Nico Wittenborn - Finding the Adjacent Possible - [Invest Like the Best, EP.372]

This episode dives into the world of venture capital through the experiences of Nico Wittenborn, exploring his unique investment philosophy centered on the concept of "the adjacent possible" in the consumer subscription market.

1. Investment Philosophy: Wittenborn focuses on the "adjacent possible," which involves exploring new opportunities that are closely connected to current innovations.
2. Role of Intuition: Emphasizes trusting one’s intuition as a critical component in investment decision-making.
3. Consumer Subscription Model: Discusses the potential and dynamics of the consumer subscription business model, detailing how it allows companies to grow sustainably.
4. Evolving Investment Focus: Initially interested in enterprise SaaS, Wittenborn shifted towards consumer-focused subscriptions, reflecting adaptability in investment strategies.
5. Importance of Timing: Highlights how timing plays a crucial role in the success of investments, with the right conditions making certain ventures viable.

1. Introduction to Nico Wittenborn and Adjacent

Wittenborn introduces his venture firm and its focus on the adjacent possible in investments. The segment emphasizes the strategy of finding investments that are likely to develop from existing conditions. Patrick O'Shaughnessy: "Can you talk about the concept of the adjacent possible that defines your investment strategy?"

2. Investment Philosophy and Strategy

Detailed discussion on the approach of using intuition over purely analytical decisions and how Wittenborn’s firm identifies potential market opportunities. Nico Wittenborn: "The adjacent possible is about understanding what can be achieved with the current set of possibilities and technology."

3. Lessons from Past Investments

Wittenborn shares insights from his previous successful investments and how these influenced his focus on consumer subscription models. Nico Wittenborn: "Looking at past successes, it's clear that timing and understanding market readiness are crucial."

4. Future of Consumer Subscription Models

Exploration of the future possibilities in consumer subscription, discussing how emerging technologies like AI can influence consumer markets. Nico Wittenborn: "Consumer subscription models have room to grow, especially as technologies evolve."

1. Trust Your Intuition: When making decisions, especially investment-related, consider your instincts along with analytical data.
2. Explore Adjacent Possibilities: In business and personal growth, look for opportunities that are not far-fetched but are extensions of current trends.
3. Focus on Consumer Needs: For entrepreneurs, understanding and predicting consumer behavior can lead to successful business models.
4. Embrace Technology: Stay updated with technological advancements; they can be the key to unlocking new business opportunities.
5. Be Adaptable: The ability to shift focus and adapt to market changes is crucial for long-term success in any field.

My guest today is Nico Wittenborn. Nico is the founder of Adjacent, a venture firm that looks for what he describes as the “adjacent possible” for their next investment. Nico has zoned in on the consumer subscription market as his ideal candidate, making early investments in Calm App, Photoroom, and Oura Ring. Nico does virtually all steps of the investing process on his own as he believes this allows him to be as close to finding the truth as possible. We discuss sharpening your intuition, evaluating the subscription business model, and exploring the adjacent possible. Please enjoy this conversation with Nico Wittenborn.

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Patrick O'Shaughnessy

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My guest today is Nico Wittenborn. Niko is the founder of Adjacent, a venture firm that looks for what he describes as the adjacent possible for their next investment. Niko has zoned in on the consumer subscription market as his ideal candidates, making early investments in calm photo room and oura ring. Niko does virtually all steps of the investment process on his own as he believes. This allows him to be as close to finding the truth as possible.

We discussed sharpening your intuition, evaluating the subscription business model, and exploring the adjacent possible. Please enjoy this conversation with Niko Wittenborn. So Niko, I think a fun place to begin our conversation would be a lesson you learned, I think, from Brian Singerman about how to learn as an investor. For sure. Brian, as you know, has strong opinions and I think is pretty good at seeing the quintessential point of any specific topic.

Nico Wittenborn

And I actually asked him for advice from an investor point of view. But I think the answer he gave was the advice that he would also give a founder that he's working with. And it was essentially I had a situation where I had to make a decision on an investment. I was already an investor. There was an opportunity to do a larger follow on investment pretty quickly after the initial investment, and I asked him for some advice around that.

And he essentially just that I have no idea what you're talking about with the company, but I would just trust my instinct. Because the only way that you can learn based on this decision is if you actually follow your own intuition instead of taking somebody else's advice. And I think that makes a lot of sense. If you think about if you get the advice that essentially is the right decisions, then you outsource the judgment and you don't really take anything away from it. And if you make the wrong decision, you have frustration because you listen to somebody else.

So I think that this key insight there is just trying to look within and sharpen your intuition and instinct, versus trying to externalize the decision making, which I think is a really good approach. Long term, if you want to evolve your own unique perspective that only you hold, which I think is probably the foundation for becoming a great investor in the long term. This is probably the only example where we could spend the entire conversation just talking about the name of your firm and everything that it means to you, and why you chose that name, and the opportunities that exist in the world, and why they're well described by the name of your firm and all these things. Maybe start by just explaining it what to you is the purest way. Why adjacent?

Patrick O'Shaughnessy

Why is that such a powerful concept for you? Adjacent comes from the term of the adjacent possible, which I first read about in Johnson's book how we got to now, which was about the six innovations that shape today's world and the things that led to them. And essentially, it picks up the term that was previously coined by someone named Kaufman, which comes from evolutionary biology, and describes how the next step of evolution is usually a combination of the possibilities that are available today. So instead of a leap towards something that's completely without context, it's actually these things fall into place at a specific point in time. And the combination of those then enable a further evolution of that specific organism.

Nico Wittenborn

And I think looking back into technology and also into some of the investments that I was involved in, that ended up being successful, I think very often this was true, that those opportunities only opened up in a very specific moment in time. And I think it also explains, if you look into history, the fact that a lot of times those innovations happen at different places in the world at the same moment in time. So it's perhaps much less the individual that combines those things, even though that is obviously a skill. But it's really that the time is ripe for that innovation, and it comes to different people in different places at the same time. And so I just wanted to find an overarching theme for my approach, where I tried to find investments that create categories around these adjacent possibilities and find them early, which means a lot of times it's actually things that are very easy to dismiss.

They're in a new area and in something that perhaps only the founder was able to identify at this specific point in time. And there's a lot of uncertainty, often around the size of those markets, but there's just a lot of dynamic movement and vectors that are leading to a natural, I call it macro driver of a specific theme or vertical or product. And that's something that I've been trying to just implement into my process. And it's also one of the reasons why I try to move away from. I initially started out investing mostly into enterprise SaaS and software.

And I think that is obviously a macro trend that has been a good theme to invest under for probably two or three decades. If you look at insight, they started in 96, and they're still just doing it. And so I think some of those macro trends are really strong and can last for a while. But it was important for me as I tried to find a positioning for adjacent that was somewhat unique, and not trying to compete with everybody else that's out there, that follows the same playbooks, and to see what is happening now on the consumer side in software, where some of the learnings from the SaaS and the enterprise subscription space transfer. And so I decided also not to call it consumer subscription ventures, because I think all of those themes really have a half life on them, and it's really hard to know how long they'll actually endure.

But I think you have to keep adapting and evolving that thesis over time. And there might be some laws or common elements that stay relevant for a long time. But it's really trying to push myself investing at an early stage, into keeping up with some of those new developments, and trying to not just go into a space that is already very established and clearly understood. It seems like it's now a pretty well accepted idea that when there's a major platform or regulatory shift, that you get this new batch of opportunity that gets unlocked. It was locked, and then it gets unlocked, and that's mobile or cloud or some change in regulation or whatever.

Patrick O'Shaughnessy

That story is very well told. I think you're talking about something much more fine grained than that. I remember the first time we talked, he referred to these as ingredients of what might be possible that are constantly changing. So whether it's a new platform like the Vision pro or something like that, curious what you think about that. Obviously AI unlocks a certain set of things, but talk about those ingredients.

How are you, on an ongoing basis, keeping yourself aware of what those things might be, so that you look in the right spots, so the adjacent possible. Is this abstract idea of this is what is possible at a specific point in time, but then how you find it is actually a very individual adaptation of that idea. And so how I express it is exploring the adjacent. And that's something that I think is both true for how I find investments, but it's also true for a lot of the entrepreneurs that I work with and the adjacents that they explore. This is a natural curiosity.

