry as particularly vulnerable to disruption due to its lack of innovation in service offerings.

"If you look at banking services, typically there's a lot more revenue that can be driven."

This quote highlights the financial attractiveness of the fintech sector, emphasizing the potential for high revenue generation.

Structural Advantages and Barriers for Fintech Startups

  • Large incumbents in the banking industry have structural advantages and barriers to entry, such as regulatory requirements.
  • Despite these challenges, fintech startups have been able to successfully compete and win against established players.
  • Success stories in London, such as Sopa and Funding Circle, demonstrate the possibility of overcoming these barriers.

"Yeah, no, of course they do. And there are barriers to entry and it is harder to get in as a startup in fintech than many others because of regulation, et cetera."

The speaker acknowledges the challenges faced by fintech startups due to the regulatory environment and the incumbents' advantages.

"It is possible to step in and take these incumbents head on and winning."

This quote provides optimism for fintech startups, suggesting that despite the barriers, success against large, established companies is achievable.

Future of Fintech

  • The fintech industry is currently experiencing its first wave of companies succeeding by offering online experiences.
  • Over the next five to ten years, a second wave of fintech companies is expected to emerge, challenging the initial disruptors with more sophisticated business models and structures.
  • This evolution will likely lead to continuous innovation and disruption within the fintech space.

"I think we're very much currently in the first wave of seeing fintech companies literally succeeding by providing an online experience."

The speaker describes the current state of the fintech industry, emphasizing the initial disruption caused by online banking services.

"I think you will find much more sophisticated setup structurally within the startups that's literally going to disrupt the disruptors."

This quote predicts a future trend where new fintech startups will innovate beyond the current offerings, leading to further disruption in the industry.

Areas of Interest in Fintech

  • Security is an emerging area of interest due to the severe consequences of financial account breaches compared to social media account hacks.
  • The business segment of fintech is another area ripe for disruption, as consumer-focused fintech has already gained significant attention.

"Well, I think security is just starting. I mean, one thing is to have your Facebook account hacked, but an entirely different thing is to have your bank account hacked."

The speaker emphasizes the critical importance of security in fintech, given the higher stakes involved with financial data breaches.

"The other side of it, I think, is the business segment."

This quote indicates that the speaker sees potential for innovation and disruption within the fintech business segment, suggesting it is an area of particular interest for future investments.

Evolution of Fintech Investment

  • The investment pattern in fintech typically begins with consumer-oriented services, progresses to small businesses, and ultimately reaches large businesses.
  • The current excitement in the fintech space may lead to inflated valuations for startups.
  • The investment cycle is expected to change, which could alter the valuation landscape.
  • Development capital is abundant at present, facilitating the acceleration of innovation.

"er behavior you're changing, it starts on the consumer side, then it's a small business segment and then it's the large business segment. So I think we will see that." "Do you think this excitement around the fintech space is creating bubble like valuations for those fintech startups? Have you seen that personally when investing?" "Yes, in many ways I find it scary, but that's supply and demand speaking. I think we spoke about the cycle. I think we will see that changing as the cycle changes."

These quotes highlight the progression of fintech investment from consumer to larger business sectors, the potential for overvaluation due to excitement in the space, and the notion that the investment cycle will eventually shift, impacting valuations.

Investment Approach and Stage Agnosticism

  • The investment approach is not tied to a specific stage; investments range from Series A to Series D rounds.
  • Being stage agnostic allows for flexibility in investment decisions and opportunities.

"Innovation and also currently invest in series a, am I right?" "Yeah, we try to be stage agnostic, so we do anything from literally a to d round."

The speaker confirms the stage-agnostic nature of their investment strategy, indicating a willingness to invest in startups from early to later funding rounds.

Nordic Tech Ecosystem and Success

  • The Nordics, especially Stockholm, are producing a significant number of successful tech companies, known as unicorns.
  • Historical factors, such as early trade liberalization, widespread broadband access, and mobile technology pioneers like Nokia and Ericsson, have contributed to the region's success.
  • The current success of Nordic tech companies is self-reinforcing, with successful ventures inspiring new entrepreneurs and creating a hub mentality similar to Silicon Valley.

"Speaker C: Okay, absolutely. And then being a dane, I have to ask, Skype, Spotify, we mentioned, obviously Spotify earlier. Series a round for you, Soundcloud, Supercell King, all these nordic companies, what is it about the Nordics, do you think, that's generating this club of unicorns that are just dominating the tech scene at the moment?" "No, I think you're right. I mean, we're not wanting to dish London and UK, which is doing great, but if you look at it, we see very few of the current crop of great winners coming from here. Whereas clearly Stockholm, the Nordics are punching way above their weight."

The speaker acknowledges the exceptional performance of Nordic tech companies in the global tech scene and attributes it to both historical and current factors that foster innovation and success.

Deal Sourcing and Relationship Building

  • Successful deal sourcing involves deep sector knowledge and establishing strong relationships with entrepreneurs.
  • The most promising startups are often identified by multiple investors, making personal relationships crucial for securing investment opportunities.
  • Time spent in sectors of interest before making investments is essential for finding and understanding high-potential startups.

