E462 | George Robson (Sequoia) & Benjamin (Tech BBQ): Scaling Global Ambitions, Deep Tech, and the European VC Landscape

23:05I'd love to ask you to expand a bit on that, comment on all the stuff I just said, whether you think it's correct or unnuanced and so on. Yeah, I think, I mean, for a little bit of perspective on that, I mean, we were one of the first investors in NVIDIA. We were one of the first investors in Apple, one of the first investors in Google. We've seen that arc of like how, I guess, infrastructure innovation can convert to like enduring mobs in companies that can last for decades. Right. And I think you described it well, you know, there is true IP in some insight there that unlocks the ability to build a very large business on top of it.

23:40obviously the combination is you need to have a team that has that scale of ambition and the grit to be able to get the distance and i think in europe again a lot of founders have had quite britty journeys to building those companies right coming through their phds potentially with meaningfully less funding than it would have received had they been in the u.s and potentially having to fight you know much harder to be able to get access to first customer pocs things like that right then you may get an equivalent you know u.s business so the grit is there i think the funding is increasingly there, right, from partners who are pretty educated and interested in that world.

24:11And as we touched on earlier, you have these different ecosystems where you have very high talent entities, right? As I mentioned, we see it for sure in Germany, we see it at Switzerland, we see it across the Nordics. The UK has a long heritage at places like Milton Keynes and in Cambridge and places like that. So I think we see that there are definitely clusters of founders who are coming up together to build those companies. I think that's an important piece, because actually a lot of the technologies that they're building will serve problems that are almost measured in percentage of GDP type terms, right?

24:36It's how do we reintegrate and innovate inside of manufacturing? How do we do the same thing in healthcare, right? How do we think about that in the life sciences world? So these are like societal level problems, right? That will actually change the way that humanity works. I think it's important to recognize that that's just the current inclination of those tools. And it's a lot by a set of technologies that have actually been in development in many cases for 10 to 15 years, but now reaching the level of performance where you could start to implement it. At the end of the day, though, you know, So for some entrepreneurs, you may not come from those research backgrounds.

25:06I think sometimes it can feel a little bit confusing. Is this an era for me where I think I can contribute? The reality is, of course you can, right? Because while you might have seen the incredible rise of open AI and companies like that over the last four, five years, now what you've observed is that infrastructure, the rate of change is sort of stabilizing. So you have this beautiful moment in time where now you can build much more predictable applications on top of that core innovation. and actually to build the best application in any given category requires understanding the customer, consumer taste, a sense for design, being obsessed with the customer problem.

25:38All of those things that actually have been true for any company over the last hundreds of years, you're just building on top of different infrastructure. So I think it's very important for founders if they don't come from those deep research backgrounds, not to feel disheartened by it. There is a way to contribute and win and build an enduring business. You just have to understand how the jigsaw is coming together around you, those pieces of infrastructure. How do you, George, yourself as an investor, think about backing founders that are so hugely technical compared to what you might call the more digital, pure digital product founders?

26:11So when we think about investing in or partnering with a new founder, generally what we're looking for is founder problem fit. What I mean by that is there's some unique insight that this team has earned through their professional experience or educational experience, whatever it might be, that they're applying to have some unique wedge into some market. And like different companies, the shape of that will obviously differ massively. For a lot of these deep tech companies, as you said, it might be an IP innovation around the infrastructure. That means you could have more performing infrastructure at lower cost.

26:42There might be some insight around the manufacturing or the assembly of that product or something about how you think about implementation because you never see lots of industries. I think manufacturing is a good example where there's been a promise of robotics in manufacturing for a decade plus. It's only more recently you have companies like Robco or businesses like that that focus on how do people self-install. The end lock there is, yes, robotics, but it's very much about how do you get it in people's heads. So even if the founders are very technical and they have that earned technical insight, there's obviously a bunch around that that is required to make it a successful business.

