20VC: How to Fix the UK Tech Ecosystem | Why We Need to Flood the UK with Venture Capital | What the UK Can Learn From Sequoia, Stripe and Norway | Why Now is the Time to be Bullish on China & Lessons from Jensen Huang with Tom Hulme & Stan Boland

24:52I think it's quite hard for Europe to sort of build in the middle of the stack. So I think AI application companies that are solving a particular problem, particularly if there's a sort of defensive mode that exists in Europe, but obviously a good place to sort of start. And then I think at the bottom of the stack, I think something that's attached to the metal, so semiconductors that are solving a particular problem happen to be somewhere where we have the expertise to do that and it happens to be a B2B where we get paid for the value of the architecture that we put down and the utility it delivers.

25:25It's easier to think top and bottom of the stack as the places that we can build those companies actually. So it's not necessarily where we're focused on, but it is kind of where we should be focused. Whereas I think if you've done this on middleware layer or some tools layer, I think it's a little bit easier to imagine doing that in the States, I think they're doing that here. I think the interesting thing with Stan's argument, I really agree with it. I like the idea of focus and specialization. One of the things that concerns me is just this idea that we can be expert at everything. Instead, I think we have to say actually let's have understand our unfair advantages.

25:58If, for example, and I agree with it, the bottom of the stack, the infrastructure layer is somewhere we can be world -class. We've certainly got the technical talent. Then I think we have to build the whole ecosystem and structure it and say actually in this one location we're going to be effective. We then have to do second order things like we have probably the highest electricity or energy costs in the whole of the Western world in the UK. That just does not enable you to do a great job of this. It doesn't even enable you to do a great job of training foundation models. Like if the blended cost of training a large language model is 20 % energy, we're already kind of losing.

26:35So the important thing is to say actually what are we going to be world class at and where are we going to be? And we have some advantages like one of the things that's interesting we've done it in this conversation It's easier to sort of aggregate everything at the national or continental level in truth We should be honest the London is incredibly difficult different for example from the rest of the UK Building a start up in Europe is doing it on ultra hard mode. We've talked about it before But actually, if you do it in London, it's slightly easier mode at the moment because of the talent because it's where the investors are.

27:08So we have to start to just acknowledge that, lean into it and actually have these pockets of specialization, I think. Yeah, I mean, I wasn't so much thinking, by the way, of building lots and lots of data centers on the I expended. I think that would be nuts right now, obviously. I was more thinking about the chip design layer, so not even chip fabrication, but you know, chip design, which is where 75 % the value in the semiconductor spaces is what in videos, what Qualcomm is, what Qualcomm is, or basically semiconductor design companies that basically sell chips that they get them fabed by TSMT or whatever.

27:41That's the model that we ought to be playing in. We have something like 2 % of that global market in Europe. It's insane, honestly. So, yeah, so in the fabulous space. So we must be building successful fabulous companies, I think. And Europe has got the, in fact, the UK in Bristol as it turns out, happens to have this full custom micro -prose design capability that stems 20, 30 years ago from the creation of INMOS, which is kind of unique actually. There's only probably two places in Europe you can do that. And Bristol happens to be one of them. I think it's plausible to build companies in this space that are global winners and yet you're right that we do need to put much larger checks into those companies.

28:21But that's the reason why we need more venture money here is to better write those checks. It's interesting, you said about the cost of energy. I was just being to see a one of the largest data providers in the world, or data center providers in the world, and he said, Harry, in the US, my energy cost 4%. In UK, if I set up state, it's going to be 17%. And I was like, I get it. That I did not know. You know, I was pushing, pushing, pushing. He said that I'm like, all right, fine. You do. My question to you then is like, when we look at that, and we look at the money that's needed to fund that, where does that money come from?

28:51I understand your argument around the scale and the scale of cash needing to change, how do we fund the 450 million that BBB does invest to whatever we want to call it? 2 billion, 3 billion. 4 billion, yeah. Well firstly I think the money, Europe has a lot of money actually. So it's the first thing to say. So Europe's got a lot of money in, obviously in pensions, we talk a lot about pensions. So it's got a lot of money in family offices that are sort of locked up all over the place actually. So Europe actually is not capital short. It's just not investing in this particular asset class. So the job I think of BBB is to create that asset class at speed and to play an enabling role in doing that essentially.

