Ep 15 - Gytenis Galkis - Superhero Capital

Hi, this is VCE in the CE podcast about venture capital and investment ecosystem in central and Eastern Europe. You'll listen here to the interviews, what startup investors and learn about their fund strategy, building investment portfolio, or tips about fundraising and pitching to investors. Today, I'm joined by Giteni's Galke's partner at Superhero Capital, an early stage busy firm focused on the new Nordic region. Giteni's has a fascinating journey into venture capital, starting as a founder himself, before creating Lithuania's Business Angel Association, and eventually joining Superhero as a venture partner. In this episode, we dive into the unique dynamic of the new Nordic startup ecosystem as Giteni's breaks down both economical and cultural differences, particularly between Finland and its neighboring countries. We talk about handling rejection from our potential investors, what founders should do in this situation, and why I know isn't always the end of the road. Beyond that, Giteni shares insight into the evolution of the Business Angel ecosystem in Lithuania. Finally, we found out what AI really meant for some startups before LLN through a volitionized tech ecosystem. So, without further ado, let's dive into today's conversation. Good morning, Giteni's. It's a pleasure to have you here, and you're the third person from Lithuania that I'm interviewing, and the previous two, andrias from Baltic Sandbox Ventures and Yone from First Peak, were very enjoyable guests, so I'm looking forward to speak with you and hear all your insights about new Nordic, Baltics, and Lithuania's startup ecosystem. So, let's start with something easy, easy for me because I'll be listening, but I would love to hear about your experience and your journey to the world of venture capital. Hello, Adrian. Thank you for having me. It's a pleasure to be third, but I think it's a great podcast, and I'm happy to be here. So, my journey to TVC is quite, I would say, started probably 10 years ago, so I'm more or less 10 years in the industry at least in Lithuania, and before that I was working in banking in ACV here in Lithuania, and this year, I was nine or eight to five job was interesting, I learned I believe a lot in structure, and seeing different businesses and so on, but I was not a satisfying for where I wanted to be, and I took being quite young, 23, 24, I took the leap of faith, and quit my job because I won a grand, 10,000 retas to do my own startup, which is a retas because it was before 2015, and the growth still wasn't there, and everything was much cheaper, so 10,000 retas is 2.7,000 euros, 2.8,000 euros, and I started doing my think tech together with a few colleagues. Unfortunately, after a year, we were some of our savings, and then we have significant progress. Maybe we were too focused on the product rather than on the customer. The idea might have had a few pivot and could have reached market, probably, at least there are few good unicorns that are with similar concepts, but in that process I'm not a Danish angel investor, Aaron, and Nourner, who basically was starting working with him, whatever the potentials, angel investing in a few companies, and then Mark and Lithuania, that's how it kicked off. In 2017, I promised to establish a business angel within Lithuania, so I came back and had to deliver my problems, and then with 2025 other individuals at the Estonian game as well, and we launched Lidvan in 2018, March 2018, and I managed the network for a year. It's an NGO, and I think I gave quite a bit to Lithuania there, and in 2019, together with my former colleagues, we won a tender of running an accelerator fund in Lithuania, called 17 Entrance, 2019 NAI, or maybe a bit earlier, but more or less, I think the first investment was in NAI, and we deployed quite a bit of capital, almost 10 million into 54 companies. We had already a few pre-exits that they paid some capital back, and some returns, both to us and RLP's, have still around the companies in the portfolio, but after deploying all the capital in 2022, we didn't see the same path forward, so that's when I joined Superhero Capital, as a venture partner, and also double down on the running angel academies, together with the former director of Lidvan. We did quite a few angel syndicates and angel academies in the meantime, and now, when we launched the Superhero Sports Fund, we launched Superhero, we came for new opportunities, and already made one investment, looking to do more. Fantastic. I love the fact that you mentioned the funds at the end, that makes my mind job way easier and a perfect segue. So can you tell me a little bit more about Superhero Capital and what is your investment strategy, how that all looks? Superhero Capital was established in the end of 2015 by two of my colleagues, Jacob and Yuhan, so now we launched our fourth fund, and for the fourth fund, this 90-year is more, more or less the same. We very pragmatically looked at the order to find good deals in local markets, we need to have boots on the ground, and we believe like the installment, the Estonia Lightning with the winning, especially in Lithuania, Estonia and the end of the month, at least we see a lot action, and if you look at the start of the link report, all of these three countries aren't top 20, so they're doing quite well, and there's a lot of action, so I think it's a good opportunity, or there could be good opportunities here, we are a generalist, we are agnostic, we look at everything that is early stage, we have some internal views on what should we do and what to do, but being cleverly small funds, we will get capital efficient software company, whatever