Nico Wittenborn

And this started when the first iPhones came out for me, where I just wanted to understand how it works, what opportunities it opens up, and what it creates. And I guess a natural curiosity around what that technology enables, and then playing with it, using it, and thinking about what could that lead to. And this is still true. Now there's investments that I've done, but the Lidar scanner was added to the phone, which opened up the ability for you to scan with your phone, any 3d object, and then make it a virtual space. That led to an investment in incorporation into a company that is completely focused on that.

Similarly, gaming evolving, becoming a streaming service. We talked about backbone a bit, and I think the idea of, okay, native streaming coming to all platforms where you basically skip the need to have a hardware component like a console, what does that open up? What are those opportunities? And oftentimes that can just come from my own, I guess, exploration of where I like to spend time and is ignited by my own curiosity. But it can also be the founders and what they come up with and then bring to you.

And you just need to understand, does it match? What are those ingredients? What are the actual unlocks that just happen to be falling into place at this very moment to create that opportunity? If you think about the adjacent idea applied to the way you're building the mechanism of the business and the investing process, how does it work there? I know you're really keen on your own density around an idea so that you're not just coming to something with no context and no relationships and no anything.

Patrick O'Shaughnessy

You want to build this very clean, adjacent compounding curve for yourself. So what does that mean? How do you do that effectively? Well, I guess I'm still learning, but the way I'm approaching it today is just I want adjacent to be a group of founders that are active in those spaces, and it can be a lot of different spaces, but every founder that is exploring one of the adjacent possibilities is also very well positioned to give you a reference or context or another founder that is working within that adjacency. And so I do think that for me, I talk about it as the adjacent cascade, where a lot of the founders that I'm now working with were introduced to me by founders I had already worked with.

Nico Wittenborn

I think one of the things that I'm willing to do that maybe especially series A and later stage investors, maybe even most seed investors, are not willing to do, is that I'm willing to learn through investing. Well, everybody's willing to learn to invest. But what I want to say with that is I occasionally do investments in founders or spaces, except more uncertainty or risk, because I do believe that that is the best way to actually learn about that space. I don't think about it always as a singular investment, but also as a part of how do I truly understand that space? So I think about the long term cascade of this specific investment, not just about one opportunity in itself.

Patrick O'Shaughnessy

One of the things that you fully convinced me of in this, what exists in that space, of the adjacent possible today, is this idea of consumer subscription. And whether we use Duolingo or calm or some obvious example might be helpful as just a prototype or something for people to get in the right mind space here. But I'd love to take the chance to do today is for you to teach us consumer subscription why it's such an interesting category to you, why you think there can be enormous businesses in this space when it's been a quieter space since the earlier days of mobile. You can pick the starting point and I'll ask a bunch of questions about this really interesting idea. Yeah, happy to.

Nico Wittenborn

And again, also there, I just want to say that I do have a strong thesis around it. I think now five years in, there's a lot more data. That actually thesis is valid and I can point to those data points, but I'm still learning. With every investment, this thesis is evolving all the time. If you had asked me five years ago what the typical deal looks like and then how I think about it today, there's permutation of what a consumer subscription company can be.

I'll give some examples of that, but just historically. So the way I got first exposed to it is that I was just super early adopter, I guess, of the iPhone when it first came out. I was still in high school, I was young enough to be excited about it. To see this shift from the Nokia phone that had no capabilities to a smartphone that gave access to everything on the Internet and all kinds of information. And that really made me explore what was possible in terms of software that previously we couldn't reach the consumer in the same way that we could once the iPhone was there and you had it in your pocket.

That came together with me spending time at, .9 where I learned about enterprise software investing, which was really what they're still focused on. But I saw through the work that we did with .9 that big attractive parts of the SaaS business model are that it's high margin, recurring revenues, global scale from day one. And I then saw what was happening on the distribution through mobile with Spotify and things like Netflix that went from physical to digital and started really replicating the same business model, but on a media type content. And so we had the subscription aspect and you could see that people are starting to pay for that. But the business model really was not the same because they paid most of the money out to the publishers and the labels, keeping only 20 30%.

But then slowly, after you started having this first wave of companies, you mentioned calm, we let the a with insight, but also headspace was one of the pioneers there where they really out of necessity, innovated on this model and started charging a yearly plan upfront, which made it a very different business from a cash flow perspective, where you could self fund a lot of your growth, because I pay you $50 today, that you can then reinvest in marketing. And if you steer that profitably, it just gives you a very effective way to start a consumer business, which was always one of the biggest, I guess, disadvantages of consumer companies, that actually you needed such a significant scale to monetize effectively. And so here, all of a sudden, the willingness of consumers to pay for digital product increased drastically with pioneers like Netflix and Spotify educating the market. And that is also what happened in SaaS. If you look back, and I had conversations with insight founder around that when he started in 96 to talk about enterprise SaaS, people were like, you're crazy.

It's on premise. You pay the license. So slowly this shifted over. And then if you look at, as an example, to the pricing per seat for a product, excel for other enterprise businesses, it has increased every year significantly as we realize the value as it becomes more of a system of record and more integrated and sticky. I was fortunate, and I guess my adjacent at that time was seeing the rise of the phone and App Store and then these subscription apps, and having learned previously about the aspects of SaaS and those coming together.

And so I just started thinking about that and trying to understand which makes a good business. There's obviously disadvantages and advantages, but I think what really has changed is that you can monetize consumer business well with subscriptions, even if it doesn't hit breakout potential. And obviously, if it does, then that is going to be a great company. See Duolingo, which now is a $10 billion public company, which nobody would have believed. I don't know if I would have believed it ten years ago or five years ago.

And I think those things just slowly show that we always try to judge the things that are possible based on historical values, but you have to try to anticipate some of those changes. I think in consumer subscription, that is something that we're seeing today, where AI is a good example. A lot of the breakthroughs in AI, they're actually technical and obviously very innovative from an RD standpoint. But the business model for a lot. Of those companies, $20 a month, this.

Is a consumer, then they have APIs. They'Re like six of them right now. By the way, this is interesting also, because when I started talking about consumer subscription, it was mostly even calm. And some of the first investments we did, a lot of them were just content based. And so that can work.

And some of those are big businesses today, but really, it doesn't have to only be content it can be all types of software that you use as a person and sometimes as a business. So I do. A lot of the companies I now work with are actually prosumer companies, where the line is very blurry between consumer and prosumer, and sometimes consumers the distribution. But then from there you upsell on either teams or API. And so that was not clear.

But that as I invested and had companies that figured some of those things out, try to distill that into playbooks that I then also give to new founders that I meet to understand how do we actually approach this. And so I think we're still in the early innings. But it just one of the things that happen if you expose yourself to those new trends is that they're very simple to understand and to apply to different types of business models and innovations because of the willingness to pay. But in the end, if you want the best person to teach you about subscriptions in any of those things, there's a chance you think about me. That is a key part of what I hope adjacent differentiation can be is where it's a specific dynamic around subscription, but it applies to many different places.

And I have an energy company, renewable energy company that's charging a subscription has nothing to do with what calm did. But it's a lot of the learnings transfer and a lot of the weaknesses that I saw. For example, with a company like calm, I tried to then overcome by thinking about how do we break specific disadvantages of that model and then apply that to new spaces. I hope that the thesis evolves with every new investment, so that how I think about the space and maybe a company that I invest in in five years looks very different than a company that I invest in today. But they have this commonality of there's a subscription part of it and it's consumer facing.

Patrick O'Shaughnessy

It certainly feels that way. As an example myself, someone that pays God knows how many ten to $20 per month subscriptions for tons of different stuff, tons of different kinds of software. Now, what have you learned, getting down almost to the tactical level about doing this well, and there's lots of ways we could talk about it. One might be, okay, I've got a thing that I think is valuable to a consumer or prosumer. When do I start charging them?

How much do I charge them? It does seem like lots of these things are ten to $20 a month. Is there some weird reason for that? Maybe. Let's start there about when and how much to charge somebody and what you've seen work really well and maybe even common mistakes that you've seen people make when they try to figure this question out.

