The following interview is a conversation we had with Carlos Eduardo Espinal, Managing Partner at Seedcamp, on our podcast Category Visionaries. You can view the full episode here: Funding the Future: Carlos Eduardo Espinal, Managing Partner at Seedcamp
Carlos Eduardo Espinal
Hey, thanks for having me, Brett.
Brett
Yeah, no problem. So to kick things off, could you just tell our audience a bit more about who you are, your background and how you made your way into the world of venture?
Carlos Eduardo Espinal
Sure thing. So just a little bit background. I’m one of the two managing partners of Seedcamp. Seedcamp is a European based seed stage fund that invests everything from angel rounds all the way to Seed Stage, which now these days is quite broad. And I was chatting with Brett before this podcast started sharing a little bit of the fact that I sound American because I went to school in the States. I started off my career in engineering. I was working for an organization at the time was called GT Internet working. And it had a division called CyberTrust, and it was the organization that belonged to the notable walt, Baron, Nick, and Newman back in the day, which has the really interesting history of having been the engineering company that started the DARPANET back in Alwife in Boston, Massachusetts. And so I had a couple of very notable colleagues.
Carlos Eduardo Espinal
One of them was Ken Pogren, who famously was involved with FTP and Walter Baniac. And it really gave me a lot of really cool insights into sort of the underpinnings of the Internet. Everything from layer two to layer three DPIP and everything having to do with security and some of the early days around cryptography. So that’s where I started and I really enjoyed it. I learned a lot. I wouldn’t say that I was the best engineer in any way capacity, but I really enjoyed that. And I did that coming out of university as my first job. And then I moved quickly into engineering in the New York Stock Exchanges Division group. And there I did part of the design with another team of both the devices that the training floor used as well as the wireless network that they used. And this was to give you some sense of scale date.
Carlos Eduardo Espinal
That was when Adotoola was being approved and Adotoola BB was sort of recently, you know, those are now standards that are dated, but gives you a sense of how much we progressed on all that stuff. And what the trading floor would do is set up all the different wireless trading platforms that traders could use when they were trading during the day, the specialists would and so that was my first two jobs. And during that time frame I got to meet a guy who is based out here in London. His name is Sean sigmund Rogers. He co founded a fund called PROfounders Capital. He introduced me to this idea of venture and I realized that sounded like a lot of fun and I’d love to do that after I graduated from an MBA, which I wanted to get in order to really hone some of the skills that I didn’t have.
Carlos Eduardo Espinal
And I think a lot of people can look at MBAs and think of them as completely useless. I think if you’re an engineer and you haven’t really been exposed to some of the business concepts, I think it’s definitely a value add. So I really enjoyed that. And when I graduated, as were discussing Bret, because I’m from Honduras, I wasn’t able to stay in the US with the visa that I had and the UK welcomed me and so I moved over. And ironically, Sean had also moved to the UK recently, so he connected me with a few friends. And then, lo and behold, I ended up working at a venture fund called Dowdy Hansen, based in London. And Dowdy Hansen was one of the original investors in seedcamp. And I met my colleague Reshma at a social event unrelated to seedcamp because it predated it, but we got to know each other.
Carlos Eduardo Espinal
And then after about a few years of seedcamp starting, she was doing it by herself. Saul Klein, our chairman, was leading, but from an operational point of view, Reichman said, hey, I’d like to do this more than just by myself, so we want to join full time. I was helping from the sidelines with Debbie Hansen LP Hat On and so I joined full time and that was in 2010. So it’s been now 13 years since that date and have really enjoyed every day. Have been working with over 450 companies to date. It’s been really cool experience seeing entire sectors being born and showcasing the best of what Europe has to offer. No.
Brett
As I was preparing for this interview, I was watching some of your previous interviews and I found one of you on the London Real and they described you and Seed Camp as the OGS of the European tech ecosystem. And then I looked at the date of that video and it was from 2013. So this point you guys are true OGS if it’s ten years later and people were already saying that about you in 2013. So tell us about how you’ve seen the world of early stage investing evolve since that time period in 2010, I think it sounds like is when you joined.
Carlos Eduardo Espinal
Yeah, no, it’s a good sort of point of reflection. I think one of the things that I wanted to sort of maybe touch upon before going down that path is this idea of an OG. And I know that it’s in many ways as a compliment and as a nice thing, but it is an incredible responsibility to be part of the early foundation of an ecosystem and acknowledging all the people that were involved. And I think that whenever you look at it as a single handed entity like Seedcap, it’s actually probably misrepresenting what enabled us to be here. Seedcap started off as a collection of like minded investors, angels, VCs and some LPs that were more traditional, as well as some operators and some specialists, like a couple of law firms that were involved in building up the original ecosystem. And you look at their role, they were the OGS in many ways.
Carlos Eduardo Espinal
They were the ones that believed in this idea that Europe had potential beyond what many LPs in the US thought as a small market outside of the main global venture market, which was Silicon Valley. And back in the day when I started, it was already considered to some extent immaturing from the original days of European venture, which were more like in the late 90s, early two thousand s with semiconductors and Arm and all this. But frankly, were still at very nascent stage where we didn’t really have a highly connected European ecosystem. We didn’t have a connection. Communication between East Europe and Western Europe. A lot of the capital was still locked up in the UK and France and Germany. All the emerging ecosystems that are now part of a huge contributor of GDP globally, like the Portuguese ecosystem and the Romanian ecosystem and the Nordic ecosystem, Estonian ecosystem.
