E347 | Dan Bowyer & Mads Jensen, SuperSeed: Telegram v. France, Cancer Vaccines, AI Regulation, German Renewables, and UK-EU Relations

0:00Welcome back, everyone, to another episode of the European VCBC podcast. Today, I am not joining you at all. I'm handing over the mic entirely to Dan Bauer and Max Jensen from SuperCeed, our good friends and hosts of this Friday. podcast. Today, they are diving into the news. And of course, the big issue of the day, of the week, maybe of the rest of the year is Telegram CEO, Pavel Durov being arrested in France. But we're also going to be talking about the question, the big question, do we need bigger or smaller firms? We're going to talk a bit about the UK budget, if it's going to be painful, how painful it's going to be and what it will mean for the UK.

0:37And then we're going to talk cancer, mRNA and AI. But for me, now I'll just say bye and hope you'll be in good company with Dan and Mas. Here's a few words from our beloved sponsor. This episode is brought to you in partnership with our good friends at Tactic. Tactic is revolutionizing the venture capital space with its unified platform for portfolio modeling, management and reporting, eliminating the need for spreadsheets. Built on the quantitative techniques of the world's most successful VCs, Tactic enables a multitude of crucial functions. From fundraising and deployment to robust reporting, Tactic allows users to build precise portfolio construction models, track actual deals against plans, optimize reserve strategies, and model problemistic exit scenarios.

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2:10Tear down this wall. It's more than just an alliance. This is a union of values. United and determined we can serve as a model for other regions of the world. The nature of a problem requires a European response. Europe is a story of new beginnings. New beginnings. Let's start acting. This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Pavel Durov, the founder of Telegram, being arrested in France, and it looks like over not protecting children's security. So basically enabling pedophiles to use Telegram. But this Pavel thing, I think that the question I have for you, the question I have for us in the industry is around where does where does technology or these kinds of platforms, where where does the responsibility start and stop with to do with national security or dealing with gangsters or pedophiles online, all these horrific things?

3:27And it doesn't seem like there's an easy answer. And I know you think about this stuff. So should he have been arrested? I mean, he's an Elon free speech absolutist. Obviously, I mean, his position is if you break the rules for one person, you know, you break them for all. And also, I think technically he's saying that technically they can't break their own encryption, which I guess is quite a nice promise. But what's your take? Where would you go? Should he have been arrested? I think it's a terrific question. I think there's so many angles on this. The first angle, of course, is free speech, incredibly important, telegram being used in many countries around the world that are autocratic.

4:16And really, he's always argued it's a free speech platform that helps people in those places engage and talk openly in ways they otherwise could not. On the other side of that, you have all the nefarious uses that the app potentially is being used for. terrorism, smuggling, and child sex abuse, which I think, of course, the conspiracy theorists would say, look, the reason that that's the charge has been put forth is it's sort of the one thing that everybody can say it's just so abhorrent that we can't possibly condone the Jews. I saw there was speculation that he had been invited to Paris under the pretext of a lunch with the precedent that have been lured into a trap.

5:01There are folks saying that it's the US government that's behind this. They're out to get him. And then, you know, on top of that, I saw folks saying, look, Telegram was the, sorry, TikTok was the first. And really, they're just trying to strike off all these free speech platforms one after the other. Now, on the other side of that, if we take the TikTok case, we know that TikTok is an instrument of propaganda by the CCP. it's been well documented in multiple research contexts that if you want to talk about things that are too sensitive for the CCP, they just don't figure on TikTok at all. Whereas, you know, all the nonsense and conspiracy theories and things that, you know, are undermining Western policy, they flourish there.

5:43And so, you know, we know there are issues with TikTok. I don't know if we know as much about what's behind Telegram and how bad the case is. It seems to me that you have to strike a balance you you you can't have these powerful tools what is the balance this is the challenge what what is the balance we either have encrypted end-to-end secure communications where the government or other nefarious bodies can listen into you or we don't so what's the answer well there is metadata potentially even if you can't see what's being talked about maybe you can see who is talking and that may not be encrypted and maybe that could be instrumental in helping to figure out whether nefarious actors are planning something.

