20VC Why Growth Investors Ruined the Venture Market, Why Marketing in Venture Has No Substance, Why FollowOn Investing Can Damage Returns and The Mistakes VCs Made in the Last 18 Months with Ophelia Brown, Founder @ Blossom Capital

Summary Notes


In this episode, the host engages with Ophelia Brown, the founder of Blossom Capital, one of Europe's leading Series A firms with a $475 million fund. Ophelia discusses her journey from early entrepreneurial aspirations and lessons learned from failed startups to becoming a successful venture capitalist, previously working at LocalGlobe and Index Ventures. She emphasizes the importance of focusing on making things happen, not taking 'no' for an answer, and the dedication required in venture capital. Ophelia also shares insights on portfolio construction, advocating for concentrated investments, and the value of building long-term relationships with founders. She critiques the venture capital industry's hype and advocates for a return to thoughtful investing, highlighting the unique challenges and biases she faced as a female solo GP raising a fund. Throughout the conversation, Ophelia underscores the significance of enabling entrepreneurs and the competitive, yet rewarding nature of venture capital.

Summary Notes

Follow-on Investment Impact on Fund Returns

  • Follow-on investments at higher valuations can negatively affect fund returns.
  • Initial ownership should be acquired at the lowest cost possible.
  • In growth markets, follow-ons may occur at valuations 4-5x higher than initial, diluting the blended average cost of ownership.

"I think actually the Followon can really damage fund returns. You should buy your ownership at the lowest possible cost and then, especially in the growth market that we've been on, where the followon is done at four or five x, say your initial cost was five or 10 million and you were spending an additional five or more in Prorata but at a much higher valuation. Then your blended average suddenly looks a lot worse than having just bought your ownership at a lower cost."

Ophelia Brown emphasizes the risk of follow-on investments at inflated valuations, suggesting that they can lead to worse overall returns compared to securing larger ownership stakes at the initial, lower valuation.

Ophelia Brown's Professional Journey

  • Ophelia Brown's entrepreneurial spirit was evident from an early age, with ventures ranging from car window washing to DJing.
  • She pursued an MBA with the intention of becoming an entrepreneur but shifted to venture capital to learn investment skills.
  • Ophelia's experience at Index Ventures and LocalGlobe led her to realize her aptitude for investing over building a company herself.
  • Blossom Capital was founded as a result of her enduring passion to start her own venture.

"I always hear that blossom is long in the making and short in the making, long in the making in that. I think I always knew that I wanted to have my own company or build my own thing."

This quote reflects on Ophelia Brown's long-standing desire to create her own venture, which eventually led to the founding of Blossom Capital.

Winning Competitive Deals

  • Ophelia Brown's success in winning competitive deals is attributed to her relentless focus and disregard for the word "no."
  • She believes her genuine passion and commitment are transparent to entrepreneurs and contribute to her success in partnerships.

"When I want something to happen, I just focus on making that thing happening. And so when it comes to working with an entrepreneur or wanting to support them or partnering with them, it's just relentless focus on achieving that."

Ophelia Brown describes her approach to securing deals with entrepreneurs, highlighting her determination and focus as key factors in her success.

Investment Decision-Making

  • Ophelia Brown often questions her initial reactions to pitches to ensure they are not solely based on charisma.
  • She prefers getting to know founders and their motivations rather than relying on formal pitches.
  • Investment decisions are usually made early, but there is a period of relationship building before finalizing an investment.

"I think about this a lot and I think during a meeting, if there was like a radar of I'm in, I'm out, I'm in, I'm out. I'm constantly trying to test myself, okay, I've fallen in love within the first five minutes, but is this love real?"

Ophelia Brown discusses her internal process of evaluating potential investments and the importance of critically assessing her initial impressions.

Building Relationships with Founders

  • Ophelia Brown acknowledges the importance of building relationships with founders, even when they are not actively seeking investments.
  • She aims to demonstrate how Blossom Capital can add value over time, rather than focusing on immediate investment.
  • Understanding the founder's timeline and when to engage is crucial for building a successful partnership.

"I get it from a founder's point of view. I've got better things to focus on. But you and I know this from fundraising ourselves. There is so much to be said for the relationship that you built."

Ophelia Brown recognizes the significance of relationship-building in venture capital and the long-term benefits it can bring to both investors and founders.

Philosophy and Mortality

  • Ophelia Brown studied philosophy, which influences her understanding of life's finite nature.
  • She believes that the pursuit of enjoyment and staying busy are ways to avoid dwelling on mortality.
  • Enjoying life and making the most of every minute is a personal philosophy for Ophelia Brown.