that means, I think there's some logic behind it, but in the nutshell, that's the way. I love when you mentioned those differences between partners and probably the favorite sectors or favorite types of companies, I heard something similar from Joni from first peak when she was mentioning about the founders there, and their strategy, which is quite similar, they're also generalists, but the division between people, what is interesting, the most for partners is always slightly different. When I was checking the website and couple of other resources I saw on crunch base that you had quite a few funds recently, so one last year that I mentioned there, and one just announced, and also in 2022, there was one called opportunity fund, can you tell me, is there is a clear difference in the strategy for each fund or you're trying to go forward with what's working pretty visibly, how does it look? Great question, so we called some of the funds usually are typically, you establish a fund, you deploy capital, you may reserve something for the 401, you start fundraising and establish a new fund and so on. So the 22 opportunity fund has a bit different strategy, and it's directed towards the best performers of the fund in 2015, because so, say 2015 is fully deployed, and then there's still good companies that are being able to raise CDZ or at growing console and there's opportunity in those companies, so that's why the launch of 22 opportunity funds to actually only back the best performance of the third fund. I see, and do you see any clear differences in the entrepreneurial skills between the countries that you're investing in? So at the beginning when I was checking the portfolio on the website, they were mostly from Finland, now the portfolio has much more variety in the countries and there are more startups from Lithuania, Estonia, so from your perspective, how does it look? Is there like a clear upside or like some better entrepreneurial education in Finland comparing to the other countries in the region? I was not put it towards education, I think it's more, I would look at it as more of a cycle's perspective, so as being politics being relatively new to the especially tech and entrepreneurial approach, I see it in coming in sniffles, so entrepreneurs that did something, and then achieved success or achieved failure and wanting to do it again, that comes in cycle. and then based on that you have decades and in those decades you had new people coming in or old people doing new things with a lot of it clearly. So if you look at Finland, their entrepreneur journey is way, way longer than what we have in the Baltics. And that's, I think, the difference. So it might be way more common to meet an entrepreneur in Finland that says, I already been doing this for 25 years, then meeting such an entrepreneur in the doing when we talk about tech entrepreneurs, you know, real estate. So, but this already is happening in the doing. I think that's the main difference. But then that, I think, there's a lot of cultural, despite the very close. And in one way, have similar mindsets or similar approaches, they'll culturally we are quite different. And our mindsets are quite different. And so that's always interesting, you know, sometimes when I speak to finish tech entrepreneurs, they don't seem so extraverted, despite the development, they are probably extraverted. And being in between it's also a sub-hook of the Baltics might be a bit different than what is happening in Finland. - I'm glad you mentioned those cultural differences. And because that's quite connected with my next question. When I talked with Fiona, she mentioned that's a necessity for the founders and startups to think about the international expansion from very beginning, from almost day one, because the ecosystem and the economy of the Lithuania, Latvia and Estonia are quite small. And obviously startups should be the global brand schoolable companies. So they need to think about that expansion very early on. How does it look comparing those countries with Finland? Is the Finland's economy much stronger? Are the startups able to grow for a longer period of time just there? Or it's similar from the very beginning, they're thinking about the expansion internationally? - I think if we break down this question in several pieces, so let's focus on this global expansion. So none of the countries are big enough to, you know, make a startup locally. So if looking purely, let's just pause here and look purely on the numbers. So Finland in terms of startups and the people working in startups is larger than all the free-built states combined. So if you look at, I think it's a crunch base or wherever the data sources, you can see that they are mapping like almost between three and a half and 4,000 startups in Finland. And then if you look at the Estonians around the 1,300, if you look at what we need around 1,100, look at light based around 500, so combined, it's smaller than Finland. The employee wise, it's also small. So the full share pool of opportunities is of course bigger than. Out of those, you know, it's one thing, maybe start the ponder, set of portunists. So thinking globally, good, if we can check mark that. But this your experience allows you to actually deploy globally, it's another thing. You know, whether your network is there, whether you have international experience, whether you study, live the work that brought or in an international company and have that necessary network. So looking in that, I think there's a bit more of international things in the, because more funds are looking there, more international companies are there, but we are getting there. So I think it's not the bad