How to build a $100bn company in Europe, with Sequoia's Luciana Lixandru

0:02We have high quality talent that's mission driven, that is loyal, build your tech and product in Europe, but then you have to win the US from a commercial perspective. Hello and welcome to The Sifted Podcast, the show where we help you get to know the brightest and boldest people in Europe's startup ecosystem. I'm Amy, Sifted's editor, and today's episode of The Sifted Podcast is a fireside chat with Luciana Lixandru, partner at VC firm Sequoia Capital, recorded live at The Sifted Summit in London in October. I hope you enjoy this conversation as much as I did. hello i'm delighted to be here with one of europe's best respected investors luciana xanju from sequoia capital luciana welcome to sifted summit thank you so much for having me i'm delighted to be here and i look forward to our conversation so you you joined sequoia back in 2020 from axel it was quite the news when it was announced and you kind of opened up the the london office it was a huge thing for them to kind of finally come and establish themselves in Europe.

1:06And at the time, I read back on one of my former colleagues' interviews with you, you said that your mission was to find Europe's first$100 billion company. How's that going? Yeah, that's a great question. Yeah, you know what, Sequoia, we started in the Valley a long time ago, over five decades ago. And I think that the firm and my partners kept on being pulled into Europe because they saw that there is so much talent and that the ecosystem is evolving. so they made the decision to expand here and I was fortunate enough to join five years ago exactly and to help us set up our European business together with my other partners.

1:43You know, I like to think about where we are in Europe from a tech ecosystem as act two. So what do I mean by that? I've been in venture since December 2011, so a while. And I remember at the time we were being asked constantly, can Europe consistently generate billion dollar companies? So that was the question back in 2011, 2012, 13. And then I think we can say a resounding yes. And then a few years later, you know, around 16, 17, 18, the question was, can Europe consistently create decacorns? And again, I think now a few years later, we can say yes. So what do I mean by act to, I think now it's time to really focus our dreams, our ambitions, our resources towards helping build these generational companies, these companies that take a really long time to build and can compound and thrive for a really long time.

2:43So, you know, we say$100 billion companies as a, you know, as a metaphor for building these generational businesses that, you know, my daughter may use hopefully their products or work at one of these companies. And I'm really excited for ACT2. You know, every year we organize an event called Europe 100, where we get together 100 growth stage founders from Europe and some of the greatest minds that care about Europe. And we actually just had this event last week and we organized it with our partners at Founders Forum. And I just left with a feeling that it's inevitable, that it will happen. And I do think, I'm sure we'll talk about AI.

3:23I'm sure we won't wait for 25 minutes on this panel. But I do think that AI is one of the core drivers of this renaissance in the European ecosystem. And I feel good. I feel good. I think we're on the right track. We can always do more. And of course, many things are against us, as the great panelists before me mentioned. But I think we're on the right track for those generational companies, you know, for ACT to for Europe. Who do you think, within and without the Sequoia portfolio, some of those potentially generational companies are right now? so many. Obviously, since we talk about these businesses that hopefully reach an incredible scale, I'll just focus on the later stage companies, right?

4:05The very obvious one that is not in Sequoia's portfolio is Revolut. I mean, it's just incredible what the company has accomplished. I'm a user. I love it. I think they're, you know, from a valuation perspective, they're almost there based on public numbers. I think in Sequoia's portfolio, there are many that I can think of that have this potential. You know, the one that comes to mind, I'll have to say Trade Republic. Interesting, right, that both are in fintech. I think we can talk about that. I think Europe has a real edge when it comes to fintech. And I think we really hold our own on a global stage.

4:37But yes, I would put my money on Trade Republic, but many others, you know, I can't sit here and talk about a seed stage company or a Series A company that has that potential because you may call me crazy. But in my heart of hearts, we work with many founders that I think, You know, think of this business as their life's work. And if you think of your company as your life's work, that means you focus on decades ahead. You don't focus on the year ahead. So the team at Penny Lane, for example, they're building a modern AI accounting platform and then financial operating system for SMEs. There are 500 ,000 SMEs and growing fast.

5:12This team right after college sold the company to booking. And then the second time around, they want to go bigger, better, bolder. and I can see them building this business in 20 years from now. And you mentioned building for generations. Yes. How do you at Sequoia think about AI? We're only five minutes in this time. How do you think about that when we just don't know what the roadmap looks like for those companies? You know, they're growing incredibly fast, yet they're maybe achieving that with fewer people than before. How do you think about which of these companies are defensible? Where do we place our bets?

