Cem Sertoglu On Building The VC Fund With The Best Performance In European History

After successfully launching and exiting his own startup, Cem Sertoglu has gone on to manage a 200M Euro fund. From which he is looking to write other entrepreneurs their first $5M to $10M checks. The venture, Earlybird Venture Capital, has invested in startups such as TastyUrban, Nosh, and Ariceum Therapeutics.

In this episode, you will learn:

• The successful investments Cem and Earlybird have made so far
• His top advice when investing in businesses
• The technical talent emerging from this region

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About Cem Sertoglu:

Cem Sertoglu is an entrepreneur and venture capital investor, focused on technology ventures in Turkey and CEE since 2006. He is currently a Co-Founder and Managing Partner at Earlybird Digital East Fund.

Previously, Cem was the Founder & CEO of SelectMinds (now a part of Oracle) in New York, the global leader in social talent management software.

One of the social software pioneers, the company’s solutions enable the human capital management programs at some of the world’s largest companies. Prior to founding SelectMinds in 1999, Cem worked as a Strategy Consultant in New York for six years.

Cem holds a BA in Economics from The University of Texas at Austin.

Connect with Cem Sertoglu:

• Crunchbase
• LinkedIn
• Bloomberg
• PitchBook

Read the Full Transcription of the Interview:

Alejandro Cremades: All righty hello everyone and welcome to the dealmakerr show. So today we have a very exciting entrepreneur entrepreneur you know turn the investor but definitely on entrepreneurp our hard. We’re going to be talking about his journey. We’re going to be talking about hunting unicorn so all over the world I mean he’s had.

Cem Sertoglu: Can.

Alejandro Cremades: Incredible success already and I think that we’re gonna be learning up well about pattern or recognition when it comes to finding the winners so without furtherdo. Let’s welcome our guest today Jem Sertolu welcome to the show.

Cem Sertoglu: Thank God Andro Great to be here. Thanks for having me.

Alejandro Cremades: So originally born and raised there in Istanbul how was live growing up, give us a walk through memory lane.

Cem Sertoglu: I’m I’m a very lucky person Istanbul was a great place to grow up when I was when I was young I’m 51 so I grew up in turkey in the 70 s and eighty s and. Then left after high school to go to university in the us where I got an education in in economics at the University Of Texas and Austin and then ah jumped into a career in initially met him a consulting and then caught the entrepreneurial bug. And haven’t really looked back.

Alejandro Cremades: And how do you get the ah entrepreneurial buck I mean I’m sure that coming all the way from turkey to the U s you know to the University Of Texas there where you studied economics I’m sure that that was you know, kind of life changing and you know getting exposure to that american dream and and and all of that stuff. But. But how do you think that entrepreneurial spirit you know god they got triggered.

Cem Sertoglu: Um, it was I think the euphoria of the ah the thought kambu um so I started as ah as a young professional in 93 and after a few years ah you know the. Excitement around the internet and how it would change the world and the way we work was just ah, proliferating everywhere and I was very fortunate to be working in a couple of engagements as as a young consultant that ah utilized. Ah, internet technologies and how I had a chance to see how the internet and web-based applications would be used to take information and help decision making around enterprises and it gave me an idea that I just turned into a business plan. Ah. If you remember back then you know, um, again, there was this time of optimism where you know every idea every technological breakthrough vision would get sport so we were able to raise some friends and family money. Um I left my company with 2 of my colleagues. And started a company called select mines which was one of the pioneers around social networking and how um, the social networking notion as we know it today could be valuable in in the professional domain.

Cem Sertoglu: Ah, so if you read my first business plan atlemins. It would read like what Linkedin has now been able to accomplish. Of course you know? Yeah we’re talking about ninety nine so little did we know that just as we were getting up and going. You know came March of 2000 with the with the big Nasdaq crash and all of a sudden you know everything was just you know came coming to a screeching halt. Um, we had a few term sheets which evaporated from our desks and we found ourselves with a young company, a fledgling company. That would run out of money in a couple of months so we had to pivot into an yeah enterprise software business model which allowed us to survive. But of course we didn’t become Linkedin. Ah, but the story did end well ah you know the cult. The company was ultimately acquired by oracle in a nice exit I exited a. You know a couple of years earlier than that in 2005 and then that enabled my my journey as ah, as ah as an investor following my journey as an entrepreneur.

Alejandro Cremades: And and in in this case I mean obviously going through these say ups and downs and through that the dotcom bubble and then.com bust what do you think you know that taught you about understanding cycles when it comes to markets.

