The following interview is a conversation we had with Axel Bichara, Co-Founder and General Partner of Baukunst, on our podcast Category Visionaries. You can view the full episode here: $100 Million Raised for Venture-Driven Growth at the Intersection of Technology and Social Change

Axel Bichara
Thanks for having me. 

Brett
Yeah, no problem. So I was doing some research online and I see that you launched a venture backed startup back in 1987 which you then sold in 1991. So I’d love to just start there. What was it like raising capital and building a tech startup back in the late 80s, early 90s? 

Axel Bichara
It was like the good old days of venture capital. We were very young students at MIT and with a vision to build a CAD system, mechanical CAD system. And even while I was still a student, we ended up raising money from some very well known investors who led around basically with some demo where we had and showed up with conviction, with real money, showed up for board meetings and helped us build a company. And it was a wonderful experience, which was really the beginning of me getting interested into the venture business because I saw how investors operated and eventually thought, okay, I want to do that in my life. 

Brett
And how have you seen the venture world evolve then? Over all this time? 

Axel Bichara
It has been a huge evolution. Venture was a tiny nichey industry, very few people doing it. $50 million was a large fund back in the today. A lot of what’s called venture isn’t really venture capital anymore. At least the way I learned it. A lot of what we called gross equity back then is called venture today. And the essence of venture capital, of leading rounds and partnering with entrepreneurs and being hands on and building companies, that’s how I learned venture from the entrepreneur side back then. Very few people are doing that today. And that’s frankly one of the reasons why we started Balcony. This is exactly what we do, classic venture capital when founders first get started. Nice. 

Brett
Let’s dive deeper into the fund. So I believe you announced it officially in April 2022, is that correct? 

Axel Bichara
Yes, correct. With our final close in the fall, we’ve made seven investments from it so far. It’s 100 million dollar fund and we are precede lead investors and practice what we preach. 

Brett
And because you’re so early getting in there at the precede stage, what are you looking for in entrepreneurs and founders and founding teams? What really excites you and says, hey, this is the team that we want to bet on at this very early stage? 

Axel Bichara
Yeah, we look primarily at two criteria when we invest. One is exceptional founder or founding team. And that means a person or team that’s exceptional in what they’ve done in the past or in some dimensions doesn’t have to be somebody with a huge track record, huge experience, but somebody who’s done really interesting things in their lives is number one. And then number two, it needs to be a large market opportunity because the one thing you can’t fix is a market opportunity. You can fix a product, you can improve a team, but you can’t fix it if the market you’re going after is not large. So to me that’s the essence of venture. Great team, large market opportunity. 

Brett
And can you talk to us or maybe share a few examples from that list of seven deals that you’ve done so far? 

Axel Bichara
Yes, we have funded a company called Fiveflute, which is an engineering collaboration software company, very early stage, two founders and is a great fit with the experience I have and companies I’ve backed in the past. So they help engineers collaborate. We also founded a company called SDAs, which does factory automation software, cloud based factory automation software. Another one that comes to mind is a committee called Ibot. They provide a kiosk which gives you an eye exam in 30 seconds and can issue a prescription. 

Brett
Wow, that’s super interesting. And I saw online that your focus is on creative technologists. Could you define what a creative technologist is? 

Axel Bichara
Yes, we look for opportunities where technology and changes in society come together because that’s where the best opportunities are created. And creative technologists are the entrepreneurs at the center of that. People who understand technology but who have the creativity to see into the future, 5710 years into the future and leverage trends in society to a vision for a company and are able to articulate that. So that’s how we define them. In every venture backed company, the entrepreneur is really at the center. And this creative technologist is a persona we have in mind as we look at companies in the kind of entrepreneur profile we ideally would like to see. 

Brett
Do you ever look back and miss being an operator and a co founder and being in the day to day of a company? Or do you just love being an advisor and helping the founders and being an investor? 

