20VC: GV's Tom Hulme on Why Investing in Foundation Models is like Investing in "Power Stations", The Conventional Wisdom in VC that is BS & Lessons from a 24x Angel Track Record, 255x on Robinhood and Making Billions on Uber

23:46There are a lot of companies that were waiting for VR to come to them That's market timing risk. In that case, you better have a kind of cockroach mode to be effective until the market comes and build the muscle. Dude, Daniel Dines was on the show, it spoke about being at 500K error on, often nine yet nine years. And not raised a penny, had he? No, but it was a fine business. But the beautiful thing about what he did, he hadn't raised a penny, he waited for the market to develop, and then it was an inflection point. He said, now I add fuel to this fire. If he'd thrown 10 million bucks in two years in when he was at 50K ARR, he'd be dead.

24:22Yeah, I think it would be a very different story. You know, you mentioned kind of those learnings then. It's often said it takes 20 million dollars to learn to be an ambassador. We can change the number whatever we want to change it to. Do we agree that it takes 20, 30 million dollars to learn to be a great venture invest? I mean, I'm going to push back on it being a dollar number. It's bananas. Like the 20 million is a PC. Like, well, 20 million is a pre -seed in 2020. This is, you've just got to remember how much this stuff changes. is actually what is the sort of learning cycle here? The learning cycle is number of deals and time to see how they do.

24:58And so for me, it looks more like five deals over five years to figure out actually if you're building the muscle and you're learning than it looks like an absolute quantum of cash. Five deals. The good news, I would say five deals is a good, I mean, it's not perfect. That's, hence me saying, I stay like 25. Still don't know if I'm any good at this job. But the interesting thing is you just have to have A number and you start to see patterns and I'd say five is the minimum. If your goal is to get into angel investing, one of the things that no one ever says is the amount you actually invest is almost irrelevant.

25:31If your job is to learn and to demonstrate you add value, then just write small 5K checks. I see so many people that never start angel investing because they think they have to invest 200K at a time. It's crazy if you believe you've got a learn you want to start early with small checks and prove You're valuable and then actually see if you're any good at it So I think the biggest mistake angels make is they think that they can vary their conviction level with track sites Oh, yeah, which is I really believe in this one so I'm putting a hundred K in here This one's a flyer and it's 10 and like just do 25 every time every time 25 love that point It's a similar point like build a portfolio take an amount of money that you can lose.

26:10And then actually, it's amazing to me how many I'm curious if you see it as you started recruiting investors. It's amazing how many potential investors, people that say that they really want to be an investor but they've never done an angel check. How can you really be serious about something if you haven't even been willing to do that? I'm going for it and which might be a kaboom moment, but founders investing as angels. How do we feel about it? Let me caveat this, Founders investing with side funds. Ah, okay, so there's two different lenses here. There's Founders as angels investing their own money, and there's Founders who then raise a $10 million fund on angel list and then invest other people's money through that.

26:48The former, I think, is actually great for the portfolio companies they invest in, because I think they're in our category of smart, smart. Like, they will be specialists at something, and the founder will be able to ask them for advice, and there's no better source of empathy as having been through something yourself. So that's good. Now, when you start talking about raising funds, that worries me a lot because building a company is ridiculously hard. There's only a handful of people that have ever managed to build multiple companies concurrently, and this idea of having a side fund is effectively building another company concurrently.

27:23I totally, I also think that when you raise money from people, it is an immense responsibility, and so when you raise another pool of money from another group of people, what are you saying about the first group of people that you raise? I agree. So let's talk about the transition to venture then. We've been in Angel, we have this, you know, your more modest, but it's a very, very good track. In one could determine that you're very good at Angel investing. So making the transition to venture, just talk to me about how you see the core pillars of venture we've discussed. Yeah, well, you and I have often talked about whether they're what they should look like.

27:53So my version is the three S's, but actually as I think about, I think you should know out before SS. So my three SS were sourcing deals, selecting them and supporting them. Those are the three jobs of a VC and actually the world's best VCs are pretty good at all of those and through their career they move less sourcing and actually selecting and then supporting as they've got a big portfolio. That's one of the interesting traps, adventures. You can just spend all your time supporting. I think it's really important to keep the muscle building. I think I read somewhere Alfred Lynn will meet 10 companies on a weekend just to keep the muscle going of sourcing and selecting.

28:31But those are the three buckets, the fourths, that I increasingly think is important, is actually selling salesmanship. Like great VCs are selling to LPs, they're selling to founders to take their money, and then increasingly they're also selling to exec hires to go into portfolio companies. It's a lot of selling, and I think it's more of a sort of people business that people give it credit for. I think it would be very difficult to be a VC and hate people. There's not... LAUGHTER There are quite a few. You'd be surprised. You know what's funny is that she... You mentioned it that actually maybe on the sourcing side over time, it's where people get a little bit weaker or wane.

29:10A lot of the more mature but amazing investors, like your Ketra boys have said on the show, it's a constant fight for relevance to me. Yeah. Like on the sourcing side, that is the one I worry about. It's how to agree. Which one do you think you're best at? It's a great question. I would say sourcing, I'm an enthusiast. I'm enthusiastic about pretty much everything. The great thing about it being an enthusiast is you could sit me with a founder that has pretty much any idea and I will engage and pay attention and I will care about what they're saying. That means that I can cast my net wide in opportunities.

