Christoph, the Zendesk angel investor, on fundraising and his lessons learnt

It's a great honor for me to be in the position to introduce to you the last lightning talk of this great evening. Actually, it's not a lightning talk, it's a fireside chat. And before I introduce the guy who's actually going to be interviewed during that fireside, I also want to introduce you the guy who's doing the fireside chat questioning. We have been very lucky to get on board Neil Murray. Neil Murray, a great guy who's actually doing a really great job trying to collect data so we can quantify investments by startups, not just in Denmark but in the Nordic region. Check out the Nordic web. But he's going to interview our special guest star tonight, a very interesting angel slash VC out of Norway. It is Hamburg, Germany, who we have a very special affinity for here in Denmark. He's very close to our heart because he's actually, to a certain extent, instrumental for one of the great successes of the Danish startup since the last couple of years. When nobody here in Denmark wanted to invest in him, actually even myself, this guy, he actually stepped up to the task and put in angel money in CentDesk. And I know when you talk to the guys, the founders of CentDesk, they actually credit a lot of their initial success to the fact that they, here was a guy who actually had faith in them and provided their first angel investment. So now we're going to hear some very, very great and interesting insights from Martin, a very trendsetting VC slash angel who's very specialized. Give it up to Neil and Christoph Jans. Thanks. Should we sit or? Yeah, where's the fireplace? Oh, yeah, where is the fireplace? Yeah, thank you for the introduction, Martin. I'm really pleased to be back here. I was one of the 70 people in that room a couple of years ago. So it's amazing. I left town and now I'm back and it's amazing to see kind of how much it's come on in those couple of years. So I'm very humbled to be on stage tonight with Christoph. Christoph thinks that we've never had an interaction before today, but we actually have. Really? Yeah, so a couple of years ago I had this amazing startup idea. Instagram for sales or some weird tagline. It was awful. Anyway, I cold emailed you and you did respond, but ultimately, yeah, you never really got back to me. I promise. Sorry. I don't blame you. I don't blame you. So I won't be too hard on you tonight, but I won't get revenge. But yeah, Martin mentioned obviously why Christoph, one of the main reasons why you're here tonight is obviously your involvement in arguably the greatest Danish tech success, Zendesk. So we're talking about how to and making it relevant for the audience tonight. So I think, I mean, yeah. It couldn't be any more real than this is down the road for you guys sitting in a loft went on to build a billion dollar company and you were the first investor in that. So, you know, what did you see in those three guys that were sitting around the corner from here? Yeah. It's a pretty amazing story indeed. And I actually met Alexander earlier today and we walked past the apartment, which was the birthday of Christoph. And I was like, wow, that's a really good place of Zendesk and brought back some very good memories. Back then it was really three guys, Mikael, Martin and Alexander. And today it's more than a thousand people across different across many different offices around the world. But I think your question was what I really saw in the company. And first of all, I didn't foresee that level of success. So it was really a lot of beginner's luck. It was actually my first angel investment. It was a very, very fortunate, lucky shot. I saw a great product. I saw a great marketing website. I liked the product. I liked the guys. And I saw a big opportunity, although I haven't been able to quantify it. So I just took the risk and it worked out. Okay. But what was it that you saw in those three guys in particular? Rather than the business itself? Did you see anything special? I mean, because for me, like I always have trouble kind of imagining kind of everyone in their garage or their basement or their loft kind of, you know, and then building these big companies. So I wonder what you saw in there. I think I'm smarter today with the benefit of hindsight. And when we look at new companies and we look at a lot of new companies every month, I always actually ask that question, like, what was it in these guys? And are there maybe similar trades in those other founders that we're looking at? So with the benefit of hindsight, I think I have a better answer than really the one that's like what I really saw back then. So with the knowledge of today, I can say that it was a pretty unique combination of talent, I think. So they had an awesome product guy, Alexander. They had an awesome tech guy, Morten. And they had an awesome business guy, Mikkel. So they had all the skills to take the company off the ground and to the next level in the company. They also had domain expertise around the help desk market because Mikkel was working in that industry before. And then they've also had some entrepreneurial successes as well as some failures before. So they also had just a lot of experiences and maturity. So it was a really, really good team. Yeah. Okay. And an exceptional team. I often, like my personal take is that I sometimes feel that Zendesk don't really get the kind of credit or the kind of hero status that they deserve. Like I said at the beginning, they're really one of Denmark's probably biggest tech successes. But I think part of the reason is that they left Copenhagen pretty early on and moved to the Valley. So a lot of people don't kind of know that true story. Yeah. I guess my question is, do you think that if Zendesk was born today, they