In this episode we discuss: The State of the European Venture Market. We are joined by Simon Menashy, Partner at MMC Ventures.

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We chat about the following with Simon Menashy: 

• The European VC market’s significant changes in the last few years.
• Sustainable growth prioritised over growth at all costs.
• What are the main challenges the software market is facing?
• What are realistic exit expectations? 
• What are the crucial components for a successful exit?

References 

• www.linkedin.com/in/simonmenashy

Biography 

Simon Menashy is a Partner at MMC. He specialises in AI-related investments, and has led deals such as Ably, Senseye and Signal AI.

Simon joined MMC in 2011. He is a member of the Investment Committee and co-leads the investment team. As one of the most active AI investors in the European early-stage venture market, Simon has led, sponsored or worked on close to 150 deals with more than 60 companies over the past decade.

Simon believes AI innovation will happen at multiple layers of the tech stack, and is focused on investments from the application layer down to the data pipelines that feed the models. 

Simon’s background is in tech and media strategy consulting at Deloitte. He holds a degree in Physics and Space Research and previously started an IT consulting business.

To learn more about Beth and Brandon or to find out about sponsorship opportunities click here. 

Summary

16:49 The Evolution of the European VC Market

18:39 Navigating the New Normal in Funding

22:02 The Software Market's Challenges and Opportunities

26:13 Where should COOs be looking and how should they be pitching themselves?

27:21 Identifying Hot Areas for Investment

27:45 The Role of COOs in Today's Market

28:29 The State of Exits in the VC Landscape

30:39 Resetting Expectations for Exits

36:54 The Future of the VC Ecosystem

Unknown Speaker 0:00

Music.

Brandon 0:05

Hello and welcome to another episode of the operations room. I am Brandon mensinga On a cold and dreary day in London. And Bethany. How are things going today? I don't think

Bethany Ayers 0:15

it's that cold and dreary. Well, I mean, it's always dreary, but I thought it was actually like surprisingly mild. So maybe we're in two different Londons, three miles apart from each other,

Brandon 0:23

might be my mindset. My mindset is dreary and cold.

Bethany Ayers 0:30

I'm holding on, I would say so I had yet another death. This is, I think, the fifth of the year, and this one was expected an aunt who's been struggling with dementia for, I don't know, 12 years or something. So it was like a long, slow decline the last five years. She didn't recognize or anyone or interact at all, and I knew her death was coming, so I just didn't think I was going to be so affected by it. And I found out on Wednesday, and then I was going to the COO round table. So my cousin phoned me to tell me six minutes before was going into a meeting. Then I was in back to back meetings, then went straight into the COO round table. Then we had dinner together, then I was in customer meeting and back to back meetings all day, Thursday, till about, I don't know, two or three. And then suddenly, without the distraction of movement, I just became really sad, and it affected me. I think I'm gonna fly to New York to go to the funeral, which is also, you know, like popping over for transcontinental flight, it was seven days notice. And then I had some maintenance therapy, as I do, which helped. And then I met my husband at the train station, we went for dinner, and we ended up at an Italian restaurant. And I wasn't expecting that going into an Italian restaurant would basically just break me. I mean, she's on my Italian side of the family, so obviously there's a connection there. And she lived in New York and would take me out. She was like my Sex in the City. And although she did have a husband, but no children, lived in New York, was a journalist, was glamorous, lived in this amazing apartment on the Upper West Side, and would take me out to experience Manhattan a couple times a month the whole time I was in uni. So like, rather than being a poor student, I actually got to go to the theater and the opera and amazing restaurants, and then just walking into an Italian restaurant, like a little neighborhood restaurant, was just a bit too many memories just came flooding back, and so by the time they sat us at the table, I was just sobbing. So I'm feeling a bit tender today, but we'll have to, like stuff it back down again.

