Our guest today is Joe Schorge he is the Founder and Managing Partner of Isomer Capital, which is an investment firm based in London and focused exclusively on European venture capital. Isomer accesses high-potential opportunities in European technology through limited partner investments in early stage funds, company co-investments, and secondary purchases of funds and company positions.
We speak to him about why he is so excited about emerging managers and what the biggest opportunities and challenges are in the European VC space.
Our guest today is Joe Schorge he is the Founder and Managing Partner of Isomer Capital, which is an investment firm based in London and focused exclusively on European venture capital. Isomer accesses high-potential opportunities in European technology through limited partner investments in early stage funds, company co-investments, and secondary purchases of funds and company positions.
We speak to him about why he is so excited about emerging managers and what the biggest opportunities and challenges are in the European VC space.
Today's guest is Joe Schorge. He's the founder and managing partner of Isomer Capital, which is a funds of funds investor based in London and focused exclusively on European venture capital. He has started his career in information technology and has spent 25 years working both as a limited partner and a general partner. Welcome, Joe.
JS: Thank you. Good morning. Thanks for inviting me.
c*funds: Great to have you here. How's your day so far? Great.
JS: Well, too much rain in London. But that's pretty normal. And aside from that, everything terrific.
Great. All right. Well, thanks so much, Joe, shall we kick off? Well, the first question for you is, you know, we understand that you're a computer engineer. So we would love to know a little bit about how you entered the venture capital space.
Sure. Well, I studied computer engineering and but went straight into it out of university. It was the mid 90s. And every company was digitizing. It's funny, because we still talk about companies need to digitize but was the same thing back then, different computers, different technologies, but same kind of idea. And what I always tell people is don't take my route into venture. But actually, there is not one route intervention, there are lots of different routes. And most people I know, because it's such a cottage industry and unique apprenticeship style business. Few people took the same route. But myself, I spent about 10 years running IT departments, first in a small bank, in the US, and then later in engineering, and manufacturing companies are all around Europe. And that was great, because I love computer technologies and trying to make businesses go better, faster and cheaper.
Using technology is one of the most fun challenges I think you can do in business. It was toward the end of my operational career that I did an MBA. And I worked on some startups, helping founders, but also co-founding as well. And around that time, I met someone who was an angel and investing in venture capital funds, who asked me to join them in some projects. And they needed some DD on a technological level, which I was able to do it at that time. And they said, well, we're investing in venture capital. And I said, Oh, that's interesting. What's that? I said, don't worry about that. We'll teach you about that. But we're investing in startups that have a fundamental basis in technology. And we need to understand the the products and the markets that they operate in, we'd like to have your help.
So that was my my kind of very early entry. And in early 2000s, early for me, in the sense of I didn't know about the business of investing in startups systematically as a venture capital firm. And the trade was to, to get to learn that while I, I helped a bit founders and investors looking at potential projects.
Yeah, that's really interesting. And now you've been working in this space, of course, for some time already. So could you tell us a bit more on where you see some of the biggest opportunities in European VC space? And also, maybe how you as an investor contribute to this?
Sure. Well, we started Isomer Capital in 2015. Because in the, in the prior years, 12/13/14, we really developed conviction that what we were seeing amongst entrepreneurs and and also new VC firms, was a revolution, not an evolution, not a kind of gentle development, as you often see in markets, but really something fundamental changing. And now when I look back, I think that the global financial crisis of 2008 and 2009 was a catalyst. You know, it was a terrible time for financial markets and for businesses of all kinds. However, it it coincided with also some technological developments to create this, this great boom. In other words, the tools available to entrepreneurs became much more powerful than ever, the distribution networks for digital products became more powerful than ever. And that all came together at a time where talent was available in quantities that we hadn't seen before. So lots of people who were leaving maybe big industry or tech jobs and so on, started to do work on Startups and also started to start a VC. This was amazing to see, there wasn't any top-down data that you could really look at to recommend investing at that time. But if you were working with entrepreneurs and looking at the kinds of companies they were building, the speed at which they were building them, and the low amounts of capital going in, that was just remarkable. I'd never seen that before and in the prior couple decades. And so that was the basis of the opportunity that I saw, that led to the development of Isomer Capital.
