Christian Meermann

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.

Christian Meermann 00:00:00

I would say at the moment you get a very high premium for hypergrowth. We're also seeing growth rates that are absolutely unheard of. It's all about who can grow very fast. It's a hyper competitive market. You know, like we've been in phases where it's like we don't have much cash left and kind of you see basically the end is near. We want to back the first European trillion dollar companies because we feel Europe kind of is missing out a bit on that front, but we have amazing talent in Europe, right? So there's absolutely no reason why this should not be possible.

Konstantin Girst 00:00:39

Hello and welcome back to new episode of Campus To Capital. Today Julius and I are joined by a guest that I'm personally very excited about, as today we're joined by the founding partner of Cherry Ventures, Christian Meermann. So let's get started and welcome Christian.

Christian Meermann 00:00:54

Hi, great to be here.

Julius Ambrosius 00:00:57

Yeah, thank you so much also from my side. Let's dive into it. I mean, before you founded Cherry, you had a lot of different experiences, from growing up on your family farm and working there to working at BCG to then running marketing at Zalando. So you certainly carry a rich set of expertise. But when did you actually realize that you wanted to become a venture capitalist?

Christian Meermann

Yeah. So, look, I would say I realized that rather late in my life. It's not that this was anywhere kind of in the room of options as a kid. Like, I probably didn't even know what an investor is. So, it was more during my time at Zalando, when at some point it was, you know, like a proper scale-up, so well known, and then more and more founders actually approached us and said, "Hey, you've been through this scaling journey. We want to start a new company. Can you help us?" And that's kind of how we started Cherry as an angel fund. Because we thought, hey, we've... it was kind of a group of three of us. We had complementary expertise and then we said, hey, we can invest a little bit and then help them on the scaling journey. And that's how we started it, more as a hobby initially, still being at Zalando, and then 10 years ago turned this into a full-time gig.

Host 00:02:17

Cool. Well, I mean, honestly it's kind of interesting because we recently spoke with the CMO of Scalable and he kind of had an inverse experience compared to yours, where he was fundraising for his own startup before going into the marketing role, and now for you it's the other way around. And I mean, when you were the CMO at Zalando, you had a massive marketing budget, spending €250 million per year on marketing, and you helped the company to scale from very small revenues to a 2 billion euro market valuation at IPO and also launched the brand across 15 different European markets. So maybe looking at the experience on how it works from being a CMO and then going into venture, what did that period at Zalando teach you about brand, distribution and speed that still shapes how you back founders today?

Christian Meermann

Yeah, look, first of all, I think what I learned at Zalando is how important on the one hand brand is as an asset, kind of to you as a founder and as a company, and then also how important it is to manage growth in a scalable way, right? So when we now look at companies, it's obviously always about like how do you grow, how do you get to hyperscaling mode? And if founders don't have a good answer to that, it's obviously a problem. And at Zalando we were extremely analytical in marketing, which was a little bit kind of, I would say, almost an innovation. So during my studies I did have marketing as a major, but it was very much marketing

00:03:47

strategy and, you know, people... everyone who had finance was always making fun of us, that we were just kind of in La La Land designing how a brand looks like and that this is not analytical and all of that. But kind of then when we started Zalando, which is now also kind of more than 15 years ago, the market had changed quite a bit, so that you could do online marketing in a very analytical way, right? So every euro you spend, you can track it, and the next day you know, okay, was that spent wisely or not. And kind of fast forward to today, I would say it's gotten even better. So there's kind of more channels out there that you can control. Obviously if it's B2B, there's kind of product-led growth as another lever. This can also be kind of managed and steered in a very good way. So I think having this kind of very analytical and structured mindset about growth, that really helps you set your company up for success and have this in an amazing scalable way, because otherwise, if this is a bit more, hey, I have five sales guys and they will try to sell my product, it works, but it only gets you so far.

Host

It's a good point, because I think also, I mean, especially when you're a young startup, one of the first things you need is recognition and attention. And across the investing space this is the topic, not only for companies but also for investors and LPs, like media attention is becoming more and more relevant. And I mean, you just also had your annual conference in London this

00:05:17

week, and one of your most prominent claims at Cherry is founders first, investors second. And looking at your portfolio companies, obviously we don't want you to be playing favorites, but could you maybe introduce us to one or two of your portfolio companies and tell us why you decided to invest in them and why they will be successful?