29:31So my suggestion would be that we get the government to increase the amount that British Business Bank and we many to operate the quality and talent in BBB to do this. But BBB puts like four billion a year in and would require like a 50 -50 funding ratio. So the GPs have to raise matching money. Otherwise, yeah, BBB doesn't participate, but it can be 50%. So if I want to create a billion dollar fund, I know I'm going to get half a billion from BBB and I've got to raise the other half a billion essentially. So raising the funding ratio to 50 -50 would be a good start. And then I think we've got to be creative, which I guess is another call to action for BBB, about how we split the fees and split the carry between the different LPs in the fund.

30:15So at the moment, there's a lot of hand -ringing and anguish about the fact that pension funds won't pay a 2 % fee. And I would say, fine, let's do it on a half -percent fee then. But instead, the carry that the partners have is higher. And quid pro quo is the BBB might pay a 3 % fee and the carry for the partners is lower. But net net was still at 2 plus 20. So let's be creative about how we do it and let's flex. The job is to bring the capital in and make it mesh with public money to mint these large funds that can write these big checks that allow us to play seriously in some of these sectors that are basically capital intensive and winner takes all.

30:52That's kind of what we need to do, I think, to sort of pull ourselves out of the nose dive that the country is currently in, I think. Where would we get that money from? The government has created its own fiscal freedom to do this, actually. So the government is able to treat any investment in BBB money as being not boring, not public spending. So it falls apart of public sector net worth and it doesn't count as currently you're spending because the argument is, and I think it's just correct, that what we're doing is building up a financial asset on the government's balance sheet. So if you did this consistently over like 10 years, you know, 40 billion on the government's balance sheet of fund -to -fund investments in venture, the worst performing fund of funds generate maybe 6 % IRR, the best performing generate mid -20s.

31:40So, yeah, so always higher than guild yields. And I would say you could go even further, you could say like in 10 years time, we got 40 billion on the public balance sheet. Why don't we make it off into the public? Why don't we offer it to individual pension plans to invest in this stock? So, yeah, so we could create like a factor moment really where you privatize, but people in their 20s and 30s should be owning assets in the future of the country. There should be owning those assets and it should be recycled into making the country more successful competitively. And technology is the place to put it, obviously.

32:14So that's kind of what we ought to be doing. I do see it as investing. We're talking about infrastructure projects. We look at Germany's trillion dollars, I think, is incredibly important. I like the idea that we have a kind of intellectual infrastructure investment that you're describing. The big thing to design around, and it sounds like you've started to think that through, is the adverse selection bias. My biggest fear, because of such a power law of returns, what you don't want to do is just end up with the worst investors making the worst investments. And so placing an emphasis on those maybe first, supporting perhaps first -time funds, solo GPs initially to get going could make sense, but it's incredibly important for the UK taxpayer to get into the best funds.

32:56And so I do believe there have, there's got to be incentives that UK, PLC can provide so that the best funds that Harry describes actually are excited to take money from that BBB fund of funds. But Tom, do you think, do you think if we put such a system in place and we made it plausible, feasible for GPs to go raise like half a billion or a billion dollar fund here. Do you think we'd get partners in US firms with a strong track record to consider coming to London to basically raise a fund here because it can be done here and they could build it and you could also imagine there have to be some conditions on those funds if BBB is going to fund them like half of the money or whatever's going to be invested in the UK.

33:40But you could imagine somebody is trying to set a start up and say stuck out or something. The core could be what will fund it be you got to move to London. Yeah, and we'll fund it So I think the answer is yes, but again, it sort of speaks to a specialization the question for me would be in what areas Would you get the best people saying it's worth me doing that? And it's not gonna be it wouldn't be necessarily in digital health where the UK has one major customer now now It would be in places like FinTech where we have a good trick record because we're in a great position sort of globally at this point.