Carlos Eduardo Espinal
All those were still not really rising because they were just in the early days of building out some of the notable companies that came to define them, like PayPal’s of the world, the TransferWises of the world. So it was very interesting because it was literally watching the birth of an you know, I was very lucky to be part of and witness that birth across so many different countries all at the same time. And it all happened because of the collaboration between all these people who believed fundamentally in the possibility of what European venture could be.
Brett
And I think that’s hard to even imagine. So just to better understand what it was like back then, were there a lot of investors who just really disregarded the European market and just didn’t think that it was really relevant and they wanted to focus on Silicon Valley entirely? Was that the general sentiment back then?
Carlos Eduardo Espinal
It was actually, to some I wish I was looking for this slide, but back in the days when I was at Dowry Hansen and were raising a new fund, one of my colleagues in the pitch deck of the fund that were raising had a slide that was like, why Europe? Why now? And I remember that slide because I wish I had it in front of me, because I bet you the numbers were like his graph was showcasing the future potential of Europe and the growth that it had. I bet you that those numbers are small relative to what actually happened. And they were probably conservative at the time and they felt probably aggressive at the time, but in retrospect they were probably quite conservative. And it’s possibly because there’s a lot of things that maybe bring the conversation slightly into investment sectors and other things.
Carlos Eduardo Espinal
But we as people and humans and we always think we kind of can guess the future of behaviors and what will succeed and where it’ll come from. But we get it wrong more often than not. For example, part of the reason why the fintech revolution exploded in Europe versus, let’s say the US. Starting with companies like TransferWise, was because it had a fractured currency. Obviously the euro is a central currency, but the fact that you had all these trading block where you would have pounds coming in euros and other currencies like the dollar and all exchanging with goods and services made it. Such that the nomenclature and the need for multiple exchanging of currencies in any given day was faster and more voluminous than those in the United States. So hence that was why it was born. Right? And if you look at the birth of certain other industries, like the gaming industry in Finland, again, it was a birth of mobile gaming from Rovio and a couple of other games that ended up being runaway hits.
Carlos Eduardo Espinal
And then of course, you have a cottage industry born from that. You look at PayPal, you look at Skype and you look at those stories and all the people that left those companies and started other companies. So I think whenever the older LPs that dismissed the European ecosystem they couldn’t fathom something like these companies being born because of the intrinsic elements of the European market and innovation of founders once companies became successful.
Brett
And how do you think the European ecosystem differs from, let’s say, the Silicon Valley ecosystem? And specifically what’s the philosophy on startup company building there versus what you think it is in the US.
Carlos Eduardo Espinal
So it’s probably worth unpacking it across two variables. There’s actually three, but I only have some extent capacity to talk about two. The third one is from an LP point of view, but I think you better ask an LP that question. But from a founder point of view and from an investor point of view, the difference are increasingly converging to very similar with particularly New York. So I would say London, New York have a hell of a lot more in common than, let’s say many places in Silicon Valley. Silicon Valley is unique in the sense that it’s been the epicenter of startup life for such a long time that there’s so many funds and the volume of capital available across different stages is just mind boggling. Right, but putting that aside, if you look at from 2007, which is actually when I started inventor, to now, you see the democratization of what it takes to build a company is pretty much unparity.
Carlos Eduardo Espinal
Now between a European founder and a US founder, sure there’s different markets and there’s different experience levels across different little things. But fundamentally the anecdotes that people share, whether it be on social media, YouTube, startup, school or anything like that, you have access to that as a founder today and that wasn’t the case about a decade plus ago. So fundamentally, from a awareness of the ambition and success stories and what it takes to build a global company, I would say European founders are in parity with any founder in the US. Or anywhere else in the world. I think founders around the world generally in large hubs have access to the same insights from the same companies, have been successful, and usually have one or two degrees of connection to the founders or operators who help those companies become successful. The investor landscape is slightly different.
Carlos Eduardo Espinal
The US. Continues to have lion’s share of venture money and that’s a function of many things, little things and big things, some cultural, some structural. So for example, a structural one that is also cultural to intersect is that the US. Has university endowments that do have a culture of repeatedly investing into venture funds. You have the Stanford endowment, Harvard endowment, yale and all these large universities who have tons of money that is specifically earmarked for venture. And that’s something that around the world isn’t the case. There’s not many universities in the world that have those kinds of endowments. So it just means that the access for money to venture funds in the US. Is a lot more refined and therefore it means you have a lot more availability of capital, which means you have a lot more tolerance for risk across all the different stages.
Carlos Eduardo Espinal
So where Europe has started to normalize around that is that in certain areas like seed, founders pretty much have access to pretty much any kind of seed stage investment they want now in Europe, whereas I would say growth stage funding is probably still favoring the US. Yes, of course there’s European players, but by volume I think the US. Still wins there. So it’s been normalizing on the capital side, but on the founder side, I would say skill set wise and access to the right information of what excellence looks like, I think is now on parity. I think the last point maybe on the founder front is of course in the US. You have a lot more anecdotes that go far deeper in history. Right? Because the ancient history of venture is in the late 60s, early 70s, semiconductors, Silicon Valley, hence the name. And so of course, you have generations upon generations of good anecdotes.
Carlos Eduardo Espinal
And I think that’s where organizations like Y Combinator do such a great job of bringing together generations and generations of successful founders for new generations of founders.
Brett
And how many years away do you think we are from US funding and European funding to be equal or close to equal?
