Meet AlpahaQ - They Are on Their Way to Becoming a One Billion Euros Fund of VC Funds

ABOUT THIS EPISODE

Executive Summary

AlphaQ is a new fund of VC funds, headquartered in Berlin. They are not only raising money to invest in VC funds, but they also swap shares in existing VC funds for shares in their Fund of Funds. In our interview Stephan, the founding partner also elaborates on their investment strategy.

"Over the last years venture capital has outperformed most other investment classes, but now we see a correction in valuations." Stephan Heller, Founding Partner AlphaQ 

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"The goal of one billion is only the minimum size for us to list. Our earliest listing window is in 2026." Stephan Heller, Founding Partner AlphaQ 

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Welcome to start up bread, and that I own your podcast and Youtube blog covering the German startup scene with News, interviews and live events alone. Welcome everybody. This is Joe from start up bread, Todel your start up podcast in Youtube block from Germany, as well as to words first Internet radio station dedicated to startups and take companies, called startup dot radio. Today I have Stephen here with me, who is the founding partner of Alpha Q, and that is a little bit uncommon investor, because those guys are looking to raise a one billion fund of Venture Capital Funds. There will be established as an AVERCREAN entity. A lot of Kiki Fintech talk. Don't worry, we'll get through it. First, I would like to welcome you. Hey, Stefan. How you did by don't thanks for having me. Super excited to be here. Yeah, and having a podcast and radio show is something very cool, very excited about it. Yeah, totally, and your interview will, of course, go into our Internet radio station in the investor's corner. So don't worry, it will be on air for years. But at this time, and I would like to comes start up or Evencom the easiest and most efficient way for startups, investors and corporation partners to connect and to find each other. Go down here in the show notes and register for early access that set. I have been looking through your linked they profile and of course it will be linked in the show notes, and I've seen that you got around quite a bit with a studying right. Well, yes, that's how I started. I am initially I was born in Munich but then moved to the UK when I was fifteen to boarding school. So I kind of left my parents house very, very early, finished school and in the UK and then shot at my Batchel and Vienna studying communication, science and business, and then later did my master at French University called EESCT, where I spent one year in London, half a year in Paris and half a year in Berlin, where everybody who doesn't know Vienna. It's totally worth a visit, especially before Christmas. Right. Absolutely, Vienna is a great city also to study compared to Munich, especially the real estate prices are still relatively fair, so you get very nice lets, which is a very important point for students. Yes, totally. Plus, I would end if you plan on doing vacation there, try to avoid the very hot month, July and August, when you can't deal with heat, is but it's much, much better than, for example, Rome, but not unless it can get very hot. Their personal...

...recommendation fall spring or shortly before Christmas. Now that we made a nonpaid advertisement for the city of Been Vienna, let's talk a little bit about what you did. I'm the first noteworthy stop I have is you've been actually working for group on. Yes, so my initially, I started my career after my university and management consuliding work for Rollinberger and a private equity fund later and then was recruited by rocket Internet in two thousand and eleven and through rocket I joined group on in the crazy days and moved to London and, yeah, experienced the whole daily dear growth that it's very similarizing to how it must feel to work at gorillas or any of the quick commerce startups, because we were scaling like crazy. We opened up forty two countries and nine months, grew to fourteen thousand employees in that same period of time and then, yeah, I spent four years there in total, had to scale it down, unfortunately. So this whole roller coaster was very, very, very deep for me. The experience. And Yeah, that's how my career started and that's how I started and venture. And I see that you found it. Two companies, at least one of them, maybe vaguely familiar for people who've been listened, think, to our startup views for quite some time, because you founded the watch mastercom and later Finn Compare, and I'm a fan of the good old stuff. So can you talk it just tiny bit about what watch master did and what you did there? Sure so. In two thousand and fifteen I left group on, I moved to Berlin to start my first start up, watch master. I did it together with some colleagues, former colleagues from group on, and the whole idea was that watches are really high priced item, but they don't really have a great secondary market, right. So it's almost as expensive as a car sometimes and it's really hard to sell right. So it's very easy to buy and sell use cars, but it's actually back then especially, it was really hard to buy and sell used watches. When you went to like a physical store. You always felt a little bit ripped off. The people they are and really trustworthy, necessarily. And online to sell your own watch on Ebay is also kind of risky. A then you're online with your full address, with your name, and then there may be a watch for tenzero euros or more, and suddenly people may stand in front of your house and, yeah, they may not be so friendly. And so the same is true, however, for the buyer of a watch over ebay. They don't know if it's authentic, and so we thought with watch master we can solve this problem by building a vertically integrated marketplace that allows buyers and...