"I think it's back to the not being transaction focused. If you don't know which sector excites you and you spend time in the sector before you're making any investments, you are unlikely to ever find the great ones."

This quote emphasizes the importance of sector expertise and relationship building in the investment process, suggesting that a non-transactional approach leads to better investment outcomes.

Ambition and Performance in Venture Capital

  • Ambition is seen as a mindset rather than a purely rational or financial consideration.
  • It involves a mission-driven approach and a desire to challenge the establishment.
  • Northstone emulates the startup environment by maintaining dynamism, hunger for success, and a focus on performance.
  • Venture capital is characterized by impatience, a willingness to change strategies quickly, and learning through trial and error.

"Ambition is really a mindset. It's about that feeling that you're on a mission to challenge the establishment, and about that recklessness and purity of thought and saying, we just want to win."

The speaker describes ambition as a key trait for both investors and startups, suggesting that a shared mission and drive to succeed are vital components of the investment philosophy.

Continuous Improvement and Performance Measurement

  • Emphasizing the importance of leveling up and learning quickly to deliver the best product.
  • Performance should be measured through continuous KPIs, not daily goals, to align ambition with performance and maintain dynamism.

I think it's always about leveling up. It's about saying, how fast can you learn to be the best and deliver the best product? No, it's not daily goals. It's about having continuous KPIs and continuing measuring whatever you have so that you have the ambition in line with performance. And therefore you always make sure that it's dynamic.

These quotes highlight the focus on continuous improvement and the use of ongoing Key Performance Indicators (KPIs) to ensure that a company's ambitions are matched with its performance, thereby fostering a dynamic environment.

Importance of Momentum in Startups

  • Momentum is a critical factor for startup success, whether in product development or other areas.
  • A lack of momentum can make processes and progress much more challenging.

It's so different from startup to startup. But for me, it's all about momentum. If I don't sense that momentum and momentum can be in product development, if I don't sense things are happening, then I always push, because I think momentum is when you have momentum, you can do amazing things. If you don't have a momentum, everything gets tougher.

The speaker emphasizes momentum as a key indicator of a startup's potential for success and the need to push for progress when momentum is not present.

Productivity Tools and Reading Preferences

  • Utilizes basic productivity tools like Skype City for transportation and Genius for document signing.
  • Prefers to scan a variety of sources for information rather than focusing on a single blog or newsletter.
  • Enjoys Fred Deston's Strictly VC in Europe.

I'm quite dull. Skype City method to get around London. Genius to sign documents. It's important. I'm more of a dabbler, so I use newsify to sort of scan through a larger amount so I don't really have a single one to log on to. Although in Europe I suppose I'm enjoying currently Fred Deston's strictly vc.

The speaker lists the productivity tools they find essential and describes their approach to consuming information from various sources, with a mention of a preferred newsletter for VC insights.

Fintech Sector and Thought Leadership

  • Finds the fintech sector most exciting.
  • Considers Peter Thiel a thought leader in fintech due to his involvement with companies like PayPal, Stripe, and Palantir.

Fintech. I suppose Peter Thiel has to be head over know the lighthouse there with PayPal, stripe, palate, et cetera.

The fintech sector is singled out as particularly exciting, and Peter Thiel is recognized as a prominent figure in the field due to his contributions to major fintech companies.

Personal Reading Preferences and Startup Success

  • Prefers reading about the varied experiences of founders rather than formulaic approaches to startup success.
  • Values tenacity and learning through failure as common threads among different startup stories.

Yeah, I'm less of a fan when it comes to business literature. I'm less of a fan of people searching for malay ways of delivering startup success. So personally I enjoy reading things like growth engines. I can't remember who it was by Ellis, I think, who's really just a collection of interviews with founders. And what you read is the randomness of every single startup. It's different stories. And the red thread is really tenacity and learning through failure.

The speaker reveals a preference for reading material that provides diverse perspectives from founders, emphasizing the importance of perseverance and learning from setbacks.

Investment Decisions and Startup Differentiation

  • Recently invested in Crosslend, a second-wave fintech company focused on consumer lending.
  • Crosslend is seen as superior due to its approach to capital markets and its use of a European banking license to operate across borders, differentiating it from first-wave companies.

Was a company called Crosslend. And indeed that is one I would describe as this second wave of fintech companies. A consumer lending company and its management has been sitting as part of some of the first wave companies and saying, hey, we can do this better. And they've set themselves up in a way they think is superior to the current wave, and I believe them.

The quote explains the speaker's rationale behind investing in Crosslend, highlighting its strategic advantages and potential to outperform earlier fintech models.

Resources and Recommendations

  • Recommends the resource "Startup Growth Engines" for those interested in startups.
  • Encourages listeners to sign up for a newsletter to win a signed copy of "Venture Deals" by Brad Feld.

And if you would like to catch any of the resources mentioned by Yepe in the show today, head on over to our site@www.the, twentyminutevc.com where you can find all the links to the resources. And I specifically recommend startup growth engines. Absolutely amazing. Really is a must read for all interested in startups.

The host provides information on where to find resources discussed in the podcast and makes a specific recommendation, also promoting a giveaway to engage the audience.

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