Earlybird Venture Capital | Interview with Ciarán O’Leary
Ciarán shares some further insights on the due diligence process of Earlybird, the investment focus of Earlybird, and gives some valuable advice to entrepreneurs.
Interviewer: Hi. Today we are in Berlin with Ciarán from EarlyBird. Ciarán, whow are you and what do you do?
Ciarán: I’m Ciarán, I’m a venture capitalist at a firm called EarlyBird. I’m a partner there. We invest in early stage internet companies mainly in Berlin in the sense that it is slightly north of 50%. But we also invest all across Europe.
Interviewer: What did you do before you started working in the VC industry?
Ciarán: I probably have the worst possible background you can have as a VC. For a year before I became a VC I tried myself as an entrepreneur, wasn’t very successful, I think that’s the good part. The bad part is before that I was at a very large private equity house, and before that I was at an investment bank working on big transactions. And it turns out that venture capital, working with entrepreneurs, is really not about transactions, it’s about relationships. So I literally think that I may be seen not because of what I did but despite of what I did. But, hey, I’m here.
Interviewer: So if somebody would like to start working at venture capital fund, don’t go with the IB / PE route but more go to the entrepreneurial route.
Ciarán: Definitely. I think if you had to do something like that, you’d rather go to a consultant firm where you just think more holistically about things, but doing operational things, working for a startup, trying yourself as an entrepreneur, it makes you just appreciate so much more the difficulties and the mechanics of how things actually work. And it’s important, because if you’re working with entrepreneurs and you want to be the sounding board and advisor and you’ve got no idea how things work, then it’s something you can address, and there’s lots of very successful venture capitalists like Fred Wilson and a couple of others that were never entrepreneurs, but it is a weakness you need to manage and be aware of.
Interviewer: You need to understand what the entrepreneurs are doing in order to assess the OPs.
Ciarán: And I think that’s why when you start off as a VC the key thing to do is to just suck up everything, spend lots of time at the companies, don’t try and be too smart, respect the entrepreneurs and really really learn learn learn, and then you can gradually become a useful VC.
Interviewer: Ciarán, tell us a little bit more about EarlyBird. Where is this VC fund coming from? You told us the regional focus in Western Europe and mainly in Germany. On the other hand, what is your business model focus?
Ciarán: We’ve changed significantly since we were born. When EarlyBird was born I was still at high school. So it was a German fund based at Munich and Hamburg and invested in pretty much all across technology, actually even invested in the US for a while. And then a couple of years ago it came up with this new strategy that we would really focus on Europe and a couple of key hubs. So Berlin and Western Europe is the real focus for us. But we also just raised an emerging markets fund. We’ve a separate team that invests in Turkey and CE, so literally all of Europe now is what we want to do. In terms of our DNA we’re very much focused on companies that create platforms, communities, networks, marketplaces that are connecting nodes, and by connecting lots of nodes they’re making industries better, more efficient, taking out the middle man, these kinds of things.
What we’re not so good at is pure e-commerce, such as buying stuff and selling it at a margin. We’re not so good at hardware unless it’s a commodity thing, and the intelligence is in the internet or software piece. I think another thing is that, with very few exceptions, we really like to back European companies, but that have a global potential from day one. So not models that used to scale country by country and region by region. You can do that and there’s very successful companies doing that, but our focus and our skill set is more to identify products that can go globally very quickly and help them do that. And then we just round up how we invest it, we’ll do anything from a couple of hundred thousand at seed stage, our sweet spot is still the series A, we will invest like 1.5 to three or four million at most. And the occasional series B where we will join with five to seven, maybe at most ten million. But we’re lifetime investors, so once we’re in and we like the company we will invest up to 15 or 20 million over all rounds until we run out of money.
Interviewer: The platform, the investments that you’re doing, do you have some kind of specific expertise that help people or companies scale maybe more efficient, maybe you have some kind of specific marketing knowledge or something like this?
Ciarán: Absolutely. We’re thinking very hard about how do we become the best product for an entrepreneur. Money is one part, but then it needs lots of other things around it. I think that the strongest asset we have is the community of people on our portfolios. We were very fortunate that we have lot of amazing entrepreneurs and lots of amazing companies, and they have lots of amazing employees, and we’re now building tools to help connect these employees across companies, around marketing, around product, around design, around sales, around organization, and we also have workshops, master classes, we’ve got a HR database, that kind of stuff. So one thing is utilizing the assets we already have.
The other thing is that because we’re a little bit specialized on these platforms and marketplaces and communities, the more you see, the more investments you make, the more mistakes you make, you get to transfer knowledge, that’s something we do. The other thing that we do is we actually just brought on board Konstantin Guericke, and he’s one of the co-founders of LinkedIn, and he’s based in Palo Alto. We don’t invest there, but he helps our European companies do business development, hiring there, open stores, if a company moves there he may take the board seat to work with them closely there. So real, credible presence in the US. And last year I think we had a pretty strong track record of co-investing, syndicating with a lot of the larger and high quality US VCs. So we bring that to the table that we’re connected to this global community. I think that that can help our companies get out. At the end of the day though it’s always down to the entrepreneur. We can only catalyze and help.
Interviewer: Ciarán, if you would try to explain to an entrepreneur how is your investment process working. So once you apply, send your business plan or get an intro from a friend of yours, etc., what is the typical process on your side maybe that they didn’t even see?
