Evaluating AEC Tech + 2024 Trends with VC, Patric Hellermann

I'm super super excited to host Patrick

Hillman General partner at fundamental

and I'm hosting his for the second time

big big fan of his content and also the

podcast he's doing with SH and it was

back in 2018 and 19 when I first like

discovered you guys and there are like

only 10 videos on your YouTube and like

why this guys are doing cool stuff and

then postco now

you're part car newsletter everywhere

you're like crushing it so thanks a lot

for being on the show thanks for having

me mayor and and you're right I mean it

was really only 2022 when we committed

to it so since then we've had a lot of

fun I see so Patrick you have some

amazing strong thesis on outcome as a

service and throughout your podcast

series even on

secondaries what kind of Founders

survives in contact uh

can you take us where you get the

content ideas from and like how do you

analyze what to share what to write it's

a great question and actually I don't I

don't think anybody asked me um that way

um so in in case you were hoping for

this the answer is not oh there's a

super structured process and a framework

that I follow and and this is this is

what I have to do in order to get to the

topics that I want to talk about

unfortunately that's not the case for me

and I think it's not the case for sh

either and for us it's I always like to

say the job of a VC actually your

favorite VC uh coined the following

quote Myer VOD COA so V not said hey the

job of the VC um sorry I think it's Bill

Gurley actually I'm misting Bill Gurley

actually both are amazing yeah yeah yeah

well we can attribute everything to V

not he's quite enough no but Bill Gurley

actually said hey the job of VC is not

to predict the future it's to observe

the present and I very much agree with

that so once you make too many

assumptions you're stacking them on top

of each other you're most likely wrong

about What scenario and ten years is

going to play out and what not so that's

exactly how I'm treating my job and so

we're with with foundamental we're

speaking with more than 3,000 Founders

every year not just myself it's you know

we have a small team and as a team we're

doing that we discussing it a lot Etc I

probably meet a couple hundred Founders

a year and so that's the observation

part right is you you get to meet people

who are in the front lines in the

trenches Etc and quite honestly

everything is just them teaching me

about things that sometimes I already

know and and often times I don't know

and then it's just being observant quite

honestly of things that happen and now

back to your question when you're

approaching it like that and you're just

staying curious you're just staying hey

but why are these things that way at

some point when you ask yourself and I

ask myself that often enough

one moment it makes click and I cannot

predict when but one moment it makes

click hey actually if I take these three

things together that I've seen over the

last five years this seems to be why and

then once I have found something like

that that's when we talk

about and how can one develop from

surface level observation to like deep

because a lot of VCS talk to Founders

they have few hours and that's their

point of data to understand how deep the

problem is how well the founders know

but they could like make up and

exaggerate and the real problem could be

something else so how do you apart from

observation how do you go deeper into

insights so I'm not I'm not sure the

answer would be the same for every

person that you could uh have on May you

might get very different questions so

I'm going to tell you what it means for

me specifically so for me it's two

things that I had to first unlearn and

then maybe relearn um that I can

immediately think of to your question um

the first thing

is in any kind of investment role when

you do it early stage even when you do

it late stage but especially early stage

everything is has to be about repetition

and repetition and routine give you one

specific superpower and that is moving

unknown unknowns to known unknowns and

ideally ideally to known knowns and when

you do that because you do repetition

and you move unknown unknown to known

unknowns that gives you the power to ask

questions when I have a lot of unknown

unknowns though about a space that I

don't have repetition in I oftentimes

cannot even formulate the question that

I need to understand and I say say to

people hey may if you were a Founder

today in healthcare or in

agriculture I have no repetition I have

no routine I'm not going to ask you the

question that I truly need to to

understand um what fundamentally drives

your business drives where your business

can can be going in 10 years from now

Etc so that's the first thing it's the

repetition and routine allows you to ask

the questions that are necessary and I

see it on a lot of my um VC friends that

cover many different vertical in

generalist funds the more quirky and the

more nuanced a fund is the more

repetition and routine you actually need

in order to ask the right questions and

they struggle and so that is very very

difficult to do when you invest early

say pre-seed round seed rounds even

series a rounds when companies are not

so obvious by the numbers you still have

to buy into thesis you need to formulate

that right um so that's one thing and

the second thing that I had to unlearn

and then retrain myself um over the

course of my investment career is um

abandon juristic that other sectors have

trained you as an investor there there's

a great example I was literally true

story I was literally just on the on a

90 minutes uh Deep dive diligence call

with a Founder that is building a cloud

manufacturing company similar to what

infrom Market is for a space in the

Western World in my markets and I had a

discussion with the founder about hey

when when you are a Marketplace investor

that has Marketplace success in the past

consumer Marketplace you know think Uber

for example lift or it could be inst

card um Etc your mindset about a cloud

manufacturer um could be hey let's

automate as much of the customer touch

points as possible because that's what

my marketplaces actually did terrible

advice in a cloud manufacturing for

construction because they actually

you're having track record uh that truly

scales and that makes customer come back

to you if you deliver you're the

reliable you're easy to deal with um and

if if you automate that interface to the

