In this episode of 20 VC, host Harry Stebbings interviews Mike Chalfen, the solo GP of Chalfen Ventures, a respected early-stage investor in Europe. Mike's portfolio boasts successful companies like King (Candy Crush creators), Tipality, Sneak, and Trade.io. He shares his journey from studying civil rights history to joining the venture capital firm Apex Partners in 1996, and eventually founding Chalfen Ventures. Mike discusses the importance of unit economics, the value of mentorship, and the challenges of venture partnerships. He also emphasizes the need for investor-founder alignment and offers insights on how to approach board roles and manage time across a portfolio. The conversation also touches on the current market correction, with Mike providing historical context and advice for new investors facing their first downturn. Harry and Mike explore the psychological aspects of venture investing, including handling rejection and the impact of personal challenges on professional growth.
"I'm so thrilled to welcome Mike Chalfen, solo GP with Chalfen Ventures and one of the most respected and successful early-stage investors in Europe over the last two decades."
This quote introduces Mike Chalfen as a highly respected and successful early-stage investor in Europe, setting the stage for the podcast discussion.
"Notion has a worldwide network of millions of users creating templates, tutorials, and new inspiration."
Harry emphasizes the collaborative and supportive nature of the Notion user community, highlighting the value of shared resources and collective improvement.
"I just love using the Angelist platform because it abstracts away all the complexity and operational burden of fund management."
Harry's testimonial underscores the benefits of Angelist for investors, focusing on the platform's ability to simplify and streamline fund management tasks.
"Squarespace is the all-in-one platform to build a beautiful online presence and run your business."
Harry highlights Squarespace's comprehensive capabilities, positioning it as a convenient and effective solution for entrepreneurs and businesses.
"I had to sort of do all my own legals, do all my own numbers, write my own recommendations."
Mike explains the hands-on experience he gained at Apex Partners, which provided him with a comprehensive understanding of venture capital operations.
"I can really express myself fully as a solo VC in a way that is a little harder as a partner in a firm with responsibilities to other people."
Mike reflects on the autonomy and self-expression afforded by operating as a solo venture capitalist, contrasting it with the constraints of being a partner in a larger firm.
"If you were a mid-level person at Apex, you would do the right thing in order to look good further your career rather than optimize returns."
Mike provides a candid perspective on how career advancement goals can sometimes conflict with investment decisions within a venture capital firm.
"I think it's quite hard to combine being very, very good at that, very, very good at supporting companies, and being an operator with a plan who can lead large numbers of people."
Mike discusses the challenges of balancing the introspective aspects of venture capital with the operational demands of running a firm.
"Good companies are still good companies, but it might just take longer and maybe more dilution for them to come out the other side."
Mike offers reassurance that strong businesses can endure market corrections, although the path to success may be prolonged and require more capital.
"I don't believe in the fast payday. I sort of mentally just don't count on timing. You can't time a winner."
Mike shares his long-term perspective on investing, focusing on the intrinsic value of companies rather than attempting to capitalize on short-term market trends.
"There's a big difference between being uncertain, which is completely natural, and in fact, it's built into the experience of being a VC, and being insecure or anxious."
Mike advises newer investors on managing their emotions during market downturns, highlighting the distinction between the inherent uncertainty of VC work and the personal reaction to it.
"Everyone needs a framework, but you need a framework to figure out which way is up, which companies am I going to spend time with and why."
This quote emphasizes the necessity of having a personal framework to guide decision-making processes and prioritize time allocation effectively.
"Any business opportunity where I or my partners thought was a very good service that they would definitely use, that was almost certainly addressing way too small a market opportunity."
This quote suggests that personal appeal to a service by VCs or their partners is not always indicative of a large market opportunity, and sometimes the opposite is true.
"Chow from Ventures is the solution to a problem."
This quote introduces Charlton Ventures as a VC firm designed to address specific needs of entrepreneurs, focusing on providing value and flexibility.
"I always say to founders, actually kind of construct your cap table like you would a sports team."
This quote advises founders to be strategic in choosing their investors, ensuring each brings a distinct and valuable skill to the company, similar to players on a sports team.
"I think what's important to me is that you sort of have a reasonably sort of antifragile portfolio construction, not by virtue of having 30 or 20 or whatever number of investments, but by virtue of having different kinds of risks that you're taking with your investments."
This quote highlights the importance of creating a robust and resilient portfolio through diversification of risk types rather than merely increasing the number of investments.
"You can usually find some kind of indicator as to whether there's an unmet need that exists."
This quote points out that indicators of unmet needs can be found, which helps in assessing market timing for investments.
"But if you can pick two businesses which you want to become 15% to 20% of the fund, then that's sort of a very positive outcome."
This quote discusses the strategy of focusing on a limited number of businesses that have the potential to constitute a significant portion of the fund's value.
"You don't say, I don't trust you anymore. You say, this hasn't happened, and that's a problem."
This quote advises on how to approach sensitive conversations about trust and performance issues by focusing on facts and problem-solving.
"Life's a great leveler. What worries me in the venture business, to a degree, is people for whom nothing's ever really gone wrong."
This quote reflects on how personal challenges can provide perspective and humility, which are beneficial qualities in venture capital.
"It was definitely a problem. And what made the difference was actually one of the most experienced people in the business...called me into his office and said, I just want to talk to you because I think you're very good, but if you continue as you are, that would be less important than whether we want you to stay here."
This quote highlights the importance of ego management and the positive impact that mentorship and feedback can have on personal growth within the venture capital sector.
"The question is not am I better than you. The question is, given what I think I'm very good at, is this place the right place for me?"
