20VC Christian Hernandez on The Importance of Mobile and The Relationship Between Growth vs Revenue

In this episode of 20 minutes VC, host Harry Stebbings interviews Christian Hernandez, co-founder and partner at White Star Capital. Hernandez shares his journey from programming at a young age to holding leadership roles at tech giants like Facebook, Google, and Microsoft, and his transition into venture capital. He discusses the evolution of the European startup ecosystem, noting the significant increase in UK seed investments and the challenges of Series A funding. Hernandez emphasizes the importance of revenue alongside growth for startups and the complex task of hiring for future company needs. Additionally, he critiques the VC industry's conservative hiring practices, despite its role in funding innovation. White Star Capital's transatlantic model is highlighted, focusing on markets with strong entrepreneurial bases but underserved by funding, avoiding West Coast investments in favor of the East Coast and Western Europe. Lastly, Hernandez touches on mobile's central role in consumer tech and his investment approach, favoring founders and ideas he believes in, even before full market validation.

• Christian Hernandez is the cofounder and partner at White Star Capital in London.
• He has an extensive operational experience in the tech industry.
• Christian's previous roles include leadership positions at Facebook, Google, and Microsoft.
• He began his tech career at Microstrategy before its IPO in 1999.
• He has been an active angel investor and advisor and serves on the boards of several companies.
• Christian is also a young global leader of the World Economic Forum.
• The interview takes place at Second Home in London, a hub for startups.

"And joining me today, I'm delighted to welcome Christian Hernandez, cofounder and partner at White Star Capital in London." "And Christian has worked closely with entrepreneurs and leading vcs and has been an active angel investor and advisor for many years." "Christian also serves as a young global leader of the World Economic Forum."

The quotes highlight Christian's background and his involvement in the tech industry, both as an investor and a leader. His roles in various organizations and his position as a young global leader showcase his influence and expertise in the field.

• Christian developed an interest in technology at a young age, learning basic programming on a Commodore 64.
• He pursued an economics degree while taking computer science classes and teaching himself HTML.
• Christian's first job out of university was at a technology startup, which experienced rapid growth and a significant market cap before a dramatic loss in value.

"Yeah, I've been a geek since I was twelve. I had a commerce 64 that my dad bought and I taught myself basic programming." "I was taking computer science classes, teaching myself HTML and actually ended up in a technology startup right after university, which became famous or infamous because we went public, had a 30 billion market cap valuation and then lost 72% in one day."

These quotes reflect Christian's early passion for technology and his firsthand experience with the volatility of the tech industry. The dramatic changes in the startup's valuation where he worked underscore the risks and rewards of the tech sector.

• After his experience at the startup, Christian decided to enhance his business skills by attending business school.
• Christian joined Microsoft's Windows Mobile group, which was the fastest-growing business within the company.
• He later moved to Google to help launch their mobile efforts in London, working with manufacturers to preload Google services on mobile devices.
• Christian's role at Facebook involved building a team across Europe to work with developers and partners to scale using the Facebook platform.

"Which is why I went off to business school." "I joined the Windows Mobile group, which was the fastest growing business within Microsoft." "And then Google called because they were starting their mobile efforts in London." "Literally building up the team across Europe to work with developers to code on top of the Facebook platform to bet on partners that would actually scale by using Facebook."

These quotes detail Christian's career progression and his strategic moves to develop a well-rounded business and technology skill set. They also illustrate the growth of mobile technology and the importance of strategic partnerships in scaling platforms like Facebook.

• The UK has traditionally been the most developed VC and startup market in Europe.
• Seed investments in the UK have increased significantly, but Series A investments have not kept pace.
• Berlin, Stockholm, and Paris have become central hubs for the European tech ecosystem.
• There is a growing interest in tech startups in Portugal and Eastern Europe.

"The UK has traditionally been the most developed VC and startup market." "Seed investments in the UK have gone up ten x in the last five years." "You now very clearly see how those three major hubs have become the central hubs of Europe."

The quotes highlight the growth of the tech and VC market in the UK and the emergence of major European tech hubs. They also point to the uneven growth between early-stage and later-stage funding in the region.

• There is a significant gap in Series A funding in Europe compared to seed funding.
• This gap may be due to both an undercapitalization of the ecosystem and the quality of startups.
• The number of active Series A funds in Europe is much lower than in the West Coast of the U.S.
• There is a limited number of local funds available for larger Series C rounds in Europe.

"Active series A funds, which for us meant funds that have done at least five series A investments in the last three years." "West Coast, I think, had something like 140 active series A funds. New York had like under 30. And all of Europe had like 42."

These quotes underscore the challenges faced by European startups in obtaining Series A funding and the disparity between the number of active funds in Europe versus the West Coast of the U.S. It points to the need for more capital investment in the European tech ecosystem.

• Seed funding may come from various sources, including Goldman Sachs bankers.
• Not all businesses that receive seed funding are suitable for venture capital funding at the Series A level.
• Some businesses are better as lifestyle businesses with tax benefits rather than VC fundable enterprises.

"Some of the guys that are getting seed funding from Goldman Sachs bankers, nothing wrong with Goldman Sachs bankers, probably should not be getting series A funding."