6:26I think the issue, as I understand it from the French side, is they basically said, look, we've been trying to reach out to Telegram to have a conversation, and we've been stonewalled. And that is the same issue the EU agencies had. The EU Agency for Criminal Justice Corporation also struggled to get any meaningful dialogue with Telegram. And what do you do then? If you have a technology platform that you suspect is being used for all these serious crimes and the owners are saying, well, we basically don't want to engage with you. It's your problem. Then how do you, what's the next step? I don't know whether he should have been arrested.

7:03I don't know the case well enough in details, but it seems to me that, you know, maybe telegram haven't, hasn't done themselves any favors yet. I just, it, because there's the Russian angle. Cause I know that telegram is being used heavily with Russian forces. I know that obviously when he was his social media, was it V Contact in Russia? Yes. So I know that obviously he left in 2014, he became a French resident as well as I think he's also residing in St. Kitts officially as a St. Kitts passport. So I just feel I'm wondering if it's political. I'm wondering because it's not like the French government didn't know his position.

7:39they know they know full well he's a free speech absolutist and is not going to kowtow to to requests to unlock or to dig into and he's and i know i've seen in interviews he's explicitly said i cannot see content i cannot see it's end-to-end encrypted it's secure that's the whole point of the platform so an ongoing debate um yes going on to bigger and smaller firms so as a small VC firm. Obviously, we look at some of the mega firms who are living on these massive fee structures. And it feels like there's mega firms and everybody else. But you posted this really interesting article. Was it Kit Harrison?

8:20What was the chap's name? Yeah, exactly. It was. And I think in essence, part of the debate is you've got Fred Wilson from Union Square Ventures, legendary investor, he's saying, look, we don't need any more$10 billion funds. We need many more $100 million funds that can go out and let 1 ,000 flowers bloom. And then the other side, others have argued, is that if we want to fund big, difficult things, we need mega funds to help us take big swings at the things that really matter because they require a lot of capital. Now, in Europe, we know we've been struggling to raise mega funds. Recently, Balderton, they announced that they had raised 1.2 billion pounds over two new funds.

9:00And so there's this rather odd argument going on in VC Twitter and LinkedIn where some LPs argue that investors should only back large brand name funds because they've lower perceived risk. And others argue that they should only back kind of emerging small funds because the returns are better. And indeed, if you look at the stats, lower funds and early stage funds, they do offer better average returns. But with a bigger variance, of course. There's more risk. So recently, a pitch book study looked at more than 30 ,000 companies, and they said that sort of the over 30 ,000 companies we've looked at over more than a decade, the Series D failure rate was lower than 10%, whereas the seed failure rate was higher than 35%.

9:42But on the other hand, the average annual return when you look at IRR is much higher for seed, So in excess of 25%, whereas the Series D is below 15%. So there's a huge distribution between the best and the worst funds, but there's also a big upside. So I think in terms of the big versus small, for me, it's much more of we probably need all of them because we need people to fund the very early stage, the risky thing, to let 1 ,000 flowers bloom, to get things off the ground. But we then also need folks that can go in with more capital later on to let things grow once they need that money. How do you see the debate of big versus small?

10:22I think it depends. I think I have to give you context, right? I mean, if you look at returns for LPs, I get that they are split between the safety of the tier one big brands because they create their own gravity, don't they? So if you're dealing with the Andreessen's, the Sequoia's, the Benchmark's, they have their own. It's a bit like no one gets hired for hiring IBM. They have their own safety and gravity. But as you say, they don't perform as well. But it feels like there's this bifurcation between megafunds and everybody else. And then you've got to pick a stakeholder that's going to benefit from whether they go with the big firms or the small.

10:56Startups are always going to benefit from going with a tier one brand just because of the brand cachet. Yeah, I think that depends on the trajectory of the firm. uh you know just what we've seen what we've seen some founders say is you go with a big firm as long as it's up and to the right which it may be initially it's great but if you then go through a rough patch if you know exactly yeah there's just not your your your option number 42 and people stop showing up for board meetings and they don't necessarily help you anymore and maybe you needed was just that that help as you were in in the desert you're finding your way back and we know some startups take a long time to mature.

