E370 | Dan Bowyer & Mads Jensen, SuperSeed | UK VC Fundraising, Corporate Climate Pullback, EU Fragmentation, and Pan-European Startup Entity

0:00So today, what is happening in European venture? Let's have a look. Today you've got Mads and myself. we are looking at some figures from deal room are our uk-based vcs back on track we're looking at climate large companies maybe stepping in stepping out of cop 29 and climate stuff what happened from the uk international investment summit there's some interesting shenanigans there um andy haldane from the ft has uh very interestingly taken a different look at public investment in the uk and how that can be eventually self-financing what's happening with reeves and the national wealth fund and where that's come from what else we got the the eu inc petition i'm sure most people have seen this but um just have a little dig into that how can we not talk about SpaceX catching Starship rocket booster?

0:59And finally, we've got this lack of exits challenge for LPs. Are they still looking at VC and what the data points are there? So that's what we've got, Mads.

1:14Tear down this wall. It's more than just an alliance. This is a union of values. 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. We are starting at the top. So first on the list is, according to Dealroom, UK-based VCs are on track to raise more than 12 billion this year, which is actually surpassing 2021's record of 11.5 billion. However, according to Venture Capital Journal, you and I talked about these different data sets and the stats and where these numbers come from, which I think is an interesting point in itself.

1:59But just to stay on this point, according to Venture Capital Journal, global VC fundraising still hasn't surpassed 2019 levels. So from Jan to September, this period is the lowest in five years globally, suggesting that perhaps Europe is doing well, because if we're looking to beat targets from 2021, then obviously we're doing well. But let's have a look at some of the numbers. So this year so far has seen a peak, but fewer and larger funds. No surprise there. So LPs are possibly doubling down on the big brand names. Average fund size has nearly doubled in the last six years. It's now at one hundred and seventy million dollars for the average fund size.

2:37Again, no surprise. North America has raised half of all total commitments so far. that's about 40 billion. Europe is about 10 billion of this January to September milestone, around half of the multi-region funds. But the only region that grew this year was Europe, which is great, but it's only a small percentage increase at 3%. But it is the only expanded region. The top three fundraisers this year aren't massively well-known names. So we've got Northwest, Arch, and flagship pioneering, all raising around$3 billion. Do you know those three funds, Mads? They're not real venture funds, are they?

3:15I thought they were sort of more growthy PE-type funds. I mean, Arch, I think, is a sort of climate growth tech kind of infrastructure project finance. So it's not the venture capital as you and I know it. It's not finding a couple of founders in a garage and backing them with a million bucks it's it's you know i think it's much more about sort of putting mega bucks into stuff that's already you know big so these are the biggies and they just happen to be doing a bit of ec fine fine so um pantera blockchain they oversubscribed it at two times their original request raising 1.3 billion which surprised me i thought i thought blockchain had fallen out of favor that's obviously still cooking and funds that are still open and looking to raise are looking to raise a combined 240 billion dollars globally and a half of that is in north america and 25 billion is still open across europe so that's some of the data sets behind it but what's going on here um any reflections mads on on this very mixed picture of what's happening with fundraising managers are out raising money I mean, what we know is that many firms that raised in 2020, 21, 22 are looking to raise new funds now, and many will not be able to because they made bad investments.

4:34They invested in things at silly prices, thought that it would always be up and to the right. And others that took a different approach and actually backed smart founders and were building real companies are going to have an easier time raising. And then as you're saying, there are the big brand names which are trading on very long track records and a good history, and they're also able to race. So, yeah, it's a tale of depending on what you bring to the party, you either will or will not be able to race. I think maybe except for 21, 22, it was probably always like that. I don't know if there's really any new news here.

5:11It sort of feels like that's just the way things are. But maybe you could see something that's new and different in this to what we would expect. The main thing that came out for me was that I was surprised at how well the UK is doing. Now, we were talking before we hit record about the stats and the numbers and the differentials between which data set you look at. But it does feel quite warming. And we do know and we've known for a number of years that Europe is growing much faster than the States. Obviously, the States is still the behemoth, but Europe is growing. I think last stats were around four times faster than the US.

5:46but it's quite warming to know that we're looking to raise in the uk alone not across europe but 12 billion this year that i found extremely surprising um and very very warming so that that i mean we know full well from our experience that there's so much talent across europe that these very talented founders need access to these funds and that i thought was amazing and obviously we've covered we've covered some of it here right we've covered atomico you know we've covered Baldurton, we've covered some of those, you know, UK races earlier in the year. We know that our good man Stebbings has just succeeded closing 400 million.

