Bastian R. Larsen

This transcript was generated automatically (YouTube auto-captions) and then edited for readability: names and obvious mis-hearings corrected, filler words removed, speaker labels added where the speaker is clear. Passages that could not be understood are marked [unclear]; short omitted passages are marked [...]. Timestamps are approximate. The recording is the authoritative version.

Konstantin Girst 00:00:01

Welcome back to a new episode of Campus To Capital. Today, Julius and I are joined by Bastian Larsen. And actually, I think this might be one of the longest introductions I've ever made, because you're an alumni of CBS. Then you've been at BlackRock in London, Switzerland and New York. Then you're also a guest lecturer at ESSEC. You're an entrepreneurship expert at the Saïd Business School at the University of Oxford. And then you also founded your own venture capital fund called BlackWood. And then, to put it to a bullet point, you also are a Forbes 30 Under 30. And listing all of these things, I'm not surprised that you are. So thank you so much for coming on here and it's great to speak to you.

Bastian R. Larsen 00:00:58

Thank you. Thanks for having me. It's a pleasure.

Julius Ambrosius 00:01:00

Of course. So, yeah, Konstantin already talked about it very briefly. You worked at BlackRock and then decided to, yeah, found your own VC fund, BlackWood. So what really shaped your perspective on capital allocation and risk taking in that regard?

Bastian R. Larsen 00:01:18

Yeah, listen, it's interesting, right? I was with BlackRock for a number of years and I got the chance to see the world through that work as well. I primarily focused on sort of the alternatives spectrum of investing. So I was primarily focused on private equity and ended up in their M&A hedge fund in New York. And you know, while it was super fun, I also found, you know, that we were raising billions of dollars. We were seeing all this money being shifted around. And I guess at some point, I just felt disconnected from actually being close to making an impact in some sense. There's also a sense that in the US, the whole ESG and clean tech side of things wasn't as appreciated as in Europe. So there's also a cultural dynamic there. That sort of led me to make the leap, right? Ended up saying goodbye to a very nice job over there and decided to go for it. You know, that was one part of it. The other part of it was, when I was speaking with more and more people in the VC ecosystem, I was realizing that more capital was coming from the US and Asia into Europe, actually, you know, to fund the smart talent that we do have in Europe. And so I thought there might be an opportunity to build a pan-European fund.

Host 00:02:35

So you got great exposure to fundraising at BlackRock, I assume. So what were maybe then the unique challenges when you, yeah, raised the first fund for BlackWood, because it was quite

00:02:45

a cold time for fundraising, right?

Bastian R. Larsen 00:02:48

Yes, absolutely. Yeah, it's funny. I mean, again, we were two people sort of co-leading product strategy in their M&A event driven hedge fund in New York, and we grew that strategy from I think three to around 10 billion in 18 months. So it became the fastest growing hedge fund in the world. And I was just 25 at that time and we were traveling the world meeting all these institutional investors, pension funds. We'd do one day in Milan, one day in Paris, one day in London. I remember this trip for a whole week. I was actually super sick and I had this doctor that had to come to the hotel. Long story, but yeah, it was, you know, a lot of traveling. Obviously all the doors are open when you work at such a firm and you have this big brand behind you, and obviously a bunch of local sales teams that also help you open the doors. So going from that to suddenly having my own fund, with our own presentation that we had built ourselves from scratch, and going physically to present that to investors was actually a great feeling. It was a very interesting experience for somebody that has been in capital raising: can we do this? But of course, having at that point very limited experience within the VC world directly, yeah, it was a challenge. And then when you combine that with all the macro components that were going on at that time that made fundraising extremely difficult for alternatives in general, but more specifically in VC, yeah, it was definitely an uphill battle.

00:04:18

But also, you know, raising from institutions versus raising from high net worth individuals is a totally different ball game. I was used to playing the long game. You know, it would take 12 to 18 months from the first meeting to maybe get a yes. And I knew I couldn't raise from institutions for the first fund with a very limited track. So we had to go the high net worth route. And I've grown up, as you mentioned, I've lived in a bunch of different places. So I grew up in France primarily and hadn't really lived in Denmark, apart from when I studied here. So I had to really build that network up from scratch. And so it was just about literally making those calls, asking for favors, writing those emails and, yeah, doing the hard work. I think before the first closing we managed to raise around $10 million in three to four months, which we were very happy about. I think I had around 150 one-to-one meetings with high net worth individuals to convince 25 of them to actually invest. And to get those 150 meetings, you can imagine how many calls and emails, right? So in 3 months that was a lot of work.

Host 00:05:34

I can imagine. And I think it's pretty interesting, because last week we talked to Laurits Bach Sørensen from Nordic Alpha.

00:05:42

And he also, yeah, told us the story how he got to found his very own fund, and it's like two completely different stories. I mean, you worked more on the fundraising part and he was working more on the operational part. So what is your

00:05:59

thesis behind everything? Is it more that you see money as a commodity, or do you really go into your portfolio companies as an entrepreneur and try to shape and operate?