Nico Wittenborn

So I think that most people under charge because they believe that. I think it's mostly founders, there's an insecurity of launching your product and then having the market respond to it that makes you afraid to ask for the money that it's worth. And I think that's okay for the beginning. I actually usually advise that. I do think you want it monetized very early.

For me. I think you learn so much from people buying a product and then using it. And the perfect investment is you have at least a few months of data, so you see people paying for it, and then you see how they use it over the first few months. Ideally, obviously, you have one or two years, because the longer you have, the better the data. But if you get a few months of data, I think you have a pretty good idea of how retentive it is.

I have this proxy that I use where I think generally the engagement in month three or six is a pretty good predictor for what retention looks like after the first year, because if you use something for three months or six months, it's already somewhat habitual, and then there's always some turn or some people that don't cancel, and you don't want to build a business around that, but it gives you a good idea of the gravity of the business. And so I think trying to find some data, but do it not just free, but actually paid so that you understand, is it really valuable to the consumer and, okay, start, maybe lower. I'm a big proponent. I think most applications actually should charge an annual subscription because of this big cash flow advantage, especially when you get started, to not be dependent on crazy amounts of funding, and also to get to cash flow positive actually pretty quickly, which is a superpower if you only have to raise if you want to, not if you need to. Most, I think initially couldn't benefit from starting with an annual subscription, and it can be lower than where you want to be at the end of the day, but I think it makes sense to have it proven.

And then over time, you start to play with pricing in a way that you try to get to the real value of what the product brings to people. And I think there's no eternal end state. If you look at Netflix pricing, it on average increases ten to 15% every year. What are the reasons for that? One, the content is getting better and more plentiful, but also your willingness to pay for that content is increasing.

And that's why I'm such a long term believer in this macro trend, because if you look at the kids today or the teenagers, the value they attribute to digital assets and things, even in games like Fortnite skins, it's just such a shift in how we perceive value and what we're willing to pay for. It's a very long way from everything on the App Store has to be three or ninety nine cents. And I think that is a trend that will keep on happening, and I think that it will just apply to many different spaces. And so, yeah, I think monetize early, do it maybe at a lower price point than you want initially, and then you have to test a lot. There's a company I'm working with, it's an infrastructure company called Superwall, which they actually do paywall testing for you.

You basically can run 100 clearances at the same time for different sub segments, different countries, different data points, different flows into the product, and you can learn what works best, what type of paywall. And so in the end, one of the takeaways from that is one of the core drivers for conversion is how often you see the paywall, which makes intuitive sense. It's not rocket science, but you have to ask for it, and you have to be confident in this is the product that you can charge for. I don't. There's few products I work with.

There are some that are doing it successfully, that there's a hard paywall, so you have to pay to use the product. But I would say most of them are freemium products where 90% of people are using it for free. And you get some organic growth factor from that, maybe even some output of using that product that is a viral component to it, like footroom. When you create a picture, it has a foot room, branding. If you post it, people, what's this?

And the Typeform is an example from this SMB SaaS side. So I think you want to think about that, but at the end of the day, you want to start monetizing, and you want to make sure that the people that really get the value out of the product, they also pay for it, and you feel confident in doing that. What are the most common unforced errors or mistakes that you see people make as they try to roll one of these things out? One thing that I've seen is that it's very hard to get people to switch from what they perceive to be a free product to a paid product, which is why I'm so vehement about launching with a subscription. The other aspect of it that I think is just easy to forget sometimes, because we're talking about the business model here, and the business model has to be applied to something that actually has the right foundation for this business model.

So there are things that should not be subscriptions. There are things that maybe you use it for a week or a project or something like that. And I think forcing a subscription on that can be a mistake because it both hurts retention and it also hurts conversions. The reason I like consumer subscription products is that I do believe that they're essentially more aligned with a consumer's interest. Because you charge for a period of time, and if you don't like the product anymore, you just churn.

There's no ads or third parties that are financing your usage of the product, that have different incentives than what you want to get out of the product. That was one of the reasons I left social networks, and I was an early investor in be real, for example, because I think that most of these social networks today are just incentivized to steal your time, because advertising is the business model, and that means that to drive more revenue, they have to take more of your time. But that is not what you want. You want to connect with people. And so if you tell me there's an alternative network where the incentives of the network are just to create the best experience long term for me, where there's a big cohort of free users, but also a paid cohort that then finances that code, I think that is long term, where things should be.

Patrick O'Shaughnessy

I love the examples of companies you've invested in where the company itself has this weird unfolding adjacent story happening. This is especially true in a couple of examples we've talked about that are hardware and software together, and I'd love to talk about both these ideas at the same time. Hardware plus software is really interesting consumer. It feels like forever. If you said the word hardware, everyone just their brains turned off as too hard, can't make money, too hard to do capital intensive, all these bad things that no investors like.

But I think you've seen this interesting opportunity in consumer hardware and software to get bundled together, and that they are an especially good example of this idea of companies that can themselves become these adjacent explorers. So maybe you can pick examples or pack it however you want. I guess maybe I do it in the way that I invested in them, because that's also how the learning happens usually. My first big learning experience was aura, where I invested just before I started adjacent personally. But the opportunity for aura became clear to me because of the investment in calm.

Nico Wittenborn

Because calm was a meditation app. It was already doing 20 million when we did the series a. But then the next year, they went to 80 million because they launched sleep stories. That was really interesting, because they looked into the data and they saw that people were using it at night to fall asleep. It was about calming your mind, but it was not to find peace of mind, but it was to fall asleep.

We talked about the foundation of a lot of, I think your health and happiness and mental security is good sleep. Being interested in meditation, exploring the space, investing in calm, then learning about the sleep problems that people have in the western world. That then being so clear to me that what aura does is a way to actually combat that, and then working with them and understanding that it's both a hardware product, but also a software piece, that is equally as important, because the hardware product itself, it obviously has the sensors, and it's what you buy and what you see. But really, a lot of the improvement in the last few years in RSK specifically came through what they show you with that data and how they make sense of that data and what they can predict with that data. And so the integration of both the hardware and the software is what's really interesting.

And I think that in aura's case, I was quite convinced that a subscription can make sense. So with the former CEO, I spent time thinking through that and making sure that they at least consider that opportunity. And I think they did by themselves. I just tried to give them good arguments to do it. And that switch happened then from the second to the third generation, worked very well, where they found a way to give you the hardware, make a margin on it, but then also for the ongoing value that you get from the software, and also for them to further develop that software piece of the product experience.

You get a subscription that aligns you with the people that use it for a long time. And the retention that aura has is incredible. It's actually like Spotify Netflix type retention. For me, trying to further overcome the weaknesses of this thesis, retention is one of them. It's clear that as a weakness, yeah.

Consumers are not as sticky as businesses. So one of the clear disadvantages oftentimes is that you can see, like, the majority of your users turn in year one, and then most investors just assume that in year two, that goes to zero. But really, what happens is, depending on the product, there's somewhere that is the case. But if it's a good subscription company, what happens is you lose a lot of people in the first year. But then in the second year, it almost looks like SaaS churn because you lose very little, and then all of a sudden it stays stable or maybe even bounces back up as people come back.

And so I think one of the core insights that I tried to transfer from SaaS was if you look at it from year two or three, depending on the business, it actually looks much more similar to a SaaS company than you would think. Got to get through that cauldron. Exactly. And that's hard in some cases, depending on the acquisition cost. That still doesn't make sense, but it can make sense, especially if you recover the cost of the first year at acquisition and then have a strong, long tail that stacks over time.

It's a very profitable business model, and it's one that requires very little capital because you can finance your own acquisition oftentimes. And so I believed in that. And I guess the question is, how big do some of those companies become? But hardware specifically was one of the reasons I thought that it could make sense to combine both was that I saw that these hardware products naturally had a really high retention. And so putting both together just seemed to make a lot of sense.

And I now have two companies per fund. One adjacent fund is roughly 20 companies. Two of them are hardware plus subscription. And the hit rate of those companies is very high. I don't know what that means for the future, but I think that at the very least, they are underrated, because nobody cares about hardware products and nobody believes that they can be interesting software products, too.

