"Sasha is the Principal at Atomico VC (invested in Skype, Pipedrive ...). We discussed the VC perspective on Open-Source. Which business models work best? What makes a successful founding team? When is it too late to think about the Open Source commercialization. Sasha shares 10+ years of investing experience with us including the best and worst cases he's seen in his career. Join us!" Piotr Karwatka, host.
Questions asked during the interview:
· How did you get into a VC fund - early days of your career.
· Milestones of your career + key learnings?
· Atomico - the story, partners, investments strategy?
· How to become Atomico’s portfolio company?
· What are the investment criteria at the early and late? What makes the difference?
· What works and what doesn't at the company's you review? Maybe some examples?
· How the successful founding team should look at and who should it consist of?
· The key features of a successful founder?
· Your investment strategy at Atomico?
· Investing in Open-Source products - how it looks from a VC perspective?
· Investing into Open-Source products vs. developer tools.
· What other (if any) criteria do you take to assess the traction and market fit?
· How to make money on Open Source; Business models +examples (Red Hat, Elastic (+fighting AWS), Github);
· What business models work best from a VC perspective:on-prem, consulting, cloud, mixed?
· As open source: can you pivot towards a business model or you need to have it in mind from the day 0?
· The product development strategy: starting from scratch vs the spin-offs?
· The deals you’re most proud of and the one you missed?
· Most over and under-rated tech trends you observe and are excited about?
· What’s the next, ideal startup you’d invest into just if you could find it?
Piotr Karwatka: [00:00:41] Hi guys, in our CTO to CTO episodes, we are circle around three main topics, enterprise software, open source, and eCommerce. So far, my guests were software vendors, founders and managers in charge of Digital Transformation.
Apparently, it's like we are having folks creating the technology and its users. I thought it would be great to have a look from a different angle. In today's episode, my guest is Sasha Vidiborskiy,principal of Atomico Venture Capital Fund. Atomico invested in dozens of companies, including Rovio, Klarna and Pipedrive.
Before joining Atomiko, Sasha worked at Runa Capital, a few well known from investing into open-source enterprise opensource products, like nginx, Key Metrics and MariaDB. We are going to talk about the VC firm perspective, business models, raising technology trends and open-source. Hello Sasha! Thank you for accepting my invitation.
Sasha Vidiborskiy:[00:01:38] Hey Piotr! Thanks for inviting me. It's super nice to be here. That's
Piotr Karwatka: [00:01:43] Do you know that you are the first venture capitalists being interviewed by me?
Sasha Vidiborskiy:[00:01:48] No, it's actually a great honor. Looking forward to our conversations, and the bar is quite high for me.
Piotr Karwatka: [00:02:00] Well, maybe we first get, um, a little bit into your,your background of your career, how you got into a VC funds the early days of your career, how did it look like?
Sasha Vidiborskiy:[00:02:11] Yeah, I think, you know, when you have conversations with entrepreneurs, he always introduced herself. And, uh,sometimes I have like a three minute intro, sometimes like a 10, second intro and many cases they could ever have a certain leaps because obviously you don't want to tell the entire story, but my story, um, it started in, in science. So I'm trained as a quantum physicist. That was over a decade ago, back in the days, quantum was not a thing. Like not everyone, literally there were people that had not heard about quantum computing at that time. So I started my career working in the lab basic and building quantum computers, but quite quickly, realized that I probably want to do something more applicable.
And then, um, after that I started my own company. We we're doing AR for emotion recognition and the main idea was while we can detect how people react to advertising, we can probably improve that advertising.
Piotr Karwatka: [00:03:07] Oh, interesting.
Sasha Vidiborskiy:[00:03:09] Then I was with a company in Estonia called Bitcom, uh, that was doing backup and recovery for small and medium enterprises.
So I was their first business hire. Was with them for a bit less than a year. And that was super interesting journey because obviously kind of getting into the tech, um, with more business related activities was, was very cool. And then right after that, I joined basically Runa and then I spent two and a half years investing in things across the spectrum with, um, probably more and go towards open source and developer tools.
