This is an exclusive interview with Pedro Santos Vieira, Managing Partner at Shilling and Europe & Africa Lead at 500 Startups.
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A little bit about Pedro Vieira
Pedro Santos Vieira is Managing Partner at Shilling and Europe & Africa Lead at 500 Startups, where he is working with governments in building their ecosystems and training all stakeholders. Pedro is a scientist, turned founder, turned investor, with deep experience in the tech world.
He is also the creator of West to West, a not-for-profit that helps create and support a thriving environment for Portuguese entrepreneurship in the San Francisco Bay Area.
Some things you’ll learn from Pedro:
– The contrasting characteristics of the European and US ecosystems from the perspective of someone connecting the West Coasts of these two geographies.
– The differing profiles of European and American founders.
– How 500 Startups creates synergies to help countries across Europe build stronger and more robust innovation ecosystems.
– The value perceived by LPs in aligning and training all stakeholders of the ecosystem.
If you’d like to listen to more of these meetings with European VC champions, follow the EUVC Podcast.
Andreas Munk Holm (Andreas): Pedro, I’d love to kick off this interview with you telling us the story of how you started the West to West project, to help connect entrepreneurs from Portugal to Silicon Valley. Can you guide us through that journey?
Pedro Santos Vieira (Pedro): Definitely! The thing is that the Portuguese diaspora is all over the world, but we are a small country and, in some cases, spread quite thin. When I got to San Francisco for grad school, and when I was starting my company, there was a Portuguese diaspora in the Valley already, with some of it in tech, but a lot in other sectors as well. In that community, some of us felt that there was a need to create a network to support Portuguese entrepreneurs trying to come to Silicon Valley, either to raise money, to look for partners or look for business deals.
So, we set up West to West as a network of people that are linked to the diaspora – either directly by blood links or by friendship – and wanted to help Portuguese founders. And the mission really has been the same from the very start: bridging Portugal to Silicon Valley. But the name “West to West” indicates broader goals, and we’ll continue to help as many people as we can.
David Cruz e Silva (David): Even though you’re focusing on connecting Portugal to the US, your ambition is bigger, it’s connecting the west coast of these two beautiful continents that are Europe and North America. With that in mind can you share your take on the contrasting characteristics of the European and the US ecosystems?
Pedro: Yes, certainly. Maybe we should focus on the key levels where those differences manifest themselves. I think we have different profiles of LPs, startups and founding teams on each side of the Atlantic.
Regarding the LPs, we know there is a disparity of capital available, but the profile of the LPs is also very different. In Europe there is, probably, two to three times more public money from government agencies involved in the ecosystem – and that comes with pros and cons – and you have, probably, two to three times fewer pension funds involved as well. So, different profiles of LPs injecting money into the system will have consequences along the way.
Regarding the profile of the startups, that is actually something that is impacted by the difference in LP profiles, because the availability of capital determines how you grow your company. But their profile is also impacted by the nature of the markets where they have to scale.
Andreas: Would you care to elaborate on how you see the startup’s profiles differ as a function of the LP difference?
Pedro: The nature of the capital brought in by LPs (public vs. private, for example) can influence the risk profile of the companies they invest in. By doing that they may limit the ability to scale as fast as companies would in the US, where their sources of capital are fully, or mostly, private. It also sets up different mindsets: in the US we invest in your company because you may succeed but, in Europe, we invest in your company because you are succeeding.
I hate to make stereotypes like these because there are pretty good investors in Europe that think with the US mindset, as there are some bad investors in the US too. But overall, the nature of the capital, its risk profile, can impact the risk profile of the company because, at the end of the day, founders must report to VCs and VCs report to LPs.
The third point on that list was the profile of the founding teams themselves. For this one I don’t have stats, but I have the experience and perceptions gathered from having worked on both sides of the ocean: I seem to see more technical teams on the EU side. A lot of the science and technology that’s being created in universities is becoming commercialized but, usually, with big gaps on the commercial side. And I think that the big difference that I see for founding teams between Europe and the US is exactly that; the degree to which there are gaps in the founding teams around commercialization of Intellectual Property (IP).
