Blessed with one of the more pronounceable names from the Irish canon – spare a thought for the Sadhbhs and Conchubhairs of the world – Ciarán O’Leary is making venture capital more transparent, one blog post at a time.
A partner at Earlybird Venture Capital, he offers unique insight into ecosystems, the investment process and the inner workings of startups through his popular blog, Berlin VC. Blogging is, he says “an amazing way just to show people ideas and talk to the world”.
Earlybird departs from the traditionally more risk-averse European example of venture capital, to follow the lead of US-based firms. And that goes for communication style too.
Ciarán kindly made some time for me at the Earlybird offices in Berlin to chat about the risks involved in the industry, the Berlin startup scene and what it takes to be a good VC.
How does one become a VC?
There’s this industry wisdom – it may not be wisdom at all – that says you can’t plan a career in venture capital and I think it’s true. Probably because there are so few venture capitalists across the world that all the stars have to align – time, luck, your track record, when is the fund looking for somebody to join the team. All those things are pretty rare.
Is it something you always wanted to do?
I certainly never thought about becoming a venture capitalist. In fact I thought it would be something really unattractive to do, in Europe and particularly in Germany.
Just by accident, I met one of the founders of Earlybird and started talking and I realised that things are happening in Berlin and so I kind of stumbled into it. The good news is that really you don’t have to be good at very much to be a venture capitalist!
So what do you need to be good at?
You have to be not entirely stupid. Sure, you need to be able to understand numbers but it’s more about working with people, working with teams, understanding team psychologies, understanding technology, or having a view on how technology will change the way we live, the way we work.
If you see something, you’re peering into the future and [you should be] asking what role could this play in a couple of years’ time? You have to be a geek at heart. You have to be fascinated by things. You need to be open-minded because things change so quickly. And I think the best thing is some kind of entrepreneurial spirit because you need to know what you’re talking about.
What kind of technologies are you most excited about?
I think what people are most excited about is around open data and the way it’s accessed and used and especially using blockchain technology. Blockchain is the technology behind bitcoin, and basically it allows for trustless networks and marketplaces and we’re excited about people who aren’t building closed ecosystems, just really changing access to information and data and applications, the way they distribute it.
But to do that, it requires a tech ecosystem which is a little bit more technological than Berlin was in the past, a little bit more experienced, more money per company, and all those things are falling into place. More repeat entrepreneurs [are needed] because these things are just a little bit harder.
So we’re very excited about that but at the same time that’s just going to be one part of the market. There’s so many other things […] the financial industry is basically un-disrupted, it’s basically the same… and it’s awful! So we’re spending a lot of money on taking that down.
Marketplaces based on 3d printing [too]. You’re going to have a much more distributed, much more connected economy. When people talk about that there’s a bubble, they could be right, but at the same time compared to the last one, [consider] the amount of change that’s actually happening.
Back then, Internet penetration was a tiny fraction of the population. Now we’re bordering on 100%. I think there’s more smartphones than toothbrushes in the world. It’s obvious to see why people are so excited about the tech sector. Tech is eating the world and we’re just at the beginning.
If you were to take a chance on becoming an entrepreneur again, what kind of business would you start up?
I have to be passionate about the actual product. If somebody was building the best e-commerce business in the world, but it would re-selling some kind of clothing/apparel or something, I just can’t get excited about it. So even if it was the best business in the world, I just couldn’t do it.
I’m thinking if I had to do something, it would certainly be around community, using data to disrupt some kind of space so you have open access to data, a big community and let them build stuff, analyse stuff. I don’t know what – I’ll know it when I see it.
What’s the most ridiculous idea you’ve ever been pitched?
A lot of things seemed ridiculous but ended up being really great things. I think that usually it isn’t the idea that’s ridiculous, it’s more the whole setup and the way the team is thinking about things that you just say ‘okay, wow I’m not sure that this is going to work’.