So that's something that I found personally fascinating. And that's why I kind of continued to do that going into the future and diverse. And then I did an MBA in the U S and joined Atomiko shortly after that. So I've been with Atomico for almost a year and a half now.
Piotr Karwatka: [00:04:05] Gotcha. Very interesting story.
And, uh, you know, you start with quantum physics. Um, I think it's, uh, a space and topic, uh, for most of us, um,seemed like, uh, the most difficult thing you can imagine. So you ate that frog, like started with something really tough and the early days of your career. So. Was it like everything else, everything further down the path was just easy for you?
Sasha Vidiborskiy:[00:04:36] No, I think, uh, all of the things there were super hard, but it's in its own manner. I think quantum is… It's hard because you need to have a lot of prior knowledge. It's not something that where you can jump on things and kind of figure it on the fly. That's where probably the most complexity is coming from.
But if, if you're familiar with that, it's kind of, it's fine. I had colleagues who were much smarter than I was, and they were like, kind of cracking nuts with everything related to that. Um, building my own company was there were different challenge, but probably the most challenging thinking in, in my life, just because you're on your own.
Um, you don't have kind of people to support you. You need to hire; you need to raise capital. There are so many things.
Piotr Karwatka: [00:05:29] Yeah.
Sasha Vidiborskiy:[00:05:31] And there is no one that stands behind your back. It says, well, if this is right, this is wrong. You make your own decisions. And I think that was the biggest, um, transformational experience for me.
And then being an early joiner for another company. It's another challenge because now suddenly you don't make all of the decisions and you need to persuade people. You need to make sure that everyone's aligned. And then switching to VC- It was another, another angle because obviously you want to be helpful to people, but there is so much you can do obviously.
Um, and I think many people have this misconception about VC, that it's a defensive job where you just sit on the couch and you write checks and it's actually not because obviously there are so many things you need to do right. And there are so many people that you want to help. Um, yeah. But, uh, probably what quantum physics taught me is tolerance to ambiguity and tolerance to do hard things.
It's not like you see an equation for the first time and you say, well, if I don't crack it in 10 minutes, I'll kind of,uh, jump off. You need to sit there and kind of persevere. And you needed to make sure that you can deliver on what is expected. So, all of the things were,were important and useful.
I can't say that any of the steps that I just mentioned were deliberate. In many cases I was just in the right place at the right time. So I wish I could say that I knew what I was doing. I had no idea to be honest.
Piotr Karwatka: [00:07:05] So you didn’t have a plan set in stone. It was rather learning by doing story?
Sasha Vidiborskiy:[00:07:14] Well, it was more well like this challenge sounds cool. I should go and figure it out, right. It was not that I had this idea. I want to be here at the end of the day and that's why I need to do these five things. It was more like well, it's a new challenge, sounds cool.I should go and figure it out. And that ultimately was probably the right thing for my personality. But for many others, it might seem too chaotic.
Piotr Karwatka: [00:07:40] Sounds really interesting. And what I have learned so far is that quantum physics and and entrepreneurship is actually pretty much related to each other. Let's talk Atomico. What's the story of this fund? Tellus, please, a little bit about the partners, your investment strategy.
Sasha Vidiborskiy:[00:08:03] Yeah, no, absolutely. Um, so tell me was started, uh, almost 15 years ago. Um, originally by Niklas Zennström, who is the founder and CEO of Skype. And, um, basically back in the day when he was doing it in Skype, he obviously had to raise a lot of capital and besides capital,what he really needed was a hands-on support because at that time, that was like 2006. Not that many companies were started from Europe. So, there were not that many people you can rely on for advice and for hands on support. In terms of the things that they have done themselves. Yep. So, from that perspective,when he exited Skype, he decided, well, if this is something that I needed back at the time, maybe this is something that others need as well.
So he decided to start a venture capital firm. Fast forward, 15 years from the time we're now investing out of our fifth funds, which is $820 million. Overall, we have, uh, over $3 billion in assets,under management. That's probably one of the biggest standalone early-stage funds. And, uh, the strategy has pretty much stayed the same.