6:23It's a fantastic achievement. Again, UK based firm. So yeah, I mean, we kind of think we sort of we know who these firms are, and they're fantastic, fantastic firms. And it's great to see them, I should say, succeed. I think this really, this really warms my heart. Talking about warming, I want to talk about about cooling so um the next point was was something that i wanted to discuss which was i was reading recently about um the largest companies in the world seem to be calling on their activity on climate change and it feels like just as we're looking at this massive push now for electricity and energy generation and lots of big tech going into nuclear and microsoft looking to open up new plants and google and they're basically becoming their own energy suppliers but many CEOs are not not attending cop 29 this year and a lot of big financiers like black rock bank of america deutsche many of these large internationals are not are not basically engaging on the climate change dialogue now as a proxy growth in mscis now mscis is a a analyst toolkit so they they provide a lot of the tooling for big business to look at their esg and climate tracking they provide the toolkits for that now they've they've seen a massive drop off in their growth rate for selling their services selling their toolkits so they're now they're now back to 2017 levels and that seems to be whichever vendor you look at there seems to be a drop off in big companies looking at how they deal with their tracking their climate and their ESG commitments.

8:01Investment in climate tech in 2024 looks like there's a 20 % drop there. Climate tech investment looks at peak in 2021 at around$55 billion. And that's been growing steadily from about$5 billion since 2014. So there's been this great push into climate tech, which is now obviously, obviously, petering off and big tech is now is now not as interested in tracking and supporting this. So as we look at this against the backdrop of the age of electricity as the IEA have declared. And obviously much of that is being pushed by EVs and AI and data centers. So have we reached peak climate tech? Is big business no longer interested?

8:45Is this a big deal, do you think? What's going on here? Do you know what I think what it is is we've reached peak virtue signaling. And I think that's probably a good thing. We've seen announcements that Microsoft is going to invest in Three Mile Island, getting that back up and running on the nuclear power side. We've seen, as you just mentioned, that Google is going to go nuclear and invest in these smaller reactors. I think you're going to see lots of investment in all the good things that can help with the energy transition. We know that the cost of solar has kept coming down, down, down. Everybody's expecting that there There will be changes to planning laws in the UK that will make it easier to get permits for things like onshore wind.

9:28Again, that will help. We'll keep to see great advances in battery storage and in energy storage technology. So I think in all the things that really matter, we will keep seeing lots of changes. But perhaps some of this virtue signaling we've seen over the last 10, 15 years is going to be pulled back a bit. And that's probably a good thing. so we can get back to business and talk about what is it actually we need to do as opposed to just be a talk shop and sort of try to look good. So I must say I'm not too despondent. You're not so bent out of shape. I mean, if you look at the new data centers that are being built, we've got 24 gigawatts coming online.

10:04Now, that's tripled the same period last year and exceeds already the entirety of 2023, according to a new report from Wood Mackenzie. So there's a whole world of stuff going into energy but I also do know that we're now at a stage where renewables is mostly at a lower cost against fossil fuels so hopefully hopefully the fact that people aren't buying the platforms to measure this stuff hopefully that doesn't matter so much and maybe the virtue signaling is baked into that yeah no exactly I think that's exactly right and hopefully uh some of this all this this push to get more energy online because we need it to not fall behind in AI means that there will be a real political will to say, okay, let's make it easier to put solar farms up.

10:48Let's make it easier to put wind power up. Let's make it easier to do all the things we need to do to actually deliver sustainable energy instead of just talking about it. So maybe it's the optimist in me, but I'm seeing so many positive... Bingo. Yeah. Right. The UK International Investment Summit, which was on Monday. Now, Labour have very proudly announced that they're bringing in 63 billion in private sector investment. However, there was a little bit of a challenge with DP World, who is P &O's operator, who shelved their one billion investment into their, it was a container port in Essex, wasn't it?

11:31Yeah. So they were looking to do a billion, a billion pounds investment into this container port. and they have it looks like pulled out but maybe not depending you know maybe there's a little bit of posturing here but this was just before the investment summit where Starmer and obviously Reeves were looking at what they're going to be doing and it feels like the word of the day is stability as far as Starmer is concerned and I can understand that he's trying to instill after however many chancellors and however many regime changes in UK government over the last 10 years, a bit of stability is, I think, is to be welcome.

