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#31 Oscar Farres: the semiconductor engineer turned biggest LP in European Venture Capital
Head of VC - Digital Economy at European Investment Fund, fund of funds part of the European Investment Bank focused on European VC aiming to generate €230bn in investments within Europe
We are Pol Fañanás and Gerard García, two friends passionate about tech, startups, and VC, getting views from exceptional people doing cool things and sharing it for free with those who lack access. Thanks for reading!
Oscar Farres is the Head of Venture Capital (VC) - Digital Economy at the European Investment Fund (EIF), a specialist provider of risk finance to SMEs across Europe part of the European Investment Bank (EIB) Group, acting as the the biggest Limited Partner (LP, investor in venture capital funds) in Europe with >€19bn deployed in >750 venture capital funds supporting ca.12,000 companies.
Previously, Oscar worked as venture capital investor in Debaeque and Caixa Capital Risc, after co-founding 2 startups: Kineto (wearable devices for fitness applications) and Witur (online marketplace for local tourist guides).
He started his career as a semiconductors engineer after graduating from Electronics Engineering at La Salle School of Engineering. He holds an MBA from IESE including an exchange term at MIT.
Summary
1️⃣ First step in the tech world
2️⃣ Breaking into the investment scene
3️⃣ Journey from VC to LP
4️⃣ Biggest fail and lesson
5️⃣ Key opportunities and challenges in European tech and VC right now
6️⃣ What is an LP looking for
7️⃣ What is the LP description of a great investor
8️⃣ Advice to new emerging managers
9️⃣ Lessons for youngsters that want to break into the industry
1️⃣ What was your first step in the tech world?
I grew up in an regular family from Barcelona and had great parents who taught me a lot about hard work and humility with their example. And although I was originally really far from this “sexy” tech/investment world, I wanted to be an engineer since I was a kid. Probably because I enjoyed just taking things apart and understanding how they work. For instance I remember being 6-7 years old, dissembling a remote control car and being amazed at everything that happened in there.
Later on, slowly, I started getting interested in computers. I think someone in my class got one and it caught my attention. Then I could get a Sinclair ZX Spectrum + with 48 kB RAM, and I fell in love with computer science which ended up with me learning to code at around 9 years old.
Before the Internet I connected to BBS with modems, which usually resulted in having to pay huge phone bills. But that way I could play on-line computer games like Dungeons and Dragons which I loved, and I just followed my passion spending a lot of time in this type of geek stuff. From there on it was crystal clear for me that I wanted to study something technical, I went from coding to electronics, and I ended up pursuing an electronics engineering path since it fascinated me.
After university, my first job was in the semiconductors industry, designing chips in a research center. Programming was more of a hobby but I realised what I truly wanted to do was hardware. Being able to design a microprocessor was extraordinary to me, like magic - 0s and 1s transforming into a logic process and ultimately multiple interesting applications in the real world? That was absolutely incredible.
2️⃣ How did you break into the investment scene?
I really enjoyed working in semiconductors but after some time doing it and experiencing first hand how the technology industry started to grow exponentially while suddenly the weird “geek” people were becoming hot assets, I got really hooked on the idea of an engineer being able to transform society as an entrepreneur.
Consequently, I decided to learn more about the business aspects of technology, started to read a lot of books about entrepreneurship, and completed an MBA at IESE which included some months at MIT as well as the opportunity to meet great professors like Joan Roure.
After my MBA I struggled to find places really committed to innovation in Spain (this was almost 20 years ago and the ecosystem was really underdeveloped). Thus I decided to try and pursue my entrepreneurial dreams, which ended up with me founding a couple of startups with some friends. The first one was a motion capture wearable device with video games as use case, we failed our first go to market and ended up pivoting to fitness use case, specifically spinning classes. The second one was a traveltech platform to book personalized travel experiences including a marketplace for local tourist guides. Both companies failed but the experience was hugely valuable.