We're focused at series a, uh, Europe based companies. So that's probably the bulk of our investments going into probably 70 to 75%. And then we selectively do what we call venture growth investments.This is series B, C and D and P if previously it was pretty much anywhere in the world. We'll have a few investments in, in Latin America, in Brazil, a few investments in Asia and so on.
But probably since fund four, um, we refocused for venture growth. We are focused on the US and Europe. And the core idea here is, um, that for Europe based companies we'll help them scale to the US and for US companies will help them scale to Europe. And the way we help them is that we have operating partners.
In-house so these are people that are former senior executives or managers or entrepreneurs that. We're responsible for a specific function. So, we have an operating partner that was a former head of Google EMEA, and he scaled Google from 70 people to 7,000 people. And that's what he does for our portfolio companies.
So, anything related to, um, recruiting, to work structure, to pretty much, um, people side of the business, he, he can help you with that. And then we have another partner. Um, Kara, uh, who did the same at Twitter. And then we have similar type of profiles for go-to market,for international expansion, for brand and communication.
And that's when we invest, we basically deploy these resources to our portfolio companies. So, they could have these people and have this hands-on support that they might some in kind of some other cases, miss.
Piotr Karwatka: [00:11:13] That sounds very cool. And I think it's not that often that, uh,
I didn't often see VC’s offering this kind of, let's say ‘smart money’. Let’s say putting experience and executives to the table. I think this is really cool value you provide.
That's really awesome.
Sasha Vidiborskiy:[00:11:50] I think we started in 2006 and since then, obviously many funds have been started in Europe and many more provide hands-on support these days, which is awesome because I think at series A's specifically. Um, that's where it becomes more about execution rather than about conviction.
So from that perspective, this is what entrepreneurs need. And if the market supports that this is really cool and we're trying to be mindful and also kind of innovate on that front because obviously we were one of the first ones to start that and we, we keep innovating and, um, there are a few things that are being kind of cooked right now. So hopefully, hopefully you'll see more on that front as well.
Piotr Karwatka: [00:12:39] Awesome. Uh, I'm wondering, what are the criteria you have for companies applying to Atomico? Is there any specific business model or industry or technology or, um, team structure, like how, how the criteria looks like.
Sasha Vidiborskiy:[00:13:02] Yeah, no, that's a great question.
Um, so I think that that at Atomico, we are firstly vertical agnostic, which means that basically we invest across the spectrum. We invest into anything from deep tech. We are invested in Lilium,which is a flying electric vehicle company in Germany. We're invested in Graphcore,the AI chip manufacturer.
And I think for different companies, uh,there will be different things that we would like to explore. But in general, I think what's what is specific to Atomic is few things first, um, is the level of ambition that the founders have and their capabilities, because obviously what we're looking for.
Is to find Skype-like opportunities. So companies and teams that can transform their respective fields. The same way that Skype became a category, defining software for voice over IP. The same we want to back companies that will become category-defining in their respective fields.We call those companies ‘game changers’ because whatever they do, they should change the rules of the game.
So that's one thing. Second is obviously more kind of playing when you are things like market size. Um, Uh, innovation that is happening because of the technology that the team is developing and the traction and the first, which probably should be the first is the, the talent magnetism that the founders have, because obviously it's very hard to build a game-changing company.
If you can't attract best-in-class talent.And it's not only about the credentials, because obviously I think people sometimes get fixated on like credentials, like, Oh, this guy worked at Google or Amazon or whatever. It's more about like, whether these people are passionate about the idea they're going after, whether they, these are the people that can deliver on the promise.
Because I think at early stage before series eight, it's about the, about the vision at series eight, it becomes.It's, it becomes a bit more about whether you can deliver on that vision. So,it's more, it becomes more tangible, right. And if you cannot support your vision with evidence, that's probably not that good fit for a proper series.
A maybe need a bit more, um, validation for that. Um, but if you get that, that's probably the best time to go in and raise a series eight.
Piotr Karwatka: [00:15:50] Absolutely. I’m really glad you said that. It's all about the execution and the execution is actually all about the people. So, the founding team, plus the people they can hire.
