Vidu Shanmugarajah, GP at Google Ventures, on backing Synthesia from Series B to a $200m Series E

0:00Hello and welcome back to the Scaling Europe show presented by Deal. I'm Seb Johnson. Today I've got a very special guest, Vidu, a partner at Google Ventures. Google Ventures just led Synthesia's$200 million Series E. So it's an exciting time. Thank you for joining me. How are you doing today? Yeah, great Seb. Thanks for having me excited to be on the show. Look, let's talk about the Deal first. You're doubling down. You've backed this company since Series B and it's now Series E. You're going bigger. You're going deeper. What's given you the conviction to back this team again and again? so look i think i think one of the the holy grail of our job as vcs is to develop unreasonable conviction in a company and the reason i say unreasonable is because startups are just such an improbable thing you know you start from nothing and you build something that in this case has enough of an impact on the world that is valued at billions of dollars and serving 90 percent of the fortune 100 and all the other incredible stats about the company and so So that conviction and that belief is just that much more possible and deeper when you've seen a company execute over a number of years and seen how they've navigated the rapidly changing world that we live in.

1:09So Synthesia, it was started pre-ChatGPT, quite a bit before ChatGPT, before the AI revolution. Incredible foresight from the founders and the team to be working on it so early. and then with the last couple of years since the launch of gpt and the whole world sort of conversion on the ar opportunity it's expanded the opportunity set for the company so much and with that has also come tons of challenges in in all the sort of positive ways that you'd expect when you've got so much to be doing and seeing how the team has navigated both the opportunity and the challenge and just continue to put the business in an increasingly strong position over that period of time has allowed us to build an enormous amount of conviction and conviction in Victor and Stefan and the incredible team that built around them to know that they're really just getting started.

1:56You know, this is, it's amazing to say for a company that's worth$4 billion that's doing as well as it's doing, that it really is day one. But just from what we've seen in their ability to navigate the AI landscape and find incredible places for it to deliver real valuing customers we're very excited about the future of the company from here on out and particularly things around the the video agent platform and sort of moving synthesia from version one of the product or the platform let's call it which still has many many miles to run around one-way ai video communication to a two-way conversational visual layer for all of ai so So all of those things together, you know, allowed us to develop the belief to double down again on the company.

2:46But if I were to distill it down to one fact, it's just seeing how the team is executed since we first invested. And so let's go back in time to when you first invested at the Series B. At that point in time, you couldn't see how well they've executed. You got to know the team. But what gave you conviction at that point in time? And what about the founders at that time made you think this is a company that you had to back? So, you know, the thing that I think if you know, they're obviously like all amazing startups and amazing founders that they're great at everything. You know, there are really no what I would sort of say are weaknesses in how they operate.

3:23They're exceptional at everything. But like all amazing companies, there are a couple of spikes. And from our perspective, the thing that really stood out was their ability to take a novel technology, take something that was really nascent in its development, that had lots of capabilities, but also lots of kinks, and find a home and a use case for that, particularly in the enterprise, but anywhere, really. And that bridging that gap is really very challenging. It's why we've seen a lot of companies lurch forward with initial growth, but actually not have that growth be as sustainable and as sticky and not have the revenue quality ultimately from a business perspective be as sustainable and as sticky as Synthesia has had.

4:05you know synthesia now has over 140 net retention as i say serving over 90 fortune 100 and these are things that even at the time we first invested whilst they weren't all at that point just yet we could see all the ingredients were there and i think that the thing that really i remember it vividly actually when victor was talking about how they landed on this initial use case of learning and development it's not an obvious place to put the technology it's not an obvious place to apply generative AI before especially before everyone was really thinking about it but they realized that actually at the time the the best use of the AI wasn't where you're trying to replace video per se it's where you're trying to replace text and that insight around which came from speaking to customers for hundreds of hours being deeply involved in how customers solve these problems that was really compelling to us because it showed us that actually they are extremely ambitious and you know it's a tier one ai team on all levels from ai research to products to go to market to how the whole company is drawn from an operational perspective but they were completely unromantic about how you deliver that value in the real world and they had a multi-step vision even from back then around this is the place to land this is where ai can be very useful today given the capabilities and constraints but we can then take that and we can build on top of it and deliver more and more value to our customers over time and that's what they've been able to do over the last few years and that's what we think this funding will allow them to do in an even bigger way i think it's really interesting when you touch on their metrics and these are a sort of able to ride the ai white wave and use their technology to sort of tap into their ai hype but they have margins that are much margins and metrics that are much more similar to the sazera companies that we saw in 2021 and most of the ai companies that we see have lower margins lower retention and really high growth compared to the SaaS area metrics where you had you know probably slightly lower growth but much better business fundamentals with a higher gross margin and much better retention especially because they're targeting that enterprise SaaS segment whereas Symbito is kind of in best of both worlds they are the AI company with really great growth but they've got really great margins and really solid retention because they're still targeting that b2b SaaS segment so it's really interesting and sort of enabled them to build this amazing company, leveraging the technology of today with that playbook and that financial model of the 2020-2021 era.