Thanks to these adventures I accumulated some knowledge of the Spanish startup and venture capital scene, then I saw an investment associate opportunity at a new Spanish venture capital fund, and I applied. My first interview was with an external headhunter and I vomited everything I knew about the ecosystem. I still remember she said to me “look, I don’t know anything that you mentioned but I think you should go to the next stage and talk directly with the partners of the fund”. Afterwards I met with the partners and they told me that even though they saw a lot of investment banking and consulting candidates, they really appreciated my passion and drive for the industry - I was in.
3️⃣ Journey from VC to LP?
As mentioned earlier, I started as a VC associate in a new Spanish firm named Debaeque with around €35m AUM. I worked together with 2 partners and my main goal was to present new deals to the partners every week, with quite a lot of freedom regarding my daily tasks. So I was able to do deal sourcing, due diligence, and support portfolio companies, learning tons. We did some interesting investments like BuyVIP which later on would be bought by Amazon in 2010. However the firm ultimately failed.
After that I joined the Spanish VC named Caixa Capital Risc, where I could have more exposure since it was one of the leading players in the geography at that time, investing from seed to growth in multiple industries.
Nonetheless I must say that in between I came across the 2008 great financial crisis and it was very tough. It coincided with my first years in VC and to be honest I had big doubts whether there was a future in Spanish venture capital. So maybe in part influenced by this but also because I saw it as a very exceptional growth opportunity, when an opening at the European Investment Fund appeared, I applied.
I started at EIF 10 years ago, the largest LP in European Venture Capital Funds. First as an Investment Manager in the ICT team where I could play a role in investing over €560m in 17 VC funds, next as Head of Business Angel Investments where I was in charge of deploying the €700m BA focused European Angels Fund impacting 110+ angels in 9 countries with 1000+ portfolio companies, and now I am Head of VC focused on digital economy leading a 10 people team to invest €2.6bn in around 110 funds.
4️⃣ Biggest fail and lesson in your journey?
Good question!
My biggest professional fail was probably in the first VC fund where I worked. I began with expectations of becoming a partner some day and it all ended up falling like a house of cards. We got hit hard by the financial crisis, we ended up fundraising way less money than expected, but the partners decided not to change the investment strategy. The result? I’d say a bad investment thesis execution which ended up with the liquidation of the firm.
It was extremely frustrating. When I started I was super hyped, really happy. Then the mix of the great financial crisis together with not so good fund management, was professionally and personally a huge negative impact for me. My pay was greatly affected and my future was at stake. I had an existential crisis and maybe even a part of me considered leaving the industry.
That being said though, the lessons were equally important. I had a lot of exposure to investments and portfolio companies, from generating dealflow to getting to know the ecosystem and helping founders as board member. I also got to know the importance of taking care of your LPs (the investors in your fund), being transparent, doing what you say you are going to do, building a solid portfolio, adapting your investment strategy to any contingency that may appear, and having proper healthy team dynamics specially between partners to avoid dangerous situations.
Despite the struggle, it also helped me reinforce the fact that I truly loved the investment world and I wanted to continue in the game, even though maybe more from an LP angle.
5️⃣ What are the key opportunities and challenges in the current tech and VC scene in Europe?
Regarding tech, to me it seems like until relatively recently we have not had maximum support for local European ecosystems. Then COVID came, we started experiencing a severe health crisis, supply chain problems such as the semiconductors one, and war making forgotten key industries like defense and space a priority again. And on top of that the feeling of Europe being behind US and Asia. As a result, I’d say we started going through a very important geopolitic paradigm shift that implies an increasing range of opportunities for the local scene. I still remember this book titled “The World Is Flat” by Thomas L. Friedman where he talked about the huge impact of globalization, how all countries are one big community, and we were going to collaborate in economic matters without significant problems - I believe this is already changing. We are experiencing a different situation where great powers are colliding and this fact is permeating the political establishment. Europe is not self sufficient in many critical industries and we need to pursue tech sovereignty. Sectors like health, semiconductors, AI, space tech, defense, cybersecurity, blockchain infrastructure, climate tech, or quantum computing are now more important than ever.
Regarding VC, a couple of bullets.
First, It’d be interesting to see more European startups bringing research to the market. Historically this area lacked enough capital to flourish, but it could be fun to see a bit of change and have more capital available for bold technology bets. I think the generalist digital tech space is better served and there are other verticals within tech where we are seeing new exciting movements. An example of this could be gender-focused strategies and climate-related solutions.
