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When pre-seed VC firm Concept Ventures recently announced its second fund, an $88 million pan-European monster, it felt like a good opportunity to find out more about this early backer of startups like ElevenLabs.

So last week, I spoke to Concept Ventures partner Oliver Kicks about its approach to pre-seed investing, spotting great founders, startups expanding to the US, and more. Read on for our conversation.

Incidentally, ElevenLabs was our first unicorn at PreSeed Now. We don’t invest in the startups we cover, but it’s interesting to see how the companies we pick evolve.

Check out our 2022 profile of ElevenLabs, published the month before ChatGPT launched and the whole world began to go crazy for generative AI.

– Martin

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Concept Ventures has raised a huge new pre-seed fund. What will it do with it?

Who is Oliver Kicks?

Oliver Kicks was the first employee at Concept Ventures in 2019, and since then he has worked his way up from being an associate to a partner.

The pre-seed focused firm initially concentrated on UK startups, backing companies like ElevenLabs, Treefera, Arondite, and V-Sim.

Concept Ventures recently expanded into pan-European pre-seed investing with an $88 million fund, which it bills as “Europe’s largest pre-seed fund.”

This conversation has been edited for clarity.

MB = Martin SFP Bryant, OK: Oliver Kicks

MB: There’s a lot happening in early-stage investing right now. How does Concept Ventures carve out a space for itself?

OK: We think there's a distinct difference in the type of partner and support that companies need through the first 12 or 18 months, that real zero-to-one phase, to when they're at scale, they've proven their hypothesis, and are more at the product-market fit moment.

There are two camps of investors. We've seen the legacy European landscape filled with a lot of ex-consultants, bankers, more numerically-facing investors who can do brilliant work for those companies when they're ready.

But for that scrappier, messier part of the journey when it's two people in a room with a pitch deck and an idea, we feel that they need a different sort of support, and that's what we saw as being the missing ingredient for a firm to be built around.

We wanted to always be first money in. We wanted to be strong, meaningful partners through that phase of the company, tending to lead or co-lead pre-seed rounds with cheques of up to $1.5 million. That's our new landing point, although that hasn't always been the case [more on cheque sizes increasing below].

Ultimately we believe that, more than anything else, the founding team are the determining factor. People precede greatness in every sense of the phrase. So when we're looking at the types of teams that we want to partner with, it's so much around who they are, why they've decided to work together, and how they de-risk that relationship.

The number one failure mode for any company is not lack of product-market fit, it's not running out of money, or any other reason. It's generally co-founder bust-ups and differences like that.

This is the insight that we've really gone deep on, and something that we obsess over as a firm. The starting point of any investment for us, 80% of it, has to be ‘why you?’

Why is this your life's work? Why is the person you're building with the best option out there, of everybody you've ever met, worked with, or come across over the years, and why now are you going out and starting a company?

Only at that point, once we've built excitement there, can we dig deeper into exactly what they're doing and where they're going.

Ultimately, what we've seen is that in the best teams that we’ve backed, there's always a little bit of movement from, and a change to, the plan. When rubber hits the road and reality enters the conversation, things have to change and people have to find different ways of doing things, and that's a lot of the bets that we're making.

We want to find people with the right fundamentals, the right frameworks for validating, testing, ideating, and proving out what they're going to go after. That's our mantra.

MB: How might your support for founders evolve in the coming years?

OK: We're moving into a new office early next year, which we hope to be a physical location to bring together great founders who've not quite left their jobs yet. They're looking for a space where they can interview candidates, or validate the ideas that they're working on. And we don't think anywhere like this exists quite yet in the UK.

There are a lot of these spaces and founder-first institutions in the US. But this is something that we've deemed worthy to go after, an important part of the ecosystem to play. So watch this space on that front.

We think more than ever that there is an opportunity to back the overlooked, the under-loved. We're outsiders from VC. None of us had worked in venture before starting the firm, and we built the product alongside our founders through hard work over the last six years.

MB: You mentioned issues like founder bust-ups. How do you identify founders who are likely to be a good mix and have a good relationship that can push a startup forward?

OK: The one thing I really look for is the organic nature of how these people met. Were they childhood friends? Did they meet at university? Were they best friends at a job, or did they only just meet via a mutual friend six months ago?

It's not always solely about the length or strength of the relationship, a lot of it is how they perceive one another. When we get into the questioning, how do we understand the dynamic between them in the room?

We do some stuff around cognitive assessment and personality testing, but that's not the only part of our decision, and a lot of that is also informed heavily by references.

And then it's also looking at what they have done to codify and put down a lot of the beliefs and views they have on culture.

Many of the best teams that we see have pre-existing culture documents that say ‘this is the type of business we want to build, this is the relationship that we as founders have agreed that we want to kind of impart upon the wider organisation. These are the attributes that we're looking for new hires to bring in.’

That's such a great signal for us; 90% of building companies is about the great people that you bring in from the early days, and those who recognise it are super important.

When it comes to bust-ups, I think we probably do have a lower rate of failure because that's the thing we kind of obsess over. But there obviously are cases where it happens, and I think it's always about ensuring that the founding team have the right forum to voice these things.

It's always harder when there's a really structured board in place and you have big investors with large firms, storied names, and I think a lot of the time, the founders want to have candid, offline conversations about the problem it when it's an earlier-stage startup.

