This is episode 16 of the OpenVC Podcast. In this episode, Jens shares insights on identifying high-potential startups and managing a fast-paced investment strategy. He discusses strategic exits, coaching founders, and navigating challenges in early-stage ventures. Plus, he reveals the secret behind Angel Invest’s success and lessons from missed opportunities.
Harrison Faull (00:00.078)Jens, welcome to season one of the Open VC podcast. It's an absolute honor to have you on the podcast today. I mean, you are a seasoned angel investor with over 200 personal investments today, making four to five angel investments a month with Angel Invest. Wow. Can you take us all the way back to the beginning, maybe with your first ever angel investment? How did you come into this space and how did it all start?
Jens Lapinski (00:42.46)
Thanks for having me Harrison. How it started was I, know, when I had my own startup about 20 years ago or something like that, I made so many mistakes in that, that after a few years I thought, you know, I really have to find people who know this better than me. So I looked for mentors who had done this before and tried to look for advice of how to execute better. And then the advice that I got partially worked really well and I...
you know then later on when i had a bit more money and was a bit more experience i thought i should pass on some of the things that i had learned so i was looking as i look for if you founders who i could have a little more like to know i could help and and and i double in that and which then led to that was a time when accelerators started that was left in two thousand eleven or something like that and then i said what what don't you come here and you do some mentoring in the accelerator programs so then i
I went into accelerator programs and I found a company that I liked and I put money in. Obviously lost all of it. Once you start, you want to get it right, so eventually you don't stop and you take it from there.
Harrison Faull (01:54.624)
Wow, okay. So I'm curious, when you were a founder, did you have a mix of good angels on your side and some bad ones too? Did you see what not to be and how to be or?
Jens Lapinski (02:04.54)
No, I had no had no angel investors at all. Not a single one. I had VC investors on board, but not not a single angel investor. That was basically how I worked back then.
Harrison Faull (02:12.842)
Okay. Okay, so you like doing things the hard way.
Jens Lapinski (02:17.34)
I don't know, was just, I don't know, at that time there were, I knew quite a few VCs quite well and so I was able to raise money from them and there was no inclination on their end or there was no general, how it is these days is that you let's say even when you have a lead investor you say, why don't I compliment.
the round with a few additional investors who can work with the founders and add value but actually don't take up that much space on the cap table. And I think that has become a relatively normal motion, if you like, when you're doing putting in even the first round together. But in 2007, that really wasn't the case, or certainly wasn't the case with
Harrison Faull (03:06.186)
Okay, no that makes sense. The industry has definitely evolved. For those of us that don't know, what was that startup? What space was it in? yeah.
Jens Lapinski (03:17.34)
I mean this was a company called Spontly. The space that it was in doesn't really matter. I'm sure the founder, if he listens to this, doesn't necessarily want me to hop on on this. I think he would much rather want me to talk about his new startup, which is actually doing quite well. So that's sort of that. But the reason why I really invested was because Jim...
who was running that company. was a phenomenal guy. was an extreme sportsman. was doing cross-country long distance running, sort of like 50, 60, 80 kilometer cross-country, like completely insane type of sport. So he did that and I thought, okay, this guy knows no limits. He's got an extraordinary will and determination to make this work. I thought I just really liked him. I liked the concept of what he was doing then, but in the end I didn't.
But that is not a, you lose 50, 60 % of all the investments that you make when you invest early. And that is basically, that was just one.
Harrison Faull (04:20.743)
And so looking back now, all the experience that you have being an angel investor, managing the Angel Syndicate, were there any red flags?
Jens Lapinski (04:27.516)
We're investing out of funds now. We don't have, we never really had a syndicate. Initially, when I started Angel Invest, it was my money, then I had a co-founder called Oliver, we actually set up an investment company together and pooled capital and he was doing the admin, I was doing the investments and then many, many more friends came, they all wanted to co-invest.
So we tried to make a syndicate, but we couldn't make it work in Germany because for regulatory and tax reasons, it just, was undoable. So then we said, okay, we'll make you like a super simple fund like structure. And that has then evolved over time into many more funds. And we now manage about $200 million or something like that. So it's become much bigger if you like.
Harrison Faull (05:17.863)
Yeah, well that's a roaring success. Okay, so tell us about the thesis at Angel Invest, the ticket size, who are you looking for?
Jens Lapinski (05:26.618)
Yeah, so we were trying to, I mean, the thesis is try to maximize the number of successful startups in Europe. We want to invest super early. First round put in about 125k or so in completely industry agnostic and as many awesome teams as we can find. And we then want to coach them for a year and help them make fewer mistakes and basically raise much more money much more quickly.
We currently have eight partners here who write checks like that. They all have specializations and things that they like. You know, some invest only in AI companies, others just do fintech, others do much more climate oriented things. We have people who are completely agnostic and just literally just pick awesome teams from their love. So it's, there's some are more consumers, some are more business oriented. So for almost every creed of startup or founder that
that there is, we've got a partner here who has been an entrepreneur, founded the company, raised capital, and who can basically work with the company.
Harrison Faull (06:34.245)
Perfect. Okay, so if I'm a startup founder and I apply to Angel Invest and I connect to one of those founders, one of those partners, are they the ones that are going to be giving me the coaching over the next year? What kind of value are... Yeah.
