E509 | This Week in European Tech with Dan, Mads & Lomax

26:01Just as Matt says, I agree. I think it's really worrying. It's sort of stagflation light. You know, the UK is entering a really dangerous mix of high inflation, low growth, political gridlock. There's no clear escape route. Even if the government wanted to for the reasons you've just described politically, they're really cornered. And because of this obsession with ideology, rather than sort of focusing on growth so that the government can spend the money it wants to on the people that need it, they've cornered themselves. And while the US thing is looking at 3 % increase and the EU slowly starting to pull ahead, we're stagnant and we may go backwards.

26:40you know the poor man of europe we're going to see those headlines again very soon and i'm sorry this does just sit at labor's door like they came in talked about growth did the did their traditional policies of tax the rich because they deserve it make it unattractive a business and now we're paying the price of lower tax take whilst you know trying to spend more on on services so i'm you know i'm a centrist when it comes to this stuff i'm a pragmatist i want to see policies that work. I don't really care about the ideology behind them. And just like any business, if you don't increase essentially your profits, which is the government's version of tax, then you can't spend and grow the business.

27:21You're just running yourself to the ground. And that's currently what we're doing. Will we see a reform government off the back of this mess? There's no possible way this Labour government will get into the next election with the cabinet and we may get something we really don't like Gosh Listen, we've got to the next thing I want to talk about is this retaliatory tariff tactic from the EU but we are going to have to, I know we're going to end on some positive notes so it won't all be doom and gloom but we're reading this week how the EU is preparing retaliatory tariffs if I can say it, seems to be the love language of Trump, so I can understand.

28:02So you can play that game. Sure, sure, sure. We've got 10 days until this potentially escalates because the current deal with the EU expires on July the 9th. So who's spending what where? Who exports more or less to whom? Who has the negotiating levers and how will all of this trickle down to us as investors? Mads, over to you to set this one up for us. We know that there's been a Trump trade tariff saga ongoing for the last couple of months. I love how you got those words out. He has sort of made a deal with the UK, and the UK has sort of made a deal with him, which I think mostly was us agreeing to what he asked for.

28:41Then he's made an agreement with China, which I think was mostly him agreeing to what China asked for. And now the EU is the last man, woman, thing standing in his way, before we can get these trade wars hopefully put behind us. He has warned that massive tariffs will be slapped on EU imports if we don't get to a resolution by the 9th of July. The EU has prepared retaliatory tariffs. I think they're up to a good number right now. It was initially$21 billion, but that's increased to a higher amount. And so the question is, you know, what's going to happen between here and there? I don't think anybody really knows.

29:28I mean, we've always expected that, you know, based on form, there's going to be some taco coming out of this. Trump always chickens out. But, you know, it's possible this could blow up because I don't think the EU is of a mind to roll over on this one. And clearly he sees the EU as the biggest culprit in this whole trade war, maybe except for China. And so he is minded to, yeah, at least try and put on the thumbscrews, especially vis-a-vis the German automotive makers. So there's real tension. And if you were to speculate about where the next big blow-up could come for the global economy, financial markets, etc., it could be these tariffs coming back mid-July.

30:12I think the only upside is that he just folds to your taco point. So it could get all heated and nasty and everything could kind of look like it's going to melt. But it's not the usual government vis-a-vis government action where it takes then months to filter through. It's pretty much, OK, and then everything gets reversed or a new deal is done. So hopefully whatever happens, even if it is a bit of a mess, it'll be brief. But Andrew, where would you take this topic? it? I mean, the EU sort of, they try to be targeted a bit measured, right? And I wonder if that just comes across as lack of leverage, rather than a sort of clear strategy.

30:51I think even with the political will, sort of, again, with the right rhetoric, I think man's hit the nail on the head, you know, Brussels can choose direct fast, but Germany's car sector is spooked, and they can quite, you know, they've got huge lobbying power. And the Trump risk is sort of asymmetric right i mean the eu it's got one eye on the wto rules and you've got multi-faceted pockets of of leverage and lobbying and you've got a lot of people to to to satisfy you know trump's he tweets tariffs fight it's like it's all very well being really structured but it could all just be steamrolled by an overnight executive order yeah i don't think necessarily i I think we should fire back.