5:48there's definitely a bubble, but some bits of it will, loads of money will be made. Just what's the kind of thinking in the team? That is such a good question. And honestly, a question we ask ourselves every day. And I think we're learning as well. What is durable revenue? What is a moat in AI, right? So there are a few parts. First of all, AI, non-AI, we invest in people. We invest in founders that we think are exceptional, that we think have what it takes to keep on building, launch the next product, keep on building moat. So I'll just start by saying that. But to be a little more specific to AI, what we like is, I talked about this the other week, we really like founders who are solving hard problems.

6:35And this means it may take you a while until you get to product market fit and until you reach escape velocity because you're building something hard. But because you built something hard, you know, it's going to be much, much more difficult for other competitors to catch up. And let me tell you, AI is competitive. Whenever there is a good idea, there are five to seven teams, good, good teams going in that direction. So I think focus on solving hard problems. And then the other one, I do think, again, pre-AI, post-AI, this is the case, but maybe even more in this day and age, brand. I think brand really matters.

7:12It cannot be your own remote, that's for sure. You need to build a great product. But having this brand sensitivity that I think some of these AI native founders have, I've been really impressed with that. Do you think that's something, when you talk about brand, is that something that's very connected to the founder, to the founding team, or is it more company? What do you mean by that? You're asking so many great questions. Yeah, I do think that in this day and age, more and more founders, like put themselves out there to represent the company as the face of the company. And I think some of them are incredible at it.

7:46So Anton at Lovable is probably a very good example. I think he really has the gift. But again, brand is important. I think the most important thing is solving hard problems. So you have this mode that allows you to go really, really long term. And so does that mean then you invest in the company that's solving the hardest problem? Or if you see there's these seven companies, they're all going after the same thing. There's maybe already one in the US that's raised heaps of money. What's your decision making process there? How do you assess them? That is very opportunity specific, right? Again, we spend a lot of time with founders.

8:22We invest in people more than in sectors. We don't think about it top down. We think about it very bottom up. We meet a great founder and the founder takes us on a journey and we get excited about the opportunity through the founders' lenses. So it's very much about finding a team that we have chemistry with, that has the same level of ambition and sees the world in a similar way. It is harder when there are many teams going after the same problem, right? So I think the second question is, do you have a differentiated approach? Do you have a unique insight? Do you have founder market fit? What is your right to win in this particular space?

9:00I think the second question becomes even more important in this day and age when many smart people with smart capital behind them go after some of these problems. The other thing I will say is, you know, if you ask me for one early indicator of long term success in startups before revenue, before customers, before all these things, I think it's the speed of execution. and because things move so fast in this day and age, thanks to or because of AI, I think this is even more important. So we see these companies that were lucky enough to be in business with like Harvey, let's say in the US, it's just the speed of execution and the pace at which they execute well is really incredible.

9:41So I think this is, it's very important in AI. And how is the pace of things changing deal-making? I've been speaking to VCs who say they preempt many more rounds than they used to. As you mentioned, deals can be hyper, hyper, hyper competitive. What else? What are you seeing in the market? And how is Sequoia perhaps slightly changing the way you do things as a result? Another great question. You know, someone asked me to compare 2025 to 2021. We all remember 2021. It was crazy. I think valuations for the very hot AI startups and then a few other areas that we can talk about later that are very attractive right now.

10:26Valuations for the top companies are at similar levels. But what we're not seeing is that very, very fast investment pace. Okay. So, you know, I remember in 2021, sometimes I would talk to a founder and they would tell me, you have three days to make a decision. And oftentimes we'd say respectfully, we just can't because we're not just committing capital. We're also committing to be your partners for decades to come. I would say in 2025, we're not seeing that. Founders are very, very thoughtful about choosing a partner and they take their own time to do their due diligence. And at least from where I sit, I do feel that I always have an opportunity to really do my homework.

11:11And us as a firm, we have an opportunity to really do our homework. So valuations are high. That does remind me of 2021. But the pace, people are a lot more thoughtful, let's say, in the ecosystem in general. And I think things happen at a very healthy pace. Do you think valuations are too high? Valuations are very high. Valuations are very high, yes. It is also an incredible wave of technological change that, as you talked about earlier with your panelists, You know, it will create these AI first companies like the Eleven Labs, where we're lucky enough to be in business with, like the Harveys of the world.

11:53But at the same time, I think it also helps many, many other industries grow faster and become more efficient. So it's hard to tell. Valuations are very high. At the same time, I do think there will be incredible companies coming out of this vintage, coming out of this period. We're already seeing many of them have real scale and real revenue. I'm not talking about, what do they call it, vibe revenue. I'm talking about great retention, great customers, great logos, great NPS. So some of these companies are really creating value and attracting talent and really building incredible businesses. So I am optimistic that there will be many large successful companies that were started in this period and that are being started in this period.