Cem Sertoglu: Um, one thing that was very apparent was you know when it when it when everything looks great. It’s rarely as great as it looks. But when everything looks bleak. It’s rarely as bad as it looks as Well. So I think it tempered my um. Just general emotional state as ah as a founder observing you know this this oscillation and how market sentiments can fluctuate and now as an investor I think I’m able to transfer that. Same experience into into our portfolio companies and the founder teams that we work with.

Alejandro Cremades: But hey first company first exit pretty good now now give us how I walk through ah through a journey here of of transitioning into the investor side of the table. So so how did that come about.

Cem Sertoglu: Um, once I sold my shares in select mines in 2005 ah, my family and I decided to move back to istanbul initially thinking. It was probably going to be for a temporary transition or temporary relocation. But when I moved to Istanbul um I started to meet young turkish consumer internet companies because that was the most dynamic segment when I moved back in the in the sort of mid 2000 S9006 type timeframe. And every company I started to meet I found myself getting very excited because I recognized First of all, you know the size of the economy. Um, you know Turk Turkey is the seventeenth or eighteenth largest economy in the world with ah $800000000000 a year in economic activity and and gdp. Um. And I felt especially for business models that would require local execution. The eventual winners would perhaps come out of the local champions as opposed to a global company swooping in from the top and capturing market share I felt that. You know some of these some of these local companies that needed to operate locally but would ultimately win and of course in the economy in ah in an economy size of turkey’s economy. The prize would be large so I thought that these would be great investment candidates of course. Ah.

Cem Sertoglu: I’d never invested in anyone else’s business at the time so I had to first of all, you know, learn about the mechanics of how it works of course I made quite a few mistakes. But I’m I’m very very lucky in that you know some of my first investments in that period turned out to be the big winners. Of ah that first wave of turkish internet economy and and also some of the biggest exits which turned out to be fairly lucrative. Um well initially I was first of all I found myself like 2 ah.

Alejandro Cremades: And when you say mistakes what kind of mistakes.

Cem Sertoglu: Risk averse and pessimistic about what could happen to these companies. So I was trying to manage my check size and and keep it dynamic in that you know I I was writing bigger checks to opportunities that I felt would be safer and smaller checks. For higher risk opportunities in hindsight when I when I when I look back that didn’t turn out to be the case I should have kept a constant check size when I was making those you know early age of investments. That’s that’s one of the learnings. The second was how concentrated. I was in my initial personal portfolio I I felt again I was very nervous writing these first checks. You know my you know hard earned cash sitting in the bank. You know writing a check to ah to ah to a company that I’m just starting to meet is ah is is a difficult obstacle to overcome. So I was quite slow and then um I ended up making about 15 small investments over the course of about 11 years and in hindsight when I look back I’m I’m horrified about how concentrated that portfolio was. I should have probably had been deploying at twice or 3 times the pace.

Alejandro Cremades: And then and then also um, thinking about those investments. You know why? Why do you?? why? Why should you know anyone? you know that is looking at doing Angel investments thinking about those investments more like us like as a writer of versus you know, like maybe the typical investment that you would. Make on a public company where you’re checking the stock fluctuate a on a daily basis.

Cem Sertoglu: No great question. Well I think I think every angel investment in a young tech company is is essentially betting on a miracle because I feel the default state of these young companies is that they will fail. Um. You know in a world where you have where you have a Walmart you know there should never have been an Amazon in a world where you have Yahoo. There should never have been a Google but the founders behind those companies they made miracles happen and i. Think you know every every startup is in a way a miracle because they’re out there gaining market share from ah from an existing company an incumbent with ah a lot more resources to fight them It’s just you know of course there’s many reasons behind why you know the incumbents can’t necessarily innovate out innovate these young companies but I felt when I was writing these early checks that. Each check as I was writing that check was also a write-off that I would never see that money ever again. That was my yeah, my state of mind at the time.

Alejandro Cremades: You and they how how how are you able to get to that state of mind because I mean you you were you were talking about it earlier I mean is the hard money earned that you have in your bank account I mean thahggut you’ve worked so hard to get so what? how do you? How do you? How do you transition to be at in that state of mind right.

