E708 | This Week in European Tech with Dan Bowyer, Mads Jensen & Lomax Ward

16:51Dan Bowyer:They don't have a single foreign policy. Our main geopolitical tools in Europe are trade power, sanctions, regulatory influence and diplomacy, right? And actually, when you have crises like this, you know, without a kind of big stick, Europe is just alienated and is the second biggest economy in the world, one of the biggest trading blocks, and we haven't got a seat at the table. And everyone has a different opinion of this. It's freaking crazy. And it affects key supply chains for critical stuff. So it's just yet another wake up call about the inability of Europe to stand on its own two feet.

17:29Dan Bowyer:I mean, we're now seeing a ton of investment go into this area, but it's just yet another example of that.

17:35Lomax Ward:And time and attention. So we'll talk a bit more about Mertz later and him saying the quiet parts out loud. But it feels like the time, attention, the defence budget. So but it's going to take time to wash through. Let us look at Anthropic versus the Pentagon. The US government has turned on one of its own. It's still at Time of Press. We're recording this on Thursday at about 2 p.m. UK time. And this is still in the news cycle and will probably be all upside down by the time this goes out. But last week, this AI company, Anthropic, told the Pentagon no. And the US government then tried to kill it and is still trying to kill it.

18:13Lomax Ward:Anthropic refused to let its models be used for mass surveillance, autonomous weapons. And then the Pentagon designated it as a supply chain threat to national security. Now, as far as I can see, Hegseth hasn't actually activated that. I don't know the proper legal definitions here, but it hasn't been activated. But this is still in threat territory, but it's still meaningful. It does mean that other companies are going to think twice about using Anthropic. Now, this is a designation that's never been placed on an American company before. Trump has then gone off and said to all federal agencies, stop using the tech, even though as of today's date, they are still using it because it's really hard to decouple.

18:52Lomax Ward:You think for a consumer, fine, they can get an OpenAI product or a Gemini or whatever. But if you're embedded, and especially through Palantir products and through other third parties through the other side, it's really hard to just decouple what's been going on and not be using Anthropics products. OpenAI then swooped in, signed a new deal. Sam Altman later admitted it looked opportunistic and sloppy. I think that's generous. Consumers have sided with Anthropics. Claude shot to number one in the App Store. Chat GBT uninstalled jumped nearly 300%. And then we saw quitgbt.org. I don't know if you guys were seeing that, but that has now hit more than two and a half million signatories.

19:30Lomax Ward:But I can't quite work out what matters here. Obviously, defence spend massive. I think Palantir, it's more than 50 % of their revenues. I'm not quite sure where it fits with Anthropic, but it's going to be sizable and for their future. Anthropic's revenue run rate has doubled to$20 billion this year-ish. So far, Mads are going to come back for the exact figures to you in a sec. You know, is Dario just being a snowflake? Is this meaningful? What's going to happen to revenues? How is this all going to fold out? A hundred percent.

20:01Mads Jensen:Look, I'm a huge Claude fanboy. We've been using the technology for a long time. The tech is genuinely the best. And that's why we use it. That's why the Pentagon uses it. That's why everybody uses it. Claude was literally used in planning the Iran operation last week. It was used in planning the Venezuela operation. It's used via Palantir's, as you say, Palantir's classified platform. Now that said, opposition seems reasonable at face value. Dario, he's got principles. That's why he left OpenAI. Who wants mass surveillance? Who wants killer drones in their backyard? I mean, it all kind of seems sensible, what he's saying.

20:40Mads Jensen:But I must admit, I do find the politics of it a little bit silly. I think Ben Thompson, he argued very well in Stratechery. Look, Amodeo, he has said himself that selling AI chips to China is like selling nuclear weapons to North Korea. He has himself leveled AI as the most powerful of powerful technologies. And the truth is, private company CEOs do not get to choose. You know, if you're working in that country, if you're part of that country, you do not get to choose or veto what the country uses your technology for. I mean, yes, you can say I'm a private business. I don't want to sell my tech to you.

21:23Mads Jensen:But then you can't also say this is the most powerful thing we have. You can't on one hand say we are like nuclear weapons, but my government doesn't get to the side over these nuclear weapons.

21:33Lomax Ward:But Mads, this is the first time. I mean, if you look at Musk and Starlink and SpaceX, this is the first time that privateers in certain contexts are more important than government departments, right? I mean, this is genuinely an odd time in history.

21:49Mads Jensen:Exactly. Exactly. And it is obviously for politicians to regulate. It's for the Congress. It's for the administration to decide how things are being used, if they're that powerful. Now, if you sell ice cream, you can decide not to sell ice cream to another person. That's fine. If you sell nuclear weapons, you cannot decide that your government cannot buy and use those nuclear weapons. They are too powerful for that. If you want to be in that game, that's the game you're in. And the question is, should our armed forces be regulated by elected leaders or by corporate executives? And there's no real question about that.

22:24Mads Jensen:Of course, it has to be through a democratically elected government. Now, on the other hand, this just might be the best marketing campaign in tech history. I mean, as you pointed out yourself, they've grown from 9 billion revenue run rate at the end of 25 to 14 billion a month ago, and now they're at nearly 20 billion. It's doubled in three months. We've just never seen anything like it before. And it's been adopted by enterprise adoption of Claude and Claude Code and all these things. And then, of course, they've been driving a lot of, swimming a lot from open AI right now. So whether it's calculated or not, it's looked like the refusal has worked in the short term for Dario.

