Can anything stop Synthesia?

0:01Hello and welcome to the Sifted podcast, the show where we help you get to know the brightest and boldest people and companies in Europe's startup ecosystem. I'm Amy, Sifted's editor and your host. Today, I'm joined by my colleague, senior reporter Kynical-Schwartz, to talk about Synthesia, the London-based AI avatar unicorn, which is one of the UK's leading generative AI companies. Synthesia, which was founded in 2017, makes hyper-realistic video avatars of humans using proprietary AI models. This year, in January, it achieved a mega$2.1 billion valuation in a$180 million funding round led by the USVC NEA, and it also hit$100 million in annual recurring revenue in April.

0:47To keep fueling the fire, its headcount has grown from 360 to over 550 people since the start of the year. It's also plotting a move into AI agents to make its avatars even more engaging, and at the start of September, just a week before we were recording this podcast, it announced the release of a new, even more sophisticated model. Kai, have you had a play with the avatars? Do you have any idea how good they are? The avatars are pretty good. It is, I think at times it's difficult to distinguish deepfake stuff from reality. There is still that uncanniness, which Synthesia will be hoping their new suite of models goes some way to solving.

1:30They're pretty good though. They're considered by investors, operators as market leading. And who's actually using them? Enterprises are Synthesia's key market. So these are organizations with hundreds or thousands of employees and they're using them for internal comms. Synthesia have essentially taken a very glamorous technology, AI, and are applying it to a very unglamorous industry which is internal corporate comms which is actually kind of savvy isn't it because that wasn't what they started doing but you know if you want to have a i guess excuse to really work on this kind of amazing video technology you need a lot of money coming in to fuel it and so actually who better to go for to start off with than these customers right so on its website it claims that it has more than 80 % of the Fortune 100 organizations using it.

2:29And it has logos up there like Zoom, Microsoft, Reuters, SAP, Merck, and Heineken. But yeah, as you say, they are doing this kind of actually not very exciting thing of training videos for people in enormous organizations. But these are the people, as you say, that are going to spend the money, right? And Synthesia announced earlier this year, I think it was April, that they passed 100 million in ARR, that's annual recurring revenue, which is the metric that all investors love these days. They've clearly found massive traction. And the product's kind of gone on a bit of a journey. It was initially just this kind of AI video creating software where people could create these fairly realistic versions of themselves saying certain things.

3:13And then the second generation of Synthesia was creating this studio around this AI avatar creation, AI models right so in this studio you've also got script writing software you've got editing software they've tried to create a platform that companies can use to do everything they need to do around these kind of like internal AI video comms. So like many AI tools you actually don't really need to be an expert in any of these elements right you don't need to know how to edit videos you don't even need to really know how to write an engaging script it can help you do. all of those things. That's right.

3:54And while all of the AI video models that Synthesia use are self-made, they built them themselves. They use models from OpenAI, Anthropic, a range of others to provide the script writing tools, the editing tools, that kind of thing. So while they are developing frontier models, their own foundational models, they are also, they fit into this AI application startup bracket. So earlier, let's see how this goes. I went on to synthesis website to um just have a have a play around and you can actually create a very kind of quick avatar yourself on the website so i um chose my avatar i chose the expressive female sort of model avatar and i put in a little uh ad for the sifted summit um i'm gonna i got emailed it earlier it took a few minutes to do i'm just gonna open it up now and hope that the audio picks up but me and Kai can just have a watch and we can let you know what we make of it here we go have you bought your tickets for the sifted summit no then hurry it's the london tech gathering you definitely don't want to miss head to summit.sifted.eu now and see you there on october 8th nine she was pretty good she she messed up the dates at the end she didn't really understand that it was the 8th and the 9th from how i'd written it but yeah pretty good otherwise she She was pretty much...

5:17Fairly convincing. She doesn't look too weird and freaky. Yeah, yeah, yeah, yeah. She seemed excited. I'm impressed. And I reckon if we'd have actually been paying for it, it would have enabled me to do some tweaks to the end, wouldn't it? I'm sure it would have done. Nice. So what can go wrong for Synthesia? Well, Synthesia is operating in a fairly unsensitive market in the sense that it's doing a lot of internal comms videos. Whereas there isn't a lot of content that it creates that can be like widely disseminated. But there have been instances in the past of misuse of Synthesia's technology.