Brandon 3:01

Why don't we move on to our topic for today, which is the state of the European venture market. We have an amazing guest for this, which is Simon menashi. He is a partner at m c ventures and a long time friend of the podcast. And before we get to Simon, just a bit of a back and forth between ourselves. And actually, even before we do that, I just want to throw this out here in terms of how we actually got to know each other in the first place. Bethany, which is I, was working at Signal AI back in the day, and Simon menashi, of course, is on the board of signal, and I got to know him quite well with being part of the board myself and having the interactions with Simon. And Simon had recommended or referred a consultant to come in to help us, and that referral was, of course, Bethany Ayers

Bethany Ayers 3:41

totally forgot about that, that Simon was our connection. So

Brandon 3:46

with that historical nugget of the way, one thing that Simon had talked about when we had chatted with them was he felt that over the past 12 months, we're back into a renormalization phase, as he described it, and that he felt also that transactions are starting to happen again. What do you think? Do you think that is true?

Bethany Ayers 4:05

Brandon 4:42

think I was reading a recent report. I was saying that seed in particular is trucking along. There is, and continues to be a great amount of investment happening from a seed standpoint, but from a Series A, B point of view, very, very limited and not a lot of movement. And I think this report was just remarking on the fact that there was so little. An investment happening at the AB stage for UK based companies. There's still a lot of companies that are out there that are floating. They can't get to the next round. There is no next round to be had from an investment standpoint. So having to pull back wars and to be in a position where they need to be basically profitable or incrementally burning at that point two, survive.

Bethany Ayers 5:20

I've seen movement in A's. I think B's more so. And then particularly growth rounds, just because so many people raised at the height of the market and are going to have to have down rounds, just almost by definition, no matter how much they've been growing, other than that occasional 1% or get profitable or be sold for pennies on the dollar, that is still going to happen. There's some amount of increase of M and A, but I suspect there's going to be a lot more that's going to be the next couple of years.

Brandon 5:56

Yeah, it feels like it, because even with this reconciliation of valuations, of you know what the valuations are now versus what they were previously, and companies and investors coming to terms with that, if any company wants to move forward that doesn't have dynamic growth rates and needs to figure something out in terms of what their future is going to look like, then something needs to happen. I have one example of one company that I've worked with historically where that's exactly what they did. It wasn't a tremendous exit evaluation, or anywhere near the scale of what a venture company would want, but it wasn't terrible either. It was just kind of like a modest return, I guess, if you

Bethany Ayers 6:29

want to call it then, and then I also think there's the PE element, so there'll definitely be consolidation plays. Have you ever heard I think they're called constellation. They're Canadian, and there's a couple other Canadian companies doing this. I don't know why it's all happened in Canada. They buy point solutions that are like, second or third in their category of, like, very specific things, software for dentists, very, very verticalized, narrow solutions. Buy the companies from founders, consolidate all of the back end and then leave the founder and some of the development to, like, retain their play in dental appointments, and then it just is like kicking off loads of cash. Because when you remove all of the back end and consolidate that, they get them quite profitable, and then they're just buying more and more and more companies, and I've come across multiple companies doing that, all Canadian for some reason, but I think there's going to be more people following that model. I

Brandon 7:28

remember doing a forecast model just for fun, if we fired everyone in the company, got down to like, just a core set to keep the company alive and kicking in terms of our self service subscribership and just maintaining these existing customers said, what would that look like from a forecast standpoint, and what kind of cash could we throw off, and what kind of return could we give for a buyer at a certain level? That would actually make sense being cash generative, in that case, to that level, the slash and burn scenario of just like if things went to hell, basically, could we actually put ourselves in a position to sell for a certain amount? And what would that amount be based on cutting the staff down to 10 people, or something like that. So the other thing Simon had talked about was, in his view, the importance of the CEO role in VC backed companies. In particular, this renewed focus on the CEO being quite a player in the fundraising process to give really credibility, dependability, the detail that needs to be there, and the adult in the room to ensure that whoever they're trying to get for investment truly believes in the company, not just the vision of the founder, but feels like there's an adult in the room to take their money and be smart about it and deploy it in very useful, kind of reliable ways. And he felt that that CEO role is very much underestimated, super valuable, and something that he looks for when he invests as well. This is another