Jens Lapinski (06:45.358)
If they invest, yeah. So today, for example, I don't know how many I probably looked at 10 pitch decks today, at least I many of those I said, okay, it's not for me one or two I said, okay, I would like to talk to the founders. And then a couple of others said, okay, this might be something for Anna, this might be something for KB or for Jack or a based in, you know, shared with the with the relevant partner, and then they either pick it up and talk to the founder or they don't. If they if somebody here wants to make an investment,
we run a process where we don't have an investment committee where we vote, right? So somebody needs to have real conviction that they really want to do the startup and coach that startup in regular calls for a year. And if it works out great, then they did that. And if it doesn't work out great, then they did that too. That's basically, so there's extreme ownership. I, or some of the more experienced people become involved when there are more, what do we want to call that?
pivotal moments in the sort of like fundraising in particular or when initially say the company is setting targets, are those the right targets and we think we should become involved or help with that, then we involve ourselves with that as well.
Harrison Faull (08:00.246)
So very hands-on, helping founders avoid critical mistakes, shape their go-to-market. What kind of traction do you need to see before you invest? Are you able to deploy funds literally at the ideation stage or do you need to see some sort of commercial traction before you get excited?
Jens Lapinski (08:18.502)
We need to see nothing. But the more that we can see, the better that is, obviously. But look, the reality is, I don't know how many pitch decks you guys have looked at, I mean, it's probably 10K plus, right? And you know how it works. You need some proof of success, right? Because otherwise, it's just, you're gonna say, back later. And the proof of success either is, the founder used to be the, they have done something before.
that is very meaningful. So they've had success in the prior role and then you know, okay, I know this person can execute. Therefore I'm willing to give them money or they need to have success in this current startup. Yeah. Of some description. There needs to be something there that you can point to and say, okay, that that is something that, that I can hang my head on. And that's super important.
Harrison Faull (09:07.884)
Okay, let me put you on the spot now. Are there any memorable startups that just go straight to the top of your mind of someone that was an absolute no brainer, we must invest into them today? You don't have to say their name, but what demonstrated to you what made them stand out?
Jens Lapinski (09:29.5)I invested in a startup in September this year where the founder was the ex-CTO of Unicorn UnicornAnd the CIO of a DecaCon. so the founder, and it was not just that his background, but the, I've had a thesis about a space for a year or so where I thought I really would like to, I think there is something in that area. I really liked the space and he hadn't just,I mean, he was not just building something in that space, but he had actually worked out exactly how it should be done. Meaning he knew all of the APIs. He knew how they worked, which one worked how well and why, and how he had actually experimented with setting up the software that he was trying to build in such a way that, you know, he knew how to do it. He had experimented with it and he said, actually, initially he thought it was like this. That turned out to be untrue.And then he figured out it needs to be like that. And therefore that shaped his entire product vision. Right. And I thought, I talked to this, this founder for an hour and I thought, yeah, this is the total no brainer. I really have to give this guy money as he confirms my entire thesis and he's already worked out how to do it. And he has got an incredible background and I've got a strong co-investor who's elite. And I just, I wrote the investment memo the next day and we invested like three days later. So it was, it was like, that was like a super simple, no brainer investment. And The execution that I've seen in the last three months on that company has just been incredible because the preparation, the thinking, not just the thinking, but the practical work that's gone into this company before they asked for money has just been spot on. Really, really great.
Harrison Faull (11:14.963)
Amazing. I think that plays very much into your reputation and what you've built at Angel Invest. For you to organically attract an ex-CTO of Unicorn who wants you on board at the earliest of stages, that's very much down to what you've built as an organization and the reputation that you have with founders in the ecosystem.
Jens Lapinski (11:34.288)
What would you say that is? What would you say that reputation is in your words? How would you describe that? How would you express that?
Harrison Faull (11:45.639)
For him it's more than money, right? Because he probably could have invested the 120k personally. So it's very much either direct sex-air act expertise and being able to open doors that he might not have had direct connections to.
Jens Lapinski (12:03.292)
I honestly think that if you think about what we do is we, so when I invested there, I scheduled 27 calls with the founder, 30 minutes every two weeks. And it's really, I don't even think, so what we do is we try to be an intelligent reflection surface right? So it's the founder will say certain things and we'll basically bounce them back.
Jens Lapinski (12:29.828)
And it is basically a surface for self-reflection as much as anything else, number one. Number two, if you think about what you need to do, you need to set yourself targets that really work, that help you get to the next round of funding. It is easier to do that when you can continuously discuss with somebody how you should do that. If you try to do all of that in your own head, that's pretty hard.
Jens Lapinski (12:58.5)if you have somebody who's done hundreds of investments it is so much easier to do with say well are you really sure this is going to be like this isn't it much rather like that you basically have a discussion about that same with the team same with product development same with fundraising you basically if you talk to somebody who's been in quite a few companies before they basically can give you perspective that both relative to where you are and also in absolute termsand that you did is very hard to have when you just the founders in your own company number one number two we know pretty much like like you guys to do it pretty much all of the investors out there and we know who not to talk to you know there's a couple of bad apples out there are not that many but they definitely are there and you want to avoid those guys right so that's sort of like one thing and they're also you know a few quite a few really good guys so we can help steer the the founders in that direction of those kind of investors. don't think, I mean, obviously we will know a lot of investors, lot of founders, we'll also know in some specific industries, quite a few of the people in those industries, but there are far more industries than there are possible connections, right? So if when somebody is in logistics or in, I don't know, in healthcare or in IT or whatever the industry specialization is, if a founder doesn't know, how to reach out to potential customers, the company has got a real fundamental problem. I think that's almost definitely, there's truth in that
Harrison Faull (14:33.08)Okay, so let's talk into this intelligence reflection surface piece. Is it a framework that all partners follow? Is it a mindset, a mentality? Is it standardized across all the investment partners? Does everyone have their own take? How do you make sure that it is constantly refined and as good as possible for the founders in your portfolio?
