E521 | This Week in European Tech with Dan, Mads & Lomax

30:25The creator. It just embodies move fast and break things, no? It's like the embodiment of it. And I feel like they are, that Grok is going to run into issues and Grok is going to run into issues with our friends in the EU at some point. Probably also because he's bundling it with X, right? So that's also going to be an issue with that. Well, it feels like all of his businesses are buying each other and then doing it within deals. So I think maybe we'll have just one monster X entity. Although SpaceX, I saw, is now, what, 400 billion as of this week. So, you know, I mean, the guy's obviously, again, the guy's an absolute machine.

30:59But I just think there is just something about the kind of, he's going to be called before Brussels. you'll probably you know turn down the invite but then give it the double fingers right i know i know i know exactly but there is um there is just somebody something sort of wonderfully um wonderfully on brand about grok from another another another question for the room does working from home kill culture so i guess first up we need to kind of define what culture is There's been a few reports, thoughts. Obviously, AI is making some inroads into how companies are thinking about resourcing. And I think it's accelerated some of the conversation.

31:42So the question for the room is, does working from home kill company culture? Anyone want to have a pop? Don't be shy. You've got to have a culture to start with. And I think the problem with a lot of companies aren't even at first base of having a proactively intentional culture. Cultures tend to evolve in a lot of startups and they tend to reflect the leadership. But what is it, Andrew? How would you define culture? I think it's expected behaviors. And I think if your team understand expected behaviors between each other, so internally and then externally with your customers and those are clear, then that builds a consistent culture because it it builds a consistent prerequisite um prediction on how someone's going to respond and but it's got to be values it can't be just values lomax how would you define culture i think i think the reason just just on that point down i think the reason why i didn't say values was because values can be defined but unless they're turned into actions they're meaningless and that's the that's a problem with most cultures like most cultures oh here's our set of values then it's like well well, that's not my experience dealing with this company or this person at this company or this person in my team in this company.

32:56And that's why I always use the expression of a set of behaviors, not just a list of values. To answer your original question, I'm not a bit, I don't think it works, like work from home. I really don't like, I think like, I think it's very, very hard to build big companies. You know, as I said, like if you're trying to grow a company from zero to 250 million of revenue in five to six years, which is this sort of artificial kind of growth that companies go on with it, you know, with fueled by venture money, which is not the normal kind of growth in a, in a, in a, say a bootstrapped company. And even those need to have their own culture.

33:34And from which working from home, it's hard enough in those kinds of companies too, but I think it's too hard. I think all of this is too difficult. And I think you need to be together. And I'll give you the, you know, in the context of myself for like, I was running our firm, which is a small venture fund, right? We were running it remotely and now I live in the same city as my partner and we've just built an office together which I keep going on about but I'm like this the improvement in everything we do since I've seen us sitting in the same room doing things this is a very small example it's just been like 10x it's been and I'm sorry like there is occasionally if you have um if you have some culture cemented at the beginning by working in person the move to a sort of you know part-time working remote can work temporarily but i i just i just think great things don't come from working remotely i'm very skeptical about it let me just tee up i'm going to tip where it all came from because i was quite intrigued as to when it started how it started so here's a quick history lesson and then mads i'm going to lean on you for some of the exceptions because i know i know there are some uh working from home was labeled in the early 70s as telecommuting, which was labeled by a NASA engineer, Jack Neils, in 1973 as a response to the energy crisis and traffic congestion.

34:52Then in 83, IBM allowed five whole employees to telecommute. And within four years, that program hit 2000 workers. But just for context, in that bucket, there were at the time around 400 ,000 employees in IBM. So a bit of a drop in the ocean. In the US by 2005, 20 % of the workforce could work flexibly. But even by 2019, only around 6 % were working from home. And then obviously COVID rewrote the rule book and it was about 50 % working from home by mid 2020 for all the obvious reasons. Now, many firms like Uber are now trying to call back employees. We see stories in the press, Goldman and others trying to get this comeback to work with potentially some of them using it as a sneaky request to weed out those that are committed to the company and are not.