Bethany Ayers 8:44

thing that I think about a lot, is operations versus a COO. And I don't think they're synonymous, even though we think that they are, because what a COO is is the second in command and the glue that puts everything together, and that might be operations, like all of the tooling and stuff, but it tends to be more than that. It's a very people focused skill or focused role. It's around aligning, it's around cutting through the noise. Whereas I think of a lot of Biz Ops as process and tooling, and maybe I'm doing a disservice to it, because I'm not an ops person that's come from an ops background. I'm an ops person that's come from a sales background. But I also notice my own internalized misogyny when it comes to ops, because I feel like ops ends up being quite a women led or, you know, like women are good at organization, women are good at documenting things. And then I immediately discount it as less valuable, whereas I'm like, I'm not ops, I'm a COO. And then I catch myself in my own misogyny, but I don't think ops, ops, particularly in software. If we're talking about Biz Ops, is something that VCs care about, but I you know, unless you're at a certain scale where amazing execution is what matters, if we're talking about our world of A through C, what matters more is the experience and the ability to partner and turn a vision into reality, which is like that strategic operating level. Anyhow, I've just thrown out tons of stuff, and probably quite controversial and pissing people off, left, right and center, but there you go. Gone, Brandon.

I think back to the time that I spent at Trent for four years. And every single investor call that we ever had, the founder of that business and myself would sit there on the calls with investors, and we would tag team it and do it together. Because he presented the vision of the company, the excitement around the company, I provided kind of the holistic understanding of the business itself, in terms of where the business was at, how we were positioned in the marketplace. You know, what our potential looked like, in terms of our addressable market, where we're at today, what the account scenario was why it was like that, what the metrics looked like, why those metrics were meaningful, how they were appealing to that investor and walking through that story a little bit. I'm not a finance person, but I have a very deep understanding of the finances, the metrics around these companies to be able to very credibly speak to it in a very business oriented way, not in a straight up finance way, not in a straight up ops way, but really the totality of the business way, if that makes sense. And I think for fundraising purposes, if you do that with a CEO that is like that, that can be a very powerful combination. If they then want to deep dive into the account list, you bring in the VP of sales, they want to deep dive into the metrics you pull in the VP of Finance. Obviously, for the bulk of that, carrying that load for fundraising, very much can be those two individuals to work together to make that happen. The last piece I'll say is when it comes to deploying the capital, and how to deploy the capital, and what the thesis is for getting 10 million pounds from the investors, and how you'd like to use it again, the COO can be very, a very clear, headed partner to describe that in ways that are very grounded to the investors, where they're like, Ah, I understand how you're using this money. How are you going to deploy it, and I have good confidence in you, Brandon, to make them happen. Yeah, 100% agree. The other thing he'd spoken about was stage selection for CEOs, in the sense that if you want to sell yourself as a CEO, in terms of where you best play, is to really think quite deeply about that stage, part of it. So listen on the domain side of things that you may or may not be interested in, but much more about the stage itself, because that's what your kind of employers are going to be very interested in, the sense that you've done a stage or a set of stages before. They know you've done it before. You're a black box. You can do it again, and hopefully do it effectively again. And that really is more of the real sell to sell yourself, I guess, in terms of employment.