29:42And then over time, I think I've been lucky enough to build a network of people around me that I trust that actually will refer in opportunities. So I think I have more of an edge in sourcing today, certainly than I did when I started, but similar to Keith, I am paranoid about that as well. Which one of you worst at? I would say I'm probably worst at supporting because I built companies, I have a lot of empathy and I want to roll my sleeves up and help. When a founder is hurting, I feel it. I mean, the best way I can describe venture capital, I've said this to you before, I think you looked at me like I was an idiot then.

30:23But the best way I can describe venture capital is it's like being a founder on antidepressants. You basically have all of the highs, just not as high, all of the lows, just not as low, but you are feeling the ups and downs all the time. And so with a portfolio of 20 companies, every day is a roller coaster. And so I hope that I'm effective at picking my battles in how I support a business and doing the right thing by them. I think Road of Boathe, from Sequoia, said something that I thought was smart. He said actually great board members are like shock absorbers. They kind of reduced the highs and they will cushion the blows and that founders know the negatives aren't as bad.

31:02But I wonder whether sometimes I almost care too much when it's coming to supporting the businesses. I actually think we've had a generation, especially in the last years of like tourist VCs who are just relatively apathetic and they kind of like the lifestyle. It's kind of fun going to the conferences It's kind of fun meeting great entrepreneurs, but I don't think they feel in the same way And I did you've run a business I've run business now with the media company raised money for funds I love the way you look at the lighting when you say you run a business Looking for salvation please god help but it's like I just see so many 30 year olds come out of Bane who are running 10 million dollar checks at large funds and I'm like, you have no fucking idea how hard it is to raise money to run a business.

31:47And it's right, it should be tough. Yeah. You said before luck favors the connected. Yeah, this is naturally light to this, Steve. Yeah, exactly, because of your network is just off the charts. I can see why. So I write a piece for wired and I think I called it serendipity favors the connected. And the basic idea is I think it's really easy for other people to look at great investors, as great founders and say, oh, they're just the right place, right time, or they've just been lucky. Actually, those people usually have an incredible network around them. And it's like Metcalfs, Lord, the value of a network.

32:19It increases to the square of the number of nodes. Networks are incredibly valuable, deep, sort of effective networks, even more so. And I think so much good stuff comes from them. I would say so much of my career has come because I've been lucky enough to be in a network of amazing people. And then I stay kind of optimistic and excited and willing to grab any opportunity in front of me. Do you think Vansha is a game of access? Without doubt it is. I think it would be really unfair to say that actually everyone has even access. I think it's to some extent a meritocracy because when you get into the industry you have a shot on goal and you can do something spectacular.

32:58It's one of those rare places the American dream kind of can still happen but I completely recognize that getting into the industry is really tough and there's people that would not even have heard adventure capital let alone know how to find their way into it. You mentioned being enthusiastic about everything and like that optimistic mind you said before to me surround yourself with optimists and the importance of pre -mortems. Most VCs I'd say are optimists do you reckon? Yeah I think you have to be optimistic. You have to be. Yeah otherwise you never actually invested. Okay so if you're surrounded by optimists and you create that culture and I think we do a good job of creating that at GV where anyone can bring forward an idea.

33:37We explore it. You have to also create space to look at the downside and Daniel Kahneman, the behavioral economist, passed away I think just three or four weeks ago, incredibly interesting guy, right, thinking fast and slow. He talked about a process of having pre -mortems when you're making a decision. You think through how the decision might be wrong and you give people around you permission to actually say why something might be a bad idea. And I I think the best VC firms actually create this space. So have optimists, have people default former colleague who passed away Tyson had a beautiful expression for this he says, right press the belief button.

34:15Tell me how this is going to be amazing, but then the flip side is occasionally you have to also describe actually why something might go wrong partly so you can inoculate yourself against it and evaluate whether something's a good idea. I think we always underestimate the size of our winners. That's one thing I always kind of worry about all look at, which is when you read BASIMAS kind of investment mamos, which they put on their website, they've said to me it would be a $500 million company. We consistently underestimate size of all winners. Is that been true for you? Yeah, I think so. And I think it's because we have a sort of bias that whenever we're looking at businesses, we see them on an S curve.

34:53It's very difficult to imagine new S curves, but the best businesses will continuously put themselves on new S -curves and create new opportunities. So I've yet to see people that do an amazing job of actually talking through what three, four, five S -curves might look like for a business. So do you outcome scenario plan when you do deals? Because you see a lot of people say, well, I just, I don't think it can be big enough, I don't think the market's got enough depth. Do you do outcome scenario plans and how do you think about that given the challenge of seeing the next aspect of. So we do and the way we frame it is we ask actually what is the kind of option value in this business.

35:31Great founders understand the value of options. Like an example will be most of the best founders I've ever worked with have collected data without knowing really what it might be used for but they've instinctively known there's option value in it. They know that it might create some value and so we try and serve a scenario plan by saying okay this is the plan do we have confidence in it and then what's the upside? If this goes right, what opportunities might it unlock? And then obviously we reframe and say, okay, what are the risks there in pre -mortem how this might go wrong? And then you get a kind of balance view of what all the outcomes might be.