There were lots of opportunities. But it all starts with the entrepreneur, what the entrepreneur can do today with small amounts of money, and a hyper network, customer base, is amazing. And so that leads to also new VCs starting all over Europe, focused on different opportunity sets focused on certain geographies, focused on certain technologies, certain business models, and so on. And so we created an Isomer to really work with those very early stage VCs wherever they are. And they support today's entrepreneur wherever that team is, which is far more geographically dispersed than ever before, and far more powerful than ever before. So the opportunities come in, in every every shape and size you can imagine, and, and now also very broadly spread sectorally, geographically, technologically. And so we in response created a very broad investment strategy.
Yeah, And in terms of, you know, those investments that you talked about in the beginning, where you said that the financial crisis was there, and you really saw revolution coming with all new tech developments. Do you have an example of maybe one of your investments or a company that you saw coming up there that you were really inspired by, that you really saw as this ‘boom’ that you're talking about?
Sure, sure. Well, if you follow the kind of fundamental analysis, if the entrepreneur today needs less capital, that would recommend early stage fund sizes being also small and appropriate for that opportunity. So, you know, we saw less amounts of capital required. And therefore, if you really align your strategy to be the first professional money into companies, you should raise a small fund, you know, that has that right amount of initial capital and follow-on. And so we saw an explosion of those all over Europe. And I was very inspired by certain firms, I guess, to take a few examples team that I met in before starting Isomer was Hoxton ventures out of London Robert Husein, helped me kind of see the opportunity with entrepreneurs and explained to me how some things they'd done as angels, you know, we put some money in this company, and it's only six months old, and it has some customers and revenues already. And that really inspired me to say, wow, that's never really saw that before, where a six month old company could have a viable product that customers would pay for. They were firm. I mean, another one, just coincidentally, also in London, entrepreneur first, a very interesting, strange model to help people who, who thought they might be founders, to find co-founders and figure out how to start a company and similar thing.
My my partner, Chris, worked with Matt, in the very early days, we developed a real strong conviction that, that if you, you know, the kind of way of working that entrepreneur first developed could build really strong companies over time. And that and that's been the case. So these kinds of, you know, when you talk to those entrepreneurs and those funds investing in them, that was really inspirational, and caused me to create an institutional strategy to tabacum a broad group of them. And that's all I mentioned to in London, just just by coincidence, but part of my observation was that London's a great market, but so is Paris and Berlin, and Stockholm, and so many other cities. And so the opportunity in Europe is really spread not across two or three tech hubs, but what like 20 or 30 tech hubs. So if you want to be an institutional investor and and find the next, you know, Spotify or UI path, you have to have a very broad outlook.
Absolutely. And like you said, your portfolio is extremely geographically diverse. So I'm sure you're making the most of all these different tech hubs as they bring out. And Joe, you mentioned how, you know, you've spoken about the increasing number of European funds and startups that are building out of Europe. But I wanted to know, what do you see as the biggest challenges to the European early stage VC space?
Biggest challenges? Well, that's an interesting question to ask, given we've had really more than a decade now, year on year record growth. So it's a space which has been growing incredibly well, in terms of in every kind of KPI you could measure. So picking the challenges in that is difficult year on year. But I guess I could talk about in terms of flows, inflows and outflows. So maybe a few big things I see exits and dpi. That's really important for the European venture system, we've had a great run since 2008, have lots of capital flowing in lots of new venture firms, great new companies being founded and built. But for the, you know, for the global investors in venture capital to really have a dedicated allocation to Europe, they need to see the complete model, capital in companies built capital out. So realizing returns is really important, and that and that's something which is happening now. The IPO windows open, we've had the biggest IPO in London in a decade is a tech company that didn't exist 10 years ago. And so that's great. But we need, we need that to continue, you know, to really cement Europe as one of the important tech hubs of the world that all investors wherever their origin, they really need to allocate their or they're missing something quite exciting. So that's happening, I don't see it as a challenge. But I do see it as something that companies and funds should continue to think about providing liquidity back to their investors is important.
