E644 | This Week in European Tech with Dan, Mads, Lomax & Andrew – AI Moratoriums, Market Cooldowns & the Politics of Progress

0:00Welcome to Upside, where we dig into the real news that lives behind the headlines affecting European venture. this week it is another full house we have mads we have lomax we have andrew and myself and we're talking about should governments buy stocks vinod kosler the world-renowned vc thinks we should what to expect in the uk budget we're not boys and girls i promise we're not going to do too much in this but what's going to happen maybe we can focus on just the founders and investors should founders be raising right now to preempt the market correction if there is one who knows we have ai corner we have deal of the week but to start with let's do a round robin on some of the news i'm going to throw some things into the pot and see if anything piques our interest

0:56now to start i saw something this came from you mads um a tweet that you that you liked 23 % of new unicorns in 2025 have been European. So our slice of the unicorn pot has been growing steadily over the last 10 years. US is steady as she goes, but no growth. And Asia is slipping. I don't know if you guys saw the CTO job ad for 100k for the UK government CTO. I don't know what they were going to get for 100 grand, but bless them on that. yeah the imf um this is possibly not affecting us but i'm going to share it anyway because it kind of it caught my eye imf reckons that u.s debt burden is going to hit 143 percent of gdp by the end of the decade currently it's about 119 percent i also saw this week that lake star is not raising any more funds sequoia has raised 950 across two funds but only 200 million for seed.

1:55I know if there's anything in there that we want to pick up on. Also saw Sequoia this week, Roloff Bota from Sequoia, saying that venture capital is not an asset class. I didn't quite know what that meant. He also added throwing more money into Silicon Valley doesn't yield more great companies. Maybe there's something to pick up in there. And then Lomax, I saw that you noted that Bending Spoons, the marketing tech roll-up, has just bought Vimeo and is set to buy aol for 1.5 billion uh they've only been around 2013 and bootstrapped i think until 22 23 so they're 50 plus acquisitions since then so good on them anything in there lomax let's start with you anything in there that you pick up on jesus lots lots um yeah but first of all bedding spoons is equity is they also conducted an equity raise 11 billion equity valuation i mean clearly a lot of these acquisitions have been fueled by debt.

2:53So Bending Spoons has actually been funding a lot of these acquisitions by debt over the years. I mean, in a way it's sort of become a kind of Barclays Hathaway of consumer apps. It's a very interesting model. And there's actually a similar company in Ukraine doing a similar thing called GenTech, which I would suggest checking out, which is a kind of little brother or sister to Bending Spoons, similar strategy. But this is It's really tech on full circle, but bending circles, buying AOL. And it's not the classic scale from zero single product company, but it's certainly an interesting strategy.

3:30I thought we'd see many more after COVID. I thought we were going to see loads more of M &A after. And we didn't. We didn't really see this roll-up strategy. I think it's really cool. Yeah, I would also pick, I guess picking up on the other things. I mean, Unicorn's great. It's all about Decacorns these days, guys. Come on. Oh, come on, man. come on the u.s the u.s debt thing is very interesting i think in the sense that and we have talked about this before as a group is u.s debt is now you know predict you know as you say projected to search past that of italy which has historically been the kind of poster child for fiscal ill discipline um however i i think europe is actually still seen by many as the riskier trade so in a way why is that i think at the moment there's a belief that the u.s have affected if you looked at these as perhaps companies, you know, the people believe that the US are just better at capital allocation than we are in Europe, for example.

4:23So I think that's maybe Europe is a little bit, maybe Europe is a yes, but that includes capital allocation and investment. And I guess the dynamism in the US and maybe, you know, if you looked at the public markets now, meta, which is now being slightly beaten up in the public markets is a little bit like Europe, where people are asking questions about where they're going, whereas, you know, clearly NVIDIA or Google, perhaps now looking at these latest earnings reports are more like the US. I thought the asset class point by Rodolf Bota was a really interesting one. The point he's making is it's not so consistent that you pour more money in the top and predictably more money comes out the other side or there's not a kind of homogenous set of behaviors that govern this asset class.

5:14And he's very right. I think one of the points he was also saying is that really in venture, there are only and still only will be a very, very small number of big companies that deliver 70 to 80 % of the returns. So you can put more money into the asset class. But if that money doesn't go into those companies, then it's not going to deliver the returns that you would expect. And so all of the returns will consistently come through this sort of vortex of five to six massive companies that emerge per vintage and everything else is by the by, which it's so heterogeneous, he's saying, and inconsistent that you could not call it an asset class in the way that you might call commodities or real estate.