36:06But then you and I have talked before. I don't understand in our industry how anyone can have complete conviction on anything. That makes no sense to me. I studied physics at university, we would go through a proof and I still didn't have complete conviction that I got it right. And then now we're in a venture capital industry and we see investments and we space to have complete conviction that it's going to work. I can describe a bull in a bear case for every one of my portfolios. Do you not think we're just selling to our customers though which is the founders? Because we don't want to say, well, I mean, I believe to an extent.

36:37Yeah, that doesn't worry me. I think the best relationships you have with founders are more honest with that. And you say, these are the things that I would watch out for. or this is how I see the sort of balance of reward and risk. I think one of the challenges is also easy just to sell to your partnerships so you don't have those honest conversations. In terms of the outcomes and I were planning, you know, I recently did a deal and everyone was like, no, I think it's gonna cap out of a billion or two billion. I always find that kind of like SpaceX. But I always think it's kind of faster thinking because it's like, I think the difference between a two billion or ten billion dollar business is a fucking great exact team and founder.

37:12Yeah, that's interesting. I mean, not always. I mean, if you look at the market opportunity, it takes usually a long time to build a $10 billion business So you need the market opportunity to persist You need competitive threats not to come in and you need it to be big enough Those three things are not always true But a truly fucking great found with a great great team around them will have a second act if the first is not big enough They'll parlay it into a product suite a poll they add into a new platform play, if they're really great, the insertion point which you might be writing and identifying as a 1 -2 billion old business will capitalize into a 10 billion.

37:47Yeah, I agree. I mean, there's option value in intellect, brilliant team. I completely agree with that. And if they're well -resourced, because they've already got to a 1 -2 billion dollar business, it's absolutely possible. But oh my gosh, if you look at the sort of life and the probability that businesses get to that point, it's sub 1 % of all of the companies that start. What I'm so worried about right now is that you've got IPO windows pretty much shut. Everyone said, do I be H224 when they're open? It's not going to be really that. Now kind of 2025, Sashi still doesn't look like it's going to be open for H1 there and M &A's more shut than ever before.

38:24My question is, we're seeing P come in a little bit more actually. It's the liquidity provider and the wake of those two being out. Are you as concerned as I'm about the lack of liquidity in the ecosystem with this changing environment? I mean, look, it's a problem. We need a multiplier effect. And I don't think it's just VCs, because they need to raise more money. I think more importantly, the great thing about significant exits is founders will go on and do something else. And then for every sort of large unicorn that succeeds, it spills out an amazing number of entrepreneurs that are able to swing for the fence because they've got some cash in their bank and they can go for it.

39:00You and I have talked before, I think one of the best groups of founders are those that have come out of the rocket ship companies because actually they kind of instinctively know they need to aim at big opportunities and they know how to run a fast growth business. Yeah, we're going to get to that because I think it's a really important one but I do just want to stay on the kind of outcome scenario planning because it's such a big part of venture and it's always predicated around that oh we need a fund returner. That's why we do it. Do you agree about the importance of your, you have to have fund returners that see anything that matters and how do you think about that?

39:31Yeah, no, I don't agree with it. I think a lot of VC strategies and lagging indicator of what did work in the past and the test or the experiment that worked very well in the past is funds with 25 portfolio companies, power law of returns and one or two return the whole fund and then everything else drives decent return an IRA for the LPs. that has absolutely worked, but just because that has worked doesn't mean other approaches can't. And I think we see from different PE models, we even see from debt models, there's other ways to actually be very successful at kind of growth stage. I would not want to say that I would only structure a portfolio that can deliver or return, make investments that could return the whole fund.

40:13It doesn't make sense to me. The important thing is have a strategy and stick to it. You made this point in angel investing is super important. Have your strategy and stick to it. Don't fall in love with one company, throw your strategy out of the window and then dump the whole fund into it. Incredibly dangerous. I saw that the other day while I was like, I put 250 in. I'm like, what are you doing the others? Twenty for hi? I'm like, oh, hi, wrist. Honestly, it may work. How do you think about the never -sale your winners? Our approach at GV is primarily be founder first and we can take a very long time.

40:46We have $10 billion under management. Our forbid does not put us under time pressure. we're less worried about IRR than we are absolute returns and so we focus on kind of generational companies Actually our dream scenario is to hold for a long time a decade two decades If you really want to build fantastic generational companies. I think it makes sense But I always do advise founders do advise early investors if they get the opportunity to take some capsule off the table I think it makes sense. I completely agree and so Johnny took 200 million off Yeah. By the way, I actually would, I was kind of bold to do this, but I think he's unfairly demonised too much and actually it was capital which pushed him to do it and he was absolutely within his right to do it.

41:35I totally agree. I mean, look, you look back, I remember you and I walking at the time and the conversation I remember us having, does Hopin had product market fit or product COVID fit? He clearly had product COVID fit. No one was excited to do events online. They were forced to do events online. I remember doing sort of family quizzes On a Sunday night over zoom the most dystopian thing I can possibly imagine now We were all forced to do that COVID forces. Yeah, that's called marriage top That's not it's not fucking COVID You don't have to do marriage over zoom Imagine spent time with the same room quiz on the Sunday.

42:12Yeah, on zoom correct everyone was doing it It was terrible. Correct, I agree. COVID. I've got repressed memories in Rome. You probably have as well, but you were doing it. You just can't remember. Do you want to get a flashback? I don't want a fucking palaton. It's going to be like PTSD. You're going to get flashbacks in months time and you'll know what I was talking about. It's depressing. I would be depressed at that. Yeah. But going back to your point, I understand why he probably recognized COVID, product COVID fit, took money off the table. They're investors that in order to get into the deal, enabled him to do that.