Jens Lapinski (14:54.812)
That's a great question. We have a coaching playbook. We also give that to the founders when we start investing and we say this is what we are going to do with them. And that sort of lays down a couple of ground rules around both how founders should behave towards us and how we're going to behave towards them. Yeah. We also think they're about there's a certain number of mistakes that founders make over and over and over again. It's it's
we should really count them but it's about 37 always is 37 it sounds like about the right number and there are different variants of those and the funny thing is for me I don't think I've seen new ones for a few years now it's always a repeat story of the same thing it's just different variants of that right variant of that and so we and there are a few of those that are very important that are high repeat
Harrison Faull (15:47.64)
Okay, so can we talk into some examples then? Recently, on top of your head or perhaps in previous times, what do you think have been some of the most meaningful impacts that you've had with founders that prevented them making foreseeable mistakes?
Jens Lapinski (16:08.284)So for example, I've had a founder who came to our office last week where I invested about five years ago and he has a co-founder who is a very strong technical contributor and it just turns out he really doesn't like managing people and he's also not good at it. And so the typical, so how do you deal with that when you're. And this company raised like millions and millions from VC funds. And the typical, when the CTO is not performing, right, there can be a reaction that they say, okay, we need to replace the CTO. And that is certainly one way in which you can address this, but our preferred route is actually to say, we don't necessarily, we've seen this so many times, it's quite normal. This can also happen to people who are on the sales side. And we say, Why don't you put that person, why don't you call them the chief technologist or a senior technologist or something like that. And you take, basically put them onto a hardcore technical problems, but the management of the people, you hire a VP engineering type person for that. for, if it's a sales person, we've had this case where this person became a senior sales executive or something like that. the most... this most senior relationship person. he managed all of the most important relationships that the company had. so anyway, it's just this founder who was sitting here, he said to me that advice was really great because over time, if we had been there without his co-founder, that would have been highly detrimental to both him and the company. The company had problems. It then pivoted and now it's doing significantly better.
Jens Lapinski (18:03.708)to the point where there are interesting, how do you call that strategic options? Well, which is really good. And, and so the and the founder said that he really valued this, this this advice. So it's one of it's one of these examples, this happens not in every company, but it happens, it happens enough, right? So it's a double digit percentage occurrence. And, and then you have quite a few of those things where we, for example, where you have a co-founder who burns out for variety of reasons, let's say burnout or other diseases or who misbehaves, we've had those too. And then you need to rearrange the cap table. How do you go about doing that, for example? Or we've had founders where, you know, when something doesn't work after a little while, we say, look, nobody cares what you do.we just want you to do well, this thing doesn't work, please pivot. And then how you go about doing that, how do you manage your board, how do you manage the team, what do you do, what's the sequence. you know, it's the most, or the third area, if you like, what we can do, I did this the other day with a much more advanced company, where when a company is doing well and the team is executing, you try to encourage the team.to be even more ambitious. Because if you think about it, if the company is a total disaster and a team doesn't work, what are you going to do as an investor? I mean, maybe you pray you no idea what you would do. If the team is working but the company isn't, then you can encourage the team to pivot. If the company is working but the team is struggling, then you need to make some changes around the team setup. So you either shift people around or you add people into the mix or you change the arrangement. Basically, you do a job on the people side. And if the company is working and the team is working, then you encourage the team to think as big as possible.
Harrison Faull (20:13.378)
Okay, so there's always an opportunity to help is what you're saying, no matter at what stage.
Jens Lapinski (20:16.1)
So those are the three things that you can do if you're a board member and you're listening to this, right? Every company should either leave or you should encourage the pivot or work with the CEO on the team or you basically encourage the entire team to think really big. that's, that's, that's, are the four states in which you can be. think there is, there is very little else that you can do. Yeah.
Harrison Faull (20:30.8)
You've given us the playbook. What do you think is the hardest thing to prevent? You mentioned there that often founders outgrow their role or the company, the company, sorry, outgrows a personal development. And perhaps someone doesn't enjoy managing, but the company does need to grow. So finding the right person for a co-founder is a common occurrence, is a problem and one that you've seen solutions for. So is there a problem where it's very hard to solve, but it does actually occur somewhat?
Jens Lapinski (21:32.24)I think the answer is that You know, companies don't work typically because either the founders fight or because they can't find product market fit or they can't build what customers want. Yeah. But of these three, the founder fighting is always the most, is by far the most annoying. And we now have it down to about 10 % of the portfolio where the founders are fighting. I don't think we can get below that, but it it happens lot.
Harrison Faull (22:19.097)
Wow, okay, how often do you think it was at the peak? Or how often do have an idea of how high it could be?
Jens Lapinski (22:24.136)
I think pretty much all teams fight in months 6 to 9 of working together. And then it's just how do they become a team after that or do they fall apart?
