Judith Dada, general partner at Visionaries Club: 'I'm deeply troubled by what lies ahead for Europe'

0:02Hello, as usual, it's your host, Amy Lohan. Joining me today in London is Judith Dada, General partner at European VC Visionaries Club. Newsletter author, mother and setter-upper of numerous side projects, Judith started her career venture almost a decade ago at La Familia, the Germany-based early stage investor, which later went on to merge with US megafund General Catalyst. She's now come full circle, joining forces with La Familia founding partner and fellow former Sifted podcast guest Rob Lacker at Visionaries. Their portfolio includes plenty of companies that are on a tear right now. Lovable, Black Forest Labs, NAN, Solve Intelligence and Tandem Health.

0:41And their thesis that Europe is in a fantastic position to shape the next wave of disruption in business seems more relevant than ever. Judith, it's great to have you here in person. What brings you to London? I was here for a little lecture and session at Cambridge yesterday for a lot of students because I'm doing a lot of work with students these days and then there's a ball I believe that we're both attending tonight um the Legends Gala by Matt Miller so lots of things that are happening yeah so Matt Miller formerly of Sequoia now set up its own fund Vantic uh I got a last minute invitation Judith I'm sure you've been on the guest list for a while but it's uh gonna be a black tie ball at the Natural History Museum with Stormzy on the guest list which I'm very intrigued about and I will report back on a podcast soon.

1:27I did listen to some of his songs yesterday, just in an effort to be able to do the wooing. Perfect. Great. I'll let you know how this all goes. It's been a busy time for your portfolio. Black Forest Labs raised a big round in December. The AI medical scribe company Tandem Health, I just noticed, has made an acquisition. If you look at the companies that are really sort of pulling away and leading the pack, what would you say they're doing differently from us? I think it's a really good question. I think it's a really good question at a point in time where AI asks more of all of us rather than less, right?

2:04There is this notion that AI is coming to do all the work. So we kind of get to relax, you know, and AI is kind of augmenting us. I think that's not true. I think the very opposite is happening. AI is giving everyone superpowers, which vastly increases our output and productivity. But it also means that the race is ever fiercer and companies have to fight really, really hard. So if I look at the companies that are really able to break through the noise, it's teams that are able to navigate this breakneck speed and to, you know, I always say stay ahead of the exponential kind of development curve of AI.

2:38So it's teams that are extremely focused. It's teams that have incredible resilience and teams that are really versatile, right, in terms of being able to shift what they're doing from one day to the next, but also in a way that allows them to lean into the exponential, understand what it means for how they're positioning without losing sight of who they're serving, which are customers, which are human beings, which are people who are stuck in their own, you know, kind of realities who don't think about AI and the exponential every day. And so kind of being able to walk that tightrope, I think that is really something that the best founders are doing a great job at.

3:14It's a job that asks a lot of them. You know, I think it's never been harder to be a founder in many ways, but it's also never been more, you know, it's never been as powerful to be a founder and to be achieving a lot in a very, very short period of time. We're now seeing companies that are able to reach 10 million AR over the course of just, you know, months, you know, something that took them in the past many, many years. And so the impact that they're having is incredible, but they kind of need to rise to the occasion. And a picture that I always have inside my head is, you know, kind of dragon riders, you know, and someone who's able, AI is the dragon, you know, and it's this vast, big beast and very powerful.

3:58you need someone with the courage and the tenacity to kind of jump on its back and be able to ride it and you're investing pretty early stage so what are maybe three things if there are if there is a kind of tick list that you're looking for in founders before they've really maybe encountered a bunch of those challenges to know or to feel confident that they might be able to ride the dragon yeah i think more and more we are really compelled by founders where it feels like their whole life led up to starting this company and oftentimes it's a short life right we're oftentimes backing very young founders but there is a an obsession almost a red thread you know that kind of goes through their life that kind of leads up to this moment in time um and just the authentic obsession that we see in founders of having you know always been interested in something or having Having always, you know, kind of already followed a passion when they were very young, having tinkered with systems, having, you know, kind of built web shops.