23:06Mads Jensen:But I do think he could be sowing the seeds of future trouble. The truth is today he's got the best platform. So he has the possibility, he has the capacity to be a bit virtue signaling. Because when you have the best product, people need you. But if he gets to a point where he doesn't have the best tech, then this could come back to bite him. And this is potentially where the issues are. Did you want to dig into the European piece? Yeah, listen. In Europe, we've spent years telling business leaders they should act like politicians, right? Businesses need to solve the climate change. Businesses need to fix inequality.

23:39Mads Jensen:Businesses need to do all this virtue signaling. And the result has been in Europe, we've got weaker companies, we've got weaker economies, we've got a poorer continent, and we have less influence on the world and on solving the things we want to solve. Now, I think the job of business is to be really, really good at creating goods and services that people want to buy, because that's the bedrock of wealth of a society. And then we need to elect politicians, and it's for them to redistribute and decide what is virtuous and what isn't. And I just think when we confuse these roles and we want the business people, we want to confuse them with saying you have to be like politicians.

24:14Mads Jensen:You end up being neither and you end up like as number two and number three and you fall behind. You get poorer and then you can't do all the good things you want to do. And I really think the only way to win is to compete and be the best. And we can do that if we want to, but we have to decide that that's what we want to.

24:33Dan Bowyer:Max, you're going to have a strong opinion on this one, aren't you? No, I just think that the anthropic, Dario can't have his cake and eat it. If you want to sell, if you want to win big contracts with the Department of Defense, oh, which by the way, Dario has just been renamed the Department of War. And you knew that like Trump and Hegseth were running it. Like you can't like have the benefit of these like big enterprise deals. And at the same time, have the kind of restrictions that he's trying to look to put in. I'm afraid like if you want to make the money and you want to do it, it doesn't, And it is an element of like naivete, I would say, about that.

25:06Dan Bowyer:Clearly, I don't have all the context, right? But I do think, and you've drawn on it, like there is something very smart about positioning as Anthropic as like not the AI company that does all of these, that, you know, participating in mass surveillance, participating in autonomous systems that can kill people without, you know, a human in the loop. If Anthropic wants to commercially make that decision and make a virtue of it, which it seems to be doing, that's really, really great. but don't go don't go and sign contracts with uh with the pentagon if that's your if that's your

25:35Lomax Ward:vibe well they obviously had a contract with the pentagon otherwise they wouldn't be surprised and

25:41Dan Bowyer:don't be surprised when you get into these kind of sticky situations one thing i definitely think is overreach and is unfair in anthropic is this like potential designation for them as being you know the same as tencent and huawei and all these other chinese companies that are banned from all government business i think that's like i mean that's clearly an overcorrection from the White House that maybe is excessive saber rattling that ultimately can probably be negotiated away.

26:06Mads Jensen:Let's try and explore that for a second, Lomax, because there is an argument that says, if somebody in your nation holds the most powerful technology and doesn't want to let the government use it, the government has to destroy that business. Let's try and examine the steps. Now, we all know, or at least Dario frequently says, that Chinese open source labs are using distilled Anthropic, distilled models from Anthropic to train their models on. Do we think that the Chinese open source model developers have qualms around how the Chinese government use their models? And even if they do, do we think they have a say?

26:45Mads Jensen:Because what we're seeing today is it's very likely that anything Anthropic develops quite quickly ends up in the hands of the Chinese open source model developers that then becomes, can be used by the Chinese government. So what Anthropik is effectively saying is, you, US government, under which protection we live, can't use the technology, but we are also saying over here that the Chinese have access to it. Is that a situation the US government can afford to let exist? Yeah, it's a very hard question.

27:21Lomax Ward:I think there's a little bit of conflation in there though, Mads. I mean, it's not like Anthropik has much to say about how their models are distilled.

27:28Mads Jensen:That's the reality. Dario himself is the one who says this is as powerful as nuclear weapons. That's the business you're in. But you're saying your government can't use them, but you also know that the other side, quote unquote, can.

27:41Dan Bowyer:Well, the fact is the government has options here, no? I mean, yeah, but I guess if they had a monopoly position and they were the only company that were doing this, sure. But this only matters because they're the best. If they were number three, nobody would care.

27:55Lomax Ward:I want to move gear. I want to talk about something that doesn't always go down that well on this podcast, but AI stealing your jobs. Everyone would have seen, heard, and watched the news cycle about Jack Dorsey at Block and how his memo was received. So just to remind the room, Block is cutting 40 % of its workforce from over 10 ,000 to down to under 6 ,000. And I think using AI as this excuse. And I'm calling bullshit on this because Block went balloon from 4 ,000 employees in 19 to over 13 ,000 in 21. And its share price pretty much dropped from 22 down 75 % has stayed bottom rung as pretty low as it's ever been.

28:40Lomax Ward:And it's still 69 % down on its 2022 peak. So I don't see it as some visionary AI restructuring. I see it as simply a return to pre-COVID head count. And it's a bit of a dressing up. Now, this then means that they're targeting more than 2 million in gross margin per employee, which is roughly 4x what we saw at pre-COVID level. So I don't know what's going on behind the scene operationally in this business, but this is pretty nuts. And I just don't think it's going to happen. I think they're going to pull a klarna. They're going to start rehiring when things start to improve. I think they're going to have real operational struggles.