and it also very depends on the type of the business. If you're thinking of B2B, maybe a bit harder to do the right, you know, strengthen the US, especially if it's, you know, or larger come, if we're talking about B2C, then if you know the trends, if you are globally minded and you know how to use social networks, go real and marketing and other approaches to your advantage, I think they can be from B1 to five global, affiliate networks and influencers and so on. So we have the DeXas all there. So I think it comes to first mindset and then skill set. So usually, no, you can check mark the mindset, but then the skill set might be lacking behind and having both is more rare. - I see. So jumping to slightly different topic, you started at Superhero Capital as a venture partner in Lithuania. Now you're the full partner in the fund. Can you walk me through how your responsibilities change from one role to the other would stay the same what maybe you're missing from being a venture partner comparing to partner in a fund. How does it look? - I think two very different roles. So usually venture partners are not full time and they're depending on the type of venture partner, you can be venture partner that brings you flow and that's what I was. So whatever I see, I bring it to the team and then they decide whether to take it further. I think, I know, you know, and I can call you West Longsred, but that's basically the decision is done by end of partners in this investment come where it's, I think one of the main differences is a venture partner you don't have your own field. You don't participate that mentioned in the formation of the firm is itself. But like very specific role can be a venture partner that is dedicated on the technical skillsets so you can help evaluate some of the technical cases, but it's very limited and then you also are quite limited in the ownership of the fund unless you invest on. And the partner is like an owner in the fund where you basically make the shots, all the shots and also bring the deal flow, evaluate the deal flow and take it further and then work with those companies to bring them to a fruitful exit for yourself and they'll be. - I see. So because previously you were more part time with a venture partner role and now you have obviously much more responsibility. Does it affect like how you see the deal flow or you see the actually that like, because the people see you as a partner and you're located in Lithuania, do they reach out to you more often? Do you see any differences in that area? - I would not say I believe I'm quite well connected. I think there's always room to improve but looking at over the years, how many deals I've been involved in. So it's probably over 65. So that also gives you know quite a wide net. But then of course there's always ways to improve and be approachable and hopefully people reach out and despite any of the cases and then we can evaluate whether it's for us or recommends more notes. - When I was reading and preparing for our conversation, I found quite interesting article on super hero capital block about saying no to founder. The article is from quite a few years ago. It was already before pandemic. Yeah, so a lot has changed since then. But I would love to hear your perspective on that. Like how to do it properly. Obviously when you're at very early stage, you're often judging more people than the idea and the execution because there are more questions than actual tangible data. And venture capital is always about the outliers. So many greater investors make wrong assumptions at the beginning but they might want to join the cap table later on. So is there any like a golden standard for saying no to founders when you are evaluating them and on the other hand, are there any mistakes that founders do that investors are picking from the beginning and it turns on the red light or shows the red flag that annoys investors? - Very quick question. So I think the main answer is it all has to come from the part of respect. So both I and the overall super hero and it is engraved in the brand that we feel huge respect for all the entrepreneurs that are actually building things and super hero, the pool name came from that that if they would not be entrepreneurs, we would not have progress in our lives. So they are actually the super heroes of today, of yesterday because they are risking their own wealth risking their lives, risking their time into building something meaningful, something improvement and look at that one much. It's definitely a super hero, look at many, many of the previous entrepreneurs or innovative, it's thanks to them, we have progress in our everyday ordinary life. So that's why we call ourselves super hero capital because we bring capital to those super heroes in our region in terms of returns and this correlates and some of the ideas then great, but they are probably not the venture case or some of the ideas just like the ambition become a venture chemical key. And that's where we can have the discussion debate and And I would love to have CTA progress. I always say that I usually am wrong and they have to be that they would prove me wrong and come back if they want to. So that's from my and like it always me being an entrepreneur, we're trying to fundraise back in the day. You know, like all of those non-repliants or rejections are very hard, but also for the entrepreneurs to understand that if they're in your feels unprofessional and not with in line with the strategy that we declare. No, like we get quite a bit and I cannot set all day and reply to email that make months. So there's a doubt I try to reply to as many as possible. Eventually we everything that