5:55Well, it's not linearly, I can't say it. Yeah, there you go. There you go. Be a teething dude. Come on. Scalable. I went to a speech case and I was like, baby, so give me a break. it's not literally scalable so from uh from that point of view i mean yeah yeah it's not an but i also feel there's a bit of um a bit of pr going on here i feel as though high profile investors often make provocative statements of course they sit on their narrative to guard their reputation to stay on the page i mean it's not quite trump-esque but you know people who have reputations and and it's a great way of keeping in the headlines and that's important as quite just as anybody else.

6:29So I hear you that the number of$100 billion companies or even decacorns is not exponentially increased in line with the amount of capital in the market. And so you're going to have an awful lot of VCs who do not perform well potentially, and you cannot just inject more money into Silicon Valley and expect there to be an even spread on winners. You can't cookie-cut 1 ,000 ex-Jason Callen Calluses from Uber Investments, right? It's still a power law. But of course, it's an asset class. I mean, you could easily compare anything else and say it's horses for courses. So I think it's a bit of PR spin here, and I think it's a great conversation to have.

7:08Mads, you're quiet. What would you pick up on? No, I'd just say 100%. Look, here's a big surprise, right? Successful venture capital investor in Silicon Valley doesn't feel he needs more competition. Well, there's a surprise. What a great pithy summary. Yeah, you've got Lake Star and Klaus. successful European venture capital investor now prefers to invest his own money as opposed to raising money from other LPs. While raising a half a billion to put into growth at parts of successful companies and while still investing into other VC funds and while also just reporting that the European VC ecosystem has increased 5x in the last 10 years.

7:47So I agree with you. Yeah, yeah. I mean, look, a bit of headline grabbing there. Absolutely. Why not? Keep in the press, guys. Keep in the press. That's what you're good at. So first up on the main list was Vinok Kostler this week suggested that the US government could take a 10 % stake in all public companies to soften the blow of AGI. So this was along the lines of a new way to redistribute wealth, kind of smatterings of UBI, maybe something for Rachel Reeves to consider. But I thought, again, going to your point, Mads, world famous VC in the headlines on the tech crunch stage, having an opinion.

8:29But I always also thought, is there anything in here that we should maybe unpack a bit? Look, I think we've talked about sovereign wealth funds before. I think it's absolutely right that we find ways to invest assets smartly. And I think governments should be run much more like businesses. And I think some of the smartest governments around the world have found a way to do that, Singapore being a prime example. I think they should preferably buy rather than take. I think we've got plenty of expropriation already. I don't think we need more taxes or confiscation of assets. But to the extent that governments can find ways to allocate resources to get into some of the best companies and get some upside for citizens.

9:08I think that's a good idea. I think it's all about kind of the way to get it done. I mean, well, I think he was kind of positing 10 % of all public companies. I don't know how that would work. It sounds like pure communism to me. I don't like it. Socialism. Well, it is. It's nationalization with a different branding, right? It's partial nationalization. I mean, it's essentially a form of tax. But do you think it would work, Andrew? I'm not saying it won't. I haven't thought about it. He's an incredibly smart guy. I think there does need to be a rethink about more imaginative ways, more radical solutions to the issues with the coming AI shift, but also just how you fund governments in general and how governments can realize value from large corporates and successful businesses that have got very good at avoiding almost all taxes in some cases.

9:57So I think there is an open debate and this is a great way to kick it off. I don't know if that's the right solution. I think it opens a fascinating discussion, which is the following. And maybe we can use the UK as an example, which is that if in the extreme case, AI takes all jobs, right? Let's just absolute extreme. We thought experimented out, yeah. Yeah. You know, half the UK takes roughly one trillion a year in tax, right? One trillion pounds. 350 or 320 billion of that is income tax from income. 220 billion of that is national insurance, which is effectively income tax. So half of the tax take of the UK is from income of employees who do jobs.

10:52So ipso facto, if the robots and the AI take all the jobs, the government automatically loses half of its income. At the same time, you say, well, what are we going to do to people because they don't have work now? And you have this concept of UBI, let's say. So then you have to increase the payments you need to make. This is the UBI. So in a way, the government loses half of its revenue and has a much bigger bill to foot. So then you're like, what the hell is going to happen here? You know, Vinod talks about, you know, taking effectively equity in companies. And that's a way to fund the gap from the dividends from that.

11:29I think it's a bit of a, I think it's a nice provocative thing of him to say. I mean, it's a thing that people say in a bull market as well. and the assumption that everything keeps going up. It just doesn't always happen. But he has got a point. So there is a broader discussion here. Clearly, that isn't going to happen overnight. And it may happen never. But it certainly is something to think about. And clearly, there are ways around this. And there's, you know, do you tax compute? Do you tax robots? Do you tax, I mean, all these things, do you tax? All of this stuff is going to have to be considered at some point.