I guess two other flows kind of concern me a little bit. One, I'd call the people flow. So in any area of success, you get lots of people flowing in because the activity looks exciting. And venture capitals, very fashionable industry. So when things look good, lots of people flow in when things look bad, lots people flow out. And that's actually bad for venture capital. It's an area it's a form of company building and investing that takes time. And fashion is bad. You don't want to over fund when it's fashionable, and you don't want to underfund when it's unfashionable. You know, my hope is that talent flowing in and capital flowing in is happens in a measured thoughtful way, rather than just a fashionable way. And you know, on the people side, you see, maybe, say tourists and entrepreneurs to use a couple of terms. So people getting into the space, because it looks interesting, rather than because they have a skill or a particular idea. And that that's a worrisome trend, sometimes when you when you talk to entrepreneurs, and ask what their big idea is, and and you realize after a while, they just want to have a company, rather than having a, you know, an exciting product, or that exists in funds as well. You know, so what's your thesis? Well, I just, I just want to invest because I like startups. Well, that's not enough in today's competitive environment. And then I think the other flow that the last thing I'd mentioned is capital flowing it.
So success is driving more and more capital to flow in from all over the world and different types of investors. And that's generally a good thing. But it leads to also increase competition, increased prices and company valuations, which isn't always a good thing, either. So it's just like under funding a company is bad over funding is is also bad. Because at some point, you need to grow your operation into the valuation that's been assigned to it.
Yeah, that's very interesting, Joe. And as you mentioned, it is very much in fashion. And we also see more and more funds coming up. So I think it's also really interesting to learn from, you know, what do you think is so interesting, especially about emerging managers, because there are, of course, also a lot of more established VC firms. So I think with isomer, you focus also quite a lot on these emerging managers. I was wondering, what is your view on that? And what exactly about these types of managers? excites you?
Yeah, that's a great question. We do focus on emerging managers. But we kind of came to that through a focus on early stage. It wasn't exactly that we decided one day we would back mostly emerging managers, or pretty much all emerging managers, I would say at this point. Rather, we said, if we look across Europe today, who is the first professional investor in the really big, exciting tech companies across Europe, when you look at that, you generally find what we call the local digital champion. So the VC fund that's dedicated to a certain kind of, often it's a geographical focus, you know, a German fund investing in Germany or a Swedish fund investing in Sweden, for example, or someone who's sectorally focused, you know, early stage FinTech or crypto or something like that. And so our approach was, how do we align with that first professional money in those formative days of companies getting in early helping companies grow. And in Europe that leads you to emerging managers. And that connects very nicely with what I love about emerging managers.
Typically, when people talk about emerging managers, they think about risk, you know, the risk of setting up a new firm and a new team and not having a long track record to analyze. And that can be true. However, what you get in emerging managers that I think is more valuable is fresh thinking. What you find when you talk to them is usually before they decided to start their firm and their fund. They've been working on the idea, the concept for some years, and they've thought long and hard. They've studied the market, they've analyzed, how would you develop a strategy just tailored perfectly for this market opportunity that I see. And that only happens at the very beginning of a firm, there's a lot of data, by the way, a lot of studies that show that fund one and two, tend to outperform fund three and four for lots and lots of venture firms. And that's a kind of top-down analysis you can do. But my bottom-up analysis is when you talk to these emerging managers, they've typically been doing something else, they maybe they've worked in a large VC, or they've they've accepted their own company, which they built up, or they worked in a big tech company like Google, Apple, Microsoft, and they've been studying, there's a certain kind of entrepreneur that needs my help. And I'm going to put together a fund to provide that. And I just love the depth and hard work of that depth of thinking and hard work that goes into that. And the motivation behind that. They also don't have a legacy portfolio. And you can ask, Well, why, you know, if you look at a firm that's on fund, 3/4/5, can they also have this fresh ideas and outlook? Well, certainly they can, and the great ones do. But on the other side, they've also got those portfolios from fund 1/2/3 that they're managing, that's a lot of work. And they're out there helping companies. So there is this kind of magic, I think that happens in the early days of new firms, that they're so dedicated, you know, when you only have one fund to manage, you wake up thinking about it, you go to bed thinking about it, you know, you're so close to those entrepreneurs and and you can drive a lot of value through that laser focus.