Christian Meermann

Yeah, look, so when we kind of invest, it's usually very early on in the journey of a founder, right? And then what it comes down to is mostly the team, right? So do we believe this founder or this group of founders is exceptional, right? So we see more than 10,000 companies a year and only end up investing in 12 to 15. So it's quite a sharp filter that you need to go through. And if we pick out one, for example Dash0. So Mirko, the founder, is a serial entrepreneur. He's now on his third company, so he's built two companies before. The previous one he sold for 500 million to IBM. You know, then he had made it basically, right? So kind of made a lot of money, thought, okay, now I'll basically retire and see kind of what life brings. But then at some point after two years he was like, I'm getting a bit bored. And at the same time there was a new technological trend in his area of expertise, which is observability. So the way you monitor your code and make sure everything you have as a tech company is working properly in tech. And

00:06:47

this trend was OpenTelemetry. So a much kind of better way to monitor everything, and he saw that coming and he was like, look, this is going to be huge and I want to do it again. And I think the good thing there, and that's something that I really loved, is his ambition level, right? So he had exited a company before. He had made money. So it's now more about, hey, I want to win big time, right? And I want to IPO this company and I want to go all the way and make this a huge success. And that is obviously kind of an extremely strong sign. And then kind of if you see him in action, how passionate he is about it. And he's an engineer by training, but he's also very good in sales, which is a very rare combination. And then just the more time I spent with him, kind of the more conviction I got, right? So, and then it was pretty clear, hey, we want to back this guy. It wasn't so easy because we were obviously not the only ones who wanted to invest, so I had to kind of fight our way in. But now kind of super happy shareholders, and kind of after our first round he has kind of raised another two. So, yeah, I've got very, very excited about the journey. It just became a billion dollar company and there's obviously still much more ahead of them.

Host 00:08:04

I mean, and then when you invest in such a company, I mean, next to your claim founders first, investors second, your core identity is by operators for operators. So I mean, we talked to several VCs in the past and it is always very interesting and fascinating when they talk about their own competitive moat. And I mean, you just said it, it's like difficult to write a check and actually get the investment done. So in a competitive seed landscape every fund claims they add value beyond capital provision. So let's zoom in on that. When a portfolio company such as Dash0 is hitting a wall within its internal procedures or operational third-party dependencies, what can Cherry actually do there that a non-operator fund cannot?

Christian Meermann 00:08:53

Yeah, look, I think we at Cherry have this super strong entrepreneurial DNA in the team and we're extremely rigorous about it. So, everyone in the partnership and in the investment team has been on the other side before. So has been in a startup. Like one of my partners was part of the very early Spotify team. The other one was building out Uber in Europe. So we all have that same DNA and we believe that is significantly different from someone that has just been on the investor side. And that doesn't mean that kind of entrepreneurial investors are the better investors or whatever. I think there are enough examples for both. But we believe, look, we've been through the whole roller coaster of building a company, right? So there are always days when you think, hey, amazing, I've made it, and then 12 hours later you're like, oh, like we have a massive issue. And, you know, like we've been in phases where it's like we don't have much cash left and kind of you see basically the end is near, and then you need to fight around it. And I think having been on that side, having been on this journey makes a huge difference. So if a portfolio company gets to a similar point, which obviously kind of happens, I think first of all we understand the situation better. So just applying more pressure on the founder just doesn't help, right? So I think you can always be assured that the pressure is

00:10:24

massively high on a founder if they're running out of cash. So just kind of asking 100 times, hey, have you received a term sheet and why not, then you need to move fast, that's not going to change anything. So I think with that kind of mindset we can rather sit down with them and say, look, what can we do? Let's just open all options, let's put them on the table. Okay, do you need to change something in your go-to-market? Do you actually have full product-market fit, or have we all just been believing we have it, but like if we look at it, there's no real pull, you need to kind of push people into your product and then they churn still after a year? So then you probably don't really have product-market fit, right? So figuring that out together with the founders and having very honest conversations, I think makes a big difference.

