20 VC 087: From The Investors Of Spotify, TrustPilot and Klarna with Jeppe Zink, General Partner @ Northzone

Jeppe Zink is the General Partner at Northzone, who have investments in the likes of Spotify, Bloglovin and TrustPilot, just to name a few. Jeppe himself established the London office of Northzone and his primary areas of focus are fintech, SaaS, marketplaces and mobile and has made investments in Wallapop, SpaceApe Games and many more. Before we delve into the show today, our dear friend and kind donator, Brad Feld has agreed to do a competition giveaway featuring signed copies of his amazing book, Venture Deals, all you have to do to be in with a chance is headover to the website at www.thetwentyminutevc.com and sign up for our newsletter. It’s that simple. In Today's Episode You Will Learn: 1.) How Hussein mad his way into the wonderful world of venture? 2.) What was it like to start a new fund with Hoxton and why did Hussein leave the security of Accel to start his own? 3.) Why did Hussein believe this was the stage with the most opportunity? Does he think there is too much capital chasing too few deals? 4.) With DarkTrace (portfolio company), Hoxton were the only VC money in at the early stage? How did that come about and what was it about Hoxton that made Mike take your money? 5.) Why did Hussein choose to setup the fund in London? What does he think is driving the surge in European tech with the rise of the Nordics etc? 6.) With Steve O’Hear Hussein stated he looks for brand new markets that are going to be formed (Playfish)? What does he think those are? Items Mentioned In Today's Show: Jeppe's Fave Book: Zero To One, Startup Growth Engines Jeppe's Fave Blog: Strictly VC Jeppe's Productivity Tools: CityMapper, Genius Jeppe's Most Recent Investment: CrossLend As always you can follow Harry, The Twenty Minute VC and Jeppe on Twitter here! If you would like to see a more colourful side to Harry with many a mojito session you can follow him on Instagram here!

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  I'm Harry Stebbings and this is the 20 Minute VC and do you know this is the 87th episode and if each interview was 20 minutes long, as we really say they are, then you would have 29 hours of me talking to incredible VCs for you to listen to in our back catalogue. But now it's time to carry on with today's show and I'm so thrilled to welcome a phenomenal guest today in the form of Yape Zink. Yape is the general partner at Northzone who have investments in just some of the most unbelievable companies, including the likes of Spotify, Trustpilot and Bloglovin, just to name a few. Yape is himself an incredible VC and has established the London office of Northzone

• 0:44Harry Stebbings?

  and his primary areas of focus are fintech, SaaS, marketplaces and mobile and he himself has made investments in Wallapop and SpaceApe games, including many, many more. But before we delve into the show today, our dear friend and kind donator Brad Feld has agreed to do a competition giveaway featuring signed copies of his amazing book, Venture Deals. All you have to do to be in with a chance is head over to the website at www.thetwintiminetc.com all in letters and sign up for our newsletter. It is that simple. But now it's time to dive into the interview, so ladies and gentlemen, it gives me great pleasure to introduce Yape Zink, general partner at Northzone.

• 1:34Speaker 01

  You have now arrived at your destination.

• 1:36Harry Stebbings?

  Yape, welcome to the 20 Minute VC. It's absolutely fantastic to have you on the show. Thank you so much for joining us today.

• 1:43Speaker 02

  Great to be here.

• 1:44Harry Stebbings?

  Now, let's kick off today's show by discussing your route into venture. I mean, how did you become a day living in London, investing in tech?

• 1:52Speaker 02

  Yeah, I probably had a slightly unusual way in. I was working as a junior analyst in corporate finance at Deutsche Bank and we just had this hugely successful Frank Quatron, who probably still is the most successful tech banker who today runs Catalyst, but at the time he was at Deutsche Bank and he just left with 90% of the team. So we were a few new joiners scratching our heads how to win any business. And we went together with the first European editor of the Red Herring, uh I think there were seven of us. And we got together to convince the bank that the only way to get any business was by buying it effectively through during a pre-IPO principal investments.

