In 🎬 E27 we got together with Abhishek Lahoti, VP of Business Development, EMEA at Sapphire Ventures, one of the best people who knows startup ecosystems and partnerships from within. Not only he is currently works in Sapphire Ventures but he previously led partnerships in Dropbox in product in Adobe.
We started our conversation on how European startup ecosystem is evolving and the recent trends there. And then in part two we zoomed into how companies use partnerships to scale and what are the roles that VCs play in this process.
Transcript of part 1 of our conversation:
First of all, Europe is trying to catch up with the US, but Silicon Valley is a really difficult benchmark to beat. I would love to hear your thoughts on this, because in Sapphire you have a great overview across both sides of the pond. Which trends do you see in the European startup ecosystem? How is it evolving?
Thank you for having me here, it's great to catch up again. I recently joined Sapphire Ventures, where I'm heading up the business development side of their European portfolio growth. So what that means is that my job is to help the companies that Sapphire Ventures invests in become successful past their point of investment. Just do what I can to make sure that they are exposed to the right opportunities and given an extra boost that we can. The question is really good, the European ecosystem is very interesting. I think that if we were having this conversation two years ago, maybe even three years ago, I would have said that replicating Silicon Valley is a goal. You know, it's definitely the idea that you want to compare yourself to Silicon Valley or San Francisco. If I'm honest, now, as we consider the world in this new format, and how things will be evolving, and how talent will be spreading, I think now, the idea is maybe not to replicate Silicon Valley, which is to press together as many people in a small area as possible and potentially wreck that particular market in other ways for the sake of technology. But to look more at the spread of technology, and the spread of startup growth across different regions, now, we're talking just about the US that means we're looking into New York, we're looking into Austin, we're looking into Denver, we're looking into Boston, we're looking into Charlotte, we're looking into Atlanta, and we're seeing that talent is going to start growing, and therefore startups and ideas are going to start to grow and manifest in those other locations.
Europe is a very, very interesting experience, because whilst it is a similar geographic spread across different countries, it's all very different on the cultural and language side. So whilst in the past, there have been fewer startups in Europe raising less money in general, therefore leading to potentially less success. I think that the number of unicorn growth that we've seen, which used to be 14%, is going to slowly grow. And I knew that the big one in the UK was checkout.com that came up recently. I know TransferWise is a very large London based. And there was an article that I read the other day about just how many people who worked at TransferWise are now moving on to their own startups, much like in a Dropbox sense that I was used to with my old colleagues. And just generally speaking how foreign investors are starting to look at the B2B focus of Europe. So because our markets are so complicated, because it's difficult for an American company to really prove success in Europe right away, starting in Europe proves to be a little bit more exciting and a little bit more of a challenge, if you will, for our company. So anybody shows cross European success at a startup level tends to be a little bit more of a you know, fathomable product in the end, because they've already shown the UK market is successful, the Nordic market successful the French market, the German market, the Italians, Spain and Spanish, which is very different than saying, the Midwest, the West, the north east and the south of the US, because those are not quite as different as they are in Europe. So I know that's a long answer to a very short question. But my general sense is that as we will continue in this post pandemic world, hopefully the post pandemic part started soon, we're going to start seeing the European startup ecosystem really catching up. But it won't be catching up to Silicon Valley in that way. It's going to be a diminishing bit of Silicon Valley, and a little bit a rise of other cities, a rise of the American ecosystem, but then around European ecosystem, so it's almost as if the playing field was level eventually, because so much talent will spread everywhere. And folks like Spotify will allow people to move all over the world and still be paying the salaries that they want to be paid for in a place like Spotify.
R: But at the same time, we also see funds like Sapphire and Sequoia becoming more active in Europe. Do you see the emergence of more global portfolios?