4:58I think that is something that we're increasingly, increasingly compelled by. I think the second really is, you know, this fierce, we always call it in German, there's a word, right? So the ability to just get things done, to hustle is another word, right? Like hustle culture. And I think it's a mindset. said it's seeing the world not in terms of obstacles but in terms of things that you can achieve and it's almost a switch that needs to go off in your head where you know you suddenly realize that you can just do things which is this famous you know slogan that everyone in Silicon Valley is using so just this suk zum choa this relentless drive I think is something that we also look for um and then last but not least I really think it's just ambition right I think we live at a time where you can have crazy ambition because a lot of things are possible now and founders whose ambition grows over time who in the beginning you know think that they can achieve something but the more proof points they put behind it kind of the more fuel it gives for their ambition to grow and you know because we always typically meet them at a point in time sometimes we have the privilege of really seeing them you know at several moments in time because we've met them maybe when they were still on their last gig or still working at a company and you know In the best cases, we really have kind of this longitudinal observational study of seeing how the ambition of founders grows as they put more proof points behind what they're doing.

6:19So I'd say these are three things that we are incredibly drawn by. And we're speaking a week after Anthropic released new tools to automate legal work, which sort of sparked this sell off at publicly listed software companies. And I expect this is not going to be the last that we'll see of situations like this. how do you think your portfolio will fare in these situations or maybe a better question is like what what does good future proofing against one of the AI giants coming along and releasing something that at least seems similar to what those companies do? I think it's the question that every single VC is asking right now and I think if I were to sit here and give you all the answers I would be kidding myself because a lot of this is kind of happening in real time to all of us.

7:06But let me try to give you the best way of, you know, kind of sifting through the noise that I can give right now. There's an exponential development that's happening in AI. It is important for companies to stay ahead of that exponential, which is to ask the question, if I assume that models get better and better, how does models getting better and better make my company better versus irrelevant, And so building a surface area of software and a value for the customer that is actually fueled by Anthropics model getting better versus relies on them kind of staying at a certain capability threshold, I think is very, very important.

7:41That's the first thing. The second thing is it's important to realize that Anthropics, OpenA, a lot of the model companies are already operating at such large scale that they have a lot of surface area to cover. They have a lot of customers to serve. it won't be in their interest just like it wasn't in google's interest you know kind of in the past to go very very very deep on certain verticals i think it in that case will make sense for them to partner with startups that are able to be the face to the customer to be the face to the human um you know and really go deep into the value creation and the support that is required to give customers value um i think it's the the ai world lives in you know kind of exponential curves versus the rest of the world lives in adoption curves.

8:24And adoption curves, you know, only move at the speed of human change. And humans are bottlenecks. You know, we, you know, we don't like change. We, you know, like our, you know, kind of old ways. And so it needs for kind of that translation element. And I think that's where a lot of companies can come in. Now, having said this, I think every single company needs to ask themselves, not, you know, will software be used in the future? Because we will still use software. but you know what kind of software and what kind of value creation and i think there's no um beating around the bush um you know to the fact that in the past we built software for humans so we built ui and ux interfaces for humans to click buttons and perform certain actions and workflows that is changing software is now moving to a world where it's you know in the future primarily going to be used by agents and agents think about the world in very different terms to humans agents you know kind of read markdown they're able to you know digest a lot more information in a very very short period of time so of course the nature of software needs to change and the kind of tightrope that companies are walking is transforming kind of the existing distribution that they have all the existing customers all of the existing kind of surface area to one that works in this new world and that's you know in many ways kind of the classic innovators dilemma which is why a lot of you know kind of legacy SaaS companies on the one hand have an advantage because they have distribution, they have customers, they've served them, you know, in a valuable way, but they'll need to navigate transforming, you know, kind of to this agent first world versus startups are coming in.

9:49They have none of that legacy, but they also have none of that distribution. They need to build that up. And so I think that's the world that, you know, increasingly these companies are navigating. I think any company that is not very, very seriously questioning everything that they did in the past, questioning all the ways in which they've built software. I think Satya Nadella, the CEO of Microsoft, you know, said it, you know, correctly when you said that a lot of software is kind of moving into CRUD systems, so create, read, update, delete, you know, kind of the more classic, you know, database systems that sit in the background and kind of agents sit on top of those systems and do the valuable work.