Harrison Faull (22:35.47)
So managing co-founder conflict is a big one.
Jens Lapinski (22:39.036)
It's huge. It's by far, I think my category advises you should not found a company with somebody that you haven't known for at least a year or worked together with. mean, actively had a real interaction with for at least a year. The probability that you are going to fall apart as a team is very, very high. If you don't sit in the same room, it increases. So it is, if you...
It is very very hard to build a company with people who don't know each other. If you don't know each other and you live in different cities, I mean that's so hard, I personally wouldn't want to do it.
Harrison Faull (23:18.254)
Okay, do you have any best practices for perhaps founders out there now that are struggling with a co-founder to help manage conflict in a more positive way?
Jens Lapinski (23:29.02)think there are, so we distinguish between two things. are either co-founder conflicts can be managerial conflicts. I mean, like there can be team conflicts that you can have with any other team member too. Yeah. So there can be in, there can be in no way different from, that kind of conflict. And what we give to all founders at some point, almost all of them as a book called the five dysfunctions of a team.Balencioni and we say read that and have your entire team read it and we ask every two weeks whether they've done that. And the way whether they, whether you know whether they've done that is you ask them which dysfunction do you have and what dysfunctions do your team members have? And once they can enumerate that, you know that they've really read it. So, and the book doesn't turn people into great managers, but it turns people into baseline, okay, managers.Or it can transform dysfunctional teams into functional enough teams that the team can actually really work. So most management problems can get fixed by through the application of what's written in that book. then you have more severe problems which are far more foundational. So these could be problems like, I don't know, that can be the power struggle. who's really in charge here? it me? Is it you? That's not resolvable. There can be the some person is so or there can be a power struggle variant is that one person has got a spouse who's extremely ambitious and who injects ambition into that person. It's actually that this person doesn't have. We've seen that at least five times. Then you can have and it can be both, you know.
They can be both wives and husbands who do that, right? So to people. Then you have the variant where somebody who has misbehaved in some way, yeah, it could be anything from abusive behavior towards staff or co-founders.
drug use, document forgery, theft. I mean, when you invest in enough companies, and let us say at Techstars, we invested in 100 a year, just in Europe and 500 globally. I mean, many of those cases I haven't seen personally, but I know people who have seen them, because in a network, you 50 managing directors and make 500 investments a year, you see everything, right?
Every misbehavior you can think of and I have developed an absolute no tolerance for any of that So that is sort of so you can have or you can have health problems People fall sick burnout problems mental sickness marital problems Family problems around, know other problems that wear them down Chicks are a sick child, you know things like that. So you basically there are quite a few or we've had a
co-founder who hails from Gaza and majority of his family has been killed in the war there and it's sort of like there are quite a few reasons as to why suddenly people say I can't do this anymore, just so, I don't have the energy, I wanna do something else. And those kind of, whatever the reason is that's so fundamental, you then need to say, okay, this is not working and then you need to work.
towards a very rapid exit of the person for whom it's no longer working or with whom it's no longer working. There's no other solution.
Harrison Faull (27:15.375)Life still happens. There's a lot of uncontrollables. You need to be human about it when they deserve compassion. But just to come back to maybe when founders are misbehaving, I think it'd be interesting to know what options do you have as an investor? You mentioned you had a no tolerance policy. What does that mean in terms of maybe their vesting schedule or other things? What sort of terms should founders be aware of that they're signing up to when they take external capital perhaps.
Jens Lapinski (28:40.572)
I think the options that you, mean, irrespective, even if when you have no professional investors at all, I mean, you have no investors, full stop, the founders are extremely well advised to have founder vesting in place. It is so much more important that they protect each other from each other. It's far more important to them that that happens than that this, mean, investors will ask for this anyway. Any VC will ask for this.
But for the founders, this is of top most importance. There are only two things, if you think about it, when you found a company with somebody, you need to have found a vesting and you need to have IP assignment. Those are the two things that you really, really have to have. You cannot found a company without that.
Harrison Faull (29:29.935)
What period of vesting do you recommend, do you like to see?
Jens Lapinski (29:33.628)
Five-year vesting with a one-year cliff? That's probably okay. Because if you have one-year cliff, that sort of means that after one year, people are either, it's already blown up to a certain extent or it hasn't. When you then raise money from, VC after a year or something like that, they will typically ask for four-year vesting. So if you have five-year vesting, then you still have four years ahead of you. And then you just say, we'll just continue vesting. And if people say, we want to reset this, you just say, thank you.
Harrison Faull (29:35.919)
Okay, bye.
Jens Lapinski (30:01.904)
That's sort of how I would do it if I had a technology startup.
Harrison Faull (30:05.221)
Okay, no, awesome. Thank you. Okay, so I'm gonna pivot now, because we've explored the downsides, but let's move on to the happier sides of angel investing and investing as a VC fund. What has been your biggest on paper gain to date?
Jens Lapinski (30:23.868)over 100 times cash on cash. six years.
Harrison Faull (30:33.57)
Wow, what space was that? Could you tell us what the company was or is it still private information?