6:28Yeah, absolutely. I think that's one of the amazing things about it. From an economic standpoint, they've got incredible margins, very, very strong unit economics, which allow them to invest so heavily into the growth. It's an extremely efficient business overall. And notwithstanding that, they have fantastic use of the capital because that isn't the focus the focus is on the growth of the opportunity ahead it really is the best of both worlds and that it has an enormous opportunity ahead of it in being able to be the visual layer for ai and build this video agent piece on top of the resistant platform and because of that if you take that and then you add the incredible economics that they're able to show on a unit level you have this very powerful machine and that it can take the capital and deploy it in a really high ROI way to fulfill the latent demand for AI in places where others haven't been able to go, but they have earned the right to go by being able to gain the trust and be deployed into these enterprises all over the world and have those enterprises understand like, okay, if I need to figure out how I level up the way that I communicate using AI or the way that I deliver information all the way over time that I have conversations using AI, then Synthesia is the go-to place and it's this positive flywheel that develops from the fact that they have very strong economics a huge opportunity ahead of it and a the ability to unlock capital from from the from the markets to to pull those things together and sort of really invest behind it and does that fit within kind of google ventures broader thesis of air at the moment is that a specific thing that you're targeting it's not just about the hyperscaling growth but you're also looking at strong unit economics?

8:13So I say that we, I would say that that is a part of it, but it's probably not the whole thing in that we're really more, we're more excited by the scale of the opportunity. And this is true in Synthesia's case as well. The strong unit economics and the strong economics is almost a, it's a valuable add on to that in that the first thing we want to pre-qualify is, is this a huge opportunity? Is this transformational? Does this have the scale of opportunity for a company to build a 100 billion or larger company within that. And then we look at, okay, well, what is the path for that company to do that in a way that delivers really strong economics?

8:53Now, that may not be today. I think we're absolutely on board with companies that are operating at lower gross margins today, as is normally in AI. but what we do want to understand is okay what does that path look like is there a path for them to go from where they are today to really improve these unit economics over time and if they are in a position where they can deliver strong unit economics today then that potentially increases the amount that they can invest in growth immediately but we're really mostly focused on the scale of the opportunity because ai is really allowing technology to penetrate parts of the world where technology hasn't been able to go before you know if you think about it from first principles you could say that pre-ai technology was really dealing with structured data and was actually much narrow in the in the places that it could go ai and llms have allowed it to deal with whole swathes of unstructured data generative media audio ai like things that the audio um video ai and and things that we really couldn't touch with technology before which really opens up the aperture for a much bigger opportunity set and so we're mainly focused on the size of the opportunity set and then we're obviously focused on what that path to the economics looks like over time and when you talk about the size of opportunity what do you see as some of the biggest opportunities to either invest in or build here in europe honestly i would say that it really operates across the whole spectrum so i wouldn't say that the opportunity in europe is centered around, for example, just the application layer or model layer companies or healthcare or any particular vertical or segment.

10:38And that's really because the opportunity set is driven by the founders. And actually, I think what we have in Europe now is we have hundreds of millions of people with a really strong technical education pedigree and also a culture of technology. I think people forget that actually fantastic technology has been being built out of Europe for hundreds of years. And if you add all those things together, what you have is this ever increasing rate of founders coming out of the region who can bring technology to places that will surprise us all. And so I think that the opportunity set is extremely broad.

11:15And the way that we see it is it's extremely founder led. and we're always on the lookout and sort of have our ears to the ground for founders who are bringing technology to a place that would surprise us all you know for example i would say that honestly before i spent time with victor stefan's synthese team i wouldn't have thought that actually the an interesting use of video and audio ai was in their initial use case of of corporate training and corporate communications and then you see that initial place where where that technology being used and with the most ambitious founders with the most exciting technology they take that and they can grow it into something that's bigger than you could ever imagine so i would say that across europe it's very broad it's very horizontal um but i'd say the thing that unifies all of it is that we have a continent of extremely strong technical founders and also a continent of people who can go global from day one i think historically you could level the criticism of Europe that particularly in companies that are selling software, most of the big customers are in the US.

12:18And so it's just harder to build a company out of Europe that is the global category winner. What we're seeing now is that actually companies that are started out of Europe can stay in Europe and build world-class go-to-market teams in the US, and these are being an example of that, or also go global from day one. And I think there's an interesting dynamic that we've seen with a lot of PLG-led companies coming out of Europe. So Synthesi being a case in point or Eleven Labs or MetaView, which is another one we invested in last year that we're excited about that's a bit earlier, where arguably because of the fact that you don't have all the biggest customers on your doorstep when they're in the US, but you can go global with a PLG motion from day one.