This quote emphasizes that some businesses receiving seed funding may not be appropriate for further venture capital investment, suggesting a distinction between types of businesses and their growth trajectories.

• Whitestar's transatlantic model stems from the diverse backgrounds of its founders.
• The model serves as an international bridge for founders, especially those moving from Europe to the U.S.
• Whitestar focuses on markets with a developed entrepreneurial base but underserved in terms of funding.
• The team at Whitestar is built on complementary skills, with a mix of financial and operational experience.

"So for us it was actually playing the role as international bridge for the founders."

This quote explains Whitestar's role in supporting founders who are expanding internationally, particularly between Europe and the U.S., highlighting the strategic advantage of their transatlantic presence.

• Whitestar's investment approach doesn't strictly adhere to traditional funding round labels (Seed, Series A, etc.).
• The firm invests in late seed stage companies with initial product-market fit, aiming to scale and validate the business model before a traditional Series A round.
• Whitestar also funds earlier stage companies if the team is exceptional or the venture's risk-reward profile is compelling.
• The portfolio includes a mix of seed and Series A investments across various sectors and geographies.

"We have actually funded pre product, pre launch companies at an earlier stage, but it's been because either the team has been amazing technically, or had a relationship with them, or we believe that the risk reward of what they're going after makes sense."

This quote highlights Whitestar's willingness to invest in early-stage companies based on the strength of the team or the potential of the business concept, indicating a flexible investment strategy.

• Mobile technology has evolved significantly since the launch of the iPhone and Android, creating a global standardized computing platform.
• Mobile devices are central to consumer engagement due to their widespread use and the ease of access to apps and services.
• While mobile is important, a balanced strategy that includes web presence is still necessary for many consumer-facing offerings.
• The role of mobile varies globally, with it being the primary computing device in some regions.

"Mobile will be a strong component of any consumer facing offering. I don't believe in mobile only, I actually think... You do need to have a landing point on the web as well."

This quote suggests that while mobile is critical for consumer engagement, a comprehensive strategy that includes web presence is also essential, indicating a nuanced view on the role of mobile in the digital ecosystem.

• The debate between focusing on growth versus revenue is not a binary choice.
• Startups can pursue growth while also considering revenue generation strategies.
• The approach should be balanced and tailored to the startup's specific context and market.

"I don't think it's an either or."

This quote asserts that startups do not have to choose exclusively between growth and revenue, advocating for a more integrated approach to building a sustainable business.

• Growth is crucial for consumer-facing companies with network effects.
• True businesses must be self-sustaining with revenues covering costs.
• Reliance on external funding without revenue is unsustainable long-term.
• Google and Facebook are often misquoted as growth-only examples; they had revenues early on.
• Early revenue streams allowed these companies to raise significant funding and further invest in growth.
• Current investment climate is shifting towards needing proof of sustainable business models.
• Early-stage companies don't need immediate revenue but must have a plan for customer monetization.

"And last time I checked, the definition of a business was a self sustaining entity that has revenues to pay for its costs."

This quote emphasizes the fundamental business principle that a true business should generate enough revenue to cover its costs, highlighting the importance of revenue in growth-focused businesses.

"Three years after launching in a dorm room, Facebook was making about $80 million and quickly jumped to over $300 million and then took off."

The quote corrects a common misconception that Facebook focused solely on growth without revenue, demonstrating that successful companies often have early revenue which supports further growth.

"It's going to be very hard, even in the valley, or actually starting in the valley, for a company to raise purely on growth metrics."

This quote reflects the changing investment landscape, where growth metrics alone are no longer sufficient for raising capital, and a sustainable business model is increasingly required.

• Hiring is a critical and challenging aspect for CEOs and founders.
• Founders should utilize their board and advisors to find suitable talent.
• Early team members might not fit advanced roles as the company scales.
• Talent scarcity in smaller ecosystems can hinder hiring for key positions.
• Importing talent from more developed ecosystems is challenging due to cost and personal considerations.
• Industry veterans returning from major tech companies can help train new talent.
• The VC industry paradoxically seeks to de-risk yet hires from a traditionally risk-averse talent pool.

"So yes, I think it is the hardest thing."

This quote acknowledges the difficulty of hiring, which is a common challenge faced by CEOs and founders in growing their companies.

"The guy that was with you or gal on day one is not likely to be that SVP of sales or even CTO that you might need to scale out your company as you hit 30 million users."

The quote highlights the often difficult realization that early team members may not be suitable for high-level roles as the company expands, emphasizing the need for strategic hiring as a company grows.

"Hiring a Rockstar Facebook level product manager is really hard."

This statement points out the specific challenge of finding highly experienced product managers, especially outside of well-established tech hubs, which is a common hurdle in Europe.

• The VC industry is structured to invest in disruptive, scalable businesses.
• VC firms face challenges in scaling due to the human-intensive nature of deal flow and board management.
• Larger funds can lead to management creep, but technology attempts to aid in deal sourcing.
• VC funds are financial instruments with expectations of high returns from institutional investors.
• Innovative platforms like AngelList show potential for disrupting traditional VC models.
• Full-stack VC models aim to add value across all stages of company growth.