11:32So actually, I don't think it's as clear cut. I think you make a strong argument, but I think there is a need for firms of all sizes and scales. It's not one or the other. I mean, all I would feel more comfortable with, and maybe this is just a proxy, is if there were more mega funds in Europe, it feels like that would create another kind of gravity. So that would maybe open up some of the some of the listings conversations that would enable more European startups to stay in Europe. So even if we just had that, just for the basic reasons of having more funds of more sizes, and then more European gravity, I would have it just on that basis personally.

12:18Yeah, completely agree. We need European venture to grow up. We need us to have bigger firms and more capital in the later stages. I couldn't agree more. Yeah, I love that we're a small firm and that we're hungry and we're going to really, really help founders. But I also get that you need both sides of the coin. So Keir Starmer has effectively said that the autumn budget is going to be painful. And then there was all this speculation, painful for who and how and when and why um and without getting into the politics of it and the only thing i could think of was how is this going to affect startups how is this going to affect the investing landscape how is this going to really affect seis eis at the grassroots level this kind of this core early stage startup infrastructure that we have in the uk that's so important and then i was thinking ah it feels like it's going to be wealth tax capital gains it feels like it's going to be focused in those kinds of directions then i thought ah does that mean that wealthier individuals are going to perhaps liquidate assets get away from cgt is that then going to affect how they invest in seiseis so that's where my brain was kind of traveling and i don't know if you had any reflections on that but what is it going to be how For whom?

13:43How? It's painful. It's a 22 billion pound black hole. And if you look at how many people there are to cover that hole, there's about 37, 38 million adults and working age in the UK. And the mean take-home pay is around 2 ,300 pounds a month. So if you take the 22 billion pounds and you spread that evenly over everybody, that means sort of about 600 pounds more per adult. you know, that's about a four weeks take home pay for the media and earners. It's a lot of money. So it just goes to show the scale of the problem. And of course, what's being talked about here is to not let working people pay for this, but concentrating it at, I think, sort of this notion of the broader shoulder.

14:29So you're talking about concentrating that, plugging that gap on much fewer people. So that means that it'll be a heavier burden to pay. I think the only thing that really makes sense to tax is property. but it's the third rail of UK politics. You can't touch property taxes. That's why they're some of the lowest in the world. So I fear like you that it will end up being a tax on business and an investment. And that's a shame because business and investment, that's what we need more of, not less of. And if you tax things, you tend to get less of it. So if we really want to solve it, I think you have to look at property even if the property tax is just temporary until it can be plucked with more growth.

15:06So yeah, I do think there's some pain ahead here but we know why, right? this problem has been stored up for a long time we've had years of mismanagement of the economy but didn't the tory say exactly the same thing when they took her when did they take over the 14 they took over from labor and oh in 10 2010 so and then it was the same thing and this feels like austerity 2.0 and it i'm i don't know whether where the parallels are but looking at the inflation reduction act in the states and how they invested their way and i know there's all kinds of protectionist arguments. There are all kinds of challenges with the IRA, but it felt like they went the opposite direction.

15:46And this to me, smacks of austerity 2.0 and almost the fear mongering of it's going to be a tough budget in the autumn. It's like, well, surely we should be investing, supporting and developing because if we can mirror some of the IRA in some ways, especially in the advent of AI and using technology perhaps as some of the bedrock of this, it feels like we should almost be having the opposite conversation yes it's going to be tough there might be a little bit of of reshuffling of priorities but we are going to build our way out of this i can't i don't is this going to be austerity 2.0 yeah i look uh possibly i i don't think it's as as probably as deep but we're talking about cuts that are as as deep um you I agree with you.

16:36We should invest. I just don't think the Labour Party thought they had the political support, the political will across the country to be able to win an election on an expansionist budget. So they've essentially hemmed them in saying they won't borrow for anything. I think this is connected with the other issue we highlighted, which is, you know, where's the growth going to come from? If you're not going to invest, then you have to do other things to drive growth and the obvious thing is to get closer to our european allies i mean i sort of we we spoke and said jokingly that starma he needs to grow up here and he's been touring europe now in a bit to reset relations he's been visiting berlin he's been visiting france but the requests around a reset so far is for a veterinary deal an agreement on mutual recognition of professional qualifications and greater ease for UK artists to tour within the EU.