Ciarán: The first thing is I would say definitely don’t send a business plan. And, ideally, don’t even have a business plan. I think especially in Europe where we used to think that early stage entrepreneurs write a hundred page Word document, all these things and trying to kind of… Don’t. Show us your product, show us your team, of course you’re going to have some slides, ideally one, maybe ten, but keep it short, let the team and the products speak of itself. Can be a very early, alpha version, whatever, it can be close beta that kind of stuff, but we’ll get much more excited about that than like, “Ah, this makes a lot of sense.” So I think it should be tangible.
The other thing is that of course we have email@example.com e-mail address, and we read every email there, it can take a while but we get back to everything. But the world has all these tools that empower literally everybody quickly to get to anybody else in the world. So to get an introduction it does help, because it also helps us to say if this guy is willing to do this introduction then obviously, you know.
The other thing is, again, I don’t like this part of being a VC and I feel sometimes very bad. We just get so many emails, we’re so hammered that sometimes I can be very slow to respond. And it is absolutely okay – and it’s not good, I’m not be doing my job properly by not doing that – but when I don’t respond within a week or whatever it’s totally okay to re-ping me again and be like, Hey, I just wanted to float this. Oh, yes. Sorry.
And the other thing is I would say that it’s okay as an entrepreneur – I think in Europe it used to be like an entrepreneur is a very slick, business driven person – and the reality is that the best entrepreneurs are rough, quirky, maniacs, don’t have a linear profile, so it’s totally okay to be a bit like that, don’t try to be somebody else than who you are. We like working with whacky, crazy people.
Interviewer: In relation to the investment process, what are the typical thing that you look at?
Ciarán: There’s a couple of hard things and soft things. The first thing is purely mathematically, because our fund size is the way it is, we need to be involved in companies that if they are highly successful they can become companies that are worth a lot, so more than a billion, uncapped upside. The other thing that we look for is do they have the DNA to at least have a fair chance of doing that? I know everybody says it but it’s just the team. And often it’s the team, but yeah it’s also just the core founder in many cases, just the one crazy guy, so we look at that.
The other thing is we just look at your level of disruption. Are you just like another cosmetic layer, are you fixing something that many other people can fix quickly, or are you really bringing a meaningful amount of disruption to the market.
Another important thing is do you have befits of scale, so the larger you get are you creating defensible network effects, are you creating defensible structure and these kind of things. And then the other things is, is there a semi-capital, efficient, meaningful way to get there? So once things are working out, it’s okay to pile on money like there is no tomorrow to create this global category leader, but as a VC you don’t want to spend 10% of your fund. That’s why with biotech it doesn’t work for us. So I think also that there are these logical points in the business where you’re like, oh, with the A round we can actually get to where you should be at the B round. Usually of course it doesn’t happen, there’s delays, whatever, but there is that.
And then there is other aspect which I think is really important, and it is the human aspect. It’s a very intense relationship, it really can be day and night, very emotional, so do we connect on a personal level? We don’t have to be enthusiastic friends, but we need to be able to work together through good times and through bad times. And so getting a good feeling for that is very important.
And in terms of process, time-wise, it can be anything from two days up to a couple of months, depending on whether we still need to get to know each other better, we have this big unsolved thing we need to just work out, how well do we know the people that we’re working with, maybe we know them already. But usually what we find is that it’s beneficial to the entrepreneur and to the VC is you have at least three or four in-depth, personal, face to face meeting, maybe at a dinner and a beer, and really figure things out. But I think on average it’s like two to three meetings before we decide if we want to make an investment, and that can be anywhere from two to maybe four weeks. And then once we decide we want to invest, it’s just mechanics.
Interviewer: Ciarán, we always try to give some advice to first-time entrepreneurs, what are some key points that you learned over the years?
Ciarán: One is be encouraged from people. Laugh at what you’re doing when they say it’s not going to work. No great idea started off by everybody saying, oh that makes a lot of sense. So if you keep hearing that you should probably be worried. The other thing is that sharing your idea, especially in Germany, it’s very particular in Germany, there’s lots of like, ‘Oh I am in stealth mode’. Unless you’re a natural stealth fighter, that makes very little sense. The benefits you get by telling people about your idea, getting their feedback, seeing how they react, way outweighs the risk of – I mean what is the probability of somebody saying oh that sounds good I’m going to do it? It’s like zero. And what kind of idiot is that, they’re probably not going to be very good at it. So get lots and lots of feedback.
And then the other thing is that start trying, start building things really really early. Form a thesis around a minimal, viable product, form a thesis around who it should work for. I guess it’s a whole startup movement, but just get going and don’t worry too much about nailing every aspect, because nearly all great companies if you look at how they started and you look at what they’re today, it’s like how did they ever… so, yeah.
Interviewer: Yeah. Reid Hoffman made a great quote on that: “if you are not embarrassed of your product, you did not ship it early enough”.
Ciarán: Yeah, exactly, that’s true. And then it’s a rollercoaster ride, there’s lots of ups and down, even the best companies. I think Amazon raised their first seed round from like 50 angels and everybody just gave a small amount of money. So just because you’re having difficulties at the beginning and you’re getting negative feedback doesn’t mean you’re the next 100 billion dollar company. So I wouldn’t worry about it.
Interviewer: Thank you very much Ciarán. If you are looking for a great investment, maybe check out Ciarán at EarlyBird.