10:20In that new paradigm of how the world is going to look like and the transformation that is required, how can you kind of be positioned accordingly? I think that is the big, you know, kind of tightrope that companies are walking. But I think a lot of companies will, if they see the world, in a clear-eyed way will be able to position accordingly. Do you think partnerships with the, whether it's the AI giants or huge mega software providers, do you think that's more important for this era of companies than others? I definitely think it makes sense to be close to the exponential and being close to the exponential means getting early access to models, really being able to understand how the kind of capability surface of models increases 100%, right?

11:07I mean, at the end of the day, that is the kind of the oil of the 21st century is, you know, kind of token inference and model capabilities. So I definitely think that, you know, spending as much time with the teams, with the researchers on really trying to understand what is not just here today, but leaning into the exponential. And I almost, in many ways, you know, in many ways, there's like a dichotomy where you have to worry about what's happening today because that's what your customers care about. Again, people live in adoption curves. But in many ways, you need to not care about what's happening today, but what's happening 12 months down the line.

11:41So you need to lean into the exponential. And so that's, you know, this dichotomy and, you know, the superhuman ability that founders need on the one hand, you know, having one really close ear to the customer, but on the other hand, keeping a very, very close connection to how the frontier is, you know, kind of downstream impacting all of the work that, you know, you're doing today. So I think you need to be doing both at the same time. Yeah. Yeah. And if it does start to look like a portfolio company is not able to keep up with that and is not going to make it, do you already have a kind of plan in place or what's your thinking around when to stop backing that company or pull back your support for that company or maybe sell some secondaries if that opportunity arises, encourage them to exit?

12:28Has the sort of industry reached the point yet where investors are putting in place their exit plans? I feel like just after COVID, there was this sort of awakening in the industry that investors were good at doing the investments, but not so good at sort of making money from the investments and knowing when to start getting out of companies. And that was a whole conversation. I wonder how much is that beginning around AI companies? I think it's definitely starting, but we're early. I think you point to something that's very interesting, which is as soon as something becomes broad consensus, it's almost too late to be able to sell the companies that are struggling because the market now understands and prices that in.

13:09And so the multiples that you'll be able to get for even very decent revenues and decent growth are going to be disastrous and it's just not going to be as interesting to sell them. So I do think, you know, every investor should try and ask themselves how they can be ahead of the exponential and kind of this trickling into the market, as we've already seen, you know, recently with the kind of stock market tanking. And so that, you know, those are definitely conversations that we're having at Visionaries Club. Now, I think that this is a discipline that the market adopted and didn't quite lose after COVID.

13:42You know, I think the fact that we know that we're investors and on the one hand, we're investing and we're backing the companies that really, really work and we're throwing our whole weight and the whole capital behind them. But we're also constantly harvesting from the rest of the portfolio and, you know, really thinking about, you know, all the different mechanisms through secondaries and so on and so forth that allows us to create value for, you know, our LPs earlier on. You know, that is a practice that is an ongoing practice at Visionaries Club. You know, and we were always kind of in the business of trying to understand, you know, which companies may be worth selling, which companies, you know, worth doubling down on.

14:15We do, you know, like constant portfolio reviews and so on and so forth. But I do agree with you that by and large, I haven't quite seen the moment in the VC industry where this becomes consensus. Because at that point in time, I think it's actually going to be quite difficult for a lot of the kind of legacy companies that are struggling to find a new home. Yeah. And that was something else I was going to ask was, you know, the kind of SaaS unicorns of 2021, 2022, you know, lots of them. I mean, a bunch of them have announced, you know, we've reached profitability, we've done this. And then a lot of them have seemed quite quiet on the, you know, there haven't been new funding rounds.

14:51They maybe haven't done announced secondaries. Do you think we're going to see a sort of huge amount of value wiped off of some investors, older funds? I could see that. I could see that. I think that's certainly something that I think about. We've seen a draught in terms of being able to exit these companies. IPO markets have been sluggish. M &A has been sluggish. And I think it's caused by, for better or for worse, just also a lot of distraction. I mean, every company is as busy as ever because everyone is navigating and figuring out what does this mean for us? What does this mean for the way that we acquire businesses?