I also think there's something great that happens. And this is just a human quality, there's something great when you work within constraints. And that's true within finance. It's true within art. It's true in many, many human activities, having constraints, the constraints of a of a small fund size, for example of having to sell your proposition to investors who have never heard of you who don't have a brand, those constraints drive, lots of value. And I think those are those are good things later on when it becomes easy to raise big funds and firms become price insensitive and looking more broadly than their original laser focus. That's not necessarily a good thing. So we're working within the the constraints imposed on you as an emerging managers actually a good thing, although it doesn't necessarily feel good at the time. And I feel so strongly about this that I it's in line with. Maybe it's Bill Gates's book or something only the Paranoid survive, I think from a long time ago. But in some way, I think we all as fund managers should try to keep that emerging mindset. Because we're investing in innovation means you're looking for the next big idea. If you continue to repeat the patterns that worked in the past, you're not likely to find the next big innovation.
Absolutely, I can imagine that keeps your day to day and your activities. Yeah, really varied. Really interesting. Joy, you spoke about this fresh thinking and this new kind of flavor that the entrepreneurs bring to the table. I can imagine that must be really no marine in your first interactions. But maybe using an example can you bring to life, some of those qualities that you just spoke to us about?
Sure, sure. Well, you know, I think part of why many people get into venture capital is we we enjoy new ideas. We dread big ideas, we enjoy thinking about trends that businesses can be built around. And so what's always exciting to me with any any new team, you know, in a company or in a fund, is when I learned something new, you know, got lots of examples. I'll give you an example. there's a there's a team in Berlin. And it's not German guys. There's really guys, and I met them years ago and even forget how we met but they said something interesting that stuck with me till today. They said, you know, there's a lot of deep tech entrepreneurs in Berlin, that are building really fundamental technologies, which we think can be good businesses, big businesses. However, most of the VCs that they can talk to in the local market, don't really have deep tech skills, and they're not really able to help at least not on product development and the very early days of building deep tech companies, they can help later, certainly with capital, but also with going international so on.
But there's this whole group of entrepreneurs we've discovered, and we've worked with that need our help. And I thought that's kind of interesting. And oh, by the way, you know, we have, we have PhDs and different kinds of computer sciences. And so we can bring a real technical skill. And so I thought that was fascinating. I said, Wow, if there, if there really was such a thing, you know, a group of entrepreneurs building great things that needed assistance, that sounds to me like a great investment opportunity. In other words, underfunded out of the limelight, unfashionable, but potentially high value, you know, that kind of story always gets me really excited. And I think, Okay, how do I figure that out. So I have to go to Berlin and meet some of these teams and try to understand what they're doing and how that could be big, and so on, and then the investment team and try to work with them, and so on. And that turned into a great project to develop a new firm called called lunar ventures, who are just a terrific team working in Berlin. And we're very, very proud to help them get started. And they've already invested in a bunch of companies. And part of what I find quite exciting, but also scary. I really struggled to understand some of these technologies, and even with my computer engineering background, so I'm very happy to have partners like Lunar, who are very patient with me and explain, well, this is, this is how the tech works. This is what the company's doing. These are the kind of customers that they're getting, and so on. And I love it. Because at the moment, I understand, and of course, a day later, I can't explain it anymore. So they're patient to explain it to me five times. And then I've got it. But that's really the leading edge of computer science. And I'm pretty excited about that. And one example, I mean, the crypto space is another example. It's a very new and exciting world, you really need some specialists help to understand it, because they're building the big companies of tomorrow. But now it's the time to get involved.
