Today's guest is Ertan Can. Ertan is the Founding Partner of Multiple Capital, a new generation fund of funds that enables diversified access to early-stage technology. He has invested in a portfolio of 500+ early stage tech companies in Europe and has built a strong global network of venture capitalists and founders.
In this episode Ertan will tell us about his journey towards setting up Multiple Capital, what he is currently focusing on now , his view on the PE industry and why he is an advocate of a fund of funds structure.
Today's guest is Ertan Can. Ertan is the Founding Partner of Multiple Capital, a new generation fund of funds that enables diversified access to early-stage technology. He has invested in a portfolio of 500+ early stage tech companies in Europe and has built a strong global network of venture capitalists and founders.
In this episode Ertan will tell us about his journey towards setting up Multiple Capital, what he is currently focusing on now , his view on the PE industry and why he is an advocate of a fund of funds structure.
Lieke 0:36
Hello, today's guest is Ertan Can. Ertan is a founding partner of multiple capital, which is a new generation of funds that enables diversified access to early stage technology. Prior to multiple, Ertan was investment director at a family office, in charge of building a portfolio of startups and stack funds. And he has invested in a portfolio of more than 500, early stage tech companies in Europe and he has built a strong global network of venture capitalists and funders. Welcome Ertan.
Ertan 1:09
Thank you for having me.
Liz 1:11
Welcome. Alright, let's jump straight in. So Lieke already gave a short introduction about you and your background, but maybe you could tell us in your own words a bit more. Yeah.
Ertan 1:24
Sure. Happy to do that. So I'm the founder of multiple capital. And, as Lieke said, multiple is a fund of funds focused on micro and small funds, micro and seed funds. And we think that it is relatively difficult to really build a diversified portfolio in venture capital and across micro and seed funds. And that was the birth of the idea of multiple capital to enable potential investors that are not big enough, and they don't have access to these kinds of small emerging managers to have a diversified selected portfolio in this kind of funds. And the idea is really to build a portfolio of 500 to 600. Companies early stage with a focus on Europe. But meanwhile, we are also investing in the US a lot. We're looking at Asian funds. And we're looking at a lot of vertical funds. So we have, I guess, 20% allocation into blockchain and crypto funds. We also have life science, quantum technologies and others. So it's a relatively agnostic, but tech focused, broad VC allocation vehicle.
Lieke 2:41
Yeah, great and maybe to take a bit of a step back to kind of how you started in this world, because it's such a specific small world. In the end, as we understand you started your career, kind of in a different field. So executive search. So how did you find yourself in the world of investing after this?
Ertan 3:00
Yeah, very interesting. Like, it's interesting, because I was a year in Executive Search. And this, the executive search part is very similar to my job at the moment. So I'm talking to people and try to understand, you know, if we like, in the end, in the back, then it was like, try to understand if you're placing these candidates, and today, if you're putting money into the GPs, so it's a very similar process. But how I started in venture capital is that I'm coming from, I have a finance background. I've studied finance law in London and Frankfurt finance law. And I work for the asset management industry, mainly, I had a break and had a short break in tectutive search, again, for the financial industry. And then I started working for a family office and had an interesting role in 2012, to invest in early stage companies. And back then, most of the people around me didn't really know what venture capital is, we didn't have the Shark Tank shows and, and the general understanding of venture capital was not there. And even in the ecosystem, you had bigger, a few, much fewer and bigger funds doing venture capital, compared to today, where you have really a lot of small funds, and so do GPS, and lots of emerging managers entering the ecosystem. So I started with a family office and invested directly into companies. And then after a year or two, I went back to the family and said, No, I don't think that this makes sense. I'm not really a tech investor myself. I don't have a tech background. I feel it's very difficult to get into the right companies. There is, again, I mentioned that a lot. There is something we call adverse selection. So it's really important to be in the right companies and venture capital and it doesn't bring you any returns if you're in the wrong companies. So I went back and suggested a different strategy, which is what I'm doing today. So in 2014, we started to invest in funds, instead of companies. And I built a pan European fund of funds for the family. And that was really successful in the end, and I have the feeling at that time. And still, this is more like a niche that I'm placing. And I really feel very focused and comfortable in that niche. And I think that I'm doing a much better job in investing into funds and GPs compared to investing into early stage tech companies. So that's the story behind multiple and then 2018, I left the family and started multiple, and I'm doing the same thing with multiple capital.