And then I think the other element of our entrepreneurial DNA is we have a fairly big team, what we call strategic resources, that helps our portfolio companies to be successful. So that means we have a whole talent team that helps them recruit, especially in the early days. Look, if you're a seed stage or even pre-seed company, you don't even have someone that manages HR and recruiting for you, right? So, it's either you as a founder do that on a Friday afternoon when you're already completely exhausted from the week, or like it's an intern doing it. I mean, yeah, you can do that, but it probably helps if we have here three people on the payroll that do that for you for free, right? And send you super qualified leads. Then we have the same for communications.

00:11:54

So we help you position your company in the media, like what's the best story, like what are specific elements to then kind of be out there and communicate them. The same for finance. So if you need to raise debt or the next equity round, like we make sure the pitch deck is amazing, the data room is in perfect condition. So all of that is what we bring to the table, because we have seen ourselves as entrepreneurs that this is super important and ultimately makes a big difference.

Host 00:12:26

Certainly. I mean, I see how relatability is key here, and from the perspective of a founder I think that's something that you really need at the start, to not feel entirely alone. But I mean, maybe let's also look at your strategy of capital provision, because obviously at the start there's no way around it. And you need wood to fuel the furnace. And you typically [unclear] ticket sizes between 2 to 7 million and then push for larger seed rounds to guarantee some leeway and runway for founders to actually have time to hit the ground running. But I mean, a lot of other venture capital funds, they preach lean pre-seed rounds to avoid dilution. And maybe as a contrarian take, why do you strongly believe that a larger capital cushion at the start is actually better for founders' long-term equity and focus, so they don't feel maybe over-rewarded at the start?

Christian Meermann 00:13:15

Yeah. So I would say if you look at the current market, we are in a market where it's all about growth again, right? So it's all about who can grow very fast. It's a hyper competitive market. Like if you build something, if it's a good model, you can be pretty sure someone else somewhere in the world is building the same, right? And if then, let's say, someone builds that in the US and raises 5, 10 million on day one, because someone as a VC believes in that and gives you that money, that team can scale much faster than if you raise a 1 million pre-seed round, right? It's going to be tough to catch up, and then obviously kind of that compounds. So if your US competitor then quickly raises the next round of, let's say, 10 million, and then you think, okay, after the 1 million I've raised I'm now going to raise four, you're already far behind. And in such a game, where it's all about fast growth, who is the first, who's the number one in the market, I just don't think it helps if you raise just very little money and maybe you save two percentage points on dilution. It's just not worth it, right? And also I would say if we kind of invest and let's say we do a bigger seed round, that doesn't mean it comes at a horrible dilution, right? It comes at the usual dilution, right? That's basically given by the market. So in the end I don't think you dilute

00:14:45

actually more. So yeah, I would always optimize: like what's your goal, which is, okay, I want to build kind of the market leader globally, and then it's all about, okay, how can I do this the best way possible, and how can I make sure I have sufficient funds to also not worry about fundraising all the time, right? So if you only raise a little bit from angels in the beginning and then 9 months later you have to raise again... fundraising always takes time, right? You need to prepare a pitch deck, you need to talk to a bunch of investors. So rather take a bit more money in the beginning and then have 18, 24 months of runway and you can really focus on the business. That's definitely worth it.

Konstantin Girst 00:15:25

It's a good point. It's actually funny, because I think it sits right in line with the discussion that Julius and I had this morning, because just yesterday we published an episode with the chief of staff of Peec AI. And I mean, they got to 10 million ARR in 16 months, which is super impressive, but we did some mental math and thought, actually, with them approaching 100 employees and expanding to the US, like they're probably very much relying on external funds right now to fund their operations, but then that will certainly help them grow as well. And when looking into early stage investing, I actually recently just helped friends of mine to prep for their Y Combinator interview, and they actually got in and they'll be part of the next batch. So congratulations. And it's the classic American story of young founders. They have strong academic backgrounds with Ivy Leagues and then professional brand names ranging from Goldman, Jane Street and Google. And then in the US that's often already sufficient to open the gates to institutional support. And I mean, you at Cherry look at roughly 10,000 startups a year and then decide to back 12 to 15. And you've also stated that the top three criteria here are team, team and team, and that you're specifically looking for resilience here. So when you're sitting in a 30 minute Zoom pitch with a founding team that has no revenue and is just like in the middle of product development, what are some micro signals, behavioral cues maybe, that make you guys say, "Okay, this is the person that has grit to return the fund and be a meaningful portfolio company"?