...sellers of watches to have a trust that third party in the middle. So watch master is buying the watches and getting watches from private individuals, they do refurbishment or syndication in house and then they sell the watches on with an additional guarantee, therefore providing trust to the buyer that the watches authentic, that it works, etc. And Trust to the seller that he will actually get his money at the end of the day. And Yeah, so the the bitzness are still around. I did a secondary. I'm still a shareholder there. Watch master did actually very well during covert as you can imagine, so it has grown significantly. I don't know exactly where they are and revenue, but I don't. Yeah, probably close a hundred million by now. Yeah, so a it's been growing very, very fast and very well. And in the early days when I was still running it, we had the problem that we were buying the watchers on our own balance sheet. So it was really working capital intensive. By now it's more a commission model. And this working capital we were always comparing different financing offers from banks and, as you can imagine, working with banks and being us back then still a very small business. Yeah, we were doing maybe two three million a month in revenue. So the banks always look down to us, and so it was really like never really a yes or no, it was always like a maybe. So you kind of had to send more and more documents, you had to go to physical meetings with them to was really a strange process, I've thought. And so I thought, hey, why is they're not a check twenty four for see financing, and there was the idea for think compare for my second start up. So then I left watch master and started think compare really with that thought in mind, to help, seems, find, compare and close the best financing solutions. And so think compare then, yeah, there's over two hundred bank partners. Many thousands of SEMAS were financed through it and we sold to business last year to the folks bunking group. Unfortunately, think I'm beddn't fare so well during covert. Covert wasn't that great for financing businesses, at least for us, because we were heavily depending on traditional banks financing our clients. And Yeah, in the beginning of covid most lending was stopped and also a lot of public money was as subsidies, was fueled into the market as very low interest rates. So that that wasn't there great for us. But we build a big, big software platform over the years that was really relevant to a lot of brokers and financing advisors and banks. So that's why the folks bunk group, one of Germany's largest banking groups, saw a big asset in the platform and in the business that we've built, and so we managed to kind of, yeah, find a new home for the company, for the employees and especially for the customers, to continue that journey as well.

And Yeah, for me there's this meant I didn't want to be part of that sort of asset being sold for me my career. I think shouldn't shouldn't end in a bank. So I left watch mass operationally. About a year and a half ago I joined Intel. JOB OFFER FROM INTEL TO RUN THEIR EARLY STAGE START UP activities across Europe. Bit of an accelerator for them called intellignite, focusing on deep tech startups pre series a and then has been very well received in the market. We've done two batches of twenty startups with really, really great feedback. And in parallel I was working already on Alpha Queue and, as you can imagine, building such a large vision and building a fund of fund out of nothing is a big, big risk and big journey. So obviously at some point I had to leave Intel, and that point happened at the end of February and now full time working with my partners on Alpha Queue. We've launched the Fund, we've done our first investments and Yep, the cat is out of the head now, really, really cool. I have a few pieces of information, but I did not want to interrupt you. You've been really on the roll there, and so first you've been talking about the the the price of a car. I actually saw a watch, a risk watch of Class HOUTER, which almost retail for the price of a house, so very expensive there and I have to admit the people who are working with those wrist watches every day, their patients, is incredible as but taking them in part, but especially I admire that they can fit in together again at the end, and it's the best skill ever with very interesting. What you say right, because if you're building text startups, usually the most let's say, the most interesting people you need to manage a usually developers. Yeah, so they are. They're also special. And if you have to build a watch business, we at some point we had fourteen watchmakers working at watch Mars. Then they're we're all in Berlin and these watchmakers they sit in front of these tiny, tiny devices the whole day tinkering and they are putting them together, taking them apart, not losing a single piece, luckily, but it's a crazy job. Yeah, I mean it's a it's a very different skill set to what I can do, but the people that do it are fascinating as it's a very cool, cool job and super interesting also to learn about the details and the functions of a watch. I actually when you've been talking about this. Yes, that's totally different, but I had one question. I would imagine the people who are sitting there. It's very quide and you can hear the drop of a needle in those rooms. Absolutely it is relatively quiet, but some of the machines they make noises. So it's a factory workflow. Think of it that Bay more it's it's yeah,...