would still have to move to the Valley so quickly or so early on to achieve that success? Or do you feel that like hubs like Copenhagen or other places in Europe have more of a chance to kind of build a big company from here? I think they wouldn't have to move as early. I think they would be able to raise money here today. They would also be able to build the initial team and get some traction. Yeah. So I think they wouldn't have to move at the three people apartment stage. They would probably be able to raise the first couple of millions here. To get to the level of success which they've meanwhile reached, which is more than $150 million in revenue, 2 billion market cap, like really, really big success. I think they would still have to move to the US or at least have a very strong presence in the US. Maybe not necessarily move the entire company over. But I mean, more than 50% of the entire software spend is in the US. It's also the place where you can raise the largest amount of money, where you can have access to the most talented people or at least the most experienced people in certain areas. So I think they would probably move but not as early. Okay. Yeah. Wow. And one of the early employees in Zendesk, a SIGF employee, he's now gone on to create a startup called ChartMogul. It's based in Germany. Yeah. What do you think we need to do here to ensure that kind of other early employees of Zendesk or kind of other big Danish companies have, you know, that we get those people back into the ecosystem here? I mean, is there anything that you feel that a hub can do to kind of attract those people back in? Yeah. Well, I think in Europe there are like a couple of startup hubs, like maybe five to ten cities where you can build a startup, where you have access to people with the right talent and also some people who've done it before. And Copenhagen is one of them and Berlin is one of them and London and maybe Stockholm or Barcelona. I think like in the end which city you pick also is a personal question. Like where do you just want to start? Where do you just want to live and maybe where do you have a network? So I'm not sure if there is something very specifically which Copenhagen can do or should do. You guys probably know much better than I do. Okay. So why are you here? I mean, other than kind of obviously speaking tonight and the Zendesk connection, are you looking at Copenhagen more? Is this a city that interests you? Is it Nordic, something, you know? You're not very geographically focused. We'll move on to that in a second. But I just wonder if there's something kind of, I mean, did you know that 800 people kind of gather in the community? Yeah. Well, I got the invitation. Thank you very much. I thought it looks like a great event and I haven't been in Copenhagen for a while. So we're interested in investing in startups all over Europe. And together with my colleagues, we're trying to go to a bunch of events like these all around Europe. So we're not, it would be an exaggeration to say that. We're really focused on Copenhagen or focused on the Nordics. We're equally interested in finding great companies in Spain, France, Germany, Denmark, Sweden, you name it. And therefore, it's just part of our job to meet people all over Europe and try to build a network in each of these communities. And I met some very interesting startups earlier today already. Okay. So it's been a fruitful visit at least. It is. Well, hopefully. Yeah, yeah. I'm sure there'll be plenty more who will want to grab you after this as well, especially now they know what you look like. They'll be hunting you down after. But yeah, you touched on the geography focus. I mean, you don't really do that at Point9. It's more like a vertical focus. And other than Zendesk, I think Christoph is kind of most associated with SaaS businesses. You know, you write a lot on the topic and Point9 is very much focused on that vertical. Are there many people with SaaS businesses in the audience? Okay. Yeah, we have quite a few. So yeah, as we touched on, it's about how to. So I thought it'd be interesting to kind of drill down into kind of metrics. What metrics? I mean, and you can kind of expand a little bit just out of SaaS as well if that applies. But what do you think are the right metrics for a startup to be focusing on, especially at like an early stage? Yeah. I mean, it really depends on exactly the stage. You're in as well as on the type of business that you're trying to build. We focus primarily on SaaS, which is why I think and write about SaaS-related topics a lot. We also have some mobile companies in our portfolio. So they obviously focus on very different metrics. In SaaS, at some point, the number one metric that you should focus on is MRR, which is monthly recurring revenue, which is a function of many other metrics, including metrics for your conversion funnel, your churn, your referral rates, upsells, downsells. So there's a lot of metrics that you should be looking at. But in the end, they all show up in your MRR. Or you can also take, you can multiply it by 12 and then you have ERR. Okay. And I saw a tweet from you the other day. You said that you should tell the founders who are kind of pitching you what metrics you want them to focus on or at least want to present to you, or whether you kind of want them to figure it out for themselves. So I just, I wondered if you could just elaborate on that. Like to you as an investor, is it more important for you to get the right number that you want to see from them? Or is it more important for you to figure out that they know what the right number should be? I think it's a bit of both. And the other thing is, we get so many inquiries that we, and it sounds maybe not very likable, but it's just the fact that we take every signal