Newton Venture Program CEO Anu Adebajo on Europe’s ‘zombie funds’

19:20John Thornhill:What's it all about? Yeah.

19:21Anu Adebajo:So Newton, historically, as you said, we have been focused on education and training the next generation of VCs. I joined Newton as CEO in January of this year, and my mandate was very clear to take us into our next iteration and to really focus on the strategy going forward. So how I see Newton is it's a place where the next venture leaders are built. That's what it is in a nutshell. how we do that is through a variety of ways historically that's been through our education programs and kind of training that talent going back to some of the things I've said about the the technical nature of VC that often gets lost that's something that we absolutely do because our we don't have it's not you don't just turn up and go to panel of VCs who are talking about their experiences it's a curriculum that's been designed in collaboration with London Business School.

20:18Anu Adebajo:We have lecturers from London Business School, from Imperial, from Oxford, you know, from other institutions who are there really taking our cohorts through the technical side of VC. And then there's the kind of additional application where they'll hear from top VCs about how they apply this in their, in kind of their work. So that's kind of part of what we do. I like to say that we have the best network in venture. We have 800 alumni right now. This time next year, it'll be 1 ,000. They're global. So it's from all over the world. So you can really tap into, again, top kind of talent and top individuals from all over the world.

21:02Anu Adebajo:And actually, that's not just for the alumni to do that with each other. It's also for VCs as well to be able to tap into. So again, we've got the best VC talent from all over the world, we often get VCs reaching out to us to say, we are hiring for specific roles. We are not advertising this role. Can you send us your best? You know, whatever.

21:22John Thornhill:How many students go through your programme every year?

21:25Anu Adebajo:So every year, it depends on the programme. So we have the fellowship, which is in person, and that takes place over several months, but it's three modules, three days each in person split out over the year that's a cohort of about 30 and then we have the fundamentals which is online and that takes place right now twice a year we're looking at doing that more and that tends to be about 65 so that you know we'll repeat that twice a year so that's that's why you know kind of we're growing fast each year and then we're thinking about additional um additional things we can do we're currently working on something for emerging managers you can see that I've said that that really resonates with me and it's something I'm interested in.

22:08Anu Adebajo:We have seen investors come up through. So the fellowship is kind of more early mid-career, but we get participants who are thinking about or working on their own fund. And so it's an opportunity there for them to work through that. We do something called the Fellows Vision Statement, which looks at what is the change you want to see in the ecosystem? How do you want to contribute to that? and for many that is a fund and so they think through and and and kind of work through what might that look like so they can use the fellowship as a way to to to kind of figure that out figure out their thesis and so we're thinking about how can we actually really support them in that next phase those who are right at the beginning of that journey and giving them all the kind of tools that they need again lots of the technical skills and you know the kind of other practical um practical

23:00John Thornhill:pieces to be able to build out fun one of the big differences between the kind of us vc scene and the european one is that um in the us generally speaking a lot of the the big vcs are run by former founders whereas in europe it tends to be more kind of former bankers or financiers or whatever do operators make the best vcs i think it's i think anybody can make a number one i always

23:28Anu Adebajo:the word best when it's used in anything to do with venture, I always find really interesting because I always think, what does best actually mean? And I think, you know, for me, best is who actually provides performance, right? Who actually provides value. And I think that that can be, you know, anybody. And that's kind of a Newton philosophy, right? We think like the best talent can come from anywhere. So I've seen it all. But actually, I think with the next generation, you are getting less of that kind of profile who've come through the traditional financial channels you're getting kind of you know investors who have come from all over from all walks of life who've come from financial who've come from operational who've come from none of those things and come from you know more the arts or something else and have transitioned into venture so I think that this this new generation is is coming with a different angle which I think will also provide some really interesting kind of returns and performance and funds and innovation

24:24John Thornhill:How competitive is it? How many people apply? How do you get in?

24:27Anu Adebajo:Yeah, so it is competitive. We have hundreds and hundreds of people that apply. And we go through a process to really, I guess, shape and design the cohort. We want it to be useful for those who are on the programmes. And also we want to have a really good mix of people. We also want people who are going to really be kind of present and participate and, you know, kind of show high interest. And I think that's really important. And it's going to be increasingly important as we think about one of the future strands of our strategy, which is, as I said, if we believe, which we do, that we have the best VC talent coming through Newton, then one of the next logical steps is to actually back that talent with capital.

25:14Anu Adebajo:And so, as I mentioned, we have this fellows vision statement, which effectively is, you know, could be seen as somebody's fund thesis. We want to be able to back that with capital to allow them to go and test the thesis, to allow them to go and build track record. So we're currently in talks with parties about putting a, what I'm calling the Newton Fellows Fund together. and that would be that would be amazing to be able to do that but but that's why we have to be kind of selective in in the cohorts because we want to make sure that we are selecting for top talent but the interesting thing is we see that when we select for excellence naturally diversity follows so if I think about the makeup of our cohorts across all programs we have over 80 % from overlooked backgrounds.