Bastian R. Larsen 00:06:10

Yeah, sorry. Good question. I think, you know, it was me and primarily one other person that sort of helped build the foundation for BlackWood. And I think, you know, obviously when you start, you need the accreditation from the financial authority. There's a lot of work that goes behind that. So we had sort of mapped out the whole operational landscape as well, and then my job was to go out and convince investors to invest. You know, now, once we did the first closing and had that money to start deploying, we had to hire a team around that. So an investment team. We had an investment committee as well set up, with a few people with gray hairs as well, which I think is important, right? I think for us, it is probably the most important thing, looking back, that we are actually quite young. I think the median age at our company is 27 max. So I think being younger is a benefit within the VC industry, as, you know, we're actually closer to the technology that is often being developed. You know, somehow I can still relate to a teenager using TikTok all day, right? And I think when you become a partner at a bigger fund, you sort of forget, you can't really relate that much. And so our thesis is that it becomes harder to predict the future, which is sort of part of our job, or at least predict how it will still be in 10 years, as Jeff Bezos says as well, very eloquently. So I think that was sort of part of it.

00:07:40

We didn't want to make a super specific fund. You know, if we were to invest only in one specific sector in one country, one, it would limit the number of opportunities we would be able to see. And two, we would have to build a completely different team than who we actually are and what we believe we're good at. We'd need to have some PhDs, etc., etc. So I think for us, we wanted to have a sort of semi-generalist fund where we would have enough deal flow to actually find great opportunities. We wanted to be pan-European so we would be able to screen as many opportunities as possible in different hubs, not just limit ourselves to one country. And then ultimately we wanted to offer LPs in Denmark, to begin with, the opportunity to get that pan-European exposure. Right. I think most of the VCs that were present in Denmark when we started were either very Denmark focused or Nordic focused. And, you know, if you look around now, obviously Stockholm is booming as well, but historically it's been London, Berlin and Paris that have sort of led the show, right? And I felt that it was sort of sad that as a high net worth individual you couldn't get exposure to those types of geographies unless you had to commit at least, you know, 5, 10 million pounds to a fund in London, which not everyone can do. So it was a mix of factors. It was sort of market demand. It was where is our skill set, and where to grow from there.

Host 00:09:08

Nice. I mean, I think young, dynamic, international all sound like very fun traits for a cool young VC company. But when we maybe dive deeper into your investment thesis, do you think that there are any aspects of it that are kind of perceived as a misconception, or you think they should deserve more recognition within the VC community

00:09:31

in terms of the opportunities themselves?

Bastian R. Larsen 00:09:34

Yeah. I mean, I think there's a bunch of different pockets, right? I mean, we primarily focus on three areas, which is fintech, Web3 and clean tech. You know, that's where we personally believe that there will be the most growth over the next 7 to 8 years, and we sort of built the team around that. Let's pick Web3, for example. I think that's an interesting one, right? You know, in 2020, 2021, Web3 was super hyped. Everyone wanted to invest in the space, valuations were getting out of control, and then that changed very rapidly. You know, you saw Facebook change their name to Meta. They wanted to focus on the metaverse. Their stock dropped, I think at some point, 70%. But guess what? That's also going back to the young factor. Because, you know, who owns the Meta stock? It's the Goldmans, the BlackRocks of the world, and who were controlling those funds? Probably slightly more old people, right? And so I think for us, we saw it all, also. People would look at the avatars of Facebook back then, they would say there's no future in this. Fast forward to now, you know, obviously AI is all the hype, but behind the scenes there is still a lot of progress being made in this space. And so I think we just envision a world where that might be a part of our lives, right? So that's how we formed the thesis: what do we see as being part of the future? And so even if it might be a little bit contrarian,

00:11:04

a controversial view such as this one, I think it's something that we still want to bet on, right? And again, we formed a team around that in terms of competences. Right now, again, AI is for us more a horizontal than a vertical. You know, there's not one startup that doesn't use AI. So if you're an AI fund, what does that mean? It means you invest in everything, right? So we still have these three main focus areas. But we do reserve the right as well to be sort of opportunistic for about a fourth of the portfolio. And the reason for that is, you know, I don't know how you feel about Elon Musk, but if he were to come to you tomorrow and say, hey, you want to invest in this pre-seed deal, you know, I'm building whatever, right, it could be a lemonade stand with AI, you know, I would want to be able to invest even if it's not fintech or clean tech, because ultimately what we're doing at our stage is investing in the founders. You know, it's a pre-seed and seed stage fund. At the seed stage, as you know, there's a little bit more traction, more numbers, more stuff to go off of. But in pre-seed, it's all about the founders as well. So yeah, for us it's about meeting the people, understanding the people, and, you know, feeling whether they have the purpose and the grit and everything it takes to sustain being a founder over many, many years, because it is hard.

Host 00:12:26

No, absolutely. I think, I mean, that's a super relevant idea in my eyes as well, because I think that in the times we're in right now, the people behind the business are actually becoming more and more relevant.