Jens Lapinski (30:39.32)It's never been disclosed but we know it's more that the let's talk about how it happened. It's maybe more and more. So most of the exits that we have when you're a small investor, it is possible that there is a company that eventually exits through M &A or IPO, but it is far, more likely that you will sell your ownership in a company to another investor. It's called a secondary transaction. So you're selling your shares to a secondary because these are used shares, so you're selling them to another investor. And that was that case. We actually sold that in two tranches, in two separate transactions in completely different calendar years. And we will do...We have done many more of those and we will also do many more of those, especially in the coming year. think that 2025 is hopefully going to be very good on the liquidity side.
Harrison Faull (31:43.926)
Okay. How do you think about exits? Like when is the right time to exit for angel investors? Is it down to the time that you've had that you've got to deploy your capital? Or is it a bit more strategic with that in terms of thinking this is a bid that's hard to say no?
Jens Lapinski (32:01.148) think there are two...There are two ways in which we think about that. The first one is that divesting from a company is a overall You know learning process for an investor as investing so if you You know, if you have to learn how to invest over many years, then if you continuously work on your divesting skills, as it were, over many years, then over time, you will become better at it. Yeah. So you will mistakes. You will make mistakes where you, you sold and then you think, I shouldn't have, or you will have to make mistakes for you. think, I could have sold and I didn't. Yeah. Or you did. And it was great that you timed it right. And it was perfect. Or you did it and you think, man. was too early, I should have waited, etc. All these different variations. But if you don't apply yourself, if you don't work on becoming really good at it, you will not become good or great at it ever. Then you're always just a passive bystander who is beholden to other investors selling the company, which would probably mean that you have no control over your destiny. I personally don't think that that is... I would feel uncomfortable in that situation. That's that. The other one is that when you run a fund, what I learned from my first fund that we did with Techstars was that investors typically want to have their money back after six to seven years of being in a fund. And then you can take another six years to maximize profit. And it almost doesn't matter who they are and what they say. Almost all investors want to have their cash back after six to seven years.
Harrison Faull (33:54.282)
Do mean their initial capital or their entire position?
Jens Lapinski (33:56.208)
Yes, they want to have the money that they put into the fund. They want to the cash back. So they put a million in, they want a million out. And if you can give that to them, then they're happy. And then there is silence. And then you can take all the time that you would like to maximize the profits, not all the time, but you can take your time and maximize profit. But if you return no cash, let's just say as an hypothetical experiment, you run a VC firm and you raise fund one and then after...
three years later is fund two and three years later this fund three so fund three is in your six and if people will you know they'll say hey there's still no not not all the money that put into fund one has come back why should I give you money for fund three if you're then raising fund four and there's still no cash back from fund one the probability that there is no fund four is very high
So it's not as if you say, it just is how it is. And I can tell you that companies behave in a way in which I think fund management means not just investment management, but you need to manage the fund on top of managing investments. Meaning you have to give investors money back, the investors in the fund. You have to give them money back and you have to think about how much it is when you do it, how you do it, what the cashflow back is going to be. And you need to be actively on top of that.
And if you don't do that or you can't do that, then eventually you're going to run into problems with the investors into your funds. That's sort of what we learned there. We work actively on putting cash back in our funds because we know that our investors expect that from us.
Harrison Faull (35:49.884)
That makes a lot of sense, thank you. So in terms of divesting, do you typically only do that in year six or would you even do that earlier knowing that there is this demand to get their initial capital back?
Jens Lapinski (36:03.782)
We've done this earlier as well. It's highly situational. It goes back to we don't have fixed rules like that. It's more over this. We just think that we don't have to sell all of our investment in a company or our entire position. We can sell a third, we can sell half, and we can just say, okay, this company is now so highly valued so quickly. It would take another three years to grow into that valuation realistically.
So why don't we take some cash back off the table right now because the demand is so high. That can be a great idea. It can be a bad idea, you know, but it certainly, at least there is cash back, you know, so you never know.
Harrison Faull (36:40.411)
Yeah. Okay. Okay. That makes a lot of sense. Thank you. How does Angel Invest think about follow on capital? Is that something you actively do?
Jens Lapinski (36:50.448)
Amen.
Yeah, so in our current fund three, we try to make this one shot activity. So we put money in and then we try to focus completely on helping the company raise more money. I think that is that we do have a something that we call a focus fund, which invests much, much later stage into companies just from in the portfolio where that are scaling, where we have a great relationship with the founders, where we think
this is a company that could go a long, long way. But it's a very small concentrated fund. try to be, it's a very small number of positions. So this is a high focus, high conviction or high concentration fund, if you like. That's a completely different activity.
Harrison Faull (37:42.324)
That's really interesting. It's probably a slightly different LP base that want this more mature stuff to the ones that want the really early exposure because it will be a different returns profile. So that makes sense having a different vehicle to do that.
Jens Lapinski (37:52.668)Yes, yes it is and most definitely. these fonts have got completely different. risk-reward profiles. mean, they're the exact opposite ends of the spectrum. In one, you have over 250 companies in one fund. See, if you run the Monte Carlo analysis on that, which we have done, this looks really, it looks like the fund of fund from a risk-reward perspective. And then the other one is extraordinarily concentrated. So that looks like an extreme version of a VC fund. with only with companies that we've known for some time. that's, we think there is some de-risking there that's possible.
Harrison Faull (38:39.424)
Awesome Let's go from here. What do you think is the most counterintuitive thing you've learnt over the years that you have been an investor? Are there any things you used to believe strongly that have turned out to be false that you now avoid? Anything against common consensus?