Yeah, I agree. And I think particularly in the current market specialization, nobody wants to take risk right now. They don't have money to just throw around if it goes wrong. And so the way that you do de risk is by looking as much like the thing that somebody is looking for, and getting into that specificity of experience, and you've done this journey multiple times, just helps de risk. I was speaking to somebody the other day who has actually followed that advice, hired a bunch of execs over the past 18 months. All of them are in the right stage, and so far, they've not had a mis hire. I

think you're right. I think this black box effect where you've done ADC before, you've done it three times before, and you've delivered results before, that is de risking, and that's interesting to an employer, it should be, at least in terms of the success that you just talked about. The last thing that he'd spoken about was it takes roughly 10 years to build a business, to be able to sell it properly out of the right valuation. And 10 years is not four years, which is typically what you get for option grants investing, and also, from an interest standpoint, nobody's had a company for 10 years, largely speaking, in the scale up world. The other thing that you had mentioned was not a lot of your peers had seen exits before. What do you make of this? Because it does take 10 years. Yeah,

or you go for the Silicon Valley philosophy, if you look at their CVs, even pre boom times, they're at places maximum 18 months, and they're just like, Yes, this one going to give me the exit, nope, go on to the next one. And so it's like a combination of doing some level of diligence, and is this company seem like a flyer, but then very quickly cutting losses, and that's what they do, or they become very stage specific, like, there's definitely execs who are the pre IPO to post IPO exec particularly like marketing. I feel like I've seen so many marketing ones, and they come in pre, they leave post, and they just specialize in that. And it's like such a clever thing to specialize in, because they've just. Guaranteed to make money. I don't know how they managed to specialize the first time, but then you've become the IPO guy. You want to be the IPO guy, because you're going to make money on that one. Yeah. So if I had to do it all over again, I think I would like think about how to become the IPO gal. I

always thought that series A was good, because you get in at a level where the valuation is reasonably low and your percentage that you get as a CEO is reasonably high, and just puts you in a decent position where you know, if you can leave with those vested options, purchase them into shares, and you know, just bank it, and hopefully that company goes on exits according to that 10 year schedule.

Obviously, it all comes down to personality and skills and what you're good at. And clearly, we're good at this stage, but maybe we'd be good at other stages had we had the experience earlier. I'm not sure, but I think the other one that's probably quite good is for money, quite lucrative. Is the seed to a or, you know, like the serial entrepreneurs that you find, Who serial entrepreneur a business from zero to 30 people, or maybe even 1015 people, and sell, and you can sell it for 3 million, but you own the whole thing. And you've just, and you have a tie in for a year, you know, so, like, in the course of three years, you've made a couple million, and then, boom, you do it again. So like, that seems to be the time to do it. And the IPO expert

I see right right at the very beginning and right at the very end, right

at the very end, yeah, if you're gonna do it all over again, and what you do is only care about money, do those two stages. So

why don't we Park it here, and let's get on to our conversation with Mr. Simon menashi. Let