15:31What does this mean for our own in-house capabilities? Everyone's trying to get on the adoption curve. Everyone's trying to transform. And so, you know, even just the mental capacity for being able to understand which assets are interesting from an acquisition perspective and which aren't, you know, is this something that's difficult to navigate for acquirers? I think at the same time, you know, we have seen kind of early signs of, you know, anthropic, open AI wanting to go public, you know. And so I think there is, you know, signs on the horizon that the public markets at least are going to pick back up.

15:59I also think that would be wonderful because today a lot of the surplus or the kind of growth that's generated by these companies is locked into the private market. Where I would hope that these are companies and this growth that, you know, is accessible to a much broader part of society. I think that would be a really commendable development in light of the concentration of power behind these companies. But going back to your question about these private SaaS companies that are quite big and we haven't heard about them, I do think we're entering a world of potential hyper-competition where AI gives everyone superpowers, but that also means that everyone is now able to compete and you're actually able to compete in many more things than you were able to do before.

16:43so you can broaden the surface area of your value creation. And I think that will lead to all sorts of weird dynamics where I do have a hard time believing that you'll be able to charge the same price for doing the job that you did a year ago for something that you do tomorrow. I think you'll either need to grow the value that you're bringing to customers to be able to maintain that price point or you will need to lower your price point. And this is something that we've seen in China. I think China is in many ways a fascinating example because it's a region that has been marked by hyper-competition for a long time in consumer electronics.

17:17Chinese companies are incredibly competitive. Most European or Western companies would have no business trying to compete on consumer electronics because the market is so perfectly optimized. And because of that optimization, margins have been very, very, very narrow. I always use the example, if in the West you have two companies that are innovating and, you know, both are producing something at the cost of five euros and are selling it for 10 euros, both make 50 % margin, five euro margin on it. Now, if one of them finds an innovation, let's call it, you know, AI, is able to drop the price of production to two euros, what would they do?

17:52They would likely lower the price to maybe eight euros. They now make six euros margin. They're able to take more market share, you know, and kind of they grow shareholder value as a consequence. In China, that same company, because it's anticipating so much competition, you know, kind of breathing down its neck. Like we're probably in the face of now being able to produce a two euro cost, drop the price to three euros. Right. So take lower margin than before, but kind of, you know, in an effort to A, take more market share and B, knowing that they won't be able to defend, you know, this lead because other companies are going to come crowding in.

18:18And so I think that gives us like an early taste at what I think may happen with AI is just hyper competition, which means the bar is getting raised for everyone. You really need to step up your game in terms of the value that you're creating for customers to maintain the price points that you have been charging. and that have been very comfortable, right? SaaS was an amazing category with, you know, all this margin and, you know, kind of, you know, predictable revenue growth for many, many years. I think a lot of those old playbooks, a lot of the kind of metrics that we looked at are completely not just being questioned.

18:47We can kind of toss them out the window and we need to think about ways in very, very different ways. And I do think that particularly challenges companies that, yeah, you know, have a lot to lose but are not maybe agile enough in terms of, you know, kind of the innovative capacity to really be able to to you know kind of lean into the exponential so it's it's going to be turbulent waters ahead i think for a lot of investors are you getting lots of secondaries offers are you getting other investors come to you and say i want a piece of yeah absolutely absolutely yeah this is something that happens on a weekly basis um but we're not right at least for the you know kind of front runners in our portfolio we're not interested in selling right now um visionaries last raised 400 million euros across several funds back in September 2022, which was before you joined.

19:32And unless my maths is completely off, that would suggest that you are probably already out raising the next funds. We're not out raising the next funds yet. And we're still very focused on deploying and supporting the portfolio. But of course, at some point, that will be a topic. We're very lucky to have incredible LPs who have been with us now for several fund generations. And so, you know, it's something that I look honestly forward to. But right now, I mean, the market is keeping everyone's so busy that we're not yet in you know kind of fundraising mode um but yeah down the line that's going to happen and what how might the next fund or funds differ from previous fund generations i mean you you weren't a part of those and the world was very different is there going to be a slight change in focus for visionaries would you go bigger what might it look like yeah so our focus has always been backing the best founders the rest is a function that follows that and so five years ago that was a lot of you know classic fast today it's ai tomorrow it may you know be whatever you know ai's surface areas then you know agents or you know kind of completely new business models that we can't even wrap our heads around yet so we are flexible in terms of you know kind of what the investment mandated just we're not kind of thematic in that way that you know we don't think of our team as like here's the fintech investor and here's the tech investor but really we're all people investors we're all you know founder investors now what we have been doing is we have been you know really doubling down at you know I think the great support that we've been giving giving companies and you know kind of the track record of the portfolio in terms of you know rarely only writing lead checks at the seed stage you know we're very kind of focused on being the biggest investor and you know really building a concentrated portfolio but also exploring ways of you know playing a bigger role you know at kind of later stages still early stages but you know kind of series a series b so that is something that we also really enjoy and that we see as a very kind of natural extension of our work at the seed stage um but we haven't yet decided on you know what exactly that will mean in terms of fund strategy but you know we certainly see and we're very confident in being able to play a really great role for founders you know not just at the pre-eced and seed stage i mean solve intelligence is one example where we just recently, you know, kind of let their series be.