• 2:33Speaker 02

  Being the late nineties, that meant that it worked out pretty well and and very quickly the principal investments were way more profitable business than the advisory business, so uh. That's how I got started.

• 2:47Harry Stebbings?

  And so you've been investing now for seventeen years, is that right?

• 2:51Speaker 02

  Yeah, that's about right.

• 2:52Harry Stebbings?

  Okay, so you've seen the evolution of the European tech environment over two full cycles, upturns and downturns. So how have you seen that develop and which stage do you prefer?

• 3:05Speaker 02

  Yeah, I think during that period, the overriding factor has really been the rise of the digital economy. I mean, when I started, you had less than a hundred million people online and now you have whatever over three billion. You literally had nil smartphones, so now you have over two billion. So I think the main difference in the tech market is that ten fifteen years ago, we were mainly focused on putting down the plumbing for the connectivity.

• 3:31Harry Stebbings?

  Mm hmm.

• 3:31Speaker 02

  So we spent a lot of time in telecoms and infrastructure. Uh my own first investment was CoCom, which was a fast modem supplier and we sold it to Cisco and indeed the gorillas we all revered and feared were HP, Cisco, Vodafone, et cetera. Now it's shifted. We have the connectivity in place and uh it's all been about then applications, then services and obviously we've seen amazing rises recently from that. So that's been the main, that's been the main change. And on the VC side of things, I think it's important to remember that for Europe, there was hardly anything there before two thousand. The first.

• 4:12Speaker 02

  V C firms in existence, um if you look at in the nineties, you had Apex, Warbird, Pinkers, Three I. Et cetera, and they they were doing an integrated V C buyout model, uh thinking that. That was the right way to do it. And and obviously, that's possibly a reason why so many fail, because. If you look at the V C strategies, they were simply too transaction focused, given that the talent came from the buyout side. And that was too far removed from entrepreneurial realities. So I think if you look at the V C's now in Europe, finally. Uh you have the talent within the V C's much more aligned with the entrepreneurial scene. So so I think.

• 4:51Speaker 02

  If you go back ten fifteen years ago, I think literally, I saw a study that said that over ninety percent of the V C firms. Uh that were in existence in Europe in two thousand ha- have died or cannot raise new funds today. So uh hopefully, that's very different.

• 5:08Harry Stebbings?

  Which stage of the cycle then would you say you prefer? I mean, some say, I think Chris Saka says that downturns lead to a flushing out of kind of weaker funding sources. Sources and startups. Do you agree with that? And do you think that's then it may be a good time? The trough is a time of opportunity?

• 5:25Speaker 02

  Yeah, I think, listen, I think the real point for any V C um is to appreciate that every single fund cycle lasts at least ten years. So typically, you will have at least one up and and downturn in a single fund cycle. So so your job really as a V C is to make sure to anticipate it and manage value through upturns and downturns. And I think people often forget that the best vintage years are driven as much by how good the exit markets are. When you're ready to sell out of the companies as anything else. So in in that sense, personally, I suppose I I prefer to. Invest without extreme ups or downs. And if if I look at our current biggest winners, um Spotify and and Abito.

• 6:09Speaker 02

  We invested in the A round in Spotify just before the party uh uh finished in in September of two thousand and eight. Uh when the bull market was still very strong and and Abito, we invested in two thousand and ten in the deep bear market. So the point being that, you know, you can find the great winners in any part of the cycle. And great winners always manage through the cycles. It's it's usually uh the less strong companies that that often don't recover out of the bear market.

• 6:40Harry Stebbings?

  And where would you say we are now in the cycle?

• 6:43Speaker 02

  Hmm, I I saw I saw a great presentation actually by Frank Cutrone just last week and I think he he felt we were all the way at the at the very peak uh right now. I I think I think uh that's to blanket a statement. I see a lot of valuation bubbles uh uh in certain subsectors or in late stage uh VC investments and that's really because you have a lot of tourists coming in like hedge funds and and other other non-consistent players putting money into the VC game and I think as you see the down cycle, they will they will step out again. So so we we certainly in a frothy time, but it's not it's not across uh everywhere.