...it's really there's stuff going on right these machines. is like cleaning machines as little tours, and a lot of them also make noises. So it's not not fully quiet. And when you talked about thin compare, I remember that you talked about check twenty four, which is like the like the the number one comparison website to compare everything from credit, as he said, especially for only for retail, to instrum us us to cell phone plants, even credit cards and everything. So that was the reference there. And you talked about folks baton rife eisenbank. Basically they are at one point I'm sure there was more than a thousand of them. They're the very small town local banks helping to fund finance, keep current accounts and all of that stuff. But together as as a group they're really, really big. So that's what I want to get out of the way. And now we can talk about Iq like thirteen minutes into our recording, but that's new record and, as I said, you were on a roll. I didn't want you to interrupt you there. And let us take a little bit, a few steps back and try to dam it down as easy as we can. I would first say usually the construction is there's one person, he gets a lot of limited partners, meaning the people give him or her money. Then she invests also in this fund, and this is a VC fund, that then, in the simplest way, invests in startups and those people who give the money, the limited partners. They can be like insurance companies, pension funds and stuff like this, but it can also be other funds who do nothing else then invest into those funds, and that's what you guys are doing right. It's sometimes called an umbrella fund. Yes, that's correct. So we are we are from. If you look at the value or the value chain or the chain of money in venture you have to start ups. Obviously, they usually the first money they take us from ancient investors and individuals, and then later they're raising usually from a VC fund, a venture capital fund. In these venture capital funds they're all also have investors on top of them. Yeah, and, just as you mentioned, can be large and institutional investors like insurances, endowment's etc. In Europe this is very often the European Investment Fund. So it's half government money that goes into a lot of these funds, but it's also fund or fund again, that invest into some of these funds. Most of the fund of funds in Europe are relative, really small are. So...

...the European Investment Fund could technically be considered a very large fund of fund, but it's a public private construct. Therefore it has a certain, yeah, government near strategy and in the independent world. They're very few fund of funds that only focus on venture capital in Europe. So there is a certain market niche. However, when we started with this, it wasn't really that we said, okay, look, there as the value chain of BC and where's the problem. It was more from my personal experience, as I explained you, with think compare. I started it from my personal experience as an see because I found it really hard to compare financing solutions. Watch master. Actually also found it because I found it hard to sell my vatch or to trade my watch. And I'LL FA QU was also started because over time, me and my partner's we've built up an ancient portfolio, you know, of twenty plus investments each of us. And these startups, they take time and they take a lot of work. Yeah, so you have some winners in there, you also have a grave yard and then you have like a lot of startups that are just like still doing the job. So doing the work, but they just take a lot of time and you have to do your annual reports, you need to do still need to run to the note to re need to read a lot of contracts, and that's kind of a lot of work for almost I thought always as a hobby. Yeah, and so I thought, Hey, this is not really a scalable way to invest money over very long period of time. You need to professionalize this and I didn't want to build a VC fund. So I thought, hey, why is there not an ETF on top of entire capital? That was really the core idea where he said, hey, it would be nice to have just like an ETF structure, something like this, which I can buy over trade republic or my condirect account and on my broker and I can, through that, participate in the value creation that it's actually happening in tack and startups in the early stage and growth stage, so before a company's actually publicly listed and no vehicle existed. And so that's really how we started, and so we learned more and more about the ecosystem, about the LP world, to fund of fund world. I have actually worked at a hedge fund of Fund fifteen years ago in Hong Kong and then internship there, so I knew a little bit about the concept. But yeah, so that's that's how the whole journey started pretty much. I actually liked her headline on the website. Global VC superstars in a single stock. So that means you're not only a construct like a fun to fund of Fund or umbrella fund, but you're also in investment company. That means theoretically, an investment stock company. Theoretically, you guys could be listed on a stock exchange and people can trade in and trade out of absolutely company like any other stock. But the underline value is a actually in those...