customer you're actually taking away

that advantage of yourself to convey and

and personalize that track record my

point here with this example is if you

apply the Uris sixs from other sectors

into construction or aec it will often

times not lead you to glory and that is

something that's my second point I had

to unlearn and retrain myself I just

stopped with the juristic I just

literally stay interested in the quirks

of our sector and when whenever I see a

Quirk we call it a vertical Singularity

I actually get extra exit sorry that was

a bit of a longer answer I love the

examples uh it gives like insights on

how

like because uh I think you also

mentioned this in one of your podcast of

learning unlearning uh as a VC so I

remember this a fun question is uh a lot

of VC from uh uh investors ask like

what's the unique domain inside you have

and how you compete and it makes me

wonder if you guys are receiving so many

unique domain Insight from so many

Founders what does it stop you from

building a startup from those inside and

since you have access to Talent

too um because I'm at building that

that's what it starts with so if I could

be a great founder I wouldn't have to be

stuck with this um less value a creative

job of of the VC investor quite quite

honestly um and a lot of the reason why

you know a Founder um I let me actually

maybe answer a little bit around the

corner May about like what kinds of

Founders I gravitate towards now that

I've done this for you know as many for

for this many years I I have learned to

acquire a taste for Founders that are

nonlinear that have like much like the

space that you and I love they have

quirks they have nuances and they have

done things that no handbook of founders

teaches you to do for example I love

Founders

that spend a lot of research before they

actually commit to a specific company

and then the type of research that they

do you would never Google online how to

actually do it I have a Founder that

went through a process of becoming a

McDonald's franchisee end to end the

entire process just to understand how

McDonald's evaluates franchisees for his

potential business in construction which

has some element of franchising to it

that's pretty U that's pretty smart hey

is my camera still working yeah it's a

bit

Frozen Sor right um let me see if I can

switch

it

oops okay I can also take this one okay

now you see my camera all actually your

iPhone yeah okay let's do this I see now

I know your

setup yeah exctly no but back to the

point right so he he went through this

very nonobvious and unteachable process

and I gravitate towards Founders who

have these quirks and these nonlinear

ways of actually committing to a problem

I do not very much gravitate towards F

to Founders that actually capture

um or commit to an opportunity because

hey there's some mcro writing about it

or some other space has been doing that

um now back to your question this

requires Founders that are in themselves

very nonlinear um and I wouldn't call

myself that just yet maybe in 10 years

because I I'm I'm a believer that

actually in our markets more experience

makes you successful not when you're

like 22 and I don't have kids I'm very

risk-taking um maybe in 10 years I can I

can tell myself that but right now the

people I gravitate towards are better

than me in that regard and uh on a

like basic principle uh if the founder

is trying to go that pushing that hard

to be obsessed about the problem trying

to understand through the research part

does it give it

uh indication that no matter what

they're going they're ready to go to

extremes to to make the product

successful

and I think there there's that in my

taste um

but it's also that I have found that

Discovery leads to optionality and

optionality leads to long-term success

if you cut the discovery short you will

never reap the benefits that optionality

creates for you and if a Founder cuts

the the discovery short already before

they founded a company how can I expect

from them to actually have a very strong

flywheel of Discovery as they do

business so these Founders run the risk

of then constantly just narrowing what

they are doing too early or repeating

what they do too early um I gravitate

towards Founders that are masters of

Discovery because of all the benefits of

optionality that it that it

creates I see I mean because face it

right so the the the startup Journey

over 10 plus

years Myer you and I we cannot predict

what is going to happen in seven years

in the market regulation whatever these

things can move against you which by the

way this is something that we not said

so we not said hey you you control three

or four out of 10 things and three or

four out of 10 things you don't control

and but the other two are just luck and

that's exactly true right which means

that if you can't if you can't control

like 60% of the factors that could move

against you over a 10year lifetime of

your company sorry lifetime of you being

the founder of the company before you

maybe realize the exit that you want

then you need to have an exceptionally

strong discovery engine that when the

things move against you you not only

know that they are moving against you

but also what to do and what optionality

you have in your quiver in order to

react to it that's why this discovery is

so important to me I yeah lots of in

Juicy inside there uh so yesterday uh I

was reading call for ideas uh and they

changed to call for curiosity from South

Park Commons another like big BBC firm n

YC also publishes uh call for startups

if you were to uh have something similar

call for ideas for AC or construction

Tech what would you

say put you on the spot uh are you

asking me about hey what do I think of

the process of doing something like that

or are you asking me for the ideas ideas

actually what are some opportun of

building actionable ideas is is all this

podcast is a

okay I I do have them but I

with uh approaching it that way for the

reasons I mean one one one of the

reasons is what I just explained just

how I think Founders should actually

discover and fall in love with their um

opportunity the other is for me as an

investor I can diligence ideas without

the founder to a certain let's say

altitude of whatever it is 10,000 feet

but the founder does way more diligence

than any investor in the early stages

250 customer interviews injecting

themselves into totally quirky

experiences um and doing things that

other Founders wouldn't wouldn't go to

