E392 | Dan Bowyer ⁠and  ⁠Mads Jensen⁠,  ⁠SuperSeed: Europe’s VC Volatility, UK Budget Reforms, and Middle East Geopolitical Shifts

0:00Welcome to Upside. I'm Dan Bowyer and with Mads Jensen. We're both venture investors at SuperSeed, where we back early stage technical founders building B2B tech companies. We meet every week on Upside to unpack what's happening at the intersection of tech, venture and business. However, today we're going to do something a bit different, aren't we? Yes, we are. We are going to do what everyone else is doing, but in our own way. We're going to do our own 2024 review. That's it. We're going to have some fun looking at what's happened in the year, try to put it into perspective. and yeah, just, you know, just have fun with it.

0:34And important to remember, this is not investment advice. No, no, it is not.

0:43Tear 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. Where are we going to start, Matt? We're going to look at the biggest stories of 2024. What would you put first? Gosh, there has been so much happening. But I think in our world, the truth is that 2024 was the year of AI. And some would say the second year running. AI continued to be all out in ascendancy. And it actually led to an all out AI war. Ex-AI, Elon Musk, he went to war with OpenAI and Sam Altman.

1:33He raised more than$11 billion to build Colossus, which is the world's largest AI cluster with more than 100 ,000 NVIDIA processors. People said it couldn't be done. Nobody could connect that many processors and have them run as part of one cluster. And he managed to do it and he did it in 18 days. So it was quite a big story. Now, on the other side, Microsoft responded. They said, look, if you've got to have$100 ,000, we're going to see you$100 ,000. We're going to raise you. So they're spending more than$30 billion on a$485 ,000 processor purchase from NVIDIA. And it's just that the war is going nuts and heating up.

2:16And so because of that, NVIDIA kept having incredible numbers and the share is up by more than 170 % year to date after having increased more than 230 % last year. So it's truly been on the rise. now there but there it feels to me like the backstory to to this ai ascendancy is that the usa quite rightly has said this is going to be the next arms race the next nuclear get to the moon however you want to frame it and they're doubling down on ai infrastructure and creating the full supply chain and creating the full back office that's going to support this next revolution, which I think it will be.

3:02I think most people would agree with that. So how does Europe compare? I mean, if you look at the big winners in Europe from 24, they've all been fintech, a little bit of health tech, pharma bio stuff. So do you think we should be doing what the US is doing and creating our own AI infrastructure? What's your take on that? There are two ways to think about it. One way is to think of Europe as part of a sort of a trading block of Western nations and where we're sort of thinking, look, we are good at some things in Europe and the Americans are good at some things and we can trade and it's great. and as long as one of us are doing it, it's fine because we can rely on them.

3:45Then at the same time, we've seen that with the new man about to enter the White House, he's maybe not always as ally-minded, as friendly to allies. He will switch us off, is that what you're saying? There is a risk. And if you don't have access to semiconductors, you're just nowhere. So it would seem to suggest that we should have some more self-sufficiency, especially semiconductors because they are so essential to the next generation of tech evolution so where does that leave us i know i remember reading earlier this year that cambridge were i don't know who in cambridge but somebody in cambridge was pledging to to to be the instigators of this this kind of infrastructure ai infrastructure rung i'm not convinced that that's necessarily the right approach or i have no idea what's happened since that press release but how do we do it?

4:36I mean, where do we start? Do we find our own foundational models? Do we create our own chips? I mean, what can we do that would stop Trump switching us off? No, I don't think Trump will switch us off necessarily. But in a situation where there's a global shortage of chips, it's likely that the Americans will prioritize their own deliveries first, and that will push us further behind. I think Europe has got great assets. Arm is one of the world's leading semiconductor or microprocessor designers. We've got ASML that manufactures all the equipment that everybody uses to manufacture chips worldwide.

5:14So it's not beyond the wit of man that you could put some more dollars behind it, or euros as it were, and build some more semiconductor plants in Europe. Now the challenge we've had is there has been a strategy to try and put together with kind of the EU coordinating with various European governments to get real money behind building some more semiconductor fabs. But it's just not moved very quickly and nowhere near the speed that things have moved with in the US. Well, I know that we're not around next week. We're recording this on the 20th. So it's Christmas next week. So everyone's going to be fat and busy.