Cem Sertoglu: Um I think it’s ah it’s digesting the way that these young companies are promising to create value and understanding what what are some of the drivers. Of of that value that they’ll ultimately create I think in in some of my early investment ah experience in in some of these real cases. It was a network effects I felt that you know my my first investment was at the time the leading turkish e-commerce platform similar to an ebay and I felt. When I looked at the metrics that this company was was enjoying at the time I felt well it’s extremely difficult for anyone else to come and catch these guys because you know every time you know the the n plus 1 seller that arrives on the platform. Makes the platform more valuable for the for the customers for the buyers and then the you know x plus one customer that arrives makes it more valuable for the sellers. So. It’s just that it becomes a virtuous cycle that then creates phenomenal network effects and it’s very very difficult to overcome that. So. In fact, some of my some of those initial checks I was probably feeling very confident about ah about these outcomes I felt that you know some of them ended up looking like no braininers to me that that you know these companies had ah had actually a very large.

Cem Sertoglu: Opportunity to to capitalize on if they just continue to execute the way they were executing without the need for any any big breakthrough.

Alejandro Cremades: And obviously ah, you know 1 thing led to the next and an early bird comes knocking. So so why going from doing angel investments where maybe you have like more your independence you know you’re not reporting to anyone else to outside investors. Why you know going into the Vc.

Cem Sertoglu: Great question. Um, in fact I actually had a few conversations around raising a fund or joining a fund previously and decided that that wasn’t very attractive at the moment I was very happy with the with the setup that I had going which was. Just investing my personal capital and then partnering with other partners when you know the the transaction opportunities were larger than my ability or appetite what changed in 16013 is the realization that ah for. Every single one of our portfolio companies when we required follow on capital anything that’s beyond the five ten million dollars capital requirement for these companies we had to go to global investors who. Didn’t necessarily understand or appreciate the nuances that had to do with our region and that made me nervous in that you know should that capital stop at at any point there’d be nothing in the region to replace it. Which then made me a bit quite a bit concerned about my own portfolio that you know some of these companies would go bankrupt but also made me very excited about the opportunity to essentially become that source of capital for that. Ah, you know first proper series a check of five ten million dollars ah

Cem Sertoglu: 4 companies that are coming from our part of the world which for us is what we call emerging Europe turkey and Eastern Europe and ah which is a very underserved geography also very fertile with technical talent and to show up in this region. Ah, with a one hundred and fifty million dollars fund to focus on that sort of five ten million dollars iitial ah initial check as a lead investor to me looked like a very ah, very strong opportunity and ncoincidentally we were helping one of our angel investments. Ah, my partner aran and I were helping peak games raise their series b round um and ah a german firm called early bird came and my now partner Roland ended up leading the b round of beat games and ironically that has I believe become the. Biggest venture returner in german history for ah for a german fund was the peak games investment in in turkey um, and when we started to chat with Roland about the opportunity that we were seeing in our part of the world. Ah, he chimed in with his excitement around Eastern Europe the fantastic technical talent that he comes across you know across eastern european hubs and we thought we agreed that this was a great opportunity and perhaps we should join forces so we built the early bird digital east fund together.

Cem Sertoglu: Which came to life in late 2013? Um, as an independent focused regional investor under the early bird brand collaborating with the other funds on the early bird family. But managed fully independently and separately.

Alejandro Cremades: Now raisingcing money for a fund is a little bit different than raising money for a company I mean it took you guys a year and a half I mean I’m sure that the ups and downs. You know they’re raising the fund were real.

Cem Sertoglu: It was and I find that you know you mentioned pattern recognition earlier andro and I think the the venture world is built on pattern recognition and there the the pattern that people have been used to is. You know, first time funds emerging managers start out with very small fund sizes. So when we came to the market with one hundred and fifty million dollars fund idea. We were constantly being told that oh that’s too much for a first -time fund on the other hand. To execute our strategy that felt like it would be the minimum viable tithe because we were looking to focus on that series a gap in the region. So it took us took us a long time to raise. Um, you know we’re. You know, very fortunate to have a few developmental institutions that came in as cornerstone investors and and believed our idea and supported us and then lots of friends who who also joined as. Slps in that you know in our first fund first was you know that came to market in 2014.

Alejandro Cremades: And obviously we see the rest is history. One hundred Million Euros now two hundred Million Euros so I mean things are starting to work in the right direction now there’s one of the investments there that that was a smashing hit and that was ui path so give us the ah. The story there of of of you ipath. What happened there.

