Andreas Hofmann, Program CEO German Accelerator Silicon Valley, talked to Florian Leibert, General Partner at 468 Capital and Founder of D2iQ (formerly Mesosphere), about his entrepreneurial journey including what it takes to get amazing investors on board, what role VCs should not be, and why Florian stepped down as the CEO to become an investor himself.
It really goes back to my prior work experiences during the early stages of Twitter and Airbnb, where I solved some challenging technical problems. At the time when I was at Airbnb, I used to sit down every other weekend with my good friend Tobi Knaup and brainstorm the things we wanted to do next. Eventually, it just occurred to us that what we had been building at Airbnb, and what I worked on at Twitter, was actually solving a problem that every company in the future would face. The problem of dealing with very complex infrastructure and lots of data. So back in 2013 we thought, “Why not just build what we’ve built for those companies and make it accessible for any business out there?” That’s how Mesosphere (D2iQ) got off the ground.
At the age of 17, I went to Colorado as an exchange student and since that time it was always my goal to go back to the U.S. to work on some cutting edge computer science innovation. I stayed in touch with my host family’s son, Ben Hindman, who built the original system that Mesosphere was based on at UC Berkeley and who was one of my co-founders at Mesosphere.
Silicon Valley was so attractive to me because in my eyes, it is simply the mecca for tech. Some of the most amazing companies are based here and some of the most challenging problems are being solved here. I started out at a smaller company called Ning, a social network that at the time was actually growing faster than Facebook. However, it had some engagement problems whereby the users wouldn’t return to the site and they couldn’t sustain their growth nor monetize the user base. But in a nutshell, the opportunity is the reason why I came to Silicon Valley.
This ecosystem is undoubtedly very mature. Meaning, if you are a software business thinking about partnerships, Silicon Valley is an important place to be. It’s definitely not the only place and the landscape has changed in favor of other cities in many ways. Both the high cost of living and the abundance of tools and processes that allow people to work together remotely makes it super viable for a huge company to be built in Berlin, Munich, or even smaller cities such as Karlsruhe or Chemnitz. You don’t need to be in Silicon Valley to be successful, but for certain businesses having some sort of presence here is probably very beneficial.
Absolutely. Within the first two weeks of us solidifying the idea of Mesosphere, I was fortunate to meet Brad Silverberg. He was SVP of Product at Microsoft during the heyday of the Bill Gates era and reported directly to Bill Gates. He was the brain behind Windows 95, Microsoft Office, and ultimately the Microsoft Internet Explorer browser strategy that coincidentally defeated our other stakeholder’s company Netscape.
My Co-Founder, Tobi, and I sat down together one afternoon in downtown San Francisco and told Brad about Mesosphere. Right after the meeting, he wrote back that he was very excited about this idea and wanted to deploy as much money as he could in it. Brad was not one of those investors who wanted to propose terms upon us. He was more like, “I want to be part of this.” He became much more than an investor and he was my go-to person for literally any product, organizational, or investor-related issue that came up. He has an amazing track record as a product mastermind and investor.
We did look into it, but after having been in the Bay Area for four years, both Tobi and I had already built pretty strong connections in Silicon Valley, so we didn’t feel like we had to apply for an accelerator for the network benefit. We already knew what we wanted. The other thing was that what we built was so technical that we felt there weren’t many people out there who could give us guidance on product development for these deep technical problems. Besides, we had already started meeting with investors while we were still at Airbnb and had raised our seed round only a couple of weeks later.
Part of it was just being around a group of people that were in similar roles at companies that I was in. During my days at Twitter and Airbnb, we’d go to events where people would talk about machine learning technology, for example. Attending relevant meetups is another way of expanding your connections. Then I was involved in a network of data scientists at the time that became a very big and influential group, funny enough, called “The Big Data Drinking Group.” I started this group with five other people out of my living room and it now has 2,000 members where you can find some of the best and most influential data scientists in the world, such as DJ Patil, who was the Chief Data Scientist for the Obama administration. Even a whole venture fund like DCVC, which now has billions of dollars under management, emerged from it. A lot of startups came out of it, too.
Ideally, a company’s journey is very long and hopefully never ends – because that means the company is around forever. For me, what happened was that Mesosphere consumed a tremendous amount of time. As a founder, you tend to be completely immersed in the company you start. As I was doing some angel investing on the side, I realized how much I enjoyed the creative environment of the early stages. What I am really excited about is working with companies to prevent some of the mistakes that we made early on in the journey with Mesosphere and that I had even seen at companies like Airbnb and Twitter. I felt that most of my VCs didn’t add much value; some even detracted value by occupying my time and imposing their ideas on my business.
Imagine someone does a quick flyby and then thinks they know your business better than you and your team who think about it 24 hours a day. That just doesn’t work well. That was a big motivation for me to ask myself, “Do I really want to do this for another five or ten years? Or can we find a whole team to come in and take the company to the next level, allowing me to focus on the things that I am most passionate about?”. You can always say, “I will do it next year after achieving milestone XYZ,” such as working towards an IPO or an acquisition. For me, it was the year after I got married and we were planning to have a kid. It seemed like it was the right time to step down as the CEO. Over the course of a year, I handed over pretty much all my responsibilities and now stepped out of my role as CEO of Mesosphere to focus fully on 468 Capital.