35:40So, Mads, you know, you and I talk about this a lot. I'm going to hand over to you. In the fundamentals, does working from home work? Well, I think there are exceptions to everything. I mean, I think fundamentally, as you say, greatness happens when great people come together in person to make magic. There are exceptions. You know, we've seen companies like GitLab. I think they have 1 ,400 employees. They're fully remote. It's been a successful business. There's Automatic, which is the company behind WordPress. us, a couple of thousand employees, no offices. It's also been successful. And then there is the big one, really the poster child of a fully remote culture, if you will.

36:19And Toby Lutke from Shopify, he took the company remote first, and that is seen as a big success because Shopify is such a behemoth and such a successful company. And I'd say when you hear Toby speak, and also when you hear his chief operating officer, Cass, the Jashians speak, and I mean, they've sort of said, look, we've invested insane amounts of resource in setting this up so that it works. And I think Cass had said that for 90 % of companies, remote is a terrible idea. It's just too difficult to implement. So there are exceptions, but I'd say in most situations, it probably isn't the right thing.

36:58So the truth is, you know, you can to some extent maintain culture remotely if you work hard at it. But why handicap yourself? you know, Olympic athletes, they don't train over Zoom. Why would you try to do that? I think Zapier's full or remote, if I remember correctly. There's a few, but it is the exception to the rule. Andrew, is this sector specific? Because they're obviously all hyper geeky, successful businesses. So is this a case of if you've got a bunch of backroom guys punching keyboards, that's okay. But if you're more culture centric, and obviously we're talking about the financial results as well as the cultural results, there's two vectors here.

37:35but is it sector specific do you think Andrew? I think it's less than 10 % when we looked at it before I think it was less than 10 % of companies successful companies I don't know if that's 250 million ARR or Lomax or what it is but were remote or even fully hybrid my experience has certainly been that if you need a bunch of senior people and that's for lots of reasons I think older people tend not to need the same level of human interaction possibly or face-to-face time that a 20-something expects. That's for lots of reasons, right? Who do you end up going on dates with or you end up snogging someone at the office party?

38:13I mean, these sound trite, but actually you spend so much time working that for someone... You're not supposed to do that anymore, are you? Come on. I was going to say, I want to confess you. You're telling me it doesn't happen? Come on. I want to confess you. When was the last time you snogged someone at an office party? When was the last time I went to an office party would be a better question. The answer is over a decade ago, I should think. So I think for people coming up in their career, you know, all the things you learn through just the casual interactions and the small interactions are absolutely vital all the way from learning how to interact, to manage up, to manage down, but also just the knowledge transfer that you need.

38:53You just don't get that if you're remote. So I suppose there's two big factors. If you want to do it, first of all, you've got to be even more intentional about everything than if you are, if you have everyone in the same office. And that goes all the way from culture through to process. And, you know, what are startups bad at? Process. And that's good because they can move fast and break things. But you also need to know what the hell is going on with your team. You also need to know whether people are performing. You need to performance manage them. So I think you need more process in a way, not less if you are remote.

39:26or even if you are hybrid. And the second big thing in startup world is just competition. When you're trying to turn every marginal gain into a win over your competition so that you win and become the multi-billion dollar company solving the problem you're solving, if everybody else has even a marginal advantage because they're doing it in the same place and you have a disadvantage because you're remote, then you've got to seriously question whether you're just handicapping yourself. Now, there are counter arguments to that because you can say, well, if my pool of employees is global and, you know, but otherwise my competitors are just in London, they're stuck with London wages and London people, you might argue that there's a counter advantage.