Liz 5:39
Great, and Ertan, I love how you, you know, right from the outset, you said, Look, you know, I'm not this early stage tech investor, and I can imagine where you are, but directly a GP into portfolio companies, there must be so, like a high level of really specific knowledge that's required to make these investments, can you share with us your approach? Or how do you approach a fund of funds investing type? So what kind of things do you look for in your fund managers that differ from trying to understand the individual portfolio companies as a GP?
Ertan 6:11
Yeah. So I think the the range of quality in GPs is much smaller, compared to funders, you know, everyone can be a founder and so you have a much bigger range and quality, you have a very bad funders who think they have an idea and like, and then you have great funders, and the range and the universe is much bigger. In ventures people are closer to each other. So people, someone who is raising a fund or wants to be a GP and wants to raise VC funds, typically has something to show, right? So he has some background, why he thinks it makes sense to run a fundraiser fund for him. So for us, I think the people are closer to each other. And I think, as a fund of funds, in my personal view, you need something like a clear thesis, what you want to do otherwise, you will just pick randomly funds. And what we do is we are really strong focused, we have a strong focus on small funds, because we think that small fund sizes outperform large funds in the venture capital industry. And we focus on early stage, which means for us pre seed and seed stage, and we don't invest into funds that come into A rounds, because we think that A or B rounds are very crowded with top brands globally. So a Sequoia can invest into an A round in Europe today without any problems. So you have less deals for the A and B rounds. So it's easier for them to access those great companies at A and B rounds. But it's more difficult even for top brands to invest in those companies at seed stage. And for the right companies between cDNA there might be something like a 10x already. And that's something people forget, right? And that's the focus that we have. And then even within c because many emerging managers raise small funds, typically they start investing in seed stage. And then we, for example, we don't do pan European generalists or global generalists, we don't do funds that try to do everything everywhere at seed stage, I think that's almost impossible. And there are good examples where it really worked. I mean, seed camp is a great example. And we declined seed camp, unfortunately, and it's a great fund. But again, it's not like it's not a fit 12 thesis. And we might be wrong in that specific case. But we might be right in most of the other cases. And so that's, I think, important if you want to invest as a fund of funds to have an idea, and the thesis, why you are investing in a specific, you know, fund or not, and then it becomes, for us at least, easier to identify the right funds. Having said this, in the last, especially, I would say one to two years or one year, the great new GPs entering the ecosystem. So the quantity of good funds and good GPs has just increased a lot. And it's getting more difficult to really do a selection in the end. And some of those even emerging managers are already oversubscribed with the first funds. The ecosystem is more interested in investing in those funds compared to a few years ago which was much much more difficult to raise the first time fund, especially as a solo GP. So this change and we have also increased the number of funds in our current fund of funds because we are seeing just incredible GPs in the markets, raising funds and executing the funds.
Liz 9:59
Yeah You have A perhaps for our listeners, or time when you speak about small funds, would be super helpful if you could define what you regard as small. And you're following on from that, you know, Surely your investment thesis has changed since you started investing in a fund of funds in 2013. You know, you mentioned you have 20% in blockchain at the moment. How has that thesis changed over the last nine or so years?
Ertan 10:23
So, what was the first question again?
Liz 10:28
What is a small fund in your eyes?
