David Höhl

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 00:00:00

Hello and welcome back to a new episode of Campus To Capital. Today, Julius and I are joined by David Höhl. David is a tech-based venture capitalist as he's a partner at Interface Capital, a VC fund that invests into tech companies, but he's also currently starting his own hedge fund called Phoenix Alpha Capital. Well, it's very nice to have you here today and we're looking forward to speak to you, David.

David Höhl

Yeah, perfect. Thank you. Thanks for inviting me. I'm very much looking forward for the next hour or so to tell you a little bit more.

Konstantin Girst

And yeah, so I think today's episode is a little bit different because I mean normally in the past we have talked to people that have been in this industry for decades or that have been at very, very big companies. And at the start we usually talk about the background of people and I think it's nice that you are relatively young and I think you're still a lot closer to starting off your journey in the world of finance and being in education as well and I think then that makes it very interesting to hear how your experience and expertise so far have led you to where you are today. I mean you went to university in London and then during your time at university you also had work experience in banking already, for example at Goldsmiths [unclear] or HSBC.

00:01:31

So could you maybe give us a brief overview on how you maybe even entered the world of finance and business and how what you have done so far led you where you are today?

David Höhl

Yeah, sure. So little recap. So initially I started a dual study program in Germany, HSBC, kind of the first class there of dual students back then in 2014 and yeah, studied banking and finance over three years, figured out, you know, it's kind of very slow when you work in a bank, you know, you're like a very tiny wheel in such a massive corporate and I was really kind of lacking the feeling of impact and that you can actually move stuff. So this was the reason why I then studied development economics with focus on Sub-Saharan Africa. This is why I went to SOAS in London because they have a clear focus on that. Also studied in the US. And then during my masters I was tinkering around with a fintech idea of mine which is a bit similar to what Scalable was in the very early years, like a robo-advisor but had kind of a sustainable touch to it. And then I talked to different investors and then one of them was Yas [unclear], the CEO and founder of Hanse Ventures, small venture fund/incubator in Northern Germany. He said, "David, I don't, I really like your idea, but I like you.

00:03:01

How about you join Hanse Ventures as an entrepreneur in residence?" Which is a role, it's like a mix of being an analyst, a VC analyst, and at the same time getting very operational into the companies that they co-founded and invested in very early on. I did that, afterwards moved on from that and worked operationally in growth teams for like five different early stage startups, always from zero to around 3 million in ARR. Always built up marketing, sales and hiring. One of the companies failed, the founder introduced me then to Niklas Jansen, the co-founder of Blinkist, also one of the partners at Interface. And yeah, then we built Interface back then, like end of 2021, beginning of 2022, together with Christian Reber, the Pitch, Wunderlist [unclear] founder, and yeah, always learned about public market investing when I was 14. And then got more and more nerdy about it. And yeah, until today, so now 29. So it's like 15 years ago.

Julius Ambrosius

Very interesting journey so far. First and foremost, hello, welcome also from my side. Thanks for the quick brush up of your career. I think we would like to start with a little touch on VC. So as you just mentioned, you work alongside Christian Reber at Interface

00:04:31

Capital as a partner. And we're wondering how early stage investment typically gets sourced at Interface, at a fund like Interface.

David Höhl

Yeah. So I think what we did a lot is, I think there were different ways. So I think over time, I mean especially Christian and Niklas built up a good brand so they got good deal flow, like inbound. But I think more and more we've seen that we get great deals via good relations to other VCs and very early stage angels because we try to get in very, very early. I think this was until the very end our main deal source and on top of that we did direct outreach if we saw that someone who has a very good background is starting something new. Yeah, so I think these were kind of the three main sources, but I think the key task for you as a VC is, I think, to not just rely on your core network, but constantly think about who is a great multiplier who I could reach, who then, you know, he doesn't open one door, he opens, by being in touch with him, like 10 or 20, and very valuable ones. So to understand who are the high value contacts, and hopefully who you also like

00:06:01

just on a human level, I think then this job will get much, much easier and I think until the very end this was our main source.

