VC Platforms


Mark Suster has a good post on VC platforms and their approach at Upfront Ventures.  It reminded me that this was a topic I’d had in mind for this blog.

Earlybird is a European VC firm with broad coverage.  We have separate teams of Partners managing our ICT investments in Western Europe and Eastern Europe, as well as a team focused on pan-European health-tech investments.  I am a Partner on our Turkey & CEE team, based in Istanbul, where we have four Partners and two Associates in our investment team, and a Finance Manager and Assistant on the administrative side. Each of our teams are structured similarly.

As you can see, we have not taken the platform approach.  The reason for this is the breadth of our investment strategy. In our portfolio, we have:

In other words, we have a very diverse set of companies we help grow, with very different needs.  If we were to bring on a recruiting Partner, she would be hard-pressed to be an expert in both iOS developer talent and health-tech marketing.  We feel we would fall short in supporting our companies with in-house teams.

Instead, we look to establish privileged relationships with the most competent service providers in each of our focus areas and geographies, and connect them with our portfolio, as needed.  And, we feel that it’s the Partners’ job to procure and facilitate these referrals and guide our Founders through the process.

VCs and NDAs


From time to time, we come across investment opportunities where we are asked to sign a Non-Disclosure Agreement.  After quite a bit of debate internally, we have decided against signing NDAs, unless we have a signed term sheet and are entering the Due Diligence process.

Why not?

  1. We receive about 1,000 pitches a year and engage with about 400 of these ventures.  Inevitably, many businesses are overlapping and adjacent.  Trying to structurally track and separate information and NDAs relating to these would be a nightmare.
  2. An NDA is a legal document.  I would need to read and understand each one, and we’d need to run them by our lawyers, which is expensive and time consuming.

As VCs, we live and die by our reputations.  We take the confidentiality requests of companies that talk to us very seriously, and go to lengths to disclose conflicts and respect the sensitivity of the information we receive from entrepreneurs.  However, we can no un-know what we have heard.  So, when you share information with us, please keep in mind that we see many companies, probably including your competitors.

Essentially you need to decide on a trade-off: share with us the level of detail you are comfortable sharing, but also know that our decision whether to move on to the next level of conversation with you will be based on that level.

Brad Feld and Mark Suster have longer thoughts on this topic that would be worth a read.

Square IPO

squareSo Square started trading publicly today.  The tech world has been awash with schadenfreude and I-told-you-so’s, since they priced the IPO at $9 per share, below the Series E price at $15.  I have not studied the filing, but I am assuming there are preferences that protect the late investors in the case of a down-priced liquidity event.  That’s how it’s supposed to work: fantastic returns to the early investors (Series A investors are getting like a 50X return), and as the risk was reduced over the company’s development, lower returns to later investors.  The latest investors just get their money back, if they sell now.

What amazes me is that people are ignoring the incredible success of a company that has created about $2.5b of value for its shareholders in just 6 years.  Here’s the first piece of news about the company I could find.

The story is amazing. Right under the noses of payments giants like Visa, Mastercard, Amex, First Data and PayPal, Dorsey was able to build a product that was welcomed by the SMEs, and a company that is now able to provide returns to its backers.  Congratulations to all involved.

Top Tier

Power is like being a lady… if you have to tell people you are, you aren’t. –  Margaret Thatcher

Founders are sometimes faced by the question whether they should choose to raise capital from a less “powerful” (you can also insert famous, prestigious, influential, etc. here; you get the idea…) VC fund, when they have a term sheet from a top tier fund.  This, obviously, implies that the term sheet from the top-tier fund is somehow inferior in its terms.

In trying to answer this question, let’s first try to define what top-tier means.  I think the Thatcher quote above is quite enlightening for the power hierarchy in the VC world.  There are old, established firms with multiple fund generations, firms with quasi-celebrity partners, firms with huge hits in their portfolio, firms with massive AUM and firms with a history of high returns.  Each of these groups would be likely to argue that its the characteristics they possess that define a top-tier firm.  The important thing is that people largely tend to be in agreement about who the top-tier is.