42:45That was one of their competitive edges is they freed up the founder to take a lot of cash off. I think one of the interesting questions we should all ask is how are the other people in these businesses treated? I don't know anything about that business so I don't have a point of view but I do see a lot of cases where an individual will do incredibly well and then others in the team don't and that sits uncomfortably with me. That was a reflection of supply side of cash pushing a founder to take money because they wanted in on the deal. Crazy environments, it has not changed. Like the same dynamics are happening today, which is what worries me so much.

43:20I'm seeing a thousand X -Aros on Gen AI companies, I'm seeing the same irresponsible investor behaviour. Have we looked at? Maybe not. I hope that we're not sort of participating in that frenzy. But the market's a tale of two cities. It's like anything that's generative AI looks like 2019, 2020, ZERP. Everything else is a struggle. My own belief is that actually Gen AI is not going to drive enough value in growth businesses that it can justify that investment. Just unpack that for me a little bit. Yeah, okay. So there's a few things in it. My first observation would be the technology is commoditising incredibly quickly, which worries me a lot.

44:02So I think I likened when we taught the other day it to investing a few hundred million into a power station. That's the training time and then you can turn it on and you've got inference coming out the side that's your power. Now the problem is this is an industry where it's going to take you a few months to build your power station and everyone else is building similar power stations next door with relatively lit edge. They're still they're all using the same GPUs, they're marginal improvements but you've basically got to depreciate that asset in these foundation models over a few months. I just can't see it happening and then now we've got meta coming into the market, I mean Zuckerberg's done an amazing job, who have 350 ,000 H100s by the end of this year, that is 14 % of the world's H100s and he's going to open source the result.

44:49Lama 3, released last week, is already incredible. He's pledged that he's going to invest another hundred billion dollars or so. He's already started to train Lama 4, that team and their world class. They're formidable competitors. So to invest now in an asset that you think you're going to have to depreciate, you know, over the space of weeks or months is very difficult to do. Now we have made investments in GNI, but more in infrastructure, more in the application layer, more in the sort of picks and shovels to support, but we've not thus far invested in foundation models. Is there money to be made in the foundation models?

45:24When you look at the quantum of capital that is required to go in, there's obviously rumors of Mr. Olesnew funding around, you see the amount of cash that's gone into OpenAO, and And everyone else, the dilution in Harron within that is just going to be monstrous. Is there money to be made investing in foundation models do you think? They definitely has been because if you were to invest in open AI in the $10 billion round, there's liquidity in the market. You could sell that for a 5x now and you could have done that over a year. So if you've got a momentum strategy and you believe that your investing in is going to be at the front of the pack and continue to be, I suspect there's money to be made.

45:58But if you're investing in fundamentals, it's very difficult to invest in something that actually is going to commoditise that quickly. In fact, I'd say the best teacher I ever had was Clay Christensen, just unbelievably smart human being. He wrote the Innovator solution, we all know that, and he will talk about sustainable, or he did talk about sustaining and disruptive innovations. I think one of the frustrations with Gen AI, as the technology is commoditising so quickly, is it's a sustaining innovation. It's actually going to get sprinkled across all businesses to lower costs in call centers or to improve the product in personalization.

46:31It's not going to have a creative destruction effect like the internet did on many industries. And so as an investor that's frustrating because you want to invest in stuff that persists and completely rebuilds industries from scratch. But I can't really see it. I mean, we've found some targets and we've made quite a few investments. but it's not for me the sort of radical sort of shift or opportunity from an investment perspective that we perhaps saw with the internet. If we just sell financial models before we move to kind of application layer, like what do you think the end -state then is for models?

47:05You know, I was with a friend who will remain nameless because he hates being public named anywhere and he mentioned that bluntly cloud providers will be the cash cow business and they will buy your Googles, your Amazon's and your Microsoft's basically you buy the foundation model companies at Qualhire and Al -Alt inflection and then have cash cow businesses in the cloud providers and then give away the foundation models for free. Yeah, that's to date with my thesis as well. It will look more like a utility and the cloud providers rationally are saying we want to provide that utility on our compute and they're going to charge on that basis and they already are whether you're on AWS, GCP anywhere else.

47:44I think inflection is interesting. I feel like that deal was almost misreported. I do not believe that Microsoft were buying the PI model. I think Microsoft, the GPU, constrained and were buying a cluster of 12 ,000 H100s. So it was incredibly smart move by Nadella in order just to lock in a cluster for training. It was just a convenient story for the press to say, oh, they're going to give access to the model. But that model was obsolete months ago. Absolutely no one is queuing to use it now.

48:20I love how direct you are. I have no unique insights. No one is queuing for that model. No, I agree with you. Going back to your point on the power stations and the speed of how quickly something becomes outdated, I completely agree. Agreed. Do you think there's one or two that stand true as standalone businesses outside of the cloud providers? Yeah. I mean, I don't know the answer to that, but I would say, would you be a buy of OpenAI in $90 billion? I would struggle to make that investment today. And it's not because I don't respect the team, my biggest concern at the moment. But if I observe the emergence of what Meta's doing, if I look at the arms race of what the cloud providers are investing in and the sort of Gemini, et cetera, any advantage is pretty ephemeral.