00:12:38

And I mean, you've most certainly displayed that you have the ability to turn your ideas into success stories. I think we could just do an entire podcast on your time at BlackRock. I think that would be already super interesting. But now when we look at BlackWood, this is also a great success, but the company is now four years old already. When we look back at the first 100 days, where it all started out, where you had to do all of these potential client outreaches, there was less certainty. What were maybe the major takeaways and learning opportunities that you experienced in those crucial first 100 days?

Bastian R. Larsen 00:13:13

Yeah, interesting. So technically it is four years old, because we started actually originally as a pan-European sort of angel network. Originally, when I came to Denmark, I was researching, you know, would it even make sense to launch a VC fund? There's a ton of other VC funds. Is there anything that we could do differently? And so I just started talking, just like you're talking to a bunch of people here, right? I was just reaching out to everyone, from VCs to angel investors to startups etc., and trying to understand, is there anything we can do better? So actually the first official 100 days were very much focused on learning. And I thought it would be nice to build this angel network so that we would have some people that we could send some deal flow to and get some feedback on whether, you know, we were good at this or not. So I think that was an interesting approach. I also had to raise money for the management company as well, to sort of pay for these. I told, there was one of my mentors from Luxembourg, you know, I told him, hey, I need a little bit of cash so I can do these experiments and figure out if it makes sense or not, and he decided to sort of back me, right, out of the blue. So I was quite lucky. But yeah, so we spent a year and a half just literally researching, making zero revenue, just testing, building stuff, as I'm sure we'll get into. And yeah, so it was much more of a creative thought experiment type of stuff. But then once we got the license and had to raise the capital, you know, that process was very different.

00:14:43

It was very, you know, pen to paper. I sort of had to become a lawyer for a couple of months as well, right? Reading through these hundreds of pages of LPAs and documents, seeing words I had never seen before. And so you get through that, and then there's the next hurdle of actually having to raise the money, and then the final hurdle of actually having to deploy it as well into great founders. So yeah, I mean, there's sort of two times 100 days: the research, sort of creative brainstorming aspect, and then the actual practical doing it. I think if I had to take some learnings from the second one, yeah, it was that, I don't know if we can swear, but it's hard. You know, it's

Host 00:15:29

We can.

Bastian R. Larsen 00:15:30

Great. No, but it is really hard, you know. It's, yeah, a lot of long nights. It's a lot of fear as well, right? Especially when it's the first time you do this. It's, okay, you know, do we have this? Do we have the KYC in place? Do we have, you know, the operational aspect? Do we have all the processes in line? Do we have the right tech stack? Do we have the right people? You know, it's actually a very interesting process, and so it feels very gratifying as well to be on the other side. Now that we've closed fund one at 25 million plus, to be like, okay, now we've done that, let's focus, you know, on helping the portcos that we do have in the fund. Let's continue investing. Let's continue thinking about how we can improve on the next fund.

Host 00:16:15

Of course. Yeah,

00:16:16

most definitely. I mean, I think I was just about to say that as well. I think navigating through uncertainty and then putting in so much hard work makes every good success story even better, right?

00:16:29

But now, when we come to, you've raised capital and then you started allocating it, and you've mentioned earlier that it's important for you to have a decent amount of deal flow. What do you implement as a framework or as a filter to

00:16:45

ensure that you find the needle in the haystack, or that you're able to separate noise from

00:16:51

a lot of signals?

Bastian R. Larsen 00:16:52

Yeah, great question. So we did a lot of work on that. That was part of the whole year and a half of sort of, you know, beta testing, dry testing, whatever you want to call it, our processes, before actually managing other people's money, which, you know, we do take very, very seriously. So yeah, we built a ton of things. One was the deal flow, as you mentioned. So we thought, okay, where does deal flow come from? It doesn't just magically appear, right? So there's our own personal networks. There's inbound. So we need to make sure we have a, you know, nice brand, website, LinkedIn presence, all the basics, so there is an opportunity for people to apply. We need to make lists of who do we know who might know other people that are building startups. And then more broadly, which is where we get probably most of the deal flow from, or originally did, it was incubators, accelerators and universities, right? That was sort of a low-hanging fruit that I saw most VCs didn't really leverage on a wider scale. So they would go to, you know, two or three or 10 universities in Europe. They wouldn't really go to all of them. And I think if you want to find that needle in the haystack, or the diamond in the rough, you need to be willing to speak to more people, right? And obviously that takes time. So we had to automate certain processes there. But yeah, we ended up, I think now we collaborate with over 100 incubators, accelerators and universities in over 12 countries in Europe. So we get some deal flow from there. We're usually, because we've developed a good relationship