Host

So as you just noted, VC is a people's business. But we talked in another episode, we talked also to a general partner at Creandum, Schmincke, and we figured that it's also, yeah, I mean we live in a data-driven economy, so data is essential for investments. What would you say is more important, the people side or the data side, and does it differ for different cap sizes or stages of investments?

David Höhl

Yeah. Yeah, definitely. So, I know Creandum is also doing a lot of Series A's. We mostly get in super, super early. We mostly do pre-seed and seed, most of the time pre-seed, or even try to invest at some angel level round. And I think this is mostly a people business. And you know, some of our misses were also because we didn't like the pricing structure they were thinking of or some parts of the business model, but we liked the founders and then didn't do the deal. Luckily, it didn't happen too often, but I mean it happened, I think, two or three times, which was stupid because the firms moved on to do very, very well. So I think the earlier you go the more

00:07:31

it's a people business. I think the later you go the more it's a data one, but even if you look at pre-seed and seed, right, you can see are there kind of first indications of a market pull or is it something that really has to be pushed in? Are there first indications of a sales cycle which is faster than on average? And of course you can do all kinds of research about the market itself, which is also quite data-driven.

Konstantin Girst

Well, I think working with the right people, knowing the right people will probably always be the necessary edge to get you to the next level. And I think what's really interesting today is because, as I mentioned earlier, we talked to more established companies and others in the past. But I think now we are actually having the opportunity to talk about something that is happening right now, an entrepreneurial journey that is happening on the go as we speak. And I think we really want to take a deep dive into how you actually start a hedge fund and what all the strings are looking like that have to be pulled in the background to get this going. And maybe also on the note of knowing the right people, what kind of were the personal motivations and also the learnings that you were able to take from your VC background into kicking off this journey of starting the hedge fund?

David Höhl

Yeah. Yeah, makes sense. Okay. So I think first about the similarities between VC and public markets. I think

00:09:01

it's still stunning to me how many VCs see this as completely different worlds, who think it might even compete with each other in some shape or form and see public market investing as some kind of distraction, when we see, I think, it's the entire opposite. At the end of the day public markets are your kind of final enemy. I mean the public markets decide about the terms in private markets, you know, the multiples that are paid there publicly at some point will trickle down, and they trickle down even to, as we've seen in 2022, Series A or even late seed levels. So having a good understanding of public markets, I think, will make you a better private market investor. Absolutely. You have a much better understanding of growth rates, multiples, margins, and that's just crucial. So there are similarities. I think what's different is that public markets are an analytical game. First and foremost, it's about finding the edge of the price and the value, finding the difference between what's happening in the stock price and what's happening really within a company or a sector. While VC is mostly an access game, right? It's knowing the right people, getting invited to the right round, being seen as valuable because you can do customer introductions, introductions

00:10:32

to further investors. And if you're just, I don't know, nice to founders and if you can build a good relationship to them. Yeah, I think these are the main differences and yeah, how it came to the hedge fund. Yeah, just through, yeah, basically a lot of failures and then getting to know people who trusted me.

Host

Yeah, very interesting. And I think for some of our listeners, we might have to clarify, explain what a hedge fund really is because I think there are a lot of misconceptions with hedge funds in general, that they are just bad people who short companies and make money because others fail and lose their jobs. So maybe you could give us a quick brush up on what a hedge fund actually is and looks like.

David Höhl

So a hedge fund is generally quite similar to the mutual funds you can invest in as a private investor, if you go to your Sparkasse or Volksbank or if you, I don't know, invest in all kinds of public funds, right? So what the difference is, if you invest in, let's say, a so-called UCITS fund that you can access as a private investor, is

00:12:02

that a hedge fund can hold more than 10% in just one stock. Right, so it can be much more concentrated, it can use derivatives even to a larger extent. It can also bet on falling prices and it can create a cash buffer which goes significantly above the 10% that you can normally do in mutual funds. So, you're much more flexible to react on the market. And if you look at the history of very great performing funds, you'll see the portfolios, and this is probably one of my first contrarian takes, are much more concentrated than this mantra of, oh, you have to diversify very broadly. And I think these are the key differences. But there are also hedge funds who never go short and just invest long and just do kind of very boring buy and hold. So at the end it's really about what you want to create with it. And yeah, there, I think, they are much less mysterious than most of the people think. And they are not necessarily hedging, right? I think most of the hedge funds actually don't hedge because they focus on absolute performance. So they often don't care that much about volatility, but they

00:13:32

just care about, you know, the final end result after a year or two or three.