26:07Anu Adebajo:And that's not because we're selecting for them. We're selecting, as I said, for ambition, for ability, talent, for engagement, for values, for all of those other things. And naturally that falls out of it.

26:23John Thornhill:How far advanced are your talks to create a fund?

26:26Anu Adebajo:We're getting there. I would say watch this space. In an ideal world, this time next year, for the next cohort, I would love to be able to do this. And I think it could be really exciting because, you know, going away, building a track record, making some investments, coming back, sharing that with the cohort, sharing that with the wider kind of Newton ecosystem, friends of Newton. For me, I would love to see outcomes which are either, you know, which actually have happened. And we've had, as I said, people who've built funds off the back of their time at Newton and they've seen LP investment come from other alumni, from their cohorts.

27:04Anu Adebajo:So I'd love to see that happening, see funds being invested off the back of this. Also, though, I can imagine a scenario where a VC is in the audience and is hearing someone talk about the deals they've made in this time period and say, we love what you're doing. It resonates with us. Come and join us. We'd love to hire you. and I'd love to see others saying, I love what you're doing. It's very similar to what I'm doing. Let's join together and do a fund. So that would be ideal. This time next year, it would be great to have this in place. Let's watch this space.

27:36John Thornhill:Okay. You wrote a LinkedIn post recently talking about your experience at Newton and you say, I've seen what happens when ambitious bright people are given the right foundation. They don't just grow as investors. They change what the industry looks like and that's exactly what you're talking about. Absolutely. And this is a way of kind of addressing the kind of shocking lack of diversity in the industry.

27:57Anu Adebajo:Yeah. And I think it's not just the diversity for diversity's sake. I was talking to an LP that I've known for a very long time yesterday, and we were actually saying it's quite worrying how we are kind of reverting back to a lot of the same, just the sameness, right, that we've seen, that I saw in venture in 2012. well, we don't seem to be making that much progress. You know, we're recreating some of the old boys club type of mentality in a new boys club mentality. You know, again, I'm sure people can think of some of the people that I'm thinking of where, you know, we're kind of replicating those same dynamics.

28:38Anu Adebajo:And it's quite worrying. And for me, it's worrying because not even just because of, you know, saying there should be space for all sorts of people in dementia, but worrying because I think it means that we're actually leaving money on the table I think we're not taking enough risk which we should be ventures should be about risk I think we're not actually being innovative enough because if everybody is the same they often are thinking the same they are we see this all the time and everybody piling into the same deals you know people are still doing that right and what this is back to what I was saying about what's best what does best mean.

29:12Anu Adebajo:Best, everybody thinks that they, lots of people will say best is this one specific thing, and they all follow and pile into that. That to me is really worrying. We should be taking more risk in venture. We should be trying to be innovative. We should be innovative. We should be looking at things in a different way, trying to find talent from all over the place, trying to be different from what other people are doing, trying to say, all of these investors are looking over here I'm looking over here because I really believe that this is where the true value is going to be found and I don't believe that I can you know extract value by going into the same thing everybody else is in the with valuations that are being driven up and up and up that is just not what seems to be happening and I don't really understand why I do understand why because I think it's actually really hard to truly be somebody that is actually contrarian or truly be somebody that is actually a risk taker I think it's much easier and much safer to just do what everybody else is doing and actually i don't know in europe that we are really being incentivized back to the point as also making about fees versus carry and all of those things i don't think we've felt the pain points yet of what happens when you consistently don't perform but from what you're

30:21John Thornhill:saying you think the whole model needs to be reinvented or in in other words it might have to return to what it was originally yeah this kind of risk-taking yeah extreme approach absolutely

30:32Anu Adebajo:And I think, you know, I also do wonder whether is the venture model, does it still work now for the types of companies that we have? Was it really made for a time where, you know, there was a big gap of lack of capital for companies full stop, especially companies that were kind of more innovative, that were doing something that was kind of seen as very, very risky? I think now true risk in companies is it's hard. I think I think that there are more avenues for companies to get capital, even companies that are perceived as risky than they than they used to be. So I think it's just the dynamics of venture to me seem to have changed slightly, but the model is being used in the same way.

31:29Anu Adebajo:And I'm not sure whether that is actually the right approach. And the thing is, though, I will hold my hand up and say, I don't know what is the right approach. But it feels to me that we're continuing to get stuck in this loop of not actually produce, of producing some companies that obviously have gone on to exit for large numbers and, you know, to provide great returns for their investors, but several more that don't and several funds that also are not performing. And so I think there's maybe something fundamentally in the way that, you know, we've been doing this kind of venture GPLP model, you know, fixed term structures that are 10 plus 1 plus 1, all of that.