to these lengths including the investor

because as an investor in the end um I'm

in 10 companies not just in one right

and so there's a little bit of that um

which means that for me I I can tell you

let's say ideas but they are not as

validated as they need to be for a

Founder to actually say hey you know

what that makes makes sense

um so that part I I I struggled a little

bit with but I'll tell you what I I

don't understand

why I'll be a bit cryptic so I won't say

what the idea is I'll just be a bit

cryptic so I don't understand why

construction robotics

companies

um why is there no systems integrator

for construction robotics for

construction sites I I don't understand

it because it makes a lot of sense to me

now what you make with that uh let's see

okay give me two more of those areas

like

um we've had a lot of success with

crossbo Cloud manufacturing or crossb

marketplaces um and um let me actually

give you a number because I'm not sure

people actually realize just how

dominant India is as a cloud

manufacturing Powerhouse

uh in construction Tech so my partner sh

he let the Original Seed round in zetor

um zetor is a company that has scaled to

billions of annualized Revenue and 700

million and sorry zet work is based out

of India Indian Founders Indian team

founded in

2018 um and it's one of the three or

four companies in the same scale

alongside infr market and our

portfolio um that that have just done

tremendous zetor does 700 million annual

revenue in the United States did you

know that whoa didn't know that right

and that is with us manufacturers and

Mexican manufacturers and a little bit

of export from India so it's not like oh

we're exporting onto the US from

India nor it's literally they're

applying the same model domestically and

within the American hemisphere

um what that means is the crossb

manufacturing model it really works and

I was going to say a year ago there was

a really maybe it's still there if you

want to dig but a year ago there was a

very strong opportunity for a great team

to actually build a similar type of

value proposition for the Latin to

America manufacturing base um I was an

angel investor in a company called Prima

these are the CLA Founders amazing

Founders um and they are taking that

opportunity but that market is so so big

um you know there might still be space

for someone else to do something like

that I'll give you true not three how

about

that nice you want to know interesting

Insight so I'm in bangal the Silicon

Valley of India there is a big big like

second generation startups who are like

built from India for us and there are

like sessions on GTM strategy sales like

and even having like a recipe or

Playbook of how much should you sell

your sales team in us and represented in

India and like

that's

so I I I fully subscribe to it right I

mean and and Sh and I you know he's been

educating me also on how you know big in

infosis is TCS T our consultancy

services right I mean they

powerhouses yeah okay

so do you have any like update on the

thesis of outcome as a

service any update on it yeah like uh

you you osed any validations are there

any things that that

changed and so across the value chain

tons of validations I would say the the

least validation and one of the highest

convictions I actually have is for the

planning and design phase so we can

double click on that but before that

I'll give you a few examples so in the

renovation stage for example my

portfolio company enter in Germany it's

the European market leader for doing uh

audits for energetic renovation and the

audits are very important because they

capture this physical the physical

substance and you require the physical

substance more so than the energy

consumption actually in order to design

the perfect Merit order of the energetic

renovation measures sometimes it's the

windows first sometimes it's

installation first sometimes it's a the

roof first and then at sometimes maybe

it's sayy you should just put a PV on

your roof and so you need to do that and

so this is a business that has

absolutely

mindblowing uh acvs per audit um and

down stream it handles the installation

through a Marketplace um and and you

know potentially some financing

mechanics which are not allowed to

reveal but um potentially so and and

that is a model that is powered very

much by software their software is

impressive but they don't sell the

software right and why should they

because the acvs are so good they have

software like gross margins um on the

product because everything is automated

because the acquisition funnel is

efficient now um it's so these types of

models which we call outcome as a

service I expect to see more and more of

them all over Venture but even more so

in our industry because our industry

rewards track record um it is typically

a project industry not a volume industry

it doesn't reward standardization as

much it more rewards because of the

project nature uh more rewards track

record and the ability to deliver

project by project by project and that

is one of the reasons why we have a

subcontracting model over you know this

this industry so much and that gels very

very well with Founders actually going

after the outcome as a service across

the value chain construction sites I

mean just look at construction sites

there's outcome as a service everywhere

it's called subcontracting right so it's

a trained muscle it's a procurement mode

there's a governance behind it there's a

buy Readiness to it in the planning and

design phase the same model obviously

also exists because we have outsourced

Consultants you're a trained architect

you know exactly what I'm talking about

um we have outsourced Consultants that

do specialized work for for the main AR

architect um or the architectural team

Etc um but I haven't yet seen at scale

um a startup that actually addresses the

planning and design phase with outcome

of the service but I have seen a few

blooming uh let's say seats that that I

have seen uh also in that phase for

Structural Engineering reports and

Structural Engineering designs for

example for MEP designs out of India

pillar Plus for example has pivoted to

such a model um

and I heard this is unconfirmed I

haven't heard it from the founders this

is just me Grapevine that kovot tools um

is actually moving to such a model so if

true I would take that as a big

validation of our thesis that's

amazing uh I was uh

reading uh a blog post from F uh