It's good to know that there's a lot of really big successful Silicon Valley venture capital firms like Index and Balderton that are based here. They're actually London based, European based and the satellite office is the Silicon Valley office. Sequoia, Sapphire Ventures, we are all making more bets in Europe now. That's a testament to (a) the just a general sense of positivity and, and growth that's occurring in the continent. But (b) and if I'm honest, it's a little bit of a catch up. It's knowing that there were opportunities that were mentioned earlier on with the percentage of unicorns in Europe that probably were going to be more successful if there had been more investment in the market. So a lot of these venture firms are seeing that there is a great opportunity. And I think the prevailing world sentiment is that our diversity of thought needs to be a bit better. And by that, I don't mean that any one firm or any one person has been really, really restrictive. But just that if a lot of these monetary groups are just based in California, so a bit of a group-think on the way that Californian in technology and Californian companies will work. As you start spreading those people across to other places in the US to other places in the world and into Europe, and in London, and so on, you start to get a bit more of a diversity of mind and diversity of thought. And that helps to indicate better opportunities that might occur. And perhaps you might find that company that's based out of Ireland, or Germany or France, that you might not have looked at five years ago, but because somebody else who knows the ecosystem, and knows the markets really well, has seen can say, Well, you know, they have actually partnered really heavily with this company that's based out of Europe, that is an absolute powerhouse out here. And we think we should follow up on them because that Sumo relationship can be very important to them.
R: VCs love to say that they partner with startups. And especially in COVID time, it becomes even more important. In terms of trends that you see in your fund and also in other funds, how are these relationships evolving?
You know, it's funny, because my perception of the venture capital world when I lived in San Francisco was that it was this, you know, very unattainable place. And that to get a seat in front of a VC as a revenue generating startup, or even as a revenue neutral startup, it was this really, really massive deal. And it was and no knock to anybody in that ecosystem, it was a very big deal for all of those people. Now, I think we have a lot of a lot, we have a lot of companies, and we have a lot of VCs. A VC who finds a good bet is going to compete really hard, really hard with other VCs. So the success of closing a deal is also a bit like a sales process. Rather than me trying to sell you my product and get money from you, I'm trying to sell you my money and take product from you, or in this case, like options and such and such, an ownership. So it's funny because that relationship has expanded more, and there's much more competition. So in that light, VC firms, especially the early stage ones to start, and now the later stage ones, taking more and more of a tactic of portfolio success. In portfolio success growth is really important, because these VC firms are A investing a lot of money into these companies, and B are also trying to differentiate themselves. And both of those lend themselves really well to a post-money conversation. Great, you'll have an MD on your board, that's wonderful. We're happy with all of that. But how can we help your sales team run their PLCs more efficiently? How can we help you readjust your pricing, so it's a consumption based model? How do we help you get that introduction to that enterprise company that you've been working towards? How do we help you open up in Europe, which is a little bit of what Sapphire Ventures as well as other VC firms are looking to help their startups do, which is just to get to a global expansion as necessary. So the idea is that we're helping to grow. An anecdote that someone told me from a VC firm in the US was that money is all the same color, it is just black and white digits on some screen somewhere. And what can you add to that particular color. And so roles like mine, roles that have specific growth interests in mind, are ones to help people become more successful through executive reach outs, focus groups, introductions, hiring, you know, best in class strategies, whatever it is. And I think that's where the partnership really exists. Now, it's evolved from “here's some money to get your business going, and I’ll sit on the board to advise” to “here's money, I’ll sit on the board, and here's a whole team of people that will help you hire your next CFO, get you in front of these three big enterprises and put you on a couple of panels, so you can speak to people and build the brand itself as well.”
R: It's fascinating that VCs basically have to step up to help their startups. Just a quick followup In terms of portfolio approach, if I may. Do they try to build this as the puzzle of different products within one sector or map different sectors? How this portfolio approach works in practical terms?