comes to our CRM we do say no or progress and coming out of the respect what we definitely trying to do is not to waste time. So there's quite a bit of funds who just don't reply or are not able to quickly say no. Me, ponder they feel that it's a no, but for some reason they just progress and ask more information and so on. So I rather try to within two weeks or a week to yes or no. And then it is then we progress. No, then that's close to the free job. They me and then keep up the relationship. And it might become a yes in the future. That's where most of the founders make the mistake. They after receiving the no, they back out. They don't reach out again despite maybe they felt that it was not the right conversation that's fine. But in the end, the situation should be so if you feel that if I said that maybe it's too risky at now or I like the idea, but you need to do something else. Like it depends. Come back and share your progress on what kind of the basis, some monthly basis, whatever work we do, you know. And eventually it can lead to something. But if I haven't heard from you for two years and then you come back again with something, where were you for the two years? I'll be jumping to another topic because there's like your experience is so broad and there are multiple different companies and it's amazing. But you found it lead band and lead to Indian business angel network. And because I don't have that many connections in the other business angels ecosystems, I would love to hear your opinion about the evolution of that ecosystem over the last few years. What changed, what went well, what probably should have gone slightly different. And I'll bring Fiona and the first pick again because in the report about the first six months of 2024, there was a part that was mentioning the trying funding pool from angels. And how does it look from your perspective? Do you agree with that or the causes are different? It's not the trying pool, but maybe angels didn't see that many good deals in the first six months. I would probably not agree with that. Again, depending on which market we look, at least from what I hear in the stone, it is drying. In Lithuania, I don't have this feeling. Maybe it's on the same level as in the previous years. So maybe it has grown a bit. Also, the angel ecosystem has grown significantly since 2018 when we established, when we established it was 25 members in the beginning. Now, Libban, due to 300 fixed. So that's a huge leap in 2022, I think, we received the nomination as the best performing business annual network from European business annual network. So it was a great achievement. And now there is also my good friend, Yustin, especially as established, a different community called NGL, which isn't parallel to Libban. It operates a bit differently as a private thing. So there is definitely a lot of angel activity in Lithuania. I think it differs quite a bit from other markets, because in Lithuania it's being quite young and as the angel movement, there is not. So many, I would say, experienced angels that can invest actually on their own and invest big amounts of money. We have a very little category of super angels who come from the big companies in the region, who can invest 100, 200, and so on. And we have a bigger pool of experienced business angels who usually know what they do. They can lead rounds. And they invest between 15 to 50 or 100. And then the rest, the big pool, which is between 5,000 and probably 25,000 range. And that's a big pool. And they want a concierge service. They want to be helped by the hand and help in investing. They want to be called-- they want a personal approach. And that's where probably the opportunity lies in. And someone needs to actually be OK and paying fees for that. And there's quite a bit of activities. I think since 2023, there has been at least 15 angels indicates and probably many more outside as well. And so I would say there's quite a bit of activity. And looking at 2022, 2023, and also the beginning of 2024, in Lithuania, there has been not so many funds. So there's only less than a handful of funds, maybe even three funds, that actually looked into the outlook. And one of them is quite late stage. So having that in mind, there's definitely a H.C. and the gap was still by business engine. So I think it's a crucial part in the ecosystem. So what you're saying is it was growing. Do you see that the new angels were mostly coming from a tech site? Or there were people from, let's say, more traditional business or traditional industries. They're in their money and they see that the technology ecosystem is growing exponentially. And they wanted to invest, but not necessarily creating their own VC funds. And they wanted to test the water in a way. Yes. What I see the majority of those business angels in Lithuan and the community are from additional businesses. They invest in more heavily in other asset classes, real estate, stock market, the bonds and so on. And then they leave a small chunk of money to experiment with this asset class. And since they run their own business, and they don't have a lot of time, that's why they need this help assistance, because this is a totally different approach. And I think many of them that I had had conversations just to find this for themselves, as they are contributing significantly to our economy, and to job creation, and to innovation, and to great ideas that come from relatively more small market. So there's this social, responsible angle. And then there's this maybe a review with this, the top hobby and a gamble, in the sense that, OK, I'm basically not giving money away. I might get some returns if there's success. So that