Christian Meermann 00:16:56

Yeah. Look, I think when we talk to founders for the first time, I mean, you look at many different... or you try to discover many different signals. So one is, what was the passion and motivation and drive of that person, right? So are they really in this for the long run? Do they have the hustle, the grit, the resilience to do this also when it gets tougher, right? Because it's never a straight line to success, right? I mean, that's always... if you look at companies, you always think, oh wow, let's say Anthropic, ah, that was always easy, always a mega company. No, it wasn't, right? So it also took them a while until it took off, right? And for many years and months, it looked like OpenAI is the clear kind of leader in the game, until they were able to turn that around. So, I think we want to see that people can go through thick and thin and are extremely driven and motivated, even to a level where it's a little bit, okay, are they dying to win, right? And are they absolutely driven and passionate by whatever kind of their goal is, right? So sometimes if it's in healthcare, then more like, okay, hey, I want to make sure people live longer or have a better life. If you build something in fintech, okay, people are probably not going to live longer because you've built an amazing fintech product, but companies run better or more efficiently and you're creating value there. And if you're passionate about that, then that's exactly what we need, right?

00:18:26

And so I think it's about that. It's then also a bit about, especially if it's younger founders, like what is your background in that sector. Like, for B2B it's a little bit more important than for consumer. For consumer we also see founders that have no clue kind of in that market go in with a fresh mindset, which is sometimes better, right? Because then you're not thinking too much in restrictions of the market, and that can work well. In B2B ideally you are somehow familiar with that market, and that doesn't mean you need 10 years of experience in that market, but there can be, hey, I've done an internship in this and that company, I figured out this is a huge problem, so that's why I'm tackling this, and I've interviewed 40 people in that industry and this is what clearly came out of that. So we want to see that you've really assessed the market and are sure, you know, that this is a real problem, you know how to navigate it, and can show that you're bringing clear value with their product. So those are the things that we look out for.

Then if it's a team of founders, we also look how are founder dynamics, right? So how do they kind of interact? We've seen founders, they talk above each other and you're like, okay, hey guys... Like we want to see kind of this is very much a team in sync. Ideally, a team that knows each other for quite some time, right? So that not once the first surprise

00:19:56

or challenge comes up you see, oh, they actually disagree on this, right? Because if you know each other for long, you know how the other one's going to react and how to maneuver a difficult situation. So those are all things we look out for, and then obviously in the background we do the analytical work on: is the market big enough? How does competition look like, and do we believe this team stacks up against competitors and has a chance to win on that model?

Host 00:20:26

I think this is super interesting, since you just described that it's not only data-driven, but you actually look at like the interhuman relationships, which are mostly underrated as well.

00:20:36

Yeah. But now if we look at Cherry and look where you are dispersed across Europe. I mean, apart from your office in Berlin and Stockholm, London has become a super vital hot spot for Cherry. I mean, you hosted your summit there two days ago, I believe.

Christian Meermann 00:20:51

Correct.

Host 00:20:52

Shout outs to the ETN [unclear] boys, by the way.

Christian Meermann 00:20:55

Yeah, they were there on the ground. That was fun.

00:20:58

Yeah.

Host 00:20:59

Sort of the role models for us, after TBPN.

00:21:02

Yeah. And now you are also deploying a lot of your funds into the UK ecosystem. So while Stockholm is also certainly cooking and grinding right now, is there another city in Europe that you're currently monitoring with great interest, maybe something underrated like Athens? And if so, why?

Christian Meermann

Yeah, look, the beauty of Europe is that it's big and kind of there are many hubs and cities where great companies can be built, right? And we always say great companies can be built anywhere, right? So, we're not super dogmatic on, you can only build a trillion dollar company if you're based in London or in Munich or in Stockholm, right? So I think this company can come from anywhere, and there are enough kind of examples in the past where this has happened, right? If you look at UiPath, which kind of is a company that was started in Romania, right, which also hasn't been that much on the map beforehand. So from that perspective we're always open, and we're a pan-European fund, so we invest kind of wherever in Europe, or if it's European founders that have just kind of moved to the US, that's obviously also something that we're seeing more and more. And I would say, like, which other cities are relevant? I think Munich has done a great job, especially in the deep tech area and also, I would say, in AI. Paris I think has been

00:22:32

a little bit kind of stronger 3, 4 years ago, but also there, there's always kind of interesting companies. We just backed one there, Alter [unclear], which is a defense company, amazing founder from Paris. So look, we're super open, and whenever we see a great founder, we're going to back him or her wherever they are. So it doesn't matter too much. But yeah, if I look at capital allocation, that has been, I'd say, currently for us, London or UK is kind of the biggest market.