40:12But in my experience, the startups we have in our portfolio that spend a lot of time in the same place do seem to have less problems and move faster and move better. Lomax last question on this one does culture drive commercial success yes okay I don't have enough like yes yes that's super short and quick that means we can move on a thousand percent and there's nothing I had nothing I could say to like cut across that what I would say is I don't I don't invest in a company if the founders aren't together I just passed on a company that was quite compelling the other day and it became clear and i agree with that completely it's impossible yeah okay well let's move on i do want to do the unthinkable and i do want to just check in on trump's tariffs i know it's probably the most hacky topic you're an addict there is i know it just feels like i want to do a very very quick check-in just a very quick status update and a very quick check-in and see if any of this is going to come around and bite our backside so we are recording on Friday the 11th of July.

41:18So here's where we are so far. It's been three months since Liberation Day back in April. Trump's pitch at that time was 90 deals in 90 days because everyone wants a slice of American pie. That was an awful American accent. He hasn't hit his target. I think I can only see one deal and two half deals. So Vietnam, UK and China in some guises. The deadline came and went for the EU. It's been extended to August. Brazil has just been slapped with 50 % because Trump doesn't like the new guy. I've read all the stories, but I think that's basically where it lands. I also wanted to have a look at how much income the US takes from tariffs.

41:52And it has taken a fair chunk over the years between 20 and 40 billion annually between 2008 and 18. That jumped in 2018 to 24 from between 60 and 80 billion, peaking at 100 billion under Biden. So Besson and the Trump admin are looking to target 300 billion this year in revenue from tariffs. But you can't have it both ways. Either you have American produced things in America or you're getting tariff income. You can't have them. You can't have your cake and eat it. So and also, Lomax, there's a question for you. Nothing happened with markets this time. So just looking from the outside, obviously, all these threats of tariffs and, you know, we're going to come and get you and only a handful of deals.

42:35but markets didn't didn't move a bit uh is it just that we don't really care anymore don't believe trump believe he's going to be a taco dude what's the what's the deal there yeah it's either basically priced in or it's just priced out as in it's just ignored like i think the impact of it um you know when we looked at the the impacts of the the tariffs at the beginning and you know people were running around like headless chickens i mean we had an m &a deal that fell over in the first wave of the the tariffs right like stuff was stuff was happening um both at the micro and macro level and clearly at the markets level we saw us markets suffer a lot with the original wave of tariffs but now i think people are like business as usual this is trump doing his thing and also like markets at the moment really reflect like it's not it's not just policy like that i think they're reflecting on what's going on underneath you know because strong earnings growth, the AI boom, et cetera.

43:27Actually, they're reflecting that rather than any kind of policy discount or haircut. So yeah, I think it's business as usual as far as the market's concerned. Mads, what's next, kind of the global piece? And if you can tie it back into Europe, what's going to come? Well, I think if there's a truism about Trump's trade policy, it is that nobody knows anything, right? We're all sort of a little bit in the dark and he sort of runs off in multiple directions. But what are some likely outcomes? I think you could possibly see scenario one, maybe that's what we can call the fudge scenario, where we actually end up staying at the 10 % baseline tariff.

44:06You're probably not going to get below that. Trump might claim that the EU made concessions and regulatory enforcement and maybe carve out some exemptions for specific things. Both sides manage to face. There'll be minimal economic impact. I think this is still the most likely scenario. But there is another scenario, which is more of a selective escalation, where you are going to end up seeing 15 % to 25 % on specific sectors, likely especially those sectors Trump really cares about. So maybe some of the luxury goods, some of the auto sector, right? Some of the cars, that was his favorite target.

44:42And maybe pharma, which is also one he's got his guns out for. So and then potentially 10 % for everything else. I don't think we're going to see a universal 50 % tariff on everything. I think it would just be impossible. I think it would crater the US economy. The EU is a massive trading partner. It would drive so much inflation for Trump. And that's not what he wants. So yeah, I think it's going to be somewhere between sort of the not very much and sort of a slight selective escalation. Andrew, what does this mean for Europe, UK startups investing? Are there any gotchas? I think it just changes so quickly.

45:23I think what's interesting is where does this all stem from? And almost on a weekly basis, you see economists far smarter than me trying to pick apart what's its strategy behind it. And I think that it's all based upon the madman strategy. If you look back at the sort of the late 60s, early 70s and Richard Nixon, and this is a sort of a theory popularized by himself, that if a political leader cultivates an image of irrationality and unpredictability, that can intimidate opponents. You can extract concessions. You can, they can fear sort of disproportionate results or retaliations or really erratic decision making.