Foundation capital and they are big

on like initial the era of software

where and then you need a human to like

train and use the software and replacing

that with a system of agents and whole

workflow uh How likely you think uh AC

will have like bunch of Agents

or uh is there a future or there is like

it's a bit overrated hyped of AI agents

for our industry I think both of what

you said is true I think it is overrated

and overhyped in the short run

um and it's probably very true in the

long run that's how I'm approaching it

um and there's two perspectives here how

you can be excited or not excited about

it one is the customer perspective and

the other one is the investor

perspective both of which are important

in my um in my mind from a customer

perspective I think there's so much to

be excited about when it comes to um a

gentic AI in our industry because it has

the potential to actually truly take

away mind like like mind numbing tasks

tedious tasks and and the job of let's

stick with the architect and that

profession for a second I mean the sweat

shops of

architecture um they could literally go

away and it would Empower a lot of

Architects to become their own bosses

that today maybe have to sweat for

someone else I mean there are 600,000

architecture firms in the entire world

on average 2.5 FTE but a bunch of them

have you know 10 100 or a thousand why

shouldn't with agentic AI everybody

become their own business owner there's

no reason I can uh I can see in fact

that's a future I would be willing to

believe more in than that the power gets

more concentrated in the a industry and

we can double click on that but that's

like like a customer perspective from an

investor perspective I find it insane

and sorry I'm an early stage investor

that's important for the context so I

invest leading preed rounds I lead seed

rounds sometimes we co-lead series a

rounds it doesn't get earlier than that

so for an investor at those stages I

find it right now exceptionally tricky

to um backf Founders that pitch agentic

AI forx um of course I'm aware of what y

combinator thinks there will be a

vertical agent for everything and you

know I think one of the examples that

they gave was like for landscaping okay

whatever right so that's their thesis

and and I get why they're having it and

I'm not even disputing that but I find

it tricky if you have to commit to

finding the one winner at a seat stage

in an in an era where AI not only

develops insanely rapidly but also it

democratizes insanely rapidly I find it

very very tricky for me as an investor

to pick the horse at a seat stage in

that time and that might also be mean

that for a Founder it could be very

tricky to make a similar bet

yeah I think like both uh point you

shared can be deep uh you know one thing

I I don't have the data but you're very

data driven and I've seen your blog post

what is the median evaluation of most of

the design startups because we know

there's like unicor and but part of my

like what I've done market research from

the number of firms

then the appetite to pay for a software

service I think like 10 to 30 mil Tam is

most of the startup but I'm like totally

off could be off but I don't have the

data to back this up um so you have to

um just contextualize one thing and then

I'll answer your question that um in the

in the early years of any kind of

startup the startup will be way

overvalued if you apply traditional

valuation metrics tied to revenue gross

margin contribution margin atda um that

is just the nature of um of venture you

can like it you can hate it whatever

it's just you know fact factual

observation whereas if you have a

company that is maybe around for 10 or

15 years that has reached a scale that's

when these valuation metrics work a

little bit better the way the early

stage metrics work is oftentimes es and

that's especially true for um design

tooling which has very high minimum

feature sets you do need to invest um

person power you need to invest time

that comes with money in order to

actually reach the minimum features set

to be customer satisfying um you will

need to build for four or five years

until you can reach that threshold and

during that time you might be making you

know no meaningful amount of Revenue

just yet um the way these companies then

get valued is hey here's an amount of

money that I feel good about giving you

because that's the resources that you

need in order to unlock the next for

example PR Milestone or the next

distribution Milestone um you are only

willing to dilute this much and when I

basically um you know multiply the two I

know sorry divide the one by the two

then I know the valuation that's the

truth now that can catch up with you

later though to your point right so once

the company then has reached the

threshold of of you know feature sets

hey you need to demonstrate to me that

you can actually distribute it and and

can reach scale in a capital efficient

way and so at that point I Val you or my

you know following investor after me

succeeding investor will follow will

will value you that way so that can be a

break in the threshold so now with that

context back to your question so in in

the design tooling that means that most

of the companies will be valued the

exact same way there are outlier cases

like Pantheon which you know I'm sure

everybody saw that that round um that

will get um disproportionately large

early rounds um most of them will

typically follow a curve like hey four

to to8 million of a preed valuation

maybe 10 to 20 million of a of a seed

valuation and that's US Dollars and

again you know I'm you can be below that

or above that um and then around a

series a it could be between 30 to 70 of

a valuation and then after that if you

have a very very high minimum feature

set like an authoring tool for computer

AED design um even the series B could

still be valued in a similar way like

100 to 150 million valuation after that

you have to catch up on B basis of

Revenue atda um the capital efficiency

of your distribution Etc so after that

basically everything becomes you know

what your business

is yeah uh like I totally get this uh

what I was coming from the perspective

of uh like revenue and like multiplying

3 to six whatever the factor you use

like the poent like how do I explain

this like I know how

the appetite for an architect to pay

$500 versus

$5,000 software and how much the

adoption rate could be so if is as per

this Theory series B is 150 million