On to our question…  I think the – perhaps frustrating – answer is that it depends. The team should make their decision based on many factors. One very important aspect is who specifically you are dealing with.  I think VC firms matter a lot less than the individuals you end up working with.  Do you trust them? What do their other portfolio companies say about them? Do you feel they understand your company?  Please don’t underestimate how important chemistry is in partnerships.

Another critical factor is what you need the most to get to your next milestone.  Your ideal investors, from stage to stage will vary.  You may value a geography-focused investor to help you with your new market, or a sector specialist to help you tackle certain problems.

In short, there certainly is a hierarchy of investors, but it changes from company to company, and from round to round.  Just like it’s dangerous for VCs to go logo hunting for their portfolios, it’s usually wrong for the startups to do the same.

Life of a VC

BeachI just answered the question "What is it like to be a partner at a venture capital firm?" on Quora.  I thought it may be a good idea to repost here.

The question is too generic, but i'll attempt an accretive answer.

In general, I'd say it's more stressful than it appears.

  • Return hurdles for VCs are high and many return multiples that would make angels happy do not move the needle for VCs.
  • We say ~200 NOs for every yes.  This does not feel good.
  • As portfolio companies increase, the workload begins to compound.  Sometimes, busy periods for a few companies overlap, creating time squeezes.

On the other hand, I feel I am the luckiest person in the world for doing what I do.

  • I get to work daily with people smarter than me.
  • Our value creation is a step function.  It allows us to not focus on squeezing value from the margins. That's a luxury.
  • We learn to focus on successes and positive outcomes.  A VC fund's success comes from great companies built, not from salvaged failures.

Finally, it is a role where  you have to learn to cheer from the sidelines.  Ultimately, it's the founders & CEOs who build the companies we invest in.  You can not get frustrated that you can't just go on the field and get things done.  And, naturally, the glory goes, deservedly, to the founders.

VC Fund Economics

Ss-moneyIf you are an entrepreneur looking to raise capital from VCs, it's important to understand VC economics.  This understanding will save you time and effort by helping you identify the right VCs to target and how to frame your conversations with them.

For a successful early-stage VC, the minimum expectation seems to be that in a portfolio of 20 investments, one or two most successful investments will return the fund, the next five will return it once more, and the remainder will return it yet one more time.  This gets you a 3X on your fund.  Of course, there are large variations on the distribution, but it's a good enough example to start with.

If you are a $50m+ fund, you can not assume each of your investments will return the fund (unless you are a top-tier shop in Silicon Valley).  But you do need to ensure that each one can at least return 30-40% of your fund, if things go well.  That way, if half of your portfolio goes well, you can count on a minimum of 3X.

Our fund is $150m, so we would typically like to see a $100m+ exit in each of our portfolio companies, if things go well. This math is usually behind our "no"s to founder teams, where we see a good business, but not enough size in market opportunity.


Changing Customer Behaviors Cut Both Ways

Hail cabTechnology educates.  Uber has taught millions of people to dip their hands in their pockets, as opposed to raising it up in the air, when they need a ride. has taught people to consider to the flexibility of their travel plans, when booking a hotel room.  They have influenced behavior, made things easier, and created a lot of value by gaining lots of customers.

On the supplier side, they  have become the platform of choice, primarily because they had aggregated the greatest slice of demand, in the shape of the customers mentioned above.  They then capitalized on their aggregated supply and demand, by commanding very high take rates (commissions) from the transactions they enable, leading to their unicorn status.  In the case of Uber,  a recent leak indicates that the take rate is ~20%, and at, the take rate estimate is ~%16.