29:15Lomax Ward:And for context, I just want to look at a little bit of the wider market. So on the AI culling jobs front, by the end of 25, US companies, including HP, Amazon, Pinterest, worked there and many, many others. They were all hitting the headlines and they all collectively cut about 55 ,000 jobs, blaming AI. Behind the scenes, nearly 60 % of US hiring managers surveyed say they emphasize AI in the role cutting piece because they perceive that to be viewed more favorably than stating financial constraints or operational challenges or other wordology. So in other words, they're basically saying, admitting that AI is better PR than saying we overhired.

29:56Lomax Ward:Now, so I don't think there's anything in this, but is there anything that you would like to pick up on? Agree, disagree, please fight. Lomax, did you want to kick this one off?

30:07Dan Bowyer:Yeah, I don't disagree with you. I think that the company had become horribly bloated and that Jack might be using a bit of a smokescreen here to, you know, he might see the market getting a bit choppier, which is maybe something we'll come on to. And this is a kind of covert disguised riff reduction in force, right? Which may be a smart, smart time to do it and a smart smokescreen under which to do it. I mean, the market has responded broadly positive, right? Up 20, 25 % off the back of this news.

30:34Lomax Ward:Yeah, but I mean, but from, you can't really see the uptick in the graph even though it's a 20 25 nearly uplift yeah um the only thing i would

30:44Dan Bowyer:say is if you'd so yeah you referenced clana right who who made a big um big thing in 2000 in 2023 about leaning in heavily into ai partnering with open ai to automate large parts of its business you know the headline claim from them that was the ai could handle the work of 700 customer of service agents, support operations were heavily automated. And so that experiment ultimately failed because I think they found too many hallucinations, too many edge cases or complex cases that the service agents just couldn't handle, right? Basically, the technology wasn't quite ready. The only thing that if you look at what Jack is saying, it seems to me that they're going to be deploying AI and or reducing headcount.

31:28Dan Bowyer:They're reducing duplication, middle management, internal layers of people, right? And maybe they're going to be using AI, not necessarily customer facing, but internally. Maybe you could distinguish that. But in a way that it actually might be genuine and more likely to succeed than what Klana did. But certainly, there's definitely a bit of both here. There's definitely like, he saw the payroll. It's like, this is too big. Things are getting choppier. Bitcoin's way down. Got more competition. Even though the numbers are pretty good quarter on quarter at the moment at the company, I think it's a convenient time to do it.

32:12Lomax Ward:I looked at the numbers thinking that there would be a different story, and it's not. Margins are actually quite fine. Yeah, getting better. This is just, oops, we hired too many people. He did the same thing at Twitter. Oops. See, then he's a bit of an Elon fanboy, so I'm sure he's looking at what he did at Twitter and going, right, let's cull this ship. Mads, you'll probably have a different take on the tech and the tech impact. Is that fair?

32:36Mads Jensen:No, so look, I think he's quite smart in terms of how he positioned it. He's talking about this massive step change in December, and we've lived it. We've talked about it live on the weekly part, right? Opus 4.5 at the end of last year converted even the holdovers. Andre Carpathi said, you know, it didn't work before December. It's worked since. It was a massive step change. And then we saw another step change again with Opus 4.6 this year. Again, we're back to anthropic technology. They are running the world right now. It's incredible. So we've seen things become more productive. We've seen it in our portfolio.

33:11Mads Jensen:You know, Devs is saying, look, we used to have teams of 10. Now we have teams of five, and they are more productive, right? They put them in these little groups. The truth is, world-run companies, they grow with it. They don't use it to get rid of 40 % of headcount. And it is absolutely, you should say, because they've become bloated. It's also because they've blocked the Bitcoin thing and kind of the whole crypto side of the business didn't quite work out the way they were hoping over the last year. They've had some beating up there. The market really bought the signal when he announced the layoffs because that's what they are and the stock showed up.

33:43Mads Jensen:And yeah, the substance is definitely thinner than his memo suggests, but he got away with it. I think to a large extent, and good on him. There'll be some AI doomers out there that are happy that they're seeing this.

33:57Lomax Ward:I'm not sure that he got away with it. I think everybody's having the same conversation. But listen, let's talk about... Stock price is up, though. That's what he wanted, right? Yeah, yeah, yeah. Yeah, exactly. If you're helping and serving your market, then fair enough. Let's talk about some of the big AI stuff. And the upshot here is massive investment by the hyperscalers in, I think we've already touched on it a little bit, in this kind of extremely volatile, kind of slightly troubled, obviously now war-torn world. So hyperscalers planning to spend, depending on what numbers you read, around$650 billion on infrastructure this year alone.

34:37Lomax Ward:$650 billion. Some are in the sevens to the 800s and some are in the fives and sixes. I've kind of split the difference there. Meta just committed a 60 billion to AMD to do a chip deal and receive a 10 % equity stake. So that's quite an interesting deal. I'm sure we'll have an opinion on that. Meanwhile, Lux Capital is writing Black Swan memos to its founders saying, brace for impact. Only a handful of AI startups actually matter and the rest of you need to stretch your cash and plan for the worst. This isn't the first Black Swan we've seen in as many years. Foundation capital still shouting about the saspocalypse after a trillion dollars got wiped off the stock market in a single week.

35:17Lomax Ward:So we're seeing this massive infrastructure boom. We're not quite sure how that's going to roll out and how energy is going to be provided. Although I remember reading that Trump has asked all of the hyperscalers to provide their own energy. So don't know how that's going to work out. But we've got this massive infrastructure push. We've got this very kind of volatile, scary macro that we're living in. Oh, and one other thing to throw into the pot. DeepSeek is about to drop version 4, a trillion parameter multimodal model built on Chinese chips. Or was it built on Chinese chips? Mads, you might have some insight there.