12:09And they're also talking about less regulation. He was pushing this less regulation mantra, just as he was talking about pushing more regulation into the employment regulation side. So Reeves did suggest a change to how debt would be measured in government, which means that we can get more investment into infrastructure, which would be an incredibly good thing, unlocking potentially tens of billions of and therefore bringing in more foreign co-investment, which is a great thing. And the eight sectors that were mentioned on Monday were defence, digital technologies, financial, life sciences, and professional and business services, which seems to cover a full multitude of goodness there.

12:50So it feels a bit weird that this was before the budget. Obviously, the budget isn't coming up in a couple of weeks. So maybe there was a little bit of restrictions about what they could and couldn't say. But have you got any reflections on this? Yeah, I mean, the reflection I would start with is maybe just from a slightly different angle, which is the thing that made I think many people a little bit nervous about labor. Because if you have been looking at what Starmer and Rachel Reeves have been saying, it's all been, look, we're going to go for growth. We're going to try and get rid of the things that stand in the way of growth.

13:24We can't spend our way just by spending more on public services. We can't kind of wish our way to a better economy. We actually have to invest and we have to let the economy and business invest. And we're going to try and do the things that will help us get there. But Starmer, he's also lumbered with a Labour Party that's, you know, right now is very big. There are hundreds of members and many of whom are not, should we say, naturally inclined to favor business or maybe even understand how business works. And what can make us a little bit nervous. Is that a diplomatic version? Possibly. You have somebody like Louise Hay, who it's just not obvious that she really understands how important business is.

14:08And yes, even with the best world in the world, if you are a Labour politician that wants to invest more in healthcare and education and schools and all these things we all want to spend money on, the wealth is going to come from somewhere. And we can't all just be public civil servants and just serve each other. There's got to be some businesses that actually create some value that can then be taxed and that the government can spend. And if you sort of pick battles or if you say to international investors that you're terrible people because you want to make a profit, well, they can probably invest somewhere else.

14:43And that's not going to be very good, even if you're sort of more on the left side of labor. And there's actually quite a lot of people in the party that have those leanings. And I think Starmer is doing his best to control them. I think he's picked some real battles with the left of labor. and so far he's been good at keeping them in line. But this was just one of those examples that I think many of us have been a little nervous for. Can he keep them in line? And I think we'll know a lot more, as you say, when the budget comes up on the 30th. Is it going to be a proper growth budget or is it just going to be kind of more borrowing and more spending and not really investing in the future?

15:24It was Louise Haig that basically said that um the dp world the pn operator was a rogue operator right so they they they fired 800 staff and then and then rehired the cheap agency workers but that seems to be an example of what you're talking about where it but it was it was more than that she said that people should start boycotting the company and for a minister in the government to say that a company that invests in the uk should be boycotted i mean just that's the kind of stuff you can say if you are a out of the political organizer in opposition. But you cannot say that if you're in a government trying to attract investment into the country.

16:01It was just, it was really, really stupid. And so how, you know, of course, there's always a little bit of a stupid caution, right? I mean, the previous government did not exactly, was not exactly blueprint free. But, you know, you can only take so much. And I think right now the government is a little bit on trial and we're all kind of But can they actually manage the economy without messing it up? And this was not a good sign. No. Starmer was distancing himself from those comments quite actively. Yes. I want to talk about Andy Haldane. So he wrote this really interesting piece in the FT. Now, he's a contributor to the FT.

16:41He's not a proper full writer there. But he's the former CEO of RSA, and he's the ex-chief economist at the Bank of England. And he's got a really interesting take on public sector investment. So leaning into what we were talking about, he's essentially saying that the UK government can invest more and it can be self-sustaining, which is the backstory there being that public investment is due to drop from 2.7 % to 1.7 % over the next five years. If Labour doesn't change this fiscal rule on debt, meaning obvious stuff, less activity, lower tax receipts, less output, vicious cycle stuff. stuff now the OBR has suggested that a one percent of GDP increase in public investment will boost output by a half percent after five years two percent after 10 to 15 years and if four percent of GDP it could raise national income by 10 percent and this is big stuff so effectively meaning a nine percent ROI which would exceed borrowing costs now this feels like big and bold stuff which goes beyond four-year kind of political cycle so is this the tightrope that you're talking about with Reeves I mean how can she do this without scaring the city can she make this happen I absolutely think she can if she has a credible plan and if it's well thought through and well costed and if so Labour was quite quick this summer to enter into some salary agreements with public sector workers.