Carlos Eduardo Espinal
Well, I think if you’re asking me that question, from a homegrown point of view, it’s different than from an imported capital point of view. I think we both know that you can buy Evian bottles of water anywhere around the world pretty much. But that doesn’t mean that the water’s grown in that geography. It’s still a product of know sourced from France and this exported. And I think that capital is no different. I think your question can be broken out into is it likely that the source of capital will always be the local market in parity with the US? I don’t think so. But is it likely that US and or other large capital market providers become sort of the export of capital? We’re already seeing that. We’re seeing a lot of US venture funds entering the European market. But I suspect in the future it wouldn’t strike me as OD if we had other large G seven countries doing the same.
Brett
And something I used to hear from founders maybe like four or five years ago was just that there wasn’t a lot of growth stage capital to support really big ambitious visions and companies. And then that’s where they typically had to go to US investors. But I think from what I’ve read, that’s changing now, right? Isn’t there a lot more access to late stage growth capital than there was a couple of years ago?
Carlos Eduardo Espinal
It is. And I think where it’s really hard to answer this question, Brett, is that you need to look at it a little bit like a bell curve, where there’s always outliers founders that are growing really quickly. And then there’s on the other end of the bell curve there’s companies that are struggling, right? And if you look at a perfect parabolic function where you have so many different types of money for the right stage you’re in, you basically can be a company in any one of those stages and you will receive the amount of money you should based upon the quality of company you are. And so that would define a perfectly liquid market for any company. If you’re a great company, there’ll be a few investors that will be able to get in on a deal. If you’re not a very good company, very few investors will be interested, hence the print part of the Belker.
Carlos Eduardo Espinal
And then if you’re a good enough company, if not better than average, you’ll probably have the large probability of investors who would at least be interested investing in you. Now, as the sources of capital start getting more and more limited for any one geography, you start having less of a bell curve and more of a pixelated bell curve. That’s where it gets really complicated. It’s like if I had to try to extrapolate from just anecdotal interactions with the market the past, say, six months, the seed stage market in Europe still feels very much like a smooth curve. Whereas to your point, the growth part of the market feels more like a pixelated curve. And that pixelated curve was already better than it was a decade ago, I think during 2020, 2021, where money was very cheap, there were tons of money that was coming in from abroad to compete for European deals and pricing them up.
Carlos Eduardo Espinal
And it created this illusion of more smoothness, but that seems to have been slightly paused in the last, let’s say nine months. And so does that mean that it’s permanent or does that mean that it’s more of an issue of interest based upon what’s the cost of capital today relative to a risky investment and what’s available out there that’s a little bit more safe? It’s unclear, but that’s kind of the difference between the early stage and the growth stage from what I can see.
Brett
Right now, makes a lot of sense. Super interesting. Now, when I was looking through the website, I saw some really impressive names there for some of the unicorns that you’ve been part of. So just to read off a couple that I’m familiar with, hopin, Wise, Revolut, Sorare, We, Fox, UiPath, these are some big companies and some big names. So you were an early stage investor there. Are there any commonalities that you can think of across all of those different unicorn founders? Is there anything that you see as just a pattern of this is what they all seem to have in common or these types of traits they have in common, anything like that?
Carlos Eduardo Espinal
So I’ve been toying around with this idea of writing a blog post around Startup Basics, and I’m going to just adlib it right now on your podcast. And the reason why I call it Startup Basics is because it’s writing about a subject that many of us have heard 500 million times. And I was reflecting on it and trying to answer this question you asked me in a sort of a root cause way, because you can look at the many little elements that have made companies successful, the timing of the market, where they were, and those are all contextual. It’s very hard to give any kind of advice on something that’s contextual. For example, it’s very hard to give advice to a company that’s entering the fintech market in 2023 when Revolution and Wise were entering it in much earlier stages in that growth curve when there was less competitors, right?
Carlos Eduardo Espinal
So advice on that basis would be kind of pointless. So I was thinking like, well, what is a root cause analysis of some of the success of the companies? I can’t say all of it, but some of it. And I was thinking about this idea of the difference between a vision and a mission, and I was trying to think of how to explain it in a way that doesn’t sound trite because it is such a like, you can google, what does vision mean? What does his mission mean? What’s a mission statement, what’s a vision? And they all sound really cheesy, right? And not to say that they don’t have value, but they’re more of like, well, where is the value in doing this exercise in the first place? And I was thinking of like, what is the best metaphor I can think of? And this is the bit that I’m going to write in my blog post, which I need to get out soon and up, but maybe I’ve finished writing it before you send it out.
Carlos Eduardo Espinal
You can link to it. But basically the idea is based on this movie, on Netflix, which is on NIMS Perma, who the 14 peaks he climbed, the 14 peaks that are over 8000 meters. And the last time somebody did it, I think it took him six years to do it and he was trying to do it in less than a year. And the movie, it’s not like one of those things where it’s a plot twist that I’m going to ruin for you. He achieves all of them in less time than a year. So it’s like an astronomical achievement. And it’s probably one of the best movies about somebody having a vision about something. And to try to explain this idea, it’s the difference between a mission and a vision. Is that his mission? He could have articulated his mission in life to be the best sherpa or the best mountaineer or the best sort of functional set of exercises that somebody does in their day to day job.