35:52Lomax Ward:So I know, Mads, specifically, you're kind of bored of me going on about the bubble story stuff. But are we bifurcating even more? What would you like to dig into here?

36:02Mads Jensen:look bubble bubble bubble right everybody's talking about the bubble but anthropic they grew from 9 billion arr in q4 to 19 billion now you've never seen anything like it before guys i mean this is going to be fastest 20 bill of arr in history we'll have to keep an eye on their q2 figures they might not be so they might not be so juicy but sure that's what we've been saying every quarter and every quarter they've been blowing it away yeah did you see guys the open ai i don't know if you saw it's announced today

36:37Dan Bowyer:the open air i've just announced 25 25 billion ar and if you um take the last week of trading from open ai it's 30 billion if you if you analyze the last week wow okay clearly there is some

36:53Mads Jensen:substance to this. And we know because we live it every day. If you take the whole world, I mean, this one has been doing the rounds, right? If you take the whole world and you split it up into chunks of 3 million people, well, then 80 % have never even used AI. And if the 20 % that have used AI, kind of 95 % have never paid for it, it's all been free, a freemium kind of chat GPT or Gemini. And a very, very small proportion have been paying for AI monthly subscription and an even smaller proportion. One out of 2 ,500 have been using sort of the sophisticated tools like Cloud Code and Codex and paid more.

37:38Mads Jensen:So in terms of monetization, we are so early in this and there's so much upside in terms of how this will monetize. So yes, of course, we're seeing froth. We're seeing seed stage companies coming out, pre-seed companies come out with a deck and a couple of open AI renegades that have left the ship, raising a$2 billion seed round, right? With nothing more than good intentions and a nice name. That feels frothy. And a lot of people will be burned on that sort of thing. Elon Musk putting a price tag of$250 billion on XAI that's doing what, 60 million of AI revenue. He's got nuts numbers. but then there are companies like Anthropic and it's the real deal.

38:22Mads Jensen:So I don't know. Yes, there's froth here and there but I think what really matters is there is also so much substance underneath.

38:30Dan Bowyer:Lennox, where would you take this on? I spent a bit of time with this Black Swan memo that Josh Wolfe put out at Lux Capital. I mean, the history of Black Swan memos is fascinating, right? And there's the famous Sequoia one, right? From 2000 before the dot-com crash. I mean, if you're a venture firm There's actually quite low risk in whenever you feel there's any kind of frothiness, just put out a Black Swan memo. Because, you know, if you are wrong, everyone will forget it. And if you are right, you'll look like you're a genius. You can Michael Burry it. Maybe outside, start putting out Black Swan memos every six months and eventually you'll be right.

39:05Dan Bowyer:But actually, it's probably worth just just diving it because I think Josh Wolfe, Josh and the Lux guys are very thoughtful and very smart. And although I think Josh's language is sometimes a little bit too flowery, I actually think they have some very, very smart things to say. So I think the substance of this memo here is he's basically saying, look, at the kind of macroeconomic level, 10-year yield hit a four-month low while stocks hit all-time high. And when they diverge this wildly, the fixed income tends to be the better signal, right? So things are looking a little bit bearish at the macro level.

39:42Dan Bowyer:He also points out to this interesting thing that we haven't actually talked about a lot here, which is that physical infra is seeing a lot of interventions now. So he said over 300 data centers in the US are now seeing moratoria put on them, right? This is all planning, local objections, et cetera. And that potentially will slow things down and cause a bit of a bottleneck in all of this CapEx and then time to revenue, I guess, for these companies. the tariff situation which we talked about and then also he interestingly points out going back to the exact thing we just talked about the um the jack dorsey uh memo is that the markets have rewarded blocks news with a 20 percent gain so he basically is saying looking at all of these things and he's like look to be honest things may be okay but the cost of preparation is trivially trivially low and the value of being positioned well is asymmetrically high so he's basically be saying, well, if you can prepare for it, then you should.

40:41Dan Bowyer:What are they actually saying in terms of what founders should be doing? Kind of obvious stuff, reviewing your runway, reviewing your venture debt covenants, if you've got those. Totally curiously, this is something that it's worth focusing on because it also shows that they don't know what the hell is going on, right? So he says, if your growth depends on scaling cloud infra, verify your commitments and understanding where your workloads physically run. We can see scenarios where there is a glut of availability and lots of capacity and scenarios where there is chaos and confusion and disruption.

41:14Dan Bowyer:So, you know, they're kind of, they're even admitting, like, there's going to be some element of chaos at either end of the spectrum and we can't predict it. He's kind of, I guess, hedging his bets there. I think it's an interesting thing to be seeing in this market. I've definitely been counselling our founders, given that when things go wrong, they go wrong very, very fast. So the moment actually they start to go wrong, it's too late. You can't just suddenly go and raise money. So actually like having the extra cash on the balance sheet that you maybe don't need today, but might need tomorrow is a smart thing.

41:51Dan Bowyer:If you can raise money relatively inexpensively in terms of pricing and or time commitment to get it in,

41:59Lomax Ward:definitely not a bad bad thing to be doing now i i don't know enough about his the the premise was um short versus was it was it 10 year the divergence between basically basic the divergence

42:15Dan Bowyer:between the bonds become very risk off and the um and equity is very risk on says bonds basically

42:21Lomax Ward:tend to be right i don't know if that's a good lens anymore haven't those yields been inverted for three or four years. I don't know. It feels quite a shaky premise to go, look, the world has turned to shit based on this.