One question that comes to mind is whether these high take rates will survive? The pressure is on the platform, especially as it grows, allowing it to benefit from economies of scale, and as competition emerges, to lower its take rate.  We have seen this in numerous marketplace businesses in our portfolio.  In addition, the education process I describe above, is also benefiting the incumbents who are utilizing these platforms to reach customers.  A case in point is the case of Hilton's own booking app.  According to the NY Times: 

Hilton has introduced a number of services for guests who book directly, including a digital check-in option that eliminates waiting in line. Quickly adopted by its customers, the app is now used by over one million people each month, according to Geraldine Calpin, who oversees Hilton’s worldwide digital efforts.

A million people each month is a huge number, and should be an alarm for  A company called Arrow will soon make NY yellow cabs as easily hail-able as Uber cabs.  Technology, while educating users on more efficient new behaviors, is also lowering the cost of incumbents to battle marketplaces.

My prediction is that marketplaces will ultimately earn their permanent place in their respective markets (note the pun :)), but I would not count on the high take rates to continue.


Momentum Plays a Large Role in VC Dynamics

Newtons_cradle_animation_book_2We recently passed on an investment opportunity.  What would probably be a surprise for the founders is that we were actually quite keen to invest a few weeks earlier.  But the opportunity lost momentum for us.

A VC fund constantly evaluates investment opportunities, not just on their absolute merits but also on a relative basis.  Since we have limited capital and limited bandwidth, we try to recalibrate our opportunity pipeline on a continued basis.  This may naturally lead to a shift in priorities.

Today, the VC market may feel like a seller's market.  However, my advice to founders is that when you find a term sheet in front of you, focus on keeping the momentum in the process.  You may meet lawyers who are trying to show you what sharp negotiators they are.  Coach them to keep their eyes on the finish line. 

Remember, as a startup founder, you have one objective: maximizing the probability of success for your venture.  Funding is a big factor in this equation.  So, when you have capital in your sight, don't take your eyes off of it. 


The First “Turkish Unicorn”

YsOne of the most frequent questions we got when we were raising our Turkey & CEE-focused VC fund at Earlybird, was about the small number of large exits in the region, especially in Turkey.  Our thesis was that the problem was on the supply side – not enough large startups were being built.  We contended that the market was large, and part of the problem, to which we were bringing the solution, was the lack of local funding.

Today, we have the great news that YemekSepeti has been acquired by Delivery Hero for $589m, which makes it the first Turkish internet startup exit above 1 billion TL (TL 1,596,000,000) to be precise.  I have known the company since 2008, and saw it develop into one of the healthiest marketplace businesses I have ever seen in the world.

Congratulations and heartfelt thanks to Nevzat, Melih and the rest of the team that made it happen.  Your story will become a beacon for many more talented young entrepreneurs.  Well deserved!

Marketplace Insights via Etsy


Chicago VC Ezra Galston has a good analysis of the Etsy S1 on Techcrunch today.  We are investors in many marketplace businesses (YemekSepeti, VivenseGrupanya, Idemama,, Videdressing, Auctionata, Carpooling, Smava, etc.), and we watch the industry intently, as there has been more recent value created in marketplaces than any area of consumer internet.

Galston's post is worth reading in full, so I will not try to summarize, except for one very interesting data point: that almost 45% of its revenue comes from Seller Services, compared to ~25% just two years ago.


This means that the growth of the marketplace is going to be more dependent on the number of sellers, than the transaction volume.  At first look, this does not look too intelligent: the latter number will certainly grow faster.  However, as we see marketplaces maturing, this is the way that the leader/incumbent can take aggressive pricing moves to keep competitors away.  This is observable in Etsy's commissions moving from 5+% to 3.5%.  If you are an emerging Etsy competitor, there's not enough margin for you to grow fast.

Ultimately, this can lead to marketplace deflation, a la CraigsList, which came and killed many fledgling classifieds sites with its massive traffic and free offering.  I am curious to see if we start seeing this type of defensive behavior from the modern marketplace champions, such as, Uber and Airbnb.