Konstantin Girst 00:23:05

Honestly, the Munich point is... I agree. I mean, Julius and I are both from Munich, so we like to be bullish on our hometown. But I mean, it's great to see that there's... I mean, there's super great talent coming from the universities founding their own things. I mean, we just talked about the new... raising the seed round that Isar Aerospace successfully did a couple days ago. But then also, I mean, there's a lot of external big companies coming in trying to scrape the talent. And then, I mean, in general I think Germany is not looking too bad right now, with Berlin and then also a huge innovation center in Heilbronn as well. And you mentioned the keyword trillion dollar company, and with your fund that you raised last year of 500 million you made it clear that you are committing to Europe and that you have the clear ambition to fund the first trillion dollar company coming out of Europe. And while I said some nice things about the founding landscape in Germany right now, I think while there's good momentum, there's some consolidation in the VC market. We see some funds kind of having issues raising sufficient funds. Then we see partners splitting or transitioning into the next generation. Some people pivoting away from VC and going into other buy-side options such as PE. So within that market environment, what gives Cherry the clear confidence to double down while others may not seem as sure and confident?

Christian Meermann 00:24:30

Yeah. Quickly kind of coming back to the trillion dollar point. So when we raised or launched kind of the new fund, we wrote a letter to all European founders, an open letter, saying, hey, we want to back the first European trillion dollar companies, because we feel Europe kind of is missing out a bit on that front, but we have amazing talent in Europe, right? So there's absolutely no reason why this should not be possible. And also at the later stages capital is available if you're building something great, if you have amazing traction. And so that is kind of the goal that we set out there. At our summit, finally, I had a fireside chat with Hermann Hauser, the founder of ARM technology, so the chip design company, and we talked also about the trillion dollar company, and he said ARM is now a market cap of 370 billion, and they've incentivized the current CEO to get to a trillion, then he gets a mega bonus of, I think, 800 million. So I think, look, maybe they are a little faster than any company we back in the next one or two years, but [unclear] the second trillion dollar company that we find.

Yeah, and look, as I mentioned, I think in the current market there are, and also I think AI is driving this, there are so many amazing opportunities out there that are huge, right? So there's so many markets that are up for grabs, and we have amazing talent, we have amazing founders, we have

00:26:00

great ecosystem, so you can raise money, you can hire talent here. It's also, if you look at average salaries for engineers in the Bay Area versus here, it's obviously a huge delta, which kind of helps you, right, to be more efficient if you build from Europe. So we just believe this is a generational opportunity now to build great companies and we're extremely bullish about it. Yeah, if you look at the fund landscape, to your earlier question, yeah, there have been a few kind of shifts. Some funds just kind of stopped investing or split up. I think that usually happens more actually based on the market downturn that we've seen three, four years ago, right? And then when the going gets a bit tougher, I think some funds kind of just don't make it to the next level. I think there's a normal selection. But like as a founder I would say that doesn't impact your journey. I mean, there's more than enough early stage capital available in Europe. So yeah, I think everyone wants to start a company should definitely go for it.

Host

Yeah. I mean, and we're certainly in a very strong market cycle right now. And I think maybe we also have to thank a certain politician for indirectly helping us to bring more confidence to Europe. And also maybe, who knows, maybe the big IPO market activity that we see in the US will have a spillover effect across the pond in a couple of months or next year as well. We'll see.

00:27:31

Yeah. And I hope that the European first trillion dollar company doesn't trade on a four or 500 multiple, but

Host 00:27:42

So maybe we can switch to a different topic, probably the elephant in every investor's room: AI. I mean, you've backed a couple of companies, or like you're largely exposed to AI as well with your portfolio companies, with Black Forest Labs, Dash0 as we talked about.

00:28:01

Yeah.