that we can get to try to conclude if this is something of interest or not. Just because we get hundreds of inquiries every month. So we have to filter out a lot of stuff, a lot of companies, I shouldn't call it stuff, pretty quickly. And therefore, if, if a founder just focuses on very weird metrics, it's not a good signal. I mean, it's still possible that he builds a great company and I'm wrong and wrong all the time. But we just have to use some, you might call it, pattern recognition to find out which companies we think are like more interesting than others in basically, given that our bandwidth is just very limited. And therefore, I think, when I ask an entrepreneur, could you please send me an overview of your numbers? It's interesting for me what he comes back to me with. At the same time, I'm not trying to trick somebody into anything. And I'm extremely transparent and public about what numbers I think are important. So, if you're interested in raising money from us or working with me, you probably stumbled on my blog already. And I basically really publish everything there. Yeah. Yeah. So, you should do your homework. I mean, I think that applies anyway, right? When you're pitching investors, it always pays to do your homework. Talking about your blog, I have some good news for everyone. It's that Christoph has five ways that we can get 100 million in revenue. You know, five ways to do that. Yeah. You make it sound very simple. But obviously, of course, in reality, it's not. I wanted, I think we have the slide actually explaining. Yeah. Yeah. But I wondered if you could just talk us through that a little bit. Yeah. Okay. So, what this means, and it's, of course, it's a gross simplification. Because in theory, there are many more ways to build a 100 million dollar business. But maybe quickly taking one step back, why am I focusing on the 100 million dollars at all? The reason is that most bigger VCs, and I include ourselves to some extent, but not completely. And we can talk about them. We can talk about that if you want. Like, most VCs are looking to find companies that can get really, really big. Like, as big as Zendesk. And that usually means at least 100 million dollars in recurring revenue or in annual revenues. And so, if you want to build a smaller company, that's perfectly fine. It just doesn't mean you shouldn't waste your time trying to raise a lot of money from big VCs. Because the model of these VCs is very simple. The model of these VCs is to invest in companies that become very, very big. So, if you decided that you want to build a very big company and that you want to raise money and eventually do a big exit, then you have to ask yourself, how do I get to 100 million dollars? So, you can... Can you talk us through this? And I can talk you through these animals here. And I didn't invent this. At least, I didn't invent the elephant term. The elephant term is something which sales people tend to talk about. Let's hunt an elephant or let's hunt a whale. And what they mean by this is to close a very big customer. Usually, people talk about a whale customer when it's an account that delivers about 100,000 dollars for that one customer for a year. So, that's what you see on that axis, which is a logarithmic scale. And... In order to build a 100 million dollar business using this kind of approach, surprise, you need only a thousand customers. And on the other end of the spectrum, if you get only 10 dollars per customer per year, I mean, it's probably a consumer company, then you need 10 million of these customers. And then you have these other animals in between the deers and the rabbits. And... And the mice. And again, it's a gross simplification and you can obviously do it in all kinds of different combinations. But the purpose of this exercise is that you should think about what kind of company are you trying to build? What does it mean for how many customers do you have to acquire? And most importantly, that defines how much you can spend on a customer acquisition. Many, many companies fall into the trap that their average revenue per customer is maybe in this rabbit or deer territory. But the effort of having to acquire... The effort of acquiring customers actually as much as you would pay if you go for the elephants. And that is obviously not a formula for success. So, I think the purpose of this exercise is to just think through what it takes to get really large. And then think about what customer acquisition strategies you have to apply to get there. So, thinking about the end goal and then kind of working it backwards. Yeah. Yeah. It makes a lot of sense. And it's well possible that even though eventually you will want to target very large customers, you don't start with them. Like Zendesk started with rabbits. Today they have a lot of deers and elephants as well. So, that's also something to keep in mind. Okay. While we're on the subject of animals, let's talk about another animal. Who here knows what a unicorn is? Yeah, of course you do. Yeah. So, your kind of investment philosophy, I mean, you are an early stage fund. And you wrote about how you are hunting for dragons but hoping for unicorns. For those who don't know the terminology, a unicorn is a company which has a valuation of a billion dollars or more. But can you talk about that? Can you talk about a little bit about how that works in practice? How you're, and also if you define a dragon. Yeah. And kind of how that strategy of, you know, hoping for the unicorn but aiming for the dragons kind of actually plays out. Sure. So, dragon is a term that I read somewhere which was used to describe an investment of a VC which turns out so well that it returns the entire fund. Yeah. So, it means a pretty good outcome. Yeah. Yeah. Yeah. Yeah. So, the thing is that all