42:33Dan Bowyer:Also, one of the propositions was on tariffs and that changes every week. So it's like, again, it just reminds us that we live in such an area of uncertainty. And look, the one thing that we know for sure at the moment is everything is so inconsistent and uncertain that it is better to have more runway than you would like.

42:49Lomax Ward:Isn't he basically saying, just be smart and do good business?

42:53Dan Bowyer:I think, no, I think what he is saying though is don't go and overspend. This is not a time to be ramping up. That's what he's saying. It's like, you know, you chat to founders now when multiple conversations over the last few days, it's like, well, we could really accelerate here. We could start, you know, really going for it, shortening our runway and the anticipation that, you know, the financing market will be there. You know, maybe that's right in some verticals, but maybe it's actually the wrong thing. In some cases. If you're in energy. I'm all for that, you know, generally.

43:23Lomax Ward:Sorry? i feel an energy i was coming back to our previous conversation um okay i i found that

43:30Dan Bowyer:if you're in defense for example like could you keep you know some of these some of these um companies have like insane pipelines now so well should we just keep ripping out cash on this assumption that you know we'll be able to raise and i think it comes down to you know the kind of

43:46Lomax Ward:business you're in the kind of founder you're in the opportunity that you have because i think i I found a lot of what he was saying, there was an equal and opposite opportunistic vector where you say, great, now you can take the lead on this competitor. Now you can launch this new version of a product or service. I found it was like, great, nice kind of brain fodder, but I didn't find it of that much substance.

44:08Dan Bowyer:One thing that I'm not necessarily seeing the smartest thing from in the market, and maybe I need to spend more time thinking about this, is some of these companies. Okay, so when you're raising 25, 30, 40, 50 million dollar rounds, right? And you want to go and spend that on growth. I still see insane hiring sprees. This is mainly anecdotal on LinkedIn, right? From a bunch of companies and JD's job descriptions out there across a range of positions. And I'm like, the intense pressure to generate the growth in this market of a top decile company is so high and you have such little time to think that you might in error just go to the kind of default position of let's just hire a fuck ton of people who are good at this and and you know get these numbers right what i don't think people have enough time to put just put the systems in place to become well what else you spend the money on exactly maybe you don't spend it is the point.

45:09Dan Bowyer:Or maybe you become so focused on increasing the revenue per employee through using AI. Do you know what I mean? It's an insane divergence now that we're seeing that even some of these vertical AI companies are behaving like traditional SaaS companies in their hiring. What do you think, Mads? You always have a good opinion on this.

45:29Mads Jensen:I'll go out on a bit of a limb here. I think for advice to be good, it has to be meaningful. I think saying to founders, if it's not too much effort and you don't have to make any trade-offs, you should raise more money, I think it's not very good advice. Because if there's no trade-off, what does it really mean? I think the real question is if there is a trade-off. So is it take the next three months to focus on fundraising or take the next three months to focus on growing the company? That's a real trade-off. And how do you advise founders in that situation? For me, that's actually more valuable.

46:01Mads Jensen:And right now, to me, it doesn't feel like one of those, stop growing the business and just focus everything on getting in cash. I don't think this thing is going to blow up. That might be famous last words. But from everything we're seeing in the fundamentals, Anthropics revenue growth, OpenAI's revenue growth, what we see in terms of AI adoption, this is not a crazy bubble with no fundamentals. This is the biggest tectonic shift in business and technology in our lifetime that's unfolding in front of our eyes. And so you're going to want to be in it. Now, being in it means having capital. Of course, you can't be, you know, I've got two weeks left in the bank.

46:39Mads Jensen:If you do, you better get your skis on. But I would also say if it's am I growing the company or am I just constantly fundraising, not even really thinking about growing my business? I think it's grow the business now. That's the time.

46:50Dan Bowyer:yeah and actually you mentioned this um this sasspocalypse review by foundation capital right which doesn't say a lot new but it does reiterate that their opinion is that you know software markets will be 10x bigger in 10 years time so so like there's still such a big opportunity here

47:11Lomax Ward:i i don't think you can you can release a memo like that in the general form i just i don't think personally, it's particularly helpful. Let's move on because I want to talk about, I want to share with you my favourite quote of the week from Frederick Mertz. It is, we are simply no longer productive enough, which obviously then went viral because there's quite an unusual thing to hear, especially from a German chancellor. He was speaking to his Christian Democratic Union members at a rally after he returned from China. And we've seen before when people have gone to China, got scared at how incredible they are at X thing, and then come back at, oh my, oh my goodness, we need to do something.

47:54Lomax Ward:So he then went to the Oval Office thanking Trump, backing regime change in Tehran, offering German defense access. For a little bit of background and context, German defense spending has jumped from 86 billion euros to 108 billion this year, against the backdrop where things aren't going well for the German economy. They grew 0.2 % in 25, which is even worse than the UK, which is saying something. Unemployment at a 12-year high. Now, historically, they've never hit NATO. Well, they hadn't hit NATO's 2 % target. Well, they haven't hit it since the early 90s. And they hit it for the first time in 24.

48:28Lomax Ward:And he's backing NATO's 5 % target. And he's publicly pressuring Spain to fall into line. And also behind the scenes, the FCAS fighter jet program is falling apart. It's probably dead. The Germans are now saying they're going to onboard American F-35s instead. They've fallen out with France on the project. So some super bold noises from Mertz. I'm not quite sure. We need Germany at the party. We need them at the table. He's elegantly, beautifully saying the quiet parts out loud, being an extremely powerful leader, but I'm not sure where this leaves us what can be done. Mads, I don't know quite a lot of...