Axel Bichara
So I love being an investor, but you have to remember, managing a venture firm is also a company, right? You have investors, you have a team, you have management issues, so you really end up doing a little bit of both. But the truth is operating a venture backed company is all consuming, very difficult, and after you’ve been out of that for a while, like I have, I’m quite sure I wouldn’t be good at it anymore. So I missed it in the first few years, but haven’t missed in a long time. 

Brett
Interesting. And that makes a lot of sense. Now, how would you summarize the state of venture today? 

Axel Bichara
It’s a very noisy environment. We are really at the tail end of a boom that started in 2009 where things went mostly great until about a year ago, probably the longest boom in venture history which has resulted in huge amounts of money, large number of firms and people being able to show success, but in just a rising market. And what has changed in the last year is that we are coming back to a more normal business environment which is likely to make it more difficult to make investments, build companies, going to be more back to the fundamentals of business building. And the general noise in the market will probably reduce over time. And what we call some of the venture tourists will go away because it’s a very difficult business to do well over an extended period of time. And the very large funds, the eye fragmentation of strategies will probably consolidate in the coming years. 

Axel Bichara
But it takes a long time to consolidate because the time constants of venture firms fading out are quite long given these are ten year funds, management fees for ten years, et cetera. 

Brett
And what do you think will happen to all these crossover funds that in recent years really seem to kind of come charging into the capital or the venture capital world and driving up some of these valuations and doing some of these mega Series A deals? Do you think those funds are going to perform over the long term or do you have an opinion on how those are going to play out? Because I think that’s still very much up in the air and it seems to be a debated topic on how those will work. 

Axel Bichara
I think like anything in venture, it’s not good to generalize. There’s some very good, very smart people who do, who are very good at later stage investing and they will make money and there are many others who are not so good and they will not make money or lose money. And that’s actually true really at all stages of venture it’s very easy to make investments but it’s actually very hard to make good returns. So it will definitely be the valuations have already come down, especially at the later stage and people will go away. Some people will have very poor returns, but the best of the best will continue to have excellent returns. 

Brett
What do you think makes a good venture capitalist? 

Axel Bichara
You need to love the business. You need to work hard for a long period of time. Be humble, learn, always learn. I learn every year. I make so many mistakes. Learn from your mistakes, get better and focus on the fundamentals of company building. Build great teams, great products, be capital efficient, work with good people. A lot of it is just basics of good work and good business. Practices and patience, because we have the saying it takes most overnight, successes take ten years. It’s very few companies where you have a real success until less than ten years to get there. So both as a founder and as an investor, you need to be very patient. 

Brett
And is there anything in the venture capital world that you see happening that just bothers you or frustrates you? Is there anything that you’re seeing there in the market that maybe other VCs do or just the markets doing in general that you don’t really agree with and like, necessarily? 

Axel Bichara
Well, it is a little bit the lack of appreciation for the business fundamentals. So we have a lot of people saying, well, I raise a large Round, therefore I’m successful, I have a large fund, therefore I’m successful, and large amount of money doesn’t really matter. What matters is that you’re building a good business, that you have product market fit, that you have a good business model. So raising a large Round, being a unicorn and being Twitter famous, there’s a lot of that out there, but that doesn’t make anything a good business. And the value system, especially in the last ten years, has shifted toward those metrics, and the focus on the business fundamentals has been more and more ignored. But that has all been coming back in the last few quarters and will continue to come back because in the long term, you really only make money if you build great businesses. 

Brett
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Axel Bichara
So we lead free seed rounds, and there are actually very few people who do that, go in with conviction and write half a million, $2 million check when one, two, or three founders first get started, we make up our minds independently, lead the round. Often we do the whole round. And that’s what entrepreneurs look for. They look for somebody to partner with them to solve their funding problem when they first get started. And that’s, by the way, the classic venture capital I learned about in the 90s when I was on the other side. And there’s surprisingly little of that out there. I’m also a huge believer in a partnership in a venture firm where the partners work as a real team, make each other successful, challenge each other. So we have four equal partners, two in Boston, two in San Francisco. We invest throughout North America, and every investment we make is actually a balconst investment. 

Axel Bichara
It’s not any of the individuals investments, and that’s part of our strengths. And again, it’s back to the basics of the vendor business, the way I learned in the I’m sure you’ve seen. 