Host

Yeah, and I mean, as you briefly noted before, hedge funds, in contrast to venture capital, are actually part of the public market infrastructure. But despite that being the case, I mean, obviously it's not the same as you just put money into your neobroker and then you can buy, I don't know, an Nvidia stock or MSCI World or something. I mean, the access is not always directly there. There needs to be maybe a certain investing threshold. And, if I remember correctly, in a private conversation that we had roughly two weeks ago, you mentioned that the first investor round for your hedge fund is now closed. Could you maybe tell us how you're going to plan to approach this in the future for Phoenix Alpha Capital? What the investor rounds are going to be like and maybe if there's going to be a certain threshold that people need to meet in order to be able to invest.

David Höhl

Yeah. So, it's at least 100k per investment, but this is just a legal threshold. It's actually very similar to venture funds. And what we will do with the first chunk of the money is we build a track record that will over time, and then hopefully, or as we plan, attract more investors, and we have a short list that we will reach out to when we feel comfortable

00:15:03

with what we build. Of course we have a track record of, you know, the last years that enabled us to raise a fund in the first place. But it's always a stronger signal to have the track record within the entity that people will invest in in the future as well.

Host

Do you have skin in the game, if I may say so?

David Höhl

Yeah. Yeah. So, we are two partners, D [unclear] and me, and we both have skin in the game.

Julius Ambrosius

Yeah. Okay. I think that makes the whole thing a lot more interesting. So, but as Konsti already mentioned, if you buy or sell a stock now, you don't, yeah, have a neobroker like retail investors. There has to be a real infrastructure and custodians that you use. How do you choose these and how does that really work?

David Höhl

Yeah. So you can, and quite a few funds run their infrastructure via IB. So they are kind of the market leader there. You can trade really at scale. It's super quick. You have very low spreads and very low transaction costs as well. So I think this is normally the go-to address, but you have quite a selection that you can choose. We do mostly

00:16:34

buy and hold. And then try to, you know, if the markets get very euphoric, we try to build up a little bit more cash, very similar to what Buffett did at Berkshire over decades. And then if we see the market gets more depressed, we take that cash to invest more and more. So we don't need a very complex setup with, oh, then there's a signal and then there's this automated trade and stuff. In that regard we are probably the most boring hedge fund you can think of.

Host

But talking about strategies and market approaches and maybe also values behind Phoenix Alpha Capital, where do you see the USP or kind of a selling point, a good position where you think Phoenix Alpha Capital is doing something better or different than other hedge funds?

David Höhl

Yeah. I think, firstly, this is probably the second contrarian take here. I think you really don't need to reinvent the wheel entirely. I think you need a unique view, but there's a lot of great data about people who outperformed the markets over decades and you can learn from them. So I think our strategy is to mostly focus on small and mid caps. Historically you see an alpha from small and mid caps compared to large caps, right? Then

00:18:04

we only invest in growing markets, growing companies and companies that are either profitable or at the brink of becoming cash flow generating, and this already excludes, if you look at the return of overall indices, which is roughly 10% if you look at the S&P 500 per year. Then you already cut out a lot of the companies that are not wonderful companies. And I think this is being very disciplined with that approach to really invest in beautiful companies with a strong moat, with healthy balance sheets, that do very well and at the same time have a management that also has a lot of skin in the game and often buy stocks every year or every second year. I think this, if you just look at the historical data, already gives you quite an edge, and at the end, yeah, your unique edge at the end is just staying very rational, staying very calm, thinking very long term, because this is what most people don't do.