Jens Lapinski (39:21.724)
I think there are quite a few things that we do that are non-consensus or people would say are unusual in the context of the entire industry. There are very few funds that are as diversified as our angel fund. There are very few on the focus fund side, there are very few funds that will dare to be that concentrated. that's sort of, everybody else would be much more in the middle.
Harrison Faull (39:51.606)
So there are downsides. There are downsides to being so diversified. So how did you come to the conclusion that 250 portfolio companies is your sweet spot and where you want to be?
Jens Lapinski (40:06.212)Mathematically, people say small funds outperform large funds, right? But that's actually true. But the reason why it's true is because small funds tend to invest early. That's the primary value drive of small funds to invest very early stage into technology companies.And I think the one thing that I've learned is that the risk profile between a pre-seed company and a seed company is pretty much identical, but the price is different. So if you invest into, it's you can probably, you guys have got data set as well. You can easily calculate that, right? I think the, there is, there is, pay an absurd risk premium, basically pay an absurd premium for having the almost no de-risking. The difference between seed and series A, on the de-risking side is much more pronounced than it is between pre-seed and seed. But the price difference is significant.
Harrison Faull (41:03.766)
Let's talk about valuation because some the valuations are different in the US, they're different in Europe. What do you mean by pre-seed to seed? Do you mean revenue generally?
Jens Lapinski (41:10.204)
Well, pre-seed is the first round in the company. It's a few hundred K or something like that. Maybe it's up to a million. The seed round is sort of like this typical two, three, maybe four million round that involves one or two larger VCs and then a round is sort of like whatever, eight, 10, 12 million round or whatever it is. So, and those, there's a sequence that goes from half a million to three million to, you know, or a million to three million to nine million, 10 million, something like that. It's always three times larger.
And then the share price not necessarily always three times lower, but it is lower. But the failure probability between a pre-seed company and the company where you invest in seed in our data set at least is pretty much identical, but the share price isn't. So therefore.
Harrison Faull (41:50.804)
Okay, so you've identified a large alpha in, yeah, okay.
Jens Lapinski (41:57.98)
and structuring it so you go into as many pre-seeds as you can, because at the end, it's not that there isn't value in seed investments. It's just that the, I said, so therefore we think if we put a lot of 100k checks into very small companies or into very small rounds, then we should have statistically just number one, we have exposure to far more early stage companies. Number two,
The probability that a certain percentage of them are going to become very, very large goes up because of the power law We have more chance to catch an extreme outlier in the portfolio, the larger the portfolio is. And I think people have calculated that this maximizes at around 500 companies mathematically per fund. I'm not sure. That's why some investors have called themselves after the number 500. But I think
I'm not sure to what extent that's true. I think that in Europe there are about 2,000, I think it's 2,000 companies race seed rounds per year or something like that across all different segments. I'm not sure whether that number is correct, right now, whether it's gone down or up, but I think that that used to be the case a few years ago. if 2,000 is per year, that's by definition 500 of them will be top quartile.
right, because I have to be 500 out by definition, definitely top quarter in the end. And as an investor, you can probably catch half of all the good ones. At most that you see at most. So if you're a good investor, you capture half of all the good ones that land on your desk. So that means you at maximum you could invest per year in Europe in 250 companies. I think that's where you top out. And so therefore that might actually be so if we did a fund that
try to capture startups in Europe, that might be the maximum. I think I would, would assert that that's a maximum that you can do the rest of below that is really just, and that, would be good because then you have statistically maximized the chances of catching stream outliers from an LP perspective, that going down from that maximum is just execution questions. Like where are you? What partners do you have? How do you do the whole thing that you do? Right. How do you.
How do you attract companies? How do you work with them? How do you select them? All of those kind of questions. hypothetically, you want to make the fund as large as possible. And that's then just constrained, number one, by the market and, number one, by your ability to actually execute into that market.
Harrison Faull (44:46.915)
Yeah, no, that makes a lot of sense. You've clearly done a lot of thinking around this and modeling, which I you need to do to get to a fund and have several funds the size that you've got to at Angel Invest. What's the largest problem that you now have as a fund? Because I see you, I run an Angel Syndicate, I look up to you guys as the end point, the end goal. But I'm sure day to day, there are strategic issues and there are things that are difficult for you at the moment.
that I might not know about.
Jens Lapinski (45:18.46)
Yeah, there are a lot. No, I mean, there are a lot of different things that when you what I mean is there are a lot of things that you need to be. There are a lot of things that you need to accomplish that go way beyond making investments. I think that's right way of saying that. So they I think the.
So what do mean with that? For example, When you run a fund management company, it's not just making... you're a solo... Let's just start differently. If you're a solo GP, or you have an angels syndicate or something like that, you try to make good investments. So if we've managed to get some money together and you go off and you try to make good investments, and that's...
That's sort of kind of where that then stops. When you then professionalize this, what you will realize is like, I'm not just there to make good investments. need to work with the companies on exiting those investments and bringing the cash back because it's not just pure optionality in my life. This is this is a professional activity where I have to do that. Number one, then you add more people into the mix. Then you then it's all about, so what processes do we have? How do we work together?
