EUVC #228 Sam Endacott, firstminute

0:10Hi, everybody, and welcome to the European VC podcast. based in London and Berlin to back founders across Europe, but also opportunistically in the US and rest of the world. The fund has investors across all sectors. As such, it's a generalist VC fund, but typically focused in SaaS, deep tech, developer tools, and fintech. First Minute is also backed by over 130, that's one, three, zero, unicorn founders, in addition to current and former CEOs of global corporates. First Minute are now investing out of Fund 3 with a total of 100 million USD and AUM and an established portfolio of over 130 companies.

0:49Notable investments include A-Team, Storyblock, Robocorp, Enkflow, Wave, Clang, Clockwork Labs, Ramp, Element and Generation Home. The portfolio has raised follow-on financing rounds from Embracer Soft with the long list, Sequoia, Andersen Horowitz, Tomiko Index, Benchmark, KOTU, SoftBank, Tiger, General Catalyst, North Zone, Mubadala Capital, NFX, Bolton, D1, Felicis, Bain Capital, and Tencent. And I had to take a breather in the middle of that. At first minute, Sam is focused on SaaS, developer tools, AIML, and FinTech, and has led investments into a number of the fund's high-performing companies, such as Storyblock, and a number of recent deals in this space of AIML, which are not yet announced, but we'll talk a bit about the space.

1:33If you're listening in, love our show, drop us a review, follow the pod and subscribe at EU.VC.

2:03Europe is a story of new beginnings, new, new beginnings. Let's start acting, acting, acting, acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. After David rattling all that off, let's get into your story on how you got into venture. Yeah, absolutely. So my journey into venture, I suppose it was a little bit unusual. So I went to study at the London School of Economics in London, and my plan was actually to go into the foreign office. So I wanted to be a diplomat when I went to university at 18. And whilst there, I fell into the trap that I think many people do, especially when they go to university in London.

2:50I ended up going into investment banking at Goldman Sachs, which was actually just down the road from my university campus. So it was about a two minute walk, you could almost see it from the library. At Goldman, I ended up working in the investment banking team in the financial institutions group. And that meant deep diving into the world of banks, insurance companies, credit management companies, payment companies, and eventually fintech as well. It was quite an interesting period because it was 2016 to 2018. And that was the time when the Revoluts and the Monzos and the N26s were popping up.

3:34And I was covering UK banks and I could kind of see the writing on the wall that was coming. And actually a couple of colleagues in my group actually ended up leaving and going and working at these digital banks. So that was kind of my first foray into the technology world. I really enjoyed that. I ended up leaving Goldman and actually had two options on the table. One was to go and work at WeWork and the other was to join First Minute and work for Brent Hoberman's new fund. And Brent built lastminute.com back in the late 90s and took that business public in 2005. And I thought that was a really incredible opportunity to go and learn from someone who'd scaled such a sort of large unicorn company in a very interesting space and had an amazing network.

4:23And his pitch for the fund was I wanted to build a venture fund that I would have raised money from when I was starting lastminute.com. And that was with 30 unicorn founders at the time. And now we're at 130. So that was my story of getting into venture. And I just want to say Brent was, if I remember correctly, He was actually the one that recommended we brought Sam on the pod. So a shout out to him from our side as well. Thank you for the introduction, Red. Sam, normally we ask people to share a pivotal moment in their life at this stage. But I actually want to detour a bit and ask you about, you said you wanted to be a diplomat.

4:59That's not very common, right? I think many young kids might not even really know what a diplomat does, to be honest. So I'd love to ask you, why was that? And does that relate in any way to what you do today as a VC? Yeah, a little bit. So I was always really into history and politics. And I used to, for fun, I used to read biographies of, you know, famous politicians and military leaders and things like that. So I was really into history. And then as I sort of went through my teenage years, I got more into modern history and modern international relations. So that was just a big personal interest of mine.