We work in this sense of where the firm has its strengths already. There's a few VC firms that really feel like they're completely spread across every type of technology. It would just be completely crazy to try to do that, but maybe like an Andreessen would, because they're such a massive firm. On our end, and in many other firms similarly in our space, a lot of what it is, is knowing what we're particularly good at and focus on that. So Is it a B2B SaaS model, and their focus is working with the enterprise, And then therefore you have the CIO is particularly the most strong person you can speak to. Now, increasingly with COVID, it's also a CHRO, which is the head of people, looking into people to help them spread, help globalization occur with the roles that they have in their company. So we do adjust course per each company. And I think it's important to, because it's not a one size fits all, when you're trying to sell a deep data learning platform, you're trying to sell a marketing platform, and then you're trying to sell a DevOps platform. It's really incumbent upon the VC to make sure that their relationship with the company are not singular, but are multiple. And so when we have a really, really great conversation, and we work with like, Lloyds Bank or something like that, just to through the during a name out there, it is a big bank in the UK, it's not just talking to the person who runs their real estate section for our real estate investments. But it's also working with the people who work on their IT side, it is working with people who work on their HR sides, working with people who work on their investing side and having a good spread on digitalization as well. I don't know if that answers the question. But ultimately silos of it really, really matter based on the software and what the fund’s role generally is.
R: Looking into the future of 2021, which we all hope is going to be much better than 2020, so looking at European startup ecosystem, what are you most excited about?
Growth is probably the coolest bit that we're going to see. COVID has been awful, let's just say that, for many reasons. But as a result of that we have this idea that all of Europe can be a tech hub. It doesn't have to be London, or Berlin, or Paris or Stockholm. It could be Madeira, it could be Madrid, it could be Barcelona, it could be Rome, it could be the village outside of Estonia, that there's a bunch of developers who live there. More cities are going to have more technology enabled users, it's going to mean that our connectivity is going to get better, it's our technological fluencies are going to get better, as companies are going to let people spread more. Suddenly, you're going to see talent in places you hadn't seen before. So the key here is how do we coalesce around that from payroll, governmental tax restrictions, so that companies and startups and enterprises can scale geographically. That's one thing Europe lacks that America does really good. And that in America, it's very easy to leave a region to go to another region. You don't really have to go through much, aside from getting a new driver's license or something like that. But in Europe, it's going to be important to allow that sort of flexibility of movement. I know already the EU is pretty good at that. People can travel really easily across borders, but settling in different countries can be a little bit of a tricky situation. And so letting people settle much more easily across the continent, that's really going to lead to a great amount of growth. And that will open up the European startup ecosystem quite a bit. You know, Brexit didn't do anybody any favors. But Ireland and England were already islands to begin with the UK rather and Ireland, were already islands to begin with, that doesn't preclude people from using all of the regions that are at their disposal in Europe to try to be successful. You don't need to live in London anymore to work for a really, really great tech company. You can live in Edinburgh, you can live in Manchester, wherever you want to go, or you can live in Dublin, wherever you want to be. And that's kind of the benefit now that we have in front of us.
R: I'm personally excited about two things. First of all, I'm really excited that Sapphire Ventures has a person like you in their European team, I'm sure it's a big addition to the European startup ecosystem. And secondly, to what you just said, it's quite amazing that tech is basically connecting these startups across Europe and across the globe. And I think borders that divide us actually are falling due to tech and in a strange way, because of COVID.
I think it's funny, because the last thing I'll say is that I think the borders that we've created in the world were really, really helpful for when we all didn't trust each other. And I think technology is not fully solving that, but it is helping us get to a point where we can easily speak the same language. In some way we can share a lot of the same memes, the same videos, the same news stories. COVID is a great equalizer, and so many countries are stuck in the same place. And it might be the tech is a bit of an equalizer, and all of us can start to kind of see that these borders that we created whilst are important for some aspects of life don't need to be so restrictive than they used to be. I think that's maybe a little bit of where the US has jumped ahead of Europe a bit, because originally the states were almost completely different Commonwealth's and country. And that was the early stages. But now it's all very, very much like regionally obviously, but it's more of a one country. And I think if Europe can get in that focus, it's going to be really successful.