VC funds. And I would be wondering who are the people who invest money in this, because I can see from your from your website, that you also enable people who already invested in vent to capital funds, basically to swap, to exchange their holdings into stock of your company. So that would be, I would say, more or less a non cash version. Basically, you get assets and you generally stock for this. But who is who are the people who invest cash in such an undertaking? I would assume everybody who has a big put folio or want to do a versify their risk without skipping private markets. Yes, so, I think. I mean until we can list. It will take some time. Yeah, and I think this is totally fine. To build up the portfolio and to raise funds privately and then listing the whole structure once it actually has already done a large investments and has already started to produce returns is a much more stable approach to list the structure like this versus listing up like box. And I think right now we obviously talk to semi and professional investors. There's a lot of demand to actually invest in venture capital and we have learned that our structure is really suitable to, let's say, at least right now, heavily suitable to two kinds of the of the like range of investors. Yeah, we see that investors that can invest below five million. Yeah, so they can't really invest single ticket five million plus. For them it's really interesting. We can. We can take two hundred P as minimum ticket. So most of our investors right now have done two hundred K to two million in tickets, and these ticket sizes are usually too small to invest into venture capital funds. Yeah, because most we see funds they have a minimum ticket of five million. So if a smaller investor would want to invest into these venture capital funds, they would have to go through a feeder fund structure which individually costs money on top, but they it does not offer the benefit of a fund of fund like diversification, Ceter it's still only one single fund and you have to pay an additional fee. There's some platforms out there that offer this, but it's just an additional layer of fee for still an individual fund. And so for us there's no additional layer of fee and since we are stock co operation, to hand our shares and to do the shareholder management is actually relatively easy and therefore we can take smaller investors below five million, and that's obviously a very big market that is very interested to invest with us. There's a lot of people from the venture capital ecosystem overall, who invested like venture cappy fun partners who have an overallocation into their own funds. They don't have so much liquidity at to invest into...

...many, many funds, and so we are a nice way for them to still participate in the overall ecosystem with relatively smaller tickets. And I think over time we are now already in the first you know, we have finished a fund structuring in December last year and now we've been sort of starting fundraising and launched the fund only last month, so it's very fresh everything. We are seeing that more and more larger tickets are also very interested. So since we have a fun size of a billion plus year, so there's actually no limit, no cap on the fund, means that a lot of investors that want to invest the minimum of fifty million or even a hundred million in tickets, they are very interested to invest through us because they have certain covenants where they're not allowed to hold more than ten percent of a fund. So if they invest a hundred million, they can't hold more than ten percent of a fund. There's at least we don't know, any early stage or growth stage. We see fund in Europe that would allow for this kind of structure. There are some in the US, but in our point of view, if you are eight billion VC fund and exclamation marks, then you're not that exciting. We really focus on early stage and early growth because we believe that that's where most of the value creation is actually happening and that's where most of the fund of fund work should also be happening, because it's the most fragmented market with the highest complexity, and so we do see that there's a lot of these very large asset allocators now interested in us, and we end we're talking to a lot of them to allocate, you know, fifty million, hundred million, two hundred million tickets, and so this is this is really the two ends, that's say, of the spectrum, where you have five million and below and then fifty million and above, where you have a lot of lps. So just currently looking to allocate more and more to venture because over the last year's venture capital has actually outperformed most other asset classes. We've seen now a correction in valuations in the market, but also in the public market. There so there's not so many assets out there where there as at allocators can allocate to, and so they're driven more and more into the alternatives and into the private markets, where venture capital is just now, as an asset class, slowly starting to mature and becoming big enough and relevant enough to these large as at allocators. Yeah, before it was almost a cottage industry, which was very small and ascent and now last year it was a six hundred billion global VC market that will grow to a trillion. So it starts to become meaningful to these insurances and endowments, and that's the opportunity we are tapping into. You're already set. Your target size. Assets under management is one building euro, which is roughly one point one building e as dollars, and you've been talking about ticket sizes of one hundred to two hundred millions. Are you guys actually going above this one building? Yes, so the billion is only...