49:06And the consumer facing product that doesn't that drives, I don't know, is it 50 % of the revenue, something like that is not sticky. So to invest in a foundation model, what would I want to be true? I would want to believe that they had some unique approach that made them more defensible. So an obvious one is memory. Like actually none of these have cracked memory yet, but if you have a personal system, a chat GB2 equivalent, and it remembers so that it can actually be applied probabilities as to what you want going forward, then it's interesting. If it's unique in its ability to take agency, then it might be interesting.

49:44There's other orthogonal approaches that might be interesting. But if we're just talking about a foundation model where you're going to throw huge amounts of data, hundreds of millions of dollars of compute at H100s like everyone else, it's very difficult to see a return on these investments. So if we move on to the application layer, how do you determine in between sustainable value generation versus I think we see with quite a lot, like flashing the pound faster revenue scaling but not sustainable value generation opportunities. Yeah, my colleague, we're doing London invested in Sympheasier which I think is an interesting business.

50:18So that is a business that creates synthetic video. They do it into learning and development environments and there wasn't really an incumbent there. So they've concentrated on building a whole go -to market business. To me is what's important in the application layer, you better have something proprietary in terms of data or distribution. In their case, they're just building an end -to -end enterprise -ready solution with security and everything that enables you to spin up the videos. So those are the sorts of things that we're looking for. I like the framework that I think Sam Outman on your pod said, which is the easiest way to look at applications in Gen AI or to cut them is to say to yourself, Are they happy or devastated if the model is improved by 100x?

51:02I've got to look for businesses that are happy they're going to improve by 100x. Otherwise, it's just ephemeral in the same way as I think the foundation models are ephemeral. What do you not think people are asking enough when investing in AI today? Everyone is running to invest so fast. And it's so hard because all LPs are saying, what's your AI in your portfolio? And it's kind of tail -wacking dog in some respects. Yeah, I think the question they're not asking enough is whether these people have experience or the founders have experience of commercialising businesses, iterating fast and creating value.

51:36I think a lot of these researchers are unbelievably smart human beings, but they've often been in an environment which gives us confidence they're smart, whether it be deep mind, whether it be meta. actually the idea that they can all go out and create highly profitable fast moving businesses seems ridiculous and I think the question is not is only ever asked about how technically strong they are but if you believe that this is a fast moving industry that commoditises fast you better be able to run fast. What percent of dollars going to AI state will go to zero? So, foundation models 90%, application layer 70 % and in the incumbents, the value going into the incumbents only 20%.

52:20If you look at the proportion of the Fortune 500 that are using co -pilot, I think it's 60 or 70%, I heard last week. It's an extraordinary amount, that is a good investment, that is improving productivity, but that has all the mahogany marks of the sustaining innovation. So these applications can make an unbelievable difference. The challenge for you and me in our job is actually a lot of the values going to the incumbents. The big challenge I think is just that you've never seen incumbents with the strength that we have today. Everyone's like, well, there's always incumbents, there's always incumbents.

52:51Microsoft is throwing off 350 million in cash a day. It's a fucking insane amount. Amz and I gave their results last night. They would just disgracefully brilliant. Like just so. Totally agree. And I find that really challenging to consider how it changes oral. Yeah, I agree. The flip side from Google Ventures. One of the fascinating things about this, like if you look at Microsoft, if you believe it's a sustaining innovation, the tech is commoditizing, the value migrates to whoever's got data and distribution, and you say what's particularly well suited to an LLM type approach, its law, Microsoft is quite well placed, they've got word that's in the workflow, It's coding, they're well placed, they've got Git Hub, it's in everyone's workflow.

53:36It's probably in healthcare, they've got EPIC, in sort of patient record, recording, etc. They've done a phenomenal job of sewing the seeds for distribution correct, and all these vertical providers were like, but we're a little bit better. At 5 % better on UI, a DOS button no pass nips. Correct. That, you've never used that expression before. I feel like I've just walked on to set a black adder. It's one of my favorites. It is fantastic. We should have had Sunday lunch. Yeah, yeah. You can take it home, I'll give that one for free. No, listen, I completely agree with you there. You said before about FOMO insurps that then led to Foles.

54:16You and I were talking about fear at the time, and I think fear is a primary driver that actually really wrecks industry returns, VC returns. And I think it goes through waves because it's kind of heard thing fear. The kind of zirp fear was pho -mo, fear of missing out and people were heat seeking into deals not doing their work They Were investing in things just assuming it would be up and to the right and if you're a momentum investor and you can get out That is a strategy. It's just one that I wouldn't be comfortable about Then I think the pendulum is swung too far the other way and we have now have this kind of falling knife problem Fear of looking stupid and so people are not investing because they were at the market keeps going down or there's going to be a down -round afterwards.

55:01And so that's kind of paralyzed the industry, but I think fear has this effect that actually exaggerates the worst behaviors that influence decision -making. So I hope that we can sort of, I hope, in our process, that GB, we sort of step back from that. We move aside the fear and say, okay, in this moment is this a good investment to make. During COVID, a deal that I'm really proud of that we didn't really talk about is we invested a hundred million bucks into Stripe in 2020. We extended the series G round, but I think that was a moment where actually there was a lot of fear of looking stupid because of COVID there was a lot of fear in the industry and we were able to kind of put that aside and say this is a great business We invested in 2017 we've seen what they can do We believe it will continue growing and in the long run generational company Absolutely, so that was an example where I think we did a pretty good job.