Cem Sertoglu: Um, I’m glad to and our story with u ipad almost plays out as an as ah as a perfect case study of what we base our strategy on so ah, uippath is a romanian origin company. We met them in 2014 with our with our young one hundred and fifty million dollars fund and ah Daniel dinnesh the the founder of the company was ah probably the most ambitious founder I’d ever come across in my in my career and um. You know we decided to back his or u ipad seed round with a million dollar check we shared that ah seed round with with 2 other investors with ah credo and and seed camp out of London. Um, who came in with half a million and one hundred thousand but we were the lead investor in that first round you know this is a company with 12 people in Bucharest working out of an apartment building. Um, it’s as unglamorous as it gets and it doesn’t fit any ah models. You know that that we’re all used to hearing about the bay area. You know, ah you know close proximity to Stanford and this sort of tone of optimism. Um, you know back in you know, 2014 Eastern European Venture Capital was a.

Cem Sertoglu: And oxymoron I mean nobody nobody would would think of it as ah, as ah as a geography to focus on to invest in in technology deals. Um. And just as we feared. Ah you know a year after our initial investment the company needed more runway and we shopped it around and nobody was interested in taking a look at uipath. Um, we we always joke that every Vc in Europe has has passed on ui path at least once? Um, but so we ended up ah bridging the company’s sort of Extin round at that at that stage. But then the metrics started to show and the picture changed immediately. Ah, the company. Yeah, we we introduced the company to the series a investors which ended up becoming excel out of London ended up leading the a round was a very competitive round and.

Alejandro Cremades: and and and I guess what? what 1 1 thing there really quickly Jim a why I mean everyone was passing on this company obviously as as the metrics you know you know came you know to a solid ah nature or path there. You know you say everyone wants to jump in but before that you were talking about that. The fact that everyone was passing on them and you know I was a joke that everyone in Europe has passed on them. So what gave you guys that conviction that this company had you know all the ingredients in place to achieve greatness. Ah, that you know really led you to say hey you know we’ll back these guys and and we’ll will we’ll extend you know and do a bridge for them so that they can survive.

Cem Sertoglu: Um, it was seeing that they had old ingredients. You know? Ah yeah, we have had the opportunity to see companies around the world both as entrepreneurs and investors and could see that the uipath team lacked nothing. Ah, in fact, you know they were one of the strongest teams we had. It’s just the story didn’t fit. Anyone’s preconception of what a european technology company might look like I mean there had never been ah a romanian european technology company. That’s why nobody was looking there. Um, and you know. I think that preconception still continues. The amount of venture capital available to founders from Eastern Europe is still dismally ah low and the region remains extremely underserved.

Alejandro Cremades: So 1 thing that comes to mind as as I’m hearing you speak here I mean obviously you I was a tremendous success I mean how big of a success was say uipath.

Cem Sertoglu: Um, in April Two Thousand and twenty one the company had an Ipo on the New York Stock exchange that valued the company at over $30,000,000,000 in market cap. And you know the company our investment in the company has already returned more than 11 times our fund size. So I believe that makes us the most successful venture capital funding in european history. So. It’s kind of ironic that that um, that honor comes from. You know a fund that’s focused on this very underserved or overlooked part of Europe so that that makes ah that makes us very proud.

Alejandro Cremades: So so I get I guess to ground everyone that is listening what kind of a multiple on the investment. You know return are we are we looking at.

Cem Sertoglu: Um, the investment return on our ui total uipath investment has been over hundred and thirty times um of of our of our total investment in the company.

Alejandro Cremades: Oh my god unbelievable unbelievable now now 1 thing that that I find you know incredible here is how comfortable you guys are to going into markets that are not as developed when it comes to the ecosystem. So how do you think about. Pipeline and deal flow really creating those channels from nothing you know in in in a market where you know still green. How do you go about that.

Cem Sertoglu: We Follow the talent I feel that our business is really built on a foundation around human capital and one of the benefits of focusing in a defined niche. In our in our case, that’s a geographic focus is that you’re you’re really in a finite universe In our case that means ah our goal is to keep our eyes on or essentially create a machine a radar that is tuned to follow. The 3 to 5000 most talented technical resources in the that that are coming from Eastern Europe That’s that’s the machine that we’re trying to build the wonderful outcome is that. If you’re able to do this if you have a radar that is tracking the movements of the most talented young people in this part of the world. Their movements will tell you a story. Their movements will tell you you know which are the companies that are creating the ah best product managers. Which are the regions or schools that the top software developers tend to come out of yeah once these patterns start to emerge then all you have to do is just observe where that group you know that talented individuals are are really flowing to a great example.

Cem Sertoglu: And a case in point is our fund 2 investment. Ah you know payhok which is built by rustto bosov and his his team his co-founders. Um, they came to us via a referral by their former boss. They come from a company called telaric which I believe is the biggest exit so far in Bulgaria and when ah the teleic founder and Ceo you know called me and told us that ah his star product manager was starting a company an expense management software.

