This article is based on a EUVC podcast episode where Patric Hellermann was interviewed by Andreas Munk Holm, founder and moderator of EUVC.
tl;dr
The four fundamentals of VC are sourcing, picking, winning, and managing
You're either playing to win or selling a mirage to get AUM
The buddy test reveals if your network advantage is real or imaginary
Seven questions determine if you can maximize probability to DPI
Empathy and routine create unfair advantages that scale with knowledge
Distribution flywheels separate category creators from armchair investors
“You know you have a strategy when you know when to say no.”
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The four fundamentals of VC are sourcing, picking, winning, and managing
We've noticed something interesting after covering hundreds of VC conversations. Most managers talk about their "edge" in terms of value-add during portfolio management. But Patric from Foundamental flipped this thinking completely.
The VC business breaks down into exactly four stages. There's no fifth stage where magic happens. You source deals, you pick them, you win them, and you manage the portfolio. That's it. We can't make it simpler than that.
What caught our attention was how Patric emphasized that your competitive advantage might happen at the very front of this process. If you can source companies at great terms when you have no competition and time to thoughtfully evaluate them, you've already won half the battle.
We've seen too many VCs focus entirely on the management stage. They build elaborate value-add programs while completely ignoring whether they're even seeing the best deals first. It's like perfecting your closing technique while standing in the wrong neighborhood.
The sourcing advantage becomes even more powerful when founders start picking you before you pick them. This changes your entire game. You're not relying on events, dinners, or brute force outbound anymore. You're not competing with a thousand other lions for the same piece of meat.
The buddy test reveals whether your network advantage is real or imagined
Almost every VC we've met claims network as their differentiation. They'll tell you about their buddies who send them deals. But we've learned to ask a harder question: why do your buddies call you first?
Your buddies know other people too. They're friends with other VCs. They've got multiple options when they find something interesting. So what makes them think of you specifically? What makes them give you more time or invite you to co-lead deals they're running?
We've watched this play out repeatedly in our conversations. The honest VCs pause when you ask this question. They realize that "because we're good friends" isn't actually a sustainable competitive advantage. Everyone has friends.
The buddy test becomes even more revealing when you dig deeper. Are you getting all the best deals from your network, or just getting deals? Are they calling you first, or are you part of a long list they're working through?
Geographic proximity used to provide this edge automatically. If you were the connected person in Berlin or Copenhagen, founders would naturally come to you first. But we've observed this advantage eroding rapidly. Great founders in any ecosystem now easily reach investors globally. The local monopoly has largely disappeared.
Empathy and routine create unfair advantages through vertical specialization
We've noticed that the most differentiated VCs share something specific. They bring prior empathy to their chosen markets that you simply can't fake or build quickly.
Patric's background spans energy economics, renewables, Chinese market consolidation, and B2B industrials. His partners bring B2B and B2C marketplace expertise. Together, they understand the nitty-gritty details of how industrial B2B markets actually work. They know why human relationships matter so much in these sectors.
This isn't something you can learn from a McKinsey report or a few founder dinners. It comes from years of operating in these markets, understanding the supply chain chaos, knowing why projects get delayed, feeling the pain points that founders are trying to solve.
Empathy: Building on Your Natural Advantages
Empathy in VC terms means you already understand the day-to-day reality of your target customers and suppliers. You've lived in these markets long enough to spot patterns that others miss. You can immediately tell when a founder truly gets their market versus when they're pitching something they read about.
We've observed that VCs without natural empathy for their chosen vertical struggle with conviction. They end up following signals from other investors rather than developing independent views. They rely too heavily on external validation because they can't trust their own judgment.
Routine: Seeing Patterns Across Markets
Routine means seeing the same business models and pitches repeatedly, but in different market contexts. This creates a unique learning advantage that generic investors can't replicate.
When you're vertically focused and geographically distributed, you see the same construction marketplace idea pitched in five different countries. You learn which market characteristics make these models work and which kill them. You develop intuition about why InfraMarket succeeded in India but similar models failed elsewhere.
We've watched this pattern repeatedly. Specialized investors develop faster pattern recognition because they see more relevant repetitions. Generic investors might see more total deals, but fewer relevant comparisons.
Distribution flywheels separate serious players from marketing-heavy pretenders
Every successful category creator we've studied has a true distribution flywheel. They're not just building great products. They have systematic ways to reach their market that compound over time.
The same principle applies to VC firms, but we rarely see it discussed seriously. Most VCs treat distribution as a marketing problem rather than a strategic advantage. They host events, send newsletters, and hope founders notice them.