I do think there's a good chance that that is possible. And the entry prices for most of these companies reflects that. Can you tell the story of Bird buddy? I think that's such a beautiful example that closed this little section of discussion. Bird Buddy is a digital birdhouse, very easy to dismiss as funny.

And in fact, they were laughed out. Of lots of investor videos. Literally, he heard them laugh in the next room. I always find that interesting, though, because, okay, do you just dismiss it because it's funny to you, or have you really thought about what could be built from here? I think I like quirky things, but I also like to think about it deeply and then say, but have you actually considered those opportunities?

And most of the time, the answer is no, because it's hard to see it at the moment. But I try to think about the potential of the business. Because I'm an early stage investor. I don't need all of it to be in place already. And so bird buddy is a digital birdhouse.

It has a camera and a solar roof. So you put it in your backyard, and it takes pictures of the birds that come and eat the seeds and small videos. And it also, there's an AI layer to it where it actually recognizes the bird. So it's a very easy way to interact with nature and birds for you and your kids and grandparents. The initial idea actually came from Pokemon Go.

Right. You gotta catch them all. Exactly. It's very easy to listen, but every time you talk to somebody, somebody buys it. It's such a, like, I want to buy it.

My dad. Yeah, it's so fun. And it's an affordable entry price. And so you have this initial product, and then, okay, that's where you start. How much does it cost?

It's 160 or 70, the entry price. I would get the solar roof because then you just don't need to charge it. I didn't forget it. Also, we now launched a subscription which allows people that are really into birds to go into one of the other 150,000 bird feeders that are already active out there, and also to specific bird buddies in nature parks or in exotic locations in South Africa. And then we also have seasonal seed mix that gives you the seeds that attract the most interesting birds in that specific season.

So you can start expanding from that. And then it becomes interesting because they talk about, what if we are the place that helps you to increase biodiversity in your garden? Because we have already cameras, we see the movement of different animals. We can also complement that with different types of sensors for the soil, for how much sun the garden gets, what type of plants you have, and then we can actually sell you products that you need to increase biodiversity in your garden. And that is not just interesting for a lot of people that don't know how to garden, but it's also actually a very positive mission, because if they do that properly, what type of influence do you have to combat climate change?

There's very limited room for you to do it. If there's a playful way for you to do it and get very easy recommendations to do that, and they participate in this, but also open that for you. It's a very rewarding thing to work on for the employees there. For me, as an investor, as the consumer supporting the business, I think it could be much bigger than people think. How often are you shocked by the market size?

Patrick O'Shaughnessy

One of the things we talked about before was birding is insanely common thing, and people spend tons of money on crazy binoculars and all this crazy stuff. Is this a common thing that you encounter where someone in an investor meeting is laughing them out of the room. But there's actually billion people that like. Birds or something, it happens for sure. And actually that contrast of what you would expect instinctively, yeah, that's it.

Nico Wittenborn

And then what you learned, that's it. That's a really big argument for taking a close look. We talked about speechify before. That was something for me that I was just so shocked how many kids have difficulties reading today and how little people read. Not just kids, also adults.

It's so rare to find someone that actually still reads books. And from my perspective, I read, it's part of my process, it's part of my well being to read. So it's hard for me to see that. But when something is so clearly different than what I expected, then it actually becomes, oh, this is really interesting, this tool here. That Cliff, the founder of Speechify, has dyslexia, and he started it to help him do his homework for school and university.

And so is that a singular case or how much does that expand? And then what is the mission? Because yes, you can help people with dyslexia and ADHD to process information, but you also actually are the bridge between everything that humanity has ever written to consume that still when people don't actually read anymore. Actually, you could say that llms are a bit of the same, where they just aggregate all that knowledge and then give it back to you in a schematic way. But this, for me was okay.

There is a real problem here with people not reading. And most of humanity's knowledge is in text. And so speechify, the opportunity is much bigger and the purpose of it is much beyond just people with dyslexia and ADHD of let's keep building on the knowledge that we already have to push the adjacent forward. One of the things that must be a fun part of what you do for a living is that you get to use lots or all of the products, try them yourself personally versus infrastructure software person. Pretty rarely, probably it's going to actually be building something with the tool or becomes very abstract.

Patrick O'Shaughnessy

So youve looked at God knows how many products yourself personally. How would you sum up what youve learned about what it means to be a great product? What the difference between a great and a good product, or a ten and a nine or whatever frame helps you most think about the question. But youve seen a lot, youve developed taste, articulate that taste, and what great means. A lot of it is simplicity of the product.

Nico Wittenborn

Its actually usually doing very few things, but doing them super well. And not confusing people how to use it. And then it's an attention to detail about the different aspects of that journey that just make you realize that it's just very thought through by the founders. And so I think some of that is perhaps you can see by talking to users, using it yourself, and getting a feel for how smooth is it. What's the friction to getting started?

And what's the time to having a wow factor? The first time you see a bird, I mean, there's a friction. You have to buy the thing, put it in the garden. The first time you see it, you just immediately you get the value. And so I think this is also true for calm is a good example.

I always used to joke is you've paid a subscription when 70% of it is silence. But the first time it forces you to sit down and meditate. You actually notice how much your mind is racing and how much you need it. Because we all suffer from overthinking in the western world. It's responsible for a lot of the depression and the problems that we have, I think.

And so I think, for me, the process is somewhat intuitive, where I want to be drawn back to the product, I want it to feel clear how you use it. I want the details to be thought through. And so the simplicity teaches you that the founder has been incredibly diligent, careful, hardworking about what matters. So it says something about them. I think a great product reflects a lot about the founders that build it in a way that I actually probably judge a founder more by the product than by the interaction with the founder, which I don't know if that's a good thing or a bad thing.

It's just my approach. I think there's some people that are really good at understanding the drive and the qualities of a founder. And I do think that I have an intuition of, is that person authentic? Can I trust them? But really, it's what have you done?

What have you built? How does that make me feel? And how does that reflect your confidence in what you're building? And I think that reducing things to the essential parts is one of the great skills of a good consumer founder. And you can always build up on that over time.

But starting small, having a very specific use case hook demographic that you want to serve, then from there, building it up. That is, I think the approach you have to take, as opposed to try to do a lot of things, push it all together, confuse people. I think always you want to involve the data and what you learn from the customers to build that roadmap and further develop the product. But if the quintessential insight is not right or doesn't get you to product market fit, adding more things will probably not help you. That's something that I try to understand.

What is the specific use case and the specific user group that this initial product is built for? Can you talk about the feeling of doing basically everything yourself in an investing process versus the feeling of being a part of a very well oiled machine working at a big investing firm that has lots of resources and division of labor? First of all, I do think that obviously both can work. I've met people that have honed their skill at an institution that really is more of a machine, but they're world class at one of the attributes that you need to be a really good investor. Maybe out hustle in outbound sourcing or relationship building, or closing the deal.

For me, that was never so fulfilling. And I guess my position there was also a somewhat different one because I was leading a team. But I want to have for me to come to the best decision, I think you have to touch all aspects of the work. And for me it's even more I want to understand all the different aspects of the work. I think for that, every conversation that you outsource removes you further from finding the truth, because there's another filter on it.

Back to Brian, how I think further hone my own perspective and skill as an investor, as opposed to trusting the reference calls that somebody did for me. There's the investment decision aspect of doing it by yourself. Then the second part of it is I was also pretty siloed from the whole lp and fundraising and ops aspect of the business, and that's fine. And that allowed me to focus more on finding investments, doing them, supporting the entrepreneurs, which is really what I did for the first eight years of my career. But I just wanted to understand all aspects of it.

Then I think that it's scary to go out and raise your own fund because there's uncertainty and most people think it's just more comfortable to join another firm. And I think obviously in some aspects that's true. But on the other hand, I think that's a bit of. Maybe it has shifted, but I think it's also a bit of a scare tactic to keep the power to the people that have already done it. And I just wanted to understand what it's like.

I wanted to really see could I also do the other parts of it? And I think they all feed together because obviously the peers you work with, the thesis that you have the way you make decisions, and all of that together creates a firm. And I just wanted to see if I could start my own firm. And so that is one part of it. And I think the last aspect of this, doing it solo, that I think is important and actually intentional for me.