Ertan 10:30
Yeah, small fund Exactly. So a small fund, or the font size that we are looking typically is our fund size between 10 and 50 million. And it really depends where you are located, what kind of thesis or strategy you have. So in the UK, it might be even slightly bigger than 50 million, but we feel comfortable with it. If it's a solo GP with funds around 20 million, if it's a small team with 30 to 40 million seed stage funds, it could be smaller, I think if a small team is able only to raise 20 million, that's absolutely fine for us. So that's more or less the range. And it depends on what we're looking at this specific fund, if it makes sense or not, the fund size, we don't like if someone has a target of, let's say, 30. And then just because he can, within the end raise something like 40, 50 or 60. I think that is not a good sign. And we try to avoid funds that are above 100 million. So coming back to your second question, What has changed? I think in the beginning, in the first fund we did, we also did funds that were bigger. So for the two funds, there were 150 million. And that has changed. So we are more focused now on fund size really and try to invest, try to avoid funds that are 100 million plus, try to avoid funds that will do any A rounds. We think that today it's even more competitive to invest in A rounds. And that's why this is something that we would like to avoid. And in terms of other things that have changed in the last two, three years. We think that there are many more vertical funds. So you know sector focused thesis driven funds versus generalist funds, we still do the same. So our fund of funds thesis is to invest in two types of funds. One is a local generalist, someone you know, based in Germany investing into German, early stage, seed stage companies, but more as a generalist. And the other one is something like a pan European vertical fund. So FinTech funds are investing in Europe at seed stage. And it comes down to the universe of deal flow that you have to look at. If you're a pan European generalist. The deal flow is something like 20,000 companies here, and that's, in our opinion, almost impossible. If you are a local vertical fund, a FinTech fund, let's say, Germany or a FinTech fund and Sweden, the deal would be too small and doesn't make sense. And that's why we think the right answer is if you're focused on a vertical, then wider region, and if you're a generalist, then focus on a smaller region. And that's still the same, the only difference that we see is we have many more vertical funds today, compared to eight years ago. Eight years ago, most of the funds that we have invested in were generalist ones. And so we had a really broad geographical diversification. We still have a fund in the Baltics, we still have a fund in the Nordics, UK in Germany that investors are generalists, or we have probably 50% of the funds that we have our non generalist funds focused on a wider region.
Lieke 14:01
Yep. And touching upon that universe of deal flow, on your website, we read that you have 728 GP relationships, that you have invested in more than 500 early stage tech companies that have a practical question, but how do you cultivate this? How do you manage this? How do you stay on top of things?
Ertan 14:21
So to clarify, we haven't invested directly into 500 companies. I hope this is not a misunderstanding. We have invested into 30 funds, and those 30 funds have invested into 650 plus companies. And so the numbers are changing almost daily, or at least every quarter when we get a report from our funds. Also the number of GP relations, I mean, my job is to talk to GPs. I'm not investing in every GP but like a VC is talking to a lot of funders. I'm talking to a lot of GPs and that's the number of relationships that increase every day more or less. And the number of companies, how do we manage it? So again, we are investing into funds. In each fund of funds, we are probably investing into 20 to 30 funds. And we're managing the funds, not the companies, we have, you know, some insights and we track the companies every quarter. And we try to understand which companies we have in the portfolio. But in the end, we are outsourcing this to our GPs, to the managers of the funds that we are investing in, we trust them in selecting and managing the portfolio for us. And well, that's the whole idea of another fund, right, so that I am not, I don't have an opinion on the companies, I am completely agnostic, and I don't care about a company, I have an opinion on the GPs that I invest in. And then after that, I don't care which companies they invest in because they are incentivized, you know, they're highly incentivized. And they are in the same boat, and we trust them as specialists selecting the right companies. And again, we're a super diversified portfolio, we will have in each portfolio 500 plus companies, and that means we don't look at a single company, at least not in the early stage, we don't know which ones will be the outlier. If you look at our past portfolio, we never expected that the biggest outlier on our portfolio would be a company from Romania. So that's exactly in my opinion, the proof for the kind of diversification model we had, because if he would have only invested in the UK or only in Germany would have missed those remaining companies, which is like a huge outlier in Europe. So and that's the same idea that we still have, we still think we have to deploy capital today, not only in Europe, but in other niche regions in the world, to not miss some of the outliers, we will never have all of the outliers in our portfolio. But for a portfolio, like us, it is only important to have some of the outliers in the portfolio and the probability to have those, you know, some of the outliers that are that are created in the ecosystem is very high, because we are selecting from a huge number of funds, the right funds, in our opinion, and those again, have a portfolio of 500 plus companies. So having outliers in those 500 plus companies, the probability is high for that.
Lieke 17:21
Yeah, and that makes sense. And I think it's very interesting that you shared about the outliers in your portfolio. And I think you mentioned a fund in Bulgaria. Could you tell us maybe a little bit more about their strategy?
Ertan 17:35
What do you mean, the eastern Eastern European?
Lieke 17:38
Exactly, yeah.
Ertan 17:39
Yeah. So this specific fund is not a Bulgarian fund. It is a fund in Turkey, investing in Turkey and Eastern Europe. And mainly, you know, that time at least it was Turkey, Romania, Bulgaria and some of the Balkan countries. And so they cover those regions, and they invest in those regions. And they picked one company in Romania. That is, again became one of the biggest outliers in the last five years, and you're in the European ecosystem.
Liz 18:19
And can you share the name Ertan? Or is that the name of the fund of Romanian outliers?