55:54What was the price that I think it was 32 billion dollars series G. I struggle with how you underwrite that one. If you're thinking about like I need to do a three to five X net on that. Dude, your hardstraction of five to seven year period. Well firstly, I don't think we need to look five to seven year period, Bizarre LP, you'll take a longer view. Now secondly, that business is like an extraordinary mutual fund on technology. You invest early and it grows because they sort of develop a first, do a phenomenal job of getting early and growing with the next generation of incumbents. I've seen them do that repeatedly and their execution's been brilliant.

56:29Now they had huge amounts of capital thrown at them, they had to actually reduce the op -x at time, they got more thoughtful about that. But do I believe that Stripe is going to be a hugely bigger business in 10 years than it is today? Absolutely. Okay. You don't. That's a bit. 10 years time. Well, I'm back and we'll talk about this. pretty good business. Great business. A hundred billion dollar business, seven to ten years. And if that is the case, but this is my point, if that is the case, and we might, you might add it to that. But if that is the case in seven to ten years, I'm great. Well done.

57:08That's a just a three X. Mate, if you have no more dilution, well, the opportunity cost of that cash is very real. And she probably could have got more than a three somewhere else on that cash. You could have got a two points that is on the S &P. that is often true, but I do believe there are sort of outcomes that are better than that. I love hanging out with you optimist. Maybe I'm not an optimist. It's a term that you are an optimist. I am an optimist, you're right. There are a couple of things I just want to talk about on like building companies and from the founder perspective, we often hear the hailed, it's great to have naivety as a founder.

57:41Do you love the outsider to a market who's kind of naively optimistic, or do you like insider to a market who knows the mechanics well. That is a great question and this is going to be a frustrating answer to someone that probably wants to have a sort of sound bite from it but it depends. And actually I've got excited about both before so I give you an extreme example. Then we'll cut out the it depends. Yeah, perfect. That's a great solution. Fine. So I'll give you extreme examples of both. So we invested in Lemonade, series A, wonderful founders, one shy, a done -fiver, product and design guy, Daniel Lawyer, a done hardware, and they were going into insurance.

58:23Combined insurance experience between those two, zero. What was their unfair advantage? They understood, like through Daniel's legal background, he knew how to manage a business, they understood the tech side, and they would have an incredible clock speed. They were releasing on a daily basis, whereas that industry every month. So their unfair advantage was speed and they recruited in depth. They brought in amazing people like Tim Hood, actually deep industry insurance experience. So in that case, I was happy to invest in the naive approach. Other end of the spectrum, we invested in currency cloud, Mike Lavon, the founder.

58:58I think had 30 years experience in FinTech. He was so well placed to understand actually what those buyers wanted and ultimately sold the business to Visa for a billion $1, but he was not the ultimate insider, but he had real depth. I am absolutely comfortable with both of those approaches, but my question is for the industry, how much inside knowledge do you need, and if you don't have it, can you bring it in? I think the danger is, often founders don't have the humility, so they're not willing to learn, and they have to learn everything from scratch. That's madness. If you have the naive approach, then you better bring in specialists that can help you learn fast.

59:36Is speed of execution the single most important thing in moving from zero to one? Yes, and I would say it's clock speed. I think every start -up is a series of unanswered questions, and the best founders choose the order in which they answer the questions and they answer them extremely efficiently, and that is basically speed of execution. One of the biggest things that I tell founders is perfection is the enemy of progress. I see founders all the time that just want the perfect solution and they'll never do anything They'll never release anything the best founders are pragmatists. They are running the scientific method I want to answer this question.

1:00:14I'm going to answer it this efficiently and then I'm moving on to the next You agree you're always embarrassed by your V1 with hindsight. Yes At the time no the question is is the V1 good enough for you to get meaning for me feedback? I mean I've seen V1's that don't even describe what the product is There was a period of time, you'll remember this, when people were getting sign -ups for their product without describing what their product did and they were called it product market fit. Makes no sense. The one should be the minimum amount to get good feedback about whether actually you have something like customers value.

1:00:47You said good feedback. You said before to me that free kills feedback. So this is when I see, I thought it was found as about a lot. I see a lot of businesses and it's slightly different in consumer but they will not charge their early adopters, they won't charge their design partners, they won't charge their ICPs and the problem with that is you don't know if it's valued and generally people don't value what they don't pay for so you get bad feedback and in the early stages of a start up you have to get good feedback from the market which means fast and accurate and that customer set has to be represented of where you want to go.

1:01:22It's funny, I always remember Ryan and Flatisport said to me, it's not speed, it's velocity, which is speed in a given direction. I love that. Yeah. I totally agree with that. But I do think you need activity to get enough data to know the direction. One thing that I often see is people just kind of sit in a room and think for too long. 100 % agree. I had never thought about the velocity argument, I think it's exactly right, the direction now. I'm just a book of like, because loads from other people. I don't love that. In that case, you're actually a team I'm proud of. Yeah, yeah, yeah, I'm unlike most of you see.