Carlos Eduardo Espinal
To be the best currency exchange, to be the best online communications platform, to be the best robotic automation process startup from Europe or to be the best neo bank. Those are all missions. And those missions can be broken down into the actions you take to be the best. So you generally don’t stop at I’m going to be the best. That’s not really a good mission statement, but those are all mission statement elements. Now, what made NIM succeed and become the first person to do these 14 peaks in less than a year was that he had a vision. And that vision was, I want to do something that nobody’s done ever, and I’m not going to just try to reduce it by a couple of months. I’m going to do it by a lot. And it’s almost incomprehensibly difficult to the point where I need to take my mission, which is to be the best mountaineer and stretch it to the point where it becomes the best of its categories, category defining.
Carlos Eduardo Espinal
And what’s really interesting when you look at these companies and you look at them at do they manifest elements of being the best insurance access platform? Yes. Is it the best platform to buy football, fantasy football and football? NFTs yes, but there’s others out there. So what’s the vision? Well, the vision is to be the definitive category leader and to have certain it’s not just about raising the superlatives up a notch. It’s about what are the key contracts you need to have? What are the key markets you need to have. What are the key products that nobody could believe that you would do. For example, revolut. One of the visions that they had was to be the one stop shop for all financial services. And part of that visionary was rolling out like that was almost inconceivable. And I remember very vividly that when it was being considered, it almost felt to some of the shareholders that it was a distraction from the relatively more conservative banking products.
Carlos Eduardo Espinal
But Nicola had that vision and that vision is ultimately what defined the outcome. And so I think it’s a very basic root cause and maybe it’s not the answer you were looking for, but I have to believe that it cannot be found in just operational excellence. Operational excellence just makes you the best patty or the best mountaineer or the best golfer, but it does not make you necessarily category leader.
Brett
Do you ever have founders come in and share a vision and you say that vision is just too big or that vision is delusional? Or when you hear a big vision, is that what piques your interest and gets you excited?
Carlos Eduardo Espinal
No, that doesn’t happen because usually you correlate the things, right? Like for example, NIMS was already one of the best mountaineers, if not the best mountaineer in the world when he chose to do this particular thing. Now, he hadn’t been doing it for very long, but he had enough of a track record that you could conceivably believe that he was one of the most talented before he embarked on this idea. Right. It wasn’t entirely like I’ve never gone up a mound before. And he also had an experience in being a special forces operator. He had a lot of things that made the vision seem maybe a bit of a stretch, but definitely within the capacity of the mental mindset, individual. And so I think when you asked me this question, you didn’t qualify it with saying based on the capacity that the person’s done it.
Carlos Eduardo Espinal
We call it founder market fit. But it’s like does this person have the capability to deliver on this vision? If yes, then it’s probably worth talking about. But if it’s completely off piece and they have absolutely no knowledge of it’s like me wanting right now to start a new Ferrari. What do I know about making Ferraris? Nothing. So I would have zero founding much of it and so therefore I probably would lack my own business plan if that’s what I was coming to myself with.
Brett
But do you ever see founders who maybe they don’t have ten years or 20 years of experience in that field specifically, but they’ve found a way to really articulate that problem and they have a vision and they have a solution that they think can solve that. Are you ever doing investments like that? Or is there always this track record of expertise and experience in that field before you would back them?
Carlos Eduardo Espinal
No, that’s a good question. Maybe I simplified it too much. It’s actually nuanced depending on the sector and the nature. So, for example, there’s a lot of things that, as just general day to day life, we all are exposed to enough to have some level of knowledge. I think, famously, the founder of Soyland didn’t know anything about food, right? But he did because he’s eaten food his entire life. Right. And so he understands kind of why he would or he wouldn’t eat something. And I think that’s where it gets tricky, is that consumer facing products in particular, you can have an opinion even though you’ve never worked in the industry. And maybe by that standard, maybe my example of me pitching my Ferrari to myself, maybe I would be able to do it if I had an idea why my new Ferrari is better than anything exists in the market.
Carlos Eduardo Espinal
But where I think it falls short is if you’re, for example, selling anti money laundering software for banks to integrate with regulatory requirements. I mean, honestly, I don’t know how you would even know that if you didn’t have some sort of exposure to the segment.
Brett
Makes a lot of sense. I think that’s always the difference, too, right, between a missionary and a mercenary. I think a lot of the times, the companies that I see and some of the founders that I’ve even talked to, you can tell that they’re a mercenary when they have no real background in that business and no real experience. But they’ve read somewhere that it’s a big, massive market opportunity and they want to go out there and build a business versus the missionaries. I see them typically come from that field. They experience and live that pain, and then they set out to solve that pain. So that’s the kind of core difference that I typically see.
Carlos Eduardo Espinal
Yeah, that’s exactly it.
Brett
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Carlos Eduardo Espinal
Yeah, for those of you that are listening, Brett sent me a sort of preparation cheat. Sheet and one that he was telling me that he was going to ask me this question. But one of the fun things was that he says in brackets, two to three pieces of practical, non obvious advice. And I was sitting there and I was thinking like, shit, I was like, dubious about my own advice. Now it’s like, what’s non obvious? I mean, I think in times like the ones we are in now, where fundraising is a little bit more difficult than it was a year and a half ago, one of them is obviously focus on doing more with having less, and even if you have more, right? And I think that’s pretty obvious. But at the same time, it’s like not for everyone. It’s not obvious. I think some founders, especially those that raised during a time of plenty, still think that the game plan they had during the times of plenty applied today.
Carlos Eduardo Espinal
So I was torn. I don’t know. Brett, what do you think? Is that obvious or non obvious?