It's not that I don't think you can hire people that are good, but I think that I have a very clear idea of how I want to serve founders. And that is a very high touch, service oriented way to be available, to always get a decision maker that makes decisions, to always feel like you are talking to the founder of the firm. And so you can also some of those aspects to scale yourself. I scale myself in other ways. We talked about board structure, and there's ways that I'm very intentional about that.

But I feel like the core business is making founders want to work with you, and then the founders that work with you tell their founder friends or other people that you introduce them to give a reference, to convince them to work with you. So this experience that a founder has working with you is very important. And this includes all the touch points from what they hear about you before you make the intro call to how does that intro call go to? What's the feedback? After I've sit for a few days and actually thought and used the product and talked to people in the space to then after to how is the deal done?

What are the things you care about? Who writes to term sheet, which is usually me, and what are the terms that are important? What do you optimize for then once the deal is closed, how do you make sure that it's not just the lawyers going back and forth, increasing the bill and stealing the founders time, but enforcing that process to make it tight, seamless, without friction, to then when they start working with you, how can they get in touch with you? How long does it take to respond to a text? Or can you be on the call even if it's late?

And for me, those things all come together, and I want to control the experience, and I want to make sure that it is the best possible way for the founder. That's why I also don't have an EA, because I don't want there to be a person between me and the founder. It's me and the founder. And that relationship is very important. You said something interesting earlier on our walk, which was something like, greatness is looking inward and building on your own experience.

Patrick O'Shaughnessy

I'd love you to explain what you mean by that. And I guess map you made me think about it with this idea around the founders and their relationship to the product. But what do you mean by that idea of greatness? I think it applies to both founders and investors, and I think it's also related to this idea of the adjacent possible. But essentially, you could also think of the adjacent possible from a technical point of view of breakthroughs and the ingredients that enable those breakthroughs.

Nico Wittenborn

But you can also think about it as an individual perspective of the experiences and the context of this person, allow them to see this way. All of our perspectives are very different. And so I think that oftentimes people try to adapt the playbooks of others, or what the mainstream, or their parents or bosses give them as tools, and then apply that and just work that, as opposed to trying to gain confidence in the unique perspective that they have and what it enables them to do. And so the founder that is in the adjacent possible already put themselves into a space where they want to be, somewhere where everybody's already crowding the space. Let's try to figure out what's happening here.

Probably their curiosity led them there. But it's also true from an investment standpoint, where you are uniquely suited for specific things. And the only way that you can actually be at the forefront of a specific theme idea adjacent possible, is if you develop those ideas by being in it. I think the only way that you can create extreme upside is if you see something that other people don't see yet, because that in itself opens up the opportunity that there's something being built here that is really unique. And the uncertainty around what it can become is at the same time the potential of optionality.

So this can apply for both the founders and the investors. And it goes back to even what we talked about with following your own intuition and trying to further develop your own sense of what is your deal or your company, or the opportunity that you're chasing. And I think that's something that requires also confidence in yourself, and perhaps is maybe also a natural step in your development after you've gone through the other phases and then decided that you want to find your own way. One of the things that in the ecosystem that we work in, is so interesting is the rise of individuals, and adjacent is a company, but it's also primarily you at this stage, and that might change in the future, of course, but individuals, sometimes under their own name, not even under a firm name, having control of and allocating huge amounts of capital into all sorts of companies, established ones, young ones, technology, non technology, whatever. But this is a really notable and to me, interesting trend in the world that you have single people that are able to run what is effectively like a scaled up investing firm by themselves.

Patrick O'Shaughnessy

And at the same time, obviously, you've got standard huge, enormous firms and the blackstones of the world still command most of the world's assets. But since you're one of these individuals that is allocating lots of capital and it's just you, any reflections on that trend as one of those people that you think are interesting? This is my perspective on it. When venture started, a lot of the firms were not seeing the size of the outcomes that the companies eventually could have. I think this is true when you look at early memos from firms like Insight or Bessemer, even .9 the most optimistic case for a lot of those outcomes where companies that are hundreds of millions, maybe a billion or so, and now we have companies that are a trillion dollars, that development is just crazy.

Nico Wittenborn

And I think what that has led to though is that there's a bit of an retroactive adjustment where a lot of those early firms that are still very relevant players today have then scaled up to become multi stage firms that manage big assets. And I think that has a place, I think especially in well understood verticals like SaaS, where you can benchmark everything and you have playbooks, you can build a machine around evaluating and supporting those companies that has a place. But it also, I think, has led to some sort of fallacy where you now think you can see those type of outcomes at a very early stage. And I don't think that is so true. So I think those big multistage firms naturally are gravitating towards later stage investing because they need more confirmation that this is a company that can be a generational company or a very big outcome.

And I think it's very rare that you see it at the seed. And I think they didn't see it themselves at the seed. That's why then Mamo said, this is going to be a $500 million outcome, and it was a $10 billion outcome. So I think we always get surprised on the upside if it works. Which is why I decided to formulate a strategy around adjacent where I want billion dollar outcomes, which are pretty reasonable in today's world, to return the fund.

And so if I catch a five or $10 billion outcome, it's a home run, but the strategy does not depend on it. So I expose myself to this optionality of the returns, and so those firms get become bigger and they go towards later stage. And then you have this new class, I guess, of investors that come in and there's been seed funds for a long time. So I guess that explains more the rise of seed. But then you have within that also individuals that are mostly being known for their name, essentially a merger of an angel and institutional manager.

And I think the rise of those multistage firms actually also gave rise to that class of investors. Because what happens if you have that much capital to allocate? Most of the time you need headcount and processes, and you build up an organization that supports that. But through building that up, you move away from the individual, oftentimes, because you have a lot of people in the firm, you have a lot of partners, you have junior senior, you have something that becomes a bit more of a corporate structure oftentimes. But founders themselves are rebels.

They're independent thinkers, they're people that go against the grain. And of course, there's value in having a great brand, and especially if you're careful about that brand and what companies that reflect, I think that is important, but I think they like the underdog, maybe not all, but the type of founders that I try to appeal to. Oftentimes they appreciate me because I am starting my own firm, and because I am only one person, and because it's easy to get to know me, and because I'm fast to come to a decision, and because there's not loops or other people that I have to convince, I respect their time. I try to take as much of the burden of making the decision on me and do the research, and then come back with a strong point of view, sometimes even before I talk to them, so that I can come in with a view when I just have the first conversation. And so I think this upside surprising us.

The multistage firms that were built around it. The corporate nature of those firms naturally gave the opportunity for an anti positioning of that which is a person, and a person that is authentic, that you can get to know quickly, that can make decisions quickly, that is perhaps closer to the founder than some of the other people that they would meet in the decision making process. And so I do think that this is a trend that will keep on persisting. I also think that it's coming back to this unique perspective of you want to find your own way to see a specific opportunity and adjacent possibilities that you look into. I think the rise of these individual firms also serves that super well, because those people have only themselves, and so they naturally are drawn into a specific direction and hopefully are focused and not somewhat more generalist, but a lot of them just have a specific area of expertise, and I think the best do.

And that just makes sense because not all of the perspectives are concepts driven by a large venture firm. But to actually see something differently, perhaps it's helpful to not make a consensus decision, but to be very much focused on, does this make sense for me? And is that then something that is differentiated to how the rest of the market would see it? I think there's going to be more. Since I started, I've backed probably a dozen solo managers that are focused on a specific segment, because I.

I'm joking sometimes that it's a bit like an alliance of the solo founders, like the Rebel alliance in Star wars. There's a Death Star, which is a big institution, and then you have this network of Rebels collaborating and working together, and that is an adjacent possible NVC. And so if I'm one of the connectors of that, that is valuable. And so that is something that I am just passionate about, because I do think that it actually leads to people finding their own perspectives. And I think that those funds should be limited in size.

I don't think how many of them should be mega big funds. Obviously, each is own. I just feel like especially four seed, where this unique perspective provides the most upside. The smaller the fund, the higher the return potential, the higher the potential that the LP's, by the way, are flocking also into this class, because your options are, there's an established brand and they offer two to three x very securely. That is good, especially if you have to allocate big lp dollars.