5:34And actually, I studied political science at university as well. So that was one reason. And the second reason was just coming from a pretty international background. So my mom grew up all over the Middle East and Europe. So I'd always been quite exposed to that kind of international background. So I think that was ingrained for me from quite an early age. In terms of like how it relates to venture capital, I was thinking about this a little bit. it does in a sense, because especially in somewhere like first minute, I mean, I'm constantly meeting entrepreneurs from different parts of Europe, as you mentioned in the intro at the beginning, other parts of the world, you know, we've been doing investments in emerging markets, we've, we've made investments in South Africa and Egypt and in Kenya and Nigeria, the US and also Pakistan.

6:27So it's been it's been pretty global in that sense. The other point to mention is just, when we're backing companies, these entrepreneurs are thinking global from day one, we don't tend to back sort of national champions. So it's pretty exciting in that sense. So you're always meaning different personalities, people from different cultures, people from different upbringings, and people who want to take their products and sell them to all different types of people. So it is a bit like that. You said that you'd like to read, you know, books from famous politicians or historical figures or whatnot is there one that you have like as i won't say as a role model but one that you kind of come back to in your thinking oftentimes that you would uh advise any of our listeners to learn a bit more about yeah actually there was um uh there was a few books that william haig who he used to be the the leader of um the conservative policy, Conservative Party.

7:24And he wrote two very good books. One was on William Pitt the Younger and the other was on William Wilberforce. So those are two books I'd highly recommend reading. Pretty interesting periods of British history. Sam, let's get into the Take a Stance section. Take a start.

7:50Sam, I would love to ask you to comment on the following quote by Daniel Kiberk-Knorr from Speedinvest. But if you need luck to become successful, then you might rather restart. Yeah, so I disagree with that comment because I think everyone needs a little bit of luck. and and I completely understand the intention behind this statement but I think everyone needs a little bit of luck but you just need to put the right processes around what you do every day so that when you need that luck it finds you rather than you sort of relying on it if that makes sense so I think luck is important but uh you you still gotta have that sort of very disciplined and, you know, daily grind as an entrepreneur and as an investor, if you want to succeed.

8:47So Sam, to my knowledge, you've been traditionally focused on fintech enterprise SaaS, and also some work in emerging markets that you kind of hinted to it. But it would be, I don't know, almost silly of us to not talk about DevTools AI these days, especially because It's something you're looking into and everyone's actually, everyone's thinking about it at least. And by the way, before we deep dive into this, there's a really cool article that you guys put out at first minute about how you think of the space. I'd really advise everyone to check that out. We'll add the link to the notes. But I'd love to ask you about these interests of yours and how they converge.

9:26And actually specifically, you know, where do you personally see the most potential for investments in the Gen. AI space, right, that everyone's talking about. But I think very few actually have strong frameworks of thinking towards that space these days. So the space has got incredibly busy over the last 12 to 18 months. And, you know, we're seeing a lot of pitches. And we've invested pretty heavily in the space, both at the application layer, but then also we have an investment at the foundational model layer. And then we've also backed a number of infrastructure companies, and then also a number of vertical SaaS companies.

10:03So we're invested across the stack, which as a seed VC is pretty important to build a sort of diversified portfolio in that sense. And not to have too concentrated a position in a space which is moving in incredibly quickly and changing all the time, but it's also incredibly important to have exposure in that space. So I think a couple of things to mention on why we're so excited. I think if you kind of look at the Western world's productivity over the last 30 years, 30, 40 years, it's just been a consistent decline. With AI and generative AI, but also AI more broadly, it's probably a chance for that trend to reverse itself.

10:45And I think that's an incredibly exciting prospect for knowledge workers and developers and corporates, enterprises, etc. So small businesses. So that's why it's such an exciting trend. In terms of where we're getting excited at the moment or where we're spending a lot of our time and trying to figure out how we can capture the most value in the space without 20 competitors sort of coming and building similar products, it's probably being very specific in terms of the verticals that we look at. So one of the problems with GenCVR at the moment is that a lot of companies are pitching co-pilot for X.

