General Partner at Defiance Capital
Christian Dorffer is the Founding GP of Defiance Capital, an early-stage fund backing non-obvious founders. Previous investments include Wellthy, Peanut, and The Pattern.
I studied economics in Denmark and in the US. I then joined Pricewaterhouse in New York and worked for them for a few years. I moved to London. I continued in management consulting for a few years. I was running a firm for Kentar group. But after a few years in consulting, I missed the tech side. So when one of my friends who was running Yahoo in Northern Europe left Yahoo to start a daily deals business, he invited me to join and help build it. It was interesting because they hadn't raised any money yet. It was super early. I had to make that slightly painful transition into the startup world by pulling the plug in my comfortable career.
And then, I was thinking about what's my next thing I'm going to build? And this was in 2010, I came up with the idea for a digital storytelling app for children, combining ed tech with gaming. After three years, we realized that we were a little bit too early. It was too difficult to monetize parents in this space, even if we had the best product and we had content partners, such as the Jim Henson Company and the whole BBC library. We gave it a good shot and then I was thinking about what to build next. I started seeing some great deals that I wanted to invest in. I wasn't super liquid myself, so I could only write small checks. On a hike on Mont Blanc, together with a couple of friends, we set up a few SPVs and deals we wanted to do and invited our friends to invest with us. And after a couple of years, King got acquired by Activision. King is the publisher of the game Candy Crush. And one of the founders had invested in three of my SPVs before and I had known him for many years. And he said, look, we've always dreamt of doing our own founders fund. Maybe you would like to set it up and run it for us. So I joined them. Their greatest motivation was to give back and invest in cool things, focused on consumer early stage. So there's a lot of lessons from Candy Crush. There's a lot of cross pollination between all the companies. So it worked out really well. Fast forward seven years, the pandemic hit and we deployed most of the capital that they had committed so far. And they wanted to wait and see how the market would develop. So I saw that as a good opportunity to start my own fund. And that's really how I came up with the idea for Defiance Capital.
Consumer has had its period where it's had seen tremendous growth. Oftentimes it's really been driven by new platforms, such as Facebook and mobile. But a lot of those windows have been temporary and unsustainable to acquire users profitably over time. So a lot of them have pivoted away or had to change their, their business models. It's just difficult to systematically get the distribution that you need without having viral hits and a clever business model that allow you to monetize.
What I found in my own portfolio was that over 80 percent of the TVPI of my investments came from companies that were founded by what I would categorize as non obvious founders. So they are immigrants, female founders, white guys from the Midwest that didn't necessarily go to a top university. I found that 62% of unicorns in the US have immigrant founders. Last year, 17% of new unicorns had a female founder. If you're able to pick the winners out of the immigrants and the women and the people that didn't necessarily go to a top school, you have much less competition. And these people are often as driven, if not more driven, because many of them don't have a plan B or they have a huge chip on their shoulder. That's really the essence of being a good investor. It's encouraging news to founders in a sense that anyone that is smart and driven and willing to really apply themselves, push themselves, have the opportunity to go really far, you shouldn't feel discouraged if you don't fit the Mark Zuckerberg type.
The traits that we look for in a founder is that they have a history of doing difficult things well. They have a history of overcoming challenges successfully. Almost all the unicorn stories that you hear have stories of near collapse and multiple near death experiences. I'm really looking for founders who were smart, they have an instinct for making money, and they've shown me that whether it's lemonade stand or whether it's immigrating from a different country and starting afresh, working two jobs, taking care of the family while getting a degree, they're hustlers. Whatever is going to face them with their startup pales in comparison to what they've already gone through.
We tend to focus on founders for whom this isn't the first rodeo. They have probably been in the AI space or machine learning space for a while. They might have built something already and they have a unique insight into a problem that nobody else is solving right now. They need to be really credible with us. We don't just go by face value and place a bet in a space where is super capital intensive and the evolution is so fast that what might be a gap in the market today might be a closed gap by one of the big players next month. We're really looking for a unique insight into an industry, even patents around what they're building. We're looking for access to data and a clear vision on how they can actually make money in that industry and why. A clear explanation for how they're not going to go out of business.
If you're building a business that depends heavily on fundraising, it's always easier if you're building something that is aligned with where the investors are currently looking for. For example, if you're building a consumer startup right now, the amount of capital available compared to five years ago, it's just much less. Time to market is really important as it relates to venture investments. That's one thing.
And then another thing I would say is a lot of less experienced founders, they don't have a network of investors and they treat fundraising as a second thought. When you're raising money in your early stage, you need to build the relationship with the investors over time. They need to know about you to enhance your chances of actually raising money. What I always recommend is to say, who are the top 10 funds that have invested in this market that are currently investing in companies at your stage in your region that you can go and meet with and build a relationship with, just introduce yourself and say, I'm in this space, we're building this. It's really about figuring out who are the right investors for this and how can you build a relationship with them so that they trust you.