32:18I think maybe there's something different that needs to be looked at.

32:21John Thornhill:From what you're saying, it sounds like we're heading for a day of reckoning for quite a lot of these funds.

32:25Anu Adebajo:Well, I hope so, but I actually don't know. You know, I really thought in post 2021, they were. So if you think back to what happened in the kind of crazy times of COVID, lots of funds actually got started lots of people raised funds i was really worried at the time it seemed like any principal that had maybe been on like one or two half decent deals could claim attribution to those deals was being encouraged to go and start their own fund and actually you know were often able to raise that fund most of them many of them have not been able to go and raise fund too and so I felt that there was going to be a reckoning 2023 2024 that we would see you know many funds not be able to raise many kind of franchises stop and also not just new ones but even existing ones I had a few that idea mark that I was very sure would not be able to raise again and that would be the end of them but that's not happened at all there's been a couple who've who've their framings that they've chosen to not go out and raise again but actually i have seen many funds continue on you know kind of be zombied and go on to rebrand even like change the whole team um where actually i think they should have just stopped and we haven't seen that and i think we unfortunately do need to see it and it feels like it should be coming but i'm i'm not sure whether Europe can be that ruthless.

33:52Anu Adebajo:You know, I think we're not in that. I don't like to do the comparison to the US because I think we're different, but I think that's one area where I do compare, right? Where actually there's no consolation prize for non-performance in the US. You're up or you're out. Here, we kind of keep drip feeding a lot of these, you know, non-performing funds.

34:12John Thornhill:So we should go time on the zombie funds, you think?

34:14Anu Adebajo:I think so. I think it's healthy for the ecosystem. I think it's going to unlock a lot of things. It will unlock the LP capital. If the LP capital starts to see, OK, what ends up remaining are the good funds. I think that helps to just clear the path and un-muddy the waters.

34:32John Thornhill:You say that you don't like comparing Europe to the US. I do. So one of the striking features at the moment in the US is this concentration of VC money into a very small number of companies. So between them, OpenAI, Anthropic, XAI and Waymo have raised about 188 billion. And that's actually before the latest Anthropic fundraise. That accounts for about 65 % of all VC investment globally. and the bottom half of US startups by valuation attracted only 7 % of all investment. So as you're saying, the nature of the VC industry is changing enormously. Are we seeing the same trend in Europe, do you think?

35:11Anu Adebajo:We're seeing a little bit of that. Obviously, the numbers are different, but we are still seeing that. And I question, especially in the UK and Europe context, some of this I question is this kind of follower capital versus a reflection on, you know, kind of the true value, you know, kind of best. Best will remain to be seen. We'll see what happens in terms of, you know, kind of acquisitions, exits. Like that's the proof is in the exit. The proof is always in the exit. We can get really excited about large valuations. You know, I've seen several companies in my underlying portfolios who were unicorns and then, you know, kind of faded to nothing either through listing and kind of tanking there or, you know, kind of just not having an exit route.

36:03Anu Adebajo:So let's see. But yeah, similar trends. Absolutely. We are seeing that kind of concentration.

36:09John Thornhill:So you've got a lot of very bright students coming through your program. You've just described a lot of the big challenges facing the VC industry. what is a VC firm of the future going to look like do you think?

36:20Anu Adebajo:Yeah I am seeing a kind of bifurcation at the moment so you're going on one side with these large mega funds who are that's probably where lots of the established players are trying to go you know I think for many of them they have grown their kind of platform their team you know they're kind of offering to such an extent that to keep all of that going they need to go into that kind of mega fund territory you know they've got maybe several funds under their belts which have got varying performance and so again the large um the large fund fees paid to cover through some of that in lieu of kind of any significant carry that's on one side i'm not you know 100 i i i i i I know that we need capital in Europe that can invest in growth stage companies.

37:21Anu Adebajo:That is absolutely true. So, you know, to the extent that that's what some of those funds are doing, I completely understand that. But again, I think from an LP perspective, you've just got to understand some of the dynamics about kind of is this a fee grab versus, you know, are they actually going to be able to successfully deliver their strategy and get into companies that are going to actually deliver? On the other side, you've got solo GPs, emerging managers, small funds, kind of sub 10, 15 million. And I'm seeing a lot of those now. I'm seeing managers say, look, because of the fundraising environment, for many of them it was that, with the fundraising environment was so tricky i'm going to focus on this kind of smaller um fund size and you know really do something different here if you're a solo gp act almost more like an angel act almost more like a kind of additional co-founder for the founders you're investing in be much more high touch um be this kind of trusted uh trusted partner be really kind of on the ground and, you know, active to source these companies.