Ertan 18:26
The Romanian company, the name is UI path. And it's, yeah, it's today it's a publicly listed company in New York, it has a valuation of 30 billion plus, and the fund we have invested is early bird east. And early bird East was one of those generalist funds covering Turkey and Eastern Europe for us. And we thought they are, I mean, that's also one of the funds that were bigger, that was bigger than the average fund that we invested in, it was a 150 million US dollar fund. But again, we thought, you know, it's a relatively broad region, there are not a lot of professional investors in that region. So it's more like a fund that could cherry pick at seed stage. And still, there is not a lot of follow-on capital in that region. So we thought it makes sense to have a slightly bigger fund than, you know, the average fund because in the end, they can really build an increased ownership in those companies, which most of the UK and Germany base like the developed ecosystem based funds can't, because if they have outliers in their portfolio, there will be a high competition and the A and B runs, which is not the case, still not the case in my opinion for Eastern Europe and Turkey. So it's still maybe a region where a slightly bigger fund could make sense.
Liz 19:52
Interesting. Yeah, that makes sense. And in their case, I guess having the funds to cherry pick and follow on definitely worked for UiPath. So thank you for sharing that with us. Ertan I've got a question about the GPs in your portfolio. You mentioned before that you work with some solo GPs. I would love to get your thoughts on how the dynamic of working with a solid GP differs from larger GP teams. And I guess Lieke and I were speaking about, you know, are they just no good with working together with other people or geniuses that don't need anyone else. What's your opinion?
Ertan 20:33
Okay, let me answer you know, my opinion in general is, I am a solo GP myself. So I think there is
Liz 20:40
Genius then.
Ertan 20:44
I wouldn't say genius, but I think so I'm a big believer in solo GPs. And again, I'm a solid GP myself and I think there are some benefits clearly for solo GPs, which is, one is a solo GP can just, because he is alone, manage a much smaller fund. So the fund size relation to the number of GPs, you know, if you have a 20 million fund for a solo GP, and you have three GPs in the team, and if those three GPs want to have the same more or less the same incentive, it has to be a 60 million fund. You know, that's one of the reasons why I really like solo GPs and I think that's also one of the reasons why solo GPs are acting as a solo GP because they can manage smaller funds. Another reason is just you are, you know, we are in an ecosystem where quick decisions and own opinions are extremely valuable if you know, if you don't have to wait for an IC committee to decide anything on a super quick early stage deal. I think it can make a lot of sense to be a solo GP to have very quick decisions to have very streamlined quick processes in your, in like, you don't you don't have a team. So that's all the benefits, I think, for a solo GP. And the good thing is today, compared to five years ago, today, solo GP is more or less accepted by a lot of LPs, maybe not the institutional world, you know, still they, they need probably teams and and they think that might be too risky, in our personal opinion and also experience, we think that small, our young teams, teams that did not work together before, have a higher risk compared to a solo GP, what is the risk in a solo GP that something happens to a person, I think the probability for this case is lower than you and me starting a fund never work together and then we might have a conflict in the team right so and then this is a real conflict for an LP because typically if you have two GPs that don't get along after a short period, yeah, it is a not very nice situation to be in and you don't have a quick solution. And this is something that I'm trying to you know, mentioned sometimes it's weird to talk about but if you have a problem with a solid gap, you have a clear cut, you know, you don't have I don't know a six months, 12 months, 18 months, legal case where people don't agree to anything and but in a solid GP real conflict case, you have a clear cut, the LPs can decide what to go what to do and what to focus on, replace or stop new investments. So these are, I would say the risk side of solid GPs, I think there are a ton of benefits for solid GPs, you again, you can really do what you exactly want to do. And you don't have to compromise your thesis, your strategy, your focus the way you work. And interestingly, I mean people forget that but a lot of solo GPs, the kind of team they have are other solo GPS, narrow VC, so they are not working alone and investing alone on a deal. They are typically investing as syndicates. So they work together with other GPs, solo GPS and other teams. So they are well respected. They are in close contact with others, and that makes them very valuable. I think for a lot of funders, few are very focused and can decide very quickly and again, for us. Your fund size is a big argument and for solo GPs, at least in our portfolio, the average fund size is smaller than for the funds with teams.