And you already said that two important features of successful founders are the, the passion that the magnetism that they have for other people. And, um, what other features define the successful founding team? Maybe it's even good to, uh, discuss this separately, like the successful founder.
Sasha Vidiborskiy:[00:16:32] No, that's actually a very good distinction, If you think about the core of the VC business, I think it's all about people in one form or another. And, um, if you think about founders, um,vision definitely is one, and whether they can articulate that vision and whether they can deliver on that vision.
The second is talent magnet, as I mentioned, because obviously you want to be surrounded by people that are better than you. And the first one, there are many words that can describe it,but I would probably use like grit or tenacity, which means that you need to persevere. With the entrepreneurial journey there will be so many things that go the wrong way. Some of them go South. Some others go just sideways. And do you need to perservere, and you need to make sure that you can, um, go this journey or go this this way and not stop or actually know when to stop. Because obviously what we see in many cases, I mean, you know, the stats: 9 out of 10 companies die.
And I think with the best entrepreneurs that I've seen, they know when it's time to call it a day. Because obviously there are so many kinds of the way we call them, like, walk-ins on this, like the companies that are here, they're doing something, but they're not really growing. Like the team is not growing.
Like no one is excited. I mean, everyone would be so happy and relieved to go into the next thing. But no one has kind of the guts to say, well, probably the idea or the market or the product doesn't work. We need to either pivot or do something else. And from that perspective, this combination of being pragmatic and being, um, optimistic, but at the same time, realistic and persevering, that's probably the best quality that I've seen in my, in my kind of journey.
As a, as a venture capitalist I've seen,um, makes companies break or make.
Piotr Karwatka: [00:18:40] Gotcha. That makes perfect sense, but how it relates to the team structure, um, what is the successful startup team? Because I guess having just one very know, uh, pragmatic people with, with grit is not enough,right? For example, for this is great for dealing with the problems, issues up cycles, but you need to have someone else who is more optimistic, maybe, uh,pushing for growth, not seeing all those obstacles because otherwise they get demotivated.
Sasha Vidiborskiy:[00:19:17] Now that's a very, actually a good point. And I think, um, the best that, that we've seen or the teams where it'snot necessarily, well, I mean, it's easy for me to say they should be balanced.Right? Ideally, you would like to see balanced team where you have like a very prominent CTO. Then you have like a CEO that is like super smart leader. Then you have a commercial person that, uh, kind of can hustle around and kind of get the customers out of nowhere. And so on. Unfortunately, or fortunately like many cases where we see this or not, I would say feature complete teams, but what, what definitely makes a difference? Is when you have complimentary skill sets. So when you have a person who is more interested in the tech stack and tech parts of the business, and when you have a person who is more interested in, in business side, you can call them like, whenever you want, you can call him or her CEO or chief commercial officer or COO, but there should be someone who kind of drives forward the business.
And there should be someone who drives forward them, the tech part, and, um, I think the best thing is when this two people can communicate to each other, because the moment they can can't understand what are the priorities that's probably when it goes South. Um, and obviously it depends on the type of the business, because if you're building like an eCommerce shop, it's, there'll be different value proposition.
It's a very different skill set required.Versus when you were building, I don't know how, like. Like a dev tool, right?Because obviously the types of the customers you'll be going after Tufts of the challenges you'll be, uh, tackling are entirely different.
Piotr Karwatka: [00:21:08] Makes perfect sense. I also heard that sometimes, the golden rule is that you need to have a hustler hipster and hacker. Someone very into tech, which is hacker, a creative product guy, which is hipster and a hustler who's more into commercial. Um, But yeah, I think that those, those three or two roles, um, must be there too to make it successful. Absolutely. Uh, how, how many startups you review per per month? You personally.
Sasha Vidiborskiy:[00:21:45] Uh, I think it's a good question. Um, I don't have a count on that. Probably, and it depends how you define the review. I think there are different levels of engagement. So from just looking at a website, to looking at a deck, to have any conversation, to have like an in depth conversation and so on and so forth, I probably review on average, maybe the 50 to a hundred companies.