46:13And his tariffs and his approach and the speed at which things change all feel to me part of his wider political approach, which is just to do that, is to destabilize and to keep both allies and rivals uncertain about his true intentions, about his true position. And I think he believes that applying that madman theory gives him an upper hand, an advantage. And I think to some degree he's right because it's just not playing the traditional political rule set. And you see Europe really struggle with how to respond. Do you go hard? Do you go weak? Do you ignore it? no do you just continually you're playing catch up um and i think the proof will be in the pudding on on who wins or loses but meanwhile we're not going to see you know every time you try and apply uh some real logic to some of his decisions you sort of start to fall down and so you're dealing with an irrational actor it's very on brand for him isn't it yeah completely i mean how he's always behaved so you kind of you kind of know at least from that basis you know that it's going to be madman, strongman.

47:21So it's like a Richard Nixon on acid. He tried to do this with North Vietnam and the Soviet Union to try and scare them into doing the deal he wanted. And I think we're just seeing that on a more global basis. I want to talk about UK startups. This might be an extremely quick section, but I wanted to have a look back. H1, UK startups, a report from Dealroom and HSBC, just some quick stats, and then we can look at if there's anything to dig into or predict. So UK startups raised 8 billion for VCs, which is slightly up on H224. 8 billion exceeds the combined haul of Germany and France. For context, US startups raised$180 billion in the same time period, which kind of puts into its tiny bucket.

48:04But obviously, US VC is nearly 60 % of global investment. It's just massive. While London still dominates, we've had some regional stuff going on. Oxford, Cambridge and Cardiff did a billion of that and other regional, smaller regional stuff is going up, which is great. AI startups, no great surprise here, are 30 % of that bucket, which has doubled in the last decade. Although what is an AI startup? Maybe that's a debate for another time. So health tech and fintech combined, neck and neck with AI and enterprise just behind that. So UK has produced 188 unicorns, 71 still remain private, just under 230 billion in value.

48:44half all unicorns from the uk were founded after 2010 and mostly ai and health so very quickly gents lomax kick this off any surprises any exciting things that we should talk about in that h1 data i literally think nothing as in like the i i i sometimes think in our industry there are just there there are too many reports i i don't think there's much really from this i mean when i when i i was just trying to think what's interesting here i mean the u.s is 22 times in terms of capital raise the amount of the uk i mean i mean we always talk we often talk about the huge disparity between the two markets but that is a is a staggering figure and actually funnily enough um last week we talked about the disparity in the public markets and one of the conclusions or data points we drew on was that the US public markets are 20 times the size of the UK public markets.

49:51It's interesting to see that being reflected pretty much precisely in the startup numbers too. So what's the conclusion of lots more money? We are slightly better off than last year in terms of number of unicorns. I think we had four unicorns minted in the UK in H1, which is just one more than the whole of 2024. I think the one thing I do tend to look at in these reports is the number of mega rounds or what the mega rounds were, because, you know, you can talk about venture and the industry as a sort of cohort level, but I think it's more interesting to pick out the big emerging companies. So we have three mega rounds in H1 in the UK.

50:32We have Isomorphic labs raised 600 million synthesia raised 180 million and quantex raised 175 million so i think that's like that's interesting that shows you know where the money is going they all are basically ai companies which i think we know um it's good to see those mega rounds getting done in the uk we're still behind 2024 as a reminder the biggest mega round done in 2024 in the uk was wave um the automated driving company which raised um just over a billion in one round so i think there's interesting things to see nothing particularly new um slightly up in the number of unicorns ai clearly playing a big theme as we would expect i don't know if you guys picked anything else out of this stuff but um that's my read on it well as a rule we're going to try and avoid reports it just it said uk and i got all excited so i put it in the ducat um and also it was i thought they were you know reasonable reasonable activity levels reasonable numbers But Mads, anything in there that you would highlight or not?