Lieke 24:45
Yeah, and indeed I can imagine that like the way you run your funds or basically you can see VC also as a company is different when you're solo GP versus when you have multiple GPs and I think you also shared with us before, that you, for example, outsource some of your workforce, which I think is interesting. Could you maybe tell us a little bit about how you've done that and how that has enabled you to run multiple capitals successfully?
Ertan 25:12
Yeah, I think that's the case for a lot of solo GPs. So we are outsourcing, for example, founder administration, of course, we're outsourcing accounting and these kinds of things, but we are also outsourcing PR, we're outsourcing copywriting, we're outsourcing some data work. So we have a lot of outsource people who support us. Also, for only for a specific time, and we are a very small internal team, we are three employees, or you know, me as a GP, and I have two employees and two part time employees. And that's, that's a small core team. And everything else, a lot of things are outsourced. And I think for a solo GP messing with companies that could be even, you know, there could be even less things that you have to outsource in the end. So if you don't really do a lot of PR, you don't need to have PR, if you don't want to, like build content or write content you might not need a copywriter. If you don't build a huge database, I mean, we are, that's one of the benefits of being a fund of funds, we're seeing so many things that a database makes sense for us. And so we are putting some effort building a database, but a GP investing into early stage deals in a specific protocol might not need to build this kind of database, also fund administration, we have some solo GPS using external fund admins and some solo GPS, really doing it in a house with a, you know, part time or full time CFO kind of person. That's how it works. It really depends how much you want to be in the market, how much you want to be seen, how much you create content, if you create your content yourself really or with a team. If you are native English or not, you know, even that's, you know, that's the reason why we are using a copywriter, we none of us is a native English person. So even if we create content, we need someone who's, you know, who is looking over it. And I'm not a PR person, I don't have any global PR. So I need support if I want to do PR from someone who understands PR. And that's the only one point. Like one point I have to, I'd like to mention as I think the fund admin part is still broken in our ecosystem. So we still lack real fund administrators. And I hope people or companies like Carta, will start doing the business also in Europe, and I think Europe desperately needs good fund administrators. We have tried to now and we're not super happy. And you know, in the long term I think we will probably try to do it in turn and not outsource the fund admin part.
Liz 28:14
Okay, well point noted for all our listeners out there looking at some new spaces, so fund administration and house insticc. Our turn to pivot a little bit, I guess, you know, c*funds are started by capital radio to shed light into the black box of private equity and venture capital. Are you able to share with us a little bit about your view on the insurance experience you have experienced and the venture capital ecosystem?
Ertan 28:42
Yeah. You mean, especially the transparency in terms of fundraising or LPs investors?
Liz 28:50
As you wish, I guess, whatever you felt has been the most opaque in your experience?
Ertan 28:55
Yeah, I mean, the whole ecosystem venture, I can't speak a lot about private equity. I guess. I can have a guess. But in venture, of course, you have in-transparency on both sides. So if you talk about early stage investing, of course, there are some in-transparencies that there is no data, right? So companies started and then like two people or three people or a small team, or sometimes a solo founder, starting a company and there's nothing really to look into it and lots of KPIs to look at to invest if you want to invest at an early stage. So there is clearly intransparency in investing, or looking at the total universe. We talked about that, you know, we don't think that an early stage fund can invest or or see the total deal flow and a wider region, you know, doing everything everywhere. That seems to be very tough and difficult and unrealistic and in venture capital. So that's one part. The other part which I think is still very intransparent is the whole fundraising part, right? So who are the investors in those funds? Who are the investors and emerging managers? Are they transparent about their portfolios? Are they transparently communicating that they are investing into venture capital? Yes, no, I think that is very, very intransparent. Even if you look at data providers like pitchbook, or preqin, I think the information in those data sets are relatively inaccurate. And you can't really, you know, I have trusted information about who is investing into venture capital as a LP, the LP world itself is relatively transparent, and they're not talking and not sharing a lot. There are some initiatives like the open LP platform in the US, where LPs share more about the work of an LP, but again, they're not sharing their, you know, specific thesis, how to invest in venture capital, or even the venture capital portfolio. Typically, if you go to a LP site, you don't find anything about their portfolio, if you go to a VC site you find everything about. So that's, it seems like this is a really still a very, very, intransparent world to raise capital from. In Europe, you have the more transparent government, LPs, right, the European Investment Fund, cave W, British business bank, BPI, etc, where the mandate to invest in supporting local ecosystems, and venture capital, or rather smaller mid cap, you know, newly created companies. So that's the, that's