Host

And is there a certain regional or industry related focus within the investments that you guys are doing?

David Höhl

No.

00:19:34

So we have a few theses. So one is, we believe that the energy mix in the future will be very different to the energy mix today. We believe that solar will also be really very relevant in the future. We believe that, you know, we transition more and more towards a greener economy. So we don't think, oh, you have this massive comeback of oil and gas in the next, I don't know, 15 years. I don't think so. So this is one thesis. The other one is we believe in general in a more decentralized financial system. We generally believe in Bitcoin as a store of value if you think in the very long run. It's another thesis. And we believe that small profitable companies that are healthy and know how to grow at a sustainably high level, they will do much better than massive firms that are slower, right? This is a bit this private market startup kind of mentality that we bring in. So these are theses, but in general we look globally.

Host

And so when you focus on sustainability, do you also adhere to legal sustainable thresholds like Article 13 [unclear]?

David Höhl

So we are

00:21:04

so I think over time we will dig deeper into what kind of thresholds we want to hold ourselves to. I think right now we don't only invest in, let's say, what the mainstream would consider sustainable companies. We invest in great companies, right? They can be in the solar space, but they can also be, I don't know, in the food delivery space, right? Or just, I don't know, the home rental space, right? But we believe that companies that behave very badly on an environmental level will automatically have a disadvantage in the future because of higher costs, more public scrutiny and so on.

Konstantin Girst

I think, as Julius has just briefly touched upon, when we talked about that we were going to do this episode and then we also chose that topic that we're going to talk about, I got really interested and excited about talking about the regulations behind all of this, because I mean we are in Europe, this is probably the world's capital of regulations and there are obviously a lot of regulations and directives for alternative investment options. And for example, I saw there is a directive on alternative fund managers and, for our listeners, that has certain requirements, like you need to have a depository that

00:22:35

oversees your assets and ensures their protection. This can be a bank for example. And then obviously you also need to outline your investment policies, etc. And I saw that this only applies to funds that have more than 100 million under management. So maybe you guys don't need to be there yet, but I would like to know, I'm sure there have been other struggles and challenges to meet regulations, and also maybe in respect of what I just touched upon, are you already planning ahead and already preferring to stick to these regulations now so you don't need to face all of this tough work in the future?

David Höhl

Yeah. So my partner, he's the one for all the admin and regulatory and legal stuff. He's doing a great job so far. So, yeah, we have a Luxembourg setup and we have a fund admin that has been in that space for over a decade and is managing a very high number of AUM with several hedge funds, and they're doing a great job so far. But right now we make sure that we comply with all the regulatory stuff that is held against us right now and, in case of D [unclear], even go beyond that. But yeah, 100 million AUM is not where we are yet. So we will

00:24:05

dig deeper there probably in two to three years.

Host

Oh, fair enough. Recently I met somebody who founded a form of cryptocurrency which sort of works like PayPal and then the currency kind of backs your carbon footprint. So they kind of put some money back into the environment, and I also talked to them about the regulatory struggles that they had to face in order to open up shop in Europe and they kind of highlighted, which is something that I've heard before as well, that they kind of try to meet the Swiss and German regulations because those are generally the toughest ones, and then if you adhere to those you'll be fine in every other European country as well. Is this also something that you have experienced?

David Höhl

You mean if we, once we meet the EU requirements, we're fine globally?

Host

No, if you meet, yeah, if you meet the requirements for Germany or Switzerland in the EU, if that makes you fine within Europe, because German regulations are generally known to be the toughest ones.

David Höhl

Yeah. Yeah. I think right now we just apply to the Luxembourg ones, which is kind of EU-wide in general. So...

Host

Okay. Yeah. Okay. So maybe switching from this very interesting regulatory discussion to concrete investments. You talked about that you have a certain track record and prior to the podcast we also personally talked about some of your

00:25:35

personal investments. And maybe you could walk us through one or two of these and also the thinking behind some of those moves.