"Everything about your life is basically trying to escape from the very reality of mortality, that life is finite."

Ophelia Brown shares her philosophical perspective on life, emphasizing the importance of living fully in recognition of its finite nature.

Advice from Mickey Malka

  • Mickey Malka advised Ophelia Brown to trust her judgment and do things her own way when starting Blossom Capital.
  • The advice to follow one's own path is particularly relevant for new ventures where certainty is scarce.

"Mickey's one of the people that I respect the most. The one thing that really resonated, or I took away from, was that he told you, you have to really follow your own judgment and believe in you and do things your way."

Ophelia Brown reflects on the impactful advice received from Mickey Malka, highlighting the importance of self-belief and individuality in venture capital.

Portfolio Construction at Blossom Capital

  • Blossom Capital focuses on a concentrated portfolio, investing in a smaller number of high-quality companies.
  • The fund size and number of investments grow in line with the European ecosystem's development.
  • The strategy involves a significant initial investment with minimal follow-on to avoid diluting returns.

"So rather than try and build a fund of 30, 40 companies and then build that over two, three years, we said the number of quality companies that we can be great partners to is actually probably smaller than that, and that's be super concentrated."

Ophelia Brown explains Blossom Capital's approach to portfolio construction, opting for a concentrated investment strategy to become better partners to a select number of companies.## Series B Investment Concerns

  • Series B investment opportunities are more limited compared to Series A.
  • Founders should manage their burn rate and runway, and not rely on automatic fundraising.
  • Ophelia Brown emphasizes the importance of self-sustainability for startups.

"No. We've always said the vanders be in control of your own destiny, manage your Runway and your burn."

Ophelia Brown stresses the importance of startups being in control of their financial trajectory and not expecting automatic funding rounds.

Selling to Entrepreneurs Against Multistage Funds

  • Multistage funds theoretically offer continuous reinvestment but still require startups to perform for further funding.
  • Ophelia Brown argues that their alignment with founders helps in securing the best possible raise in the next round.

"But the reality is, even for a multistage fund, when they could theoretically do the BCD, they're still underwriting that new investment."

The quote explains that multistage funds do not guarantee funding for later stages without reevaluation of the startup's performance.

Handling Investment Expectations

  • Founders usually understand their company's performance and potential for further investment.
  • Ophelia Brown believes in transparent communication with founders regarding business plans and KPIs.

"It's not coming as a surprise. We're working through. There's a budget, there's a business plan."

Ophelia Brown emphasizes the importance of keeping founders informed about their progress and investment potential, to avoid surprises.

Investment Committee (IC) Efficiency

  • ICs are criticized for inefficiency and lack of knowledge about specific deals.
  • Ophelia Brown discusses the removal of the IC process in favor of more direct and informed investment decisions.

"That's why we did away with the IC process. It just didn't make sense."

The quote reflects the decision to eliminate the traditional IC process to improve investment decision-making efficiency.

Signaling Risk

  • Signaling risk exists, but investors should rely on their own judgment rather than external signals.
  • Ophelia Brown advises founders to focus on the strength of their business, not on who is or isn't investing.

"There is signaling, but a good investor doesn't necessarily pay attention to those signals."

Ophelia Brown downplays the importance of signaling risk, suggesting that good investors make decisions based on their own analysis.

Speed of Execution

  • Speed of execution is considered a key determinant of startup success.
  • Ophelia Brown agrees that swift action and conviction are crucial for founders.

"Definitely speed of execution. There's courage and the conviction of ideas and how to move on things."

The quote highlights the importance of speed and decisiveness in executing business strategies for startup success.

Relationship to Regret in Investing

  • Ophelia Brown reframes regret as a learning opportunity in the context of investment decisions.
  • Reflection on past investments is essential for growth and avoiding repeated mistakes.

"And as an investor, I don't have regret, I have learning."

Ophelia Brown expresses her philosophy on investment mistakes, viewing them as learning experiences rather than regrets.

Execution and Team Importance

  • Execution and team quality are critical factors in the success of investments.
  • Ophelia Brown reflects on the importance of understanding a team's dynamics before investing.

"So I think investors can get fooled into thinking something is a great investment thesis and ignore the practicalities of execution."

The quote acknowledges that a strong investment thesis can be undermined by poor execution or an inadequate team.

Scout Program Challenges

  • The Blossom scout program aimed to innovate but did not align with market needs.
  • Founders preferred smaller individual investments over larger collective ones.

"It was a great idea. But as I said, all these operators were starting to be angels."

Ophelia Brown explains the rationale behind the scout program and its misalignment with founder preferences.