Brett
I would say that’s non obvious. It’s non obvious. Maybe I have to rephrase that. It’s like the super vague things. So we had someone on and I asked them that, you know, right now it’s just all about focusing on the team and making sure that the team feels supported. And that just seemed like fluffy and vague. And I think founders listening in would say, oh, wow, thank you so much for that wisdom. I know what to do now. So just looking for things like that founders would listen in and be like, maybe that’s something that I already know and I’m already thinking. But hearing this as a reminder again, on this episode is something that’s going to push me across the line to actually take action. So those are the type of things that we’re looking for and I think that one passed the test fine.
Carlos Eduardo Espinal
All right, so the second one is on that topic that you were just discussing that was slightly maybe it was phrased by a previous interviewee a little bit more generally, but I think that there’s some root to it, which is it really comes out to leadership. The nature of leadership during a booming market can be a lot more lax than in a tightened market. It’s not quite a borderline crisis. Leadership during a crisis gives you a lot of flexibility as a leader to be a little bit more domineering, not in a bad way, but in a sort of like, hey, we need to make cut costs, we need to survive at all. During a crisis. There’s a little bit more of a burning platform that enables a certain kind of leadership to exist. But we’re in this phase where it’s not quite crisis, although it can feel that way for many.
Carlos Eduardo Espinal
And definitely the SVV thing generally pushed people into that for 100% sure. But we’re also not in a stage of plenty where there’s enough room for everyone to be involved in every decision. So I think one of the key things that I would advise founders right now in this market to do is focus on true leadership versus hype leadership. And so we’d have to unpack, well, what the hell is true leadership? Well, true leadership is partially going back a little bit to what does a vision look like in this context? How the chess pieces moved? What does that mean in terms of the team that you can have and that you can’t afford? What does that mean in terms of training people? What does that mean in terms of patience? What does that mean about inclusiveness of certain ideas from your colleagues? Basically, you get less margin of error on every decision you make.
Carlos Eduardo Espinal
So every decision you make, you either need to consult, you either need to be speedy about it or you need to be more considerate in the implications of that decision. And so you really need to think through your leadership and invest in thinking through not only the impact your decisions have, but how you take them and the impact that they have on the people and the cash runway, I’m going.
Brett
To categorize that as non obvious. And that is super interesting, and I like how you expanded on that. And that’s super interesting and super compelling. So you passed it, Carlos.
Carlos Eduardo Espinal
Thanks.
Brett
Now, I want to make sure I cover something here, and that is your book. So the fundraising field guide, I know it’s probably packed with a lot of interesting advice and very useful advice, but if we had to distill maybe two or three real takeaways from book and core pieces of advice from the book, what would that look like?
Carlos Eduardo Espinal
Yeah. So in the world of development and operations for creating products for the cloud, there’s this DevOps that exists. And DevOps could be described as the intersection of culture, methods and tools. Right? And as somebody who’s involved with DevOps would probably argue that culture trumps pretty much everything. It’s a culture of inclusivity between the people who are building and the people who are deploying and resources required and collaboration of the interval of innovation. And I think that if I had to describe the book, to some extent, it’s a devoppy way of fundraising. It’s a way of reconciling some of the things that are repetitive in a fundraising process, but that are evolutionary, that are iterative rather. And the book is structured by starting off with the mindset. The closest thing to the culture. Obviously, culture is more than one person. In this case, I’ve written a book from the point of view of a single founder.
Carlos Eduardo Espinal
Obviously, with the team it’d be slightly different, but as a single founder, the closest thing to metaphor culture would be the mindset. And so I think the predominant thing that I try to get across to people is that getting 80 rejections is as much of a mindset game as it is. What am I doing? Wrong game. And that’s probably like if anybody walks away from reading the book, it’s like getting that idea across. It’s like organized iterative improvements on all elements of a fundraising process to get to a yes whilst keeping yourself sane. And that’s probably the best summary I can do. And I’m on my second revision of it, and I’m thinking about doing a third, and the difference is how to navigate the context in which the book was written. The first edition was written during the growth phase of the last decade, but not quite the frothiness of COVID Times.
Carlos Eduardo Espinal
The second revision happened during the frothiness of COVID Times. And a fun anecdote for those of you that are listening to the podcast is that I had to make a change in the COVID to represent the fast growing set of rounds that were happening. I didn’t know where they were going to end, so I didn’t want to put a number on the COVID So I put a little X million for your first round because I was like, shit, is this going to be tens of millions or is it going to be single millions by the time this book is in print? And so I wrote it with a perspective of like, even though more money is a good thing, there is a limit to where more money is a good thing. And actually that’s proven out to be the case. And I walk through why that’s the case summary.
Carlos Eduardo Espinal
If you take too much money, expectations are all time high. If you don’t ship, you’re really stuck. And so the book is basically that. There’s the mechanics of it, the methods, there’s the tools, which are everything from the fundraising pipeline, tap tables and all those things, and then there’s the mindset. And that’s why I liken it to this DevOps approach to fundraising.
Brett
Well, before the interview I purchased a copy and I’ll make sure to link to the link as well so that people can purchase one as well. Our founders can purchase one as well because I think that’s very useful and I think that’s going to be exciting to see the updated version. Now, one other question I want to ask you before we move into final question. So I know you’ve invested in over 450, and maybe this is going to be a hard number to come up with. How many pitches have you sat through, would you say, over the last ten years or just really in your career if you had to try to put.