00:18:23

with many of these institutions, we're, you know, first to see some of these deals, or, you know, the people working there are good to reach out and say, hey, you should probably take a look at this before it goes to demo day. And then there's the angel network side of things, right? So this angel network that we built up, we ended up having over a thousand people involved in this. And obviously, you know, when you're an angel, you look at opportunities. You're very local. You know, all these angels are based in different countries in Europe. And so you might see some opportunities that don't necessarily come out of universities or somebody else might not have heard of. So, you know, who do they often turn to when they want a second opinion? To us, right? And say, "Hey, do you want to take a look at this?" And we have another deal. So we've built all these mechanisms to actually have a huge deal flow, right? And today we even collaborate a lot with other VCs, right? And so that has happened over time. And so we make sure to also, you know, help them, right? Share deal flow with them. We're quite open. And I think we have very good relationships built up throughout Europe now. So yeah, I think we're screening around 500 startups every single month. When we launched the fund it was probably around 200, 250. So even during all of this we've managed to increase the deal flow, and as you say, then it's a matter of having the right funnel. So how do we go from 500 a month to maybe around one investment per month, which is sort of our investment pace? And yeah, out of the 500, you know, again, there are some that might not exactly fit within the buckets that we look at.

00:19:53

So they go out. But I think, you know, on a monthly basis, probably we have conversations with 50 to 60 founders out of the 500. So there's already like a 90% sort of filter there, just based on the team, the valuations, the space that they're in. I think those are the most important factors. But yeah, speaking with 60 founding teams a month is also a lot of work. And that could be done physically or online, but we make sure to have an hour with everyone, and then usually out of the 60 it becomes 20 where we want to have a second conversation, and then it trickles down, right? And so we have bi-weekly investment committees where our investments are actually, you know, approved or not. And, you know, every other week we probably present three to four startups. So yeah, once you make it to the IC, there's a one in six to eight chance that you might get some money from us, right?

Host 00:20:53

Do you advocate for a relatively flat hierarchy when it comes to those meetings?

Bastian R. Larsen 00:20:58

Oh, yeah.

00:20:58

Yeah. Yeah. I think that's super important as well. Again, emphasizing, you know, when you hire, let's say, on a junior level, obviously they tend to be younger. But that's sort of what we, we want to hear their thoughts. And at the same time, you want people with, like, you know, 30 plus years of experience. You know, one person on our IC, Claus, you know, he's done a lot of stuff, but he also built his own small cap private equity firm in London with over two billion in AUM. So he's seen it all, right? He's, you know, invested in sort of early stage companies in some sense. He's grown them, he's exited them, he's IPOed a bunch of companies, and then he knows a lot about certain areas. So, you know, obviously when he's in the room, we want to give some space to him as well. So we try really to balance that in a nice way, and I think, you know, if you spoke to anyone on our team, they would agree that it is sort of very flat, and we tend to give a lot of responsibility to our team members. So

Host 00:21:56

I'd love to hear that.

00:21:56

No, me too. So when it comes to automation, data and AI-driven decision-making in the investment screening process,

00:22:06

I'm very curious which data do you rely on and where does human conviction take over, because we

00:22:13

talked, for example, to Simon [unclear] a couple of months ago, and he really emphasized that they don't really look at the data, they more look at the people, their ideas, and that there are also certain red flags when it comes to founders.

00:22:29

So which data do you really look at?

Bastian R. Larsen 00:22:32

Yeah. Yeah. So maybe I should start at the beginning on that, because that's interesting as well. Because once we had a year and a half to think about things before launching the fund, you can imagine there's a lot of thoughts that pop into your head in a year and a half. And so one of those things, where, you know, after talking to a bunch of VCs, this was, again, it sounds like it's 100 years ago, it was four years ago, but the world has changed a lot with AI, right, in the meantime. But in 2021, you spoke to any VC, and literally they weren't using any tech really, right? They were investing in tech, but they were using Word and Excel sheets, most of them. And I just thought that was funny, actually, to be honest. It was quite interesting. So I thought, okay, how can we be better than that? Because our job ultimately as well is, you know, to have more information or better information or act quicker than maybe the VC down the street, in some sense, right? That's sort of what gives you an edge to overperform. And so one thing I took away from my time at BlackRock was, when they acquired BGI, Barclays Global Investors, I think it was in 2011 or so, they also inherited a bunch of great sort of scientists and machine learning experts back then. And this was obviously very different than what we have today. But they were working on the same issues, and so they were very good at that side of things. And one thing that struck me was, in one of their models, they were using sort of sentiment and subjectivity analysis on the quarterly reports that came out of public companies.

00:24:03

So, for example, you know, I think in the US there's probably three or four thousand public companies. And, you know, every quarter they publish a quarterly report. And so back in the day, Warren Buffett and his friends would read through that manually and, after a while, try to make an informed decision. But, you know, with the first iterations of machine learning, there was natural language processing, and that meant that you could read through a bunch of text and try to extract some info. And so what they found with subjectivity and sentiment analysis was, for example, you should probably listen more to the CFO than the CEO, because the CEO is a salesperson and wants to oversell the company, whereas the CFO is based on numbers and data. And so I thought, how can we use that in VC? And so we actually built sort of a similar tool, but for early stage. So what we would do is, when we send our questionnaires, due diligence questionnaires in some sense, and ask questions from the founders, they would reply to it and then we would run these analyses. And so, you know, before ChatGPT this was very effective, because suddenly we had hundreds if not thousands of startups that had answered these reports and we could compare notes. And so what we found, for example, was, and again, just to explain, sentiment is whether you're optimistic or pessimistic in your wording, and subjectivity is whether you use words like, you know, I hope or believe, versus I know and it's based on data, right? And so what we found was it was sort of a personality test as well. So the CBS type of guys would be, you know, more optimistic and less subjective, more subjective, and the PhD types would be the opposite.