David Höhl

Yeah. Yeah. Perfect. So I think, first of all, to every listener out there, I also did tons of mistakes in the past, right? I don't want it to come across this way of, he did everything right, this is now what's enabled him to become a VC partner at a young age and then building his own hedge fund. I think this is mostly built on a lot of mistakes, right? And I think kind of the biggest edge you can have probably is consistency, just keep going and keep reflecting, right? I think if you combine consistency with reflection, I think that's probably one of the biggest moats you have, because most of the people don't apply one of those and especially not two of them at the same time.

So regarding the investments, one investment that did rather well, or shows the analytical thinking, is the one in About You. I have marketed [unclear] right on Substack. Before, I did this privately in a PDF that I sent to a few people, and I was holding About You for quite some time and then, as you've seen, the price went

00:27:05

down and I bought more and it went down and I bought more and so on. And then I kind of felt like the last person on earth who believes that this is a great company. Right, and then I was writing my market letter in, I think it was June or July 2024: it's very likely that About You will be bought by Zalando because Zalando had over two billion in cash. Now you have the competition with Temu and Shein. They are bidding on the same AdWords and so on. So they are driving their own marketing costs up, which doesn't make any sense. And yeah, so, and then luckily they bought, like four, five months later, from Zalando. And I think what I liked here was that About You, so there has to be a misconception about a company. The misconception about About You was that it's just a fashion marketplace. The market didn't really see the B2B business, which has, or had, of course much better margins than the fashion marketplace and which was also growing quite significantly, and I think at the point of acquisition was getting close to hitting 100 million ARR run rate within the next months. So very significant business, and at some point About You was really at like 660 million market cap or so. So only the

00:28:36

B2B business was valued with a revenue multiple of around six and then two billion in revenue from the marketplace, you just got it on top for free, right? At the same point they were getting more profitable. Not entirely there yet, but you could see if you just reduce marketing and sales costs, that's what I do a lot, then they would become profitable. And at the same time you see that Tarek Müller bought stocks again at €650 [unclear]. So he had quite a strong incentive to make About You look better. And Zalando didn't have this B2B software part. They focused more on the fintech and their own buy now pay later part. Yeah, and so you could see they were growing, they were winning market share, about to be profitable, management had skin in the game, growing market, misconception about the firm, and this is what made it interesting.

The mistake I did with About You, and it's very important to point it out here, is: often you see when a company drops, and I'm not a fan of reading charts, right, but I'm more looking at the psychology in the market and the sentiment, and you see a lot when it drops, you know, it drops further and further and further, and before it rises you see some kind of bottom building. And for me this is not something like reading charts, it's a bit more like just sensing the psychology, like people

00:30:06

get a little bit more calm about it and then the first daring ones, you know, get in and then the stock slowly moves up again. And this is a mistake I did a lot in the past, I bought way too early and I should have waited a bit longer to see the first indications of a bottom to buy then, and this is a mistake that I did in About You, but still, of course, at the end when it rose like 130% in a day or so, I was happy to see that.

Host

I can imagine. I think these are the most interesting success stories because if you really trade inverse to the rest of the market and you keep investing for months and months and then finally you see the chart candles going up. This has to be such a great feeling, right?

David Höhl

Yeah. I mean sometimes they're going up in between and then it goes down again.

Host

Yeah, true.

David Höhl

It's tempting to draw conclusions too early and, you know, I for example never look at candles and stuff, because I really try to zoom out and zoom out and zoom out, and especially in these moments when things are [unclear], to think very, very long term, because I mean I don't care where the portfolio is in a month from now. I care whether it's in a year or two years or three years. And I think the fact that I can build that one is really a testament of that, because I mean so many, I did the first trade war, Covid, the 2022 tech

00:31:36

bubble burst thing. I was invested in all those times, right? So, and if you don't want to throw the towel and say, what am I doing with my time? And I think the only way to do that is to really zoom out.

Host

Oh, it's still nice to kind of get that sense of approval for your intention and for your research in a way though.

David Höhl

Yeah, I mean it definitely is, but many times you just feel like an idiot for quite some time before you start to feel like a winner.

