Hello, Ertan. Can you briefly overview yourself and your professional journey in the investment sector?

Sure, I started with a traditional role in the asset management sector more than 20 years ago after studying Finance and law in Frankfurt and London. Interestingly, even back then, had several touchpoints with the (traditional) fund of funds world. In 2012, I had the chance to join a relatively new family office. My role was to invest in early-stage startups.

I realized early on that I didn't see myself in that role and also didn't think that investing directly in startups is a smart way for most family offices to allocate capital in Venture Capital. In the second year, I proposed a pan-European Fund of Funds instead,d and they liked the idea. That was the birth of what we call Multiple Capital today.

Could you give us an insight into Multiple Capital? What are some standout investments and the three most distinguished companies in the portfolio of your assets?

Multiple is a fund of funds focusing on micro funds, emerging managers, first-time funds, and solo GPs.

I have invested in solo GPs like Gil Dibner (Angular), Nathan Benaich (Air Street) and many more but also in teams of established firms like IQ Capital and Earlybird East, but usually either in their first funds or funds that have been still small enough. Some of the outlier companies in our portfolio of more than 1000 companies today were UI Path, Sorare, and LeanIX.

Some companies are championing the democratization of investing, intending to offer everyone access to incredible asset classes. How do you view this movement, especially in light of regulations like the BaFin's €200,000 minimum investment in Germany for non-professional investors?

I remember using the claim "democratization of access to a diversified VC portfolio" in my first pitch deck, and even my advisors told me that most LPs are not interested in democratizing anything ;). Today it is a widely used term by many in the ecosystem, from fund of funds like us to ultra-diversified funds and feeder fund platforms that give access to a single fund or company. I still think that fund of funds is the only true way to access VC in a meaningful way with small tickets. To make the example with the highest entry bar (Germany), a 200k investment would give you access to around 30 funds or 1000 startups in our case. That equals to 6-7k per fund or 200€ per company. Today, it is impossible to build something similar without a fund of funds. I am a big fan of democratizing access to VC and I hope that at some point the regulators will change the minimum amounts and make VC/PE funds more accessible, but until then there is no real alternative to a fund of funds for a diversified portfolio in VC.

There's a sentiment that technology remains a prime choice among all asset classes because of its perpetual evolution. Drawing an analogy with wine - where there's a cycle of harvesting, storing, and consuming - how do you perceive investing in terms of the sinus curve of market behavior? Are there identifiable patterns, and how does your investment approach adapt to these?

If you look at the magnificent 7 (MAMA ANT stocks), all of them are technology companies and most of them were founded in the last 2 decades. Everyone including traditional companies agrees that technology will drive our future. To draw an analogy with wine and to participate in the value creation in technology, investors have to be early enough in those companies.

As soon as there is visibility of the success of a single technology and/or company it is almost impossible to participate because of the competition of capital trying to access the company, or it is just too late (IPO) when the company is accessible to the broad market.

For accessing the outliers in the ecosystem we also speak of the term "power law": very few companies will drive most of the returns, and the only way to capture some of those few outliers and benefit from the power law is a high diversification.

From your perspective, what is the ideal layer of diversification in investing? Who should be the primary proponents of diversification, and how should they proceed?

The earlier you invest the higher should be the diversification in your portfolio. The aim is to capture outliers and to benefit from the power law returns in Venture. We recommend to diversify over vintages (time), geographies, verticals/sectors and teams.

If you miss one of those, you start timing the market because you think that one geography will perform better than the other or one vertical or one vintage.

We believe it is almost impossible to know things before they happen ;) and it's even less possible to repeat this kind of timing in the market.

I understand you invest in funds that are either vertical-specialized or country-focused generalists. Could you delve into the rationale behind this strategy?

It comes down to the number of investments that a GP can make in a concentrated portfolio. If you are vertically focused it makes sense to cover a wider geography to access enough dealflow. If you are a generalist, the opposite is true, you have to limit the geo because we think it's impossible to access "everything everywhere".

Research often indicates that smaller funds outperform their larger counterparts. What, in your opinion, keeps everyone from majorly investing in smaller funds?

Institutional investors and larger family offices tend to have much larger investment tickets. It doesn't make sense to invest 5m in a 25m fund when you manage multi-billion AUM.

These investors have to deploy something like 20-100m per investment and are limited with their ownership in the funds, which leads to large investment checks in large funds. On top, most LPs want to stick to successful managers/GPs and continue to back them in the future. This typically leads to larger fund sizes over time, especially from the first/second fund to any following funds. At the other end of the curve, you have the smallest investors which are typically very fragmented and difficult to market to. Those were ideal for small funds, but they are covered usually by gatekeepers (banks, consultants, multi-family offices, feeder fund providers).