18:05Some of them were necessary, but I worry a little bit that they were, you probably didn't ask, the government probably didn't ask enough in terms of needs to increase productivity in exchange, right? So it's fair to say, look, you are behind on pay. We're going to give you an increase, but we're going to expect to see productivity increases to make up for that. And there wasn't probably not quite enough quid pro quo there. So it wasn't maybe as business focused as economical as it should have been. But if you look at the noises coming out of the city today, to your question, just today Goldman Sachs was out saying, well, actually, we're buyers of U.S.

18:40gilts. And they have, together with many other international investors, said, look, we think that U.K. interest rates could come down compared to where they are now. So this is not going out and borrowing another 60 billion pounds a year to invest. But could you do 10, 20 billion pounds more? You probably could. And so hearing that from a lot of the international bond investors, I think, is really reassuring. What they're expecting is that the money doesn't get squandered away, but invested in the real stuff we need. So energy transition, transport, the stuff that we know will make the economy and the country richer over time.

19:17Well, the eight sectors they were talking about actually do make sense. There's nothing in there that's nonsense. They're talking about key technology, energy, all of the stuff that we talk about incessantly. So it feels very aligned. Yeah, absolutely. And I'd say probably not all of those. Some of those sectors are probably sectors where the government should look to attract international investors to come and invest and set up things and do things as opposed to for the government to invest directly. And other places where the government can invest in nuclear power generation or in new infrastructure for transportation.

19:52I mean, those are great things, or at least co-invest together with private investors. So, yeah, I agree with you. I mean, it's the co-invest piece that excites me. If we can bring in some private stuff. We saw the Australian Pension Fund. I've forgotten the name of it. Last week we were talking about them. They want to do it. They want the backing of some kind of government being alongside them, but they're willing to come in, which I think would only be a great thing. Now, staying on the investment side in the UK, Rachel Reeves, they've cut the National Wealth Fund by£1.5 billion, despite this UK investment drive.

20:27Now, it was originally only£7.3 billion. Now it's been cut to£5.8 billion. And this National Wealth Fund is the rebrand of the UK Infrastructure Bank. That's right. I've got that the right way around. So the UK Infrastructure Bank is now rebranded as the National Wealth Fund. And the idea being that if they can invest tens of billions of pounds into decarbonizing the British economies, into all these infrastructure projects, then we're onto something good. However, if GDP in the UK is around 2.3 trillion, is 7.3 billion even anywhere near going to scratch the surface of what we need to achieve?

21:06So it feels like to me this is actually 5.8 or 7.3. This isn't enough. What do you think? The numbers we've talked about is we probably need about 1 % of GDP of additional investment. So that would be your 23 billion. I think Labor, they were talking about 22 billion under the campaign. And they've now been cutting back and cutting back and cutting back. And the current number is about a quarter of a percentage point of GDP as opposed to one percentage point. And is that enough to move the needle? Not really. And we're going to have to see how they're going to make the numbers up. They've talked about creating another 40 billion pounds of fiscal headroom.

21:42through a combination of tax rises and departmental cuts. And whacking a lot of tax is not going to be great either, because you're going to take economy out of the system. You're potentially going to scare off other investors. So it's a real balancing act that she's got to do right now, Reeves. But it does feel like, going back to the Andy Haldane piece, it does feel like investment is the answer. We've banged on about this forever and ever and ever. It does feel like whatever happens, we need to find a way to invest. And that's, you know, across the board. As we spoke about last week, it's not enough just to spend money.

22:21They've got to fix planning as well. Otherwise, you just get a string of HS2 projects with massive cost overruns. I mean, but they know this. I mean, I remember Starmer saying, you know, explicitly, we're going to get rid of these kind of, whatever you're saying, 4 ,000 records that you'll need to to or planning planning applications to do a thing so that they know this stuff what happens who knows but it feels like you know they're saying these words explicitly so i i'm hoping that this will this will all come to pass um i want to move further afield i want i want to move into europe so one of your points this week and this is a really really interesting one is it was an article discussing whether the european project is under threat whether the EU is under threat so I've written America is divided China is derided and the EU is pulling itself apart was my commentary on this when I saw you writing this so Mario Draghi's wake-up call to combat feeble productivity growth has ruffled some feathers as core members are showing signs of protectionism and Spain is now looking to do deals with China and many many European countries are looking to do trade deals outside of the bloc and I saw a couple of videos online about macron and he was very very compelling talking about how if we don't come together work out this regulation piece and focus on this productivity piece we are in the in the shtoom and to quote him he says i really believe we are at risk in the two to three years to come if we follow our classic agenda we will be out of the market i have no doubt and that's macron now is this reversible or are we on are we on the road to to death knell of the european project you think it's been predicted many times before people will remember the the great sovereign debt crisis where people thought that europe might be torn apart and actually that led to a series of reforms that i think in many ways strengthened the role of the ecb and we were in a much better financial situation there this feels like everything is financially driven everything i mean if you look at how much political division there is and how much financial insecurity there is.