00:25:33

So slightly more pessimistic, but, you know, very much less subjective. So that was one thing. And then also, you know, when interest rates sort of spiked, I think it was early 22, we found that fintech founders were getting very pessimistic very rapidly, which is super interesting, right? Because then you can make an informed decision as a human: okay, does this mean that they are right and that the future is going to [unclear], or does it mean that they're just scared and we could come in at a better valuation, right? So anyway, that was sort of the idea process behind that. Obviously, as ChatGPT came out, and all the others, and the agents that are being built, this tool became sort of obsolete extremely fast. And so now what we do is slightly different, and we use it less for the original part of the screening and more for efficiency and post investment stuff.

Host 00:26:39

But I believe that data collection is still very, very important, right?

Bastian R. Larsen 00:26:43

It is. I mean, we're happy to have that data set and we're still trying to figure out what to do with it. We're running some experiments. But again, I mean, the thing is, when you're a small lean team, everyone's super busy. So I hope that, you know, once we have a little bit more free time, we can try to work on our own sort of AI version 2.0 and figure out what we can do with those learnings. And so I think it's more talking to our DNA as an investor, that we're always trying to do something better.

00:27:10

[unclear] is just different, but usually, you know, better is different. So yeah, that's just sort of how we think internally.

Host 00:27:20

Yeah.

00:27:21

Okay. I mean, if we think about early stage investing and then your thoughts and approaches behind it. By the way, if you don't want to give away your secret sauce, you don't have to answer that question. But I was thinking, because I think there are a lot of things in the world of finance and business that are very subjective, but then there are also some that are more objective. And when you approach early seed investing, are there maybe any counterintuitive patterns that you have kind of recognized that are maybe initially not an incentive to invest, but then later actually turn out as an indicator for a very good investment?

Bastian R. Larsen 00:28:02

Very interesting question. I mean, it's very case by case, right? It depends on if it's software, hardware, different types of industries. But just circling back, I think, again, to your point with Creandum, I think we use as much data as possible. We try to be very efficient. But again, we usually say it's art and science. You know, and to your question, sometimes there are things where you don't really know what it is, but you have a gut feeling, and you just got to sometimes swing for the fences and make that bet. You know, for me, art and science is actually very real, because the science part, you know, I think we're all quite good at numbers on our team and stuff, and the art part, you know, I grew up in an artist family. My father was an artist and designer. My brother followed in those footsteps. Even I was, you know, teaching fishermen in Greenland how to paint at one point in my life. So I think the art thing, I have a good understanding of what that means in terms of the creative aspect and sort of the gut feeling. My father always used to say that when he paints, it was abstract art, he doesn't really think. He just paints and suddenly he sort of wakes up and there's something there and he can't really explain how that happened. And so I've seen that happen firsthand. And so I believe there is also some truth to that happening in VC. It's just about, yeah, making the right calls, right? Again, with other people's money. You can't just sort of go around painting random paintings and be like, well, I just trust my instinct all the time. And I think in that sense it is something around, I don't know if we have a concrete example that I could share right now,

00:29:32

but yeah, it's about, okay, this, it also, again, culturally it's very different, right? I think we like to look at all of Europe and screen a lot of startups because, you know, we think we can do arbitrage a little bit. You know, oftentimes, if you're an angel investor in Hamburg and there's a startup that comes up to you and says, we're the first ones who ever built this, you might be more likely to believe it, rather than if you had screened 6,000 startups a month and you can say, well, somebody in London actually has been doing that for 6 months and it's a better valuation and a better team, right? But also culturally, when you speak to founders in Italy, they're very different than in Finland, for example. So you have to be aware of all of that as well, and I think that's where sometimes some people might misconstrue something counterintuitive for actually just cultural differences. So I'm also very, yeah, aware of that aspect. But it definitely usually comes down to the people, more so than the idea and the traction. That's sort of very clear. So that's hard to be counterintuitive about, and we typically wouldn't make a bet if they have a, you know, completely stupid idea and zero traction after a while, right? But the counterintuitive aspect happens with the people. We made one investment where we weren't sure about aspects of a person, but ended up making the investment and it's going extremely well,

00:31:02

and it just turns out that that person's capabilities are extremely well suited for what they're building specifically, right? So yeah, there's some aspects of that, but it's hard to explain.

Host 00:31:13

I really like the art analogy. Mm.