1:01:51That's true. So I love that point. I think if you like pointing the organization effort at a specific problem is incredibly important and just running for the sake of it doesn't matter. What I will say, which is just reframing of what you said, is just starting to do something creates data and information. Like actually picking up the phone, launching a product, getting out the door in order to learn, creates information and so you better have a great reason for not doing it. So you need that data and you need some form of clock speed. It's very difficult when it's on people because it's a clock speed that can be challenging to reverse back.

1:02:28And we've spoken before about culture debt. How do you think about that in the early stages of company building? I worry about culture debt a lot. You and I have talked about for a long time, technical debt was the thing we were all scared of. I actually think technical debt is almost less of an issue over time, particularly with a generative AI, which is actually incredibly forgiving of how you integrate it. You don't have to have perfect systems like you perhaps used to or certainly not as monolithic. The thing with cultural debt is it's more insidious. You can have in a company sort of culture that evolves that makes it slow moving or negative or cynical, perhaps too top -heavy or untrusting.

1:03:07And then you are a Banshee Capital Fund. I'll die. In many cases, you were a surgery, I was like, oh, it's child -heavy. Which is probably why most VCs only go into the office on Monday for the part of meeting. But everyone else is an impuss and thing. No, cultural debt is a real thing. And I think it's a big problem. After the period we've been in where actually companies got bloated, they spent more than they should. There was less accountability. And it's very difficult to kind of retrospectively put that back in. I think it's one of the reasons you've seen the best founders are quite aggressive in cuts.

1:03:42They never do shallow cuts too often. They see that burning platform as a way to actually shift the culture and maybe move this cultural debt to the side. A lot of cultural debt I think happened especially in COVID when people were fully remote. Never actually met their teammates at all. What are your biggest observations when you compare remote versus in person and the cultures that you have in the portfolio? I'd first carve out companies that are sort of natively remote. So Dave Manichello, who you know, led our investment in GitLab at the Series A for normal investment, never had an office.

1:04:15They also sit, the founder is incredibly thoughtful. He's very careful that all meetings are recorded asynchronously. Everyone can contribute to the board meeting document. They get the whole team together. It's not a great cost -saving thing. It just works for them. So look, there's native remote businesses that work very well. Then there's everyone else that was sort of forced to be native during COVID and I think executed badly and generally went through this arc where they said oh this is really good everyone can work at home everyone works really efficiently then over time everyone realized actually we're not innovative the junior people on the team are not learning people are getting frustrated you and I went for walks during that period and I remember us joking that we just became very efficient at our jobs by doing 30 Zoom calls a day but actually we'd become I'm efficient at jobs by taking all the fun bits out.

1:05:05Yeah, and losing the creativity, losing the morale, totally agree. And I think actually we've kind of reverted now, especially in the States thing, we're back now just to in person in the UK. But in the US, it's actually the worst, I think, which is hybrid, which mostly lacks in criminality amongst teams, which is like, oh, we're in two days a week, but they generally don't have cohesion around which two days. Yeah, that's, it's so interesting. They can't afford this. That's a classic false economy where people say, we can have a small office and then we can have a third of the team in at any one time, much better to have the full office and have all of the team in the third of the time.

1:05:36Or a GitLab. You've said that you're suspicious of ambitious young people who insist on fully remote. Why is that? So again, I think people early in their career being in the office is a ridiculously important learning opportunity. You learn the interpersonal stuff. You can shadow people in a way that's pretty hard on a Zoom call. You can speak to colleagues in different areas about the sort of business and the opportunity around the cliche water cooler. All of that stuff disappears and so I wonder why on earth would someone not want to do that? Now sometimes it will be because of costs and you have to understand and respect that.

1:06:13But the times when it's actually because they think they'll be more effective by just working from their bedroom, don't understand it. I always say kind of about the value in the kind of chasm or the cracks which is at the end of the sales meeting. You come out with your boss and he goes, you know what? We should have structured it this way. We could have been it this way. That's yeah If you're in person feedback is zero friction. Did I remember with Mark Evans when I was an intern Tim 12 years ago I go to board meetings with him and then he'd always go how do you think that went after the cool on the way But I after on the way back in the taxi home or in the tube home The refriction fee you never got an end cool done if we were in turns Well, I would never have got that and he's a wise man So kind of Yoda -esque a few seconds of Mark Evans wisdom is worth a lot totally.

1:06:57Okay, we're gonna do a quick Fire how does that sound? Yeah sounds great first one. What is the best board you sit on and why that one? This is a great question. I think I'd say nothing incredible business hardware company founded by cut by car pay I love that board. It's truly global. We have insight from India China design in Sweden, the designer marketing team in London and it's all co -lest around that table. And they work together with a real focus on creating value for the end customer and it's a global customer. I think they'll do $600 million revenue this year. They've sold three million devices so far.

1:07:37There's hardly any phone company that's done that and you've seen the press in the last few days. There are a lot of hardware companies that are not selling products, they're selling promises. This is a climate change needs AI's PR team. Oh yeah, this is something you and I joke about. This, I still believe this, like look, climate change, existential risk, absolutely. AGI, existential risk, yes, but I think much lower probability. The interesting thing about that, which is kind of fascinating is one of them gets all of the mind share. The other gets very little, so they're ad joke, which I still agree, I still believe is, actually the doomas in AGI should teach a lot to the climate change.