Host 00:28:02

And when we look at Europe, I do believe that Europe's strongest AI opportunity isn't to compete head-on with OpenAI or Anthropic. I think this isn't possible at the foundation model layer, but to win in applications and vertical use cases. But then you look at companies like Codesphere in Germany, for example, which I find very interesting. They recently secured major government-related sovereign cloud and AI infrastructure tenders, and Mistral in France, for example, which is becoming a key sovereign AI player. Does that suggest that Europe's real AI edge is not only the application layer but also the infrastructure layer for regulated, government-critical AI? And apart from that, are there any other industries in Europe, could be manufacturing or logistics or fintech with Revolut, that are riper for an AI agent overhaul than their US counterparts?

Christian Meermann

Yeah, look, I would say there are some kind of industries or models, if you take kind of defense, that have like a very high sovereign aspect, where you say, hm, before I kind of use a Chinese or American model, I'd rather actually use a European one. So I think that basically gives you the very clear reason to exist for companies like Mistral, and then this kind of trickles down into compute and hyperscalers, that you want to be European. So I think that there's clearly

00:29:32

a market for that. On the other hand, also to be fair, for many, many other use cases that does not apply, right? So then it goes more for, okay, what's the best model in the world? What's the cheapest solution? And I would say so far the focus hasn't been as much on actually what's the cheapest solution. It has been more on, okay, what's the best. But at some point, kind of the more the market matures, the kind of models get better and get to similar levels, it will also be, hey, do I have to use Anthropic for every use case, which is, I would say, in the premium bucket pricing-wise and obviously also quality-wise, or can I use for, let's say, 80% of my use cases maybe another model, right, that is open source or a Chinese model, that does the majority of my use cases for a fraction of the cost, right? So I think this will all happen. That's pretty clear, and there you are in a global game, right? So it doesn't help if you can say, "Yeah, but this is a European company." Yeah, but like if it's about either price or quality, you compete immediately on a global level if it's not about the regulated industry, right? So I think that's a little bit kind of how we always differentiate this. So it depends a lot on the industry you operate in, and if there's no real sovereign element or data security element, then you have to play on global levels.

Host

Yeah, I certainly agree, and I also like that you touch upon that there's not only

00:31:02

this valuation risk but also this unit economics question in the market, because many AI startups, as Peec AI for example, are still subsidized by VC, while token usage, inference costs, agentic workflows, they all create real marginal costs at a large scale. So even when large enterprises begin reassessing tools like Claude, I mean, Microsoft did it a couple of weeks ago

00:31:27

because the usage-based bill becomes hard to justify. There are also some companies like... I listened to the most recent 20VC episode with the Mccora [unclear] founder, and he said that they are spending more money on AI agents than on headcount, and he thinks that in 3 years this will be the case for every S&P 500 company. I don't know if that's really realistic, but in regards to that, is the market pricing AI startups too much like traditional SaaS companies before they know that the margins actually work?

Christian Meermann

Good question. I would say at the moment you get a very high premium for hypergrowth, and we've been there before. It was the same in '21. And if it's all about growth, then that's kind of where you get the multiples from, right? And it's less about unit economics, which is, I think, fine in such a big technological shift, right? And then it's all about, okay, who has a model that's kind of innovative or something that's new and that kind of drives extreme adoption and revenue. So you see that actually quite often. So like, are valuations a little frothy and rich? For sure, in many areas. On the other hand, we're also seeing growth rates that are absolutely unheard of, right? That hasn't happened in the past, that a company scales from zero to 100 million in just a couple of

00:32:57

months, right? The question is obviously how sticky is that? How defensible is that? Is that still going to be the same in two years? So look, it's a crazy market right now, that there's kind of so many technological developments at the same time and also a lot of money chasing this. But on the other hand, it's also extremely exciting, because it's a huge technological shift that only happens every decade or maybe even only every 20 years, right? So we've got to embrace it. And there will be many new generation companies built.

Host

Yeah, I think it's super fascinating to see how fast something that is certainly by now a general purpose technology is evolving, and then being in the middle of it and then trying to understand it, make use of it and then see how it develops. Maybe to link that back to what we established earlier, that maybe it's not the most difficult thing for an investor to actually source the company to invest in, but actually to be able to get on the term sheet and then get the contract signed. We actually recently spoke with a hardware founder here based in Stockholm, in Copenhagen, who said there were so many VCs reaching out to him that he actually had to hold some of them back, and then it kind of came down to which VC put in the most effort and showed actual interest and tailored support, talking about that someone reached out and then like in the middle of their night they got Felix H [unclear] on a call to convince them to let them write a ticket for them.