really comes with the angel training programs that the community is really in need. And I've launched in 2018, the first angel training program with LibBan, and it's the explode that since they're both LibBan and now in GL, and it gives a good perspective, OK, what is angel investing? How should you create a portfolio? And so on. And for those people who don't have time, because it also is, even if you get help, this is also quite time consuming. And for those people who don't have time, then there are people like me, offer, you can invest relatively small tickets into VC funds. And then you can have the same diversified portfolio. The biggest mistake a person can make is to invest in one of the two companies. Because the biggest, there's this very good report or analysis done on 10,000 companies in the US on angel investing. In order not to lose money at all during angel investments or VC investments, you need to do at least 150 investment, to be as close to zero as possible. If you want to make sure that it's a zero, you need to do 300. But the best part is that the likelihood of you losing all your money by doing one investment is 50, 50, or even above 50%. But if you do 30 investments, it's only high person. The likelihood of losing all your money. You do 50, it's only two and a half person. And then the likelihood between 30 and 50 investments of free-exing your money is 25%. And twice a percent chance of 10x return. So and seven percent chance of having five experiences. So then your loss ratio or loss probability is way lower than your earnings probability of free-exing out of the big portfolio. That's what I try to educate in those programs, angel investors. This is crucial. If you do this, you need to do it at least five years and create a portfolio. Otherwise, your probability is not in the right places. It's like going gamble in the casino. and that's the same probability. Or invest the VC fund, which will have a portfolio of 20-30-40 companies, and hopefully they're in the same result. I will ask you later about the name of that report. I need to definitely check it. So something very interesting to me is the evaluating potential start-up as an investor in a VC fund and evaluating as a business agent. Obviously, business angels often don't have the same tools, the same opportunities to properly evaluate the founders, the idea, the project. How does it look? How the process looks like for business angels from your perspective? Are there any advice that you would give during that process? What people should focus on? I think from, again, speaking to quite many of angels, each of them have their own investment strategies. And they view, you know, like it's very hard to understand both our start-ups, which investor has which strategy. You know, they're an investor that only invests the most of money into a specific start. They're an investor that only do life sciences in angel invests. They're investors who only invest if they know the founder for five years. So it's like I cannot go there, you know, each of them individually justifies and what I see, I would say, that angels are not so concerned about the valuation. Usually they would love to have a VC on board and then go in there because then they know that someone else has justified it. In terms of VC, again, the strategies might be a bit different depending on the VC, but the standard or close to standard or the rule of hand and then what we also look at with Superhero is that we need to, we have our own Excel spreadsheet model where we try to evaluate the potential and probability, with the probability of this hitting being, you know, like big success. And then what's the likelihood based on the stage and what's the likelihood of it going under or being a local player or being somewhere in the middle and then what revenue targets we assign, you know, what's the likelihood based on what the entrepreneur tells us, what we see in the market and so on. And it comes down whether we can have the case as a funder, what does it mean? It means a proportion between equity in the company and their exit potential based on those probability. So if the company, saying, let's say we acquire 20% stake in the company and it can exit at 250 million, then it's a good case for us because that's a funder eternal, then we get from that case 50 million and our fund size let's say is 50 million. So we need four of those cases to hit pre-ex-net return or a bit over pre-ex-net return. And by investing in 30 cases, the likelihood of us hitting the four cases should be okay. So that's the mathematical logic. And that's why what entrepreneurs or some one of the startup founders who really understand they think if they can exit at 25 million, that's already a good case. But no, if we enter at 5 million and you exit at 25, great, it's a five-fix return. I agree. But it will not return my fund. So I'd rather use that investment together and something that can potentially be bigger. Maybe it will be riskier, but it can also generate outside return. Otherwise, I need the way more success cases of generating only five exit returns on each individual case. Whereas for an angel investor, this might be an amazing case, you know? Absolutely. So we're getting close to the end, but I always have a couple of quick questions. And the first one, what was your favorite pitch presentation or the startup that you eventually did not invest in? And I'm not asking for the name of it. I'm more interested in the reasoning. What was the deal breaker? I think that I don't remember exactly the deal breaker. I think it was just not convincing enough, but I definitely remember the presentation. And I will try to quote it because