Andreas: I completely concur, it fits the bill with what I’ve seen in Denmark. I’d love for you to go a bit deeper on how you, at 500 startups, work with these very technical teams in Europe. Do you have a different setup in Europe versus the US, now that you have noticed this management gap?
Pedro: There’s a core set of subjects and things that we know companies around the world need but, at 500 startups, we always adjust our programs to the needs of the local markets. In some of the programs we’re doing in Europe we take exactly that into account and focus more time on topics that we know the companies need more help with, such as:scale, digital distribution, user acquisition online, but also enterprise deals, sales, and so on.
David: Two of our former guests, Stephan Morais and William McQuillan, also brought up a topic you’ve just touched: the LP landscape in Europe. You explained it quite simply, almost as if it was a chain with the LPs affecting the VCs which, in turn, affect the founders. So, in your opinion, are we hindered in terms of capacity to finance innovation and technology in Europe, or is it just a different context? And the follow-up question to that would be: what can we do? Maybe this is taking the discussion to a policy perspective, but I would love to have your take on that.
Pedro: I don’t think the LPs, the VCs, or the startups need to adjust to being more Silicon Valley-like. I think each of these groups must work with what they have in the context that they’re in. I also don’t think the solution is to bring Silicon Valley rules and best practices to the rest of the world, they need to be adjusted. Regarding LPs, since there is two or three times more public money in the EU vs the US, there is room to improve the risk profile of the public money deployment in early-stage VC, making it more effective and agile in the multiple ecosystems around Europe.
As we were discussing before, more capital helps. Roughly a third [33%] of the startups in the world are in Europe but only about 15% or 20% of unicorns come from the continent. And that may be driven by less capital being available because there is three to four times more VC money in the US than in Europe. So, naturally, more capital helps, but the profile of that capital and of the LPs behind it is also a thing to improve – they need to be more agile and more understanding of technology needs. I think that the LPs in Europe need to be more evangelized about technology and the risk profile of investing in technology, whereas in the US you may have them ready and ripe for investing in VC Funds.
Andreas: Pedro, how can we get closer to a stage where we have LPs ready to invest in technology-driven companies or VCs investing in this space?
Pedro: It is an evolutionary process and if we look at Silicon Valley it wasn’t an overnight success. It was decades in the making and everyone in the Valley and in the US has had plenty of time to learn. And I think that’s happening in Europe. What I’ve been saying sounds negative in a way, and there’s a lot of room for improvement in Europe, but there is progression. I gave you a specific number, static in time, for the pension funds’ involvement in the system, but the pension funds in Europe have deployed two to three times more capital in the last three to five years. So, there’s progress in the positive direction and I think we will get there, but we just need time. VCs need to play their role in educating the LPs and doing the evangelization work that I was talking about.
It’s like the circle of life, we talk about the circle of life for founders that get to liquidity and then become VCs and invest, and it’s the same thing with VCs. They may become LPs or they may exchange experiences and so people will learn along the way, we just need more time.
David: I think 40% to 50% of the money being deployed into European startups has public origin, so we need to throw some love at that. Would you highlight anything you’ve seen from those public capital sources?
Pedro: With my 500 Startups EU-hat I can’t single out specific countries, I would feel bad about it. But I see it working better in the countries where a Fund of Funds (FoF) is created, that then allows the capital to be deployed by professional teams. And professional investors know how to deploy capital into the VC space better than public servants. So, the cases where I think this is working better are those when the public capital is deployed through professional investment teams, with agile rules and not in a bureaucratic way. For companies to be able to be competitive in the global market, not just the EU market, they need to scale fast, and capital is like the gasoline being pumped into the engine: if it doesn’t get pumped fast enough the engine goes slower. That’s why we need public capital to be deployed in a fast, agile, and flexible way.
Andreas: In Europe we see a lot of the government money coming with hard strings attached, especially with regards to geography; and we know that 500 startups is working globally. So, how have you been able to work with governments even though you don’t focus on one geography?