00:34:28

And I mean, we mentioned Dash0 a couple of times, and you also talked about that you sent flowers to Mirko's wife and sent his kids some Cherry merch. So, I feel like you seem to understand what's necessary there. But then, while everything becomes more data-driven and everybody's trying to do the math correctly, would you say that in the scenario that we're currently in you put even more emphasis on relationship building than maybe a couple years ago?

Christian Meermann 00:34:55

Yeah, totally. So in the kind of early stages of building a company, or like talking to founders, there's also not so much to look at in terms of kind of other stuff, right? So it's really all about the team and less about what are the numbers. And so like if you're a growth investor and, let's say, you invest Series C, D, E onwards, like you track a company for one to two years, you've met the team a few times, you look at their numbers, you even look at how have they performed towards kind of their targets that they've told you a year ago. So you just kind of put that together and figure out, okay, is that good or not, right? So it's a fairly objective decision in the end, right? Because it's extremely analytical. And then obviously comes the price discussion, like, okay, which multiple do you think is the right one and how far can you stretch as an investor? But at early stage, it's all about the team, right? And it's all about building this relationship. And also, look, we always say the kind of investor and founder relationship lasts longer than the average marriage, right? So we usually partner with founders for 10 plus years. So you want to make sure from both sides that this is kind of the right one, right, and the right match. So we also encourage our founders that we are kind of about to partner with and say, hey, talk to all other founders in our portfolio. Talk to whoever you know in the market. Ask them about Cherry. Ask them about the partner, kind of who's

00:36:25

on that investment and then who is going to be with you for the next 10 years, like how they are, how we behave under stress, kind of what have we done for the other companies in the past. So it's all about that, and then making sure kind of both sides know what they're getting into. And then obviously when it's about, hey, kind of a founder has six other term sheets, then I think we try to show kind of our value with introductions, with our strategic resources team that I mentioned, and hiring, comms, and sometimes they just kind of start hiring for that company before we've even signed the term sheet, just to show kind of how we're in this as a game. And then sometimes it's also a little bit about, okay, kind of the emotional side, right? So, and in the case of Mirko, like I had talked to him, I think, for three weeks, three times a day, and then at some point his wife was like, hey, you're talking to Christian more than you're actually talking to me. So it's like we're getting into difficult territory, so I thought I'll send her some flowers to make up for that. And yeah, I think that's also just a human element that you have to have in those phases.

Konstantin Girst 00:37:45

Yeah, I mean, I guess the more synergies you can realize between a portfolio company and a fund, the better. But obviously it comes down to the human aspect. [...] But in the end, like the decision if you want to make a job offer or anything will come down to: do we actually like sitting next to you for most of our time during the day? And maybe to get back into what founders bring one last time, because we talked about that a lot today. I mean, you observe that while AI puts a lot of markets up for grabs, there has been a market shift from very execution-strong founders with a business background towards a desire from investors also to see more technically capable founders. [...] So for those of our listeners who are interested in maybe going into entrepreneurship or are going into the buy side and working in venture capital, how can they position themselves to become successful with these goals when they don't have the technical capabilities that someone like you might be looking for?

Christian Meermann 00:39:05

Yeah. First of all, that has changed over time also, right? So I'd say 10, 15 years ago, when it was... probably more than 15 actually, to 20, when it was in Berlin at the big times of Rocket Internet, right? So I think technical expertise mattered less for founders. It was more about, do you have the execution skills to scale a company very fast? Because it was mostly consumer, it's always a land grab game, you've got to make sure you build the number one in that market, because otherwise, like, there's no chance in winning. And then it was more like, okay, where is kind of a good execution-heavy founder, pair that person with a CTO and then off they go, right? So that has changed massively. So what we're looking for is founders, look, ideally they are kind of engineers by background, but obviously not every founder is. And I think the AI world has one advantage, which is also, as a non-technical founder you can do a lot, right? I think the flip side is you still need to have a very high technical understanding and you want to do that, right? So, if you're just a business student and you love finance and you just want to start a startup because that's the fastest way to make money in your mind, that's probably not the best motivation and the best recipe for success, right? So, that doesn't fly. But if you're really willing to understand things technically, you learn how