Yeah, I can imagine that it's super exciting to learn every day from, you know, although feces that you work with. So I can also imagine that you see many deals coming by many VCs, I would like to have funding. Could you give an example of for example, a deal breaker in your investment decision?
Sure, sure. Well, you know, one other term, we kind of focused on emerging managers. One other trend I'm really thrilled about investing into in Europe is a lot of firms are now maturing. What's interesting to me is if you meet a team, and remember, my focus is all about early stage. So if you meet a team that have three, four funds behind them, and they're still focused on that very early stage opportunity, that's super exciting. So to have that early stage focus and fund size that's focused on early stage, but still, with experience, that's a great mix, what you find, and what's the deal breaker for me often is you find in the history of venture capital, this is true over the last 40 years, when firms are successful, lots of investors want to put money with them, because they now have a track record that maybe pension funds or foundations can, or endowments or whatever can come back, so they feel comfortable to back it. However they put lots of money in so fun sizes rise, scope of investment strategy creeps, they do different types of things that made them successful. And when I'm always looking for is, are you still, if you look back to the core elements that made you so successful, you know, those deals you did in the early days that became unicorn exits, and so on. Are you still doing those things? Or actually have you moved into maybe you do some of those, but maybe you do other things and or you go into other geographies or other sectors or so on. And for me, that tends to be a deal breaker when funds get too big, or they start to expand out? I mean, expansion is good growth is good, but staying focused on what can you do as an investment firm? That's better and more powerful than other firms. And as you know, always always a question, I think for emerging managers and mature managers, what can you do better than anyone else? In my opinion, doubling down on that and really dominating the space is ultimately far more powerful than just growing beat because you can, you know, because investors are on the LP side are now willing to commit bigger tickets.
Maybe I could give a couple more deal breaker examples. I think fundraising for funds is always a process of assertion and proof, you know, assertion being there's a market that's attractive. Okay, well prove it to us, you know, show us some data on that. I can access great companies, okay, show us that. You know, I have a way to be value additive to entrepreneurs, okay, show us. And so that that's always what we look for. And so deal breakers are, you know, you may have spotted a good market, but you're not active there, you can't access it or, you know, so that's, I think, always a deal breaker when we may agree on the thesis, but we have to see an ability to execute as well.
Absolutely. Joe, you mentioned, I guess the first deal breaker is kind of fund managers wanting to stray away from their core strengths. And I can imagine that the last year or so has been, you know, extremely challenging for your managers also for I guess, the economy at large with Corona. So I was really curious to hear your thoughts on your own portfolio companies performing in the last year, but also how you responded to their changing needs, and whether they, for instance, tried to stray away from their core strengths, you know, when faced with changing circumstances.
Yeah, it was a difficult year 2020, we call it a rollercoaster year because it was down and then it was up, into our response, together with our VC partners was to try to understand what the real impact of COVID was already and was likely to be on a company level. So we did a lot of work together with our VC partners to review company, by company by company the likely impact on customers and revenues, and therefore, how that related to how much cash each company had at Bank. And could they reduce, you know, those that were in danger? Could they reduce their burn rate, to essentially stay alive longer through the COVID crisis? So in Q2 2020, we really focused on that a bit into Q3. And what we found, I think, is pretty common with with most venture investors that by and large, most companies continued to do well, we had some companies very clearly damaged. I mean, the most obvious example, the travel sector, when everyone's staying home travel companies aren't doing well. So some companies were very seriously damaged. And in those cases, some tough decisions have to be taken, would you the venture capital community, would you put more, more money in alongside a survival plan in order to keep those companies alive? And in some cases, the answer was very much Yes, Yes, we should. And I have to say what surprised me and in many words, the government support across all European countries, for small business in general and venture backed businesses in particular.