First of all, I don’t think money is a good benchmark. Every time you raise money, you are giving away equity. While increasing the pie is a positive thing, it also requires you to raise the bar significantly. I don’t think it’s good or bad per se. For some businesses, it is simply required. Mesosphere was very capital-intensive because we had to be able to afford world-class engineers that we lured out of companies like Google. We were basically forced to raise significant amounts of money to build a complex product and compete in the market with some of the most well-run companies out there, like Google, Microsoft, and Amazon.
To your question of how we did it? Well, I think for the initial rounds, it’s about the team, the idea, and the market. Then, in later rounds it’s about execution and the metrics that confirm whether you are on the right path. For us, it first was Open Source adoption for series A and turned into a metric of revenue for series B. The best advice I ever got is actually very simple: If you never have a bad quarter, you never have a bad year. This means you keep pushing because the end of one quarter is also the beginning of another quarter. This practice is like a rollercoaster ride, and can become exhausting for high-growth startups. Just remember in the end, if you are on a great trajectory people will give you money because you are growing the company.
There are a couple of industries I am interested in, spanning from consumer to enterprise companies. One of the biggest themes I am seeing right now and am interested in is AI and automation. Another area that I really believe in is commercial open-source software, similar to what Mesosphere has done with a cloud operating system that gives you capabilities like a cloud service provider. We see it all over the industry, where we have some free/ open pieces of technology that someone commercializes. It’s the fastest-growing segment in software. Two years ago, IBM acquired Red Hat for a staggering $34 billion. That was the largest acquisition in software history. Red Hat is an open-source company that commercialized one of the original open-source projects of Linux and later a myriad of other technologies. In total, in 2018, I think there were around $75 billion in M&A and IPOs in this commercial open-source technology sector. Companies like elastic (IPO at $4.9 billion) and MongoDB ($12 billion market cap) have emerged as market leaders. And what do they all have in common? It’s technology that’s being developed by one or more companies. The companies may even be competing with each other, but the technology, for the cost of ownership, is better suited being its own project out in the wild. Often, these technologies are then put onto GitHub, the biggest platform for all open-source projects and itself a commercial open-source business run as a SaaS model – by the way also a large acquisition by Microsoft for $7.5M.
Another space I am personally very interested in is sustainability. I think one of the biggest challenges for my generation will be climate change and other environmental problems like ocean plastics. One of my friends points out that when you get on an airplane, they start by announcing “this is a non-smoking flight.” Most of us today would never even think of lighting a cigarette on a plane, but 15-20 years ago people were still smoking and it was a normal thing to do. For the next generations, I think the use of virgin plastic will be the new cigarette, and any service or company that doesn’t offset its CO2 footprint is going to be like one of those cigarette companies. I think we will see a similar model in 10-20 years, where every good company will have its carbon offset and will be better for the environment. That provides a lot of business opportunities.
Lastly, I am very interested in marketplaces investments. Marketplaces have been around for 5,000 years and they will always be there. We can expect to see more and more marketplaces in the B2B world.
One of the companies I am excited about is Tonies, a German company from Düsseldorf. Their Toniebox is a speaker for kids where you can place little figurines on top that tell you an audio story or play music. It’s a cool experience for kids, gets them off the screen, fosters creativity, and gives the parents back some time while the kids are busy. They have had remarkable success in Germany. I invested in them in a later round and am supporting them with their launch in the U.S.
For me personally, it has been a very interesting time. I did invest in a couple of companies in the last few weeks. I feel very grateful because they were German deals that I was able to support while being in Silicon Valley at home when my son started to crawl. With all the terrible things that are happening, that was a very positive moment for me. I certainly spend a lot more time with my family, thankfully so, than before.
This is obviously a very challenging time and the effects are detrimental for many businesses. However, people are somehow getting used to the ‘new’ way of doing business, such as virtual funding rounds and committing to deals without having met physically.
Here is a simple thing to keep in mind. When you run a startup, it means everything to you. Many people quit secure jobs to jump into the unknown. Then you have other people who depend on you to create more jobs. It’s not always fun, but one of the most important pieces of advice I keep reminding myself of is that when you are running your own company, nothing is ever good as it seems, and nothing is ever as bad as it seems. Take a successful financing round, for example. Initially, you will be very excited that you have accomplished raising a Series A, B, or C. A few months later, when it’s about how to allocate these resources, that exhilarating feeling has probably disappeared. Therefore, I’m always a little cautious about congratulating someone on raising money. Sure, it feels great for a moment, but it’s really not much more than when a chef goes to a market to buy a bunch of ingredients. Nobody says, “Wow, you did a great job buying all these products.” Instead, you will wait to see how the dish tastes. All companies go through rough patches. Take Airbnb right now – they could have IPOed two years ago, they could have IPOed last year, and now they are in this challenging situation where the entire travel market has been decimated. It has led to major layoffs. (By the time this interview was published, Airbnb was back on track to IPO in 2020 or early 2021.)
Florian Leibert is General Partner at 468 Capital, an early-stage VC Fund that invests in founders with global ambitions and has more than EUR 170M under management. Before that he was CEO and Founder at D2iQ (formerly Mesosphere), for which he raised more than $250M in funding by leading investors, including Andreessen Horowitz, Microsoft, T. Rowe Price, KDT, and more. Leibert was recognized as one of Capital’s “Junge Elite” for two consecutive years and led the company to be named by Business Insider as one of the “Enterprise Startups to Bet Your Career on in 2018” and one of “The 10 Coolest Tech Startups Of 2017,” according to CRN. Prior to Mesosphere, Leibert solved mission-critical infrastructure challenges as an engineering leader at Airbnb and Twitter, where he designed machine learning algorithms and helped build the teams for developing core infrastructure.
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