12:01Well, one of the good things about, one of the positive things about it would be aligned motivation. So the current model of the government's tax profits, which means there's misalignment. Companies are incentivized to find loopholes, offshore structures, minimize their tax burden. Whereas with an equity model, the government return is directly aligned with the market value of the business. So I feel as though those incentives flip. I mean, you then, the government's pulling on both sides. but it would certainly mean a fairer outcome that reflects the market value in terms of what the public purse ends up getting an upside on.

12:40Practically, there are some challenges with that, but maybe a middle ground would be something like the government taking some of the taxes and then recycling them into an index fund across certain verticals or across certain investments so that there's a hedged bet across some of these sectors, some of these companies in public ownership, which it can realize profits from, which again would be aligned with market upside. By the way, sorry guys, just, I mean, like the better the AI companies do, okay, this is a concept that we already have, which is that the better AI companies do, the more profits they make, the more corporation tax they pay.

13:19the more money the government makes now i know that's anju's point i know i know that gets cut across by profit shifting and all that stuff which there's a whole industry people trying to you know base you know the whole whatever the base erosion profit profit share all of this stuff is um governments are trying to work on this but but don't forget there's already ways for government governments to capture value because i think in a way it's very dangerous to eat to tie even more closely the prosperity of a nation with the stock market you can't tie you know that these things are different things right i know they're sort of broadly correlated but i think tying them even more closely together is not necessarily a smart thing they're indirectly tied already it's just that indirectly but i'm saying that they and the motivations aren't tied that's the problem mads we might need your polymath brains on this would this work I don't I mean if we tax stuff we'll get less of it I don't think we need to start confiscating people's businesses but I do think we should find ways to have more efficient government the problem is we're spending too much all the time this is straight back to your line from above right the challenge we have now is that the US is spending like drunken sailors at least they have some growth but the deficit is absolutely crazy in Europe the challenge we have is we're spending slightly less but we're not growing at all The U.S.

14:37is spending$1 trillion a year on interest payments. $1 trillion a year. It's nuts. 67 % deficit in peacetime. It's just like, what are you guys thinking? So we've all lost our senses. And what you need to do is to run a society where you have a little bit of a balance, right? A little bit of a balance, a little bit of a surplus. You can reinvest some of that, as Singapore does, as Norway has been doing. So you put stuff aside for a rainy day and create wealth stock you can use later. But the challenge we have is that's not our, our political system is not very well set up for that because it's in everybody's interests as politicians to promise more things to voters so you get elected.

15:18And so that's perhaps the real problem we have is kind of this asymmetry, right? Where people that want to take a disciplined approach, they can't get into office and people that will promise everything and kind of run massive deficits, they get elected. So you have sort of this negative spiral. The value exchange that kicked all of this off, though, was interesting with NVIDIA wanting to be able to sell chips to China. My understanding is that the government took a chunk. Basically, well, the downside is if you're hawkish, you're feeding the monster with these chips. So there better be some public upside for doing this.

15:56And one of that upside is... Where do we get to with the Blackboard chips? I saw at Time of Press, we're recording on the Thursday. I saw the Trump-G new accord. Well, if it's signed, they've got to agree the paperwork and actually sign it. Then it's going to last a year. So I think for me, this feels like more, I don't think it means we're suddenly friends. No, no, no. But we've tackled it up. So we've gone in 100 % over, God, we're going to crush kittens. Oh, okay. Well, we'll cut that 20 % to 10%. And well, you can give us some rare earths and we'll play nicely with you. And can you please buy some soybeans?

16:32So it feels like there's now we've now we've kind of got the the egocentric out of the way with it feels like there might be. But I didn't know where they got to on the Blackwells. Did they was that part of the deal? Does anyone know? I am pretty sure Trump wants there and wants it to be part of the deal because he's now negotiated the you know an agreement where he gets part of the upside from chips and video sales to China. The Chinese they took a bit of offense right they sort of they did a 180 on it they said well we're not going to buy your chips. But of course they're going to want black whales if they can get them so my expectation is that they'll find a place where china can buy black whales and trump can get his cut and nvidia can keep growing stock price and everybody's happy yeah because their their mantra is we're going to go nationalistic and we're just going to we're going to buy all all within our own borders and we're going to become completely self-sufficient which i don't know how they can because they actually rely on the u.s for quite a chunk of chemicals does that remind you of anything somebody's saying you don't want to play with me well i don't want to play with you either by by the way if you did the numbers 10 % is actually not that much.