So all of a sudden, companies had a range of tools they could use, ranging from from furlough programs for employees to debt programs, and, and even equity programs. So what we found was that governments really stepped up almost like they did in the in the financial crisis, time government stepped in to help banks. In this crisis, governments really stepped in to help small companies and therefore venture capital was a was a real beneficiary of that, and companies survived by the end of Q3 and into Q4 2020. We then understood that digital companies really were prospering due to COVID. So remote working, and remote schooling and remote health. And basically, you'll be remote everything, due to the nature of this crisis meant that so many digital products were needed. And therefore our portfolio and most VC portfolios really started to grow on the the customers and revenue level. And all of a sudden customers some of the really difficult customers to crack like national health systems for health tech startups in Europe. Rather than having an 18 month sales cycle, they started to have three and four months sales cycles, because they just were desperate to find find solutions. So that was great for European startups. And we've seen that growth continue in a really strong way into 2021. So now, I can comfortably say, in a surprising way, COVID has been a real accelerating factor for companies, partly due to that great support from the governments of Europe, and then also partly due just for the demand for digital products across the board. And I have to say I was totally impressed and delighted by the way our Venture Partners got even closer to their companies to on a company by company basis to see what could they do to help. That was very impressive to see. And that led to now we had an amazing Q1 this year.
In terms of exits. I think we've had five IPOs already this year, which is no surprise, if you think about where we were last year. We've also had amazing amounts of growth across the board in in revenues and profits in the new investments and so on. So yeah, I'm feeling today quite, quite good about the last year all that was an obvious a year ago today. No, that sounds really good. And congrats on all the growth that you've, you've experienced, I can imagine that it has also been really an exercise, you know of growth and adaptability for for all the firms and companies that you work with, which is good to hear.
Yeah, we would like to round off this part of the interview and move towards the fire rounds, Joe. So what we will do is, we will first ask you for really short questions, and you can really quickly answer it Don't think about it's wise, just like a one line answer. And then we'll after that move towards a final section, but if that's good with you, then we'll move towards the questions.
Well, with the with the caveat that I talked too much always and I'm terrible at fire around. Yes. Okay. Let's go. It will be good. It will be good.
All right. And Joe, what is your morning coffee order?
Milk, and sugar, and strong. Perfect. All right.
And secondly, what has your best investment so far been and why?
My best investments, it's tough to say, but probably backing an emerging team, that I developed great conviction, they would be awesome. At a time where no one else had that conviction. And it's proved to work extremely well.
And if you could solve one problem in the world, what would it be?
Well, it has to be health. We all need to get healthy again and get vaccinated and stop all these variants from flying around. Yeah, yes, please.
Alright, and finally, Joe, can you name for us three traits that make in your mind make a successful LP?
Firstly, is, I would say making investments on your own analysis, and conviction rather than based on who else is investing. I think that's quite important because the best things are not necessarily obvious. Second, would be to consider yourself a real partner. So not just putting money in but thinking about the funds business and the team's business and in whatever way you're able to be a helpful supportive partner. And thirdly, to have a long term outlook, venture capital, and all forms of growth take time. And so consistent support over time, is very highly valued. But also is is the real way you develop big outcomes.
Awesome. Well done. That was great. All right, Joe, we're gonna go just the last part, and here is more lighthearted and we just want to ask whether you think the following topics are underrated or overrated.
So if we can kick off the first question, or the first one I have for you is do you think SPACs? underrated or overrated?
Overrated.
Cryptos?
underrated.
Space exploration?
Space exploration. Yeah. Fairly rated, patiently rated.
All right. What about avocados?
underrated.
Elon Musk?
Fairly rated.
Silicon Valley?
Fairly rated.
And voice assistance?
underrated. All right. Well, that's impossible. You can't boil all these things down. Oh, man.
Ending
Absolutely. I will, Joel, thank you so much for your time with us today. Thank you. I really, really enjoyed speaking with you and hearing your insights, both personally and also you know what you're doing with Iceman. Thank you so much. My pleasure. Thank you so much for inviting me. And can I say thank you to see funds for supporting so many emerging managers, I really appreciate all the work you do with emerging managers and as we do alongside of us, and this is really helpful to them, I know but also helpful to the wider ecosystem. So thanks. Excellent. You're welcome. Looking forward to our continued collaboration, Joe. Me too. Thank you. Bye. Thank you. Bye bye.