We've observed that the most successful VCs think about distribution as a flywheel that connects to everything else they do. Their portfolio model, network strategy, communication approach, and ticket size all reinforce their core positioning.
One fund manager showed Andreas a 100-page LP deck that was entirely merchandise he produces for founders. Every page demonstrated how he could help distribute portfolio companies through his own brand. That's not marketing. That's strategic distribution thinking.
The distribution question forces brutal honesty: How do you actually get your differentiation message to the people who need to hear it? If you don't have a systematic answer, you're probably just hoping things work out.
Arena: Choosing Your Competitive Landscape
We've noticed that successful VCs don't design the firm they want to build. They design the firm they need to build based on everything they've accumulated over the years.
Your arena choice - geography, themes, and stages - should flow naturally from your empathy, routine, and distribution advantages. If you start with "growth stage is hot right now" or "sustainability is getting all the capital," you're thinking backwards.
Too many emerging managers chase whatever seems most fundable rather than leveraging their natural advantages. This leads to narrative-driven fundraising rather than conviction-driven investing.
The sequence matters enormously. First, identify where you have unfair empathy. Then, figure out where you can build routine and repetition faster than others. Finally, determine how you can systematically distribute your message to that market. Only then should you define your arena.
Players: Validation Through Competition
We've learned that being the only player in your chosen arena isn't actually advantageous. It's usually a warning sign that you're either too early or focused on something that isn't really a market.
LPs want to see category validation through multiple players. They want benchmarking opportunities. They want evidence that follow-on funding will be available for your portfolio companies.
In construction tech, Foundamental wasn't the first fund. There were already four or five US funds dedicated to the space for several years. This provided category validation and helped prepare the ecosystem for more specialized capital.
Competition also creates better deal flow. When multiple smart investors focus on the same space, they collectively educate the market and attract more entrepreneurs. The rising tide lifts all boats, especially for the most differentiated players.
Liquidity: Planning for DPI from Day One
We've noticed something troubling in our conversations with emerging managers. Most don't seriously consider the DPI question when designing their strategy. They assume the power law will solve everything.
The power law excuse has become lazy thinking in our industry. Yes, venture follows power law distributions. But that doesn't mean you should ignore base rates or systematic advantages in generating exits.
Some markets offer much more liquid M&A environments. Strategic acquirers are active and acquisitive. Revenue multiples are predictable. Time to exit is shorter. If you understand these markets and have relationships with the key buyers, you can systematically influence DPI outcomes.
We've observed funds that generate consistent returns through 200-600 million exits rather than betting everything on billion-dollar outcomes. This isn't private equity thinking. It's thoughtful venture strategy that acknowledges different paths to successful returns.
Discipline: Staying True to Your Strategy
Every GP faces this challenge. Someone shows you something outside your investment scope. Maybe it's a different geography, later stage, or adjacent vertical. The opportunity looks interesting. What makes you say no?
If you can't clearly define what would make you decline these opportunities, you probably don't have as strong a strategy as you think. Discipline isn't about never making exceptions. It's about knowing when exceptions make sense and when they don't.
We've learned that the best investors use systematic questions to evaluate out-of-scope opportunities. Why is this person bringing this deal to me specifically? Why am I uniquely positioned to help this company? If the answers aren't obvious, it's probably not worth the distraction.
The discipline question reveals whether you're playing to win or just playing to stay busy. Busy isn't the same as productive. Productive means staying focused on where you have genuine advantages.
Building Your Edge: What We've Learned
After dissecting hundreds of VC conversations, we've observed that true differentiation isn't about having the best pitch deck or the flashiest value-add programs. It's about systematically building advantages across all four stages of the VC process.
The emerging managers who succeed don't chase hot markets or copy successful funds. They build on their existing strengths, create systematic advantages, and stay disciplined about their chosen game. They understand that being picked by founders is more valuable than winning competitive deals.
Most importantly, they can answer all seven questions with conviction. They know why they have empathy for their market, how they're building routine through repetition, what their distribution advantage looks like, why they chose their arena, who their competition validates their category, how they'll maximize DPI probability, and what will keep them disciplined when attractive distractions appear.
The VC industry will continue consolidating around mega-platforms and highly differentiated specialists. Generic strategies worked when capital was scarce and ecosystems were isolated. Today's market rewards authentic expertise and systematic advantages. The question isn't whether you'll face this reality, but whether you'll adapt to it.
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