Decision Against Seed Stage Investing

  • Blossom Capital chooses to focus on Series A investments, avoiding seed stage.
  • Ophelia Brown believes their expertise is best utilized at the Series A stage, where they can add more value.

"We actually pulled out of seed. I do worry, actually, when I look at all of the deal activity in Europe that it's all at seed stage at the moment."

The quote explains Blossom Capital's strategic decision to concentrate on Series A investments due to their perceived value addition at that stage.

Board Membership and Support Structure

  • Blossom Capital does not take board seats at the Series A stage but offers extensive support.
  • Regular contact and strategic discussion with founders are prioritized over formal board meetings.

"We're with you as partners, we're an extension of your team."

Ophelia Brown describes their approach to supporting startups, emphasizing partnership over governance.

Information Flow and Governance

  • Good information flows quickly, while bad news takes longer.
  • Ophelia Brown emphasizes the importance of founders sharing challenges promptly for effective problem-solving.

"We always say we want to know the bad news as quickly as possible because that's how we help you figure it out."

The quote underscores the need for open communication between investors and founders, particularly regarding challenges and setbacks.

Regret Minimization in Deal Selection

  • Ophelia Brown focuses on unique investment opportunities rather than competitive deals with multiple term sheets.
  • She believes in staying away from deals where the value proposition is not distinct.

"If at the early stage it's all about seeing something that someone else doesn't, then there shouldn't be 15 term sheets for a deal."

The quote reflects Ophelia Brown's investment philosophy of seeking unique opportunities rather than following the crowd.## Data-Driven Investment Practices

  • Data platforms track various metrics such as headcount growth, revenue growth, and web rankings.
  • Multistage funds use these platforms to monitor potential investment opportunities.
  • A highly pedigreed operator received 28 pings from associates in one day, indicating intense activity and interest from investors.

One of my friends is a very pedigreed operator, and they got 28 pings from associates on one day because they showed up on a data platform.

This quote illustrates the intensity and frequency with which investors reach out to promising companies that appear on data platforms, suggesting a highly competitive and data-driven investment landscape.

Thoughtful Investing vs. High Velocity Business

  • The shift from a cottage industry to a low margin, high velocity business raises concerns about the level of thought put into investments.
  • Recent deals show a lack of competing term sheets, which could indicate either a strategic approach or a potential misstep.
  • The interjection of competitor funds at the last minute disrupts the investment process.

That's not thoughtful investing.

Ophelia Brown expresses concern that the reliance on data and fast-paced deal-making may not constitute thoughtful investing, where due diligence and strategic alignment are key.

Relationship to Price in Investments

  • Investment decisions are influenced by the desire for significant ownership stakes to ensure portfolio impact.
  • The emphasis is on being a valuable partner to a finite number of high-potential companies.
  • Price sensitivity is balanced with the need for the company to scale and be material to the fund and its limited partners (LPs).

It comes back to the philosophy of there are only a finite number of outcomes that are going to matter each year, and you just want to be the best possible partner to them.

Ophelia Brown discusses the investment philosophy of focusing on a limited number of companies and being the best partner to them, which influences their approach to pricing and ownership stakes.

Ownership Percentage Goals

  • The pursuit of a 20% ownership stake is a key goal for the fund to ensure meaningful contributions to the portfolio.
  • There is a debate about whether seeking a 20% stake leads to adverse selection, as it is less common among funds.
  • The ability to secure large ownership stakes can be influenced by the fund's proven ability to support portfolio companies.

No, I don't worry about adverse selection.

Ophelia Brown dismisses concerns about adverse selection when aiming for a 20% ownership stake, suggesting confidence in the fund's investment strategy and value proposition.

Investment Decision-Making Process

  • Investment decisions involve extensive discussion, debate, and iterative evaluation of the investment thesis, market size, and team strengths.
  • The principle of "disagree and commit" is employed to ensure collective support for portfolio companies, despite differing opinions during the decision-making process.

So a lot of discussion and debate. It's very iterative.

Ophelia Brown describes the thorough and iterative process of making investment decisions, emphasizing the importance of discussion and debate within the partnership.

European Venture Capital Landscape

  • European founders no longer need to leave Europe to raise capital, as sufficient funds are now available locally.
  • The competitive nature of venture capital in Europe has increased, with founders having more control over their cap tables.
  • European venture capital firms may need to improve their storytelling and public relations to compete with the prestige of U.S. firms.

Venture is a very transparently competitive sport where the founders ultimately choose who deserves to be in the ring, which is quite an exciting industry to be in.

Ophelia Brown highlights the dynamic and founder-centric nature of the European venture capital industry, where founders have significant power in choosing their investors.