31:34But if you're going to fire back, I'm a big believer in a fight. Once you're in a fight, you go for the kill, right? You go for the death. You don't mess around. You don't tiptoe because then you just get picked on by the bully. So in a sort of David and Goliath, you know, slingshot kind of. But does the EU have the slingshot? I mean, I don't know where, Mads, you know where, I mean, how much is the automotive piece of the European exports? It's quite a big chunk, isn't it? Do you remember? Yeah, it's a big chunk. I don't have the number here, but I know that it's the U.S. targeted now and identified 95 billion euros worth of U.S.

32:10imports that are targeted, as opposed to Trump, who has proposed a general tariff on all$500 billion of EU goods import. So the idea is to try and make it more targeted. Also, of course, because that hurts consumers less. You know, let's not forget, ultimately, it's the consumers of your country that ends up paying these tariffs. Yeah, they're paying them. In the form of high prices. I wonder if there's anything strategic like the Chinese withholding magnets and rare earths. I can't think of anything in Europe that there's a lever on against Trump. But we'll maybe see how this pans out. We're going to shift gears a little bit.

32:46We're going to talk about how AI is reshaping business. So it feels to me like AI is really starting to reshape how business is done. I don't know if I've just got happy ears or if I'm just looking out for the stories that I want to hear. But beyond the headlines, it feels like rubber is starting to hit road. We've got Apple looking to buy perplexity. We've got tiny, tiny teams and solo founders starting to make waves and have real impact in business. As an example, DocuSign is suing Springtime, which is a tiny, tiny team who built a free version of their product, allegedly in two days. MetaAnthropic recently won their AR usage cases, how they're ingesting data.

33:23The EU seems to be softening on regulations. It feels like AI is starting to hit the real world. I know it has been for a while, but it feels like there's real momentum now. Physical AI, the real world of AI and how it's shaping business. So Mads, what's clickbait? What's reality? How is this going to affect real world startups and businesses over the next 18 months or so? There's this notion of vibe coding and of using AI to code in a really efficient way. And it's not that long ago since we started talking about kind of the one-man enterprise. And we've had the first major exit by a solo founder who didn't take venture capital, which is Maur Shlomo from Israel, who exited base 44 to Wix for$80 million.

34:11dollars. $80 million doesn't sound much. We've been talking about 19 billion euro IPOs just a few minutes. It's an aqua hire, isn't it? It's an aqua hire, but it's effectively an$80 million exit plus another$25 million retention bonus on the back of a company that's six months old. But it's a shortcut. It's a shortcut to buy the team. I mean, we did first take into Magic Pony technology back in the day. That sold for$150 million,$200 million, I think, to Twitter and team of 14, you know, it was an acqui-hire. It was an acqui-hire that had raised venture capital. It's a catch-up. And this company has not.

34:46And so what's really interesting is that companies seemingly are now able to get very far without money at all because they were able to build a product, get to market, start yielding revenue, and never needing to raise any money. And part of what makes them - Well, this is this whole seed strapping thing, isn't it, Mads? We've seen a lot of noise on seed strapping. Yeah, and part of what made them able to negotiate so well is they said, we don't need to raise. You can buy us now or we'll just keep compounding. And that was a strong position to be in. Wix, on the other hand, are really struggling and needed that expertise.

35:20Andrew, to your point around acquihiring and getting the talent. But it's a super, super interesting case and we're going to see more. We've seen Lovable from Sweden grow incredibly fast. The seedstrapping thing is really interesting because I feel like it's a little bit like the new dawn when it became very easy to spin up SaaS companies on the cloud. And for a while there, the cost of building those businesses dropped. But then as soon as it became very busy, you now need to spend as much building a very successful SaaS company as you do building a deep tech company, because it's so noisy. You have to spend that on marketing and brand and acquisition, you know, especially in the growth phase.

36:00So I feel like this is the same thing will happen. We're going to see a bunch of companies very quickly spin up in this window of opportunity, perhaps at extremely low cost, but then the playing field levels. And that means everyone has access to the same guns and the same ammunition, metaphorically speaking. And that just means that then what do you do? You throw money at the problem because you've got to cut through some way. So, well, we'll cut through with brand. We'll cut through with marketing. We'll cut through in another way, which usually requires cash. Yeah, I think that's exactly right.

36:26I mean, of course, this has been, as Dan says, the discussion, right? Is this going to obviate the need for anybody to raise venture capital. But I think you're spot on, Andrew. There will be a need. Well, but there is that. I mean, we'd probably find something else to do if that was the thing. But I think, you know, what we know is that it's actually the go-to-market and it's distribution that costs the money. And there'll be as big a need from that as there's ever been. Yeah. And also, I think there's, everything is going to evolve. I think the venture model will evolve. I think how startups are built will evolve.