also one of the biggest money providers in the European venture capital ecosystem. So they are more transparent about, you know, because they have a public mandate. But if you look through and then try to identify the private LPs, you have a handful of funds that may be active in the venture capital ecosystem. You don't like that, that's the only, those are the only ones maybe talking in a podcast like this and talking about the thesis, and maybe it's part of the portfolio, but you typically don't really have a lot of information. And it's not the same way, like for a founder, I think, I think there is some change in the market, I think fund of funds start becoming more transparent. Also, because they have to fundraise themselves. So they do marketing for themselves, right? So they do talk about trying to build a brand themselves, because they have to raise, if you are a family office today, you don't have to raise capital, you don't raise capital. So you don't need a brand, you don't want to be you know, in the light, you don't want to have: we're getting hundreds of inbound emails every year just for our asset class, where we are focused on imagine a family office that will get hundreds of emails from, you know, venture capitalists, and then private equity 1000s of emails, probably, and then hedge funds, and then any other bank products or whatever, no one wants that, you know, no one wants to kind of transparency, if you are final money. I think that's one of the things why the LP side is intransparent. And unfortunately, I mean, this leads to those kinds of intransparency leads to advisors in that market, right? So which you need because you can't build the intelligence yourself in their rights on an access those infants bear and markets yourself. And that's the reason why c*funds, for example, exist.
Lieke 33:49
I just wanted to say that.
Ertan 33:51
And then I think, what's super important, from what I've seen in the last eight, nine years is that you have lots of advisors, like so it was, being an advisor is super easy. You start tomorrow, I'm an advisor for and I'm a broker for venture capitalists or funders even. I think there is, again, a huge range of inequality for advisors, right? So you have a lot of advisors who are really gatekeepers more or less, and I'm not really advising for both sides, though they are increasing the intransparency. And then you have more transparent advisors and more like real teams who also share the process and try to help really on each level. And that's I would say c*funds is one of those companies who are in the adviser world one of the better ones to work with. Yeah,
Lieke 34:46
Yeah. Great.
Great to hear. No, I think yeah, it's really interesting what you mentioned, because this is also exactly the reason that we wanted to set up this podcast and to tell those stories. So we would also love to have more family offices for example, on our podcasts to tell, you know, what their view is, what their position is in the ecosystem? Because that's Yeah, super, super much of a black box. So interesting points. And I think to touch upon that. We're also really wondering what your experience is, for example, I think being a fund of funds, it sometimes has a label, for example, you know, you kind of have double fees. So I wonder, what is your view on this? And have you? What is your experience with LPs? And what has their response been in your fundraising journey? On that point.
Ertan 35:38
Yeah. So we started, we are a German fund, right? So I'm based in Germany, and we have raised the German fund. And initially, my idea was to really reach out to German family offices and offer them a product that they typically don't build themselves. So they could, but they don't. And that's a simple answer on, you know, why a fund of funds can make sense for those kinds of investors. I think what you typically see in Germany, and also a lot of other European regions is that family offices, if they invest in ventures, they think they have to invest directly into companies, and not even in funds. And if they invest in funds, they typically invest in one local fund, they have a close relationship and think, you know, through that fund, they can invest and participate in great companies directly. The thing is, imagine any other asset class, they would never do that, like so imagine. I mean, if you look at public equity, right? Typically, a family office typically has a very diversified global portfolio, and probably they will never invest, if they're a Swedish family office, they will not only invest in Swedish companies, well, imagine your Lithuanian family office, you would never invest only in, you know, Lithuanian public equity, it doesn't make sense at all. So you typically invest into global MSCI ETFs, or s&p ETFs, or whatever. And you mix a diversified global portfolio that's like the typical allocation advice of asset managers of banks of, you know, wealth managers, of the people like Warren Buffett, Howard Marks, Bill Graham, etc. So if you want to build a portfolio long term, you're building a global diversified portfolio, which makes sense. So when it comes to venture people think they can, you know, they can just shorten the way and cut the corner and have great companies directly, venture is the exact opposite of a publicly listed company, you have super high risk, and you don't know anything about a company. And on top, it's a tech company. So the family office typically doesn't understand, like I don't really understand what kind of tech, the company's building, so you have a lot of risk. And still, at least the family I spoke with in Germany, most of them, then try to invest in three or four, or five, or six or seven, direct companies. And typically, most of them lack real returns out of those portfolios, it's not the right kind of portfolio for families, that was my learning, working at a family office. And I think, personally, that a diversified