like a lot of startups die or a lot of

startups saturate at at particular

valuation or particular Revenue that's

what I was trying to get like what's uh

like maybe 5 million AR is like where

there's a large um I

see I actually don't so um the the

pyramid or the funnel that you're trying

to ask me for mayure is actually much

much more tapered than you might think

so um the amount of uh a tech startups

that actually let's say software

companies that because marketplaces have

a different uh growth function and and

revenue means something different there

but if you go after software companies

the amount of them that actually do

reach 5 million in air is is actually

small um I wouldn't Venture a guess I I

don't want to venture a guess now

but it it's much much less than many

people might actually think um the ones

that reach 1 million I I'll probably see

a couple I don't know a couple dozen

maybe a couple hundred every year that

that reach that Milestone it doesn't

tell me much though right in um if if

you very smartly and narly pick a

segment

um and you have some means to develop

the software which it's getting more and

more democratized you you can build very

basic software today in two weeks um

without knowing a line of code um it's

not that difficult to get two million in

ARR now what's difficult is to get to a

million in ARR that actually allows you

to be more repeatable to the next 10 and

the next 100 so that part of the first

million AR is very difficult but if you

went about it as in let me just find a

very very hyperfocused Niche and I

overfit my product and because it's a

niche I know how to distribute to them

in a very efficient way it doesn't tell

me much that you have reached a million

AR and I would say that's a lot of AC

Texs that I have seen reach the first

million ARR but actually was not

repeatable beyond

that that's an interesting Insight but I

see uh we have some comments so

Kyle said ARs are essentially lawyers at

the earlier

stages uh Jordana has a

question but by the way just just

reacting to it I I like K's comment here

I like the thinking um and it's true I

think um it's not exactly my my space

but like I said I have obviously um and

as you all I have very good friends at

generalist firms and yeah they have

backed a lot of um AI for law firms uh

SMB software for law firms and I'm sure

currently there's also gentic AI um uh

being like a like a darling for law

firms um there are law aspects or what

is the nature of law the nature of law

is hey I know a bunch of hyp specific

regulation and not necessarily do I know

always the wording of it but I know

where to look it up and in what context

I need to think of it that in the end is

the profession of of a lawyer right it's

not that they have memorized everything

but they know these two things and

depending on which stage in the uh let's

say planning and design feasibility or

preconstruction process you're in I

could see how that is actually uh the

same there's one key difference Kyle

that that would come to my mind here um

the lawyer has insane repetition and

frequency on the same task in the early

design in the early stages of the whole

AC process feasibility planning design

preconstruction my experience has been

with Founders that address that that the

same task or the same workflow would be

done by an architect for let's say a

week two weeks three weeks four weeks

after that sorry uh task closed moving

on to a different task that requires you

to different to to do different things

maybe there are firms that are like hyp

specialized a AE firms that are hypers

specialized where the architect would

only do that but on different projects

then I think it would be very comparable

and the metaphor is very up

that I see and we can also maybe address

this

uh qualities or strategies that stand

out to you uh from a Founder's

perspective as an investor in aec space

what specific trades approaches or

decisions make a Founder a startup

Vision compelling enough for you to

invest yeah we did indeed cover it a

little bit at the top of the

conversation um but just just to

summarize so I'm gravitating towards

Founders that are super quirky that that

do nonlinear things in order to discover

and that commit a lot of time to

actually discovering something and this

is only indirectly connected to your

founder question but but it leads you

back to the founder that that I

gravitate towards and that is I look for

hidden and spite of obvious markets I

look for markets that actually no

generic founder ever wants to look into

because oh it's so difficult or oh

there's no overfunded overhyped company

in the US so why should I commit my time

to that all of these Founders that look

for like copycat type models don't

interest me what what I'm interested in

is actually these opportunities that you

know I don't have to compete for a

number of years after I started and if I

keep my mouth shut which my portfolio

companies for the most part when I do do

the first race with them actually choose

to do um not because I tell them but

because they find a similar logic um

then you can build a little bit in

without too much competition don't

giving your customers too much you know

substitution Choice um Etc that has a

lot of advantages so that's why I

gravitate towards Founders who have the

same like appetite and taste I see uh

from 2024 like if I were to

ask what are the most saturated space of

ideas you have been pitched and what are

a spa space where there were not much

Founders but you wish there were more

Founders uh two of them actually um so

one is onsite reality capture and I

don't mean um scan to Bim because

actually the two Bim pipeline is still

an unsolved process um and and problem

but the the onsite reality capture it's

like vastly uh saturated and you can

actually see it in the number so we

publish here at foundamental um what we

call the AE Tech internet index you can

find it at ACH intern index.com and what

we do is we analyze the web traffic of

the um I think it's currently 150 most

funded a te startups I think on average

they're above sorry at minimum they're

above 25 million of funding I just have

to make a cut off somewhere it's

completely uh what cut off point and so

we analyze the web traffic and what you

can see is that open space is insanely

dominating um the on-site reality

capture but as a category as a whole

it's not just open space but

there is the category in itself gets a

lot of adoption um you know traffic from