36:58And that's great. And we've got this accelerated journey that we're going on with AI. But I also think a lot of this is just sexy PR. A lot of these stories aren't anywhere near the norm. So I think there's also an element of the tech press and the broader press needing these cool, sexy stories to anchor because they are really interesting. But this is by nowhere near any kind of normality yet as to how you build and sell and exit a business. But let's have a little poke on the AI copyright piece, Mads. What's happening with AI and how these foundational models are ingesting data? At this point, I think we all have a pretty good idea of how these models work.

37:38You soak up lots and lots of training data, and then you use that to create a model that probabilistically says, well, you know, I kind of know how words they fit together, so you give me some words, and I'll then use those words to predict how other words could fit together, because I've seen millions and millions of words before. And it turns out that the internet is a great place to look for words. And so OpenAI, Anthropic, Google, and others have been mining everything they could on the internet to train their models. But that's not the only thing they've been using. They've also been using books, copyrighted material, stuff you're not really supposed to copy because there's a copyright on it.

38:16And so there's been some landmark cases this week. Both Meta and Anthropic have had their day in court, and they both won the cases. And the doctrine that's been lent on is this transformative youth doctrine, which comes out of a 1994 case where Two Live Crew, they had a rap parody of Roy Orbison's Pretty Woman. And they created a whole new song. Sing it, Matt. Sing it. I was going to say. You can't leave us hanging, dude. Dan is the entertainer here. I don't remember Two Live Crew. I mean, maybe it's after my time. Well, so everybody's been looking it up this week, of course, because that is sort of the case that established this principle, which is you have fair use if you use copyrighted material for a purpose that's transformative, i.e.

39:06doing something that's completely different. So you can copy stuff from a song if the output is a parody. And it turns out you can also copy stuff from a book if the output is an LLM and not just I am copying the book to sell the book. And so, of course, this is a concept that's completely different from how we think about copyright here in Europe. But in the back of that, both Meta and Anthropic won their case. But it's a technicality, isn't it? I mean, my understanding was they won on a technicality not on the legality of trading data. So, I mean, if that's true, this is still out there to be argued either way.

39:44and also my understanding is that Anthropic is still exposed because I think downloading 7 million's worth of pirated books still opens them to potential damages. That is exactly right. That's exactly right. Not out of the woods yet. Yeah, I think this is just the start. We're going to see. I think it's going to be a while before this is unpacked. What happened with New York Times and OpenAI, Mads? Do you know what happened with them? Did that go to court? We're not done yet. We're not done yet. That's still to be litigated. And Andrew is, of course, right. Right. I mean, the anthropic download of Private Books case is still very much on the docket for being litigated.

40:21And there was also, as you say, Andrew, there was an issue around the publishers in this case. They actually had quite a weak litigation strategy. And so the judge said, look, if you come back with a stronger case, there might be a different decision. So no, we're not out of the woods yet, but interesting that sort of the LLM majors, they won round one. We might actually see general AI before these core cases are finished. There are definitely some people betting on that. 20 years, there you go. Yeah, there you go. Like quantum infusion. All 20 years, baby. I want to talk more about physical AI.

41:00So behind the scenes in Super C Towers, Matt, you and I talk about physical AI all the time. this is again where ai is uh hitting the real world i saw tesla finally launched its robo taxi pilot in austin tex i don't know if you guys saw the launch is it a launch is it a launch well isn't it like i mean it's more like a public demo isn't it i mean with with tesla with tesla when they announce when they launch anything didn't they talk about this in 2016 it's like my sense is that it's taken so long that the pressure to perform was so high and obviously you're only going to see videos where things go wrong and i saw cars mounting taxis you know jumping red lights or you know stomping on the brakes with people in the back so and i think it was only 10 or so cars but mad you got some of the inside track here but with safety drivers as well right with safety safety drivers so it's not production scale yet and it's clear they are so far behind waymo and so desperate to catch up that they are jumping the gun a little bit so yes it was the formal launch but it was it was a small launch got to keep the share price up and it's a bit of a damp squib as well i just it just yeah this is there's no question of the future and no nobody should doubt that within their lifetime cars will have no drivers and and traffic will get better accidents will go down and i'm i'm first in the queue for that to happen because i just think driving is just so backward and terrible and human humans make terrible drivers but i think you know autonomy is driving future it's stuck in traffic at the moment yeah i think i think of robotics generally i think it's going to become become more prevalent i wonder if elon is having second thoughts about not going lidar first and going camera first with this technology listen i've got i've got a bit of a left field for you i this is something that you both know that i bang on about about how europe is going to be the bay or should it be the bay or can it be a different version of the bay it's a often a very short conversation because we all know what it means it just means more bloody investment and if you just kind of if that's always the end answer then again it's going to be a very short conversation but i mean deal room released a fireside chat last uh last month i think it was with soar klein from local globe constantine van oranje from tech leap and a few other smart ecosystem dwellers all about the new Palo Alto in Europe and what it would look like and feel like and smell like to build that kind of ecosystem.