"We are an asset class, and I mean a financial asset class that is given money by institutional investors on the condition that we return more than they gave us."

This quote describes the fundamental expectation in the VC industry to generate returns that exceed the initial investment, underlying the financial goals and pressures of VC funds.

"Angel is a great example where AngelList builds a platform on top of which they prove success, on top of which they go raise a 400 million dollar fund that has the potential to be a disruptive new way of doing both deal flow and actually investing."

The quote highlights AngelList as an innovative platform that challenges traditional VC practices by successfully raising significant funds and potentially changing how deal flow and investments are managed.

• The VC industry is intellectually stimulating and constantly evolving.
• Entry-level positions in VC have uncertain career trajectories.
• Some associates become entrepreneurs after gaining industry experience.
• There are different paths within VC, depending on individual goals and timing.

"I see no job that in 20 years from now will still keep teaching me new things the way that this does."

This quote reflects the speaker's belief in the VC industry's capacity for continuous learning and intellectual stimulation, which is a key attraction for many professionals.

"Can you name more than ten people gone from associate to partner in the ecosystem?"

The question points out the rarity of career progression from entry-level to partner within the VC industry, indicating that the path to the top is not well-defined or common.

• There are multiple paths to becoming a partner in venture capital (VC).
• One can become a successful operator, CEO, or founder and then transition into VC.
• Another path prevalent in Europe involves progressing through private equity or banking before moving into the investment side.
• Becoming a partner in VC requires a long-term commitment, often spanning decades.
• This commitment includes being part of the story for the life of the fund, which often involves raising multiple funds over time.

"If you're going to be a partner, you have to make a commitment for a decade, if not decades, because effect that you're raising a fund, the promise that you are part of that story for the life of the fund."

The quote emphasizes the long-term commitment required to be a partner in a venture capital firm, highlighting the expectation of being involved for the entire lifespan of a fund and potentially multiple funds.

• Career progression in VC can start at an analyst or associate level, but it may not always lead to a partner role.
• Jeremiah Daly is cited as an example of someone who transitioned from an established firm to creating his own fund.
• Experience in established VC firms can be leveraged to ascend to partner roles or to establish new platforms.

"Jeremiah Daly, who was at Excel and then went to general Catalyst, he went to fund the US, and now he's created his own fund."

This quote illustrates a career trajectory in venture capital where an individual gains experience at notable firms before branching out to start their own fund.

• Christian Hernandez mentions his favorite book, "Physics of the Future" by Mikyo Kaku, for its accessible exploration of future scientific advancements.
• A career highlight for Christian was a developer event in Istanbul, which faced technical challenges but was memorable.
• Christian relies heavily on Uber for transportation and appreciates the convenience it provides.
• He enjoys Medium as a blogging platform and for content consumption due to its recommendation system and Nuzzle for its social signal filtering.

"Favorite book, Physics of the future."

This quote shares Christian's favorite book, indicating his interest in science and its future developments.

"But so far, career highlight. It was probably a 300 person developer event in Istanbul on an island in the middle of the Bosphorus with no Wifi connection."

The quote recounts a significant and challenging event in Christian's career, emphasizing the impact of overcoming obstacles during a professional gathering.

• Christian admires Alan Patrickoff of Greycroft for his systematic approach to maintaining a consistent fund size and focus on early-stage tech investing.
• Christian aligns with this philosophy, aiming to keep Whitestar Capital focused on early-stage investments.
• He believes that staying within a certain fund size range allows for both profitability and enjoyment in the venture capital process.

"Alan Patrickov created Apex as one of the early VCs in Europe. [...] And great Croft connects New York and LA, much like we connect London and New York."

Christian expresses admiration for Alan Patrickoff's career and the strategic positioning of Greycroft, drawing a parallel with his own firm's transatlantic connection.

• Christian's investment decisions are often based on his belief in the founder's vision and track record.
• He cites a recent undisclosed investment where his decision was influenced by the founder's consistent progress and a shared vision for the company's future.
• Another investment in an AI-powered robotic locksmith was made quickly due to Christian's immediate conviction in the idea upon discovery.

"It's a founder we've been tracking since October 2014. [...] I knew I wanted to work with him and then he came back and said, we haven't really met fix. We're still not there for the a, but I think I'm going to raise a bridge round."

This quote reflects Christian's investment strategy, which emphasizes the importance of the founder and the long-term potential of their vision, leading to his decision to lead a bridge round investment.

• Christian thanks the hosts for the opportunity to be on the 20 minutes VC show.
• Harry Stebbings expresses gratitude to Christian for sharing his journey and insights on the show.
• Listeners are encouraged to follow the show and its hosts on social media and sign up for the newsletter for updates.

"Thanks for VCD for 20 minutes VC. It's an awesome show."

Christian shows appreciation for the platform provided by the 20 minutes VC show, indicating a positive experience as a guest.

"So a huge thank you to Christian for giving up his time today to appear on the show."

Harry Stebbings thanks Christian for participating in the show, highlighting the value of the insights shared with the audience.