We have a ‘first time versus repeat founder’ distinction and differentiation. First-time founders probably want a bit more support with things like setting up an option pool, structuring legal docs, incorporating the company, and writing contracts.

Repeat founders need a very different type of support. They want a network, they want good terms, they want speed, they want board partners. Those are the roles that we play for those different teams. And I think the time we put in to understand the individuals in front of us enables us to be in a great position to support them and understand them deeper than other investors would at this stage.

MB: What are your thoughts on the pre-seed market right now?

OK: There has clearly been an expansion in round size. We published some data last year looking at how the average round size, the volume of rounds, the number of pre-seeds taking place had spiked. Nothing quite like 2021 or 2022 had been achieved.

But there's been a gradual increase over the last 10 years, that's showing a really healthy growth in new money in the ground across these ecosystems. Now, what we've also seen is that the average round size is now a lot larger. We were seeing $500,000 to $750,000 pre-seeds. And I'd say the average now for strong teams is from $1 million to $3 million.

Yes, you can do a lot more now with less. Most of the teams we speak to are saying they need to hire two or three really great experienced engineers, and then they use AI tooling to enhance that and get more out of the of the talent they have. So that's one reason that maybe the round size won't continue to inflate from here.

And then the other thing is the natural cost of capital, a competitive market function as there are a lot of early companies now looking to hire and bring people on.

But we think that the UK, and Europe as a whole, has incredible levels of talent right now, and is a brilliant place for founders to be setting the early foundations of a company.

One thing we've seen is great teams tending to build their core DNA here in London or in Europe, and then as things are proven, as things scale, maybe move to the US.

What you can achieve here with a $2 million to $3 million raise is probably the equivalent of what you can do with a $6 million to $10 million raise in San Francisco. There you're competing with Anthropic and OpenAI. They're paying crazy salaries and have a lot of hype and momentum around them.

There are some investors I'd call ‘pre-seed tourists’, who have strayed away from their core competency as a fund as markets are naturally getting more competitive at Series B, Series A. They are forced to go earlier.

We strongly don't think that founders should be taking money from people who don't spend time 24/7 obsessing and thinking about these phases of company-building. It's a very different skill set. It's a very different risk level as well. And ultimately, we think founders get bad experiences if there's a misalignment there.

MB: How important is moving to the US for startups? Is that something you encourage founders to do?

OK: It completely depends on the company. If you're a European defence company, moving to the US would make zero sense. But if you are a company like ElevenLabs, which is global from day one, there's a great reason.

ElevenLabs was started in Europe. And the density of people from Poland, Spain, France, and Germany within that company early on is a really part of its core DNA. But everybody has a great use for synthetic audio, text to speech, and the largest buyers of that are in the US, on an enterprise level. So that makes a ton of sense for them to open offices and capabilities that would go to market.

I think any ambitious founder, to reach those top markets, is going to want to be thinking about the US at some point. But we would caution about trying to overextend too early.

You've got to crack your home market, you've got to show that there's repeatability and strength in the model that you're going after already, and UK is the perfect market to go and prove that in first. It's the same language, it's got similar market dynamics. It's probably harder to go and sell early revenues in the US. So if you've proven that in the UK, the US is a natural ‘land and expand’ opportunity. So founders need to think hard about when the opportune time is to do so.

MB: Tell me about Fund II, which you’re billing as “Europe’s largest pre-seed fund.”

OK: We had our second IC [investment committee] yesterday, so it's very early innings. Fund I was a great foundation and proof of our model. This new capital allows us to expand beyond just the UK.

We were very UK-centric with our first fund. We have money from the British Business Bank and the UK government, which we are proud recipients of. Yet now we also have the opportunity to be more flexible and invest pan-European, to have stakes in companies across Spain, Germany, etc. So that's a big part of the fund’s mandate.

Additionally, as we're seeing slightly larger initial rounds, we wanted to have the fund size to ensure that we're not under-capitalising our companies, or being non-competitive in the market.

The other reason is around follow-on funding and being able to support our companies that are scaling well and moving nicely, being able to put more money to work there.

Our Fund I was 44 companies, and we're targeting around 45 to 50 for Fund II. We're going to be deploying that over the next four years. So a rough ballpark of around one investment a month over the next four years.

MB: Geopolitically, the world's in a bit of a state of flux at the moment, with lots of unpredictability. Obviously, there are lots of uncertainties in a pre-seed startup’s future anyway, but do you factor an increasingly unpredictable world into your investment decisions?

OK: We can't be macro thinkers, much like the founders we back. The macro is macro and we can't do much about that.

The brilliant outlier founders will find out how to, to use an Americanism, ‘skate ahead of the puck’ and understand where things are going before the rest of the market does.

That's something we've seen time and time again. When we backed Mati and Piotr at ElevenLabs, no one was talking about GPT transformers. When we backed Arondite, it was prior to the defence tech boom, which has now has a lot of interest and excitement from investors across the continent and the US.

So we believe that the great people are always going to work out where are the most exciting areas to spend time in. And therefore we cannot be thematic and top down and try to predict them.

The themes of Fund I were a lot of AI, AI infrastructure, defence tech, and we've seen a bit more interest in consumer tech towards the start of this year. We have no clue what the next four years is going to entail.

I imagine there will be continuations of various themes there, but I also think there are going to be some things that surprise us, and we think we're in a great place to go and capture those opportunities, given our founder-led approach.

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