43:31Again, we've been reading articles this week about how Europe has gaslit itself and we're talking ourselves down. And as we've just mentioned, it's always easy to do that, kind of so what. But I do believe that this is changing And I do believe that Trump has given us permission to change. So, Andrew, I know you're a big, big believer in tech sovereignty. And this is a massive issue for you. How can, should, how can, can we as Europe become the new Palo Alto? If so, what does it look like? What do we do? How does it smell, feel and touch? Can, is there anything to dig into here for you? Yeah, I mean, look, you're right.

44:09It's all the things you said, you know, like it's regs and it's capital. but there's one single thing which underpins all of this, and that's a confidence gap. We could be like the Bay, but we keep asking for permission. And Europe doesn't actually need to become like Palo Alto or San Francisco. It just needs to stop acting like it's not allowed to be, and that goes for founders, investors, and policy and political regulators. So we've got the same engineers, the same talent. There is a culturally different risk tolerance. Currently, there is not the heritage to look back at to give you the confidence.

44:47There isn't the trillion-dollar exit. But you don't build Palo Alto by funding more PhDs and government initiatives. You build it by having horrible failures as a startup founder, and you build it by the government optimizing policy so that it doesn't constrict growth. And I think if you just do those two things, the market really will do the rest of the work. You know, I'm not a believer that free markets sort of solve all problems. There are terrible problems with free markets because they're inefficient in many ways and they require regulation. But in this case, where you're talking about more capital required and you're talking about, you know, really a decision for people just to be bolder, that's a cultural narrative that needs to shift.

45:31And in order to support those people that do make the leap, that don't go into banking, that do start a company, then you need to encourage all the people with the money to put the money behind those people taking the risk and it's really that simple it's a mindset it's not a location it's a mindset what's the one thing how do you change i mean this goes to your previous point about um sentiment and confidence and that that that can do that salesy attitude that americanism so what's the one thing at a cultural level that we can change it's a great question because that's that's always been on my mind i mean i was talking to madsen a while ago now about i've got this theory that maybe if we just increase a tip culture this is a totally stupid thing to say but bear with me just increase a tip culture have a tip culture of like 20 25 in in europe where you you get this circularity of money thing going on it's like you really understand that that flow of capital maybe maybe multiple little tiny things little attitudinal changes that will get us into this understanding how money works and how investing works and how building works it's a silly mate well there's two there's two things i mean one is you you could try and make failure more of a badge rather than a black mark and that's consistent through i think do that i don't know i did i what the wider wider culturally i'm not sure people do and and also i think you see it where an awful lot of uk and european founders continue banging their heads against the wall with their startups long since when they should have folded them and given or given the remaining money back to the investors and they sort of they just you know it's this sort of psychology that somehow if life isn't hard then it's not it's not real and so they keep slogging away at it.

47:22And actually, you know, we say to our founders, you've not hit venture scale growth. So you've got two choices. You flip it to a lifestyle business if that's what you want to do, but stop kidding yourself if this is ever going to be a venture company it isn't. Why don't you flip it? Or you shut it down, give us the rest of the money back and go and go again. And it very rarely happens. And you see it all the time. So you think part of it is on VCs to have that conversation? 100 % it's on VCs to have the conversation. Of course, that then feeds into places like the UK with EAS funds. They don't want you to do that.

47:46They want you to keep going because they want the tax rebate after three years. So then you're into all these perverse motivations from bad tax structures, well-meaning bad tax structures. And the other thing, I mean, I've mentioned this before on the podcast, you know, Finnish founder Arpe has just started Dragonforge, which is designed to fix this exact problem. It's a new learning institution which will teach people how to take big bets on the most important technologies to solve the biggest problems in Europe. And that's exactly the thesis behind launching that institution is to try and fix this cultural shift.