But where's your alpha coming from? It's coming from the smaller funds that have a higher return potential. And so for them, it makes sense to move more of their exposure into those earlier stage VC's. And I think so there's a competitive advantage by staying smaller and actually having higher returns because that is actually what they're looking for. If you have a two to three x fund, even if your name is on the fund, what really is the differentiation towards one of the big firms that have been around for decades?

Patrick O'Shaughnessy

Speaking of that idea of specialization and the intimacy, if you think about the category, I know you don't just do consumer subscription, but if you think about that category, what are your favorite questions to ask those founders, especially very early on, what are the most powerful questions that you found? One thing that I really like to start with is what was your initial hypothesis for this company, and what have you learned since then? And so that actually goes very much into the direction of the things that we just discussed. But it's what is it that you've experienced in your life that makes this an opportunity that is really important for you, but also that you see more clear than other people. And then also back into that with the last part of the question is how much did you have to iterate on that?

Nico Wittenborn

Has it all stayed the same? Probably not a good sign because the world changes all the time. Who knows what actually ends up opening up and where you should focusing your attention. And then also it shows that you're self reflective and you're trying to be humble and you're adaptive to the environment. Nobody knows what the world looks like, and we just know that the people that are adapting quickly and are in the right spaces.

I will take a bet anytime on somebody that is self reflected, found themselves authentically to an opportunity and is trying to figure out exactly what they're building in that space. But they're open about that and they have maybe a first hypothesis and they're testing that, but they're experimenting and then making sure that they're on the strongest vector in that adjacent possible. And that's very different than, let's say most series a investors where they maybe don't like experiments. They need to understand specifically what is the vision you have for this. And that's fine.

And that vision becomes clearer over time. And you have to have a vision at one point. I think at least as a guiding star, you can still adjust it. But I'm completely okay with some uncertainty around that. If I think that this founder is someone that adapts very quickly in a space that is evolving very quickly and has built a product that is very opinionated, simple, and iterates on it in a way that just makes sure that it evolves with the space and what he learns from, or she learns from users and other things that are happening in that market.

Patrick O'Shaughnessy

If you think about that constant adaptation required, what ingredients have changed the most in the entire world landscape that are most interesting to you and you think most important for companies to be on top of whether that's new platform stuff, new technologies, new whatever, what's changing in the last 612 months that you think are the biggest opportunities and or threats to existing ways of doing things? I do think that AI changes the game for a lot of companies. And I can give you some specific I don't have an AI focus. I actually think having an AI focus now is like having a crypto focus, like 21, 22 it can work and there's going to be great companies, but there's going to be a lot of. It'S a lot of competition, a lot of competition.

Nico Wittenborn

And for me that is not what I do. I should not go into the hype and then try to best the tier one funds, but I should go where I think there is a lot of opportunity that is underrated. But then at the same time, I have companies that use AI that have seen incredible growth, the more they adopted AI features. Probably this is true for enterprise companies too, but consumer companies just have more data because they have a larger end of customers and if they're retentive and engaged and they have more data of how people use that product and they can use that data to make informed decisions and to add features to the product that leverage AI. The product roadmap in some ways can be dictated by AI.

And then also right, nowadays for consumer companies, I mean, it's always true, but what are your unique ways of distributing the product? And one of the advantages that a lot of the companies I work with have is that they're visual and if people see them, they are interested to learn more. This is not true for all companies, but if you see a backbone on the plane or if you see a visual of how somebody takes a photo of something and the person appears that wears that thing, and this happens in a second, this can be magic that lends itself very well to marketing, product development, then acquisition and what you show and what response you evoke on a paid marketing channel or wherever people see it. But then also the cost base. There's companies that are doing content production or write blog posts as such, but I have companies that they have decreased their costs to a level that they are cash flow positive just by using AI to create different parts of content for their business.

It can go from the features that you add to the product to how you do distribution to your own cost base. It's not so much, I mean, it is AI in this specific example, but it's just what are the most agile organizations that use those innovations quick to then create an advantage to the rest of the market? The companies that are set up to do that well, that are small, that are agile, that adopt new technologies, that have an open mind to that, they will evolve with the space. And so that certainly, I think has an impact on a lot of the companies that I'm working with today. What about something like the Vision Pro, which I've never actually used it, so it's probably telling that I haven't.

Patrick O'Shaughnessy

It does not certainly seem to have landed in any sort of ubiquitous way. Everything I've heard is incredible piece of technology. What do you think about it? So for me, it has landed. What I mean with that is I think this year they expect like 250,000 units sold, which is nothing compared to the circulation of iPhones at smartphones.

Nico Wittenborn

So it certainly doesn't allow for breakout scaling opportunities today. But I think the technological leap, the adjacent possible is very clear. The things that it can do that were not possible before because it really does merge digital with physical perspective. For me, the laws that I think are clear that it will become smaller in form factor, the battery will become better, the social stigma around it will go away with time because that always happens with technology. And so maybe it's three generations from now that it actually has mainstream appeal.

But which are the companies that will benefit from that? The ones that are starting building now, and which are the ones that are starting to build now? It's the people that are in the mobile ecosystem that already use Apple's tools to create experiences for the consumer. That was part of the consumer thesis for jason from the beginning where I thought that the mobile phone is not the end state of mobile technology. There's going to be different things that we use that merge the digital realm more with the physical and are less disruptive in terms of this and also more integrated into our day to day life.

I think that's just been true forever. And I think that if you see that that is starting to become real, it is time to think about, okay, how do we expose ourselves to that? And actually, some of the really interesting companies that I have seen today building interesting things for that are companies that did 3d work on mobile before, and now they're in a perfect position to start experimenting with what is the form factor? What is it that we have to do to also have a hit on the vision pro so that in three, five, whatever time it takes, we are the one that can really benefit from when this platform reaches the mass market potential. It's just about exposure to that optionality that I'm looking for.

Patrick O'Shaughnessy

I always visualize this technology frontier, and obviously your whole thing is what is on that frontier. If you visualize the adjacent frontier and you speculate as much as possible, what is the most out there thing that you're at least curious about it. You don't have to have made an investment there. But what's something that's at the very edges of what's possible today that has your attention? This is maybe an example that it is out there.

Nico Wittenborn

So it is out there and I have done it and it is further from what we talked about on the consumer subscription sides. But there's a company that I'm working with. The founder of that company was one of the youngest fellows ever at intel and helped them to create autonomous chip design, not today, but decades ago when it was not something that people did. And he started a company and he sold it after. And he's now found a parallel between this self designing chip circuits and buildings.

So actually creating blocks or pieces and software around it that helps you to, depending on the space and material you want to use, create the plans for real estate. It is not a mobile company, it's not consumer, but it is adjacent in the way that it is only possible today. It's probably not going to work out because it's hard. And he transfers knowledge from one area to the next. I got to know him in a very natural way.

I was on a board with him of another company. I got to see him operate and execute, and I learned about what he has done with his career so far and then where he wants to apply it next. And it's very ambitious. I guess you can say it's outside of the wheelhouse, but it still fits the criteria of what I'm looking for. It's much harder to get to an understanding of does it work or not, because I can't test it.

So it's difficult. So it's for me also something where I'm uncomfortable. And I have to actually accept that this is a bit outside of the core of the thesis so far. But I also don't want to be confined to the first thesis that I'm starting with forever. So I have to find ways within what I'm comfortable with to expand that thesis into other things with the same tools that I've used for most of my investing.

There's other examples, a bit easier maybe to relate to chain analysis for me when it's an investment we did at 0.9 when I was there. Now I got introduced to crypto and I was interested in. I bought bitcoin and trying to understand the space better, but all I knew was SaaS investing. But here I find a company that is doing a SaaS product that is a proxy on the crypto space. Chainalysis is an analytics company for crypto transaction that's today used by most major law enforcement agencies and governments and such.

So it was a small market, everybody passed on it. I had no idea about crypto really, but I knew that if crypto becomes a thing, this can be a gold standard for that thing. And I don't know what SaaS is. And I could talk to some customers, and I could look at the metrics and so I could use the tools that my frameworks that I knew to get closer to an adjacent space. And so this would be an example of that, which is a bit of a leap, but also, for me, a bit of a test of how much does it transfer.