Carlos Eduardo Espinal
A number to it? Very good question. So 15 years easily 1000 a year, so let’s just go with 15,000.
Brett
Are there any things that you can think of that just drive you crazy? That you see founders do in their pitches or in their pitch decks that you just wish you could put on a billboard that says Founders stop doing this, anything like that come to mind.
Carlos Eduardo Espinal
So there’s two parts of that question. One of them is the stuff that’s seasonal, right? Things go through fashion and so it’s hard to really criticize that when they come and go. There’s everything from stylized fashions, like back in the day when prezi was cool, how many decks we got that were from prezi, or certain stylistic elements that are seasonal. And so therefore I just kind of acknowledge those like oh, that’s like people are really into this know or phrasing of this. Then there is misrepresentations. Those are probably the ones that I find the most amusing, especially during periods when there’s a lot of buz where you get AI companies that aren’t really AI, that kind of stuff. I wouldn’t say that drives me crazy in any way. It’s just kind of funny because you’re like, well what are you exactly if you’re not this but you’re trying to say you are and I understand why that is.
Carlos Eduardo Espinal
There’s certain segments that are super interesting at any given point in time that you want to be near close to them but then that just needs to better explained. But other than that, no, there isn’t anything that sort of annoys me, anything like that. I think the toughest decision founders have in terms of a deck is how they weave in their personal stories into why they’re building something. And I don’t know that there’s one fast answer to that. I think that some people don’t necessarily have histories that justify the idea and in other cases they have ideas that are completely aligned with what their history is and therefore it’s completely believable and it’s never easy to do that. So I don’t think people should beat themselves up over the head, but I think maybe if you force put it down somewhere ahead. I would probably say the most awkward thing is whenever people try to hide tricky historical periods of the company.
Carlos Eduardo Espinal
And I don’t say it’s bad, I say it’s awkward because it’s going to come up somehow when you look at you’re getting pissed by two people and there’s four people on the deck and two of them aren’t involved in the company anymore, that kind of stuff. Or where you look at the cap table and it’s got some names that haven’t been involved and have a big ownership stake and it hasn’t come up. Those are the kinds of things where it’s like it’s awkward, it sort of needs addressing and most of the time it’s not necessarily the killer. Especially the company itself is doing something particularly meaningful but it’s the kind of thing you don’t want to find about by accident.
Brett
Makes a lot of sense and on the topic know the personal storytelling. So I really, like, hopin. I followed their journey a lot. And I think Johnny’s done a very good job of telling his personal story to set the table for why he started the company and at a high level. I don’t remember exactly what the illness was, but I know he was stuck in bed. He was disconnected. He wasn’t able to connect with people in real life. And as he was sitting there, that’s where the idea really came from. Something along those lines, which I think is just a very powerful personal story. And I think he’s done a great job of making sure to get that story out there into the world. In most of the media interviews that I’ve seen, was that type of story crystal clear at the start? Or do you see these stories as something that have to really be developed and refined?
Brett
And is it like an active conversation that founders and investors typically have to get that story perfectly crisp? Or was that type of story crisp from the start?
Carlos Eduardo Espinal
No, I mean, Johnny’s was a particularly unique one. You pick the one that’s really unique to the individual and the life circumstances. So I would say that his has literally not changed at all over the years. And I would say most of them don’t evolve. They’re factual at the end of the day. So you would hope that they don’t get embellished over the years. Right, but it’s more of like the relevance of their background becomes more evident as time goes on. If you look at the story of the transferrise founders and you look at their origin, it wasn’t the first product, it wasn’t evident where that would manifest itself into a relevant product, but now it’s increasingly manifested and so that’s always nice. It sort of justifies the narrative of like, this is where we’re coming from, this is what we’re trying to do. But no, I generally feel like people are pretty honest about those kinds.
Carlos Eduardo Espinal
I mean, it’s the kind of thing you really can’t make up. And we’ve only actually had out of all the investments we’ve made, we’ve only actually had one person bullshit us about that. And our old chairman Saul Klein has a quote that I actually quite like. It’s like, don’t optimize for the assholes. And we decided not to do anything to really go down the path of trying to validate somebody’s story as bullshit or not. I mean, most people have some origin point that is truthful for a story and then they might embellish it a little bit and it’s rare that people go off piece on that and that circumstance only happened once to us and it’s a story for another day. Brett but is this like one of those situations where you’re like 99.9% of the time people tell the truth and it’s generally aligned with why it is that they’re doing something.
Brett
I think for me when I mentioned that it’s not a matter of embellishing on a story, but it’s getting clarity on the story. So what I see from a lot of the founders that I work with is your life journey is complex and a lot of stuff happens in your life, and sometimes they don’t know how to arrange all of those details in a story format that makes sense in the context of why they’re doing what they’re doing. So I’ve seen that a lot with practitioners who turn into founders, or especially technical founders. I’ve seen them just struggle with the crispness of their story and articulating that story in a clear way. So that’s what I was asking for there. Not necessarily if people are making up stories and just pulling stuff out of their ass.
Carlos Eduardo Espinal
Yeah, okay, fair enough. I mean, I can think of two companies that fit what you just described, and in both cases it’s because the precision of what their product is going to be doing was also nebulous. So they were holding ambiguity on the reconciliation of their story with the vision of the product because the product itself was unclear to them. It was somewhat a product based upon evolution that the customer was going to enable them to evolve from. And as a consequence, it becomes hard to reconcile your story relative to something that is evolving as it goes.