48:26I don't think education is going to solve that. I don't think people need to be educated. I think it needs to be regulated, tax incentivized. You can't regulate someone to have greater imagination, can you? You can't regulate someone to believe in the future. I think they know what AI is. They just don't care because they're making enough money over here or they're not incentivized over there. There's no, I think they know. I don't believe that Europe is more stupid than the States. I just don't believe to your point, they don't have, we don't have this. It's not more stupid, but investors and, but investors lack imagination.

49:00I think I consistently see VCs in Europe and UK being unable to imagine massive new markets. So if you take the, you know, the banking market, 100 banks in Europe, all worth 100 billion on the balance sheet. Oh, offline banking. Oh, online banking. That makes sense. Take online banking. I'll invest in that because there's a massive existing market. You take something that doesn't exist and you try and convince them that it will be big. There's no imagination. There's very little imagination. I'm happy to be wrong. That's the biggest problem. I'm happy to be wrong. Mads, I know this isn't a happy place for you.

49:31I always get that you think this is much more pragmatically about this kind of stuff. It's like, come on, let's just build big business and get on with it. But can, should... Yeah, no, but I think Andrew is essentially bang on. We need to be braver and bolder and more imaginative and we need to make it okay to fail. And I think investors have a huge role to play there. We've got to be smart investors that dare to dream with our founders, dream big and go for it. And we also have to accept that failure is a massive part of this game. We're not private equity buyout investors and companies will fail and that's okay.

50:03And then we help the founders move on to the next thing and all is good. I think we have a huge role to play there in terms of how we work with founders, how we support them and just create a better, more nurturing venture ecosystem. So I think there's a lot of talk around how venture is not supportive enough and we don't back founders widely enough. And I think in many ways that's a misunderstood discussion because it's not about backing all sorts of things that should never be backed. Like this is an Olympic game. This is about being number one at something. So it's not about being kind of la-la and just doling money out to stuff that should not be funded with venture capital.

50:42That's an extremely expensive form of money that's only for moonshot type of ideas. But when you have invested and you back something, it is to create something that is truly a number one in the world. And you should accept that sometimes it just doesn't work. And that's okay, right? This is literally part of the model. I just think a lot of, maybe this is to Andrew's point, maybe it's not educating LPs, but maybe there's an education piece for founders as to what venture capital really is. because a lot of the rage that I get from founders is why you're not investing in these kinds of businesses and these kinds of ways because they're not on the venture track.

51:18They're not ever going to make venture scale returns. So I think there's this natural thinking of, well, I can bootstrap, I can angel, I can go and raise VCs. You can only do that if you are on the venture track and if it is venture scale. Anything more, Andrew, anything more on the new Palo Alto, the new bay in Europe? I think it is the two points Matt said. I think it's failure and imagination. I think we're relying on this and European founders say longer in failing startups, not from stubbornness, but because sometimes I think because the rules and the shame make quitting early impossible or harder.

51:53There's some structural stuff we can do to fix that, but it's also narrative. It's in our schools. It is in our day-to-day and it's how we invest as investors, right? Good question to ask ourselves you know how many how many startups have you invested in where there is no existing market but you backing a company that you believe will create a market how many category creators have you backed as an investor because that's what we should be doing and i find that they're very hard to get follow-on funding in europe and i end up having all the u.s investors invest in them so all my startups end up flipping to the u.s i'm determined not to end on a bummer who's got some positive news what are we doing this week guys and girls what's happening what's in the agenda.

52:30What's the good stuff? Mads, what's happening with you? As we spoke about, Q2 is coming up. So it's time to prepare for earnings season, which will kick off here in July once the books are all tallied. And hopefully, markets will sustain the kind of positivity we've seen here towards the end of Q2. And then the second thing is really this July 9th deadline for the EU-US trade negotiations. I'd say those are the two macro pieces that will drive markets as we go into Q3. And they're all buoyant so far. Andrew, what's in the positive news bucket for you? Give us the good stuff. Positive news bucket.

53:06One of our companies there, it's the simulation of its first chip, demonstrated a 50 % reduction in energy usage. Technically, that energy usage could be up to 5 ,000 times less for equivalent chips. So very first step on a long journey, but very exciting. Loving your work, gentlemen. Catch you all next See you on the flip side.