17:35The market cap of the US public equities is roughly 60 trillion. 10 % is$6 trillion. I mean, it's a lot, but even if they could get 10 % yield out of that every year. It's more than the UK GDP. I'm talking about in the context of the US, for example. Let's imagine you took 6 trillion of assets, right? And even if you could generate a 10 % yield out of those every year, that's not even going to pay your interest payments if you're the US, right? What's S &P average been, 8 % year on year? it depends over what period over what period yeah no it's in the last 10 years it's been more is it but yes better than most venture funds put it that way um hopefully not ours but not anybody in this call yeah yeah yeah exactly so the lp is listening um what i would say is um final thing that staggered me a bit is that six trillion you know how big the norwegian sovereign wealth fund is nearly two trillion it's 1.75 trillion so you're like five million people who have the kind of access to that.

18:32So it's sort of, it's staggering, really. Yeah. Well, let's stay on money. I mean, I think this might be a very quick segment, but we are going to, no groans, please. We are going to talk about the UK budget. It's on November 26th. I was reading some sound bites from Rachel Reeves. One was both tax rises. I can't do the voice. Both tax rises and spending cuts are options. Okay. Right. Just softening the way. The OBR is likely to downgrade productivity forecasts for the UK. So we haven't got a great backdrop here. The Institute for Fiscal Studies has calculated that for every 0.1 % downgrade in the productivity forecast, government borrowing would increase by around 7 billion.

19:13So this isn't a super great place to start. Now, what does this mean for investors, founders? What's going to happen? I reckon there will be changes to capital gains and inheritance. There will be a mansion tax. More positively, will we see business tax changes perhaps emi scheme changes that have been kind of mooted and touted perhaps the startup coalition and board wave are two london-based lobby groups for uk tech have basically asked for just some smart thinking around this but what's the reality what's happening low max what's your thoughts on this one i don't want to spend too much time on this i i think personally i i think as always a precedence seed early stage even later than that you know head down and build i I really just think ignore what's going on in Mansion House and in Whitehall.

20:02Just head down and build. I don't think that there is. But one thing, one very quick thing on that. Do you think that we'll see more founders leave, go to Dubai, go elsewhere, go to the States? Do you think any? Yeah, yeah. This is my challenge. Because it's not going to be good. The summary of this is it's not going to be a good budget for business, is it? We know where it's going. She's only got one playbook and none of it. She's not going to suddenly flip to growth. So nothing to see here. Move along because it's going to just be more bad stuff. Next subject. I don't think you're going to be moving to Dubai.

20:33I don't think serious founders are going to move to Dubai. They're going to move to the US. That's a separate point. You guys know I'm an advocate for founders moving to the US, but that's regardless of what the minutiae of this budget are. But no, she's going to increase spending, if anything, right? Because the two-child benefit cap is going to come away. That's another sort of$3 billion of spending automatically. So there is going to be an increase in tax. Unfortunately, it is going to go after the taxes that normally hit the wealthy. So the capital gains tax. We look at this mansion tax. But I don't know what we can do.

21:10We can sit here and be depressed about it. Or we can just crack on with our day jobs. And we have the sort of wonderful thing in our little world is that a lot of this stuff, it sort of matters, but it also doesn't, you know, in a way. As someone who doesn't live in the UK, I can sort of come back and I speak to people about the UK and there is a lot of negative sentiment and you can let it get you down. But ultimately, look, I mean, we'll talk about it later. Look at some of the deals of the week. There are some pretty impressive people building some pretty impressive businesses. And, you know, London is the big kind of cosmopolitan global city in Europe.

21:45And there's still a bunch of talent there. So I'll try and be optimistic on something that, yeah, of course, there's loads of grounds for pessimism here for sure. Well, I'm going to stick with heads down and bills. I think that's, I think we're going to, I'm going to turn off BBC News and just do exactly that. so founders raising a lot of noise on linkedin across the social sphere around founders raising before the pop raising getting some cash in the tank buying some time before a market correction before the music stops this is the this is the semi-panic we haven't got there yet Mads, do you agree?

22:28Is this a good thing, a bad thing, an anything? Founders need to make sure their businesses are well capitalized. And I suspect the rally we're seeing right now has got several more quarters to run at a minimum. I don't think there's any imminent global meltdown. Famous last words, right? We're going to get Black Tuesday next week. You just jinxed it. But no, I just, I just, I mean, we've just seen the earnings come out. We've seen that the messaging from not just NVIDIA, but also the hyperscalers. This is not going to go away, guys. We are on the train here and it's accelerating. I think it's smart for founders to have extra runway if you can get it.