But here again, it's easier to "sell" a branded fund with a large AUM which was successful in the past (when they had smaller funds).

In recent years, we've observed a surge in investments driven by fear of missing out, high valuations, and untimely decisions hinting at market greed. With some investors continuing to allocate resources to the same funds despite underperformance, do you see this as human error, an optimistic perspective, or something else?

"Nobody ever got fired for buying Microsoft." Don't forget that most investors are employees and do not have real incentives to invest in top-performing assets. They will have no risk of losing their job, when they buy what everyone else is buying, hence the branded mega funds.

Also operationally it is just easier to build a relationship with a few GPs and to continuously commit to their new funds instead of building new relationships with hundreds of GPs every year. 
Fomo and high valuations are mainly driven by following the herd. The same investors who followed the herd and accepted insane valuations in the last years are missing the current opportunities. As mentioned above they try to "time" vintages.

Considering that many larger LPs have constraints around investments, but emerging managers and funds less than €50M often yield the best performance, wouldn't it be more strategic to allocate, say, €100M across 50 funds rather than just 10?

Theoretically yes, but in reality the probability is low. Investing in 50 funds rather than 10 is a completely different effort, why do most of the LPs end up with max 5-10 investments and even fewer GPs they back? The cost of investment is much higher for a higher number of investments. On top, most of the institutional or larger investors don't have VC-focused team members. This is the reason why for larger investors the minimum checks are larger and they "have to" deploy to larger funds. Imagine you are deploying 100m in 50 VC funds and the next 100m in one PE fund. The solution would be to deploy one larger amount in a fund of VC funds to be able to participate in such a fragmented portfolio. In the end, it should be a make or buy decision and for Venture, it makes sense to compare the costs and quality of building such a portfolio in-house versus a fund of funds.

The market narrative suggests that individual relationships are overshadowing brand value. In this context, what characteristics do you prioritize when evaluating General Partners (GPs)?

For most of our investments, the brand of the funds we look at does not exist. In some cases, there is a brand behind the (solo)GP.

We try to look with a very rational view on investments we make and we try to stick to our thesis and selection factors over a brand of a VC or GP.

As you're raising your third fund based in Luxemburg, could you highlight the three most significant lessons you've gleaned from over a decade in VC fund investing? Additionally, could you share the motivation behind selecting Luxemburg for this fund?

1. We have increased the number of funds we invest in from 2-3 per year ten years ago to 10-12 today. The number of funds in the last 10 years in Europe has exploded.
2. There is a much higher percentage of vertically focused funds today versus 10 years ago when most of the VC funds were generalist investors.
3. The complexity of legal, tax and compliance factors has increased a lot over the last decade. We are investing in various jurisdictions and have investors from several countries.

To be as compliant as possible and to work with professionals who have international experience, Luxembourg seems to be still the number one jurisdiction globally for European managers.

We have also completed 10 years of track record and two portfolios and think that we can now reach out to institutional investors and Luxembourg seems to be a preferred location for this type of investors.

Of course, it has also clear downsides which are the costs and complexity of setting up and running a fund in Luxembourg, which is underestimated.

In most of the cases of small VC funds, we do not recommend a fund structure in Luxembourg, as the probability of having institutional investors is very low.

Conversations with entities like Horsley Bridge and Hummingbird have revealed a preference for a concise portfolio strategy. They advocate for more significant financial commitment if a particular strategy proves effective. How do you interpret this approach?

It is an interesting view from two very different LPs, one with a long-standing FoF focus and track record but at the same time managing huge amounts of AUM and having less exposure to European managers, and the other extreme of a first-time FoF who has almost no LP investment experience. I don't share their view.

I don't believe that strategies that worked well in the past ("strategy proves effective") will work the same way (again) when much more capital is involved.

It seems also contradictory to the previously discussed topics around fund sizes, ticket sizes of LPs and timing or being able to pick the best managers/strategies.

We tend to believe that we don't know which of the 30 funds in each of our portfolios will be the best-performing one at the time of our commitment. All of them have the probability to outperform the rest.

An ideal GP profile, for many LPs, encompasses a decade-long track record, potentially with notable firms like Index or Accel. However, there seems to be a discount on entrepreneurial experience, even if one has founded a successful unicorn. Can you shed light on this apparent paradox?

The thinking behind the first profile is to back a proven manager, even when they spin off and start their venture firm.

The problem we see here is that if the emerging manager was in a junior role at those established firms, they wouldn't have the needed investment experience themselves.