24:29When the Greeks went through that, we weren't in such a disastrous place, I would argue. It was post a great financial crisis. There was still a lot of overhang there. I'll take this somewhere else. I think the real threat is what's happening with the European economy because of the transition to EVs and what's happening with the, especially the German automotive industry. The German automotive industry has been a powerhouse of the European economy because not only is it a phenomenal export, a dynamo, but it's also a part of the economy that, you know, has an incredible supply chain. And, you know, Germany buys products from all over Europe and, you know, the world buys cars from Germany.

25:16And I think I read somewhere that the Germans have built, German manufacturers have built more than 40 manufacturing plants across China. So we're not talking about little sort of assembly shops. We're talking about sort of full-scale plants. And what's happening now is that demand is just dropping off a cliff because the Chinese market wants EVs. The Germans were slow to take EVs seriously. The cars were not of high enough quality. And BYD has just come in and been scooping up a lot of share. Well, isn't China doing, I think, 50 % of new car sales are now all EVs? And I think in the States, like 10 % or something?

25:52It's like nothing. It's nuts. And of course, they would like to enter the European market next. And so we can put up protectionist trade barriers, and we might think that's great. We're protecting ourselves for now. But the German export engine is what has been driving the European economy. So if anything, I think that is the real threat, that that export engine no longer works. and we've got to think quickly. Are they shutting plants? Aren't the Germans shutting plants? They've been shutting plants. That's exactly right. Yeah, yeah. Oh, this isn't good news. So I get that, you know, the news cycle loves doom and gloom and, you know, all that aside, how much reality do you think there is in the EU really struggling?

26:35Or is this a wake-up call where Draghi's commentary is going to come to pass and this will be, you know, a real punch in the guts to actually get some stuff moving and the EU back on track in line with productivity, realign, you know, proper, proper activity? Or is this just like new cycle chip paper? For sure, action is needed. And I also think, you know, we talk about doom and gloom, and it can often be difficult to see a way out of a crisis. But should we write everything off? I absolutely don't think so. It's interesting to see how much things can change when people have their back against the wall or when they want to take really ambitious steps and moves.

27:16One thing I sometimes think about is, yes, of course, China right now is the example, right? Ten years ago, we said, oh, the Chinese will never be able to manufacture a car that's competitive globally. And guess what? Yeah. You know, the European Space Agency said, oh, SpaceX will never be able to challenge us in launching satellites because they've not even sent the rocket up that works yet. And guess what? They have, what, 95 % of the market today. So things can move quickly when the right decisions are taken. And hopefully, you know, German industry and European industry will make some of the right decisions.

27:54So it feels like, you know, proper startup mode, isn't it? When your back's against the wall, magic happens. Founder mode. Founder mode, baby. The EU's in founder mode. Macron and Draghi leading the charge. So I was staying with the EU. So the EU Inc petition is out. Now, most people will have seen this. My question for us is, will it happen? Will it find some teeth? In five weeks time, the EU is coming together and they're going to hopefully look at this petition, which is from Andreas Klinger from Prototype Cap and a few other people. And it's a it's a request that the EU creates a pan-European startup entity.

28:38so it's effectively to enable investing and the startup ecosystem to be able to go across territory much more easily fix investments your employer europe-wide employment stock options unite the european startup ecosystem so not more regulation but kind of a standardization like um what's that the the delaware passport kind of approach so the ask really is to sign the petition If you haven't signed the petition, have a look at, do a search for EU Inc. petition, EU and then INC petition, and you'll find it. But what do you make of this, Mads? Will this happen? Is this something that can happen and will it happen?

29:17So there is the saying that you should never let a crisis go to waste. And you can hope that the powers that be are looking at the economic landscape, saying the German economy has not grown for five years. It's nuts. You've got to do something. Do I think that this idea is going to be the thing to transform the European economy? Probably not. But I think it's a super interesting step. And we've got to try some stuff, right? We've got to, as you say, go into founder mode. We've got to experiment. We've got to move quickly. It's not what governments are known for. But then again, you shouldn't let a good crisis go to waste.