1:08:18You mentioned kind of the doomas of AGI versus those who will think it will be much further out. What are the observations on those and the capital requirement needs that they have? Ah yeah, it's fascinating to me and I've never seen anyone share this but I think there is a correlation between how aggressively people predict AGI is coming and how much capital they need to raise. So you've got a Modi from Anthropic, you've got Alpman, OpenAI, Musk, XAI, all of these guys are saying that it's just around the corner and this industry is moving incredibly quickly. Then in contrast, you've got Zuckerberg at Metta, you've got Demis Asabis at Deep Mind and they're a lot more cautious.

1:09:00They don't need to raise money. And so I wonder, my general bias would be to look to the people that don't have to raise money for their point of view, assuming they're all equally smart. What's the most memorable first founder meeting you've had? Oh my gosh, I've had a few, but I had one for GV in California where the founder brought his life coach who sat at the room with a mull skin. That one we will skip over, but I would say the most people didn't do the deal. We didn't do the deal. The company was subsequently in the headlines a lot for the wrong reasons. I would say the most memorable one was during COVID we invested in year -a -link.

1:09:36Incredible founders, Elon, Max, amazing. And they shared with us how they were going to do the human machine interface. They'd been testing on primates. I have never had so many mixed emotions as in a pitch, but I left that pitch thinking these people have the potential to change the world. Do you meet Elon as part of that? Yeah. Was it a good pitch? It was a brilliant pitch in that case. We'd been lucky enough to see him at events when they've unveiled their progress. I went to one actually in California where there were a series of phenomenally talented PhDs and at this point Elon was running three or four companies, I can't remember which, and he was able to go toe to toe with all of those PhDs technically on that business.

1:10:21His throughput and horsepower in understanding the business from first principles completely blew my mind. Are you a super bull on in on? I have to say I am hard to look at anyone that has shaped the world in my lifetime more. What have you changed your mind on most in the last 12 months? That's a great question. I would say the the potential of robotics. I thought of robotics as almost uninvestable for most of my time at GV. We have made investment some of the been a tough but they felt very narrow and they've been incredibly specialized. I think the thing that's changed for me recently is actually in the same way as AI historically was specialized and now is generalizable.

1:11:05I wonder whether robots are more generalizable. And so the combination of computer vision, large language models, multimodal, cheaper, componentry, etc. We might see and I think a lot of smart money has figured this out way before me. We might see the potential in robotics. What do you believe that very few around you agree with you on? I'm going to say working with the military is important and it's going to become more important over the next 20 years. Do you think the military are ready to work with us in structure, in mindset, in process? No, but I think there are parts of the military that can and just because it's difficult doesn't mean we should do it.

1:11:44I've been a reservist for a long time as you know. I think that's important work and I think it's going to become more important. The geopolitical threats are real when it's surrounding us and for my kids' generation that worries me more than anything else. Do you think we see kind of national leaders on the innovation of military spend inside? Where you have Andrew or when you are US, you have Helsing, when Europe, and you'll have this kind of tribalism around those winners? Yeah, I mean I think naturally there is a sort of winner takes all dynamic naturally because procurement's so tough. Yeah.

1:12:14because actually you do need to have all the skills in house. That's not something you can just outsource to a distributed team and be particularly agile. So there's some structural stuff that means that I think we will get very big companies. I think those companies are doing incredibly important work. And so I do think a lot of the value will kind of aggregate to them. You can call yourself up the night before your wife has her first. What do you say to yourself now? No, all that you know? I think the biggest change of opinion I've had is before having kids, I think I would have told you it was 75 % nurture and 25 % nature.

1:12:52Since having kids you realise that actually it's predominantly nature. People pop out with personalities and our job is just put them in a position where they can be successful, protect them, support them. And actually I think it's a stretch but if I had to translate that to our job I think it's a good reminder that you can't change founders. But you can help them be better, you can give advice, etc. But this idea that you can just fundamentally change founders, I think is completely wrong. Tell me about GV's best wins. In terms of multiple, it was seed investment in Robin Hood, which was 277X.

1:13:32What happened to the right? I think $250 ,000. I think... Did you sell? Yes. biggest dollar return was Uber which we put $330 million in return billions and we've had some really fantastic ones like Krishna invested in Flatiron at the Series B that was incredible Dave did GitLab that's now a public company that's been brilliant so I have to say one of the lovely things is the returns of really beautifully sort of distributed around the team that is nice final one was the most recent publicly announced investment and why did you see Asden get so excited. That's an easy one. Definitely not announced.

1:14:11We, as you know, did the series A of Sneak. 2016, Guy Pajani's an incredible founder, worked with him for years. We have just invested in his stealth startup a few weeks ago. To be able to sort of back him again is a real privilege. I'm really excited. Dude, I'm so thrilled we've got a chance to do this. Thank you so much for putting up with me and this has been so much fun.

1:14:44I mean what can I say he's one of my best friends he's one of the kindest most generous people in this business I absolutely love doing that show if you want to watch the full episode you can watch it on YouTube by searching for two zero VC that's 20 VC on YouTube but before we leave you today I want to talk about Kooley the global law firm built around startups and venture capital. Since forming the first venture fund in Silicon Valley, Coole has formed more venture capital funds than any other law firm in the world, with 60 plus years working with VCs. They help VCs form and manage funds, make investments, and handle the myriad issues that arise through a fund's lifetime.

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1:17:17Now, stay tuned for an incredible 20 -growth episode with one of the Masters of Modern Growth Matt Lerner on the show on Friday.