51:36Look, report, I mean, we always said we thought 2025 would be a pretty good year. And the AI boom is clearly continuing. And if NVIDIA delivers strong earnings when they report in August, this is just going to keep rolling on. And I expect that they will. I expect that this journey has a lot further to go. So that will get an early look in on the 16th of July. So in a couple of days, ASML will deliver their earnings report. So, but I, look, I think we're still in the early innings of this. This is, we're not done yet. Andrew, anything before we move on? Good indicators, great to see some big rounds, but the same fundamentals need changing, right?

52:19Optimize the tax environment, put a sensible visa system in place so we capture all the best people and motivate money to go into later stage growth. We know what the problems are. I saw another report, actually, from Tech Round. I clicked through from the link you sent through to another report. It says, what do experts think the UK needs to do to stay as a global player in technology? It's like, we all know the answers. It's just the government's not doing it. Just do it. It's just the same thing. Just do it. Lack of political will. Right, last thing on the docket. We're going to talk about finding big tech.

52:52So I've seen this week some more control and some more EU finding big tech. So there are some another layer of fines and control issues that the EU is imposing on Apple and Google, etc. Apple is appealing its half billion dollar app store policy case. Google is trying to navigate the serving European clients without contravening the EU's Digital Markets Act, which actually has a 10 percent of global annual revenue fine associated when you do contravene it. So that's a massive chunk of change. and i also saw this week that the eu is looking to scan our chats now for the right reasons they're trying to protect children so they want to have an inside backdoor even into encrypted messages in in chats but super high problematic but i totally get the intent so question for the room um where can you how can you legislate obviously we want to protect kids but freedom from sponsorship and mads maybe start with you more broadly are these fines a good idea do they ever work does money ever get paid is this uh is this even worth the eu doing yeah so nobody is above the law and so the fines are important when somebody breaks the law there has to be consequences now the violations they get litigated and the fines get litigated for an eternity but eventually they do get paid so they are important but i would also say at the same time you can't regulate or fine your way to greatness and the truth is i don't really care very much about the fines in themselves it's a little bit like speeding tickets they're important but they're dull so i'm actually much more interested in how we can build more great companies in europe i think that's a that's a more exciting topic.

54:42Well, Lomax, where would you take this? I mean, obviously, big tech is going to respond. I mean, is it going to be that Europe loses out? Is it going to be that it creates opportunities? Is there anything else in this beyond let the machine do what the machine does? I don't think it creates majorly, massively to the top of my mind opportunities. I think there's a risk that we as consumers in Europe end up missing out on some products because it's too difficult, too expensive. It's a cost of doing business, ultimately, the way the big tech companies will see it, right? And this is one of the EU is the one of the biggest single markets in the world.

55:18So, you know, naturally as a business, you are going to want to try and access it. And these fines generally are a cost of doing business. I mean, one thing, just don't forget, like the US does fine big tech companies, right? I think in the last 10 years, the EU has levied fines of roughly 12 to 15 billion. The US has done seven to 8 billion. So it's obviously a lot less. It's not too far. Although five of the 5 million in the US was Cambridge Analytica. Yeah. With Meta. So it was just a one time, one time fine. You know, Europe is broader in terms of who it goes after and for what it goes after under GDPR and the Digital Markets Act, et cetera.

55:52So I think it's a cost in business. I think that the big tech companies will, you know, be slow to comply, will appeal, will kick things into the long grass, will fudge things but ultimately they will they will pay um but you know these companies have i think you know hundreds tens and hundreds of billions of of collective cash on the balance sheets right and this is just a um cost of trade a cost of business that probably reduces their tax bill right so they it's not it's not the headline number you know that's how they think about it and i do think that on toronto i do i do think on the um legislation side is um we need to have it you need to have some kind of platform accountability for what happens and and and you know sometimes in the eu they tend to over be overzealous and overreach and i think they're overreaching by um reaching into encrypted messages because where do you stop um when you start doing that and and then you really start to constrain people's use of these of these products and i think that's an issue um however and undermine trust so undermine trust as well but yeah I think ultimately some of the consumers will suffer because if there's too much legislation we won't be able to use the products that our peers in the US have access to.