38:40Anu Adebajo:That's what I'm seeing on that side too. So I think that that's a really, really interesting model. Obviously, from a kind of just a pure mathematical standpoint, it makes it easier to return the funds. But again, from a mathematical standpoint, it makes it harder for you to cover your cost if you're a 10 million fund, you know, and you're charging 2 % fee. That's really tricky. I'm seeing that that's something that the kind of funds are struggling with. But yeah, I'm seeing that that's kind of the way things are going. So obviously the part that I'm interested in is that more emerging manager, you know, kind of maybe smaller fund.

39:16Anu Adebajo:It could, it might still, you know, if so, I'm very open to somebody making the kind of middle of the road, 50 million, you know, whatever, sub 100 million fund work. But I'm really seeing a lot of the innovation happening where investors are having to be kind of scrappy and do a lot with a little. And I was talking to a manager yesterday who was thinking about how they've almost deployed their first fund. They're raising another small fund to solo GP, but I've hired a community person and thinking about raising basically sponsorship for all of their kind of platform work. So then they don't have to use the money from the fund.

39:57Anu Adebajo:So this is the innovation that happens when you've got to be scrappy. And I think that's really interesting for an LP because you can say, actually, you're putting all of this into investing. But you're also thinking about how can I continue to add value? And this is a deep tech fund. It's also a very specific kind of community and network that can add value. So I like hearing about things like that.

40:17John Thornhill:And do your students prefer to go down the scrappy route or do they want to join a fee machine?

40:23Anu Adebajo:I will say that it's probably a mix, right? You know, I kind of appreciate the irony of kind of me saying that through my career, I've liked going to places that have a platform. So, of course, you know, everybody likes to be somewhere where there is a platform, where there's capital. And I think that's fine for those who want to do that. But also, you know, our kind of the Newton and Lama Global and there's differences in the way that venture is in. If you're in somewhere like Africa, venture is scrappy because it just is still very nascent as a as a as an asset class. Right. Compared to P, which is much more established and you have much more of these kind of bigger firms, the VC funds there are whatever size that they're still scrappy.

41:12Anu Adebajo:They don't have the kind of luxury of this kind of massive fee base over several fund cycles. So, you know, I think there is a mix. But for many of them, I think they just want to discover the next top companies, the next, you know, highest value, highest exit companies, which make a difference in the lives of the world. That's what they really want to do. They want to be part of discovering that, whatever route that they need to take to get there.

41:45John Thornhill:I'm going to be very interested to see all these brilliant new ideas coming out of the Venture program at Newton. Finally, we have a few quickfire questions. Imagine you no longer worked in Venture and all industries had Newton programs. Which one would you join?

42:01Anu Adebajo:Do you know what? I've always thought I'd make a good private detective.

42:06John Thornhill:That would be an interesting business model. What underappreciated skill should you look for when hiring? I think emotional intelligence. Do you want me to expand? Yes, I do. Okay. How common is that in the VC industry?

42:22Anu Adebajo:Exactly. You know, and I think that, so I've often seen dynamics where you have one GP maybe who is low on the EQ and then they balance it out with others who are a bit higher. I think I, well, I was going to say I resonate with those who have high EQ, but actually, again, some of my favourites are probably people who don't really have that. But again, they are self-aware and they surround themselves with those who aren't. You know, I think like venture is a people business ultimately, right? It's an investment business, but you're doing that via your connections with people. And how do you test for EQ?

43:04Anu Adebajo:you yeah that's it it's a tricky one you just have to spend you spend well you spend time with with people you talk to them you kind of get a sense of you know the more they talk the more they kind of reveal themselves but the referencing is like key you know that's always been the part for me that's been the most important um you know that's surfaced a lot and um i kind of recently have written an article i was talking about um the kind of importance of weaker links and looser networks and actually for me it's been just as important for investments I don't make because things have been surfaced through the referencing and and you know some of that has probably has been as a result of of a kind of lower EQ.

43:43John Thornhill:Finally you're a bit of a bookworm I believe what's the best book recommendation you can make to sifted listeners?

43:51Anu Adebajo:So I controversially do not really like non-fiction I think because of you know this being in this world when I'm reading I'm reading purely for pleasure um so the book that I love the most is called Chain Gang All Stars if you like Hunger Games but you like more realism with a bit of a kind of social justice twist it's can be a hard read but very very well written very um in some ways entertaining um so So yeah, I really recommend that.

44:23John Thornhill:Unrealistic Hunger Games, I've got to check that one. Anyway, we're out of time. Thank you so much for joining us on the show.

44:28Anu Adebajo:Thank you for having me.

44:30John Thornhill:We'll drop a link to the Newton Venture Programme as well as Sifted's daily newsletter in the episode description. We'll also put a link to my recent article on Reinventing VC. Do get in touch with your thoughts. As always, please rate, review and share the podcast. And this episode was produced by Maya Darampal Hornby.