17:31Now, these are all great things. This is going to move the needle, right? Well, that's the thing. I think there are nice and important things, but they're not going to move the needle. It's totally unambitious, right? So if we're not going to get growth from investing, let's get growth from trade. And if we're saying, look, we're not going to touch anything around Brexit, anything around our relationship with the EU, well, what are we left with? And that, I think, is the challenge. Stama's got a majority of nearly 160 seats. He's got five years until the next election. This is the time to be bold.

18:07Not quite that bold. Sensible bold. Not foolhardy. What's the key here, do you think? What would be the key? I mean, I know we talked about freedom of movement last week, and that's been closed down. And that just felt like a really sensible thing, not as a massive economic shift, but a little bit of that opening up of the relations with the European Union. But where do you think, I mean, trade is a massive topic. Is there any subset in there that we think we could not be political, but get through on a very sensible economic basis? Well, here's the interesting thing. So the union has basically said, look, we will offer for our best and brightest young people to come and work in the UK.

18:55And, you know, young Brits can go and work in the EU. And that's terrific, because we need that talent, right? So this is something that could boost growth for us immediately. and the EU is open to it and has sort of said look this is something that would go a long way towards starting to repairing relations and I'm hoping that some of what we're seeing now from the Labour government is just political posturing as opposed to actually a red line on policy I think if you could get that EU that youth mobility scheme up and running if that could be used to maybe also get some concessions on other trade aspects well then you're starting to be in business.

19:33So that's the way I hope they're going to go. Well, maybe this is just the beginning. Maybe the veterinary deals is just the beginning. Let's hope so. So there's a whole world of movement happening in cancer vaccines, a topic close to our hearts. Where were you going with this? Well, so recently there was a big feature in the FT about the cost of solving cancer. You cancers like pancreatic cancer, they have such low survival rates that there are basically no pressure groups calling for funding because all the victims, they die. It's kind of sad and a little bit macabre. But if you take a step back, COVID was a terrible shock to the world.

20:14And the rapid development, the deployment of the mRNA vaccines were criticized due to the unforeseen side effect. Now, as you know, I felt some of those myself. I know how tough it was, but there were also some good things coming out of it. The mRNA is an incredibly powerful technology. And coupled with AI, it's really helping us radically lower the cost of drug development. And so you can accelerate the time it takes to develop new drugs. You can make more personalized drugs. And so we now have more than 100 cancer vaccines in various stages of development. And last week, the world's first lung cancer treatment or vaccine trials launched across seven countries.

20:54So cancer is not one thing. It's many things. But it's highly likely that we can make a significant leap in cancer treatment in our lifetime. So admit all the dire news. I think it's just worth remembering what a special time we live in. Both of us lost our fathers to brain tumors. It's very personal to us. What's your prediction for the development of the medical technology over the coming years? Well, the lens I kind of always look at this stuff with is what can we do? What can the startups that we invest in, how can they be part of this? And I think AI will enable some of the smaller players to play their part in a lot of the tooling that goes in.

21:34But obviously, these are mega companies. I mean, there's not so much government money goes into this stuff, although a bunch, but it's mainly massive private businesses that are dealing with these very high risk, high reward kinds of treatments. but I'm always thinking where is the investment angle where is the European angle where is the startup angle and my sense is that AI will be the unlock in some of these things yet to be seen as to how and where but I'd like to see some of the startups I mean we don't do that much in health and bio because it's slightly sideways to our thesis but I'd like to think that some of the companies that we work with that we touch that we're involved with can be part of the whole the whole machinery.

22:20I'm not quite sure how much of this stuff is going on in Europe and how much of this stuff is going on in the States or other places. Do you know? Yeah. So Denmark is a leader in medicine and biotechnology. So I'm trying to stay a little bit close to it. There were issues around another disease that's been breaking out. If you've seen in Africa and a Danish company, Bavarian Nordic, were quick with a vaccine. So a lot is happening in Europe. And actually, I think more is happening in younger companies and startups than is sometimes appreciated. I'm an angel investor in a small way in a California-based company called Siren Baro Technology that specifically works on solving brain cancers using gene therapy treatments.

