Great Founder or Great Market?
Paul Smyth joins me as guest co-host for a rundown on the state of VC investment in European tech, stablecoins vs. CBDCs and the 'great founder or great market' debate
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More Media & Events
I’m taking a break from additional media and events for the next few weeks while interviewing over 100 founders alongside some Techstars colleagues, mentors, and investors to build the Techstars Web3 class of 2024. Don’t worry though, we’ll be back in 2024 with more virtual and in-person events to bring to life the topics we riff on! 🎸
This Week’s Podcast
Money Talks with Paul Smyth
Paul Smyth joins me as guest co-host this week, and he is a specialist executive recruiter and executive coach within the fintech industry. As a founder of two startups, Paul has a unique view of startup ecosystems.
Paul and I met back in 2017 shortly before I photo-bombed his stand at a fintech event in Dublin, and we’ve collaborated quite a bit since then. He and his business partner and life partner Laura Smyth from Top Tier Recruitment were the original sponsors of MoneyNeverSleeps back in 2018.
Since then, Paul and Laura have also launched the Possible Coaching business that counts me as one of their proud customers. I was so happy with the outcome of Paul’s coaching of me that I asked him to coach the founders that we bring through the Techstars Web3 accelerator. As one of the many hats he wears, Paul is a fantastic Coach-in-Residence for Techstars, helping startup founders find their way to positive outcomes.
In this Money Talks segment, Paul and I kick things off with a look at the recent “State of European Tech 2023” report produced by Atomico, the on-traditional European Venture Capital firm. We then get into some of the key issues at play with the proposed Digital Euro, and how Central Bank Digital Currency (or CBDC) adoption may be impacted by the context of privacy in personal financial transactions. This leads us to a rundown on SocGen’s new stablecoin listed on the Bitstamp exchange, and we finish with a big question on what matters more in startup success: great founders or great markets.
What did we cover?
Great Founder vs. Great Market debate
📰Reid Hoffman on the Psychology of Great Founders (The Generalist, 5-Dec-23)
Let’s go last thing first this week!
Way back in 2019, Eoin Fitzgerald and I decided to deviate from the weekly interview-style episode with something called the ‘Money Talks’ segment, during which Eoin and I would riff on 4-5 recent news stories that resonated with us. The spitballing we ended up doing during these episodes on particularly thorny concepts like flywheels and ‘rundles’ helped me to craft some heuristics I still rely on today for how I invest in startups.
Lo and behold, Eoin couldn't make the first Money Talks session we prepped for way back in 2019, and Paul Smyth jumped in at the last minute. This became episode 65 in November 2019, and the rest is history, as we’ve done another 70 or so episodes using this formula. It also seems to be a great way to bring on new guest co-hosts, as all I’m asking folks to do is bring two news stories to the table that resonate with them, and we riff on those with a couple that I pick out as well.
As I didn’t share this one with Paul before we recorded, I surprised him with my question inspired by Mario Gabriele’s recent post in The Generalist newsletter. The way our conversation played out points to his experience as a startup founder and as a coach of other startup founders (in addition to executives in mid-sized and enterprise firms). Here’s how it went down:
🔎Mark Andreessen said back in 2007 that great markets rule all, and that you can have a mediocre founder in a great market that grows an incredible business, rather than having an incredibly brilliant founder in a mediocre market.
In a great market—a market with lots of real potential customers—the market pulls product out of the startup. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter—you’re going to fail.
Mark Andreessen, ‘The Pmarca Guide to Startups’ (2007)
❓I asked Paul “You've fought through mediocre markets. What do you think wins out, a great founder or a great market?”
“For me, I’d back a founder more than a market, for the long term. If you have a really good founder who's naturally gifted and works really hard, they'll do better in a down market, but they'd also do better in an up market. If you have a mediocre founder, they'll do well in an up market and if you're investing in them and you get in early, you'll make money off them for sure.
“But when the market starts to turn, the cracks will start to appear.”
❓I pushed a bit more, by commenting that I’m always on a quest for fantastic founders, and Paul had this to say:
“But it's not just the founder, it's got to be the team. There are not too many solo founders out there.
“That team piece is just so important and it gets really hard because the pressure is insane, and people want to go in different directions. Accountability and communication and all of those soft skills come into really sharp focus as you start to go through the tough times.
“You want someone who can work within that team but is almost that natural leader of that team as well.”
🎙The ‘natural leader’ part caught my attention - when I jumped into the wild of Startupland back in 2016, one of my big eye-opening experiences was that not all startup founders are fantastically wonderful, charismatic leaders. There are very few of these people in the world.
❓ So I asked Paul this: “Can one great founder build a fantastic team and have the emotional intelligence to be able to keep people moving through thick and thin, through the ups and downs, the great markets, the mediocre markets? Yes, it takes a team, but is it still that one amazing founder?