Patrick O'Shaughnessy

If I ask you to think across the faces of everyone you work with, all the founders, who comes to mind most immediately when you think of someone that's going to be working on the same problem space 30 years from now? I guess the way I think about it is who's most authentically committed to their vision or what they're building, who's authentically passionate about what they're doing. I think that backbone is one good example. Just because Manit is young, he's a gamer. He saw this adjacent possible when he was an intern at Google and saw the work they did with Stadia, and then saw the future of gaming moving towards streaming before there was any idea of what a game pass would be or other types of technology that actually accesses that.

Nico Wittenborn

And so every time I talk to him, the way he thinks about the space, he's so ahead of how things will play out. And obviously, sometimes you have to adjust. Sometimes things happen faster or slower than you expect. But he's playing with his own product when he's not working on it. This is clearly something that he had, the insight, he built the product that he wanted, and he doesn't see an end to what it could be because we're still at the very early innings of all of those things falling into place.

Native game streaming is just now is arriving on the phones. The tier one titles are just now coming to the phone. That's what he cares about, is creating an amazing product experience. In that macro, for me, it's the perfect combination of, we're playing in an adjacent space, there's a founder there that's driven to build the best experience and adapt to what is happening in the space. And I don't think there's a reason for him to stop.

At least I don't see it today. What about if you flip it a little bit and think about not the founder, but the market, not including gaming. So some other market being addressed by a company that you're working with that is most interesting or exciting to you right now? The way that I think about these things is that either I have an intuition about a space that is interesting. I try to find the best company that encapsulates that opportunity, or it's the founder that spots the opportunity and then I learn that it makes sense, but then I do the investment and then I move on.

So I don't actually have a space that I'm super focused on. That sounds maybe silly if you think I'm all about consumer subscription, and that is true, but it's really just a business model that is so flexible to different types of opportunities. And the opportunities themselves open up all the time. An investment I'm closing now, which I think is super interesting and is exactly playing into that, is a hybrid phone provider that merges the cell phone capability with satellite. A lot of people dismiss this because a lot of people have cell services.

These virtual providers haven't been traditionally good investments, but there also hasn't been this new adjacent possibility of satellite actually working on combining them and the benefits that you have from that, and perhaps some core functionality that you can add to that as well. I don't even know what the end product would be, but if there's a person that said this is a space that it makes sense to me that with satellite and capabilities that SpaceX unlocks and all of that, there's going to be a shift in communications. And some of that will be offered by the providers themselves. Some of the big telco companies will go in there. But I guess my belief is just that every time you have such a shift and you are exposed to that space through a founder that has thought about it more than you do, but it checks out and they have a consumer sense and they are reflective in how they're building the product.

That excites me, but I don't have preconceived views of I need to be in those markets and sometimes I have them for a little bit of time. So back when, actually how I got there is that I went through all these data for revenue on the App Stores. I have exposure to most categories with adjacent. But 50% of the revenue is gaming. And I don't think I'm a good gaming.

I'm not like casual games on mobile is not what I want to do. There's people that do that. Well, that's great, but I'm not excited about it. I don't think I would be good at it. So how do I get exposed to that part of the business?

And so backbone was that proxy for me. I do believe in the space. I want to work on something that I find exciting, that benefits from that size of that market, but also from some of the things that are just now possible, like cloud and streaming and the tier one games arriving on mobile. But I try to sometimes find holes like that, or have the founders convince me that this is an opportunity. But there's very few ongoing themes that I've been holding for a long period of time.

Patrick O'Shaughnessy

Yeah, it's fascinating. What's so cool about it is you get exposure to all these different markets, but really what you're learning is about the person's ability to explore these new spaces. And I'm even curious, in the consumer subscription side, if you visualize a big bell curve, maybe it's not normally distributed, but if you look at the price being charged by all these things, how well explored or revealed do you feel like that bell curve is back to the ten or $20 thing? Where do the prices cluster and what are the extremes? What's the highest price per year you've seen for a subscription or something like that?

Is there areas to explore in the pricing and value curve still, do you think? Definitely. Yeah. I think we're super early at understanding the best and most accurate value extraction for these companies. I see companies from anything $30 a year to $150 a year right now, but I don't think that that's the ceiling.

Nico Wittenborn

I think especially my approach, premium products lends itself to perhaps luxury type positioning for those applications, if you do them right, and if people get real value from them, by the way, like does it have to be only a subscription or is subscription one of the revenue streams? And you have all these different parts of the business that you can then serve other groups with, or do you tier it, or do you have ways that you get the subscription, but then you have an on demand factor on top of it where you can price discriminate. And so I'm not going to be the one that comes up with those things, but I'm going to invest in the guy or the girl that comes up with them, hopefully, and then try to transfer it to the rest of the market. If you think about the trajectory from 2011, the App Store launched and it was always free on a fixed price. And then fast forward to 13 years later and you have companies that charge hundreds of bucks per year for that.

Where could that go? I don't know, but I like to be exposed to that. I don't think we need it for the fun to work, but if this vector of you can charge more and you can find better ways to monetize those users, and perhaps AI is a piece of that, and there's different ways that you can expand from consumer only to prosumer, to teams, to APIs, to partnerships. Only a few of those things have to work out for it to make sense. And so I do just try not to have too many preconceived notions, but be in that space where there's just a lot of things developing all the time.

Another way to think of it is 90% of the apps on the App Store today are subscription apps. And all consumer software comes through the App Store. And so all innovation that happens in consumer software fits my lens in some way. So from being dismissed with, oh, you only do content apps to actually, I can position myself in a lot of ways to be exposed to the future innovation in consumer software and then tie in hardware and other types of the infrastructure for those companies. Then things like vending spoons that actually aggregate the things that hit the ceiling earlier they bought Evernote and a bunch of other high profile things.

Learning about where are the opportunities in the market that I only understand because I'm so deep in it. And then following those, I think is exactly exploring the adjacent. What have you learned about act two and beyond for these companies that you just said? Evernote reached whatever was natural ceiling of revenue and couldn't be a $10 billion revenue company or something. And vending experience is doing something interesting with it.

Patrick O'Shaughnessy

What have you learned about the natural caps of v one product and when they need to go into their next act and any lessons there? Yeah, definitely. And as always, I learn more every year with every company. But currently I think that the first learning was that there's a natural ceiling. This is true for SaaS as well.

Nico Wittenborn

And a lot of people may, I think, dismiss the fact that a lot of SaaS companies then launch new products, acquire other products, and that then makes the revenue mix that actually is kind scalable. Usually there's new parts of the product that get added and consumer funders have to do the same thing. The first product that you put out is not the only product that you have forever. And I think that's a shift in mindset where the ceiling that you reach is somewhat determined by the retention that you're seeing and the depth of the market and the cost that is acquiring a user. Out of those three pieces, you have a natural ceiling.

And so you have to overcome ideally all three, but you have to work on all of them over time. And so for me, I have a pretty high confidence based on the investments that I've done, that there are certain benchmarks that if I see them, I know that this is a company that could get to a few hundred million of revenue. If you come in at the seed on early a and you have a small fund, that makes sense. There's already enough there for it to work. I want to get better.

I want to help the founders, and I want to further my understanding of what we're doing and push also maybe the playbook and explore it. And so I think that right now it's super important for me that the product itself lends itself to that expansion of act two and three. So for consumer prosumer products, for example, I think very clearly the first act is you have the consumer app, you push it out. Second act is you bring to web or another platform. And then the third app is usually something that it could be an API, it could also be just a more focused go to market around the enterprise and solutions that are not possible with the app itself.

And so I now, because of what I've seen in some of the content focused subscription apps, is I try very early to push the urgency of we need to think about those things and put the foundation in place around what it could become. Photo room is a good example of that. The first email that I sent to Mathieu, the CEO, after I invested, was actually, do you think we could do an API around this? And it was probably three years until we had customers, but now we have, and you can go on the website, but it's a very impressive list of customers that use photo room for marketing, for scaling image production, enterprise customers like Warner Music, Fortune 500 companies, big brands that use it, and there was no sign of that early on. You have to believe that.