• 7:24Harry Stebbings?

  And then you mentioned some of your portfolio companies there, but with the likes of, say, market invoice, you show a particular interest for fintech. So what's attracting you to the fintech space?

• 7:35Speaker 02

  Yeah, fintech is massively important theme for us and um we've done quite a few recently, um Klarna, I settle, uh uh market invoice, et cetera. I think the underlying driver is obviously that if you look at customers, both business and consumer customers, um the way they want their banking services, in particular they want it online, is very different to what is being offered. I think banks have sort of gone to sleep and forgotten to service their customers for a long time because they've had this monopoly. So the reality is from a service side, it's a very ripe market to uh to disrupt. And I think from a business side of of of the equation,

• 8:17Speaker 02

  reality is if you invest in an e-commerce co- company and they're selling uh whatever goods they're selling, the margins are are often quite slim. If you look at banking services, typically there's a lot more revenue that can be driven and if you then see the discrepancy between the cost you have for acquiring the customer and running the customer, it means that you can drive quite big margins. So that's exciting.

• 8:41Harry Stebbings?

  And you talk there about large incumbents, um you know, it's kind of the dinosaurs that remain in the industry that haven't changed for decades. Is this not representative though of structural advantages for them which are creating barriers to entry for startups? Are they not there because they have that advantage?

• 8:59Speaker 02

  Yeah, no, of course, they they they do, and they are barriers to entry, and it is harder to to get in uh as a startup in FinSec and many others because of regulation, et cetera. On the other hand, if you look at all the recent successes, you know, looking London from Sopa to Funding Circle, et cetera.

• 9:15Harry Stebbings?

  Mm hmm.

• 9:16Speaker 02

  You know, it is possible to step in and take these incumbents head on and and and winning.

• 9:22Harry Stebbings?

  And where do you think them will be in the next five to ten years with the fintech scene? What are we looking at, do you think?

• 9:28Speaker 02

  Yeah, I think I think we're very much currently in the first wave of seeing fintech companies uh literally succeeding by providing an online experience. I think if you look at the next five, ten years, I think we're gonna have a second wave of companies that say compared to this first wave, isn't there a better way of doing it? And I think you will find much more sophisticated setups structurally within the startups that's literally gonna disrupt the disruptors.

• 9:57Harry Stebbings?

  And in what areas are you particularly interested about? Where do you think we're gonna get the most disruption?

• 10:03Speaker 02

  Well, I think security is just starting. I mean, one thing is to have your Facebook account hacked, but an entirely different thing is to have your bank account hacked. So I think I think security is definitely an area that's just on the rise and it's just starting. The other side of it, I think it's the business segment. Uh as always, when it's consumer behavior, you're changing. It starts on the consumer side, then it's a small small business segment, and then it's the large business segment. So so I think we will see that.

• 10:29Harry Stebbings?

  Do you think this excitement around the fintech space is creating bubble-like valuations for those fintech startups? Have you seen that personally when investing?

• 10:38Speaker 02

  Yes, I in many ways I find it scary, but that's supply and demand speaking. I think we spoke about the cycle. I think we will see that changing uh as the cycle changes. Right now, I'm just pleased there's lots of development capital available to speed up innovation.

• 10:52Harry Stebbings?

  And also currently invest in Series A, am I right?

• 10:56Speaker 02

  Yeah, we we try to be state agnostic, so we do anything from literally S uh A to D round, so.

• 11:03Harry Stebbings?

  Okay, absolutely. Um and then being a Dane, I have to ask, you know, Skype, Spotify, we mentioned, so obviously Spotify earlier, Series A. Round for you, SoundCloud, Supercell King, all these Nordic companies. What is it about the Nordics, do you think, that's generating this club of unicorns that are just dominating the tech scene at the moment?

• 11:25Speaker 02

  Um, yeah, it's clearly something in the tea.

• 11:27Harry Stebbings?

  It must be. I mean, something is up.