21:50And it was a very, very competitive round. And, you know, again, it's concentrated. We don't do this with, you know, 100 companies a year. We do this with a few companies where we have really high conviction, but where we think we can be a fantastic partner also at later stages of their growth to continue to support them. You're not ordinary. No nine to five meal deal lunches, meetings about meetings, compulsory team building, living for the weekend. You're made for more, for the extraordinary, and you need an extraordinary bank. HSBC Innovation Banking exists exclusively to help visionary VC-backed tech and life science businesses achieve their ambitions.

22:28From pre-seed to IPO and beyond, we provide custom solutions co-created by actual industry experts to help you scale, delivered by a dedicated team you can call whenever you need to. find out why four in ten uk unicorns have chosen us at hsbcinnovationbanking.co.uk one thing i've recently been speaking to a bunch of european investors about is their u.s strategy how much time do you spend in the u.s and how sort of important is that why is that important for you know very europe focused fund yeah there's a thing called the san francisco consensus which is you know kind of the the i would call it the crystallized belief of the exponential super intelligence curve um and you can only really feel it when you spend time in san francisco when you spend time with the founders and the investors there because life just moves at a different speed i find it exhilarating um and so we try to my family and i my husband is also a founder we typically take our kids because we now have two young kids so It's a bit difficult with travel, at least, you know, like long distance travel.

23:35And so we take them, you know, for a couple of weeks at a time, typically twice a year and just get an Airbnb and spend time hosting us and just immerse ourselves in San Francisco culture and the ecosystem. I think that's hugely important. But at the same time, you know, I think there's been this strange narrative in Europe that, you know, to succeed a founder at the earliest stages needs to go to San Francisco. And it's been propagated by a couple of really, really knowledgeable voices. And I'm just sometimes scratching my head because I think that's just honestly quite bad advice. San Francisco is a hugely competitive ecosystem.

24:08Any talent there has, you know, a host of companies to choose from when it comes to working for them. They, you know, get salaries that are, you know, absolutely just, you know, kind of mind boggling. And so as a kind of European pre-seed founder, oftentimes a very young founder, I think, you know, what I've also seen when spending time in San Francisco and catching up with a lot of them is a lot of them are really struggling because they're not able to find the talent. And because it's just very, very expensive to build something, many of them are still also serving European customers. So they're kind of working these really odd hours to be able to do that.

24:41You know, and I think San Francisco in many ways is amazing. And I would recommend that anyone working in tech spends time there. It's almost like the mecca that we should all be going to at some point. And to take that dose to raise your ambition and to kind of understand, really, if you immerse yourself in that culture, what is possible. But then to go back to your local ecosystems to build there. Because I think a lot of founders send a much better chance and are much more competitive because they really stand out in their local ecosystems relative to San Francisco. go so this like you need to go to San Francisco to be successful I think it's just for a lot of founders not for everyone but for a lot of founders pretty bad advice who are the key people you try and or key types of people you try and meet when you're there who what kind of people do you invite to your to your dinner parties yeah so it's a lot of founders we were hosting we were hosting an event um together with our friends at Crandom I think and Robin Spiegel who's a great founder who's based there um I think it was like 70 European founders who are building there that showed up.