I suppose it’s the most ridiculous thing I’ve seen – I don’t even remember what the idea was – but somebody sent in a huge, physical package and you had to open it and take all this stuff out and there was a book, specifically designed for Earlybird as a pitch.
As you open up the pages, things would pop up, slide out, and you could sense that they’d spent thousands and thousands on creating this and after turning the 15th sliding-up and sparkling page, I still had no idea what the actual story was.
If you’re a good entrepreneur you don’t have the time or the money to do this so the most ridiculous things tend to be not the ideas because we tend to be very open-minded, but certainly the way they’ve been presented has been spectacularly ridiculous.
How do you manage expectations and how do you communicate failure internally?
I think the thing that is incredibly bothersome and painful and unnecessary and bad is where you create this culture where everybody is killing it. This company is great and then all of the sudden, oh damn, we’ve hit a wall.
It’s very tiring, so what we try to do – and we’re not always successful at it – is to try to be very transparent and critical about it. We’re not negative – you always have to be an optimist in this job, otherwise you’ll have a very hard time. But to always have everything on the table, to not oversell things, really be quite critical and as they evolve to slowly but surely say ‘hey, this could be turning into a winner’ but if you do it the other way around, you’re just setting yourself up for a massive car crash.
It’s something we have to manage on a daily basis and I think the best way is really lots and lots of transparency, you know sharing emails, sharing board decks, so everybody in the team knows what’s going on.
The way you want to fail is relatively quickly and cheaply. The way you don’t want to fail is late and with a lot of money invested. So if somebody is failing quickly and with not a lot of money involved, you want to kind of… celebrate it is an exaggeration but you want to not make a big deal out of it. Because then you’re just going to encourage people to pretend that everything is okay and to invest more money. I think managing the psychology around failure is really important, and I think in the industry it’s a big problem, especially in Europe.
Is it difficult to balance that optimism with realism?
It’s very bipolar. It can really be, because often you’ll have a really bad year and you’ll see something that’s doing semi-well and you can project all of your hopes into this one thing. I think eventually, if you don’t have actual successes, e.g. exits, IPOs, eventually that bipolar tension will really wind you down or up. It’ll definitely destroy you.
Why do you think the Berlin startup scene has bounded forward recently?
There’s more money flowing into the ecosystem, especially from the US and the UK. From the US, it’s not real competition in a sense because usually it comes later, but good entrepreneurs know that they can get onto a plane and raise in the bay area.
They’re more in touch with the global ecosystem. They know how it’s done. They’re more savvy, the ecosystem’s more transparent. I think that that transparency has weakened the position of someone who thinks just because they’re local they have some kind of entitlement to be involved. That doesn’t work anymore.
Infrastructure and help for entrepreneurs has vastly improved, and accelerators are far more common now. Does this have a big impact the scene?
Yes, there’s more support and infrastructure, but do accelerators play a big role? No. The big role is the web, access of information, transparency of information, low-cost flights to the bay area. Accelerators only serve a tiny part of the market, and a very certain specific part of the market. So they’re good. It’s good to have them around but there’s a valid debate around how valid the model is. The jury is still out.
Now, everybody points to Y Combinator, but YC is a very specific animal. And certainly the guys in Berlin, they are certainly doing a very good job and are very professional. But it’s a model that requires a lot of patience and a lot of time so we’ll see. It’s not one that’s changing the ecosystem.
Do you think there’s a wave of people setting up companies because it’s sort of a cool thing to do?
Yeah. Absolutely. On the one hand, you can say that’s a bad thing because they’re ‘entrepreneurs lite’ or whatever, but on the other hand, who are we to judge? These are people who are giving up their jobs. They’re giving this a shot and everybody has to start somewhere and sometime. I think everybody that’s willing to jump into the deep end of the pool deserves a chance and anybody that got money obviously deserves that money. I think that we need to be very open-minded and liberal about people becoming entrepreneurs.