Um, and the only reason being, cause I'm quite focused on specific verticals and specific areas. Um, obviously we are generally, so I look at everything, but more practically, I look at companies that are in my field of responsibility and in my field of interest. And, um,definitely something that is on top of my mind is how we can review more because, uh, there is like the restraints of hours a day.
So you can't, you can't spend all of your day looking at new opportunities and you need to make sure that you can do.Time to the opportunities that will make a difference. I think, as I mentioned in the beginning, nine out of 10 startups will die. They just die. And the reason behind it, probably because some of the fundamentals were wrong.
So I think one of the critical skill sets that VCs develop for all their career is spot this early signs of something going wrong early. Because obviously you want to spend, you want to spend time on, on companies that have the highest probability. And I think it kind of, it goes both ways because sometimes we pass on the opportunity to send, we say,well, this thing is wrong.
Right. But then entrepreneurs because of their perseverance and grit, they go and actually prove it otherwise. Not because they want to prove it to us or to someone else, but because fundamentally they believe in something. And I think that's, these are the most. Uh, these are the best opportunities. If you think about the ones that deliver the most value to shareholders, and of course, to investors, these are the ones that are not obvious.
So these are the ones that the bulk of the market thinks is crap, but one or two or three people think that this is kind of a diamond in the rough. And, and, and entrepreneurs going prove it. So that's why I think we need to be open-minded and we, we are open-minded and we are, we will be the first one to admit that we were wrong.
And there are so many cases where we pass on an opportunity at series a and then we go and pursue the opportunity to series B or C because there were some things that we either missed or that we were missing. And by the time I see her as being entrepreneurs and going kind of prove that, and we kind of chased them afterwards because obviously what will be the one, as I mentioned, uh, to save it first kind of that, that we were wrong.
And we're kind of, we're super glad that you were able to prove otherwise.
Piotr Karwatka: [00:24:41] Absolutely. Um, I really like what you said that sometimes, um, it's like sometimes it's like self fulfilling prophecy and sometimes it's not like you see something is wrong within the startup and they just, they just can fix it.
They can probably, they can even ignore it because. It's not that important for this individual particular case and it can still work. And probably we are going back to the fundamental society and the funding team, because if they have features of character to, um, deal with those problems, they probably do.
So, uh, the next question I had in my mind is, um, if you review say 20 or 50, uh, maybe. 20 or even 10, uh, in more deep,um, details, uh, per month, uh, 20 startups, what usually works great. And whats he, not like I'm a start up and statistically be before talking with me, what works well, and what's not. What's
Sasha Vidiborskiy:[00:25:56] that's, that's a great question.
I think, uh, the refused signals that would try to pick up, um, that sometimes work, but sometimes not. Um, and because we invest in series a, we don't do seed, we don't do Chrissy. And so from that perspective, there, we have a bit more data to, to rely on. So, well, that being said, as a caveat here, I personally speak to many earlier stage startups just because.
I wanted to go through relationship with,with people and I want to help them along their journey. Not only meet them like few weeks before they go and race, because people say, got to get in a VCon board is like getting the merit. And it's pretty much like that, but it's not getting married for the entrepreneurs.
It's also getting married for the VC. Right. So you need to make sure that you can work with those people. So I personally speak to speak to entrepreneurs very early and, uh, From that perspective, that allows me to also build personal relationships with them. But again, back to your initial question, I think what we definitely check is whether they're the right initial signs of product market fit.
For instance, if we're here, Great things from the customers. I think customer love is something and I'm just a lot of enterprise investments. So customer loft is probably one of the primary drivers that shows that the company has found product market fit. The second is if they're able to grow the team that shows a, that they have resources to grow the team.
So probably the, the company's growing. But also B that, um, they need those people because obviously if you hire, there are roles and there are tasks to be filled with those people. So that's the second one. And the first one is, um, some of the more vanity metrics and it,it depends on types of the startups.
Sometimes it's traffic on the website.Sometimes it's, uh, it's a number of customers that they onboard each week or each month and so on and so forth. So those are the ones that work quite well.The ones that don't work that well, or won't work for a specific opportunities,for instance, in general VCs, try to invest in companies that have not been on the market for like ages.