12:41But overall, yes, valuations are very high. Yes, valuations are very high. Is the power more in the hands of the founders when it comes to, you know, negotiating these deals than ever before? Or has it been less in the investor's favor before? I don't think that's how we think about it. I think, you know, you meet a founder and hopefully you have that aligned vision about the future. and then typically the way I like to describe it in these conversations, if there is a will, there is a way. I like to spend time with founders and at some point I think there is a mutual understanding that we want to work together, that this founder wants to choose us for their journey and that we want to choose this founder to be one of the probably two founders that we partner with a year, right?

13:26We don't make many investments. We are very high-concentrated, high-conviction investors. So typically, and then you reach this understanding that you want to work together and then you meet in the middle. I always say on both sides, we probably feel like we stretched ourselves, but then we're just happy to be in business together. This is how I like to think about these partnerships. A quick one from me. If your company would like to get a message across to Sifted's audience of startup and scale-up leaders, VC frontrunners and tech advisors, why not consider sponsoring the Sifted podcast? You'll help us interview even more movers and shakers of Europe's venture ecosystem and analyse even more of the most impactful trends confronting them.

14:13And you'll reach a hyper-engaged listenership too. For more information, see the podcast description. And where are some other areas that you think, other sectors that you think are going to be very interestingly affected by AI, either positively or negatively? Yes, yes, yes. Great question. We are seeing a renaissance around robotics. Well, hardware in general, I should say. So let's start with robotic automation. We talk a lot about embodied AI. It's really incredible what's happening in the space. I have to be honest, if seven years ago you told me, oh, do you want to look at a robotics company?

14:50I would have probably said, I'm so sorry, I'm a little busy right now. Because, you know, building on hardware is really hard. But the why now with AI is, it's really incredible. We're seeing so many smart people going into robotics. I think that's typically the first sign. When you see some of the smartest people, you know, going to a sector, you know that good things will happen. and we think that there will be breakthroughs from a model perspective. You know, I cannot say whether it's two years or 10 years to a fully autonomous robot. I don't know the answer to that. But I do think it's more a matter of, you know, when rather than if.

15:28So we're lucky enough to be in business with companies like Robco out of Germany, which they're building autonomous robots for manufacturing. So for a particular use case or companies like Skilt from the US, They're building a foundation model for fully autonomous robots. So fully generalizable. So it's a really interesting area. And by the way, you know, with a European hat on, I do think that we're very well positioned there for many reasons. One, we have some of the best robotics universities in the world. So ETH in Zurich is excellent. The Technical University of Munich, TUM, is excellent.

16:01Here in the UK, we have some great universities as well. So we have that talent. And I also think when it comes to manufacturing, you know, Germany, the Mittelstand, it's all manufacturing companies. We also have the customers that are close to these companies. So on the one hand, the technological advancements. On the other hand, there's a lot of demand from these businesses because of labor shortages. So robotics, I think, is quite interesting as well. Non-AI, but I will speak about it. I think we're seeing a renaissance around fintech as well. For a long time, as investors, we were asking ourselves, what's next in fintech?

16:35I think with everything that's happening around stablecoins, there are many interesting companies that are coming out and, again, doing very well, growing fast. So, you know, pretty sizable businesses already. And as I mentioned before, I think Europe is a hotbed of innovation and talent when it comes to fintech. So if you're building in fintech, there's no better place than London, I would say that. And we have a couple of really interesting companies here, like Dollar App is one of them, Aspore is another. So I think that's another really quite interesting area where Europe is ahead of the game.

17:06Where else are you seeing talent concentrate? I mean, you said it's a very good sign when very smart people start moving into an area. Are there any other areas you've seen those signals or geographies where you're seeing maybe interesting kind of talent hubs emerge? Great question. Europe obviously is very fragmented. In the US, the vast majority of VC activity and tech activities are on the valley. In Europe, we don't have one Silicon Valley. So we have London, obviously, probably the biggest ecosystem. And then we have Paris, Munich, Stockholm, and then a few others, Berlin, Amsterdam. And I think this is, you know, it gives the ecosystem a lot of authenticity.

17:45That's great. But I also think it makes it harder, actually. because if you have a lot of talent concentrated in one place, people learn from each other, people can recruit more easily, people can reference each other more easily. Everyone is a second degree of separation away. And I do think this has made the European ecosystem, I don't want to say held back, but maybe honestly held us back a little bit. What we're seeing now with AI, we're seeing more concentration around London. This is a relatively recent phenomenon. I would say in the last 12 months or so, we're seeing more founders come from continental Europe to build here.