it was like I even voted to some other entrepreneurs. And it was at the end of the third year who basically, you know, gave me a story. He held one startup. Now he started another startup with both the lessons. I think we over-engineered in the previous one. And now we're building this new system. This was a while ago. I think five years ago, we're building this new system. And blah, blah, blah, blah, yeah, they had that. And we have implemented AI. And then he poses and says, "Itanus, do you know what is AI?" I said, "I think I have a clue, but since you're asking, please explain it, we have employed an army of Indians." But that's exactly, you know, take it until you make it because they made it, you know, in a way that, of course, it's not, it doesn't scale. And of course, it's not, you know, sustainable and the economics don't work. But the full approach, you know, we are testing the market. If it works, we understand how can we do it in the background? And it is before this solo, company, I, boom, and all of that, I think, was 2019 or so. The sheer logic of it, you know, let's not build a huge massive system before we know that the customers need it. So I really loved that pitch and that approach and that really stuck in my mind, that, you know, a praise of, you know, what does AI, since you're asking, probably not. And I'm pretty sure there was like a year or two years ago, the someone found out that one of the solutions from Amazon was basically an army of employees in India that was doing the same thing. So clearly, that was working also for the big companies. Exactly, exactly. It's like just some startups really try to to overengineer and I think one of the problems, especially with deep tech founders, without the commercial angle, is that they come into wouldn't it be cool? This consumer group has this problem and they do this to solve it. Maybe we can do it like this way, you know, and solve it for them. Wouldn't it be cool, you know, and then they try to apply their coolness to a problem that maybe it doesn't even exist? Yeah, yeah, trying to solve the problem that the customers doesn't have or they found other way to solve it absolutely. And so what in your opinion will be the next Lithuanian unicorn? Very hard to judge. I think it might be some of the top names already, or we have not good piano, we have been there. I would say the closest probably is hosting a, and the last question, do you have any materials that you recommend either for watching, listening or reading if someone wants to learn more about VC and investing? Yes, as you can see, I'm well prepared. Yeah, I can see the, we give this books to our limited partners as a birthday gift, but it's a very nice book. Oh, the power, the power law. I love this recommendation because no one has recommended that book yet, and I got it for Christmas and I didn't start it reading it yet. So it's great that you're recommending it. Now I might have some, some notes on my own in a few weeks when I finally start reading. It depicts the evolution of Silicon Valley from the early days until 2022, I believe. I think now it will be also, you know, like with them, or coming into the administration. I think they will need to extend this book because it might be in your new chapter, but there's a lot of interesting concepts about how when Satoshi and his fund came to the US, how they changed the game, how VC has evolved as an industry, know with like evolution and to something very big, which is now one of the main questions I've received. And you know, like, what's the logic of what are you investing in a shareholder agreement? It comes from the old days. The logic is very simple. Back in the day, it took around 40 years to get from an investment, from a VC investment to an IPO. That's why for here, investing. Nowadays, it probably should be 12, very investing in that logic, but no one dares to do it because that's probably over the top, but the logic is in the end in the US, plus take four years to get to an IPO. Now it takes way longer. With this market, we don't see it in IPO. And the book also depicts how this market has changed when VC funds became 100 million funds. So they brought a lot of into the private ecosystem, where they invested privately before going public. And that also changed the full mindset and full approach of VC investing to go to the CDV, CDC and all the else about afterwards in the rounds before an IPO. So, great book for entrepreneurs to understand how VC's work and how the story actually evolved. And I think in the Baltics or in the Nordics, we're also minting our own story, which is, I would say less ambitious, but we are, I think, well equipped and I think we need to improve our ambition in Europe and overall, and then Nordics, we are quite well positioned to to do the only limiting factor in my view. So we need more people coming to work and all of those immigration policies needs to take place to actually post that out talent growth and be open minded to other missionalities and to actually grow the technical system. - Fantastic. Thank you. I feel like I should start a new series within that VC in the sea and the kind of book club and comparing certain books and the US perspective comparing it with our sea perspective and how that can be approached. But thank you for your time. Thank you for sharing all the insights and all the opinions about the VC and business angel ecosystem as well. And justifying my book purchases as well. So I'm really glad to hear that. - Thank you, sir. It was a pleasure. If you need more recommendations on the books, happy to share. - Thank you. - That's everything in this episode. I hope you enjoy it and see you next time.