Brett
Makes a lot of sense. And something else I want to dive into because that’s the core topic of this podcast that we normally talk about with founders, is this idea of category creation. So when you’re working with founders and they say, I’m going to go out and create a category, what’s your initial reaction and what do you encourage them to do to make sure that this truly is a new category play and it’s not better to have them just positioned into an existing market category?
Carlos Eduardo Espinal
I was thinking about this question. I honestly can’t think of a single founder that has said that to me. I can’t think of a single person who said, I’m going to create a new category. I think that’s a very enlightened marketing concept and it requires a segment that is overly competed already and visibility on basically betting on a positioning statement. If somebody has that level of confidence, you’re more investing in a positioning statement than you are on a product. Whereas what I’ve seen is more that there is like a product that’s created and that in parallel there is a creation of a category and then it neatly fits into that, whether it’s on the same year or like a year down the road. And then it gets lumped into that. Neo banks or collaborative consumption or buy now, pay later services. And so I think it’s a very hard one.
Carlos Eduardo Espinal
I don’t think I can recall a single founder who’s come to me with a very clear, like, this is a brand new category of this. It’s almost always, we play within this, we do that, we’re slightly different than these, and we believe that we have enough differentiation to stand out. And then from there they can evolve into being category defining companies as the category itself is nascent, which it’s almost like if the category is a little bit more mature, you can come in with that kind of premise and that you’re getting funding for the positioning novelty. But I think if the category itself is already nascent, like let’s just go back to Neobanks as an example, then generally you’re already kind of a participant in it. It’s rare that you can declare yourself the first.
Brett
Maybe that’s more of a Silicon Valley thing. And I’m based here, so a lot of the guests that I bring on, when they’re founders, they are from here as well. And that book Play Bigger, which is all about why you need to create a category and really tells this rather sexy, juicy story about category creation that seems to have gotten in the hands of every founder these days. And everyone’s talking about creating a category. And I would say the majority of founders that I bring on, they’re like Series A. Typically all of them have this aspiration and this claim that they’re after category creation and they view it as a category creation play. So I wonder if that’s maybe one of those slight differences just in the material that’s being consumed across these two different markets.
Carlos Eduardo Espinal
Maybe. I mean, it’s funny. This is an interesting one that we might have to either give it more time or more concrete examples, but it’s where what point is somebody saying something to create a branch of a category that’s already nascent to begin with versus somebody coming into a category that’s already existing but being the first one of its kind? Like for example, the first cloud native of something, right? Like if you’re the first cloud native of something, the something isn’t new, it’s like you’re just the cloud native version of that. So you could say you’re category defining because you’re the cloud native version of it or the category existed, you’re just the first of an alternative. And so I think that’s where it becomes slightly semantic discussion. But I hear maybe there are some cultural elements to that, but I’ll have to reflect on that’s a good one, if I can recall anybody coming up with very clearly stating that up front, like business category defining at the seed stage.
Brett
Yeah, and that makes sense. And maybe that is because it’s at the seed stage and those thoughts come a little bit later on how I generally think about it, or the follow up question I ask is, okay, so is this a new line item? And I would say 70% of the time it’s not a new line item, it’s just taking away from an old line item. So when that’s the case, it seems like that really is more of like a redefining an existing category or the next generation of that existing category as opposed to a totally new category. But I think once you get into line items and of course that’s only really relevant to enterprise B2B. That’s my general way of thinking about it. It’s all about that new line item.
Carlos Eduardo Espinal
Yeah, it’s a good one as any. I was just thinking of what’s a perfect example of a line item that didn’t exist in 2019 but now does. And if you think about Zoom as a line item per seat, per company line item, it probably wasn’t in most companies in 2018. Now it’s like pretty much many companies will have a license with Zoom teams or something else, but that didn’t exist four years ago, five years ago. And what’s interesting about that is that the category which is online meeting software existed and so that’s where it gets slippery. Like what did is Zoom a new category of that or is that just because things changed and then that category surfaced and then they therefore changed the category because of what they were doing that made it slightly better. It’s a slippery slope there. It’s a good one to sort of noodle on.
Brett
Yeah, I think that’s why there’s so much debate all over, at least on my LinkedIn feed, everyone’s fighting about category creation and what it really means to create a new category and can you create a new category? And there’s some who say there are new category creators in software besides maybe Mark Benioff. And even if you really dig into know, maybe that wasn’t a category creation play. So I think it’s a widely debated topic and there’s no clear definitions on it seems. Now, last question here for you since I know we are way over on time. So give us some predictions, high level predictions. What do you anticipate is going to happen in the world of startups and early stage venture capital over the next, let’s say twelve months?
Carlos Eduardo Espinal
Twelve months is a bit narrow in the sense that it makes it less fun.
Brett
Go big. What time frame do you want to go with?
Carlos Eduardo Espinal
Well, five years. Let’s go five. And the reason why I say less fun is because basically what everyone’s looking at is what the Fed and what large public market reactions are to capital and inflation. And that will dictate how much the cost of capital is shifted in favor of deploying across all different types of assets, not just safer assets in the near. So, you know, to some extent you could argue that the biggest thing to watch this year is shifts in risk appetite towards riskier assets. Right. So that’s why I say that’s a year, right? That’s like less than nine months. That’s probably the major thing. I don’t think we’re going to have robots pop out of chat GPT Five in the next six months, right? Like we already know that is already in motion. We’re not going to really delve into OpenAI stuff because it’s still very much a frothy subject and it’s within the next nine months we’ll see an evolution of where we are today.