00:31:16

But I think it all depends on the stage as well, right? Where you're investing. I mean, the earlier the stage, the more important is the intuition and the art and

Bastian R. Larsen 00:31:24

But actually, let me tell you something. You know, in the M&A hedge fund in New York, my old boss, he obviously made a lot of money once you start managing many billions. But he said he was very good with numbers. And this is public companies, right? You would think there's zero art to that. And he was, you know, he used to be a nuclear engineer on a submarine in the Navy, you know, like, yeah, he was good with numbers and that's how he could make his bets and make money. But he told me, when we were riding to a meeting together, he said, "Yeah, I actually have this friend who's a billionaire hedge fund manager. He sucks at numbers." He used to study with him. "He's so bad with numbers. But the only thing he's good at is sitting in a room with a CEO of a company and figuring out whether the CEO is bullshitting him or not.

00:32:14

That's his only skill, and then he bets based on that."

00:32:17

So that's sort of art, right? So it's interesting how you...

Host

Yeah. Usually I would agree that

Bastian R. Larsen 00:32:23

Not to remove your point completely.

00:32:25

I just thought it was an interesting insight.

Host 00:32:27

For sure it is. Yeah.

00:32:29

Having good knowledge of people, or reading people, is a pretty important skill. But you guys at BlackWood, before you make or write the first paycheck at the pre-seed stage, if you could narrow it down to maybe three criteria, which ones would you apply before deciding, okay, we want to invest?

Bastian R. Larsen 00:32:48

Yeah. So first is for sure the team. Again, I always come back to team, team. You know, I would rather have a great team with a shitty idea than a good idea with a shitty team. So I think, yeah, and how do we measure that? Well, there's different ways. You can look at, you know, the history, what they've done before. You know, obviously the feeling you get when you're together with them. You can stress test them a little bit to figure out, you know, where they want to go, how big they want to build this. And also talk to, you know, customers, people in their circles, to get some references. Then there's, you know, traction. For us, traction is super important. Again, it's cool to have, you know, made a million dollars, but if it took you 10 years, it's less of a VC case maybe. Whereas if you made that in a month, then it's a very different case, right? So I think traction, so that's monetary. It can be, you know, pilot programs in some cases, but it's usually within a sort of specific time frame that we think makes this interesting, because it actually shows true demand. You know, there's also a bunch of companies, when you start out, sometimes you're selling to your friends. You're doing everything you can. You know, dad might know a friend at a bank or whatever. And so we try to sort of filter through that as well and realize, okay, you might have had nice traction, but is it really traction, or is it just your friends and then they'll drop off, right? But traction is important. And then probably the final point for us as well, as a new VC,

00:34:18

is sort of the other co-investors in the round, I would say.

00:34:23

You know, we are largely follow investors. So we have led rounds, I think we've led four or five out of our 20 plus investments right now. But again, as a follow investor, you want to make sure that you're investing with a lead that actually is capable, that you trust, that you respect, and we've been very fortunate to be able to do so many, many times. So

Host 00:34:45

So we've now looked at the background of deal making. If we now look into the process of taking companies into BlackWood's portfolio, what separates a BlackWood company from other companies, and how is that accounted for in your due diligence, or how is it implemented into the company afterwards?

Bastian R. Larsen 00:35:04

Yeah, I mean, that's a good question, a hard question to answer. I mean, I think for us it's, again, ultimately I think it's more linked to the team, more so than anything else. But again, we usually, I mean, obviously one thing that we go after is to try to find a unicorn, right? A company that can return the fund. But we're also building, you know, a structured portfolio that, for high net worth individuals, we need to keep in mind as well, sort of what product we're dealing with here. So there is an element of, it is important not to lose the capital, but again, we want to go after the moonshot, because that's how you actually make a lot of money in VC. So we're trying to do it in a very conscious way, and that also affects what our portfolio, and which companies ultimately end up coming into the portfolio, look like. But it really goes back to the team as well. I think, you know, we posted a video where all the founders gave a little message as well when we did the closing, and it was just so nice to see for me as well, and realize, wow, you know, all these people from different parts of the world that we're working with, you know, how happy they are that we're supporting them. And I think, yeah, it's just very, very hungry people who want to make the world a better place, and we actually believe that they can achieve that, right? I think if there had to be one common thread, a red thread, that would be the one.

Host 00:36:30

That's really cool. Nice. And this is a topic that we've discussed with a lot of our guests, just because I think in the market scene of Europe it's a very important topic. When we talk about the execution gap that we see in Europe, I think in fintech it's being lifted a little bit. We had Klarna's IPO earlier this month. We have Bitpanda basically crossing borders every month. Then we had Lovable in Sweden raising at a unicorn valuation less than a year after it's been founded. But despite that being seemingly resolved in fintech, what do you think are the reasons that we experience this lack of execution in Europe compared to the USA or to Asia? And what can we maybe do to fix that problem, in your eyes?

