Richard Anton, General Partner at Oxx: Europe has everything but capital

0:00Hello and welcome back to the Scaling Europe show. I'm here with Richard Anton of OX. Richard, thank you so much for joining me. You're welcome. Good morning. Good to be here. Yeah, it's great to have you. How are you today? Yeah, doing great. Excited. Now, Ken, for those of you who don't know you, don't know OX, can you give us like a quick high-level introduction? Sure. I'm a co-founder of OX. We're an early growth stage or scale-up stage investor in B2B software companies around Europe. We invest at the stage when companies have nailed the product market fit and they're establishing go-to-market fit which is the stage on expertise area in which we specialize amazing and you've raised a couple of funds you know hundreds of millions of dollars i think it was 2017 you were founded is that right correct yes we're a spin out uh co-founded by myself in london and my partner who's a guy called nicole jonsson who's based in stockholm and our team is evenly distributed between the two places on the best in the uk sweden and all sorts of other european countries amazing 2017 was a very different time very different market in europe i guess it was a lot earlier we had a slightly less mature market less companies less capital and it was also before the big ai wave that we're seeing can you touch on how different your job and the market is today versus when you started yeah that's a good question um i suppose that the market's been through some uh immense cycles so in 2017 it was still the the sas wave uh and there was that there was just an increasing intensity of SaaS investment that was growing then.

1:48It accelerated massively in the run-up to the pandemic and then, of course, during the pandemic. And we had this enormous boom in 2021 during the zero interest rate period that then turned into the 2022 bust. And then the market went through a really difficult phase. It had run far too hot, too much money, too high valuations in 2021, which introduced all sorts of poor practices in companies. Then from 2022 onwards, there was too little money. And of course, then the chat GPT moment happened and we had application layer AI beginning to emerge as the models and infrastructure for AI got established and then I suppose probably around 2024 mid-24 you had two factors that came into play um you had the excesses of the zerp era just falling back in the rear view mirror and you had what i call uh unspoiled adolescents emerging uh companies that weren't spoiled by the excesses of that 2021 period and at the same time you had application layer ai emerging as a as as a meta trend which has really increased the uh the scale of the opportunity the pace of the opportunity the we're at the beginning of a massive technology adoption cycle now so it's different in that sense and how different has it been for you and ox you know you you were founded on the i guess on the thesis of product market fit companies that were in that sort of saz world that saz era now we're seeing a lot of noise about i don't know if the death of saz is a bit is a bit too dramatic but we're certainly seeing people talking about things like that and how you know i read a stat of the day which said um i think like the public saz companies in the u.s have underperformed the s &p by something like 60 or 70 percent in 2025 so how has it changed the way that you're running your firm the type of companies that you're looking at it's all about being AI native.

4:13So public markets have rewarded companies that are perceived as AI native and harmed companies, punished companies that are not perceived as AI native. And companies are able to, existing companies in some cases are able to become AI native and in other cases they're not. So legacy incumbents, typically systems of record type companies are under threat. Systems of intelligence type companies have an opportunity. And then these days, it's all about systems of action where you get agentic companies that produce a lot of the value of services within the software. So this is part of the great services to software rotation services as software, which is a massive increase, we believe, in the size of the addressable market.

5:14If SaaS, cloud SaaS was a half trillion market in terms of revenues, we think that the agentic layer is going to be about 10 times that. Wow. So yeah, apps of an order of magnitude bigger. And how does that change the way that you're looking or supporting your portfolio company? You know, I imagine a lot of the investments that you've made over the last eight or nine years have been traditional SaaS companies. Now they're seeing that, you know, the big winners are going to be AI native SaaS companies. Are the companies that are already in your portfolio having to sort of adjust, change their business models, try and get AI on board as fast as possible?

5:52Well, they are, yeah, in all cases. We tend to back, actually we always back, agile entrepreneurs who are close to the bleeding edge and who are thinking through new technology availability. So a lot of the companies that we've been backing really since Ox came into existence, the entrepreneurs behind those have been enthusiastic adopters of AI and have changed their businesses in internal ways in terms of engineering and internal operations and external ways in terms of the product offering to adopt AI. AI and become AI-nated companies. So that's a key thing. So AI-based transformation, AI transformation of companies, a bit like digital transformation in other industry sectors has been a big theme for us in working with the portfolio.

