May 22, 2023, 3:06 PM ETInterview, Fireside Chat

Nico Wittenborn: Consumer Subscription Apps; Using Evolutionary Biology to Invest; Solo GP's | E1017

The "Adjacent Possible" Framework: The investment strategy relies on identifying deterministic evolutionary steps where existing technologies and behaviors combine to create new breakthroughs (e.g., Google's Transformers leading to OpenAI, then to consumer subscription apps like ChatGPT).
Focus on Consumer Subscriptions: Adjacent Capital targets early-stage companies building mobile-first, consumer subscription models with software-like margin profiles (70-80%).
Target Exit Value: The fund assumes multi-billion dollar exits ($2B–$5B) rather than the $10B+ unicorn status required by mega-funds to generate returns.
Fund Structure:
- Size: Approximately $20–$25 million fund size.
- Portfolio Construction: 20–25 companies per fund.
- Ownership Target: Aims for 10% ownership per company in Fund 2 (up from lower ownership in Fund 1).
- Check Sizes: Range from $1M to $7M, with an average check of $1.5M–$1.6M.
Stage Focus: Primarily Seed (70-75% of capital), including "late seed" deals up to $7M checks; co-leads Series A rounds alongside larger funds.

Scale Timeline: It takes approximately 12 years from founding to maturity (IPO or major acquisition) for consumer subscription companies to prove viability, contrasting with the 10-18 year window of USV's first fund.
Churn Dynamics: Initial churn is high (50%+ in Year 1) but flattens to SMB SaaS levels (approx. 40%) in subsequent years once the product becomes a habitual user.
CAC Recovery Model: The majority (70-80%) of conversions are annual subscriptions paid upfront, allowing Customer Acquisition Cost (CAC) recovery within days of download.
Organic Growth Benchmark: Target organic growth is 50%, with the expectation that paid acquisition scales in lockstep with organic to ensure a reinforcing cycle.
Cash Efficiency: The model allows companies to reach tens of millions in revenue from a Seed round, a benchmark rare in other sectors.
Valuation Multiples: Consumer subscription companies currently trade at higher revenue multiples than comparable B2B SaaS companies (e.g., Duolingo vs. Bill.com).

Solo GP Model: Founder operates as a solo General Partner, prioritizing autonomy, speed, and deep conviction over consensus-driven decision-making.
Board Seat Strategy: Limits board seats to two per fund; typically serves as an observer at Series A to leverage the expertise of lead investors (e.g., USV) while maintaining strategic influence.
Pricing Philosophy: Advocates for "fair" pricing rather than being "cheap" or overly generous; willing to pass on deals if valuation is misaligned with long-term partnership viability.
Notable Regrets: Passed on investing in Riverside (podcast platform) due to underestimating the addressable market and the rise of professional content creators, later regretting the missed opportunity.
Model-Breaking Investments: Successfully broke internal fund constraints to reinvest in Revolut at a high valuation, accepting lower ownership for a massive potential outcome.

Career Trajectory: Started by importing/refurbishing iPhones in high school, then invested in Apple stock (2008-2009); interned at Team Europe (2010); joined Point 9 (founded 2012); moved to Insight Partners (2016-2019) leading Series A deals; founded Adjacent (2019).
Key Influences:
- Point 9: Taught the viability of the venture industry in Europe, early-stage discipline, and enterprise software focus.
- Insight Partners: Provided experience with mature, later-stage deals and the scale of large-cap funds.
- Jeff Horing (Insight Founder): Advised against being "too cheap" and instilled a long-term value perspective.
Ideal Founder Profile: Values "execution machines" (e.g., Triple Dot Studios) over formal frameworks; prioritizes ambition and the ability to pivot based on macro trends (the "adjacent possible").
Decision Making: Relies on personal hypotheses and refined frameworks rather than committee consensus; challenges own opinions internally before executing.

Venture Model Evolution: Predicts a shift toward smaller fund sizes and early-stage focus as large multi-stage funds struggle with "stale" legacy portfolios and high GP commitments.
Competitive Landscape: Sees an influx of talent from large firms moving to seed to deploy dry powder, increasing competition for early checks but noting these firms are often driven by brand name rather than thesis.
Exit Scenarios: Anticipates three outcomes for consumer subscription companies:
1. IPOs: For the best performers (e.g., Duolingo).
2. Strategic Acquisitions: By tech giants (Spotify, Netflix) or consumer brands.
3. Rollups: Financial consolidation of profitable, mid-sized companies by private equity.
AI Integration: Views AI not as a standalone category but as a layer to make existing subscription products more sticky and functional, emphasizing companies with proprietary data sets.
Solo GP Sustainability: Acknowledges risks of being a solo GP (e.g., "hit by a bus" scenario) but argues that partnerships often fail due to internal friction; plans to remain solo unless a highly trusted, complementary partner emerges organically.

Motivation: Driven by a desire for independence and agency, influenced by growing up with a single mother and limited finances, and a desire to avoid the pitfalls of wealth without purpose.
Family Influence: Becoming a father shifted focus to long-term thinking, ethical investing, and ensuring the world is better for the next generation; currently expecting a second child.
Work-Life Balance: Adopts an "athlete" model with distinct seasons of preparation, performance, and rest; actively disconnects from work (e.g., 5 days in Japan with no email) to maintain mental clarity.
LP Selection: Would choose Point 9 for Seed, USV for Series A, and Founders Fund for growth capital due to their founder-first approaches and conviction.
Board Lessons: Credits Chad Pipkin (founder of Belkin) for teaching the importance of separating personal self-worth from business performance.