The majority of my companies have been consumer companies and consumer companies are built a little bit differently than like an enterprise SaaS company. You're looking for the potential to go viral, something that strikes a chord with customers. And all of a sudden you get great word of mouth. For many consumer companies, the primary source of death is not being able to monetize and being fairly capital intensive without the ability to raise capital. Most consumer companies, they self implode as opposed to get killed by an external factor. Companies just making the wrong decisions. They hire too fast and they're not rigorous enough with their product iterations. They fail to keep in mind that they might be burning a hundred thousand dollars a month. And very often, it just comes down to not having product market fit that investors are looking for. And then running out of money because they were not frugal enough.
Hiring people with an entrepreneurial mindset is super important. You need to hire people who takes the initiative, who present solutions, who take pride in doing excellent work quickly. Many of the smartest founders out there actually started as one of the first 10 employees in a company and learned their chops in a startup environment before they started their own company.
In my companies, we've always given people challenges to solve. Here's a real problem that we faced in our company. Can you solve it for us? You have 48 hours, and then we see what the output actually looks like.
I also find that engineering talent in less developed market, like Eastern Europe, is often as good, if not better than, engineering talent in Silicon Valley, and then they cost a third. Until you got strong product market fit and you can begin to make money, you should really be scrappy and hiring the best people wherever they may be.
There's so much value in mentorship from the right mentors. Finding independent mentors or coaches who can help understand what you do well and what kind of person you are and put you on the right path early, it's really important. My advice to my 20 year old self would be to learn more faster. Move on to something where you can apply those skills.
You become a better investor over time. You built a lot more scrutiny. You get to recognize what good looks like versus not good over time. A lot of angels are ending up just losing money. Some of the counterintuitive things that I've learned is that many of the hottest deals that a lot of the big funds chase don't necessarily turn out so well. A lot of those people, if things get a little bit tough and it doesn't work out, Twitter or Facebook is waiting to hire them through an equity hire and give them 10 million bucks for a failed startup just to get them and their engineering team. If you are a non obvious founder, you don't have that option. You need to find a way to make it work.
Another key insight is that terms have changed a lot over the years since I started, there weren't really SAFEs back then. A lot of these methods out there are very founder friendly and it's great. But for an investor, the safe terms aren't necessarily great. It comes with experience, but you really need to understand what the terms are that you're investing through and whether that's right for you.
One other thing, ethics is really important. This is about your reputation. I've been doing this for 10 years. I've made mistakes and I've learned from those mistakes. Every time that you have an opportunity to support a company, try to lead by example and sustain a really strong reputation over time.
Most of them have all their portfolio companies on their website or on Crunch Base. Reach out to some of them before you take money for them and say, what's it like working for these investors? I've also been in situations where an existing portfolio company really wanted to take money from the celebrity. And this celebrity wanted to invest at half the valuation that we invested in. And we were like, what's this is crazy. Yeah, no, but he can add so much value. Once you work with them, all these magical things happen. So I said, okay, I'm fine with it. I'm not going to be against it. But call five of his portfolio company founders and ask what it's like and whether he is actually adding value. And a week later, my portfolio founder calls back and says, yeah, you're right. I don't want to work with this investor. So I think investors that are just fighting to win the deal and then disappears afterwards, that's not a good sign. And many of these early stage investors, including ourselves, we're looking to get like five to 20 percent ownership. It's like a marriage, you're with them for years and years. Make sure that you have a similar value set that there's mutual respect.
If you're speaking to very experienced investors, they're very comfortable investing in SAFEs or convertibles or similar. And those are very fair terms. The valuation is not even a topic. It's going to be decided by a lead investor in a later round.
Accelerators have a fixed, one size fits all. You go through our program and then you can choose to take our money on these terms or not. Totally fine.
A handful of investors might ask for like a 2X liquidation preference or something crazy. I wouldn't take that money, but if you don't have a choice, you don't have a choice. So you have to invest more time in fundraising and casting the net wider so you're not in a position where you are forced to take those types of terms.
For someone who is young and don't have an idea yet, go and work in a startup. Maybe not a startup where you were one of the first 10 employees, but one of the first 50. Get a sense of what it's like to make decisions, work in an agile environment, learn about the industry. No matter what industry it is, you'll be picking up trends, you'll be speaking to customers, you'll be learning things.
Don't just say, I will now resign becoming an entrepreneur and I'll come up with a brilliant idea and then I'm gonna go back and raise some money and build it. It doesn't work like that. You need to study an industry, study a problem, quantify a problem. And when you feel like you know enough about that problem where there's a real business, where you can actually generate revenue, then you go and do it. It's better that you learn as much as you can before you jump in and good fortune will shine on you and you will come up with a great idea. It will come to you at some point, or people that you work with might identify a problem and ask you to join them either as a co founder or a member of the first team. That's a good starting point.
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