11:26The issue with that is a lot of the spaces they're going after are dominated by big cloud incumbents who are also incredibly focused on AI and can roll out those co-pilots pretty quickly and are doing so. And it's very difficult to compete with their level of distribution. So how we're thinking about it is saying, where are the areas, where are the verticals? Where are the industries? Where are the subsectors where there aren't cloud incumbents? Maybe those workflows are still dominated by pen and paper or spreadsheets or legacy software that runs on premise. Let's look at those categories. And what the AI native products can do is they can act as a catalyst for those parts, for those industries to make the shift from those, from that legacy software or from spreadsheets to a cloud-based product.

12:27That's where you can build defensibility and find value also as an investor. So vertical SaaS in less digitally transformed industries and sectors is where we're spending time right now. And then the second piece is actually consumer software, consumer internet. So I think consumer internet has taken a bit of a backseat to B2B software over the last few years, both in terms of sort of venture funding and venture interest. And that makes a lot of sense because, you know, there are huge companies in that space. It became incredibly saturated. Customer acquisition has become very, very expensive.

13:05It takes a lot of capital to scale those businesses, etc. And there hasn't really been a major platform shift to open up a new wave of companies in consumer internet. We had iPhone moment and crypto was a moment where a lot of consumer companies were built and that was exciting. People talked about VR and AR and that potentially being a platform shift where you could build new consumer applications. And generally, AI feels like a potential platform shift where you can build new consumer internet applications. So, you know, we're seeing AI therapists, AI lawyers, AI personal trainers, these types of things.

13:49So there could be a sort of renaissance in consumer internet. I want to go back to not B2B necessarily, but rather say it goes for both of them, right? Because you said you're looking for the spaces where there's been less digital transformation already. And for that reason, there will be more opportunity for a completely new player because the incumbents, of course, have less ease to adapt. Am I right in saying that this also doesn't encompass the models where imagining an AI version of a CRM, as an example, would be a complete change of how HubSpot would work, right? They might be natively in the cloud, but everything they've built would kind of go to shits if they had to change the UI or the experience of the user to be seen.

14:42That's really interesting. So in terms of the less digitally transformed industry, so I'm thinking things like construction, insurance, these types of industries, maybe industrial engineering, you know, like those types of areas. And so that's kind of where we're quite interested in. We've got a couple of computer vision startups applied to industry and logistics and things like that. So we're looking very, very closely at those types of spaces. Now, when it comes to your point around sort of HubSpot and it's sort of an AI native CRM, I think you touched on a really good point. I don't think it's about architecture and revamping, you know, the back end and the way the product is built in that sense.

15:24It's not about like backend infrastructure. I think you hit on the point, which is a complete novel way of consuming software. So what does the CRM of the future look like? How do I like interact with the CRM of the future? Do I connect with Google, log in, see a list of my contacts and things like that? Or is my CRM sort of like a browser widget just sort of sits in the background and then surfaces insights to me and allows me to follow a workflow based on like how I'm interacting on, you know, my, my phone calls and my emails and all these types of things. Like, yes, I, so I think this is, this is a great point around new UIs.

16:07And I think that's an area that's actually really exciting because if, especially if you're a seed investor, because, you know, when you see people pitching in a category like saying, hey, I'm going to build like sales automation software. And you see the same pitch nine times in two weeks. But then you get an entrepreneur who comes in and says, you will have heard this pitch 10 times, but I'm doing it differently because of X, Y, and Z. And if it's so different that you haven't seen it before, and you're so wowed by the founder's level of conviction, and you think they have the ability to execute on it.

16:42And it's just something, something that other people haven't figured out, then that's when you lean in. So for us, it's kind of when we say we have a thesis on the space, it's not really, hey, we're looking to back X. It's more we have a framework which helps us avoid making mistakes, but we always keep ourselves open to the possibility of being led down a different path by an awesome entrepreneur. And on that on. Okay, so sorry. Sorry for making a slightly provocative pivot there. So because now I'm going to ask you, speaking of being let down a path, I need to ask you to talk a bit about Mistral and 105 million euro seed round.

17:28You know, and obviously for the context to everyone here, this is one of the deals that people are using to say something's up in AI, in generative AI, something's up with the size of the rounds. And you've even, I don't know if it's you personally, Sam, but we've even had individuals with a similar profile as yours being young and new to the industry, being commented on in the All In podcast saying, these guys don't know what they're doing. They're putting millions and millions into seed rounds where the majority of the camera will go right into just installed hardware or buying chips really.

18:05And you might as well have bought a stake in NVIDIA then. that type of shit have been spoken a lot about in the industry and by the very notorious four that I just mentioned. I'd love to ask you to comment on that, both when you heard from me now, but also what you've been thinking over the last two months. Yeah, totally. So I think Mischal is a very interesting company for a couple of reasons. One, Europe needs an alternative to open AI because otherwise the mistakes of the past are just going to repeat themselves in Europe, which is that the US has the monopoly on big tech. So I think it's very, very important that Europe has a potential major winner in the artificial intelligence space.

18:53That's number one. So I think it's really good for the ecosystem that someone like Mistral can raise a lot of money, hire incredible talent, and be a sort of standard bearer for the AI community in Europe as an alternative to open AI. So I think that's important. The second point is Mistral's open source approach. And I think, again, that's a very European thing. I think open source has a lot of its roots in Europe. And I think when you think about the Facebooks and the Googles and the Amazons, these big tech companies, they're closed ecosystems. And I think it's great that Europe has the potential to have a major open source player in the AI space.

19:31And so I think that's great. The third point is this space is so early and I think it's still to be determined how companies like Mr. Al and OpenAI actually go and monetize and build their businesses. Whether they become the Amazons of this world, the AWSs of this world and just become sort of the plumbing and the sort of like hosting ecosystems is one path. But with Mr. Al's open source approach, I think they've got a lot of flexibility in how they can build out a commercial business. But I think it's good news for the ecosystem. And we should be rooting for more of these types of companies, especially in the AI space.

20:13You addressed many of the things there, but you didn't address the, when you do a 105 million euro funding round for the seed stage, are you buying chips with that? or can you talk a bit about the mix there? Because I think it's something that's been spoken so much about, but I haven't heard someone like you who's close to the deal actually touch on. Yeah, I think with all the companies at the foundational model layer, a lot of the resources will be going to compute and training models and the infrastructure side of things. And so that's always going to be a core component of companies who are touching the infrastructure side or the foundational model there.

21:00And, you know, I think you'll see that with some of the other big raises like poolside in the US, which is going after code creation and things like that. So that's an important part of it. And anyone building these large language models will need to get a significant amount of resources to that. Could I ask you on the open source part then, because this is definitely, I 100 % agree that this is one of the very exciting parts about Mistral and some of the new players coming up, because we are seeing open AI not being that open anymore. the other major models are coming from the leaders of the centralized web.

21:39So I'd be super curious to hear your thinking around that. And also, especially because, yes, we have in Australia, we have a great open source community in Europe, but we also have a very, very tight regulation on anything that has to do with consumer data. And you can't do much with AI if you can't be allowed to use data. and so on. I'd be curious to hear how you think about, you know, are we in a good regulatory framework right now? And are we headed in that direction? Do you think so in Europe? I think it's in flux, right? I think the rules are kind of being written and the standards are being discussed at the moment.

22:18So I think it's too early to tell. What's really good to see is that the UK is actually becoming a leader in that debate and is really focused on it. So I think that's been a really positive development just being you know UK citizen living in London to see to see the UK taking a leading role in that debate I think that's point number one but point number two is that I think you know we can go down many different paths still so I think it's too early to tell but regulation frameworks are super super important and I think there needs to be a massive amount of focus on that. In terms of the actual open source piece, I think we're big believers in open source.

23:01We really like open source software here at First Minute, and I'm investing in quite a lot of open source companies. And there's a philosophical reason for that. But I think there's also a commercial reason for that, which is big enterprises like using open source software because they can, for a couple of reasons, like one, they can go and audit the code, and they can see what they're actually running and how the software is operating. That's point number one, which in the AI space, when we talk about control of data, is going to be increasingly important and is incredibly important to enterprises.

23:34And secondly, they want to run things on their own infrastructure and open source projects make that super easy for them to do. So yes, regulation is important. It's great to see Europe taking a lead on it. It's still early days And I think open source plays into that in a really important way, because it's both from a very practical point of view, but also from a philosophical point of view. I'm going to ask a completely different question. And it's because in the article that you've put out, you stated something that was quite interesting to me. And let me just give you the background of it.

24:07I was at an LP forum connected to the Tech Barbecue event here in the Nordics last week. And when moderating a panel, I asked a group of LPs, or I guess we had 50 or 60 or so, and I asked them, how many of you are actively using AI in your day-to-day? And I almost want to ask you, how many do you think raised their hand? And these were LPs like family offices, institutional investors, so on. I'd say one in three, one in four. Yeah, I was blown away because that number was three in total out of this 60, 70-ish people, right? I was blown away seeing that. Obviously, many of them are using tools that have AI in the background, but the fact that they don't think about it themselves and how to apply it and so on was really startling to me.

25:03But then I'm connecting this to your piece because there you're saying that you did a survey amongst your portfolio companies and 84 % of the responders said they were using generative AI tools internally for their work. And 75 % were using or thinking about using it in their actual products or outward facing operations. Obviously, there's probably an age chasm between the two groups here. I'd love to ask you, Sam, to talk a bit about how you see the adoption of AI across generations, because I'm definitely seeing, you know, the other day I saw a young kid talking to his friend. And then he asked him, you know, why are you writing on your phone?

25:51And I was like, that's interesting. And then he said, well, my dad has blocked access to Siri because otherwise I'm not writing because he was in the process of learning how to write. So and that just blew my mind, the fact that a friend would ask, what the hell are you doing with your fingers on your phone? Speak so loudly about how the next generation is acting completely differently when using tech than ours. and we are from our seniors. So Zam, I'll let you take the floor and talk a bit about AI adoption across each group. Yeah, totally. So you know what's been really interesting this year is how, so usually when you're a seed investor, you're thinking about how the world will look like in 15 years time.

26:38So, you know, 10 to 15 years time because the companies you back take 10 to 15 years to go public and mature. Now, what's been fascinating in the genus of AI space is the number of new businesses being created at the seed stage and the number of publicly listed businesses on the NASDAQ who are talking about generative AI and actively rolling out generative AI features, right? And being rewarded for that by investors and their stock prices rising on the back of their announcements when they talk about how they're using AI and generative AI specifically. So I think that's an important thing to actually mention.

27:18I think that's been a little bit confusing and it's like a slightly different thing to experience in 2023. Am I right in saying that you're kind of using that to argue that you might see seed stage startups move very rapidly up towards a very largely scale? Yeah, I think what I'm saying is that you do see that, that companies are generating revenue and creating value a lot quicker now than they did maybe. You can grow incredibly quickly. You can get a product to market incredibly quickly. You can hire people incredibly quickly. It's never been easier to get distribution, all these types of things.

28:02So I think that is an important point. But the second point is just I think it's on everyone's radar. It's permeating, you know, all sectors of the economy, all stages of companies, and it's touching every single sector. So I think that that's really the point I'm trying to make. And then in terms of sort of our portfolio survey, the reason I think the numbers are so high is comes down to two things. One, yes, our companies are early adopted. And then two, our companies have big engineering teams. And the two strongest use cases for generative AI in production right now, I think a code is software creation or, you know, basically GitHub Copilot, which is the dominant player in that space, and then sales and marketing.