5:46But we are going to come back hard and strong on the 2nd and do a 2025 prediction. I think what we should do is look at how Europe can, what we can do, where we should go, and how governments and the EU can support. I think that would be an interesting 2025 focus to see how this is going to unravel. But there's more AI focus on your mind, isn't there? So what else is on your mind with AI? Well, some of the things we saw was that scaling laws started to perhaps slow down a bit. Lots of discussion around how much data do we actually have to train these AI models on. And to some extent, the models we have, the leading edge models today from OpenAI, from Google, from Anthropic, have been trained on essentially the open internet.

6:31So we only have one internet. So where do you find more data? If you don't have additional data, how can you make the models better? And so it turns out there's a lot of other stuff we can do to make models better. First of all, it's not evident that scaling laws really are gone. It's just that we've started to break some barriers this year in terms of how big clusters we can make. What do I mean by that? You know, there is a lot of sort of thinking that says that look when we can start to train on a hundred thousand processes as XAI is doing Elon's AI shop. We can get different quality. So if we can only train on 30 ,000 There is also there are also things around what we're doing with reasoning.

7:11So the models work in a different way We saw that with OpenAI releasing their O1 model, which just has gotten incredibly impressive performance. And then we've seen this new, super exciting evolution around agents and agents really coming to the fore. What do I mean by that? That we have autonomous agents or software bots that can do work for us. And so that means that, you know, although there may be some resistance or frictions in some part of the AI landscape, there's so many other things that are happening. and we don't see any sort of overall slowdown at all in terms of how this has been performing and the quality and the output we've been getting from these models in 24, quite the opposite.

7:52I've seen a number of startups this year who are looking to do or offer the enterprise the ability to do more with less data. So I'm sure there is some, we've got this kind of sledgehammer of more compute, but I'm sure there'll be more coming through on the efficiency piece. So maybe we'll be able to do more and be more accurate with less data. Let's come into the UK. And obviously big news this year in the UK was Labour's win. What did you want to talk about with regards to Starmer and Reeves? Where should we start? Well, initially there was a focus on return to competence. The last several...

8:30Do you think we've achieved that? Do you think we've, in the first quarter, do you think we've achieved a return to competence? The jury is out. I mean, it's easy to be a sort of a Debbie Downer from the sidelines. It's clear that we've had some very fractious years, kind of under the last several Tory prime ministers, sort of a revolving door, Boris Johnson, let's trust. I mean, it was just all a little bit bizarre. And I think there was a sense that we just have, if not competence, then at least not a lot of incompetence, and maybe just a bit of peace and calm will be good for everybody. they are saying the words around growth and business focus in labor but invest invest invest was the was the october budget mantra i remember it clearly yeah but i think that the budget was other than that disappointing mainly more tax not a lot of focus on what we need which is deregulation and and strategic investment and so it's clear that more must be done to streamline white hall lower the tax burden just you know focus on what businesses need and it's not obvious that there is enough understanding of business in in the cabinet today kind of enough people with business background to really understand at a granular level of detail what do we need to get britain working again and on the other side of the pond obviously trump won he's gonna be in from january the 5th i think it is this year so what can we expect my take is that we're gonna have a sugar high so he's going to come into power we're going to see lots of ai crypto i was fascinated by the the bitcoin act have you looked at the bitcoin act and looked at the bitcoin act no it's just it was proposed by who's the crypto queen one of the senators she's been labeled as the crypto queen she proposed the bitcoin act which is effectively um the us government buying a million bitcoins but then holding them and not being able to sell for a number of years i think that the betting odds are so far 30 that the act will pass next year and if it does that means that america is going to buy a million coins and sit on them and and hedge and effectively use gold coupons i don't know what the right terminology is to transition over to bitcoin so that's going to be a fascinating endorsement and obviously the the hodlers are saying that that will mean that Bitcoin will go up to half a million, half a million per coin.

10:59So that's going to be a super interesting thing. That aside, I mean, Trump getting elected and Trump coming to power in January means that there will be deregulation. We've got Vivek and Elon in Doge doing their efficiency play. David Sachs is the AI in CryptoZar, etc, etc. Lots of billionaires, lots of business friendly people, lots of people going to create hopefully this environment for more business and assuming that the markets will respond appropriately. This was a crazy year and it can be easy to forget all the craziness that happened. We actually said back in January, we thought that Trump would get reelected.