6:55And then in terms of the new investments we're making, we're interested in companies that have already made that switch, or perhaps were born as as ai companies and as someone who is you know been investing across europe for a number of years now you've kind of seen the different market cycles almost you know from the growth of you know the zirp era and the sas and sort of like bubble recalibration popping um to now this ai era how well equipped do you think europe is and european venture is to make the most of this opportunity before us yeah i think it's fantastically equipped in all areas but for access to capital.

7:35So let me describe another technology transformation that took place in software when we moved from license-based or licensed business model on-premise software to cloud-based software. That was a really, really difficult transition. Technically, it was really difficult. And in terms of the business model, it was difficult because companies got this massive dopamine shot of upfront perpetual license revenue. And when you're moving to a subscription model or you're moving to an annual subscription, you don't have that dopamine shot and you need to transfer the existing installed base. And it was really, really tough.

8:26This transformation is not so tough. It's technically doable. And in terms of the business model, yeah, pricing changes from, I guess, usage-based pricing to explicitly value-based pricing. But that's an incremental change. So it's more straightforward change. plus you've got enormous industries in in europe and the european gdp is roughly the same size roughly the same as us us gdp so you've got this this large opportunity you've got the um the infrastructure and llms available you've got massive price reduction in llms that kind of cost price per token is decreasing roughly tenfold annually, which makes the use of AI much, much, much better value.

9:32And we've got entrepreneurs in Europe, we've got serial entrepreneurs, many of whom note their trade at the founder factories, founder factory type companies. So we really have everything in terms of resources. What we lack is capital resources because we don't have anything like the scale up finance that's available in the US. And why do you think that is? What is it about Europe that has, or European, the people who hold the money, you know, these asset managers? Why do you think we're not seeing that capital going into that kind of late stage growth funds that we would like? Well, a lot of that money comes from pension funds.

10:18In the US, pension funds have been investing in this asset class for many decades, pension funds and endowments and so on. And it's been an established asset class for all of that period to the extent that pension funds in the stakes invest roughly 15 % of their assets into private equity and venture capital combined. And that's really pretty consistent. So in Europe, it got going later. Pension funds started investing in the very late 90s in the dot-com bubble. that didn't work out for have reason to the wrong on and they then withdrew from the market in the in the early 2000s the whole risk model and fees basis has pulled them away from the from the sector to the extent that that european pension funds invest something like point i think it's 0.12 percent, 0.12 percent of their assets in the venture capital asset class, which is obviously shocking.

11:33So it's about in Europe, us just not having the domestic support. I mean, yeah, and it's crazy. I mean, the scale of the difference between the US and European pension funds is just astronomical. What do you think we can do about it? You know, I know that In the UK, we've got the mansion house reforms, which are going to be coming in towards the next couple of years, going to be gradually introduced. Do you think that's what we should be waiting for? Should we be waiting for government intervention? Or is there other things that we as an ecosystem can be doing to trying to get pension funds to try and invest the capital here?

12:09Well, pension funds, and there are similar things to mansion house in France, for example, with the TV scheme. um they're they're kind of moving at the pace of regulation and committee um whereas uh ai enterprise ai in particular application layer ai is is moving at lightning pace and there is a technology adoption cycle that is happening right now um uh globally and we need the pension funds to move faster we need them to develop pathfinder programs and so on and as other sources of capital nature pours vacuums so if the pension funds don't do it then it's going to come from elsewhere or more likely that u.s companies are going to get investments and they're going to come over to europe and what do you one of the things i always think is interesting is um yeah i mean the the one of the problems that we have is that the money that we do have in in Europe is so heavily weighted to US pension funds.