• 11:31Speaker 02

  No, I think you're right. I mean, without wanting to dish London and UK, which is doing great. But if you look at it, we see very few of the current crop of great winners coming from here, whereas clearly Stockholm, the Nordics are punching way above their weight. And the reason, I mean, there's a bunch of them. It's partly structural. You know, if you look all the way back, Sweden was the first country in Europe to drop their trade barriers. And that created a highly competitive market and and great companies flourished. Outside of tech, and then if you look at the nineties, it was the first place where you put broadband out to uh to the population. And it was obviously also where you had Nokia and Ericsson coming out with the first smartphones. So reality is, you had the first mature online uh users and mobile users.

• 12:15Speaker 02

  And that obviously serves as a great place to launch innovative concepts. However, now, that no longer matters. Now what matters is the fact that we have all these great successes up there. They act as heroes to the rest. And you have management, second layer teams that have been watching that success firsthand and saying, hey, I can do that. Uh so now it's literally a question of success breeding success, and you have that hub mentality that we see in in the valley.

• 12:43Harry Stebbings?

  And do you spend much of your time out in the Nordics?

• 12:46Speaker 02

  Yeah, I mean, Northzone has has three offices in the Nordics, so luckily for me, I have uh I have I have great colleagues up there. I probably I'm up there every other week, but um we have people on the ground there.

• 12:59Harry Stebbings?

  And what does your deal sourcing look like then? We spoke about those companies that, you know, the unicorns. But they were once small startups themselves. So how do you try and find them personally? What's your main methods?

• 13:12Speaker 02

  I think the the it's back to the not being transaction focused. If you don't know which sector excites you and you spend time in the sector before you're making any investments. Uh you are unlikely to ever find a great ones. And also, if you find a great ones, reality is there's also a bunch of other people that found them. So it comes down to your relationship with a particular entrepreneur and to what extent they have a. Have a view on you and want to work with you. So it's it's it's it's all about knowing people, knowing sectors and spending time. And and eventually that leads to investments.

• 13:47Harry Stebbings?

  And in the past, you've attributed North Zone with a rarity of investor quality in saying that. You as investors, like entrepreneurs, have ambition and have ambition for the startups that you invest in. How do you assess your ambition and how do you ensure that it is feasible and kept kind of relatively in check?

• 14:07Speaker 02

  Yes, it's it's a it's a hard one. It's it's not all about rational thought and money. It's ambition is really a mindset. Um it's about that feeling that you're on a mission to challenge the establishment and about that recklessness and purity of thought. And saying, we just want to win. Uh and inside North Zone, we try to emulate the startup. So we make sure we're never static. We always have people arriving and leaving. We make sure hunger is always present and getting new input. Uh and then we make sure, of course, everything is about performance. Uh if you don't set yourself up that way, you end up alienating yourself from from what you actually do. Uh in the in the in what in terms of the world we see in the startups.

• 14:51Speaker 02

  I often hear about the um the notion that venture capital is supposed to be patient capital. And I always smile because I think the opposite is all about being impatient. Uh if something is not working, change it. Don't wait and see if it improves. Uh you you constantly got to learn through failure, A B testing. And so when it comes to ambition, I think it's always about leveling up. It's about saying, how fast can you learn to be the best and and deliver the best product?

• 15:18Harry Stebbings?

  And so do you do that measurement of performance through daily goals? Do you suggest that like task setting?

• 15:25Speaker 02

  It's not, no, it's not daily goals, it's about having continuous KPIs and continuing measuring whatever you have. So that you have the ambition in line with performance and therefore you always make sure that uh it's dynamic.

• 15:40Harry Stebbings?

  And for you, what KPIs and metrics do you most hone in on and most look at when viewing a startup?

• 15:46Speaker 02

  I it's so different from startup to startup, but for me, it's it's all about momentum. If I don't sense that momentum and momentum can be in product development, if I don't sense things are happening. Then I always push because I think momentum is, when you have momentum, you can do amazing things. If you don't have a momentum, everything gets tougher.

• 16:06Harry Stebbings?

  If it's okay with you, we're gonna dive into a quickfire round now, where I say a word or statement and you give me your immediate thoughts.