And if they were senior people or partner level at firms like Index/Accel, they tend to be able to raise much larger amounts which contradict with our thesis. On the second profile, as I mentioned before, those profiles are new and unproven. You don't have a lot of VCs with entrepreneurial/operational backgrounds who have built successful track records so far (in Europe).

Some assert that a Fund on Fund can outperform its VC portfolio. Based on your experience, can you expound on the advantages of such an investment strategy?

It is relatively simple.

As long as a fund of funds has 1 or more outlier funds in its portfolio, it tends to outperform 90% of its portfolio funds. The power law example works in a fund of VC funds quite well. So for the majority of LPs, a fund of funds will deliver better results with a lower risk profile or higher probability.

With the trend of US funds seeking European VCs, possibly due to challenges in fund closures, how do you perceive this shift? Furthermore, how do you envision the future role of Europe within the VC market?

One of my favourite topics and it's probably worth a whole separate interview. What we are missing in Europe is a stable LP base backing VC funds long-term or building stable VC allocations over time. So far the only stable LPs are government/public LPs.

Those government initiatives, some of them started 2 decades ago, had the long-term target of establishing a functioning private VC/LP ecosystem and making themselves obsolete over time.

What we have seen instead is that those public LPs became huge giant institutions over time and at the same time a private LP ecosystem did not evolve in Europe. So in fact, although they have grown immensely in size, they have missed their initial target to build a private LP ecosystem in Europe.

On top of that, some of the European governments started to initiate private FoFs with no fees in some cases, which I think distorts the private FoF ecosystem in Europe.

So instead of helping to establish a private FoF ecosystem in Europe as they did the same for private Venture (direct) funds in the last 2 decades, they start taxpayer money-backed FoFs and sell them to private institutions with no fees. Those steps will have an influence on the European ecosystem for the next 1-2 decades.

It will be harder to establish a private FoF and/or LP ecosystem in Europe and it looks like that today's public giants will grow even more over the next decades. We don't think that Europe will benefit from this, but the market will decide long term.

Various considerable funds have initiated Fund-of-Funds or Scout programs with different geographical strategies. Some centralize operations in hubs like London to cater to Europe, while others adopt a country-centric approach. How do you assess the effectiveness of these models?

The main reason for VC funds setting up FoF programmes is to get relevant deal flow for their own main funds. It is in the end a strategic investment. This can create a conflict with the emerging GP and/or the founder in his portfolio. This is why we see that top emerging managers tend not to accept LP commitments from VC funds. It can be different if it's a private investment from a GP, but here again, IMO the intention of the investment is important. You could probably draw an analogy to a CVC investing in a VC fund with very different strategic interests, which can create a conflict.

On the other hand, those VC funds are raising capital from LPs to invest in companies directly. Some of them use parts of that money or even raise separate vehicles from those LPs to invest in funds now. Most of them are new to the LP world, they have not been LP investors so far.

The FoF part is not their main focus, it's a side job, it's an opportunistic investment portfolio, which is also done most of the time not by the key partners but by juniors, who again have no experience as LPs. This can create several conflicts between the emerging GPs, the VC and their LPs. To give you two cases:

1. The VC is not successful with its FoF programme. LPs will ask to stop those investments. The GPs in the FoF portfolio will have to deal with tourist LPs (like founders/VCs with CVCs/family offices).

2. The VC is successful with its FoF programme. The probability of a FoF with emerging managers outperforming a large main VC fund is high . LPs will ask why the FoF programme outperformed the main fund ;). It creates an incentive for the VC to outperform its FoF, or to select managers that will underperform. Not ideal to build a perfect FoF.

Given the data that the S&P Index Funds have yielded over 11% annually since inception, what would be your argument for investing in VC as an alternative or complementary strategy?

"Past Performance Is Not Indicative Of Future Results".

There are several reasons for this, but to give you one main example is the fact that only 1-2 decades ago most of the upside was captured in public stocks. If you look at the magnificent 7 again, most of them had an IPO at relatively low valuations. Looking at today's markets, there was a huge shift in the last 2 decades. Most of the upside is captured in private companies/markets. Coinbase had an IPO at a 100bn valuation. On top, there is a potential timing risk in public markets, as you can buy/sell anytime. There is probably not a single person/institution that has invested in the S&P since inception and kept their assets.

But to give another logical answer in a world where the majority of investors believe that technology will shape our future and even the largest players in the PE world building technology funds today and keeping companies private even longer: If public markets would continue to perform as they have done in the past, how do you think would the same kind of diversified portfolio perform when it is entered at seed stage and exited with an IPO, even if you would write off >90% of your portfolio?