customers and I see it also in pictures

I see it when I speak to my um you know

friends in the ecosystem in in the

network the corporate so that's that's

one space and that's great because we

need these examples of spaces also

saturating and then uh potentially

consolidating um and and by the way that

that is one thing that I wish

construction is going to create so

construction Tech AC is going to create

is like consolidators that would be

fantastic for a lot of Founders that

maybe found companies that are just very

very good not all of them can IPO so

having Mega consolidators is going to

create uh great pool of liquidity so

that's one and two um the whole

feasibility

um process has a bunch of companies that

do generative design and and generative

capabilities in order to allow for

example developers quicker assess the

potential

um certain spaces Lots Etc it's my I

would say if I really went through my

all of my

notes I I would probably find 50

companies doing something quite similar

in in all of the space and and look I

get it every founder you know hey I'm

differentiated I do things differently

and sometimes all you have to do better

is distribution it doesn't always have

to lie in the product I can say that by

experience um but to your question it is

one of the most saturated

spaces and nonsaturated or like

opportunities where okay it maybe it

ties back to you're already

asking yeah yeah it's like okay uh any

stories

of a deal you said no to and later like

you regret it later regretted it

um it might be open space actually so my

partner Adam wanted to do open space in

early 2019 we're you know uh very very

good terms with Jon I think Adam Adam

would also call Gan a friend um and U

you know we had just done the Hol

Builder investment um from uh from

someone else on the team and so Jan was

not entirely comfortable with us then

also coming into open space although we

did make an offer um so it was not

technically a know from us it was

technically more like hey guys you know

let's Maybe stay friends um so that

could be something that I that I regret

um other than

that I would have to think about it the

thing with regret is so for me it's only

regret when actually I do have an

example we passed on the very very first

round of infr Market the preed round um

and if we had made that investment then

I could buy a soccer club

now damn

that hurts me listening to it yeah I

we're we're fine we're well off but but

that would be yeah not an order of

magnitude but almost l i see amazing any

tips

on from all the uh things you see from

your Founders on distribution hex

anything you would like to share I love

that you that you asked that um I think

the number

one observation that I have is that

Founders over obsessed with product and

they under obsess with distribution um I

like uh it's a metaphor I made up I

don't know if it makes sense to anyone

but me but I'm I'm using it still uh

until someone tells me to you know

Grandpa shut the

but so the metaphor I'm thinking

of is always this right so your product

is a key to a lock in a door the

distribution is how many doors with the

same lock you can actually produce so

your product if you can only find one

door for it actually is not very high

value it doesn't matter how much time

you sunk into it how much you love it

how much the one customer tells you

knocked it out of the park in the end if

you can't Manu Mass manufacture the

doors coming to you with the exact same

lock that your key fits in you don't

have a big business and a business in

the end is only three things it is a

product sold to a customer in a channel

and all of that needs to be repeatable

it can't be hey every time I need a new

type of a customer or every time I need

a new type of a channel that's not a

business guy

so Founders uh and I think honestly the

VC industry is is to blame here because

um or at least partly to blame because

VC's write so much about obsession with

product Etc guys you need to be very

good at your product but only just as

good as your customer needs it

especially in a tech but you need to

nail distribution that is literally the

difference between 1 million and 100

million the product is not the product

will evolve as you go as you distribute

you will discover you will create

optionality customers will if you have

the track record and and what we call in

German the barn smell that's actually a

good thing but it means that hey I have

a right to be in the room and people

take me seriously if you have that

customers will tell you what they need

in the product and your engineering team

if you made it to that point will be

fantastic but the distribution is what

actually gets you from the one to the

100 and Founders under obsess with it

the hacks now um that is very context

specific Myer I um I I couldn't tell you

um one that is universally applicable

but I'll maybe answer with an example so

I have a um company that I have a

relationship with that builds software

for contractors and these guys for the

most part tried the distribution the way

that you know most of venture would

teach you to do it and then say let's

play online let's you know open the

marketing valve and then good things

will happen what these Founders

discovered later down the line um and

and you know in hindsight they said hey

you know I wish I had a to you and done

it earlier is go offline go to the trade

fairs go to the exhibitions go to the

community meetings go to the association

meetings um make sure that maybe you you

uh get a pizza truck uh to a

construction site and socialize with the

people there build a network of um

offline sales agents that actually down

the doors on the construction sites

again this in the context of contractor

software type business um and once they

did that all of a sudden the airr grew

very well and much more efficiently so

it will always be context specific but

what I can say is that usually the

things that work in other sectors with

distribution they don't work in

construction construction has its own

quirks and thus needs the own quirky

distribution yeah so uh any do you have

any opinion how long should have found a

let sales should be until they H like a

sales like very long that is my very

strong conviction actually um so in the

end I think it was Sam was it Sam Alman

actually who said one or two weeks ago I

I don't listen to Sam very much but but

this one I really really like because it

correlates with my you know my