me start with what happens kind of before it all got a bit crazy. So, you know, we had a we had a nice run of many years of more and more capital in the market. Companies getting built Europe, starting to catch up with the US in terms of producing great companies. Everything felt brilliant. And in 2021 we all felt like geniuses, right? We picked all these amazing companies as VCs. All the companies that we joined as executives or founded were doing great raising rounds, bigger and bigger numbers. But one of the issues is that we passed the point of sustainability so too much capital getting pumped too much into too few companies that actually had the underlying sustainable growth that really the whole market is ultimately built on. We had this foie gras effect where more and more capitals was being stuffed into companies, and it led to a lot of unsustainable behavior. And so when the crash came in 2022 sort of it was obvious in hindsight, and we'd all been following this zigging and zagging narrative of raise more money, hire more people, buoyed by what seemed like a fast exit from the COVID period as well. And none of it ultimately, was really sustainable. And so 2022 was a tough year of a lot of things changing. There was suddenly this big misalignment between what founders thought their company was worth, because they'd been told for the last couple of years that everything was a unicorn or about to be, and VCs, who suddenly were looking at the sources of our capital, which ultimately is the public markets or pension funds or whoever, and where everything was crashing. Everything was down at low multiples. And there was this huge disconnect between expectations and reality suddenly, and that meant that just deals weren't happening, and if deals aren't happening, nobody's getting funded. There's no money in the market. People aren't hiring. They have to change their plans. We saw lots of layoffs across the market. And, you know, you all lived through the story. So I think we're past that period now, and I think we're into an hour third phase. You know, we had the exuberance and then we had the crash back. I would say we're at least 12 months into a period of renormalization. So deals are getting done, companies are getting on. Growth is more sustainable. Companies are still able to burn cash and raise money. They're burning cash at a more sustainable rate than they used to be, and the money little harder to come by, but still around. And I think we've also settled into a period now where people are understanding the alignment between, you know, where the money comes from and where the money goes, and that's meaning that people can agree on pricing and transaction as transactions again, and so funding rounds are happening. So we're probably 12 months into that, and it feels a lot more buoyant and optimistic today than it did in q3 2022 when the bottom was really falling out of everything. We had this hype cycle that we all participated in of, Whoa, it's COVID. Pull back. Pull back. Oh no. Actually, it's fine. Run fast, hire lots of people, raise lots of money. Oh, wait. Oh shit, there's no funding available. Pull back, pull back. And that was obviously not helpful, but I think what it drove was it's this idea of sustainable growth versus growth at all costs. And I think the best position companies who had raised money still realized that they needed to have maybe a lower burn rate, more. More focused on metrics versus just growth at all costs. And the shape of that growth is, you know, got more attractive to everybody, right? It got more sensible to manage, and it got more attractive to invest in. And then at the weaker end of the market, you went from companies that you know, probably never could have sustained the kind of growth that they were artificially pumping with cheap capital, and they had to pull back to something that they could afford without raising more money. The new normal, I think, is that generally across the market, growth rates are a bit lower or a lot lower, and generally across the market, burn rates are a lot lower. So is that good? I think generally it's good in terms of responsible stewardship, of building a company, from a VCs perspective, it means the market smaller because these kind of more sustainable but slower growing companies, they're possibly good businesses, but they're not quite as like venture scalable build a billion dollar company kind of vibe as they might have looked in the past. What that means is there's a bifurcation. So if you're in the category of you know, still growing really well, bit more sensibly shaped than you were. Growth Rate is really good. Opportunities, really good. People are excited about the market. This is a great time to raise venture capital. It's a great time to join a company like that. Those companies have got a lot of optionality about how to grow and where to grow. If you're a company that's okay, but doesn't have the kind of growth rate that you might have been aspiring to have a few years ago. You might not be a very venture backable business anymore, even though you might be quite a good business. And those companies probably do have to find either a more sustainable long term path that doesn't involve raising more and more rounds of venture funding, or some kind of re acceleration route. And that's pretty hard. You know, there's a bit of a rule of thumb in venture that companies that decelerate generally don't re accelerate. That's not universally true, but it's sort of roughly true most of the time. So I think that bifurcation we also then see in venture capital. So fastest growing, hottest deals are raising money like no tomorrow, you're still seeing some crazy valuations and so on. Everybody else is finding it a little bit hard.

So I think there's something that we haven't talked about in this, because we're specifically focused on the VC market, which is the actual software market, which is obviously the other side of this, where the growth has to happen because people are willing to and there's an appetite to buy software, and that has also at the same time with the tightening of cash globally, fallen off a cliff for the last few years. So not only is it that you don't have cash being pumped into your business, it's a lot harder to sell than it was. I know very few businesses that are growing at 100% anywhere, which means that I feel like we're both that there's more funding to be had, but there's also just more business to be done. And we need to look at it with both elements of those two markets together. And maybe there's a good news story across both, or maybe not. Maybe we're just, you know, there's still money being pumped into businesses, but there aren't actually any customers buying at

a very minimum, even for companies whose product is in really strong demand, there's probably an extra procurement or CFO sign off layer at the end of the deal that may not have been there before. And so a six month sales cycle is now an eight month sales cycle. And you know, there's a drop off. And so you're even that company growing at 100% might now be growing at 85% purely because of the length of the sales cycle changing. I think the other thing is that, and on a positive note, on that, you know, there are pockets of software where the budget and attention has gone up a lot. The obvious one is AI. AI is a boardroom topic now in every company in every sector of the economy. So even the laggards in slow industries that are not great technology adopters, the CEO is turning to his or her, whatever, Chief Digital Officer or something, and saying, what's our AI strategy? And like, here is budget and here is innovation money, jumping from innovation money to real money, question mark. But with every CEO demanding an AI strategy, there's now permission to innovate and permission to buy different kinds of software than we would have had before.