49:07Lomax Ward:I've said a lot of wordology and word salad in there, but what would you pick up on first?

49:11Mads Jensen:I think, as you say, it's refreshing to hear him say what he is saying. I mean, let's just go back to the top of the show here where we talked about what's happening in the Middle East. Europe can't shape events that we depend on. And I think Mercer's answer here is realpolitik. I mean, I'd rather us being in a situation where we're not behind, where we don't have to ask everybody else for help. But at least let's acknowledge where we are and then act in whatever way we can to further the long-term prosperity of the continent. Now, you know, Maritzi went to China. He got the Airbus deals done there, right?

49:45Mads Jensen:120 new aircraft sold into China. We talk about how China has become the best at making everything. Europe is the best in the world at making aircraft. Not number two or three or four. The best. Airbus is the best company on the planet. And we should definitely use that and leverage that the best way we can. China have tried them, Mads, haven't they?

50:09Lomax Ward:China have tried. Right. I've seen their own airliners. They just can't sell them internationally.

50:13Mads Jensen:Of course. And maybe they'll catch up one day, right? We said 10 years ago, they'll never catch up with our automotive industry. Maybe they will. But today we're the best. So let's celebrate that. I think that's a great thing. He's gone to the US, of course. He has been working the Trump angle. He's working the Xi angle. We have to be realistic about where we are in the world. And then we have to work harder and smarter. There was this comfortable illusion that let The other people work hard. We just need to work smarter, smarter regulation, better. It's not enough anymore. We have to do both.

50:48Mads Jensen:We've been too conservative. We've been too stuck in the old ways. We've been too in-hook to narrow pressure groups. I know, Lomax, your favorites are the NIMBYs, right? And the NIMBYs have been running the continent, and we've got to move beyond that. So those are some of the angles. And you're talking about FCAS. That's super interesting, right? this joint French-German fighter project. There have been other projects that were successful. Airbus is one of them. Airbus took a long time to get off the ground, but eventually became very, very successful. So these things sometimes take time. Lomax, which bit would you pick up on in this lovely melee?

51:26Dan Bowyer:I would go an extreme on this. I would literally be like, kill FKAS, waste of fucking time. Really? Yeah. I'd be like You're building You've spent 10 years F-ing about Trying to collaborate Across three different countries To build What was then potentially A next generation fighter jet By the time you deliver it

51:47Lomax Ward:I thought it was just Germany, France Who's the third country? Oh, Spanish Oh, yeah

51:51Dan Bowyer:You don't even want to f***ing fight So What's the

51:57Lomax Ward:Hang on What's the What's the British Japanese one? Or is there a French There's a There's a Japanese

52:02Dan Bowyer:You're totally right And I forgot I've forgotten the acronym. The Swedes are involved in it as well. I think Leonardo is involved in that one.

52:09Mads Jensen:Yeah, this is British, Italian, Japanese. Right. Yeah. Right. That's still going ahead, right, Mads? Absolutely. And that's actually progressing very well. No, so the argument is not that FCAS has to be done. I need to say my piece.

52:21Dan Bowyer:My piece is this. No, no, no. Go ahead. But I'm using it as an example. It's like, guys, you've got Andura in the US, Saronic in the US built. And during the US building, the next generation of autonomous swarm, no human in the loop, next generation fighter jet, war planes. You've got Saronic doing the same with the Navy in the US, raising billions and tens of billions and winning billions of contracts, right? The Germans are going to spend$120 billion, roughly,$115 billion on defense this year. and they want to spend, I think, less than 8 % of that on US equipment and services, right? So isn't now the time to say, I'm not spending any more money on FCAS.

53:11I'm going to spend all of my money on the future of warfare,

53:17Dan Bowyer:on the systems of the future. Because by the time FCAS is delivered, it will be a white elephant.

53:22Lomax Ward:But they're not European. Are you saying by American tech?

53:26Dan Bowyer:No, sorry. Wait, sorry, if it wasn't clear. Building and backing European companies, building that stuff. You know, the Helsings and the various other companies, Stark, you know, those kind of things.

53:38Lomax Ward:Just not the Airbus. Was it Dassault? Who are the two manufacturers? Yeah, Dassault systems in France.

53:43Dan Bowyer:Like, you know, the US has already pivoted to what they call collaborative combat aircraft. So they're developing autonomous drones designed to fly alongside fighters. These are called collaborative combat aircraft. and effectively one expensive fighter controls all of these swarm drones. The Chinese have something similar. I don't, I just think there is an opportunity now to rip some of the old ways up and start again. The problem, of course, also, apart from ego and pride, national pride, is also the unions and a bit of geopolitics in terms of like, these are programs that employ a lot of people.

54:21You know?

54:21Lomax Ward:I thought the challenge was mainly the CEO is basically saying, I want to be the lead. And the other guy going, I want to be the lead. And I want to be the lead.

54:29Dan Bowyer:Of course. And exactly. I don't know what's true.

54:32Lomax Ward:I don't know.

54:33Dan Bowyer:And also like, you know, also when things go wrong, like whose fault was it? And who's not working hard enough? Yeah. I just think I don't, I don't think that's the way to build these systems of the future. So I would spend the money on if, If you want to allocate to the big future weapons of more of the future, you know, there's big projects that need a lot of investment. And then there's also these kind of, like we talked about, these interceptor drones that the Ukrainians have built that cost a few thousand instead of the millions of Patriot missiles, right? You can start to build up that capability, which is a whole new different capability in supply chain that needs investment.