experience and things that I have grown

convicted of and and he said hey if you

do your job long enough at some point

everything becomes a sales job and that

is true actually the most successful

become the more you grow in your career

as an employee or you become your own

business owner SL founder um your job

becomes more of a sales job it can be

fundraising it can be hiring SL

recruiting and it's going to be selling

so that's one reason two um the

discovery engine that I was talking

about earlier becomes worse and worse

the more filters you build into into

your organization so um things will

naturally get filtered and sometimes

they get over embellished depending on

you know k capabilities in your team

incentive systems the the larger you

grow become a little bit different in

your organization and so filtering an

embellishment happens and so the more

you remove yourself from the sales

function um the worse it actually is I

used to work when when I was employed I

used to work for for a CEO of a large

Fortune 500 company managing 20 billion

in annual revenue and this guy made it a

principle that he would actually fly 46

weeks in the year from country to

country that his organization was was

doing business in and he would meet with

manufacturing is as well as with

customers directly and he would cut out

the middle management that's what it

takes and so in my opinion founder let

sales never

ends that's a good one

and one thing I like heard from like

Paul gr that Founders should do things

that don't scale any stories uh you have

to share or do you believe in

that um I have an anecdote from today so

I I got a monthly update from one of my

portfolio companies which is building

software for Enterprise contractors um

they raised a preed round probably in a

few months here they will do I think a

very good seat round it's early um which

is exactly to to your point and so um in

the monthly update they were sharing

several customer wins and they were also

sharing hey these two customers we

thought we would convert them but we

lost them after a POC um and here's why

so I was then getting on the phone with

a founder and and I told them hey at

this point you you could very simply

avoid these uh conversion fails if you

repeated only the ones that already

worked because you know how to describe

them you know to find them they did they

do a very good segmentation the problem

with that is your Discovery stops so I

said actually we're at a point where we

don't want to cut out those non-con

conversions at this point because in the

end um contrast is only visible when you

have light light is what throws Shadow

if I take away my wish to see the shadow

I will never find the contrast so that's

a metaphorical way to describe how I'm

thinking about this so in the early days

you want to do all those things that in

the end turn out not to work because

that's what tells you what you should

repeat well I think PG meant in the

sense of like uh distribution or like

doing like extreme things no it could be

everything that PG so PG meant sorry I'm

I'm putting words into his mouth but

that's how I interpreted it always when

I read his quote

so I always interpreted it as and by the

way Zuckerberg is also saying the exact

same thing is hey you know it could be

in your product that you actually build

in features there that that don't work

it could be that you actually change the

um uh the shipping process of your

engineering team that sometimes doesn't

work it can be in the distribution right

so anything about your organization in

the end needs to have a scale function

right and so in order to find what the

scale function is I need to see the

shadow of it that that's at least My

Philosophy with my Founders is need to

figure out the unscalable part in order

to know what I want to repeat that

that's one of the ways how I interpret

this I see do you go to any conferences

in AC zero not not at all no but you

knew that answer didn't

you it's for people who might want to

catch you in person and Pitch I don't

know so I'm very easy going okay so

here's here's a here's a personal fact

so the the reason why I don't go to

conference that there's multiple reasons

one I don't like to trouble very much

I'm not you know I have no uh fear of

flying or anything so it's just I'm a

hermit and when people interact with me

on a business basis they oftentimes

don't believe me when when I tell them

hey my private life I'm an introvert

like like I'm I'm very very much just

you know good with my wife my dog and

you know our little family you know both

mothers that that are still there Etc

sister brother um but I I like to spend

time on my own and so um when Co hit

um uh over here it was February 2020

when it really started to hit um we all

had to go our ways to the Home Offices

Etc and for me that was a pivotal moment

where I realized hey actually um my

relationships got better not worse and

my job got um uh I got better at

decision making and I realized that

because in the end my my job is is

nothing but decision making and and I I

reap the fruits of my decision or or you

know I the the bad outcomes of my

decision- making a year or 10 years down

the line um which means that and I have

imperfect information which means that

the decisions that I make um I they do

benefit from my time to acquire

information and process information the

more I sit on an airplane the more I

spend time at let's say marketing events

um Etc that don't contribute to me

actually having time to acquire or

process information the worst My outcome

of the decisions that I take today will

be in five or 10 years down the line and

that is very very difficult in my

business because I don't get to repeat

my decisions right so for me I literally

like take maybe six of these decisions a

year three Investments maybe three

follow on Etc I better nail them right

and so for me that's what what I

realized during Co when I was forced to

actually not travel anymore Etc I felt

like hey my decision making gets better

and that's why I so far I've Stu with

this that's a very interesting take I I

don't think I've ever shared it with

anyone so yeah like you're cutting all

the noise not even not even like sity of

finding something but hey I do host

Founders in my home so last week for

example I had an Australian founder come

here and and we spent the whole day so

it's not like I don't do it it's just

I'm a different way yeah yeah I see uh

anything um on the lines where