Pedro: That’s a terrific question! We operate in different layers. 500 Startups has regional hubs and regional funds, and those operate in their regional contexts. But then, we have global funds, anchored in the US and deployed from there, investing around the world.
We start in the local and regional context, understanding the founders, the local capital, the local policy and we help them at that level. Then, in the second stage, we help them scale, whether through partnerships with local partners with deeper pockets or with our own global funds, and that’s how we set it up.
Andreas: Your model works closely with governments to build up their individual ecosystems. I would love to understand better the thinking and the strategy behind it, and the synergies that you’re trying to develop and harvest.
Pedro: That goes back to the core of 500 Startups. 500 Startups was one of the first Silicon Valley investors to invest outside the Valley. It was started in 2010 and in that year, we started making investments in other continents. Right now, the portfolio is very diversified geographically with companies in over 70 countries, and our favourite modus operandi is to work with local governments in building up capacity at all levels. Not just investing in the best founders, which is our company’s ultimate goal, but start by training the different stakeholders in the ecosystem so that the investors know how to invest effectively and efficiently; the founders know how to scale their companies faster; and the policymakers understand the role of the policies that they’re designing in the whole ecosystem.
We have training programs and initiatives for all these different things.
Our ideal scenario is to work with a local government, or a regional government, to train all these pieces of the puzzle and set them up nicely. That way, two to three years down the road we can be in our favourite role: That of and investor who has close ties to that region and will continue helping but is mainly an investor. We don’t come to a country to replace existing accelerators or existing investors, we come there to create capacity with everyone in a local partnership and then, eventually, evolve to just be the investor we want to be in the future.
Andreas: So, Pedro, 500 Startups’ structure is such that you have one organization that is doing the ecosystem building and is a company in itself, and then you’ve got the funds on top of that. Did I perceive that correctly?
Pedro: Exactly. Those are two groups that work with great synergies. We have this flywheel concept that we like to refer to when we talk about our strategy internally. We believe that our involvement with the local governments, in helping build up ecosystems around the world, will help feed into the mission of the investment side, and so it is synergetic from the beginning. 500 Startups has believed from the beginning that there are very good deals and very good founders outside Silicon Valley and the US. Fortunately, more VCs from America and from around the world are catching up to that and doing the same, because we need more capital deployed in that way.
David: This transatlantic operation isn’t always easy. Have you seen good cases of American VCs building relationships here in Europe that you can share for readers looking to strengthen their connections here?
Pedro: We’ve seen examples of VCs trying to set up their office in London or Berlin and not all of them succeed. The reasons for that are multiple: sometimes it works because the team is right, sometimes it doesn’t work because the local context is different. We’ve seen some of them working in co-investment partnerships, others become LPs into new VCs to feed their funnel or start to learn.
I don’t think there’s a single model that’s the best way to do it, all can fail or succeed, and it really depends on your company’s structure. If you go way back in time, even DFJ had this concept of different regional funds and, in some cases, it worked, in other cases, it didn’t. 500 Startups has funds around the world that operate slightly differently from each other, and so it depends on the mission of the company.
I think the most important thing, regardless of the model chosen, is that whoever leads the efforts in Europe understands the local context in the European markets, which is so different from the US. Like I said earlier, just bringing the US perspective and best practices to the investment scene in Europe may not be the best approach.
Andreas: Pedro I would like to go back to your structure and the whole strategy: how do the LPs perceive this and how do you communicate it to them?
Pedro: The LPs like this approach very much and it opens a lot of opportunities for us in terms of LPs from around the world. Our core investment team is in the US and then we have the investment teams for the regional funds around the world. They can leverage these ecosystems’ networks to find other LPs outside the US. These LPs then become more understanding of the whole tech scene, because they interact with our local team in their region; again, it’s very synergetic. And we have cases where non-American LPs, through interaction with our programs around the world, became LPs of the 500 Startups Global Flagship Funds.