Host

Yeah. But I mean, as you just said, we saw such interesting times throughout the last five years in the markets. And right now is actually also, yeah, very volatile, very interesting. I just saw a chart this morning that the retail investors in the US are currently buying the dip again at the highest rates ever. And could you maybe tell us how the current uncertainty in the markets is shaping your investment decisions, or is it shaping your investment decisions?

David Höhl

Yeah, maybe one thing on buying the dip. I think a lot of retail investors love to buy the dip, but I think it's really important to think about: is this a great, healthy company with a great long-term view? Then you can buy the dip, or do I buy an index? Of course, at some point it will recover.

00:33:06

But a lot of people buy the dip for, I don't know, small caps that are just hyped up. And a lot of them will never recover, never, right? So I think if you buy the dip it's very important to think about what you're actually buying. So one thing about the current market: I think it's good to use the volatility to, you know, reduce your cash buffer whenever it drops significantly, because I think what is certain is that the administration in the US is in general pro business. No one, neither China nor the US, has an interest in a big trade war because it would be bad for both of them. Trump loves to be loved. He loves to be popular. He knows he won't be popular if inflation goes up a lot because of high trade barriers, and he loves to be the dealmaker, right? This is what we know, you know, he had this part in his book where he says, what art was for Da Vinci is deal making for me, right? And so, you know, he will have to make a big deal and announce it as the biggest deal in the history of deals. And I think this is all rather positive in the medium to long run. I think we will see more volatility in the short run, and it's a good time to use these dips

00:34:36

but also at the same time not to now see a little dip and go completely all in, because as we've seen in April it can dip more. However, I don't think that we will see the low levels that we've seen in April, because the market was a bit shocked because of the tariffs, and I think now the investors got more and more used to it.

Julius Ambrosius

So I mean this was very interesting to pick your brain on a very concrete example of your investments. Thank you for that. Maybe could you tell us how our listeners can follow you or get involved? I mean personally I can really recommend your Substack, Simple Alpha, but maybe you have another take on this.

David Höhl

Yeah, thank you. So yeah, I write most of my thoughts about public markets, I write them down on Simple Alpha on Substack. Apart from this you can just reach out on LinkedIn, I think that's the easiest way, no matter if you're a founder, because I will now move on from Interface and then we'll also go into a new setup to invest in venture early stage. And so very interested in that, but also interested to help you with, I don't know, either public markets or jobs. Yeah, just very happy to be helpful in some shape or form.

Konstantin Girst 00:36:07

Well, that's great. And yeah, as Julius touched upon, please go and check out David's Substack. I think for our listeners it's a very interesting [unclear] and I think for you it's great as, I mean, it's a great way of kind of establishing a personal brand but also serving an educational purpose. I think essentially those are two similar motivations for Campus To Capital as well actually, and yeah, please go and check that out. You can read about current market affairs and interesting news. For example, I saw you wrote something when Buffett stepped away from Berkshire Hathaway, but then you also share your own personal journey and your journey as an investor and how you proceed in this field. So very interesting reads there for everybody for sure.

David Höhl

Perfect. Perfect. Thank you. And yeah, I mean I share pretty publicly about what I invest in. So people can read it on my Substack. I share the performance of my investments. So yeah, I was very, very open because I really believe that it's important to share kind of the good and the bad sides. Because, especially in the financial sector, there's a lot of, you know, some shady coaches and all this kind of stuff, and with Phoenix Alpha and Simple Alpha I want to be kind of the counterpart to that.

Konstantin Girst

It's a great motivation. Well, thank you so much for your time, David. I think we had a very good conversation and I'm sure that not only ourselves but also listeners can draw a lot of good information from

00:37:37

this conversation.

David Höhl

Perfect. Thank you so much, guys. Really enjoyed it. Thanks.

Host

And for everyone listening out there, yeah, make sure to leave a comment. Subscribe to our channel and to David's channels as well. And see you in, yeah, two weeks. Bye, guys. Bye.