Brett
A lot because you’ve been just in this crazy world for quite a long time. So based on your experience and I’m sure you’ve had to navigate a number of challenging times in history and a number of difficult markets. So what are you advising founders to do right now? Given the state of the market and everything that’s happening? 

Axel Bichara
It is more than ever capital efficiency and low burn rates, especially until you have product market fit and business model proof. And we distinguish explicitly between these two and spend as little money as possible to achieve those. Quality of teams is always extremely important. Who are your co founders? Who are your employees, but also who are your advisors, who are your board members? You’re only as good as a team you’re playing on and then maybe finally be long term execution focused. Every company becomes what we call an execution play eventually, where you just need to execute really well over many years to win against competition and get ready for that. Hire a great team, build a great product, fix things one step at a time, and next thing you know, 5710 years will be over. But you’ll be in the best position to have created value if you’ve continuously focused on that. 

 

Brett
Makes a lot of sense in terms of bringing technology to market and the product market Fit journey. Is there something that really stands out as a common challenge or a common mistake that you see the founders you work with and the founders you have. 

Axel Bichara
Worked with make it’s almost human nature and or maybe part of the persona of most founders people. You start a company because you’re optimistic, you want to change the world, et cetera. So it is quite common to be too optimistic about achieving product market fit and business model proof. So people ramp up to burn rates too quickly. And a lot of what we bring to the table, especially in the early years, is real discipline. Who exactly is a customer? How exactly do we serve them? I often say if you solve 99% of somebody’s problem, nobody will buy the product. You need to solve 100% of your customers problem. It’s interesting that also in the environment of the last few years, there has been a push actually, from many investors to spend money early, win in the market by just ramping up everything quickly without proving it first. 

Axel Bichara
And that’s changing as we speak, and that’s a good change. 

Brett
And just for the founders listening in and the majority of our audience, they are very early stage founders. So what would you say are the types of opportunities that you’re especially excited about? 

Axel Bichara
We’re generalist investors, so the creative technologists sitting at the intersection of technology and trends in society. We look very broadly with that pattern in mind. In terms of categories where we are actively looking right now, we have a lot of expertise. Engineering software has been an area especially I have a very long track record in. We continue to see great opportunities there with AI enabling so many new opportunities. There’s a great opportunity in AI and engineering software, similar story with manufacturing software and moving all the way into supply chain. So enterprise really can even broaden that from there to enterprise software. There have been for many decades and will be many generations of future opportunities with big data cloud AI. And it’s not about to stop. We’re currently really interested in food related investments. We’ve made investments both in food production infrastructure and commerce, basically consumer, ecommerce, food related, made a number of transportation related investments. 

Axel Bichara
And these continue to be areas we’re very interested in. But we look broadly and often the outliers in terms of ideas. Entrepreneurs, market opportunities are actually the most interesting ones. 

Brett
Good to know. And the last question, and I know you’ve touched on that a little bit here, but what do you think is going to happen in Venture over the next twelve to 24 months? Do you have any other predictions? 

Axel Bichara
Things will continue to slow down in terms of valuations, deal making, pace, et cetera. We call it the tourists going away, both on the venture side and on the entrepreneurial side, and that’s a good thing. More focus on fundamentals of company building and actually a better environment for investors and entrepreneurs to build companies and execute. 

Brett
Amazing. Axel that’s all we’re going to have time to cover for today. Now, before we wrap up, if any founders want to get in touch and chat with you about potentially working together or just follow along as you continue to support founders, where is the best. 

Axel Bichara
Place for them to go? They can email me directly. It’s Axelaxel at Balcons Co. We also have a mailing list. You can go to our website and just sign up and we’ll keep in touch. 

Brett
Amazing. Well, thank you so much for coming on, talking about all of your insights here and sharing your perspective and just talking about what you’re building there. This has been a super fun conversation and hope you can come back on in a couple of years and keep us up to date. 

Axel Bichara
Sounds good. Thank you for having me. All right, thank you. 

Brett
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