Cem Sertoglu: Company we we were all ears I mean our immediately our eyes turned and said okay, you know here’s an extraordinary person referring us somebody who’s probably another extraordinary person. We should focus and you know lo and behold. Ah, we led the te round at at payhok. Which has now become the first bulgarian unicorn and you know the the only reason we had a chance to identify the company early on is because we try to keep our eyes on where we think concentrations of these talented individuals will will emerge from. Ah, similarly in in our second fund. You know we’re backing companies started by uipath alumni because we think uipath is ah is a fantastic place to to essentially hone one’s ah technical skills and entrepreneurial skills. Ah, once you’ve seen a great tech company built firsthand from the front row then you’re probably more likely to build the next one yourself.

Alejandro Cremades: And obviously a resto on payhok we’ve had them on the podcast. So for the for everyone that wants to hear their story. You know feel free to check it out now on on when it comes to the investments. You know I’ve heard that and and you were you were talking about a pattern recognition. Literally within the first 2 to 3 minutes you know speaking with a founder you’re going to know you know if it makes sense to continue exploring or not what are you looking for in those 2 to 3 minutes

Cem Sertoglu: Um I think it’s those Cliche answers I Think what we’re looking for is one ah big enough Problem. You know I think the the biggest reason why we pass on opportunities is that we think that these are good ideas and perhaps perhaps good companies. Just not big enough for a potential venture outcome. So a big enough problem that’s being solve. Um based on where we focus our investment stage. We try to look for signs of product Market fit. So You know any indication that your solution to that big problem. Ah it seems to. Find its match in terms of paying clients and it’s getting validated by the market response and then we try to look for. You know how realistic your resource needs are in line with the you know next set of ah milestones that you need to. You need to hit ah to continue on the on the company’s Journey So Those are some of the things we tend to look at.

Alejandro Cremades: I Love it now. Imagine you go to sleep tonight and you wake up in a world where the vision of what you guys are doing you know with the early bird the digital East fund. You know it’s realized you know that vision. What does that world look like.

Cem Sertoglu: Um, it looks like you know a world where founders from Eastern Europe emerging europe are essentially met with the the enthusiasm that they are that they see in other technical hubs around the world. Where there is ah a continuum of funds focused on various stages to make sure that these good opportunities ah pursued by these extraordinary founders um are able to access capital because that has been a big bottleneck in in the region. Um, even at our modest size of two hundred Million Euros we’re you know one of the very few locally run focused committed ah sources of capital in the region that can write a you know 5 to $10,000,000 first check.

Alejandro Cremades: Now Imagine if I was to bring you back in time gym and I bring you back in time to that moment where you were thinking about getting into the investment side of things and becoming a investor in startups and you’re able to give a piece of advice. To your younger self. What would that be and why given what you know now before you were to make that first startup investment.

Cem Sertoglu: It would be patience that investments are a long time. You know, long duration game or early stage tech investments I should say are a long duration game and if you do the work. Where you’re you’re digesting the information that you have access to and reach a level of comfort. Ah um, ah, a conviction around an investment decision then you take the action and and make the investment. And then you’re patient because you know if you’re if you’re correct about some of those assumptions you’re making then the world will ultimately follow. You know that? ah you know the same ah loop that you were able to complete in in coming to your investment decision. The world will see that and that that will start to manifest itself. Um, it takes time. Ah, you know, ah you know we are we made 15 investments out of our first fund in 2014 you know as I mentioned it’s ah it’s a home run of a fund. But you know 7 of those companies are still live in our in our portfolio growing healthily you know it takes time. Ah, but you know you reserve carefully, you essentially keep an eye on the commitments that you’ve made to the founders. You keep an eye on the commitments you made to your investors.

Cem Sertoglu: And you know some of the some of that vision that you found yourself buying into when you’re making the decision. Um, actually you know comes true. It just takes time so patience is probably the one advice I would give to my. Ah, younger self as I was starting investing.

Alejandro Cremades: Very profound Jim so for the people that are listening that will love to reach out and say hi. What is the best way for them to do so.

Cem Sertoglu: I’m quite active on Twitter my Twitter handle is c saroglu so it’s my first initial last name or email of course which is my last name at earlybird.com

Alejandro Cremades: Amazing. Well Jim thank you so much for being on the deal maker show today. It has been an honor to have you with us.

Cem Sertoglu: Thank you very much I Andrew it’s been great.

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