11:36I think my main kind of in the con of the negative column at the time is I thought there was a probability that he might go to jail. But at the time, that seemed that it was a possibility. And then kind of the courts sort of basically refused to adjudicate on some of the cases. And he had a clean run. And he was already ahead in the polls when the June debate happened with Biden and really sank Biden's hope of any re-election. And then Trump was shot on the 13th of July and Musk announced his support for Trump the same day. And I think that was a pivotal moment because although Biden pulled out on the 21st of July and Kamala was coronated to be the candidate shorter thereafter and initially had a bounce in the polls.

12:23I just think that the combination of kind of the overhang of the Biden inflation years, Kamala's really inability to articulate any meaningful platform, then kind of the, you know, Trump having the Musk effect, he was an incredibly effective campaigner for him, just meant that Trump really nailed this election. And it It was a crazy thing to watch and be part of. I think we couldn't quite have imagined that script from the outset. We had a bunch of predictions at the end of 23. So generative AI, still in ascendancy, was one of them. We'll see a rebound for software companies in 24. More M &A activity in 24.

13:05Reopening of IPOs. No U.S. recession. No global recession. Trump to be the next president, as you've just mentioned. and US stocks are breaking new records. And that looks like we hit most of them. Where did we wobble? What would you pick apart? So of the core predictions, the one where we wobbled was that software sales would rebound. Software sales had a weak 23. I thought they would come back a little bit stronger in 24, but actually the median growth rate for mCloud, so the large listed software companies, went down a little bit from 19 % to it's now 15 % trailing for 24. So it didn't rebound.

13:47Well, it's growing, but the growth is lower than I'd expected. But everything else, I think we were spot on. We said that 2024 will continue to be fully focused on AI. And the story of equity markets, the US stock markets broke new records. The S &P 500 was up 23%. NASDAQ 100 up 27%, which is nuts. And it was almost entirely the story of AI. But not in Europe, right? I mean, if you look at Europe, I mean, the fastest growing companies in Europe are all fintechs. So obviously there's pros and cons to this, good and bad on this. You know, it's great that we're great at fintech, great at pharma, bio and all these stuff, all these things that we are great at in Europe.

14:31But it feels like we're also missing out on that AI trick. But obviously in the States, it's a totally different story. all super AI focused, right? Yeah, it's a slightly different order of magnitude. The only publicly listed fintech I can think of of any meaning in Europe today is Adyen. And Adyen had a pretty good year, but it's still a small business. They're a sub 100 billion, sorry, in valuation. Whereas it's hard to compare them to all the trillion dollar companies we're talking about in the US. It's just they don't have the same global impact or importance. So if we look at these seven, and super important companies.

15:07It was almost entirely the story of AI, whether you focus on Tesla, whether you focus on Google, whether you focus on NVIDIA, of course, which was the standout star performer. So I thought that was interesting. We also said we'd see more M &A in 2024. There were doubts and questions around it, but global M &A is up year to date 15 % to almost$3.5 trillion. Many, many more deals getting done. technology M &A is up 20 % to more than 500 billion. So more deals are being done. But we think a lot more could be done. And we have had a regime in the US that has been anti-big tech and anti-big tech M &A and acquisition.

15:51We think that could change in 2025. 2024 was a decent year. I think 2025 could be a great year from an M &A perspective, which will just be great for the whole ecosystem. Let's talk about Databricks very quickly, because they were the largest investment in 2024. So they raised 10 billion at 62. And they started out looking to raise 3 billion and the round got crazy hot. And weirdly, they've got seven co-founders, but Ali Godsey is the CEO. And he also made an interesting statement around it being peak AI and how he was slightly anxious about going to market. And he doesn't want to IPO this year, partly, partly for these reasons.

16:29So even he in the center of the AI revolution is feeling like we're in a bit of a bubble. So we talked about our predictions from January, and I think we had most of them right. We said no U.S. recession. We undercalled that. Not only was there no U.S. recession, U.S. growth was incredibly strong at about 3 percent. Very, very robust. Global GDP growth also up more than 3%, so up from 2.7 % in 2023. So the global economy has been robust. I think there is a concern around the US fiscal position and debt overhang. Again, we'll unpack that for 2025. You spoke about the Trump sugar high. But it's really hard to look at 2024 in the rearview mirror from a global macroeconomic perspective and be unhappy.