23:04So I think there's so much happening. I just amid all the dire news and it's easy to be doom and gloom, there's a lot of good stuff going on. Yeah, it's bang on. I think doom obviously wins in the news, and it's not. And this is these kinds of hyper personalized medicines, because the next step after the MRNA stuff is going to be the personalized version where your body is treated for you by you. And I feel it with hopefully within our lifetimes, that'll come. But staying on the tip, the next thing we want to talk about was I was reading an article recently in Bloomberg about how a lot of the big providers of AI are not going to release the same versions in Europe.

23:40Now, we've seen these kinds of threats before. I mean, we've seen meta block services in Australia over certain issues. But this, especially with the advent of Apple intelligence and the next launch next month of the new iPhone being very Apple intelligence focused, I'm wondering what are we not going to see in Europe because of the EU directives and the EU regulation and challenges that AI has in Europe? but also is this something that is not going to affect the uk because obviously the uk is no longer part of the eu so what are we going to get that the eu's not that the americans are going to have and so when i was reading i was thinking what will this mean for us how will this play out and i don't know if you have any reflections on that hey look i think you can't regulate your way to greatness.

24:38It's extremely important that regulators, they provide a level playing field, that they help to stimulate investment and growth. And importantly, that they make sure that negative externalities are costed and paid for. So for example, if we pollute in our business or daily lives, we have to pay for the cost of cleaning that up. Otherwise, there's too much incentive to pollute. So a lot of things are really, really important from a regulatory perspective. But I think when that is said, regulators then also need to get out of the way and let business do what business is good at. And I fear that with some of the AI regulation, the EU has gone too far.

25:12It may be in part because the UK was not around the table and was not part of helping to shape the legislation when it was done. Yeah, but we're very risk-averse, aren't we? When we are the UK, we had the Bletchley Park crowd and we went straight into the fear, the dooming, the regulation, the control rather than, or at least having a balance, it felt like, where there There was, I think when Jeremy Hunt was around, he was talking about, you know, investing and building and doing. And it felt like at least there were some noises from government to maybe balance out this fear, risk, control, regulation against an invest, do, build, you know, rah, rah.

25:49But I just I wonder where the UK is going to go, whether we're going to align on the EU side, because it feels like we have the choice, or whether we're going to be a little bit more open, a bit more risky. key. Yeah, I think it's going to be somewhere in between the two. To some extent, if we want to sell to the EU markets or the EU customers, it's our biggest market, then we have to align with their regulation, which we can't help shape. So I think UK businesses to some extent are under that regulation, whether we want to or not, if we want to access that asset market. But I do think there is some leeway, especially in the early days, we're taking more of a US aligned approach.

26:26I hope we do. I hope there is a real push for building because you have the talent and they're here they're in the unis and around there it's like let's let's let's give that some freedom um moving to germany so you it feels like it's a it's a tale of of two countries germany stagnation unserious and then there's this germany that it feels like on one hand there's this kind of regulatory oversight which is very been very stifling. And on the other, it feels like they've almost had an unlock with regards to energy and renewables. So this is your topic. What was happening here? Yeah. Look, I say this with all love and respect.

27:08Like Germany used to be, and the Germans used to be the best at everything, right? The best at making cars, the best at playing football, just, you know, the strongest economy. And it is still, well, yeah, so many, many things. And it is still the largest economy in Europe. And they have the most sophisticated manufacturing sector The challenge is, you know, Europe basically doesn't really work if Germany doesn't work. And Germany has not been working for a while. The growth has been flat. If you look at the period over the last five years, the economy basically has not been growing since 2019, up only half a percent over that period.

27:42So Germany is a manufacturing hub. Energy is key to manufacturing. You know, at first, COVID gave that a knock. And then the challenges with China exports gave that a knock. And then the Ukraine conflict meant to stop for cheap rushing gas and soaring energy prices. So not all is doom and gloom. As you say, they've been developing record renewables. They've streamlined the permitting system. They make it easier to build wind and solar. So they can strip out the nonsense regulation. They can create regulatory change when they want to, right? Absolutely. But at the same time, they are crushing their nuclear energy industry.