27:14Part of that actually is understanding, you know, where is this person exceptional? Where are their gaps potentially in that experience? How can we complement that in the founding team if they haven't done it already? Again, remembering that most of these people, many of these people are kind of self-aware enough that in their co-founding teams, they've already managed to round out the bench. And actually, that leads us to how we think about company building for these businesses, because we've seen quite sort of generalist teams built across a long period of time. So we just want to take this person that is going to be exceptional at one core thing that is tightly correlated with the success of the business and work very, very hard to round them out.

27:48So it really just changes our strategy of how we interact with that founder. It doesn't change our likelihood of investing in the business or our level of excitement. Could you tell me a bit about then the consequences for the Sequoia Value Act? So to say, you obviously have a platform, your five to six investors, as you said, in Europe, and then you have a team of 20. So how does this changing face of the typical prototype founder affect how you're building the Sequoia value add? I think the main difference, I mean, we've been investing for kind of a decade in our talent and recruiting teams.

28:24I touched on that a little bit earlier. But if you think about what that function has to do to serve our founders best, is there some level of anticipating what are the types of companies we might invest in? What are those founders? What are the talent pools they need that are going to really support them? And to say the obvious, when you go from investing in primary software companies, because as you said, a lot of the innovation as the emergence of mobile migration to the cloud has been software at the core. As you move into a world of having more hardware companies, potentially more AI researchers or even relatively low level systems engineers, you need to invest in building talent pools and talent density in those networks, because the problem statement is always the same.

29:05The question from the founder is, how do I find the best person to help me do X? It just so happens that X is changing. So I think that's kind of piece one, right? Really making sure that we can marry a little bit the needs of the customers with, you know, with actually finding the right talent. But two, you know, we launched this program called ARK about, you know, maybe three years ago. So ARK basically takes a relatively small cohort, 10 to 12 companies from across US and Europe twice a year through this relatively intense company building program that basically just focuses on storytelling.

29:34Where the insight is, as an early stage founder, you tell three versions of the same story to your first investor, your first employees, and your first customers. Those needs are universal, whether you're a software founder, a hardware founder, a deep tech founder, whatever it might be. What is different is people come into that with slightly different levels of experience. I think in doing those things. So sometimes you just need to work a little bit harder to tell some of the stories of these more deep tech companies because sometimes the business model may be a little bit unclear today. The trajectory for the company, maybe even the end product, frankly, might be a little bit less clear, but you know that this team is special.

30:07So you need to find the right way to shine a light on that given that stage of the business. Benjamin said something in his statement earlier where he said he reflected on the availability of scale-up capital. I know, George, that most founders that get backing by Sequoia won't have a problem attracting follow-on capital. But when you look at Europe and the state of our scale of capital, what do you think in general? Do you agree with what Benjamin said that we're lacking here? Or are you more on the stage where I think I personally probably come down, at least for the majority of verticals, costs, that scaling capital is really global.

30:52So if you have a company that's performing, capital will flow. I actually think both points are true in that, are you able to raise larger growth rounds in Europe if you're an exceptional company? The answer is absolute yes. And the reality is that most of that capital probably comes from the US, right? We don't have a large number of domestic growth funds in Europe. That is slowly changing, but it's arguably still a little bit too slow. It's also partly the role that I think when you have a number of US multi-stage funds that are set up here, they're trying to support that next stage in companies' growth.

31:24But it's certainly true that it's easier to raise follow-on capital from the US at the growth stage, probably than it is at the early stage. But what I would say more generally, I think is, it's not just about access to capital. It's also about recognizing that if that capital exists, what would you do differently? Really, capital is just a tool that helps you to realize your vision as a founder. And I think if in your mind, whether it's consciously or not, you're sort of dealing with an artificial constraint of like, you're not assuming you will be able to raise that hollow on capital and you're not assuming you can go on and be ambitious.