17:19It's a pretty solid performance. I was looking at how VC did globally and mainly focusing on the UK so I wanted to just very quickly look at what happened Q1 all the way through to Q4 this year in venture capital mainly in the UK because I think I was not expecting it to be so buoyant and it has been and this year we're going to look at raising more than ever into venture capital and Q1 was was the lowest since 2018 in the UK investment period. Although Monzo went off and raised$431 million, which is fabulous. The LP, I remember the LP conversations I had early January, Feb, like who was doing what and with friendly LPs that we know.

18:02And it was quite a down mood. But then Q2 really, really bounced. Then Q3 was back in the doldrums again. Although one of the lovely businesses that I love was Flow raising 200 million becoming Europe's first femtech unicorn, which I thought was a great story in Q3. Obviously, we don't have the data for Q4 yet, but the whole of this year seems quite volatile, especially in the UK. And I wonder if you had any reflections on that. Obviously, we'll talk about 2025, you know, in January in our next pod. But any reflections or any recollections from startup, investor, other VC conversations from this year?

18:35No, there's been some wait and see. Obviously, the US election was a centerpiece, a center point of the year. Many were waiting to see what would happen and what implication would that have for global economy, for tech and for everything else. These things will go up and down. I think that's normal. Even public markets go up and down all the time. I think that in itself is not so much of a story. My sense is that many still have an overhang in terms of overallocation to the venture asset class from 2021, 2022. And that still needs to get work through the system. It's not fully been worked through yet.

19:14Many folks, many investors have stuff in their portfolio that was bought in way too high valuation. Which need to clear. They either need to exit to PE or those companies need to IPO or some of those things need to cycle through the system. Capital needs to be distributed. Things need to be written down if they're not worth what people were investing at. Or if they've managed to grow into their valuations, that's great. Then those, you know, those marks need to be taken for everybody to move on. So I think there's a little bit of that overhang, but I also, like AI is just such an important and exciting story.

19:46The global economy has been performing reasonably well. The US economy has been very strong. Of course, investors will want to be part of that because there is so much opportunity. So it's not the 2021, 2022, everybody wants to pile in. It's all craziness. I don't think we'll ever see SERP again, at least not, you know, in living memory. But that was the creator of this. It was the government literally printing trillions of dollars and pumping them into the economy. And that is why things went the way they did. Now, inflation is still stubborn. That is one of the stories of this year is that there was a huge focus on bringing inflation down.

20:23And it has been easing a lot. But it's still not defeating. The UK is up again, isn't it? The UK is up. The US is static. And the Fed have just dropped interest rates again, which may well heat things up again would be my assumption. yeah i mean the fed has said look you know we're we're definitely going to have fewer rate cuts next year than people were anticipating due to stubborn inflation so i think as long as we don't see that you know we're not going to get close to sorry we're not going to have zero interest rates you know unless there's a global catastrophe which which we hope that won't happen but barring any sort of major catastrophic event like covid we're not going to see zero interest rates and so we're not going to see that craziness that we not the same level of crazy dare i say let's talk a little bit about Bitcoin.

21:07Obviously, still up past 100k as of time of recording. Where did you want to go with this? Well, I think the initial economic impact of Trump's election, a re-election, has been quite profound. We saw that he, during the campaign, did a 180. Kind of last time he was president, he was very anti or certainly not a fan of Bitcoin at all, thought it was a bit silly. And now I think$250 million will do that to you. that's it they've he's swung he's swung firmly behind it and has sort of said he will replace all the regulators that were clamping down on crypto and the crypto industry has said amazing you know everything's going to be worth a lot more and so although he's not the president yet bitcoin has been searching on that news but it's not the only thing he has done he's also been announcing tariffs on mexico on canada on china and doesn't you want canada to be the 51st state Did you see all that nonsense?

22:05Yeah, they've been talking about that for a long time. He was trolling Trudeau, wasn't he? I found it quite funny. I'm sure for Canadians, it's really not that funny. I completely agree with you. I would say, you know, I love Canada. I think it's a very special country. Being right next to the US, having that market on your doorstep, having that market, having grown as much as it has and been as dynamic as it has been over the last decade, and having your own economy not having done better, ES Canada not having been able to take advantage to that to grow in a meaningful way, feels like a bit of a missed opportunity.

22:41And I'm not close enough to day-to-day Canadian politics to say Trudeau is a good prime minister, bad prime minister. I don't. They are not happy with him. They are not happy with him. If you look at the economic development of Canada over the last decade, it has been abysmal compared to the US. And why? I mean, they don't have that huge open border to the south. They don't have all the problems that the Americans say they have. The responsibility to look after the defense of the planet and the cost of... Canada literally does not have any of those problems, but it just has all the opportunity of having that amazing market right south of the border, speaking the same language, everything easy.