55:15Dan Bowyer:And because you actually, if you want to build those things at scale, look at the Iranians running out of missiles. I mean, talk about the Americans running out of missiles at some point. Right. So if you want to take the best of what's been built in Ukraine and you want to scale that up, that's a whole new production facility capability. I called it fast fashion earlier. I think it's very, very similar. Right. And I think you need to invest in that. And then in terms of the big marquee projects, forget about all the old stuff. Start again.

55:43Lomax Ward:So you're saying anything that's cross-border, cross-company, collaboration in out. These are old ways of doing things.

55:50Dan Bowyer:Old ways of doing things. For sure.

55:52Lomax Ward:For sure. So back your prime in your country to deliver your thing. Yeah.

55:59Dan Bowyer:And, you know, ideally you'd get to a position where you'd be happy with Europe in fostering a few different neo-primes from different areas and you don't have just to buy British if you're British. You know, there would be a kind of... I think, and I'm not saying we should go and give all the money to housing.

56:14Mads Jensen:Let me test this with you, Lomax. I'm interested in your thoughts. So, you know, why do we have primes? Well, we've got primes because, you know, what happens when the war ends and the defense companies, the defense contractors, they run out of business, right? Do they run out of money? Do they go bankrupt? Then what happens if companies that are supplying the defense systems we rely on, the fighter jets or the missile systems or whatever it is, they go bankrupt? Is that, can we no longer get our kits serviced? Will the technology wander off to serve hostile powers, all that stuff? So we've been keeping and consolidating these defense primes to some very, very big companies.

56:49Mads Jensen:Is your argument that we should just let them die, kind of the Lockheed Martins, the BAE systems? No, no, no. Let them compete. Let them compete. But this is not how they work. I don't even think they know how to do that. I mean, that's what they did once upon a time. Evolve or die.

57:07Dan Bowyer:But this is my question.

57:09Mads Jensen:So you would let them die? Yeah, definitely. But does that not then mean you're going to put your country at risk? Because how are you going to get the kit you've already bought serviced? What about the skills and expertise that reside in that company that are now at risk of wandering off to maybe foreign powers? Don't forget, Europe's biggest defense company today is BAE Systems. You don't have to go back very far when they were on the brink. Rolls-Royce, one of the most successful aircraft engine manufacturers in the world, they were also belly up once upon a time.

57:45Dan Bowyer:What the hell's going on Mads here? Sorry, what are you advocating for incumbents here? This is the new... What's happened to Badass in Singapore?

57:55Mads Jensen:Because I think your vision is beautiful. Let them just all slug it all out. I'm just not sure how that works in defense.

58:02Dan Bowyer:Okay, there's always an element of us, of the unknown here. But I think you have to let people try. You let them die. You have to let them market try. Maybe it's the right answer.

58:14Mads Jensen:Maybe it's the right answer.

58:16Dan Bowyer:Some of these new companies will get halfway and may end up being acquired. Because the existing old school businesses of the primes are delivering much more cash now, which will maybe enable them to buy in some of this stuff. I would not be relying on Lockheed Martin BAE Systems, Leonardo to be building my future autonomous warfare stack. I wouldn't be relying on them.

58:49Mads Jensen:No, because the procurement model is completely broken. So that you're going to overpay. Yes, because the procurement model is broken. The way defense procurement works today is the MODs of this world, they buy off a PowerPoint, right? The defense contractors and the MODs, they'll get together and they'll say, here's the beautiful vision for what we should build, and then you'll commission something, and then, as you say, it'll take 10 years or 20 years and endless cost overruns, and the scope will keep changing, and in the end you'll end up with something that's not what you ordered and it'll be too late.

59:21Mads Jensen:Whereas what the next generation companies are doing is they say, we're building it speculatively. We're designing the aircraft. We're designing the missile system. We're designing these things and building them. And then you can buy them once we've built them or once we've designed them, not off a PowerPoint, but here's actually a product for you to buy, which is a much better way for capitalism to work. Now, of course, that is how defense worked once upon a time. It's just that you have these peaks and troughs, and then defense companies end up consolidating and you want to keep the last ones alive because what happens if there's no Lockheed Martin anymore?

59:55Mads Jensen:I mean, how are we going to serve as the world's fleet of F-35s? But getting to a state of too big to fail is no bad thing.

1:00:03Dan Bowyer:I mean, if he does get to that. Maybe someone's, maybe Palmer Luckey is sitting there in Andruro being like, you know, at some point, maybe America is just so all in on this, but like at some point the defense market is going to cool off and the Americans are going to reduce, you know, the Democrats will get in, they'll reduce the defense budget from$1 trillion to$600 million and, you know, the R &D budget will come down. Like, maybe we should have a civilian, maybe we should have a, take all of this cool technology and apply it to civilian applications. And that's like, maybe they're already doing it, probably are, you know?

1:00:38Dan Bowyer:Well, a lot of it ends up there. So, I don't know, but I think the time is to be bold here and I'm oversimplifying things massively, but I do think, and I take FCAS as an example and it's unfair to all the people who spent the last 10 years working on it, but they can probably go and get jobs in these potentially amazingly new, well-funded companies that are much more dynamic and fast moving. Rip it up, start again. And, you know, back to the point around who have the people in the Middle East called upon to defend them in their hour of need from a technology standpoint, someone in Europe, Ukraine.

1:01:21Dan Bowyer:That's actually a very unique thing. No one ever came to the Europeans for help before. So actually, maybe there is a kind of kernel of upside here.