31:56And in your mind, maybe you're delaying your US launch because you don't think you have it in the budget for this year because where's the money going to come from? Those are the kind of decisions that we're excited to say have been kind of eradicated over the last few years because there's now a perception that that money does exist to match your level of ambition. So I really think that is the most important thing because obviously money is not the only thing that matters it's not it's certainly not the most important thing right the team and the insight and the product and the customer base is but now this money exists in the ecosystem to help you realize whatever that goal is that money come from the states it come from europe you know it's awesome what are the signals that you're looking for today when you've invested in let's say for instance ai to double down on because i think that the signals that we typically looked for back in the day are not the same that we're seeing today, like the speed of which they generate revenue, the almost immediate validation of customers coming up and paying your$20 a month kind of thing, those signals come in very quickly and you might be able to very quickly have a very fruitful business.

33:00If you look at AR and it's extrapolated, it might look really well, but is the churn coming around? Can you wait to see if the churn is going to bite yourself in the ass? How do you look for these signals? Because you can't really wait a year to see in DC someone else will take the route. Yeah, I think that's a phenomenal question. We talk about that a little bit internally. The benchmarks have moved a little bit. I think the reality was in the pure B2B SaaS world, you were to go from zero to 3 million of ARR in 18 months. That was exceptional execution, right? Implying a lot of customer love, a lot of careful thought into the product, et cetera.

33:34And the reality is today, you can build the same product with a smaller team, right? You can use a bunch of different AI tools to think about how you pull that together. In cases, you know, the extreme cases, we see companies who haven't even had to raise capital, right? To be able to build the MVP and potentially in year one, grow to like 5 million or 10 million of ARR, right? So I think that those signals are important because they still indicate obviously a level of customer intrigue and sort of customer value prop fit, right? That exists at least the high level that people feel this is a technology that can really help me.

34:03I think what matters in this world, these things were important always, but even more today. One is the numbers behind the numbers. It's what you described. If you look at retention, you look at net dollar expansion, you speak to the customers and you get the texture directly of understanding what workflow is this really replacing today? Is this cheaper, better, faster? How important are those different things? Does it work 100 % of the time or 20 % of the time? It's that nuance, which I think is really, really important. That's piece one, the numbers behind the numbers. I think piece two, though, is, and this is, again, it's always been important, but I think you had longer to form it.

34:39I think today it's actually about vision. There are different north stars for these companies. And the reality is, on day one of building the business, they might all look the same in a given set of competitors that are going off at the same price. But the vision for the founder is important because in AI, again, you can build these technologies so quickly that understanding the sequencing, I think, is the really important piece. How do you go from a wedge product to a platform product over the next three to five years, what are the steps as you see it as the founder and be able to do that? And we want to look in the founder's eyes almost and understand where does that insight come from?

35:13How refined is it? How in the weeds are they with their customers of understanding it? Again, I think all these things are always important. The reality though is today, you just have meaningfully less time to respond than to form these hypotheses. You need to see that speed, that clock speed almost being constantly leader right inside the business. I believe it's safe to say that the barrier for building has vastly decreased in recent time. And that could lead us to believe that within, you know, months even, but at least years to come, we'll see many X in the amount of founders that we see today.

35:43So one could say, all right, did this enable, you know, four or five times as many founders a year to try to build something and scale it that are not technically innate by education otherwise? is there enough capital to accommodate them? Will they get a chance to scale? Will they need to grow as big as traditional B2B SaaS used to be? I mean, do they require the same capital intensity to build meaningful companies that can save global customers? I think it's an important question. So I do agree that, you know, with the proliferation of AI tools, it is both like easier for a less technical person to build a better product.

36:24And it is true that for the same team, you can build more or at least build more and more quickly and potentially more efficiently. So I certainly think that's the case. I think you're right to say that that will lead to more companies being formed. We certainly felt that in 2020, 2021. We're certainly feeling it again today because of AI. The thing that is important to remember, though, is at the end of the day, it's still very hard to build a generational company. It still requires a decade plus of effort. It requires founders that are true missionaries in what they want to build. They have very, very deep conviction and a very deep vision for that.