57:09Well I mean there's 600 million or so over here so I'm assuming they do want access to that market but maybe if it's too problematic they can yeah yeah. Andrew anything you'd add to this? i mean the back door to allegedly encrypted messages is a horrendous idea it's mass surveillance by design um so even if the aim is to catch you know people perpetuating child abuse which is an horrific thought it creates infrastructure for bulk surveillance of all citizens basically and it flips the presumption of privacy to treating everyone's private communications as you know sort of potentially criminal by default and i think there is no encryption if um you're going to pre-scan everything on the off chance in future you might need to you might need to access it and there's also no way of building a back door that only the good guys can use so it's it's got so many holes um a well-meaning goal approached with real flaws and then when you introduce you know ai what's to stop someone just using ai to start scanning all this content um you know once a vulnerability is introduced into an end-to-end system it can can and will be exploited by malicious actors whether they are you know a very right-wing or very very left-wing government or whether it is you know criminals and so i think it's it's a pretty pretty terrifying thought actually to be honest um and something that really should not happen lomax lomax deal of the week is yours my man so this is a bit of a funny one normally we're talking about startups raising money so this week we're talking about utelsat which is actually a listed company has announced that they're raising 1.35 billion euros utelsat is is predominantly owned by the french and the UK governments.

59:06You may remember that OneWeb, which was rescued by the UK government, was eventually folded into UTELSAT, which is creating a broad satellite operator operating across LEO and GEO, so geostationary Earth orbit and lower Earth orbit. They are the... Why is this interesting? Why is this deal of the week? I think it's interesting because we've talked about resilience and this is a big part of that. So this is Europeans trying to get behind a big local champion to create sovereign capability within satellite infrastructure and to really take on Starlink and military satellites in the US. So I think it's a good sign that investments are being made.

59:51Most of the money is coming from the French and the UK governments, which, as I said, were the big shareholders. The company is just over 1.3 billion revenue company. It pales into comparison with Starlink, which at the latest check was roughly$8 billion in 2024. So it's financially a lot smaller, but it does have different capabilities. It does have, for example, Starlink has no satellites in. It's a lower Earth orbit player only, whereas Utah sat has capabilities in both geostationary and lower Earth orbit, which deliver different capabilities. um i think it's interesting i think utel sat needs to rebrand and change its frigging name it sounds like it it sounds like an 80s pc i've got my utel sat with my floppy disk in the corner but i think look set against the context of what we just we've been talking about it's action it's money it's not a lot but it's a start and andrew will be happy because it's like know sovereignty control infrastructure defense and happy happy happy andrew what's uh what's on your agenda this week what's in your calendar anything exciting any beachfront condos you're frequenting or no beachfront condo although i am going to evade uh lomax's beachfront front office i'm so coming down i'm so coming down i'm gonna come down after the kids go back to school well i saw i saw uh speaking of peak llm i saw an interesting deal which wasn't ours but did you see poor sense ai done in the uk this week which is uh developing ai um to interpret pets emotions and provide therapeutic interventions aiming to revolutionize pet care by making pets happier um so maybe we are at peak llm maybe we really are uh but maybe that's something i'm gonna maybe that's something the eu won't regulate actually you know that's really really happy even happier dogs um and as an aerofile i'm happy i'm excited end of the week is uh the royal international air tattoo out of Fairford it's the world's biggest military air show so I should be geeking out there at the weekend look forward to that lovely Lomax what are you up to?

1:01:58beaching? surfing? hanging with the kids? LP's in town this week so yeah okay so shirt on clean pants got it no get them painting the walls get them painting the walls get them with some paint brushes put them to work thank you gents it's always a pleasure and a gift I'll catch you next week bye bye ciao ciao

1:02:19Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting.