Patrick Murphy, Partner at Tapestry VC: Backing the repeat founders behind Europe's unicorns

0:00Patrick Murphy:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today I'm joined by Patrick of Tapestry VC. Just announced a huge third fund,$80 million. Congratulations. Thanks very much, Seb. And great to be here. And I always love the content that you're putting out and your support of Europe. So thank you. Well, I'd love to do it. But tell me about it. So$80 million. Your last fund was$30 million. So this is a big step up, big increase. How did it happen? So we're super excited to be investing into another generation of repeat founders. That's what we've done and what we've always focused on at Tapestry.

0:33We've done around 60-something deals now as a firm. And the people that we go after, they haven't always IPO'd a huge company. They've typically learned a huge amount very expensively along the way building a company. And now that Europe has had 15, 20 years of venture investment, there's probably, I think now,$2 trillion worth of enterprise value created by people who've started a second company. And since we started the firm in 2018, the number of employees that have been employed by those people has gone from like 300 ,000 to 2 million. And so repeat founders are a huge part of the market here.

1:18It's something like 60 % of all new unicorns in the last couple of years in Europe have been started by repeat founders. And we really try to have a different approach to working with those people, finding those people in the first place, and really building durable relationships as they go to do their next challenge.

1:37Patrick Murphy:Can we talk about what enabled you to raise a significantly larger fund than some of your prior funds? So as I mentioned, the second one was a 30 million. The third one now is an 80 million fund, which is generally a huge mark of success in the world of VC that you're able to raise bigger funds. And I think, you know, Tempistry has been going on for eight years. So you're doing this regular cadence, getting bigger, everything's going well. When I looked at the portfolio, you've got some really standout successes. Nothing. I think you were the first and only institutional investor in their first round.

2:07Yeah, the first European one, for sure.

2:08Patrick Murphy:First European one. FinAI obviously recently acquired, I think, the$3.6 billion. Hopin, I've heard that Tapestry was one of the only real investors to make a lot of money from that investment. Can you talk about some of those investments and how important they were in raising this funding? No, I think we owe basically everything to the founders that we worked with and allowed us to work with them for our ability to continue doing this. And it's the greatest job in the world to spend time every day with smart people who want to put their lives on the line to work really hard, their livelihoods on the line, hopefully not their actual lives, to build things that hopefully make a dent in the universe.

2:46And so say Carl and nothing, he had basically built an entire phone business before, personal electronics business, within a larger conglomerate. And his success was amazing. I knew him socially. And when he left, I was like, hey, what's up? What's next? and he was like, I'm going to build my own phone company. And I can tell you something, Seb, if you and me decided, hey, we're going to build Seb and Pat's phone company, we would be laughed at 100 out of 99 rooms in venture capital funds. But knowing that he had already done this, his team was coming with him, gave us an incredible amount of confidence in their ability to do that again.

3:30And they've done it with aplomb. These are their latest headphone ones. Yeah, I've got mine in my pocket. And great, you've got a pair in your pocket. I love it. And I think I see them on the Tube in London all the time. I see them on EasyJet flights. I see them on Ryanair flights. Everybody's wearing them. It's great. And that's because they had that experience to go and do that. And now that company, I think publicly they've talked about, they've done far over a billion of cumulative revenue. It's a large one in a run rate. So it's really amazing what they've managed to build. And so it's that archetype of someone who has that experience.

4:04The same thing inspired our investment in Fin.ai, formerly Intercom, which, as you said, was bought a couple weeks ago by Salesforce for$3.6 billion. And the team there, Dez and Owen and Kieran, the co-founders, they had built Intercom over 15 years today. But they saw the opportunity coming from LLMs and AI and said, OK, what is this going to do for our business? And they had enough experience to basically re-found the company around this mission and basically say, let's burn it all down effectively, bet the house on this. And they were able to do that incredibly successfully, scaled from zero to 100 million of revenue in two years and have now sold that.

4:49And I think from the attach rate, that'll be a huge business for Salesforce in a couple of years' time.

4:54Patrick Murphy:Yeah, I mean, that was a, it's been seen as one of the great successes of SaaS to AI. You know, they completely were able to adjust the business and to make a huge success of it. And what about Hopin? So Hopin, Johnny is an incredible entrepreneur. We were a seed investor in Hopin alongside some other great funds. And there was a huge growth from zero to a hundred million of ARR during COVID. and that also inspired a thousand competitors to his business who were happy to give away the product for free. And he did an incredible job competing in that market. He bought, I think, four or five companies.

5:35At some point, they had a thousand employees. And when the market decided that this was not going to be as great a profitable long-term product, he made super hard decisions that I think most startup founders don't end up having to make. and he actually returned, you know, close to 600, over I think 650 million of capital to his investors. And so the story I think that people have heard about that, you know, he's a very modest guy and he did really well by his investors and even better by his employees where he actually carved out a chunk of that capital to go to the thousand plus employees in the business.

6:18Patrick Murphy:And so - Huge level of strong morality there that, you know, I think gets underreported in the press. And, you know, from what I've read, he's up to something new. It's going to be interesting to see what he does. I saw the Forbes article. I think he's building something out in San Francisco. But like he's a, he seems to keep a low profile, but he, I mean, he obviously an amazing entrepreneur that's done phenomenal things. You've relocated, you've been in San Francisco, you're coming back to London, you're talking about a lot about European companies. Can you talk about that move specifically and why you decided to come to London?

6:51Totally. So I grew up in Ireland. And then after I graduated college, the next day, in fact, I moved to London and then eventually to the United States. And so I lived in New York, but lived in San Francisco for the last 10 plus years. And so seeing how venture is done there, how it's different to how it's done in the rest of the world is something that was always really interesting to me. And I spent the majority of those 10 years investing globally. So investing, well, mostly transatlantically. And so working with people who had changed their life, like me, to live somewhere else. And that is as obvious as kind of London to San Francisco.

7:29But even within the United States, people who've moved from Philadelphia to San Francisco, it's a very different experience. And so being able to see what's happening in Europe over that time period and now see the super cycle of repeat founders, the examples that those founders have, where in the past it was maybe just a handful of people like Daniel Ek that you could look up to. Now there's tens, if not hundreds of people who've started unicorn companies that people look up to and can also get mentorship from. And so the community that's here, I think, is much stronger than necessarily the capital base and the fund base that is here.

8:11And that's why you're seeing so many U.S. funds reach in, USLPs reach in, et cetera, to take advantage of some of the growth that's happening in Europe. and I'm really excited to now spend more of my time here. I typically am always jet lagged. People never know if I'm in San Francisco or London. People still think I live in LA. So it's really exciting to be here now most of the time and with our team here in London in our new office and be investing into this community that we want to build global companies with though from Europe.

8:46Patrick Murphy:And so I guess it's about the time in market that right now we have reached this inflection point where we have enough repeat founders and now you're here to kind of be with them from day zero and to help them scale globally. Yeah, I think when you're a repeat founder and you have spent some large period of your life working on something that, you know, you can look backwards and see there were 10 different decisions that you made that instead of compounding upwards, compounded to make you not break out, you are never going to make those mistakes again. But looking back and saying, okay, let me do that again, that is almost more irrational than your original decision to start a company.

9:31And so being able to work with those people before they've decided to jump off another cliff and to help them think through how the markets that they're looking at have changed, how has the landscape of VCs that they're going to be talking to and getting investment from changed. And who is the right person for me to jump off a cliff with and hold hands with as I do that is really important. And I think what happens sometimes with repeat founders is that they're super attractive to VCs. It's super easy to say, hey, Seb started a company before. Let's invest in Seb again. And then they can go right back to chasing some 25-year-old product manager who's leaving Revolut or something.

10:17And I think what's really important for the repeat founder to remember is that they need somebody who's a sparring partner, someone who's going to push back, someone who's going to actually help them build a business because they're fundamentally kind of prettier now and they need to be more careful. And being able to have someone who's real with them is something that I think they value a lot.

10:39Patrick Murphy:And so that's the role that you and the firm like to play is that sparring partner. But also it's really early on in their journey, perhaps. Right. So you don't get involved once they are, hey, I'm doing this big thing. Let's go. You often spend time with the founders while they're still in that transitional phase. Maybe they've exited their first business. Maybe it's shut down. How do you, you know, what role do you play there? How do you get access to them? How do you find them? You know, what do you really want to help them do in that sort of transition phase before they decide, OK, I'm going to raise a round.

11:08Patrick Murphy:I'm going to build a new product. Yeah. So typically what we're trying to do is put in the hard work before somebody's actually decided this is the company that they want to build and help them decide, is this the company that's going to change a category? Right. I had a long conversation with someone yesterday who's had two different startups and now wants to build something in fintech. And I was able to pass on something from a bunch of different companies we'd looked at in the space he was looking at. And so he changed his thinking and maybe that'll move to something else. A week ago, it was a different topic with somebody else where you're able to change their thinking about something.

11:46This was a robotics business where the founder had done certain things in video and robotics and wanted to kind of merge those two things. And we were able to give him the benefit of us being in the market, seeing people he would be competing with in the future. And so being able to work with those people, be their Sherpa to what is often a very changing and very mysterious world of what investors do and what gets them excited. And that helps them have an inside track on the companies and things they want to build.

12:17Patrick Murphy:And you also mentioned founders who are moving around a lot like yourself. it seems like you've invested in a lot of founders like that who are either you know from somewhere else building in London from London building in San Francisco can you talk a bit about some maybe some successes from your portfolio and maybe why you think those founders are sort of a bit of an anomaly or stand out I think what's interesting is VCs they need to be picked also by the person that they work with right I think there's a lot of things where it's like oh they picked that company frequently the founder has to pick you to work with and in my history I've done about 70 odd investments as a VC and seven of them have become 100 million revenue companies or more at some point in their journey and strangely all of those companies had an immigrant co-founder and so that wasn't me looking for that but there was definitely I think looking back in hindsight some resonance between I'd you know come from a little village in Ireland changed everything a couple of times to be in San Francisco doing this, right?

13:21And that wasn't easy. And, you know, that's the same journey I think a founder goes on. They're doing something highly irrational and then frequently, you know, they're doing it while being totally new somewhere else. And I think if you look at the statistics of companies who've gone public with venture funding, uh 20 like over half of them have an immigrant co-founder but only 25 percent of VC funding goes to companies that happen to have an immigrant co-founder so there's this almost 2x higher probability of success for people who have like changed their whole life to do this thing right so there's a certain amount of conviction yeah versus you know and there's a lot of people who've built great companies where you know they have you know a close friend or a family member an uncle who is able to get them to open the door, right?

14:11I'm not saying there's nothing wrong with that, but there's a durability in having to overcome certain things.

14:18Patrick Murphy:Why did you do it then? You know, you mentioned you're from a small village in Ireland, you're in London now, you've been in LA, you've been in San Francisco. What do you think drove you to live that kind of life where you were moving around a lot? I don't really, I haven't introspected on the travel part, but the The VC part really comes from I studied mechanical engineering in Dublin in UCD and saw that the professor I worked with on a lot of my projects, he, I think, got some of the most research grants in the university. But there were no companies really being spun out. There was no, you know, reading in the computer magazines I spent my teenage reading.

14:57It was, you know, Stanford spin it, MIT spin it. there was no Trinity College or even Cambridge University spin it. And I always thought that was strange. And I always thought there should be some better way for this wider group of people to be able to go and take risk on the research that they've spent years probably building. And being able to see now that in the venture market, there's so many more people taking science risk and that deep tech is no longer a dirty word is actually very heartwarming for me. And so I'm excited about that as well for Fund3.

15:37Patrick Murphy:Really interesting. So let's go back to the fund. 80 million. BBB is like a key anchor. They've given a huge amount of capital towards it. Can we talk about what that means and what you think it means for the market more broadly? I mean, BBB is like a very institutional UK investor, Tapestry is a global first fund. So what do you think it signifies to the market that you've got an investor like BBB, who's very UK focused, but willing to back a firm like yours, which is all about backing the best globally? So what's been great about our journey is the ability to be backed by institutions. So we started the firm, I started the firm with, you know, pension fund as a backer, fund to fund, and then a handful of small individuals.

16:21And that was really great and gave us a very long-term focus. And we got to know the British Business Bank many years ago. And so it's been a very long-term relationship. And I think they recognized how the market has evolved to be global first and that the UK can build globally first companies and have those companies be very successful. They had a great investment with Reset Concept, if you know him, who invested in 11 labs. and they've had a bunch of other ones over the years too, backing many of the great funds here in London. And most recently, they've invested in us as a US fund, they've invested in Playground Global, which is a US fund, and a number of others that I don't believe have been announced.

17:05And it's really an acknowledgement, I think, that these companies see the UK as an AI hub, as an innovation hub, as a gateway to building companies for the rest of the world. And so in our last fund, companies like Tracebit started here in London, has now opened a New York office. Companies in our portfolio over time have mostly, I think about 85 % of our companies have US revenue. And we don't mind where they start. But historically, about half of them have started in the UK.

17:38Patrick Murphy:And we'll talk about this sort of cross-border capital. How much more competitive is it getting at the earlier stages, especially if you're going to be now in London looking maybe European repeat founders. I know that so many of the big US firms are doing more and more in Europe, being more aggressive, going earlier, writing bigger checks, moving faster. Are you feeling that day-to-day, that increased competition? So I have a really strong belief that the market sets the price for things. And so rather than competitive, it's really who the founder gets to choose to work with. And a lot of the time, founders know there's a great clip in that show Silicon Valley on HBO and like, I don't know, season five or something where the guy's saying he's having a drink with the main character.

18:22And he's like, you know, if I, you're saying if I hadn't raised too much money at too high a price, I'd still have my startup and I'd still have my girlfriend. And it's like this huge penny drop. And so I think we see a lot of the time the founders are not taking the highest price. They're working with the people that they want to work with. And hopefully the market, you know, is efficient enough that they end up working with the person they want to work with at the right price for the right amount of money. And at an early stage, valuation is an output. It's not something that has been derived from multiples, like in the public markets.

18:55It's really, okay, you're getting 20 % dilution for this amount of money, or 10 % dilution for this amount of money. And what we see in Europe is increasingly great founders and then more sophisticated investors. There is still a number of much lower number of investors than in the Bay Area, for example. I think there's probably too many investors in the Bay Area. And I think the market stats on who's raising new funds or follow-on funds belies that a little bit too, because it's not growing. But in Europe, seeing how folks like Bessemer, IVP have all come over and started funds, People like Matt Miller, your friend, I think he's been on the podcast.

19:41He has come, built his career here from the United States. I've moved here from the United States. But you're also seeing, not in the media, a lot of the US LPs backing great funds here in Europe. So like Adjacent, Airstreet, Risa Concept now has a bunch of US investors, Dig Ventures. And so great firms are now being built in Europe, which have the long-term view of what a USLP thinks venture should be. And it's ultimately those LPs that gave those GPs the right to go and take the risk that they take and that give us a job every day. and I think having that risk profile and seeing great institutions take an approach to that like the LPs we have is really what's helping Europe, some of what's helping Europe win.

20:40Patrick Murphy:That's so interesting. I've never, it's almost like the top, top down from US LPs going somewhere to change the culture in European VC and to push them to be risky, to give them the permission to write those checks. Where do you think that leaves other European VCs? You know, I've often heard founders say that a lot of European VCs are not competitive enough compared to US. Do you think that's true? Is there a bunch of maybe European VCs that are slightly more old school, maybe backed by European LPs, who run a risk of falling behind either US VCs or this new generation of European VCs backed by US LPs?

21:15I think they're much more likely to fall behind this new generation of European VCs, not because those VCs have specific LPs. I think it's just because there's a new generation of people that are hyper-competent and you have a new generation of founders who are hyper-competitive and seeing how fast people can move with AI, how fast people want to commercialize things. People are internalizing the 30 years of struggle of Elon Musk and seeing that you can do hard things if you stick to it And I'm sure there's a collage book somewhere in Elon Musk's mom's drawer of like every headline that said he was going to fail.

21:57And look, he failed again. Yeah. Right. And as all of the old aphorisms say, it's like, you know, fail, fail again, fail harder, like fail better. Yeah. And that is the fundamental ethos of us as a repeat founder focused firm is that you are as good as your next game. Right. And I think there's a lot of times people have a bias to maybe negativity or gossip in certain ecosystems versus maybe the US has too much of a bias towards positivity sometimes. But if you don't think you can do it, you're not going to get it done. And so just believing that you can do it and having someone else share your belief and hold hands with you and jump off the cliff, that's most of the battle.

22:43Yeah. Right. And I'm not saying we can all hold on to some little stone charms and wish our way into the future. It's really hard. But someone believing and giving you the right to go spend your time on something really hard, that's an incredible privilege. And something that more and more, I think, European founders are able to do from their VCs here.

23:04Patrick Murphy:That's amazing. We're also seeing the exit market start to grow here in Europe. We've spoken about Bending Spoons, we've spoken about Lime. companies are IPO, we even have some quantum IPOs. It feels like things are changing in Europe, and don't get me wrong, they're often listing in the US. How important do you think that is, that we see not just companies scale to X valuations or whatever, but actually see real liquidity on a stock market? Yeah, I really think that the global first company is kind of underappreciated in the narrative where we've kind of talked a lot about sovereignty in the media recently.

23:39everybody's worried about, you know, a U.S. company being dominant in models. Like ultimately, U.S. companies, people own stocks in them globally, like Norway owns a chunk of every company, right? Nobody's turned off Windows, nobody's turned off Intel chips, right? Nobody's turned off Gmail for like, you know, 450 million Europeans. And I don't think that will start anytime soon. And even some of the Fable stuff, like they turned off Fable for everyone. They didn't just turn it off for Europeans. And so these global first companies like Bending Spoons now owns many things that were started in the United States.