23:20You would have thought Canada would be the fastest growing economy on the planet. Why not? and they just haven't been and that's that feels like we have they've been have they've been asleep at the wheel in it contrary to that one of the interesting things is you know trump has been varying lots of different emotions and different people he has gotten soft bank very very interested in swinging behind the u.s in a big way yes his son has said uh you know we'll put a hundred billion dollars to work in the u.s didn't trump pushing 200 billion i think i think i think he I think as soon as he said 100 billion, I think Trump said, yeah, well, how about two?

23:56If any UK prime minister managed to get a global investment firm to say, we're going to put$100 billion to invest in technology in the UK, I would say, well done you. And I think we got to give credit where credit is due. Absolutely. No, I wasn't writing at all. I know Masashi's son is massive on AI. And I know he's very bullish on this AI infrastructure story. So I wouldn't be surprised if it was even bigger. tick tock banned yes no i still still up in the air what's um what's going on here well trump he tried to force a divestiture during his last presidency and after he lost the election to biden the ban was challenged legally and the biden administration felt that there they didn't have strong enough legal grounds to go through they felt they would lose the case and so they dropped it.

24:49And then reverse course a couple of years later, decided to push for a ban. Bipartisan support and Congress passed legislation earlier this year saying if TikTok is not divested from Chinese or CCP control, they will not be allowed to operate in the US. They will not be allowed to be downloaded from app stores. Now, Trump, he found strangely now found religion around TikTok on the campaign trail. So there's a bit of a pattern here, right? And frankly, his current views are unknown. My sense is that there is so much bipartisan support for a ban that it will be hard to swing around, but we don't know.

25:25It's headed to the Supreme Court. There'll be hearings on January 10th, and that would be a landmark case, you know, either way. Unless it's divested, right? Unless it's divested, yeah. And maybe it's worth taking a step back and just analyzing quickly kind of the three reasons why people are advocating for this level of divestiture. The three reasons are, firstly, no Western social media company is allowed to operate in China. We know that social media is incredibly powerful and potent. And the CCP, the Chinese Communist Party, have effectively said that we don't want Western tech companies playing with the minds of our youngsters.

26:01So ban, ban, ban. We want to play with the minds of our youngsters. That's exactly the second step. And there's been several academic studies showing that on TikTok, it's very easy to discuss things that are to promote cases or causes or points of view that are perhaps counter to the Western view of the world and kind of how we see things. But if you want to discuss things that are uncomfortable for the CCP, not so much. So it seems clear that there's some level of censoring or some level of tweaking of algorithmic stuff going on. Now, the third thing is, as you pointed out earlier, is the app being used as a listening and surveillance device to spot the location of VIPs, to listen to conversations that might be confidential.

26:50And so there's a national security element. And in fact, the law to force the divestiture was passed after the American intelligence services had given evidence in secret to members of Congress, basically around this but precise thing. I remember the vote. The vote was quite telling. No, no. Everybody came out and said, OK, given what we have been told, we are going to support this law. And that was from right to left in the chamber. So those are the three reasons. And for that reason, you don't know. We don't know what's going to happen on Jan 10th. But it seems to me that it probably will be allowed to stand the legislation.

27:26The other thing that obviously massive news of 24 was in the Middle East. and uh i know one of the points you wanted to talk about was um the collapse of iran's proxies and what's happening with hezbollah and hamas and israel yeah obviously now syria i mean syria falling was another is another massive geopolitical effect that is going to come to to affect europe and the world and what's what's your take on what's happening over there no that's exactly right But I think it's hard to talk about 2024 without mentioning this, because there's some of these conflicts that we have seen, sometimes simmering, sometimes flaring for decades.

28:10And it seems like in the span of 12 months, most of Iran's proxies have collapsed. Hamas is gone. Hezbollah is all but gone. Assad is firmly gone. So we've seen a crumbling of those pillars of the Iranian, what you call a foreign policy, a kind of policy to try and control the region through these militant proxies, and they've crumbled. And that could lead to a complete reordering of the Middle East in a way that I think is, you know, we're only starting to really realize now how major this could be. It talks about an accord between Saudi Arabia and Israel drawing closer to build on the Abraham Accords that were pushed through as part of the last Trump administration.