5:54In 2023, a number of deep fakes were created, which basically created fake news readers reading out pro-government messages supporting the Venezuelan government, Burkina Faso governments. And Synthesia brought in a number of different measures to stop this happening. Again, it created a lot of bad press for the company. The company undertook a review of its policies and it decided to no longer allow political content from non-enterprise users. So that would mean that individuals couldn't create political content. It stopped allowing its stock avatars to be used for political content. So that means that you couldn't create a fake newsreader with one of the actor's faces that have been used for these avatars.

6:43And it also strengthened its moderation. All the videos that come out of Synthesia do go through a moderation process. And Synthesia hired a number more moderators to stop that happening. The company told me that 10 % of its headcount now sit on the kind of trust and safety related side of things. Super interesting. And do we think that then limits where it might go in the future? I saw I was scrolling through the CEO who we'll talk about in a second, Victor Ripperpelli's LinkedIn feed. And he'd appeared on Bloomberg News to show off some of their new technology this year. And they were able to dub the presenter as he was talking.

7:25So this English speaking presenter was speaking fluent Ukrainian. So that's clearly an era they could move into. I'm imagining like live TV, live dubbing or, you know, the film industry. Do you have a sense of where they actually might go when they've really conquered the whole of the Fortune 100? I think you mentioned at the start, but this agentic play. Everyone's looking at how they can deploy agentic solutions to their current tools. And Synthesia is no different. There is the launch of what the company is calling Synthesia 3.0. It's coming up in a few weeks. they're very tight-lipped on what that will actually include right now but I think we can be fairly sure it's going to involve some sort of element of interactive video so that could be perhaps a training course at a company where employees can ask this video questions and the video will respond in certain ways.

8:22So I was actually on a panel just recently with the founder and CEO Victor Ripperbelling. He's a very tall Danish man but he's lived in London for a long time which is where most of the company is based although they do have a team in um in Copenhagen and he's pretty he's pretty opinionated I think he's reached that point of kind of tech founderdom when he's willing to be quite um opinionated on policy about regulation um you know he's clearly running a company that's successful enough that his investors aren't gonna really tell him off if he says something a little bit punchy on stage what impression do you have of him uh through people you've spoken to and from interviewing him yourself?

9:03He comes across very candid. I mean, I think you interview some founders and investors and you get the sense that they're holding stuff back. He answers your questions fairly straightly. I was interviewing him around April, which was when Trump brought in all of his tariffs. And I asked Victor, you know, what were the concerns? You know, how could this impact business? And he gave me a fairly honest answer about, you know, like if tariffs go up that could impact liquidity for LPs and that will have some sort of an impact on the European tech sector. And he's also been happy, hasn't he, to speak out against regulation.

9:40So the EUAI Act is one of the things that he has said is kind of, you know, too strong and is going to limit European companies in that we have this lot of chat at the moment about how we can help European companies grow to become global champions. but if we continue to completely over-regulate them, then we are going to be really holding them back. Yeah, he's been outspoken on a number of topics, including Europe's public markets. That's no surprise. Everyone's outspoken on Europe's public markets right now. It's, I think, considered very widely that all promising tech companies will list in the US if they choose to list.

10:21And Synthesia are quite far off that point. But it was at a conference this summer that Victor said he wouldn't choose Europe right now. There is no way that the public markets are set up in a way that could encourage a tech company to do that. That was the panel that I was moderating. And he did say the London Stock Exchange is a complete disaster. I quote him. I was there. What about the other co-founders? There's quite a few of them, aren't there? But we don't see them as much. They're not in the spotlight. Yeah, Victor is one of four. So his other operational co-founder is Stefan Cherrill, who's the COO and CFO and then there's also Matthias Niesner who was a professor at Technical University Munich and has recently actually launched his own AI startup called Spatial AI and there's Lourdes Agapito a professor at University College London and both Niesner and Agapito are considered world-leading researchers in AI video and I think it was a paper that Niesner penned back in 2016 or 17 that first gave Victor the idea for Synthesia.

11:25Interesting. So you've got these two much more academic founders coming together with these more sort of foundery types because both Stefan and Victor had run a few startups or been in startups before they started Synthesia. So I guess they were bringing that kind of that view of things, weren't they? Exactly that. Yeah. And, you know, when you speak to investors who back the company and investors who haven't backed the company, one of the key things that people point to as a measure of their success is how good the team is there's lots of engineers at synthesis who have been poached from the likes of google and meta and then you've got a number of sales product marketing people from like really big b2b scale ups in the u.s like companies worth tens of billions like miro datadog mongo db so they've clearly recruited people with experience selling into these markets.