I was comparing like there are other

acvc I won't name but they have like

cohort based early stage you are also in

Pre preed is there a reason you don't

have like cohort based startups on

boarding or

like like a batch like a batch of 10

startups funded in know like summer fall

like YC

type okay

um oh now now I need to uh stay

disciplined not

to go too far uh

okay I didn't think it was this

difficult but

okay

um generational companies do not

repeat and generational companies all

have their own

ingredients um and they can literally

come at you at any given point in time

they do not follow schedule so if I want

to be the supporter of the most

generational companies with the most

quirky ingredients I need to have my

business open

247 um and I don't have to create an

artificial schedule for Founders to you

know tell me their story and their

Ambitions so I would say

that's yeah that's not that's a but uh

what if uh in the cood a lot of people

sometimes also benefit from other start

tubs how they are approaching sales or

how they're figuring out distribution so

that uh the how do you encrease that

within your portfolio yeah so I think I

think that's great I just don't think

you should give away equity for that um

quite personally um because the

liquidity of great experience and

competence um in most it's not true for

all but most of the Venture markets out

there definitely like West Coast

definitely New York uh definitely you

know London Berlin Paris definitely

Bangalore um you you don't need to do

that in order to Foster the same

experiences you can literally get on the

phone and try to network uh your way

there and and that's what my Founders do

and I open doors for them um we do host

um ways for our Founders to interact

with each other I don't want to give it

away too much because a little bit

behind the doors how we're doing it but

that is something that is very much

appreciated that being said I I think

you should never rely on the family that

you're part of only I think it's very

important at least that's something I

can encourage Founders I work with hey

you know this is only one of your family

you have other investors that have other

families you have fames outside um so so

never rely on the one and I think you

know anyway that that that's something

that feels very instinctive to to to the

great Farmers anyway I see and one of

the uh I wrap

up the interview with this last

question do you have a meeting or I can

no just letting my

so but but we'll finish this one strong

uh sorry for

that it there's a perception that if

once you have give Equity to investors

they'll like dominate The Vision or like

control the

directions and like things there are

stories where Founders and VC split

apart because uh they want something

else so how do you conduct your like

founder update meetings what are your

expectation how to impress Patrick like

what is the

metric I actually don't know how to

impress me I I don't know and I don't I

don't I don't I don't think that's what

anybody needs to strive to um just find

find the people in your camp that that

you know will make you great and if if I

can be one of those that's fantastic but

there will be other people in your camp

that so just on that part so on the um

um I think if you have a f if you have

an investor that tries to influence and

control you are already in for a very

very tough ride and unfortunately that's

a mistake that that you might have made

um because the the problem with an

investor like that is and I see it with

former Founders more so actually than

with investors who weren't former

Founders um is that these investors

would be making decisions with 100 to A

Thousand Times less information uh than

the founders so how much more likely is

the investor to actually know better

than the investor not very um in fact

that investor would be very likely not

to have better decision- making

abilities just because so much more

nuanced information is missing that's

how I conduct I founder update meetings

or the few boards that I'm a part of is

um it's 95% listening um when I get

asked I typically respond with a

question or an observation sometimes I

get forced for an opinion and then I

would say hey guys look this is really

just an opinion some of it is

speculation it happens the fathers that

work with me longer they do that less um

people for some reason they crave for

opinions where they should really crave

just for informed facts and observations

um so that's one and then every now and

then when I see there's a topic on the

table that I really have experience like

fact-based experience that that relates

here that's when I will actually then

unmute myself and and say something

again starting with an observation Etc

and what happens a lot with me is

actually that that people will ask me

for an opinion in in these update

meetings or board meetings and I say

sorry I don't know I have no competence

I'm I'm better to shut up because the

worst thing and I absolutely hate it is

in general in life people who don't know

their boundaries and when they should

actually shut the up and I hated

the most in in VC so when they actually

influence decision- making when they

should just not really have any opinion

that's something I absolutely cannot

stand and luckily the best founders they

will never fall prey for it so that's

fantastic amazing yeah because it some

somehow it feels like doubling growth

every year or 20% every month it creates

that mental pressure on a Founder once

you got the VC money and then some

people like take it oh I'm not enjoying

as I used to be because of this external

pressure so I just wanted to clarify I I

don't I don't have a single relationship

with Founders um that ever worked like

that um I'm more a person that tries to

help with the fundamentals of the

business and to be fair it's easier for

me to be that way than for a serious a

investor because in the stages where I

invest with my first check um and most

of my relationships are it's not yet

about hitting that uh AR growth Etc it's

more getting the fundamentals right and

discovering the right things creating

the right optionality Etc it's a little

bit more difficult to do that when

you're a serious B investor so at that

point you're closer to private Equity um

and then you know some of the things

that you describe take

over amazing Patrick it was lovely

hosting you lots of Amazing Ideas and

insights uh as usual I had a great time

hosting you thaning you thanks for