36:56Talent still matters, right? Your ability to hire, attract, retain exceptional people, again, in a competitive marketplace, arguably an even more competitive marketplace. And in today's world, again, above all else, speed really matters. I think, again, to intellectually believe you know what that means is one thing, but to have lived it, right, and be willing as a founder to live your life at that level of intensity, I think, is something else entirely. So I think our observation is that while there are many more companies being formed, we kind of feel that it's kind of a similar cadence as like the best years we've had in the past of having the companies with really serious founders going after the most important problems.

37:33And again, while there's a lot of application software and innovation in AI, a lot of that IP is coming from, as we touched on earlier, very deep technical problems and true technical innovation, where there's actually a relatively small number of people in the world that have that skill set. how many AI engineers are there in the world? It must be like low hundreds of thousands, right? Measured versus maybe the 25, 30 million software engineers and the like six, seven billion people on the planet, right? So in some ways, a lot of that, you know, expertise has arguably become even more concentrated at the innovation level.

38:04And it might become more accessible at like the implementation level, but those things are slightly different. So in some ways, you know, it's created a little bit more noise out there in the world. But I think we look for the same things, the same level of ambition, and we see it at, you know, roughly the same frequency. There's a tie-in question to this conversation, which is the one side, there's the ambition, the hyper ambition. Is that inside the founders? But then there's also the question of does a company that is built within this sector, if it originates from here and so on, will it be able to reach the size where it is meaningful for the fund that invests?

38:41This is where the right sizing of funds to the European opportunity is sometimes smaller than one might argue for a global fund or a US fund, because the average exit size in Europe is not as large as it is in the States. I know that obviously, just as any investor, every time you invest, you invest with a global mindset. But I imagine that there are also some considerations around we tend to see European companies not stall out, but just not go as large as the U.S. counterparts. How do you think about this? Do you think it's a systemic problem in Europe? Do you think it's an ambition problem?

39:20Do you think it's a fake problem? What's your take? Like it's obviously also connected to the investors that come into the companies because there's also an ambition level there and a route that they take the companies on. So the point is here, not everything resides with the founders. I think much of it doesn't. I think for a long time, there was a conversation in Europe around when will the first billion dollar companies be built? And then it was, you know,$10 billion companies be built in Europe. And we are squarely in the round now with$100 billion companies. We have companies like a Revolut that are very much on that trajectory.

39:54We've obviously had Adyen as a public company for a long time. The heritage and the foundation is there for companies of that scale. So I think the nice thing is we have existence proved now. And hopefully, if that inspires investors, it should obviously inspire entrepreneurs. You can build a company of that scale from Europe. So that's, I guess, piece one. But then for ourselves, part of the reason I mentioned earlier, so we invest as one fund family, we have a global bar. The reality is if we find a business for whatever reason where we think it doesn't have that kind of generational potential, we would not be excited to invest in that company as a corporate capital.

40:29It doesn't mean that there won't be many great partners for that business. It doesn't mean that the founders of that company won't be able to make potentially generational wealth for themselves and their loved ones, all of that amazing stuff. It's just not the kind of thing that gets us out of bed in the morning. To provoke you a little bit here or to force truth here, do you see seed stage come? So at the pre-seed level, just getting out of the garage or getting into it, maybe even, most people have huge ambitions. However, you can add the seed stage and series A stage, start seeing the conscious of this business and the trajectory it's on.

41:06Do you see that there's a maddening out there in any way and that there are businesses where you fundamentally would love to go in, but you're just not seeing the science that you would want to see? Do you in any way see that that is something that's more prevalent in Europe than it is in the States? I think it probably is on average. But again, in tech, the average is unimportant. It's a power law driven business. It's a small number of companies that matter, you know, as part of each part of each year. I think for those businesses, the founders are the same. They have exactly the same ambitions in both regions.

41:44I think the difference is you move, you know, below that, say, top 10 % who have been part of these communities where they've seen those stories before. Maybe they came out of a revolute, etc. The reality is in the US, the average founder grows up in a cocoon where they're surrounded by entrepreneurs. Their friends are angel investors. Family members may even work in tech. things like that. And that gives you just a higher average level of exposure to what the industry looks like from an earlier age. So I certainly think that is true. I think the reality is though that like, that is, you know, the lived experience.