So basically, the underlying technology itself has to be strong enough to come through in different surface areas. The mobile component is the first of that, and it's the easiest to scale. It has reached in 200 countries, and you need a very small team to do it well. But then from there, you have to set the right foundation for the next acts early enough so that you overcome the ceiling before you reach it, because you don't want to flatten out and then have to hustle to get the momentum back and grow it. But you basically try to put those things into place very strategically.

As you are getting to the 100, $200 million revenue, you already start working on those things. And so my role now is oftentimes just reminding founders that even though we're growing like crazy in this consumer prosumer offering, probably we're not going to get $2 billion in revenue maybe do you want to leave it to chance or do you just want to start putting in place some of the structure and foundation that allows the organization to go from this first offering to a second platform or a different product that bundles the same capability and technology in a different way to serve different use cases? Thinking long term in that way, you've got this great list of guidelines, rules, principles for yourself and how you operate. And two of them stuck out to me and they're related. One is do not compete and the other one is that you want people to pull you, you don't want to push.

Patrick O'Shaughnessy

And they're slightly different, but they're in the same ballpark. What advice would you give people that want that same setup? They want to do great, they want to work hard, they want to contribute, build something, but they want to do it in that way that's not in the fierce, competitive red oceans, and instead wants to think long term and be willing to act long term to create that kind of setup where it's more of a gravity that you're creating, not a tip of the spear. Got to get into every battle and fight and win all the time. It goes back to some of the things we discussed where first of all, you need to have an awareness of both where the current market and competition is and then self select out of that.

Nico Wittenborn

Because I could have also kept going and people forget. It's so funny also to me that because I talk about consumer subscription, obviously that's a lot of what adjacent is known for, and that's good because that was the intention. But for the majority of my career, I invested in enterprise software. I've learned a lot in enterprise software and I transfer a lot of that to adjacent. But I understand how most people today think about companies and where the opportunities lie.

And then I decided, since everybody understands this now, I try to move on to something that is less understood. And then how do you get confidence around that model? I think you need to do investments to actually learn. Does it make sense? I was very lucky that one of the early investments at 0.9 is just completely out of character.

Mobile first consumer company, that was the highest entry valuation. We paid the lowest ownership, and it's probably the highest value in holding that they have today. So breaking that model and following that instinct and then learning that, having the positive feedback loop of actually there's something here and it is based on the things that I had experienced prior and the convictions that I had about a specific category from other learnings I took into that, that made me believe that and that then giving me more confidence over time. With also at insight, I did a lot of enterprise software, but we also did these consumer companies. And so more data points accumulating to then say, okay, I know it's a risk and I'm okay with the uncertainty of maybe those companies are not going to be as big as some of the SaaS companies or other types of companies, but I have enough conviction here that small fund can do very well with that.

This is my trajectory. But I think the advice would be just understanding what you're passionate about, understanding that there's a unique perspective that you probably have that other people do not have, and understanding that if you share the same perspective as everybody else, there's probably very little differentiation. And the people that are already in place and have the biggest brand or the biggest resources and fund size and people, they will outcompete you because they're doing the same thing. And so what is it that you see or have experienced or the perspective that you can bring that perhaps is less known and that also is more risky because it might not work out, because if it was known, then that opportunity wouldn't be there. And so I think it's trying to find that intersection of this is something that I think will happen in the future.

This is the data points that I can lean on, and then having the confidence to accept some uncertainty around whether it actually turns out to be true or not, and then hopefully taking a calculated risk where even if you're off or it's not exactly where you want it to be, it's still going to be a success. That's how I play, at least. Maybe other people would like to be more aggressive and they just go all out, raise crazy funds for something I want adjacent to be a win for everybody, independent of how right I am. And so I try to leave that room for error, that it's a solid fund, but if Duolingo keeps rising and I have a couple of them, and then it's going to be a very great fun. And so I think it's a process of learning and confidence and then willingness to take that risk and accept the uncertainty as well.

Patrick O'Shaughnessy

If you had to name three products that you've ever personally used and experienced, not necessarily invested in, though that could be the case that best exemplified. Beautiful product. What three would you pick? I think one that naturally comes to mind is Typeform. Probably it's a software product.

Nico Wittenborn

And why I say it's beautiful is that, I mean, it's beautifully designed, but also it's not just visually beautifully designed, but it's also designed in such a way that the usage of the product itself drives the distribution. Because you go in, you have this. This is also like. You can actually quantify how much better it is if you look into completion rates of Typeform because it's cross platform beautiful on mobile, it's beautiful on the web. It's just much more conversational than a survey monkey or you just click the button type of survey.

But then also by using the product, not just does it actually increase conversions and give more data to the people that want to use it, but also most of the new signups come from people that were asked. The product itself is designed in such a way that the experience of it is great. It has superior results, it's visually pleasing intuitively to understand, but also there's distribution baked into all of that. You can see the design of it touches so many aspects of what's required for a company to be successful. That is one that I like.

I probably have to say that the iPhone also because it was just so important for my trajectory, the breakthrough from a BlackBerry to an iPhone. It's probably the correct answer. Yeah, it's just such a combination of the things. And also this is the parallel to the vision Pro, the big unlock, or one of the big unlocks is this intuitive interaction with the software. If you hand a child an iPad or a phone, it's very intuitive how you actually engage with it.

My two year old was doing things on the iPad, taking pictures, and I was like how that never could happen on the desktop computer or BlackBerry phone. And so I think great technology is decreasing the friction to interaction of the digital realm. And the iPhone is a good example. Typeform is a good example. Oura ring is a good example where it's actually not clear that it is a technical product.

It's very subtle, there's no screenshot, but there's a lot of technology in it. And then it becomes super powerful in combination with the phone where the data that you get out of it is very insightful and actually makes your life better. I mean, I guess for some people they can over obsess and all of that. But compare this to any other way to measure all those vitals you put it on. It's a small ring that you can't even properly say that it is baked with technology.

So decreasing the friction to getting that measurement and then developing it over time every year, new vitals, new things that actually I can show you about your life that make you sleep better and watch your resilience and your stress. It has a real impact on your life, but it's so easy to get going. I think decreasing the friction is one of the major themes that I think helps make consumer products really great. It's interesting, as I think about you and your portfolio, that you're one of those people that I would probably be most prone to go into each portfolio company and go see what theyre building and try it. I remember doing that when we first met and just being like, wow, theres all this cool stuff that seems on its face interesting.

Patrick O'Shaughnessy

And part of that is that its consumer, of course, but its meant as a compliment to the portfolio youve built so far. I ask everybody the same traditional closing question, whats the kindest thing that anyone has ever done for you? So I thought about this because I know you ask it. I do have to give you three levels to that answer, please, because it would be unfair otherwise and it's hard to compare. But I think on a professional level, I do think that it was Pavel, one of the founders of, .9 to show me the world of venture when I was a university student doing importing and exporting of iPhones and reselling them.

Nico Wittenborn

He saw that and he believed, I guess, in my potential and gave me an opportunity to learn what venture is by first an internship, then part time work and then full time work with 0.9. As I graduated. And I was young at the time, I had no experience that warranted that. And it's still a great relationship. We co invest and I think that was really a moment of putting me on that path that otherwise wouldn't have happened.

On a personal level, I have to say at least my wife, I'm a complicated person, but she married me, she's staying with me, she loves me, and we have two beautiful kids that she brought into the world that, you know, is probably the highest level of love you can feel for anything. And so I'll always be thankful for that. And I have no question about how real this relationship is, not just between us but also the family. I didn't have this experience of a tight, intact family when I grew up, so this is the first time I experienced it and it's probably the most important thing that happened in my life. And then lastly, I guess on a spiritual level, I just believe in a higher power and without naming it, and I think there's different words and perspectives on it, I do feel like that power is looking out for me.

I do feel super grateful about that. I feel a sense of security, and I also feel a sense of responsibility to actually give back over the course of my life. And I just have to remind myself almost daily for the trajectory of my life so far how things have fallen into place. And I do really feel an immense sense of gratitude for that. A beautiful answer.

Patrick O'Shaughnessy

I don't think I've ever had a three parter like that. I might start asking the question in that way. It's a wonderful way to close our conversation. Nico, thanks so much for your time. Thanks for having me.

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