1:01:31Lomax Ward:Loving it. Talking of booms and upsides, the last on the docket, normally we would have a little semi-throwaway conversation date of the week where we kind of talk about the deals that have caught our eyes. But this week, I want to dig in a little bit deeper into Proxima Fusion because a European fusion startup has signed a deal to build the continent's first commercial fusion power plant. This feels like a big one. So Proxima Fusion is building a 2 billion euro Stellarator. Mads, I'm going to ask you what the freak Stellarator is in a minute. In Garching, southern Germany, just outside Munich, with a commercial plant to follow at a form a nucleoside.

1:02:10Lomax Ward:Is astellarators ready to commercialize? The Tokamaks, not the way to go? Mads, what the hell is a stellarator?

1:02:18Mads Jensen:A fusion reactor is a wonderful thing. Trying to replicate the power of the sun here on Earth. And stellarators and tokamaks are two sort of variants of ways of trying to do that. You sort of create a donut-shaped magnetic bottle where you can have some plasma inside. This plasma is super, super hot. It's hundreds of millions of degrees, right? Very, very hot. The difference between the two reactor types are how they hold the plasma. Now, the tokamak, which is sort of the more common variant, they use external magnets plus an internal plasma current. The thing about these is that they are a little bit easier to make, and people have been working on them for a long time, and we've got a continuous pulse up to almost 20 minutes now of sort of continuous power, but they are inherently unstable.

1:03:09Mads Jensen:And after 70 years, there's still nobody can run one 24-7. So we haven't made them very stable yet. They sort of keep failing because of this pulse that sits inside that can sort of jump off the chain, if you will. Stellarators, on the other hand, they rely on external magnets only that are twisted in a certain way, certain shapes, complex 3D shapes. So there's no current inside. There's no disruption. is a genuinely continuous operation. It's much harder to build, but if you can build it, it just works. And so we have a team that was spun out for the Max Planck Institute in Germany, and they've built the world's most advanced stellarator there.

1:03:48Mads Jensen:They're real scientists, kind of real Germans that can make real engineering stuff. And now they've created this company here, and there's a 2 billion euro on the table. Now, they're talking about this as a commercial fusion plant, which sounds really, really cool. I think the truth is it is probably still mostly R &D. They're talking about five years from now getting to the first net energy gain. So net energy gain just means it's going to produce more energy than we put into it, not on a commercial basis, just to make that work from an R &D perspective. Commercial power, maybe in the late 2030s, kind of meaningful grit contribution, maybe 25 years away.

1:04:34Mads Jensen:So it's not going to help us with the current conflict in Hormuz. I mean, let's just be honest there. But then it's also worth remembering, Airbus took 20 years to go from incorporation to first profit. Some of these things take time. And today, Airbus is the global market leader. And that's how you build it. You got to start. And I think they're starting. I just love to see it. I think the Americas are still better at getting more private capital into this. There's still a lot of government money that's coming in, but it's happening.

1:05:05Dan Bowyer:How do you, you know, you run a seed fund, I run a seed fund. There's a bunch of seed funds that put money into this company, right? How do you think about that in terms of their ability to generate? Do you think there's a very high risk they get, you know, recapped, doubt like at some point or not? Like there's going to have to be, that's a long journey, right? For a seed fund to be putting, as a reminder, you know, These funds, obviously, are going to be 10 years.

1:05:30Mads Jensen:They need to hit valuation milestones. And I think they're out looking five years to get to positive net energy gain. And I think if they can do that, that's where the valuation inflection is. And five years is within the horizon of a seed fund. You don't have to get all the way to commercial power generation. So I think it's a little bit like one of your biotech bets.

1:05:47Dan Bowyer:Yeah, yeah. And then you can secondary your way out at that point. Yeah, I think so, yeah. So is there a fusion investment coming from SuperSeed? Fusion investment coming from SuperSeed soon? I would love to.

1:05:56Lomax Ward:I've been looking for doing energy stuff for a long time. I would love to do stuff in energy.

1:06:03Mads Jensen:Look, I love these moonshot projects. We need more than one. We need to collaborate across the continent. I love that the Germans are doing it. I also hate that the Germans are doing it. I really want us to come together because this requires deep pools of capital and the North American businesses are better capitalized. And I want us to win. So let's pool more capital and more resource so we can have more of these big, bold plays. Europe needs it. I wonder what the Chinese are up to on this point as well. The competitors in China have nearly limitless capital behind them. Open question. Anyone know where they're at technically?

1:06:41Mads Jensen:The 17 minutes is, I believe, from the Chinese Tokamak reactor. And it was 20 in southern France, wasn't it, from the Tokamak? Yeah. So you have Europe and China are kind of similar on the Tokamak front, but the question is whether Tokamak will ever get us there.

1:06:59Lomax Ward:I see. That's the challenge, hence the stellarator push. Well, I'm going to do some reading up over the weekend. I don't know about you fine people, but I'm going to get into quantum infusion. As always, 10 years off, 10 years off. Gentlemen, anything else? Any exciting moves in the coming week? What's happening? Anything else you want to talk about?

1:07:18Dan Bowyer:Got an outsized founder dinner in Barcelona Next Thursday You're doing what in Barcelona, Lamax? I'm going to be in Barcelona We've got a dinner for exited founders Lovely

1:07:29Lomax Ward:Love Barcelona You spend many a weekend partying there Maz, anything in your diary that's exciting? I will be in London next week And I look forward to it What? What? Home turf? Well, I will see you here, my good man Thank you, gentlemen Until next week All of the love Bye-bye Have a good one.