...the let's say, the size for the potensial listing. Yeah, so, if you think of it that way, the whole corporate structure is built like this so that we can list it, and the earliest listing window is two thousand and twenty six, because we need three fully as financial statements. If you're not taking any shortcuts and we don't want to because also there's these four years. They give us enough time to actually raise the billion and invested also, right you also need to manage the investing and you don't want to have too much dry powder lying around and want to be very capital efficient, and we believe that this is a realistic time frame. If it takes a little bit longer, it will take a little bit longer. That does not make any difference to the to the fund and the underlying economics, but it's a prerequisite for listing. So for us, in order to list it in the retail market, it needs to be out of a meaningful size in order to get into certain market segments, but also in order to provide enough liquidity for investors to also offload, you know, twenty million truns without the stock price being influenced to heavily. And I think this is really important in order to really make this a success, not to rush it and take it really step by step, and so that's why this billion is sort of the threshold in order to even pursue a listing. But then, through the evergreen structure, our gains actually recycled, so they're reinvested, creating a compounding effect over time. Yeah, in this compounding effect is actually very, very meaningful for for us because, if you think of it that way, our target I are and all sort of portfolio right now is actually Abuff Deb you have a twenty, five, thirty percent I are. That will become a realized ir at some point, yere. Right now it's only paper money, but after year five, latest year seven, this Ir will become an annualized return and annualized cash flow. So if you just stayed that billion, hypothetically you're producing three hundred million the first sort of in five years time, as returns they get reinvested. You have one point three billion and then again the next year you have thirty percent returns and this will obviously increase our asset size and at some point we will pay dividends. So this is a way for our investors to make actually returns. It's not just to hold the stock and have a have a very nice green chart in their in their brokerage account, but actually by getting paid back dividends. Yeah, so this is a this is really really important to bridge that get from public to private as a classes and us. You've been stating that you need to invest in fifty to sixty funds, venture capital funds. We already we already know that you're targeting early stage, I would say seed, between let's say serious, B, Serre C. Yeah,...

...go up to sometimes d yeah, it depends on the countries, I would say. Right. I don't think there's like, you know, the these definitions are very fluffy in some cases. Yeah, I think we what we look at is anything just below the private equity threshold. Yeah, so as soon as venture capital starts to mingle with the private equity fund structures. So where you see the companies not growing that fast anymore, becoming profitable, where sort of lbo structures are sometimes used or debt is used as a way to to acquire some stakes of these companies, that's where we don't want to invest. Yeah, we really want to invest into these gross companies, into these gross phases when the beginning you obviously have certain execution and technology risks and then later you have more, you know, market risk about says go to market strategies and growth. That's where be as founders, feel very comfortable to invest because we know these journeys very well, because we have built startups in these in these spaces. Yeah, and I think that's that's also very important that we understand the funds, we understand the startups, we understand how these journeys really go from and how hard it can be, and that also makes us a value at a p to the funds that want us to partner with them. According to you website, you already have fifty fund secured. Can you tell a tea names of asset managers? We seize you already invested in? Sure, I mean we have run our first investment in White Star capital, as it's a US based fund that is moving more and more also to Europe. There they are planning to open up a Berlin office. We are actually the first German at that they've accepted. They were highly oversubscribed fund. I would say more on the established site there. In our investment strategy we follow a barber model were, on one hand, we have established here one funds have at least three fund generations of proven top quarter track record, and on the other hand of the barber we have emerging breakout DC's, which are usually first time or second time fund managers, but not first time investors who are just getting started with a new concert with a new fund, usually in a specific technology sectors, so focusing on thin take web three or sort of certain emerging technologies. But it can also be larger setups like, for six eight capital or something like this in Germany, which is more generalist fund but of a very experienced team that has built multiple successful funds before. The second fund we've done is called nucleus capital. It's a MICROBC on that emerging manager side, focused on food tag synthetic biology. So the GP has been a very successful investor at Atlantic food laps and then decided to kind of spin out...