12:19So we think IPOs are a bit of a way off. They only last raised in January. But do you have any, do your spidey senses tell you they're going to be fundraising again soon? Will they be looking at the Mistral and Co raising all this money, the lovable and wanting a bit more themselves? When I spoke to Victor in January, he told me that they hadn't even touched the previous raise, the 90 million that they raised in 2023. So they've got money in the bank right now. Speaking to investors, there's a couple of reasons that they could look to raise sometime soon. And one of them would be if they're keen to discourage any potential competition.

12:55If a big company like Synthesia, which is already worth two billion, raises another couple of hundred million, very few investors are going to put money into a Series A for a smaller company doing something similar. Interesting. And we should mention that some of the other big investors in the company include Google Ventures and Excel. So they've got lots of very well-respected, very deep-pocketed funds in them. Is there anything else we haven't mentioned about Synthesia Kai that's interesting to know or that people have been chatting to you about recently? Speaking to investors, I think there's probably two main challenges that Synthesia could face over the coming years.

13:31One is hiring. That's no surprise every startup in the world is challenged by hiring at the moment because there is a limited pool of AI workers available for startups. In Europe especially, you've got big tech increasingly opening offices. They've got very deep pockets. Synthesia are in a very good position. They also have quite deep pockets. But it's a challenge that all startups face. The other challenge is competition. Again, there are few companies that are doing what Synthesia are doing. There's no one as big as Synthesia kind of operating this AI avatar for corporate comms space. There's a US company called HeyGen, which is also doing something similar.

14:14And there's Colossan, which is similarly doing AI avatars. Both are smaller than Synthesia. Both are focusing on slightly different segments of the market. And they also, I guess, Synthesia has the advantage of now being one of the kind of UK AI darlings. It does get a bit of extra attention. I imagine a little bit of, you know, helpful words whispered in corners when it opened a new office in London earlier this year. It had the tech minister of the UK there. It had the mayor of London, Sadiq Khan, coming along. And I've also seen on LinkedIn, Victor Rippapelli, the CEO, is popping up in those kind of meetings where Keir Starmer meets Macron and they each bring along a bunch of their favorite tech CEOs.

15:02He's in that kind of crowd now, isn't he? So I can imagine the UK will be doing what it can to support this business, growing, getting great talent from around the world and raising more money when it needs it. Yeah, Victor's been to all of those private parties at Chequers and Downing Street that Starmer's thrown in the past year or so. And yeah, it's noteworthy that not one but two big politicians were at their office opening. I've been asking people why they've been garnering so much attention from people in politics. and the reason is quite simple it's because there are few AI companies in the UK that are on their level um Synthesia are you know one of a handful and yeah the UK government wants to see be and the UK government wants to be seen to be supporting these and the Danish government I'm sure is quite annoyed that they didn't put their HQ in Copenhagen uh Kai thank you so much for that what are some of the other companies that are really on your radar at the moment 11 labs are very interesting they've just announced that an employee share sale has doubled their valuation to i think six and a half billion wave who raised a billion dollar round from softbank last year are also particularly interesting um then i'm also curious about ai agent technology in europe and the ai application layer it feels like the foundational layer these kind of open ai anthropic has kind of that ship has sailed in europe now you've got mistral but there are very few others and so where a lot of people think that Europe could win or Europe could do significantly well and is this application layer of startups startups which are building tools on top of these foundational models and then over the next few months there's an awful lot happening in UK politics that will inevitably impact tech in some way there's the Labour Party conference coming up at the end of September and then in November you've got the autumn budget which will have financial implications for startups Watch this space.

16:58Kai, where can people follow you or reach you? You can find me on LinkedIn, Kai Nichols-Schwartz, and my email is kai at sifted.eu. And that is all we have time for today. If you'd like to hear more from Kai or more about AI companies like Syndesia, sign up to our new AI and deep tech newsletter, which Kai is co-authoring alongside our French tech reporter Daphne LePrance-Range. Our first edition was sent earlier this week and covered all the juicy goings-on in the AI world from French AI giant Mr. Al's fundraise and its M &A ambitions to AI workers being offered 700k pay packets. We will put the link to the sign up in this episode description.

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