“One of the other things that I would commonly see in great founders is the ability to know when they need to bring in help to let go a little bit. As a founder, you’re able to identify your own blind spots and be honest with yourself about ‘I'm good at this, but I'm not as good at that, and I can get the business to a certain level, but I can't go beyond that. I need to bring in external help.’
“Whether that's a new CEO and you step into a position as a head of a different function, or you just stay in your lane and focus on the area that you're really good at - either way, that's so difficult for founders to do.
“I see it on the recruitment side in particular - a couple of hires that we've made externally for clients in that early growth stage, they haven't worked out. The commonality has been not that they've hired people who couldn't work in a startup, but because the founder couldn't let go of the thing that they've been doing for three or four years.”
👉 Listen in for the rest of the debate, it starts at about 34:00 in this week’s episode (242)!
State of European Tech (and European VCs)
📰European tech funding halves to $45 billion, back to pre-Covid levels — but AI is a bright spot (CNBC, 28-Nov-23)
📰State of European Tech 2023 (Atomico, Nov-23)
After a back and forth on what to expect from bitcoin in 2024, Paul and I dove into the key points in Atomico’s fantastic report, and added our own thoughts on the state of European venture capital. Here are the key findings, verbatim from the report:
Investment levels have dropped globally
“The market reset is not a solely European concern. The projected volume of total investment in 2023 is expected to equal less than half of the investment seen in the peak year of 2021 across every global region.
“Europe outpacing US in new tech founders despite global slowdown”
While there is a higher bar to enter entrepreneurship today, annual volume of founders starting new tech startups in Europe exceeds the US, and has done so consistently for every one of the past five years.
Ecosystem value bounces back to $3 trillion
After $400B in value was wiped from the ecosystem during last year’s downturn, public markets have rallied to bring Europe’s value back up to its historic high.
-Atomico’s ‘State of European Tech 2023’
🎙 “Embrace risk, shape the future” pretty much says it all.
There is a common perception that European VCs are more risk-averse than their US counterparts, and personally, I think this has something to do with the cultural diversity of Europe. With so many cultures and languages combined together into one geographic region, we end up with a far more heterogeneous investment landscape in Europe than the more homogenous US market.
In a nutshell, European VCs do embrace risk, it's just in smaller pockets of risk that are centered around these domestic hubs of activity and you don't see the bigger check writers at scale at the earliest stages. You're seeing a lot of the smaller VCs writing smaller checks at the earliest stages, but the bigger checks are going to those at Series A or Series B level, not pre-seed and seed.
Given how many domestic centers we have sprinkled around Europe, each a hotpot of startup activity and investment, we have a fragmentation of VCs as well. One of the biggest mistakes I see founders make in Ireland is trying to pitch to seed-stage VCs for their pre-seed round. However, with the relatively low volume of startups coming out of Ireland versus a US region like New York City or Silicon Valley, it’s not economical for the local Irish VCs to split themselves into ‘pre-seed’ and ‘seed’ investors - they’re all just ‘seed’, but might do a bit of pre-seed.
Many Irish startup founders either aren’t aware of the structural difference, or don’t care, and a lot of them end up beating their heads against the wall trying to raise a seed round from Irish VCs for a pre-product / pre-revenue proposition. This is why I hint to founders building their investor pipeline that they’ll quickly end up targeting investors outside of Ireland when they aim to build a pipeline of 100+ investors (which they should do).
I’ve got to expect that this trend is similar across other European startup hubs (bar London, but which is naturally conservative anyway). What we’re lacking in Europe are the pre-seed investors investing across geographies in multiple European ecosystems, as so much of European venture investing is local compared to the US.
❓Is it more feasible to invest at the pre-seed and seed stage level across the entire US because it’s just one country, compared to investing across the 28 countries in Europe plus the UK? Is a pan-European pre-seed VC at scale the best way for European VCs to ‘embrace risk’?
Those are a couple of good questions for an upcoming episode!
Stablecoins vs. CBDCs
📰Fiery Public Hearing on Digital Euro Sees Experts Diverge on Key Issues (CoinDesk, 28-Nov-23)
📰France’s 3rd-largest bank, Société Générale, launches euro-pegged stablecoin (Cointelegraph, 6-Dec-23)
I have not been a fan of the concept of central bank digital currencies (CBDCs) to date because the assumption is that central banks will be operating private blockchains as the rails of a CBDC, and to me, a private blockchain is no different than a centralized database.
A centralized database of an entire economy’s retail spending, investing, borrowing, and lending just seems so preposterous, both from a scale perspective and that of privacy.
However, if central banks license their to-be-developed CBDC technology to commercial banks, that might work, as most people are already accustomed to commercial banks safekeeping their data.
Beyond this, a thought occurred to me when catching up with Mai Santamaria a few weeks ago. If Europe is the “Land of GDPR” and preservers of privacy, then how could the rails of the proposed Digital Euro be anything but a decentralized public blockchain, optimized with zero-knowledge privacy?
👉 Listen in as Paul and I dive into this meaty topic, it starts at about 16:00 in this week’s episode (242)!
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