13:15So, you know, I think Revolut is an amazing example. You know, the most highly valued private company that we have in Europe, that is 75 billion. Boulder to one of the big European firms here set to make billions and billions from it. But their funds have been raised by predominantly American LPs. So we see all of that value that has been built in Europe, across Europe, I think going back to American LPs it's and and it's also the founders you know like you know the founders are moving to dubai which is you know his own business he can do whatever he likes but it's like you know the value that we get to keep in europe is the carry that goes to the firm itself that's shared among a very small part of vc partners and anything that the employees get to capture the the founders are moving away the the bulk of the lp carry is in the us so we're really just left with the scraps um and i think there's even an argument to be made that not only do we need more capital to be invested in europe which we desperately need but shouldn't our pension funds also be trying to investing in us vcs i mean there must be so much returns being taken and captured there it wouldn't be amazing if our pension funds could get a slice of that pie as well yeah absolutely absolutely that's absolutely right with that 0.12 that's one that's one pound in every 800 pounds is invested in the future right and this is this is money for our pensions in the future so it needs to be a lot more for the sake for the benefit of pensioners and you know you've raised two funds right hundreds of millions of dollars from lps you know i imagine that you went to europeans and to us lps is there a real difference in the profile of these individuals yeah it's a great question And look, there is.

15:03In the US, the institution investors have been doing this either themselves or the people who are kind of more senior than them or preceded them in their organizations for decades. This was this model was established by David Swankson from Yale decades ago. and they've built up lots and lots of institutional knowledge they know what works they really understand what works they know how to assess managers they know how to balance their their capital they know how to diversify they know where to add value and where just to get out of the way they're really sophisticated investors um and when we talk to u.s investors they completely understand the business and we have sophisticated conversations when we talk to european pension funds it's like uh we're speaking another language yeah it's great yeah one of the things that i feel strongly about is that as european vcs are also a lot more uh reserved than some of the american counterparts you know like americans are so good at selling their story celebrating their own successes and it feels like there's a bit of there's reservations within europe about celebrating our big wins and celebrating the big successes that vcs have here in europe do you think do you think that's the case do you think that that there's a role for vcs to play in being more forthcoming about the money that they're making for their lps uh yeah i think there is i think there is the most sophisticated international uh investors do understand that uh europe is uh is actually and this and this these stats are amazing uh that europe makes better returns for venture than the u.s in in venture capital than the u.s and that's been pretty consistent both at the at the median and in the top core term of funds this millennium.

17:15So since the post-dot-com crash, Europe's made better returns. Much smaller market, but it's made better returns. Damn, that's crazy. It's crazy. It's little known. And the received wisdom is that venture is all about the US and nowhere else matters. And maybe it was China. And actually the returns in Asia have been lousy for the venture asset class. So they're pulling out of Asia, which gives us an opportunity in Europe to say, actually, look at us. So, yes, that's right. We should be shouting it from the rooftops. And if we sort of flip the script a little bit or flip your positions, you know, you are a GP raising money from LPs.

18:03If you were an LP today, if you were a big asset manager managing billions of pension money and you were interested in first getting a taste of the VC world of slightly diversifying your portfolio into venture, what would you be looking at? How would you be going about it? Yeah. So I would start a Pathfinder program to invest modest amounts in the asset class. And I would hire people, possibly one person into my organization who knows what they're doing, investing in funds. And there are such people around. So I wouldn't try to do it myself. I wouldn't try to reinvent the wheel and spend, again, all of the years that US investors went through learning.

18:52I'd buy a wheel. I'd employ somebody who's done this. And there are such people around. And would you look to America? Like, would you try and take, you know, I imagine there's lots of these people in America who've done a great job at deploying capital within the venture world. Would you try and, you know, try and take some of that skills and expertise from the other side? That would be one source. I'd also look at people who've been doing this, this in Europe for funds of funds and so on. So there are experienced people in Europe. Nice. Okay. And like, as you're looking, you know, as a partner in a VC firm, looking across Europe, looking at the age of AI, what are you most excited about in like 2026 to 2027?

19:34Well, lots of lots of vertical SaaS and horizontal SaaS, let's say application mayor SaaS that's building on the infrastructure that's been put in place in recent years. And that just, it covers, it covers lots of domains, verticals, for example, legal services, which is well underway, medical services, content services, for example, video. video, there's just so many areas, horizontal areas like accounting, bookkeeping, and so on, where services are going to be replaced by agentic software. Amazing. Well, Richard, thank you so much for joining me. It's been a pleasure chatting. And something I feel so passionate about is getting more European money into European VCs and into European companies.

20:32It's not enough just to see capital invested go up. We have to see capital invested at the LP and VC level as well. So it's great to hear somebody with good ideas about how we do it. So thank you for joining me, Richard. It's been great. You're welcome. Thank you so much. Thank you. Bye-bye.