18:24I thought about the reasons why. There are two I can think of, but maybe there's more that I can't think of. But first of all, I think proximity to the labs is important. And obviously, these labs have their biggest offices here. I mean, DeepMind obviously has been here for a long time. And then Anthropic OpenA have, I believe, their biggest offices here. And then I think some of the best AI universities in Europe are in the UK. So I think those are the two reasons. Maybe there are more that I can think of, but we're seeing more concentration around AI companies in London. And I think that's a good thing.

18:55I actually think it's a good thing for the European ecosystem. We are also seeing more founders moving to the U.S. at some point. I think that's unavoidable. That's the biggest market when it comes to selling. These companies will have to have a muscle when it comes to go to market in the U.S. But I think a very nice balance is having tech, product, AI research in Europe, benefiting from that very high quality talent and then go to market in the US. So I would say London, Paris, Munich, these are probably the main ecosystems with more and more concentration around London. Which companies do you think are going to be most affected by AI?

19:30Which if you look at companies you invested in maybe five years ago, 10 years ago, what types of companies are you most worried about not being able to adapt to this new wave, you know, this shift? I think any company that was started before large language models needs to do a great job at reporting themselves. And that means two things. One, how do you use AI in your products to be competitive? Because if you don't do it and if you're in a great market, AI native companies will come for you. And two, how do you build more efficient businesses? There's so much more you can automate from a back office perspective.

20:07and how do you take those people and put those resources behind more creative and more important areas in your business? So I think, first of all, I mean, I think every company needs to make that shift. And second of all, I think every company can be more efficient. We're not yet seeing companies actually having less people, but we're seeing them do more with the people that they have. So talking of people. Yes. Sequoia, your former partner, Matt Miller, left this year, last year to start his own firm. What's the future of Sequoia's European team look like? Are you going to be hiring? Will you open up a Sequoia in Munich or Stockholm or some of those other hubs that you spoke about?

20:54Yeah, that's a great question. So we were very deliberate when we opened our European office to have a one team culture. So I'm based in London. My partners are based in London. Our other partners are based in California, but we're one team. I'm in Silicon Valley. I love the Valley, but probably more than I'd like to be in terms of jet lag. And actually, our partners from the U.S. are here all the time. So last weekend, we had seven, eight partners come over from California for this event. We have a sizable office and we are actually hiring. Anyway, I can put a tweet out after, but we are looking to grow the team.

21:27And I think there are more high-quality teams in Europe than ever before. I think it's a great time to build in Europe. What's the biggest challenge facing Europe right now? Really, the biggest challenge is the fragmentation of the market. In the US, you have one very large market with buyers that are happy to move fast and that are happy to buy from startups because they've had that culture of taking that risk for a long time. You know, one language. I think that's the hardest thing. It's also the thing that's probably impossible to overcome, but our companies just need to learn how to develop that muscle in the U.S., the commercial muscle in the U.S.

22:05And I really genuinely believe you can have the best of both worlds. You know, tech, AI, product talent in Europe. We have really high quality talent. It's much more loyal. You don't have these big labs knocking on their door all the time, offering them insane packages. So we have high quality talent that's mission driven, that is loyal. Build your tech and product in Europe. But then you have to win the U.S. from a commercial perspective. If you want to be the largest company in your space, those are certainly the companies we try to partner with, with that level of ambition. Yeah, so that's how I think about the world.

22:40When you said you think talent is more loyal here, does that mean you're not seeing as many challenges as maybe we'd expect within the portfolio of big tech companies or, you know, Anthropic, OpenAI, whoever coming along and saying, we will pay you so much more money than this European startup could afford to pay you? People tend to not move around as much in Europe. That's what we're seeing. And I think in this day and age, it's always been about talent. But I really think if you have a differentiated, unique access to talent, that puts you in a league of your own. And I really genuinely believe many founders in Europe found these pots of talent.

23:20And yes, I think when it comes to tech and product, Europe is a really, really good place. We have amazing universities. we have. It is true that these labs don't necessarily knock on your door as much as in the US. I mean, obviously, they're hiring, but not as much as there. So I do think it's a great place to build. Final question. What's most overhyped right now? And what's most underhyped? I mean, obviously, overhyped for good reason is everything that's happening in AI. But that is for good reason. I think the level of transformation of AI will bring will be incredible. We probably, overestimated short term, but underestimated long term.

23:56So I don't know, on the one hand, hype, on the other hand, very much reality. Underhyped, probably everything that's not AI, other than these few sectors that I mentioned around robotics and stable coins and defense, where there is a lot of interest. But everything else, I would say, people don't talk about as much. We're very open to it. We just want to invest in great founders. So if you're building in any space, come to us, educate us on why you think this is the most interesting space to build a generational company and we're very open to it. A perfect way to end. Thank you. Thank you so much.

24:27Thank you for having me, Amy. Thank you.

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