venture portfolio can make a lot of sense as a part of an allocation and a family office portfolio. And what I mean by that is really, to invest in either yourself, I mean, coming back to your question, and I will answer that in the next minute. If you are a family office, and you have the resources and the understanding, and you want to do that, you can source the funds yourself and invest in the pan European or Global fund of funds portfolio yourself. And you can, you know, save the management fees for the second layer for the fund of funds. But it's not like it's not for free, if you do it in house, you still have, you know, resources that you need to use for it, right. So I'm doing this job, and it's like a full time job for me. So if you want to hire someone, and pay a full time salary to do my job, then this is the cost that you have. And then it comes down to more or less the amount that you're going to invest in that asset class. So we think that everyone was investing less than 20 million into a venture, it doesn't make sense to build that resource yourself in house, right? So if you're investing 20 million plus into that asset class, you could build in house, then the question is still, that's just, you know, that's just a view on the quantity. So financially, it could, it could make sense to build it in house, but still you need quality units still, you know, someone was replacing me as a fund of funds manager in house in the family office. So the question is, will you get someone who is capable enough to build a similar portfolio like I am? If you are, then fine, you can do that. Right. So I think that's the core decision that a family office really wants to build a long term allocation venture capital or any other asset class, like private equity, as the same thing. I guess, we have to think about, you know, are you going to make it or buy it. If you are going to make it, does it make sense with a small allocation of, let's say 1-10 million, just the kind of allocation we are looking for, from a family office. So I think, this kind of allocation wants 10 million, it’s almost impossible to build it yourself in a right way, you know, and a cost efficient way. So that’s the answer, it doesn’t matter how much the fees are or the fees are on top, yes. You know, the typical VC fund takes 2 and 20, and the merging managers slightly more, maybe, a typical fund of funds is on 50% of that, so it’s 1 and 10. You know, I see fund of funds taking 1.8%, which doesn’t make sense for me, but the market seems to accept that, I don’t know why, but we think 1 and 10 is like the standard for a fund of funds so it decreases the cost, but again, just think about if someone allocates 5 million to a fund of funds, 1% is 50k, I think you couldn’t even hire a person with that amount, to run any internal fund of funds for you. So even 10 million would be 100k, I think if you really wanna hire an experienced person,with all the costs involved, 100k is not enough right? You don’t have a team, it’s only one person doing that so, if you really wanna have a real team, I think you need to budget of 200k, and I think that’s the reason why you need something like allocating 20 million plus to build that team in house, that is, then you have typical family office, you have an incentive like, so most of the employees working in a family office are not incentive as what carries, so I am, there is a reason why I am doing this job for the next 10 years, the family office employees might not, right? So that’s probably not talking in numbers, but when we are talking about, nothing is for free, again, if you build it in house, then build it, yeah, I think it’s the right thing to build this kind of portfolio, and if you look at the returns, you know, I still think that venture capital and most of the people outside, even traditional corporates, I think they have to digitalise, they have to think about technology, and so, everyone believes that the technology changes the world, and it’s very important for us, as technology is not only in software companies, technology today is, you know, impact, biotech, biology, it;s quantum, blockchain, it’s so many things under the word ‘’technology’’. In the end, everything that is thought today would make sense, it’s partially technology. So everyone believes in that and still the traditional asset management industry still thinks technology is still a thing, right? If you look at the ten biggest companies in the world, I don’t know exactly at the moment, but I think two thirds of them are technology companies, with google, the apples, the amazon, alibaba, so on and so forth, so it’s not the sense of like, those old industries anymore, and those companies were all created in the last 2 decades more or less, so this is something, this kind of understanding is super important. UI part is 30billion company today and it was created 5, 6 years ago, so they started more or less 5 or 6 years ago, so what we think is, even with additional costs from a bio fund of funds, by the way, fund of funds is not, i’m not re-inventing the wheels right? So you have a fund of funds for decades, in the private equity industry, and you have a fund of funds in the hedge fund industry, and of course now you have a fund of funds already for decades in the US, venture capital. In Europe, it’s a slightly new thing, and people think, you know, no one needs that. You know, the US is much further along in terms of venture capital investing, and they think, fund of funds makes a lot of sense, you know, to allocate money to venture capital. The thing is, if we think that Tech inventure is outperforming the rest of the asset classes, right? So private equity, hedge funds and others, and even with an additional cost of fund of funds, which we have also in the other asset classes, you have better return in venture compared to private equity and hedge funds. That’s the core understanding I have about fees.