• 16:12Speaker 02

  Sure.

• 16:13Harry Stebbings?

  So productivity tools, what are your must haves?

• 16:16Speaker 02

  Ah, I'm quite dull, Skype, City Mep to get around London, uh Genius to sign documents, it's important.

• 16:24Harry Stebbings?

  Uh Geniuses like uh DocSign, is that it?

• 16:28Speaker 02

  That's it.

• 16:28Harry Stebbings?

  Yeah, okay, got it. Uh and then what's your most rad blog or newsletter?

• 16:34Speaker 02

  I'm more of a Dabla, so I I use Newsify to sort of scan through a a larger amount. So I don't really have a single one I log on to, although in Europe, I I suppose I I'm enjoying currently um Fred Dest's uh Strictly D C.

• 16:47Harry Stebbings?

  Absolutely, yeah, that's brilliant. Uh what sector are you most excited by?

• 16:51Speaker 02

  Fintech.

• 16:52Harry Stebbings?

  Fintech. Who would you consider a thought leader then in fintech?

• 16:59Speaker 02

  I suppose Peter Thiel has to be head over heels, you know, the the lighthouse there with PayPal, Stripe, Palatea, et cetera.

• 17:07Harry Stebbings?

  Absolutely. And what's your favourite book and why?

• 17:11Speaker 02

  Hmm.

• 17:11Harry Stebbings?

  Have you read Zero to One?

• 17:13Speaker 02

  I have, it's great.

• 17:14Harry Stebbings?

  Isn't it good?

• 17:15Speaker 02

  Yes.

• 17:16Harry Stebbings?

  My favourites too, yeah, good. Uh sorry, your favourite book and why?

• 17:21Speaker 02

  Yeah, I I you know, I'm less of a fan when when it comes to business literature, I'm less of a fan of, you know. People searching for formulaic ways of delivering startup success. So personally, I I enjoy reading things like Growth Engines. Um, can't remember who it was by Ellis, I think it was it was called, who's really just a collection of interviews with founders. And and what you read is that the randomness of every single um startup is different stories. And the red thread is really tenacity and learning through failure.

• 17:50Harry Stebbings?

  Absolutely. And then finally, your most recent investment and why you said yes.

• 17:56Speaker 02

  Most recent was a company called Crossland, and indeed, that is one I will I would describe as this second wave of fintech companies. A consumer lending company and its management has been sitting as part of some of the first wave companies and saying, hey, we can do this better. And they've set themselves up in a way uh they think is superior to the current wave and and I believe them.

• 18:20Harry Stebbings?

  And how how is that? How does how do they differ then from like a lending club?

• 18:25Speaker 02

  Well, first and foremost, uh Lending Club has a lot to learn, uh you're a lot, sorry, a lot to teach in Europe. Because lending club except so can participate in the back end. Whereas in Europe, in peer to peer, it's mainly uh non-capital markets players, it's family offices, uh individuals, retail, etc. You don't scale billion dollar businesses that way. You have to have capital markets. So so so what Crossland has done is set it up exactly like a lending club. And on the front end, instead of saying it's a UK business or it's a German business, it's set up with a European banking license. So you can go across anywhere and you don't currently have that in the first wave of companies.

• 19:06Harry Stebbings?

  Well, yeah, Pay, thank you so much for joining us today on this very special episode of the Twenty Minute VC. It's been an absolute pleasure chatting to you.

• 19:13Speaker 02

  Thanks for profiling us.

• 19:14Harry Stebbings?

  What a fantastic deep dive that was on the fintech space with YEP. And if you would like to catch any of the resources mentioned by YEP in the show today, head on over to our site at www.thetwenty minute vc.com, where you can find all the links to the resources. And I specifically recommend Startup Growth Engines. Absolutely amazing, really is a must read for all interested in startups. And if you want to be in with a chance of winning Brad Feld's venture deals, signed by the man himself, just sign up for our newsletter on the site and you'll be entered into the competition. As always, thank you so much for your continued support. We really do appreciate it and we look so forward to seeing you in the next episode.