The quote highlights the need for individuals to assess their skills and ensure they are in a professional environment that values and utilizes those skills effectively.
"It had been a long time coming just from a stage perspective, so it didn't feel unnatural. It was nevertheless pretty hard."
This quote reflects the difficulty of separating from a company, even when it is anticipated or makes sense from a business perspective, due to the intertwining of work and personal identity.
"It made me more upfront, having gone through that, there's a big difference between someone building a business and someone building a business you think you should put money in."
The quote captures the lesson learned from past investment decisions, emphasizing the importance of transparency and discernment in choosing where to invest.
"For comfort companies, it may be that in the next year or two we all are a bit more upfront because we kind of have to be."
This quote suggests that market conditions might drive VCs towards more direct communication, which could lead to more honest and efficient interactions within the industry.
"To me that's always worth a look. I probably wouldn't take another look if it looks like it's the 10th business, making Salesforce data all freely available to salespeople or whatever it may be where there's a low barrier to compete."
The quote shows his investment strategy of looking for truly innovative businesses rather than those entering a saturated market with no distinctive advantage.
"The mistake in the last couple of years in our market has been a lot of businesses that could be good businesses are priced as if they could be enormous businesses with unbelievable economics."
This quote critiques recent market trends where businesses are overvalued based on unrealistic expectations, leading to overcapitalization and subsequent challenges.
"Good unit economics basically mean you can ultimately at some point choose to control your endestin."
The quote encapsulates the essence of unit economics—having the financial foundation that allows a company to be self-sustaining and not dependent on external funding.
"A lot of larger businesses actually want services. Like, there's a reason workday and SAP have big services lines."
This quote indicates that the demand for personalized services in the enterprise sector can impede the transition to automated software solutions.
"I don't want to be chasing every possible investment because then I can't provide the service that I think is at the heart of my business to the entrepreneurs that I work with."
The quote reflects Mike Chalfen's philosophy of selective investment and dedication to adding value to the ventures he chooses to support, rather than succumbing to FOMO.
"At seed stage, a board is of limited value. The most value is weekly, biweekly, spending time with teams, helping them solve problems quickly so that they're not waiting for the board in order to say, by the way, I've got this problem."
This quote highlights the limited usefulness of formal board structures at the seed stage of a company, advocating for more frequent and direct support to address emerging challenges.
"Not distinguishing between opinions weakly held or strongly held, and not distinguishing between advice that they are in a good position to give or not in a good position to give."
The quote points out common errors made by inexperienced board members, underscoring the need for clarity and self-awareness in contributing to board discussions.
"So you need to develop a good enough relationship. When companies mature, it's okay for them to spend less time with you and okay for them to pull you in when they need you."
The quote suggests that as companies grow, the nature of the investor-company relationship evolves, allowing for a more flexible and as-needed engagement.
But the more competent people you have around you, the more you inherently bring decision making into the group, and you start to distinguish between stuff that happens inside the business and sort of working on the business, and the investor perspective is working on the business.
This quote highlights the distinction between the operational side of the business that competent teams can handle and the strategic side where investors can contribute.
So I spend less time with winners because they don't need me, because they have good teams.
This quote reveals that investors can focus their time more effectively by engaging with companies that have the most significant needs or challenges.
The company should basically determine when they want to talk to you.
This quote emphasizes that the company should be the one to initiate contact with investors when they deem it necessary, indicating a more passive role for investors in day-to-day operations.
But by the way, with boards, what drives me mad is everyone's accruing the right to be on the boards.
This quote reflects the speaker's frustration with the automatic accrual of board seats for investors without assessing their value to the company.
After three years, you no longer have the right to be on the board. Boom.
The quote proposes a solution to the problem of board seat accrual by suggesting a time limit on the right to board membership.
What we should discuss is direct result of the problems that they are encountering or that they can see coming over the hill.
This quote emphasizes the importance of addressing current and foreseeable challenges in board meetings, guiding the founder in setting the agenda.
When they comment, it takes a very bold person to comment back.
This quote suggests that the stature of certain board members can make it intimidating for others to express dissenting opinions.
Comment in an isolated word, doc. Then you, the founder, can bring everyone's independent thoughts pure and then discuss them in the board together.
The quote provides a strategy to ensure that all board members' opinions are heard and considered equally.
It's like you do what is in the best interest of your shareholders because they trust you and they invest in you.
This quote encourages founders to make decisions based on what they believe is best for the company and its shareholders, rather than seeking approval for every action.
That's not a good customer experience.
This quote criticizes the repetitive nature of the fundraising process from the perspective of the entrepreneur.
Dissent is very, quite a big deal to have proper dissent.
The quote highlights the challenge of fostering open dissent within venture partnerships, which is essential for healthy decision-making.
This is a remote first world.
This quote acknowledges the modern trend of remote collaboration, which facilitates cross-border investments.
You're backing your judgment about where in the portfolio will generate the most alpha today.
This quote explains the rationale behind selling shares in a portfolio company, emphasizing the strategic aspect of such decisions.
Pro rota is a lazy decision.
This quote criticizes the use of pro rata as an unthoughtful or automatic choice rather than a strategic one.
I think basically a lot goes wrong. It'll be okay.
This quote provides reassurance that despite the challenges in venture, things tend to work out in the end.
I don't think there's enough mentorship.
This quote identifies a gap in the venture industry, highlighting the need for more personal guidance and mentorship.
Opley is creating on the face of it, just an ingredients marketplace where small manufacturers of food brands or drinks brands source the ingredients they need to manufacture their products.
This quote describes the primary business of the recent investment and hints at the deeper data problem they aim to solve.