David: Pedro we always round off our interviews with a quickfire round – quick questions with 30 to 60 seconds to answer.
Pedro: Let’s go for it!
David: As an Angel investor yourself, what’s your personal investment thesis?
Pedro: I invest so early that my thesis is that I need to understand very well the founder, or the founding team, and why they’re solving that problem. That’s the first thing. After that, I’ll try to figure if the problem is worth solving and if enough people are willing to pay to get the problem solved, as all other investors should. But I connect with investors at a very personal level, because I invest very small cheques as an Angel, and so I need to understand why they’re doing it.
David: What do you think is most important in promoting a stronger European VC ecosystem?
Pedro: Recapping what we mentioned earlier: more capital helps but, regarding specifically the public capital It is important to make it deployed professionally with agile rules.
A second thing would be sharing market and regulation experience. One of the biggest challenges for companies scaling in Europe is that we’re a common market, but we’re not a common market. We have common regulations, but we don’t have common regulations. So, making some progress there would help them grow faster.
A third thing would be more support for the founders. In Silicon Valley, there is a high density of talent at all levels: VCs, LPs, and Founders. In Europe, things are more dispersed and there’s no mega-hub. You can refer to London or Berlin, but owing to Europe’s bigger dispersion and lower density, the VCs need to play a bigger role in helping their portfolio companies with networking, talent acquisition and all those challenges, that I believe are bigger in Europe than in the US.
David: A company based on the East coast of North America has no issue selling on the West Coast, but a company based in Portugal finds complex challenges to sell in Poland or Germany, for example. The potential of the single market is huge but to a small first-time founder, it doesn’t feel like a single market. How do you think these challenges can be tackled? Could it be with policy actions or with an individual VC perspective, for example?
Pedro: I don’t think there’s a silver bullet and it will depend on the challenge we’re trying to address. If it’s just a matter of cultural differences that impact the sales process, that can be addressed by having local sales teams that understand the local context. Making the sales and user acquisition local specific, is a useful tool there.
On the policy side, it’s a trickier challenge. We already have some shared EU regulations that enable a few things, but other regulations are not shared and then some countries are using that as an advantage: You have countries saying that they’re crypto’s country, or that they’re drone’s country. That’s might help one or two countries individually, but it’s not going to help the EU market overall, so I think that making some progress there would be beneficial to the founders.
Andreas: What have you seen happening on the European scene, when it comes to creating a remote workforce and being able to bring that into the post-covid times?
Pedro: I think the question is still open as to if COVID made a pivotal difference in how the teams will be distributed or not. I feel that you will see many companies becoming fully remote from now on, and not coming back to the office. From my perspective it helps Europe in a way that, if that becomes the de facto paradigm, now we’re all playing with the same rules – disbanding Silicon Valley’s high-density advantage that we talked about earlier. I don’t know if that’s good or bad, it is what it is, and it will probably help Europe more than the US.
David: What can we expect in the future from 500 Startups and from Pedro Vieira?
Pedro: From 500 you should expect what you’ve always expected, which is support for founders around the world in multiple ways: with capital, expertise, training, and network. Today we’re, probably, the largest platform for early-stage VC, if you account not just for the capital, but also for everything else.
From Pedro is the same, I’m always here to help. I usually tell this to my friends, and they corroborate it: I don’t know how to say no, so I continue helping founders in any way shape or form. Often with more time and know-how than capital, but both will continue available. I am intending to be a full-time investor, so I will continue the journey with 500 now, and with some other funds in the future… Who knows? But I’ll be around to help, and people know where to find me!
Andreas: Pedro, it was great chatting with you, and we wish you the best in your future endeavours. You can always count on us at the EUVC, and we’re always looking forward to keeping in touch with you.
Pedro: Thank you so much for hosting me and congrats on your initiative. I think that we need more of this in Europe and since we’ve been talking about EU vs the US, it’s amazing to have a podcast like this! Best of luck with the future.
And this wraps up our interview with Pedro Vieira, Europe & Africa Lead at 500 Startups.
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