Second, in European VC in general we are in an exam type of moment, given the current macro context. We are going to see in the coming period some winners and some losers, this will impact portfolio valuations, and it will reveal which VC firms have been more loyal to their investment thesis. Some will come out successful from this situation but others will have big problems. But anyway the European VC industry regeneration is quite flagrant, so there are always teams being born with new emerging angles. The European ecosystem is really dynamic. However if we are thinking about challenges, we have an LP problem when we compare us with the US. Right now it is still difficult to fundraise from private LPs if you are from peripheral markets like Spain, and even in some hot markets like Germany we have seen established teams struggling to reach target fund size. Tough moments for everyone but that is also the reason why public intervention is valuable.
6️⃣ What is an LP looking for?
It can vary depending on the LP, there are LPs more driven towards a pure financial goal and those who have more of a strategic vision.
In any case, oversimplifying, probably the most important thing is to find a great team able to implement a solid investment thesis with strong conviction and without weird things. For instance I remember situations of teams claiming to do early stage with conviction bets where they plan to get around 15% - 20% ownership of the company where they invest, but then you look at their portfolio and they have some 0.5% ownerships. You ask about it and they say that is because a growth opportunity that came across. But as an LP you are already diversifying and when you are building your portfolio you already planned for some very specific requirements that depend on the VCs doing what they are supposed to do. You need your VC fund to execute the strategy as it has been initially determined because if not they create distortion for your portfolio as LP.
What do you find following this team rabbit hole? The need to check backgrounds of the partners leveraging lots of reference calls with other investors and entrepreneurs, understanding how have they met and how they have worked together in the past, learning about their track record, etc. However this is not just about the raw data but also more subtle things like how do they answer to your questions, how is their story telling, how are team dynamics, who is talking and who is silent, who is more dominant …
At the end of the day this is very much a people business so it is important to deeply understand the dynamics of the people you have in front. An example that we take as priority in our investment analysis and where these elements crystallise is fund governance. Having solid clarity around how the team is organized, ownership structure, power balances, and economics in terms of commitments and incentives for each team member, is hugely valuable.
Obviously there are more things on top of what I shared like believing there is an opportunity in the specific asset class that is coherent with the investment thesis presented to you, but the team is the most important one.
7️⃣ What is your description of a great investor?
Well, first of all we should need to divide the concept of great investors into two angles: investing and firm building. This is important because even though ideally the two factors should be combined, we find them dissociated lots of times and we can see great individual investors unable to build exciting multigenerational firms.
Talking about purely investing, in my opinion a good performance needs selection of good opportunities and value creation within your portfolio. Historically, specially in Europe, we have only valued getting to the good opportunity and we haven’t had much emphasis on portfolio management. Maybe for lack of exceptional European references, not having enough knowledge of how to do it, suboptimal historical industry heritage, or lack of portfolio depth. I think this is changing lately though. Moreover, a great investor needs superb discipline to know when to invest and when to get out without being too dependant on signalling and emotions, a good reputation in the ecosystem via strong personal network that can provide high quality access, and ideally some operating experience. Also, some stuff that people don’t talk about that much is just giving back to the ecosystem and helping others - that is a great way to obtain a sound foundation to become an investor since in this VC world everyone knows who adds value and who can destroy a company.
Regarding firm building, I believe it is even more complex. We find a strong dichotomy here. Usually the individuals that lead the creation of a venture capital firm have strong personalities, and to be honest it can be necessary to thrive in this type of industry. However at the same time you need to be really generous for the firm to grow in the long term, since you’ll need that other team members augment their responsibilities to be able to grow beyond the fund founders and scale up your value. Yet sometimes people with such strong personalities lack this generous side. The beautiful thing about firm building is to evolve beyond the founders while keeping up with the high quality, thus avoiding dependance from a few figures because everyone can have a bad day or simply lower their activity, and consequently mitigating risks. A great VC firm builder is able to see this and render a healthy balance between VC founders and the rest of the team. Additionally, to me there are other factors that are interesting such as: seeing how the firm is built beyond exclusively investing and into providing support to portfolio as well as the ecosystem as a whole, or being able to have multiple strategies that can help them evolve with the market and capture new opportunities along the way.