25:38Some of them were just spending a few months there. Some of them are building their full time. Then, you know, it's a lot of, you know, just meeting the partners at Lightspeed, at Andreessen, at General Catalyst. I mean, all the funds that were friendly with Sequoia and spending time with them, just building the relationship. And then there's a couple of people, you know, more operators that, you know, from the Reddit to, you know, kind of big AI labs that we catch up with to just try and understand what's happening at the forefront of innovation. So it's always a mix of different people. So it's more kind of a soaking up of ideas and building those relationships for, I guess, portfolio companies who might need a lead for their latest age rounds.

26:16And that's the kind of primary. Yeah, 100 percent. But also just experts to connect them with. Right. It can be someone working in AI chips. It can be someone working in AI research. It really is, you know, at the end of the day, there's, you know, as VCs, we're kind of switchboards. we we understand a problem and we connect founders to who we think is the best expert you know i'm not a fan of thinking that you know i'm the you know the end all be all of you know the wisdom of the world and so i like to think of myself as a switchboard that can you know perpetually connect to the best people um and thereby continue to entertain a very diverse set of people that could be valuable for founders down the line and i feel like there's a kind of narrative that it's a sort of marker of success as a European fund when you start to get a lot of US LPs or when the kind of majority of your LPs are American would you agree with that is that an aim for visionaries as you move through generations or you know you've always had a strong history of having sort of very lots of an interesting mix of LPs traditional sort of European industrial businesses etc how do you how do you think about that so it's it's a really interesting question we have some us lps and they're fantastic um you know we we have a wonderful partnership with them but what i sometimes scratch my my head about is we have these you know kind of nationalist boxes in which we think or national i should say national boxes in which we think about lps a lot of the funder funds in the us actually have european lps themselves so i mean capital in many ways, you know, doesn't know borders and is a very, you know, kind of flexible global category.

27:52So at the end of the day, we care about partnering with the best LPs, with LPs that, you know, have built great institutional track records, have built great, you know, businesses when it comes to the family businesses that are backing us and have all this, you know, kind of longer, like this legacy and, you know, all these insights and connections. We care about, you know, partnering with LPs that have really worthy causes behind them, be that university endowments or foundations that use the gains for really, really worthy causes on this earth. And so that's really more the lens that we're coming from.

28:26And then if we partner with the best people there, the trickle down then tends to be that a lot of that actually also kind of benefits Europe in some way. Now, having said that, would I wish for a lot more institutional European capital to kind of play a role in that league to A, be interested in the VC asset class, and to be, quite frankly, be as sophisticated and great and trusting a partner as we see of the USLPs being. Absolutely. You know, I couldn't wish for more for this industry in this continent. I think we're still lagging there. But, you know, first and foremost, as is the case with founders, we want to partner with great people who stand for great causes.

29:06And we then think about kind of country boxes as a second criteria after that. I feel like we're very much in an era where the narrative around sort of Europe and European tech or the noise around it feels louder than ever. And it's very split between people who are super pro-Europe and, you know, Europe's amazing and why would you go elsewhere? And it's fantastic to be a European founder. I'm proud to be a European founder. And then people who are sort of saying we are slipping behind faster and faster than ever. um what would be your sort of top three requests for european policy makers or you know people who can like really change the dynamic over here yeah so i think first of all let me address what you said it's really interesting i would there's a performative nature to pessimism optimism that's going on on x and linkedin that is just quite frankly egregious and not helping anyone so the pessimists are like you know europe is entirely effed and you know everything is going to shit and we have no chance of catching up and the best thing any of you can do is pack your bags and go to san francisco and then there's the you know performative optimists are like it's great and we have no problems and anyone who dares to say that we have a problem is delusional which is also not helping because that's not true we have really really big structural issues and really big problems my call yesterday called for a state of emergency i think he's absolutely right i think we are in an absolute state of emergency on this continent because the entire value creation that the future hinges on hinges on AI.

30:39And today we don't even play a nearly as big a role in AI as we should be playing. And I do not understand, quite frankly, it's just beyond me how more people cannot wake up in the morning and make this the single biggest goal of their life, you know, kind of in pursuit of a future that is worth living for all of our kids is solving for this bottleneck and this, quite frankly, like lack of any meaningful anything that, you know, Europe is in right now. And so, you know, how does this come back to the kind of to the policy, or I would call it, you know, kind of the changemaker realm? I would say that, you know, we're now in a phase where the game is on, the competition is on, the exponential curve is developing, and we have a very, very limited time window.