Bastian R. Larsen 00:37:18

Yeah, I think, honestly, I think that's changing a lot right now. I think that problem is sort of, I mean, I was just in London, right? I was speaking with, yeah, people who are in the space. You know, I actually saw Anton from Lovable on stage there, and Harry Stebbings and all these guys. And it's just, you know, when you're in that room with basically all the top investors from Europe, you don't really get a sense of that anymore. I mean, there's still some, but I think because of stories like Lovable, you know, Sana Labs was sold yesterday for a billion, over a billion dollars, right? I mean, there's so many stories now. You know, the French government is doing a lot in that space. You know, we're all talking about unifying Europe to make it easier to make cross-border investments and help with the whole paperwork process. I think we're all really much more aligned than we've ever been. I actually think as well, Trump coming into the [unclear] has been a great thing for innovation in Europe, and that's also helped propel it in that sense,

00:38:25

in that way. And, you know, we were just in Stockholm as well over the past few weeks, at different places, and you can just feel the energy. And I think

00:38:35

yeah, the execution gap, I guess, comes from something else, right? And what is that something else? It's [unclear], it's all these things, right, that exist here in Denmark and other places, where people are sort of holding each other down rather than, you know, saying, hey, good on you, man, you should go, you should run for that idea. And I think that's totally changing now. So I think over the next few years, actually, we'll see this continue. And actually my worry is the opposite: okay, will this become a bubble in some sense, because it's just going to, you know, go too far. That's a problem for another day. But I think it's great for us as investors. You know, right now, we've been investing for two years. We've come in at slightly different valuations than probably a couple of years earlier, which is great. And then now we're experiencing the actual rebirth of European tech, which was sort of what I saw happen already earlier, right, with more capital coming in slowly. I know Paul Graham, you know, the founder of YC, he was talking about seeing a brain drain from the US into Europe right now, right? I mean, when did we hear about that last?

00:39:43

I don't know, when did that ever happen, right? It wasn't the Americans who discovered Europe, right? So yeah, I mean, it's just fascinating to see what's going on, and we couldn't be more excited. It's just fantastic timing also for us, but we're also happy for Europe, right? That's where we come from.

Host 00:40:01

And I mean, you focus on Web3 and fintech and so on and so forth. But

00:40:06

maybe other than that, where do you see the strongest pockets of contrarian alpha across the European private markets stage?

Bastian R. Larsen

Contrarian alpha. Yeah. Well, anything that's not AI, right? But, so I mean, that would literally answer the question. I think, listen, AI is, you know, booming. Obviously there's a lot of benefits to it. I'm very curious to see where this all will go. You know, I think there's a bunch of businesses that can do very well that are even still VC backable without using AI. And I think sometimes being an overlay agent on top of a, you know, LLM can also be disrupted quite quickly. And, you know, how big is that advantage really, unless you're extremely specific in what you're targeting? So that whole thing is really something where we don't really have the answers yet. You know, again, I was just having dinner with one of the, yeah, early investors in Anthropic, a great AI expert. And yeah, he was extremely pessimistic about the future with regards to AI, right? He literally thinks that we might go extinct within 5 years, right? So that's interesting. And then you think, okay, well, does this AI agent, you know, how would that matter? So I think, contrarianly, it would be, yeah,

00:41:36

like, less AI. But it's just such a big force and there's so much truth to how much it can help. But yeah, I think there's still great investments to be had outside of using...

Host 00:41:49

I think if we would go extinct in 5 years, we would have much bigger problems than figuring out what the next good unicorn to invest in would be, for example.

Bastian R. Larsen 00:41:59

I wish to still believe we're not going to.

Host 00:42:01

Oh, yeah. Yeah. No, I think I also have, hopefully, a more utopian outlook, I think, on our future. But not only when it comes to investing, but also when we go about our day-to-day lives,

00:42:15

we're all subject to bias. We all have some sort of bias when we talk to other people, when we make new experiences.

00:42:23

And a bias can be a very dangerous pitfall when it comes to investing. And what is your personal approach, maybe also that you can share with our audience to give them some advice? What's your personal approach to kind of identify and mitigate your own personal bias when it comes to your work?

Bastian R. Larsen 00:42:39

Yeah, great question. I think there's so many things about this. Yeah, something I'm super interested in, actually. And I think, well, one is literally developing your perspective of the world. You know, the fact that I happen to have lived in 10 countries, I think, is a gift. It's not because I wanted to do that, but I can feel the benefits of having done that afterwards, right? You're much more inclusive, you've seen a bunch of the world, you know, you're much more respectful to other cultures, etc. And so I think that will help you be aware of your biases. If you just, you know, grew up in a small city in Denmark and you stay there, and, you know, all your friends do the same work, then you might not even realize that you have a bias. So I think that's

00:43:25

probably the most important stuff. We also have this thing called BlackWood Lab, where we, you know, sometimes write white papers with various universities and professors from those universities. And I think, yeah, I mean, we wrote one paper actually on sort of biases a little bit, and also how we can mitigate that, with a professor from Harvard. And, you know, also a bias can be, so if I want to make an investment, I talk to you. You've already decided to invest in his company. I say, hey, what do you think? You know, obviously you're going to be biased, right? And also the information that you share, you know, will be different. So now you tell me, right, and you say, oh, it's a great company because XYZ. Now I have this other VC that asks me, hey, what did this guy say, right? Well, he said, and then it changes, and then he'll have a different bias. So it's about also, you know, recognizing that information, every time there's an information exchange, there might be biases included. So we try to separate sort of what is being said from, okay, what is the reality, and try to sort of take stock of that.