...and start his own fund. That's a very common, common story that you have these principles who don't get partner, who don't have enough carry etc. But they should do all the work, they get the deal flow, they kind of know their way around and so they'd some point decide to start their own fund. We see this all over Europe and actually over the last five years we had over three and a half thousand new funds created across Europe and this emerging manager bracket. And so this market is extremely fragmented, but this market is where the outlines are created. Yeah, this is where you can have a hundred x Return Fund, because these funds are sometimes only ten million large, and that's where the's large. As a dellocators who invest into us, the hundred million single ticket investor has a problem because he can't allocate to the ten million fund because it's just far too small and it's far too much work to scout them, to look at it, all of them, and so that's where where we common as a fund of fund to bridge that that gap. aread in your materials that you that you will have approximately thousand two hundred startups in you put fully. Is that about right? Yes, yeah, it's about right. Also mean the fun size of we say between forty and fifty funds? Yeah, I mean in terms of assets, in terms of monetary assets, we are locating fifty between emerging and estepish funds. But for the established funds the ticket sizes are usually larger. We do invest from one million to twenty million. So this is like the range. We never do more than ten percent of a fund and so we will have, over time, probably more in terms of volume on the emerging manager side. Yeah, because just the ticket sizes are so much smaller. But yeah, we believed that venture like smallest beautiful. So funds have to stay small to a certain extent. We don't believe that, you know, a seat fund of more than four hundred million, which is sort of the largest funds we see and see currently, that they will be hugely successful. Yeare some of them, maybe a ventures always, you know, they can also be good outlines in there. But I think the bigger the funds get, the more difficult it actually will be to hire more partners, to grow the team right and to spend the same amount of time with the startups, and especially in early stage, is required to work with the founders and not just be money to help the founders take the right decisions, to sit on the board, to to to help them on their journey. And so we believe that most of these funds should remain relatively small. So we don't invest in funds that are bigger than one billion as an example. And Yeah, most of the microbe sees are below a hundred million and some are like ten millions. So very, very small, and I think they are for us to have a very concentrated portfolio is really, really crucial. We don't want to be it in...

...index because we see still operates based on a power law. So the top one two percent of the portfolio will be the heavy outliers, right, and this is this is really important. If you have one single fund, a normally see fund invest in between fifteen and twenty five startups and usually there's two three really great outlies in this portfolio and the rest you can write off. Yeah, the good fund managers still find exits for the other startups, but the really great returners that give you the five, six x on your money, he's are only a very small percentage of this whole portfolio. And so if you have forty, two, sixty funds, you're still very concentrated in a in venture and the early stage and growth stage category, but you're likelihood to hit these outline startups obviously increases significantly with the portfolio size. And so over that portfolio we have exposure to around to yeah, one thousand, two hundred to two thousand startups. Depends a little bit over time. But that is obviously hugely important for risk diversification and for some investors it's really important for deal flow, etc. For later coinvestments and direct investments, if they want to double down on the winners of this portfolio and invest later in really late stage round or pre IPO. I understand, but I'm afraid many people who are not in te investing or venture cattle aren't already turned off by now. I would just like to add that apparently you have very good supporters also on your website, including floori and Heineman, the found of Project A, or also maximilian timetal, the Co founder of and Twenty Six. So it looks like there is more good news to come. Everybody you'd like to learn more, they can go down here in the show notes. They will be a link to your company website. Are you currently having any restrictions on which investors you can take, since they're all professionals, or most of them are a professional investors? I will assume that's correct. So we can take all professional investors. We do have investors, mostly from Europe, but we do already have US investors. We have have we have a really strong international network where we get more on Mont investors interested and so yeah, there's no geographic restrictions. Since it's a German Stock Corporation. The taxations also very straightforwards. There's only capital gains tax and wherever the investor is based, so there's no taxation in Germany, and this is also hugely important from a corporate structure for a lot of these institutional and professional investors. Great is so only think left for me is looking forward to speak with you a few years down the road. Best would be before the IPO. Would love to thanks so much, with a pleasure talking to you. Have about that's all the folks find more news...

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