23:04I also, I would caution against sort of panic stations because now's the time to make hay. The sun might never be shining more in our lifetime than it's shining right now on our industry. So, you know, I was sort of hunkering down and doing defensive rounds and all that stuff. And if that's where you're spending your time right now, I'd say it's a little misguided. If you're in venture, your job is to create growth. And now is the time. I think, you know, the best, I could say the best founders, but certainly some of the best founders that I've worked with are always raising money. Quite frankly, they'll open a note as soon as they close one round and bring in capital selectively through that journey.

23:41And it's not the kind of come up for air, raise money every 18 months that maybe people were used to back in the day. So if there are opportunities to strengthen your balance sheet without causing undue distraction to your business development, your hiring, your product efforts, then for sure that those should be taken. I mean, it's easier said than done. It's all very well for us to be like, oh, well, go and shore up your balance sheets or make sure you've got a robust balance sheet because for vertical AI companies or any companies in AI, it's probably as a generalization, easier to raise money.

24:16If you're not building in those areas, it's still not that easy to pull money in at the early stage so raise capital where you can don't it doesn't necessarily need to be all hands to the pump on the fundraising side um but it it's it's the usual advice of you need to have at least a decent runway to enable you to execute the business plan startups are all about speed um if you're on the venture journey and if money can help you accelerate you should take it and actually even if you're gonna even if it can't help you accelerate today, but it will help you accelerate later and you can take the money today on great terms.

24:53You should also take it because for all these reasons we're talking about, because of cycles, because fashion, because of emotion in investors, also because of just funding cycles. I think the AI bubble is less likely to burst before money runs out in VC coffers to invest invest into AI. I mean, VC is cycling. VCs are struggling at the moment to raise. At some point, those who are deploying are going to get to the bottom of their bucket of cash. Will LPs, will there be enough public market activity? Will there be enough liquidity that LPs start reinvesting into VC so that money trickles down to the startups?

25:35We don't know. So yeah, my advice would be if you can, and is my advice to my portfolio, if you can take money now on decent terms, you should take that, you know, and not prejudice on valuation or dilution, you should take it and be disciplined about not spending it if you're not ready to spend it. Yeah. You know, the best companies raise every 12 to 18 months, if not sooner. Six. Well, yeah. That's the AI crowd. No, the absolute best companies raise money every six months. I'm happy to find that. Well, yeah, okay. The absolute best raise even less than that. I mean, you take, you know, 11 months, It went from pre-C to C to 100 million for a series A.

26:14So there's always exceptions to the rule. That's because product market fit that company, by the way. So I wouldn't use that as an example, but yeah. Well, you were talking about best of the best of the best. The best of the best are always going to be outliers. But if you're a founder, yeah, make sure you've got money in the bank. But on the flip side, as an ex-founder myself, don't try and raise if the market will not give you money. Because instead of fixing the problems with your business, you will spend all your time trying to find someone who you can persuade to give you cash when your business is not ready and your startup's not ready.

26:43So, you know, if that means that you've taken pre-seed, you've done a pre-seed extension or whatever these stupid rounds are called now, you know, and you haven't found product market fit, you better make some radical decisions to reduce your team and solve the problem in your startup before you go back to market. You know, you see a lot of founders out there trying to raise and it's not easy because the market's not ready to give them money. And what they really need to do is be honest with themselves about what the problems are with the business in order to make you invest. Sure, but the challenge, as you well know, is that most founders don't know where that line in the sand is on the time box, right?

27:16It only takes one. It's like buying a house. You need to find the one magic thing or the one magic car or the one magic partner. So I don't know. But what you mean in terms of investor or in terms of your product so that the product works? No, in terms of investor. In terms of sometimes there are going to be a bunch of naysayers and I don't know where you draw signal over noise. well i think anybody who's had product market fit with a product and you can feel it the market pulls you with the product if you're for 12 months you're banging your head against a wall which i've done many times you're either your timing is wrong in the market for the products the right product at the wrong time you haven't gone to market and got in front of the right people with the right message or you know you've got a you've got a vitamin not a painkiller um and that's the that's the most common thing i'd probably say is that it it's you know a vitamin and not a painkiller.

28:05And that's why the market's not. And or a positioning problem. Sometimes, sometimes it's a sales problem. Right. Let's move into Mads' happy place. It's AI corner time. AI corner. Unsurprisingly, very NVIDIA focused. By the way, did you see Jensen Huang saying that AI isn't a bubble? I thought that was an interesting. And then he forgot. He started talking about all of the products that he was using. And he forgot. I think it was 11 labs. He forgot the name of some of the products he was using. So he kind of lost his own train of thought mid positioning the fact that AI isn't in a bubble. We buy loads of these things.