LP Provisions and Fundraising Experiences

  • The lack of venture capital investment from large European pension funds and educational institutions contrasts with U.S. practices.
  • Fundraising as a solo GP, particularly as a female, can be a challenging and enlightening experience.
  • The LP market is characterized by a willingness to take meetings and request information without necessarily having an intent to invest.

Fundraising as a solo GP for Europe was brutal.

Ophelia Brown shares her personal experience of the difficulties faced during fundraising as a solo GP in Europe, highlighting the challenges and misconceptions in the LP market.

Improving European Venture Ecosystem

  • There is a need for more collaboration and shared learning among European companies, especially as they scale beyond Series C.
  • Enhancing operator networks could support not just founders but also other key roles within companies.
  • The European venture ecosystem could benefit from increased investment and engagement from local institutional investors.

I would like to see those companies scale and we have fewer companies going from the series c beyond to exit.

Ophelia Brown expresses a desire for more growth and scaling of European companies, suggesting that increased collaboration and support networks could facilitate this development.## Fundraising Advice

  • Aim for at least a 50% initial close when raising funds.
  • It's important to secure a substantial percentage to show confidence and commitment.
  • After the initial close, there is often a 12-month window to finalize the fundraising.

"So the advice that I was given was get to 50%."

This quote emphasizes the recommended target for an initial fundraising close, indicating a level of seriousness and potential for success.

"And then there's a provision in the LPA that says you have twelve months."

This quote refers to the common clause in a Limited Partnership Agreement (LPA) that allows a period for finalizing the fund after the first close.

Building a Track Record

  • Investing and building a portfolio after initial fundraising closes can demonstrate investment strategy and value to potential investors.
  • It is vital to show progress and build a book of business, rather than solely focusing on fundraising.

"It was a big lesson for me. Actually watching you externally was you did the closes and then you invested."

Harry Stebbings notes the importance of investing and building a portfolio as a way to prove the fund's capabilities to future investors.

Building Great Partnerships

  • Talent acquisition and building a positive culture are challenging yet crucial aspects.
  • Understanding workplace dynamics and how people fit into different stages of a company's growth is key.
  • Not everyone will thrive in the same environment, and preferences in work culture can vary.

"It's the toughest thing, I think, finding talent the right talent, building a culture."

Ophelia Brown highlights the difficulty in finding the right talent and establishing a strong company culture.

Work Intensity and Expectations

  • Acknowledge that not everyone will share the same work intensity.
  • It's important to be self-aware, respect others' boundaries, and understand that people have different working styles.
  • Being intense has its advantages but requires balance and understanding of others.

"You've got to understand that people aren't necessarily like you."

Ophelia Brown discusses the need to recognize and respect that different people have different working styles and intensities.

Perception and Gender Bias

  • There is a concern about being perceived as aggressive, especially for women in business.
  • Personal traits can be misinterpreted based on gender stereotypes.
  • It's important to be honest and direct while being mindful of how one's message is delivered.

"I think that's a comment that people level up a woman all the time."

Ophelia Brown addresses the gender bias that often leads to women being labeled aggressive for behaviors that would be accepted in men.

  • There is a desire to move away from the hype in venture capital and return to the art of deal-making.
  • The venture capital cycle's outcome will influence the possibility of such a shift.
  • Crypto is seen as a trend that many investors are currently overlooking.

"I don't like the hype. I would love to go back to the art of deal making."

Ophelia Brown expresses a preference for a more traditional, less hype-driven approach to venture capital.

Determination in Fundraising

  • Perseverance and determination are crucial when raising a fund.
  • The process can be challenging, with unexpected rejections.
  • It often takes multiple meetings to close an investor (Limited Partner or LP).

"99% of it is sheer determination and perseverance."

Ophelia Brown emphasizes the importance of determination in the fundraising process.

Cold Emailing

  • Authenticity and thoughtfulness are key when cold emailing potential investors or partners.
  • Emails should be concise and make a strong first impression.

"Just be genuine."

Ophelia Brown advises on the importance of authenticity in cold emails.

Balancing Professional and Personal Life

  • Time management and prioritization are essential for balancing work with personal life.
  • Being a parent requires making deliberate choices about how to spend time and with whom.
  • Having a supportive partner can provide valuable perspective and honesty.

"It's being incredibly conscientious about how you spend time."

Ophelia Brown discusses the importance of being deliberate with time to balance work, marriage, and parenthood effectively.

Future of Blossom

  • The goal is for Blossom to be the best performing fund in Europe, if not the world, by 2028.

"The best performing fund, at least in Europe, if not the world."

Ophelia Brown states the ambitious goal for Blossom's performance in the next five years.

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