When it comes to the the CEO role, or more of this, head of ops, VP of ops, role has your lens changed at all over the years in terms of that role, the role that it plays within venture capital based companies, Series A, B, C and so on. I think

in a way, the COO role has gotten back to what it should have been, much like the CFO role has gotten back to what it should have been, which is, you know, these are the senior executives who make sure the company works and continues to work as it scales up and links together data and information and communications from across different parts of the business that could otherwise be siloed. And, you know, generally responsible management and running of a company. And I think in some of the boom years, we forgot that, you know, you had this CEO CFO, or CEO coo team, which basically was like two pedal to the metal founders who couldn't divide up the CEO Rob between them. So one of them took a COO title, and in a way, the COO has become, I mean, maybe was always the number two, or maybe along. Like the CTO, but in a growth and fundraising and planning set of processes has become just as important as the CEO now, because how the money that a company raises is going to be deployed and what the right pace of hiring is and how you properly onboard those people, rather than just throwing bodies fueled by cheap capital at a problem until some people stick Guess what? That stuff is really important. It always was, and we forgot about that for a little while. I think also the COO has taken on a different role in fundraising and in in raising capital, the process of raising capital, which is as the kind of the responsible face of the business, where you have this division of roles where the CEO is selling the story and the dream and the vision and the future and the technology, probably as well, and the COO is providing this like solid, dependable, detail oriented, just nailing of everything else. And in a market where investors are worried about, I mean, all the things we've been talking about, having that really experienced, grown up coo in place can provide a huge amount of confidence, both in the pre investment process and then as the money actually gets deployed, and scaling the company up in the right way,

where should coos be looking for and how should they be pitching themselves?

I think knowing what kind of coo you are, or want to be, is really important, right? And I don't just mean, are you a operations leader for a business that's got some kind of physical product, versus you're a software only CFO in a SaaS company? I mean, do you really want to do the five to 25 people coo job where you are a super generalist, and you run loads of stuff, and you bring people in, and you're kind of not really a COO, you're number two in everything. Or is your skill set more aligned towards a company that's gotten to the 100 person point? It's having all the usual breaking experiences, and you've got the experience to stitch that together, working as part of a team of, you know, seasoned and senior C levels and VPs, and finding the company whose path ahead matches what you want to do and what your experience in is is more important now than ever. I think maybe more important than which sector or the company does and the relationship with the founder or the CEO also like, what's the complementarity and skill set between the CEO and the CEO is more important than ever. I think it was easy before to chase the hottest looking company, because every company that was really hot looking was growing really fast, or seemed to be growing really fast. Choosing a company was a kind of momentum play, and I think today it's not so much a momentum play, it's what journey Do you want to go on, either again or for the first time, and finding a company that's about to go on that bit of journey where you can really contribute there.

And so it's less risky to take a stage specific expert for that journey again than to have somebody go new, regardless of what the industry is. And also

before in the cheap capital times, if it was easy to hire many senior executives at once, and so you could kind of meld the team and fill in any gaps with, oh, well, it's okay. We're also hiring a chief customer officer, and we're also hiring a chief people officer, and we're also hiring this and that, you know now your coo might be one of one or two executives that you hire in an 18 month period, and so that person had better bring the right elements that you need for that run, because you're not going to be able to fill in all the gaps with five other VP and C level hires around that person.