How do you, what kind of people do you bring on board? How you add all of that into the mix. Then you need to, you know, you have bigger structures, you raise more capital, you start to do more marketing. Like this podcast effectively is a form of that. Although it's when we're having a chat here and it gets recorded. So that's fine as well. you know what I mean? It's basically that then suddenly you have to deal far more with the regulators and then they send auditors and then they audit your funds and then BaFin comes and asks questions.
And then, and you know, whatever. basically, suddenly, so effectively, you will have challenges around the investment making and managing investments and divestments, finding limited partners for your funds and managing those, doing the marketing in general that you do, then there are all of the financial, legal and whatever things that you have to do. Yeah. And that's basically all the things, those four areas are the four areas that you will be active in.
Jens Lapinski (47:49.499)
If you drop one of them completely, then the whole thing won't work. that is, so there are quite a few challenges in each individual area. But as with most things, if you have a, I mean, we have a 15 year strategy of how we wanted to progress from where we started to where we are now. And we've been executing this from day one and nothing has really ever changed, which makes it much easier for us.
Number one, number two, you then need to obviously bring the right people on board to help you execute that. And it's in between the strategy and then the people who do it that in the end all the dice fall. So that's sort of that.
Harrison Faull (48:31.114)
Okay. Wow. Yeah. On a personal note, did you enjoy the maturity of becoming, turning into a fund? Was that a journey that you look back with positively or one that you think was quite a hard one to climb? Okay.
Jens Lapinski (48:49.254)both. It's definitely it's it is work. You need to put quite a bit of work into it. But it's it's also it can be extraordinary fun. So whenwhen I returned the first fund that I had set up and the why I actually hit the LPs bank accounts on the 23rd of December of that year, there were a lot of happy LPs. So it was a great Christmas present, right? So that was good fun. when that happened, my thought was, when you return a fund cash on cash, I mean, my thought was that this is what it feels like to be a fund manager. Right. Or it's one aspect of that. certainly was. Yeah, I thought it was it's VC. And the funny thing is in the funds where you can return the cash, will typically also return much more than that. So it's you know, that felt that was very satisfying. And I think this year has been for us extremely there's been a lot of challenges. It wasn't easy at all.
Jens Lapinski (50:03.526)There have also been lots of not so good things that have happened. But at the end, mean, this year, the outcome of this year is that it has been one of the most successful years that I've ever had. So I think that also makes me happy. And at the same time, the grass is always greener. Obviously, I could have said, wouldn't it have been nice just to be a solo GP and not have to do any of the things that I do right now? So yeah, that's another path that I could have gone down. You know, at the end of the day, really, my co-founder Oliver and I have had this dream of building a certain type of company. And we made a plan how to execute that. And we've been working on this now for seven years and we have got planned for another eight years. it's, and we want to see that through. and the more we go towards the,
the end game if you like, the more certain we become that this is really all going to fall into place because we've cracked quite a few of the elements that are necessary in order to get there. Not all of them, but almost all of them. So, know, fingers crossed we're going to master the last couple of challenges ahead of us.
Harrison Faull (51:20.903)
How exciting. Wow. Okay. Just to make you relatable then back down to the audience. Have there been any...
What are the biggest anti-portfolio companies? And do you have any explanation as to why they weren't suitable for you at the time?
Jens Lapinski (51:43.984)Yeah, sure. have quite a few of them. So we calculated that about 20 % of the companies that we invest into will end up making us 10 times or more our initial money. That is historically sort of how it is shaped up. Now, the companies that I could have invested into, where I didn't invest into, maybe should have, fall into different buckets, So one is companies where...that pivoted later. So I saw them thought this is a really good team. But I just I was effectively this was only an opportunity for later stage investors to capture the value in that company. Because at the time, it simply wasn't there. Or it's possible that the markets turned. So the company was doing something and then the market turned and then my mistake was not to go back to them and say, Hey, why don't I put money in now? Which I could have done but then I didn't think of that at the time. Another one which I just don't do was where I I've had a few founders who work on drugs in the call and I don't do that. I don't want to become involved with that you know so I pass on a couple of companies for that reason. Then there were on drugs
Harrison Faull (53:11.486)
That's amazing. So in the first call or one of the early calls you've had a few people that were visibly taking... Wow. Okay.
Jens Lapinski (53:17.724)Yeah, absolutely. And I mean, even right now, I can think immediately of when we not not all of those net on the entire portfolio, but I can think immediately of three interactions I've had with founders where they were clearly on drugs to the extent where I I am one of these meetings I did together with another investor andand we were in Amsterdam and I said to the, when the founder had left, said to the other investor that this founder had partaken too much in the delights of Amsterdam. The co-founder, the other investor thought that that was really funny. Anyway, but no, look, I ended up not putting any money towards that company, but this has definitely happened. And some of those companies are worth hundreds of millions of dollars now and I just, I didn't do it. But then again,I don't think I should have. And then there are companies where I just didn't understand what they were doing. I just really didn't get it. I couldn't put the blocks together correctly in my head. Right. That's obviously just on me or maybe it's on the founders because I didn't explain it well enough. That's also possible. But I certainly not well enough so that I could understand it or I, you know, I and then the last one is that I always thought it's just too difficult. It's just too hard. That's just likeThere are too many competitors. are too many. It's just this market is super hard with the customers or these metrics all look wrong. The retention is just terrible. know, whatever, there's something that's really wrong with what they're doing where I just have so many doubts that in the end I don't do it. then, so I've had this like five minutes before this call, I got an email from a founder where we passed six months ago and then I don't know what changed, but the metrics in the last three months look incredible.So they must have done something where the metrics have suddenly gone, all right, and they've quadrupled the company in three months and I've got no idea what they did, but I'm really interested in, and maybe it's just they've gotten money, they've done lots of marketing and the metrics are still awful, but it looks like they've changed something in the company and the company is taking off in a massive way. So, but then maybe that's more of a pivot type situation, or I didn't understand it or I couldn't quite believe it or something like that. So there are all in all, there are about two dozen companies or so that we ended up not doing that we might have done. But then if we have 20 something companies that we think we really should have done those because they're going to make us more than 10 times our money, then that's basically the other half. So I think as many successes as we will have, we will have non-successes. If those are 50-50, then that is what I would have expected all along.