Liz 44:52
Yes, you sound like you are very passionate about this, as we can hear.
Ertan 44:53
Yes, thank you
Liz 44:56
So Ertan, maybe just before we wrap the session of today’s episode up, speaking about the future, can we ask what are the next plans for multiple capital? What’s happening at the moment?
Ertan 45:09
Yeah, I’m a legal person, we just close our current fund now with hard cap with 200 million, it’s a relatively small fund, and we are aiming to start our next fund, so early next year, continue with the exactly same thesis, probably doing more outside of Europe, but still Europe will still probably be 50% of our locations, but the core fee is the same thing, the core team is now getting slightly bigger, but still, for the next fund, it will still be a solo GP fund, we have now 30 funds, by the end of the year roughly 40 funds in the portfolio. We will have, but, in the 1, 2 years probably 800, 900 portfolio companies in a portfolio when we get the data every quarter. Long term vision is probably like everyone else, building something like a platform, if the market and the ecosystem do also believe that a platform makes sense where, you know, we can offer access not only in a primary funds world, but things like secondaries, maybe in the future things like, direct investing to late stage companies in our portfolio, but also venture debt, so that’s what I understand on a platform that we are ready to offer, different kind of services, for or in the venture capital industry, but I would say I call myself a founder which is bootstrap a small company in the last three years and still small with the small budget and we can pay our bills, we can pay our salaries to pay our private bills, and I’m happy if I can continue the business I have in someway, that’s like the mid’s to long term vision I have.
Lieke 47:01
Yeah, great, excellent. Thank you so much for all your insights Ertan, so now we round off kind of the first part of the interview, so the very odd questions. So the next round is the fire round, meaning that we will ask you a couple of really short questions, and we just would like you to answer the first thing that pops up in your mind. And just before we get started, maybe it’s not as easy, but do you identify more as a LP or GP?
Ertan 47:28
Oh, that’s not an easy one, technically I’m both, right? So I’m a GP because I have to raise capital for my fund which is in the end a great thing, convincing people of great products in the end, but on the other hand, I’m a LP, I am like, people forget that, in a lot of funds that I invest because they are emerging managers, small funds, one of the biggest LPs in their funds, biggest private LP in their fund, so of course I’ a LP, and in the end I’m also a GP.
Lieke 48:03
yeah , good to know, it relates to one of the questions that is coming up. So if you are ready, then we will get started with the questions. So what is your morning coffee order?
Ertan 48:09
My morning coffee order is just having a black coffee before I have breakfast.
Liz 48:18
Okay, so Ertan, if you could solve one problem in the world, what would it be?
Ertan 48:21
Sorry? Solve one problem in the world?
Liz 48:25
Yes
Ertan 48:26
So inequality.
Lieke 48:29
Perfect, so could you name three traits that make in your eyes a successful LP?
Ertan 48:33
Having a thesis, understanding the mystery of venture capital , and actively reaching out.
Lieke 48:44
Thank you.
Liz 48:45
Great! And the final one, what book are you currently reading?
Ertan 48:50
The solver and individual. It’s not easy to read a long thick book, but I am almost finished. It’s interesting I think in the current world, to understand how governments divove, and how individuals will be involved in the next one to two decades.
Liz 49:09
Alright Ertan, we are gonna move on to the next part, only using the words overrated and underrated. So do you believe the following topics are overrated or underrated? Twitter.
Ertan 49:30
Underrated.
Liz 49:31
Private equity conferences.
Ertan 49:34
Overrated.
Liz 49:35
Avocados
Ertan 49:37
Avocados? Overrated.
Liz 49:44
And what about crypto currency ?
Ertan 49:47
Underrated.
Liz 49:50
And the Bay area?
Ertan 49:51
Overrated.
Liz 49:54
So finally, what about currywurst ?
Ertan 49:55
Underrated.
Liz 49:58
Intistic
Ertan 49:59
Sorry?
Liz 50:01
Alright, Ertan, so that concludes out of all today, thank you so much for your insights in terms of your past experiences, I know it’s gonna be an interesting episode for our readers, thank you very much.
Lieke 50:13
Thank you Ertan.
Ertan 50:17
Thank you so much for having me, thank you, have a great day, thanks.