Okay,

so what is going on with exits as it stands right now? So you talked about stabilization. You're optimistic for the future, and M C obviously has a lot in their portfolio. What are we seeing for trend lines, for exits for companies right now,

it's the same bifurcation that I described earlier, but even more so, so that, you know, the very, very, very hottest companies are getting crazy inbound from investors, crazy inbound from trade acquirers. They're sniffing around from secondaries funds. Maybe I'll come back to that in a minute. But you know, funds that have raised money to buy existing shares from other investors of companies as they continue to scale up. And there's a thriving exit market. If you are in the top 2% of venture backed companies, I think for the other 98% it's still very, very hard, and liquidity is the biggest problem at really, at every stage of the kind of venture back scale up market right now, VCs aren't delivering enough liquidity back to their investors. Companies are hard to sell. Companies that would have been saleable in 2021 or 2022 are now in a knuckling down phase to continue to build for a few years. I'm afraid the picture is not that great currently, when it comes to exits, that's not to say there aren't exits happening. There are. But outside of the very, very top companies, there's a lot of, I guess I would describe them as soft landings, or great stories where there's an exit that maybe is smaller than people might believe from what they're reading, or the company probably didn't want to be selling and is. Ended up having to or it's an Acqui hire, and it was an all share or mostly, mostly equity deal, not a lot of cash, and then it's still kind of jammed tomorrow, from the point of view both of the executives and of the investors, there's still not a lot of like, big blockbuster or cash exits happening. I mean, really anywhere, and I'm including the US and that. But I think in Europe, Europe doesn't have the skill set as much as the US does of you know, selling companies in good times and selling companies in bad times and just having that liquidity flow around, because it's an essential driver of the market. We're still quite a young ecosystem here, and we're still building those those muscles. So I'm afraid I'm a bit less optimistic there for

now. I feel like I know a number of companies where they have decent revenue, things have flat lined to some extent, and they've cut head count to basically be profitable, but they really, really want to sell. Do you have any recommendations or thoughts for those types of companies in terms of what to do? I think

it's quite tough, and I think the first thing that those companies and their founders and their investors need to do is reset their expectations. And let's say you were a 5 million pound business growing at 150% and then you were a 10 million pound business growing at 80% and now you're a 15 million pound business growing at 20% that's not a bad business, but it's not going to be valued at 15 times. Arr, and it might have been two and a half years ago, and it might have raised money at that kind of price two and a half years ago, and have a huge press stack sitting there from whoever led the series B or C or D. And so there's a realigning of expectations required for those kinds of businesses about what exit realistically is achievable in a different you know, in a one year time frame, or three year time frame, how that money gets divided up? Because if you've got a big pref stack from raising a huge round a few years ago, then you've probably got a lot of misalignment of incentives in that sale process. You know, what do the founders actually get? What are the option holders get, versus the VC at the top of the stack might be in a very different position to the VC that was in the seed round, and it's sitting under all that. Pref, so I would say that's the first conversation, I think, second of all, the kind of exit where you are acquired by another company who where your technology fits really well, your product fits really nicely into their distribution. You know, there's a there's a home and a lot to do for the best talent in your company in the acquiring body. Now, that type of acquisition is still a great type of acquisition. And so identifying where, where you're adding value to a certain customer segment, who else is interested in that customer, where your product fits in with other companies that might be your partners or even your rivals, and then really thinking very hard about the value proposition of your product, plus their product plugged into their distribution. That's the basics of selling yourself to another trade acquirer, and then getting to know the corp dev people and the partnerships people after that. But most people try and do it the other way around. They say, Oh, well, we're in the market x, and the big players in the in that market are y and z. So let's go get to know their corp dev people. But when they look at your company, they're thinking about their revenue. What's in the bag that their sales person is carrying, what's the upsell? And then, how is your company valuable with my distribution? So I think thinking like the acquirers sales team, not just thinking like the acquirers corp dev person is also a really important exercise to go through. And then I think there's a private equity type of exit also possible in this market, which could be to another investor that wants to reinvest for growth, or it could be to an investor that just wants to own the business and maybe combine it with something else, or run it for cash. And that's a very different shape of company that that sort of buyer wants to buy, and that's probably more a focus on being cash generative, or at least break even, and understanding what your path is to generating millions or 10s of millions a year in EBITDA and cash over the next three years, because that might be what that kind of buyer is looking to acquire,