Carlos Eduardo Espinal
But that five month horizon adds a little bit more complexity to the question. How do you feel about that?
Brett
I love it.
Carlos Eduardo Espinal
All right, so five years. So there’s a book that I really enjoyed reading called The New Dark Age. And the author’s, James Bride. One of the things that’s really interesting about what we do and the kind of people we are in our industry is that we’re generally very optimistic. And because we’re very optimistic, it means that we generally look at things from a view that technology is going to solve food, health, productivity and all those elements that are super important for us to solve in order to have humanity continue to grow. One of the typical case studies of this is all the fear that existed around us running out of food for the population that we currently have on the planet. But it didn’t factor in the increased productivity in soil technologies like robotics, hydroponics, automation of harvesting, and just better yield on crops.
Brett
Right?
Carlos Eduardo Espinal
And so I think when I look at the next five years, there’s going to be continuous, linear, if not exponential growth across things like automation, healthcare, data, science. Each one of those things has a subset of different innovations stemming from the increased use of automation. So those are all the things that are like if you were to ask me this question of what’s the most non obvious in five years, I would say it’s the amplification of all the secondary order of all this growth and all this positivity. And that’s what this book covers to some extent. And it’s really the increasing social impact that all this data has created, all the potential issues. That the difficulty in trusting the source of data and or written copy, where it comes from, how it’s deduced, how it was combined, what role government will need to play in terms of not only normalizing and controlling how this is used and how it’s managed, but how it integrates with other countries.
Carlos Eduardo Espinal
And a lot of the mental health impact of this, including the inequality in society that will be created through this. And so I think what will be interesting is to see how all those things are reconciled with technology because what’s the opposite of this would be to do nothing. And I don’t think that’s likely. So what will be interesting is how the current crises, that crisis, whatever plural crisis is, what happens in this current state over the next five years, will be a very interesting thing to see from a technology point of view because you will have for example, we’ll have on the climate side of things, we’ll have to improve the interoperability and the integration of many sources of electricity generation into existing grids that were designed in order to include many new sources of renewable energy generation but also storage, which is going to define a lot of the solution to the climate problem.
Carlos Eduardo Espinal
We’ll have to deal with how to normalize, how to share, how to encrypt, and how to regulate the use of data across different siloed data pools to better generate automated responses and automated deductions from that data, both for healthcare, for finance, for cybersecurity. We’ll also have to deal with the impacts to society of having access to all this information and not being able to process it as an individual and the anxiety that it causes people to not be able to process it as an individual. And lastly, some of the cybersecurity challenges of controlling and managing all of this. Cybersecurity is not just about protecting people from getting in and stealing stuff. It’s now about showcasing that something is what it is that it says it is. And that’s hard in this day and age. So those are the things that in five years, I think are probably some of the interesting trends to watch because they’re not going away.
Carlos Eduardo Espinal
So I say trends to watch because people might disagree with them, but to some extent they’re already happening. So it’s more of like, how do we deal with them? But I do fundamentally revert back to an optimistic worldview, meaning I’m not belittling the size of our problems, I’m just saying that our ability to solve them is probably bigger than that.
Brett
So you think the world’s going to be a good place in five years? It’s going to be around, yeah, I.
Carlos Eduardo Espinal
Think there’s some issues that we fast forward and we looked at the world. If were in our 18 hundreds and we fast forwarded to 2023, we’d be surprised by the amount of air pollution in certain parts of the world. Right? Like, we would be surprised by that as a rural 1800, but at the same time, you’d be completely impressed by the fact that you have pretty much a pill for just about everything that ailed you in the 18 hundreds. And so I think we’ll have a similar shock value, not in five years, probably longer, but in five years we definitely will see a bigger and bigger impact of climate change. We’ll see a bigger impact of AI and misinformation warfare. We’ll see a bigger impact of global and geopolitical tensions and how that’s reconciled. So those are pretty guaranteed contrasts from where we are today.
Brett
Makes a lot of sense. And I’ll make sure to link to that book you mentioned as well, just for anyone who wants to check it out. And idea could add it to my Amazon cart. So I’ll be reading that in the coming weeks. Carlos, we are way over time here. I’d love to keep you on, but you left me wanting more and I have a bunch of follow up questions that I want to ask you, so we may have to save that for round two in the future. Before we wrap up, if people want to follow along with you or founders want to get in touch with you about potentially. Working together. Where should they go?
Carlos Eduardo Espinal
So, for funding on our website, there is a section called Seeking Funding or you’re Looking for funding on me. Just make sure that I get the link right. But otherwise you can go through LinkedIn, you can go through Twitter, I’m at cee or email me the link for Seedcamps looking for Funding is literally seedcamp.com slash Looking for Funding. And it’s on the top right hand corner, it says Looking for Funding. That’s probably the easiest way, just because we make sure that more than just one person looks at it. Everybody looks at it, but yeah, look forward to hearing from you.
Brett
Awesome. Carlos, thank you so much for taking the time. I really appreciate it. Really enjoyed this conversation. I feel like I learned a lot. So thanks so much for taking the time.
Carlos Eduardo Espinal
Yeah, no worries, Brett.
Brett
All right, keep in touch. This episode of Category Visionaries is brought to you by Front Lines Media, silicon Valley’s leading podcast production studio. If you’re a B2B founder looking for help launching and growing your own podcast, visit frontlines.io podcast. And for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening and we’ll catch you on the next episode.
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