00:40:35

to use Claude Code, dig deep, understand it, like what is important, how do I hyperscale, how do I get to a great product, what's needed kind of in terms of hiring on the engineering side, so how do I bring on the best people for that, I think then you have amazing chances, right? And I think also for everyone that has kind of finished the business studies, I mean, the ship has sailed, right, to say kind of I study engineering now. But I think it's okay, right? You just have to have that hustle and grind to go deep and be very open for that technical understanding. And sometimes I see that kind of missing in some founders that are really just kind of, okay, yeah, I want to make money and I have the CTO and he takes care of it. That doesn't work, right? So you really need to understand your product and really need to understand what do customers want? How can I meet that? How does that kind of work together? If you're not willing to engage in that technical discussion, you're not going to build a successful company.

Host 00:41:40

Yeah, I think this is very forward-looking and I really like that perspective. I think there's no way around being or having somewhat of a technical understanding these days.

00:41:51

Well, you've also spent a lot of time with Claude Code recently.

00:41:55

Yeah. I mean, if you reach the point where we have to decide about the top-up of credits.

00:42:03

Yeah. So this, I mean, this was a very, very interesting conversation so far, and we would like to round up the episode today with somewhat of a personal question. Because in a different podcast you gave a warning to young professionals wanting to join a fund like Cherry about somewhat the psychological reality of VC, because traditional jobs have a, yeah, 24-hour reaction cycle. But you just mentioned you plan to partner with startups for 10 plus years. So VC has, I don't know, on average probably like a five to seven year feedback loop. So how, like on a personal level, do you evaluate performance or maintain motivation when you won't know if your investment decisions were actually brilliant or also disastrous until nearly a decade later?

Christian Meermann 00:42:55

Yeah. Good point. So, as I mentioned, the startup journey is always a roller coaster, right? So that means feedback cycles are extremely long, right? So until a company has IPOed or exited, you basically don't really know, right, how they're doing. Obviously, like, what are then milestones you can measure it on? Are kind of follow-on rounds, right? So if we invested at seed, then your next step is, have they raised a great Series A from a very good investor, kind of, you know, good amount and size of that round. So that's the next validation point. But it's also only just one single validation point, and it can be completely different one year after, right? And I think, and sometimes we see this, that people are like, "Wow, my portfolio company has raised an amazing Series A." Like, yeah, that's great, but it doesn't mean the company has made it, right? So we're still very far away from that. And we're also quite clear on that, right? I mean, we have a graduation rate of 85% from seed to A, right? So, for me, raising an A is like... if that doesn't happen, then actually we've probably made a mistake beforehand, right? So like raising a Series A, that's almost a given, and I think then kind of the magic happens afterwards, right? So does the company really kind of hit a great kind of growth trajectory? Does it compound over time? Are they great in shipping products? So yeah, these

00:44:25

feedback cycles are long. We're talking about 7 to 10 years. So what does that mean for someone joining a venture firm? I think, look, theoretically it's always an amazing job. You're going to meet many smart and motivated people as founders. You learn a lot, right? So every day you kind of dive into three new industries and you learn here, you learn there. So that's obviously intellectually an amazing job, right? It's very stimulating. It's fun, it's cool. But then also after two years people figure out, like, it's also a lot of work kind of to find exactly the right companies. So I think anyone looking for like a 9 to 5 job where it's a bit of intellectual thinking, then venture is probably, or at least Cherry is not the right place. We believe kind of it's a grind, right? So kind of we need to find the best founders in Europe, and that means a lot of work, right? So that means scanning through 10,000 decks a year, figuring out what is also thematically something we want to back, and then let's figure out what are the best companies doing exactly that in Europe. So it's a tough job. It's also very rewarding on the other hand, right? So once you see a company thriving, you're like, "Wow, that's amazing to see." Gives you very positive feedback, but it takes a while. So you need kind of that level of resilience. Otherwise you get

00:45:56

quite frustrated quickly in the VC job.

Host 00:46:00

Yeah, I think this is a very inspirational closing note to us and our listeners. So, thank you so much, Christian, for your time. This was a pleasure. I really enjoyed the episode.

Christian Meermann 00:46:11

Likewise. Yeah. Thanks for having me. That was cool.

Host 00:46:13

It was to me. Thank you so much.