and then Also what you're looking to acquire as the owners, or what are your expectations, and why are you looking to sell? Just going back to your point on corporate Dev, this is definitely a trend that you've seen in the last 18 months, but I'm surprised we don't see it more, which is really doubling down on partners, because you get two benefits from partners. One, you have some sort of exit path, because there's the best way of proving to corporate dev that you have a nice synergy with that company if they're already selling your product. And the second one is particularly in this last year with AI like SDRs just don't seem to be working from what I hear. I don't know about you, but I get 15 to 20 inbounds between email and and LinkedIn. And yet, partners are a way that I see a lot of businesses successfully finding new business. And so just as like anybody out there, my tip to you would be, take your partnership strategy seriously. Build out a partners team. M but be really clear and aligned as to what they get from partnering with you and your technology. But it helps you in two ways, helps you grow and it helps you figure out an exit strategy. Well, I

think it's part of the CEO's role to know their ecosystem players. You know, know the CEO of your biggest competitor. Know the CEO of each of the two or three companies that it's your most likely partner. Have your partnerships. People know their partnerships, but you the CEO, have a job to do, to to be connected. Know the lead VC investor in whoever's most likely to acquire you. And those things have to be built really, years in advance. Ideally, I

think a lot of people get into this startup world as a combination of romance and going to make a lot of money, rather than becoming the lawyer or investment banker that a lot of the people could also be. And yet, I was in a group of coos recently who are all startups, scale up coos, and I was the only one that had seen any sort of meaningful exit. And my exits not been, meet, like life changing, but it was meaningful. And that just really surprised me. You know, out of 30 coos, nobody there had seen anything. And now in this new world, you know, we have this crazy, frothy time now we're back into reality, back to maybe a bit more of what it was like when I first entered the space, which makes me wonder, or just say, that if you're going to go into startup scale up, it's not for the money. There's a bit of the dream, and we're paid decently, but you're actually doing it because you don't want a corporate job, you don't want to be a lawyer, you don't want to work for Goldman, you don't want to sell your soul, and you have to like the journey, otherwise it's not worth it, because it'll be really sad if you finish your career and have never had that exit.

Well, they also say most VCs haven't ever seen a carry check. So I think it's relatable. I guess one one counterpoint I'd make. I don't disagree with you, but one counterpoint I'd make is, you know, if I look at VCs, if I look at all the individual people working in VC in Europe right now, 80% of them became VCs within the last five years, and it takes 10 years to grow a great company. So most of the population is is young in the industry. And then if I look at the population growth of startups and scale ups in Europe. We're still a very young ecosystem. It's not really surprising that people who have grown up in this ecosystem haven't gotten to the end of a 10 year journey to build the best company that achieves a lot of liquidity. Yet we're a younger ecosystem in the US. And there are examples of people who have moved from company to company and earned some options over a few years and invested some of them and sold some of them and hung on to some of them and made some liquidity at the end, we as a ecosystem in a continent, still have a lot to prove together. I think we'll prove it. I think there'll be a lot more payouts, both to employees and, I hope, to VCs, but we've still got to do the basics of building a great company and selling it, and there's no shortcuts, as we found out in the last three years. If

our listeners can only remember one thing from today, what is it?

The market is actually better than you think it is, and it's likely to get a lot better in the next couple of years. And we're going to build some real businesses this time that are sustainable and they actually work, and they create value, and we get to share a fair share of that value. So I think we're in an okay place.

So on that optimistic note. Simon menashi, thank you for joining us on the operations room, if you like, when you hear it, please subscribe or leave us a comment, and we will see you next week.