I strongly believe that optimising the execution of this “double punch” together with the vision of building more firms which are sustainable in the long term, can help European players attract bigger LPs.
8️⃣ What advice would you give to new emerging managers?
It was never easy for 1st time teams and today is not different.
We are in a worse situation for new emerging managers than 2 years ago due to the current macro context, lots of LPs are overexposed to the VC asset class, and/or have low liquidity for new commitments. But on the positive side I’d say the LPs have more conviction in the asset class per se.
I’m saying this because first of all, it is very important to read the market very well. Since I got in this sector over 15 years ago, things have changed a lot. Peripheral markets are much more developed, we have more firms and proposals than ever, and more people is knocking on more LP doors. This is good but it also increases the need of having a very unique and differential proposal. Being a digital generalist is not enough anymore. Thinking “because we are a good team we’ll raise a good fund” without a unique proposal, I don’t think is a good path to pursue in the current period. For a new emerging VC fund manager, LPs could be more interested on very specific proposals targeting new segments that can have potential and where there are few competitors positioned. Fresh air and renovated drive is the way to go. For instance, we are seeing a lot of activity in climate tech and its derivatives like blue economy, circular economy, or other thematic funds. Also strategies around social impact where the investment thesis include not just financial targets but also impact ones, can add a new layer of attractiveness for LPs.
That being said, there are a lot of different types of LPs, and some of them will continue to look for established firms, so get used to roadshows and rejects since it is the daily bread of a 1st time VC founder. Still keep in mind that there is quite a lot of money out there and more LPs than it could seem are increasingly open to bet on new teams that they find exciting. As a new manager, you need to constantly take the pulse of the market, have your thesis aligned to it, and then understand how your value proposition fits the LP - you need to tune your message to your LP audience frequency as much as possible. Some will hear you out and others won’t.
And finally, do not be afraid. If it works out, that’s great. But if not, or if you have to make any change such as reducing your expected fund size or asking for an extension of your fundraising deadline - do it. People will understand the value of trying and failing, and sometimes closing something smaller if you are able to execute with good performance can be more valuable in the long term.
9️⃣ Lessons for young people who want to break into the technology investment world?
In the first place, it is important to be mindful about the fact that everything depends on the situation of the person and the passions this person has.
From that starting point I’d like to highlight the following elements:
Education. I’ve seen a lot of different backgrounds but my recommendation if you want to thrive in our industry would be to study a degree close to technology and later on touch a bit of business/finance stuff. If somehow you didn’t do that when you could or you don’t want to pursue this path, get exposure as startup operator.
Privilege. Again even though you can see lots of different people in the game, I think we have to be real and accept the truth that the ecosystem tends to favour those with a privileged background. So if you are an outsider and you have no links to the industry (like my case when I started), be aware of it and understand that you’d need to have a stronger and more focused CV.
Actionable passion. Evidently success in startups and VC is not an easy path, but there are no excuses - specially right now that there is so much info available out there. If you truly have a passion to make it, increase your exposure to the learnings that can get you where you want to be, and absorb everything you can. Maybe you’ll come across some closed circles since areas like venture capital can be tough to access, but right now you can learn tons by reading great sources like this Views newsletter, listening to the right podcasts, going to events, and following key industry people in social media. Access has improved quite a lot lately and if you take action on your passion, your odds will increase more than you think is possible.
Fear management. Everyone has had to fight with his own fears at some moment in his life. Impostor syndrome, feeling unworthy of being given a great opportunity, believing that you shouldn’t reach out for help or advice because it is going to be awkward or embarrassing - you name it. Accept the lack of comfort and learn to improve the management of such emotions and thoughts so they don’t work against you.
Fundamentally, the environment where you come from will have a notable weight on you, and depending on it your journey can be easier or more difficult. Nevertheless with a fired up drive and working very hard, you can get far.
Big thanks Oscar for sharing your views with us!
Big thanks to you, reader, for your time and interest!
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