big funds, like all funds that are more than, let's say, 200, 300 million in size, they need unicorns to survive. Yeah. So, that's why things are sometimes so crazy, basically. Yeah. Basically, it means that it's very, very hard for most startups to raise money, but that those companies that are perceived to be the winners can raise any amount they want at any valuation. So, it's pretty black and white. Oh. And it has some pretty, probably also some pretty weird consequences on what startups do. Like, just as one example. Many, many startups recently have raised capital at valuations just above a billion dollars. And that's no coincidence. They just want to be in the unicorn club, which is kind of crazy. And I think basically this is the business model of VCs, but it shouldn't necessarily dictate what you do as a startup. Okay. What do you think of the whole kind of unicorn kind of buzz and craze right now? I mean, you just mentioned that companies are just raising or have an evaluation just so they can be called a unicorn, but it's pretty worthless when it actually comes to it, right? Like, what is your take on that? Do you think this is actually, like, to me, I actually see it as kind of a detrimental thing. As much as I participate in it as well and kind of have to use that terminology, I have this kind of, I have this kind of feeling that it's, ultimately, I don't think it's a good thing, right? Companies shouldn't necessarily just be aiming to be called something. They should be focusing more on actually becoming something. Yeah, yeah. I mean, I think it's great if founders have large ambitions. We also want to invest in companies that can become really big. We also are very happy if we hit a company that eventually is worth a billion dollars, but, like, the fixation around a billion dollars and calling them unicorn, I think that's a bit of a fad. So that'll probably... go away in, I don't know, sometime next year, maybe. Yeah. Yeah. I mean, you can't talk about unicorns forever, right? Yeah, yeah. Yeah. They're not so rare anymore. Yeah, yeah. Yeah. Yeah. Yeah. But I'm gonna, like, maybe annoy some people right now who may have to try and awkwardly get through, but we talked before, but maybe it'd be a little bit, I know it's meant to be a fireside chat, but it might be a little bit selfish for me to ask all the questions, so... I just... thought I'd stop with a little bit of time left and see if anyone actually has a... has a question for Christoph. Do we have a mic who we can get to people? Sorry to throw things into chaos. Yeah. I wonder what's a dragon in this analogy. Well, the dragon is... But it's hard for us to hear. Yeah. What is a dragon in your analogy? You're hunting for dragons, so could you describe a dragon company? So, the definition... of a dragon, I don't know if there is an official definition, but that's at least the one I saw that I reused, is an investment which pays back the entire fund of that particular investor. So, let's say there is a VC with a $50 million fund. Then it means that a company which exits at half a billion, in which that investor owns 10%, is a dragon for that fund. And... And... As I wrote in that blog post, we, too, are looking for these types of successes just because most startups fail, or at least don't make it really big. And that's why investors need pretty big successes to make up for all the losses. So, we're looking for these kinds of investments, too, which are, like, hundreds of millions... worth hundreds of millions at the exit. We're hoping that some of them will be... become even bigger, but it's not like our business model is dependent on that. Yeah. Yeah. Yeah. Yeah. We only have, like, two minutes left, so I think, again, something very kind of actionable or tangible. Something like when I was... when I had a startup, something I always want to know, and something I feel that people always want to know is, what is the best way to approach a VC, or what is the best way to approach an investor? Because it changes... It's... Everyone's personal preference is what I learned, right? There's no one set way. But what's the best way for someone to approach you if there's, you know, someone in the audience who's interested in pitching you? Sure. Well, you can send me an email, christoph.9cap.com. I don't know if you can put it up there or you can remember. Or you can send me a tweet. You can go to our website. You can contact us in any possible way. And we look at everything. Well, sometimes it takes longer, sometimes... sometimes even longer. Yeah. But cold email is... Yeah, you can send a cold email, and we definitely look at everything, but we may have to decide within a pretty short period of time that it's not something for us, and we may pass on it with a pretty poor rationale, just because we didn't have the time to spend more... didn't have the time to spend more time looking at it. If you know somebody who I know and trust, obviously it means that I give that high up, that priority. I think that's just how people work. We use other people's judgment as a pre-filter. So feel free to reach out to somebody who knows me. I mean, if you don't know anybody who knows us, and you just send us a cold email, I think if I can see that you've read some of the posts, that I wrote, or that some of my partners wrote, I think that tells us that you did your homework, and that you're interested in working with us, and it's not just a mass email, where on the CC, IC, 10, other VCs. That doesn't increase your chance of success. Yeah, okay. That's really good advice, and I can attest to the fact that you do reply, but yeah, I failed at that point. Sorry. It was good talking to you, Likewise. Thank you very much. Thanks. Thanks. Thanks. Thanks. Thanks. Thanks. I have to look up that email. Yeah.