00:44:35

Yeah.

Host 00:44:36

I think a good thing to say here: just don't get stuck in an echo chamber, and always remain agile, try to make new experiences, meet new people.

Bastian R. Larsen 00:44:45

Exactly.

Host 00:44:46

Good point. [...]

Bastian R. Larsen 00:44:54

Mhm. Yeah. I mean, for us, it's more about making us better investors,

00:45:06

more so than just putting out content.

00:45:09

So, you know, we're working with all these universities, as I mentioned, to get deal flow and stuff. And I just think, you know, I've always been interested in academia. I think there's so much research that is being done by great professors everywhere in the world, and it's so rare that it actually gets put into practice. And not all of it is usable in practice, to be fair. But I like to sort of dig. Sometimes, whenever I meet a professor or whatever, I try to dig into sort of what are they working on and how could that be applicable to what we're doing in VC.

00:45:41

And so, you know, the first paper we did was with a professor from ESSEC in Paris, and that was about purpose. You know, he was studying purpose. He wrote books around it. And I thought, well, actually, that's what we're looking for in the founders, right, in a way. And purpose is such a fluffy word in some sense. People are tired of hearing it, and that's why I was interested in it. I was like, well, if he can write a whole book about it, there must be something, right? And so, yeah, we had a very interesting conversation, and we found through his research that, you know, if you can measure purpose, and the different ways of doing that, and you can identify it in a founder, then there's a 17% higher likelihood that there'll be sort of intra-team trust, and it'll also increase productivity and ultimately revenue, right? So I thought that was super interesting. So now, you know, the more our team is informed about these things, and the more we believe in, you know, the research that we're actually using to write these white papers, it's sort of a self-fulfilling prophecy where then we will just be more aware. It's like compliance training, right? You know, you do it once a year and you're like, ah, but it's important and it helps, right, with reinforcing what we should look for, what the pitfalls might be.

00:46:54

That's how we use it.

Julius Ambrosius 00:46:56

So I really like that. I think that makes actually a lot of sense. [...] [...]

Bastian R. Larsen 00:47:31

Mm, yeah. I mean, having worked a little bit more broadly than VC as well, I think

00:47:36

yeah, I can give a few things. I don't know, listen, there's not one thing that fits all. I think, obviously, show results first, I think, is important. You know, it feels a little bit like people nowadays sort of expect to be given a million opportunities and can feel a little entitled, I'd say. You know, show that you have some skills, develop them yourselves. You have so many opportunities online. And come prepared, right? So if you're showing up for an interview at our firm, you know, I want you to have done your research, as a minimum, about what we've done, and then come with two or three cases and say, "Hey, I found these. I actually worked the past week. I found these two startups that you should look at. I think they're good because of X, Y, and Z." You know, that's impressive from a person that just graduated from the bachelor's, and suddenly you're interested. But if you just come, and again, I feel most people can't talk nowadays, right, in the younger generation. They're just too much online. And I think being able to actually have a conversation and tell something interesting about yourself

00:48:42

is important to get in. And then again, having that global perspective. I think in VC, yeah, there are some numbers. You should be able to understand those, but it's also a people's business. So you should be able to network, build good relationships with founders, with other VCs, with our LPs, and to really get that good deal flow, and then you need to be able to understand that. So yeah, developing a global business perspective is probably more important in VC than in other areas of finance. And on a more personal note, what I always say, which I think is the key thing, is making yourself sort of three-dimensional, right? Like, just the fact that you guys are building a podcast, that's super cool. And, you know, you can do that by traveling, you can do that by learning a new language, learning to play the piano, you know, hiking Mount Everest. Just do something, you know what I mean? So that you have something to talk about, so you can relate to more people, so they can relate to you, so they remember you. And that'll help you get a foot in the door. For sure. For sure. This is, you know, I said this to one person once and he took it very literally. So he went out, got a pilot's license, to learn the new language. And he ended up now working at Blackstone in New York. So there might be something, man.

Host 00:49:56

We should try.

Bastian R. Larsen 00:49:59

If that's what it takes. Sure. You know,

Konstantin Girst 00:50:02

But great. I mean, I think that was a great closing question, Julius, and I think also a great closing answer. Thank you. And also, yeah, thank you so much for coming in today. I think hearing about your story and your background was truly inspiring and truly motivational. And I think we got some great insights for ourselves, but also for our audience. And then, to all of our listeners, if you're curious to hear more about BlackWood, you can find more information in our show notes. And then make sure to tune back in in two weeks when we have a new episode. And until then, make sure to follow up on our socials, our LinkedIn, our Instagram, and make sure to find us on our website. See you then. Bye. Thank you.

Bastian R. Larsen 00:50:38

Bye. Thanks.