42:14If you look at the educational experience, again, the quality of like the expertise, it's comparable. So a lot of the work we do, particularly with seed and pre-seed founders is trying to give people that cocoon, right? Give them that structure. In many cases, it's sort of reminding exceptional people that it's okay to be audacious, right? Part of being a founder of an exceptional company is you're almost hoping to create an unreasonable outcome, right? You are a team with no product, no capital. You certainly have no customers. And yet somehow, for some reason, you believe you can build a company of that scale.

42:45And that's okay. And in the US and in Silicon Valley, it's always okay. People default to yes. I think in Europe, sometimes you need to nudge people to find that self-confidence, that self-belief. But it's in there. And as I said, we have existence proof now that you can do it. I think you're absolutely right. And I think that you phrase it as a cocoon. We normally call it when it's negative, an echo chamber. But I think the beautiful thing is that every new generation now grows up in their own echo chamber, meaning their own cocoon. And if you, for whatever reason, end up fixating your mind and your algorithms to stuff around tech, wherever you are in Europe, you will get the right input.

43:25Because you'll get the input from the people that are in the tech ecosystem that are all building this. normally you would not you would not before but today i think as soon as you show interest in in in tech and venture you will very quickly live in an environment that is almost like a cocoon so i think you're absolutely right and i think there's one thing there that we can happy be happy about our social media platforms for i want to ask you one final note before we close i know we're very close to to the end of uh our our conversation but i want to ask you if you were to set out some core principles for company building in the future, not the past, not today, but what you think will really matter in the next era, so to say, of AI and everything we're in right now.

44:10What do you think those will be? Just a couple of foundational pieces and then specific to AI. I mean, one, make sure you formalize the company culture early. I think we see founders that typically do that too late. I think that's a day one conversation. The reason it's a day one conversation that gets heightened today is, you know, again, when companies are able to grow faster than ever, because of some of these technologies, you might go from having two employees to 30 employees within a year, right? And at that point, if you haven't already thought about formalizing that in your processes and how you think about performance management, now you think about your employer brands, the reality is it's going to be too late, but you're going to start to lose control.

44:45So that's piece one. I think piece two, you know, we've seen, we have a lot of discussions with our founders of there's a lot of building in public Like today, sharing updates publicly on LinkedIn of the company's progress, all these things. And we get questions from founders sometimes of like, does it matter? Is the right thing to do to focus just inside the building and focus on ourselves? And the reality is, in yesterday's world, that was maybe okay. In today's world, again, in this very dynamic marketplace, it is important that you think about how to elevate the brand, show the customer wins and do it not necessarily full disclosure on Twitter, but actually more thinking about it is like, how do I tell a story for future customers obviously future employees and finally, you know, future investors, that we have positive momentum around the business.

45:27I think that's point two. I think point three is, you know, as a founder, you should really be asking yourself, you know, what is our internal AI strategy? You should be monitoring that almost at the workflow level within different functions. You should be saying, you know, how many of our software engineers are using code generation tools as part of their everyday flow? You should be expecting them to go out and be curious about other tools and trying to bring them into the business. You should be kind of institutionalizing that mindset and that knowledge. And it's to the point now where, you know, in our board meetings for some of our larger companies, we are asking them about penetration rates of these tools.

45:58It's actually the KPIs they are reporting on. And some of them are operational in nature, right? Customer support requests, people by AI, et cetera. But a lot of them are just about process and getting a sense of how many people in these different functions, the marketing function, the operations function, the product function, are using these tools on a monthly basis. So make sure that you institutionalize that as you go through it. I am baffled every single time I talk to people that are not full on the AI train. It is incredible, especially as a content creator. Obviously, we were very heavily impacted very early, but I cannot understand how far the average person is from AI adoption.

46:35It's a long way to go. That's right. George Benjamin, thank you so much, both of you, for joining us on the podcast today. It's a pleasure being here. Thank you for having me.

46:48Tear down this wall It's more than just an alliance This is a union of values Let's start acting