13:04And you add to that, you've got incredible technical and engineering and product-led founders. you put that together and you have companies that launch immediately with fantastic products experiences out of the gate that can go global and allows anyone in the world to try the product have a very compelling experience and then develop more of a sort of plastic enterprise relationship with those customers over time and so we're seeing a lot of those come out of europe which might be a function of the fact that makes the fact that a lot of the biggest customers are in the us uh arguably a feature and not a bug which is quite an interesting way to see it um But I'd say that that's not the only way to do it.

13:39We also see companies come out of Europe that very early on have very complex and developed enterprise go-to-market motions. So we see it all really, but it all comes down to the fact that we have an ever-growing number of founders that are coming out of Europe that we're excited about. And what is it in a founder that you look for? You mentioned being global from day one. Is it a specific global mindset that you're looking for? You also mentioned that you're backing a lot of technical founders in the age of AI. Is it more important than ever to be a technical founder? So I say that, you know, I think a lot of the things that we look for in founders are, they're quite, they're all the obvious things, right?

14:15People pay a lot of attention to them, you know, how just capable the founder is from a cognitive perspective. of they're all extremely bright, what the personalities are like in terms of they're extremely motivated and driven. I think these are prerequisites that are quite obvious. I'd say the thing that we pay attention to over and above those are people talk about the notion of resilience and determination in founders, but I think it's actually underappreciated, even though it's an oft-cited and well-talked about thing. Because even the companies that are up and to the right, in terms of what people perceive that to be the case, number one, it's never that simple.

14:50There are always things to overcome. And almost the bigger the opportunity, the bigger the challenge is. And you just need an extreme level of daily persistence and drive to get over those. And the second one is actually patience. Because again, we talk about this notion of speed and velocity, which is obviously true. And so then we index very heavily on. But we also care a lot about the founders that have the patience to exhibit that drive and that velocity over decades potentially because the nature of compounding is that you get the biggest gains of compounding in years 10 to 20 or even beyond that and actually we're extremely long term in our outlook and we want to see founders that are so into the thing that they're doing that they have the patience to continue to drive forward and sort of and solve those solve those challenges and push hard all the way potentially for decades and you see it and you know if you think about the most valuable companies in the world like nvidia is a case in point where it's an overnight success that was you know 30 odd years 30 plus years in the making and we love to see founders who are just so into their the actual substance of the company that they're working on that you have a lot of confidence that even when they start to see some success, it doesn't change their appetite to continue working on that particular problem or whatever version it might be over the next 10 or 20 years.

16:18And I think we see that it's very difficult to put your finger on one attribute that exhibits that, but you just get a sense of it when you spend time in the founder and you really talk to them about the company, just the way they respond to questions, the depth of thinking that they have. I actually think, I think it was Mark Andreessen who talks about this notion of a murder detective and sort of, you know, when you ask someone a question of, okay, where were you last night? You know, did you go left or right when you walked down the street? When you're sort of getting a sense of, you know, a murder detective quizzing someone about a crime.

16:48If an alibi, so to speak, the proverbial alibi is thin, it starts to break down very quickly. Whereas if someone is able to really talk about the details and depth and the sort of the vivid elements of that story, you really buy into it. And I think that analogy is true in terms of understanding who's really into something and who may be almost putting it on, so to speak, because they're more interested in the success it brings. Yeah, I think your point about patience is a really interesting one. One of the things that I spoke to Victor about was how contrarian or how unusual his views were, you know, back in 2017 when he started or around the future of AI and the future of content and it being AI generated.

17:31And it's taken a really long time for those early views of his to be proven right. and it's kind of like an essential part of being an entrepreneur with those contrarian users that you have to be willing to wait and to be proven right even if it takes 10 years um when you look at some of the other companies in your portfolio you've got i think you already mentioned metaview law hive and synthesia amazing companies what is kind of a trait that all of these companies are always found to share what can you see when you look at all of them kind of unifies them and has enabled them to build great businesses so i honestly i think the biggest things are you know some of the things that we touched on there that they're all unbelievably determined i think they sort of rank extremely high on determination resilience um i think they're all extremely into the things that they do like a lot of the successful founders that we invest in they look quite different from each other and i think it's interesting to note that actually there's a lot around founder company fit an exceptional founder for one company may not be the right founder for another company and opportunity and we pay a lot of attention to is this the right founder and team for this opportunity at this moment in time as well because all of those things are extremely dynamic and i think in the in in the cases that you mentioned uh we we really believe that they're the right teams for those problems at this moment in time because um but the thing that really unifies it i'd say the one the one thing that we really that that ties it all together if you get past the initial prerequisites of them being incredibly talented unbelievably hard-working have high velocity etc is that they really love the substance of the company they're in it for the love of the game as much as they're in it for the success of building something big and i think that really matters because when the going gets tough your love of the problem uh really stands out well thank you so much for joining me it's been great to chat it's a great day for european tech and an amazing day for uh it'd been an amazing week for sydia um and you know they're one of the longest standing most successful air companies here in london and so it's uh it's great to see them building here and succeeding here so uh thank you very much for joining me thanks for having me dudes