Harrison Faull (56:04.801)
Wow, thank you for sharing that. I don't think I've ever heard of founders being on drugs on call investors before.
Jens Lapinski (56:11.46)
And mean, whatever you do dont to that, that's just an unforced error of significant proportions. have, there's really no excuse for that. And the problem is not just even that, I mean, it's a problem that the founders do that, but then they probably do that much more often than just that, which means that that's not good for you in your life. You don't want to do that.
Harrison Faull (56:26.738)Yeah. Inspire lack of control quite quickly. Okay. So just to round off the call, you've given us so many insights here and thank you for being so open with your strategies. What are the main things you're looking for at a pre-seed stage that other investors can educate themselves on? Do have a priority list of things you look for? I know certain VC funds don't even look at the idea at the pre-seed stage because they know that there's going to be so many pivots. Until the exits so they purely bet on the team, which seems a little bit extreme to me. But yeah, what's your take?
Jens Lapinski (57:02.512)depends on who you are. That depends on who you are. If you're a multi stage fund, and you manage 5 billion, you can take a few million and just into good teams. And and it's a rounding error in the spreadsheet. So it doesn't matter. But you couldn't do that, Harrison, it just that that would be insane for you to do. So because the loss ratio would just be too high. I think what we're looking for, you know, teams that are really tight where the founders really know each other. Ideally, they sit somewhere in a moldy basement, somewhere together, and they want to get out of that basement. They sit in a shitty room together somewhere and they want to get out of that room. That is a tight team that's figured something out about customers or technology that nobody else has really understood or seen. And this is a potentially very interesting market. right, or an interesting model to go into that market. That's it. And it doesn't need to be much of, if any proof. This can be either you've played with it, you somehow played with it. So for example, we invested in a team where the three founders have worked together for years, actually. And then they were, they had sold their previous startup and they were hanging out, experimenting on 17 different things for a year. They found something that they thought was really interesting.
experimented with that and then suddenly said, I know how to do it. I cracked it and then I tested it and it's like, yeah, that works. Yeah. And now we know what to do. Okay. Let's build a company around it. Let's raise capital. That's sort of a really great starting point where you've played with something, you figured something out that other people haven't seen. You've got an approach. Nobody else has taken. It seems to work and you can lean into that. I think that's a really great starting point for a startup. For example, we've made several investments like that that are performing really, really well.
So those are the kind of things. So if the team is tight, you figure something out that customers want or how to give something to customers in a different way that really seems to work, then those are the kind of companies that we love. Especially now all around AI, we love FinTech, we love ClimateTech, but look, we've done so many other things. We've got one partner here who just invests in teams. He literally does what I just said you shouldn't do.
Jens Lapinski (59:29.276)
He just says he's got this one guy says this guy is so amazing. I love him so much. I love him. I love him. I love him. And then he's going to be an amazing founder. He's going to be an amazing company. And he is. And we that's because this partner can really emotionally assess the team quality in a way that I just never could. And that's his style.
I have my style, everybody has got a slightly different style. We're not prescriptive around the style. We just know in the end, the team has to work. They have to build something that customers really want and they need to be able to scale into a really interesting market, right? So those are the three necessary components for a great startup. So you need all three in the end. The way in which you get this almost doesn't matter. You can start with a great market and then build a company or into that market, or you can start with a great team that then figures out.
how to get into an interesting market. Both work, we've seen both, we've got both in the portfolio. But in the end, they all get there. If you don't, then you will not be unicorn or you will certainly not have a very large company, let me put it like
Harrison Faull (01:00:41.646)
Yeah, no, that makes a lot of sense. Look, Jens, it's been a fantastic conversation. Where should founders go to get in contact with you or Angel Invest
Jens Lapinski (01:00:52.262)
go on our homepage, angelinvest.ventures. There's an email address there. If you can't click that, you know, don't do a company. This email address goes to my partner Jack. He gets, don't know how many pitch tags via that. It's quite a lot. You can contact us on LinkedIn or ask anybody who knows us. I think I have 15,000 contacts on LinkedIn. So if you can't find anyone who knows me, then your networking ability needs work.
Or can go to OpenVC go to Harrison, and they will basically forward the deck. So you should look at this one.
Harrison Faull (01:01:29.784)
Exactly. Perfect. Okay. Thank you. I'll link that in the description below. Also your LinkedIn profile so people can follow you there and get some more awesome gems of wisdom that you're sharing. I just want to thank you again. This has been a phenomenal episode. Thank you so much.
Jens Lapinski (01:01:45.532)
Thanks Harrison.