34:14That's why we've done disproportionate number of FinTech investments. Defense, I think, is an interesting area at the moment where, you know, we're going to have to look more to 3 % of GDP spend in defense. So there'd be areas where I think actually very smart rational people would make that cool. But there's others where it would be a harder stretch like consumer, where it doesn't really make sense to like be outside one of the biggest markets. Yeah. Why do you think defense is different to health? I think in defense you still have one primary buy here really which is obviously the MOD and then you have very splintered and fractured buyers which is the rest of Europe and each wants to have their own dominant domestic provider.

34:52So I disclaim I'm a reservist as you know so there's something I'm really passionate about and I'd say there's three things happening at the moment that make it significantly more interesting than it has been in the past. The first is very smart people are interested in doing it because they think it's right. There are people like our peers that are interested in doing defense companies because for the first time they actually think there's existential threat. Second thing is actually while you do say you're right there's maybe a single buyer, it's more complicated that in the UK. We have multiple services, we have multiple regiments within each, each is a potential customer and they're being forced to innovate at the moment for the final reason, which is to some extent we are on the geopolitically, we are close to a war zone at the moment and we have a point of view in that war.

35:44We occasionally have some of our armed servicemen at risk. I think those three things together mean that actually when you look at Andril in the US and they had a recent round $8 billion over subscribed, it shows you there's an appetite of people and capital to go in there. I think the UK has interesting talent. The UK is playing its part in Ukraine at the moment. It's an amazing place to test new technologies, and I think it's an opportunity to build next -generation primes here. So as a category, I think defence in Europe is an important one at the moment. And there's probably what, two to three trillion can we spend over the next five to eight years in Europe in defence, actually?

36:25And all layers, not just final product, but like components, and there's a lot of layers here, I think. agree. And then I do think it's that will forge some dual use technologies. If you look out there at the sort of the biggest defense companies, you could argue that DJI is one of them at the moment. And actually, I think you'll see the same thing in reverse, some of the technologies, whether it be cyber or maybe it will be UAV's drones. I think you'll start to see they'll have other applications outside military. To what extent is it when we think about kind of amazing companies, you mentioned Andrew or we've mentioned some other amazing ones.

36:58In the US, there is a market for them to go public. There is a liquidity market that is much more vibrant. In the UK, we have the London Stock Exchange where a lot of people throw a lot of criticism and people choose to not list on the London Stock Exchange. To what extent do we need local domestic liquidity markets or are we in a global world where you can just go to an ad stack? Yeah, I've thought about this a bit actually. I think it's a supply problem again. The lack of like tech companies in London, there's only one London listed tech company worth more than 10 billion and that is sage and sage is like a 30 year old ERP company.

37:37It's a very nice company but it is an output of the 20 billion a year that we pump into tech in the UK to have one company worth 10 billion dollars on the stock exchange is not a great outturn really. So whilst the US has minted 20 .5 trillion of value in its tech companies, we've minted about 100 billion over that period of time. So firstly, let's accept it's not good. But I think the problem is supply actually is the companies grow to a certain size. They're stunted for all sorts of reasons. You know, could be quite early on the cap tables broken. The higher the wrong people, the wrong product market focus.

38:13But it could also be lack of swing of the fences, lack of money to swing the offences actually and net result being companies just have to be sold to typically US buyers. So they never get to the point where they're into growth and they're capable of being IPO. So there's not a big pipeline of companies coming through. There could be IPO. There's a handful in FinTech maybe, but apart from that not very many. So I think it's a supply problem actually and I think that's why it's really important. I think that we grow them out of capital here and it's UK capital all that is patient and we'll put the money in and we can fund the companies all the way through to eventually go in public.

38:51And then I think it will be natural to list them where there's a market for them. And I think that could be London, it could be NASA, it could be wherever is suitable for the company. A great, definitely supply problem doesn't help if we had much, many more, much bigger companies. We wouldn't say I give two other reasons. So the first is a sentiment problem.

39:13I have not is positive about LSE or listing and whether it be valuation or it be perceptions about, for example, the product itself because of the stamp duty driving down liquidity. And I'm afraid these stories are kind of like SEO for our minds. We hear the story, we remember them and there's just a negative sentiment about it. So most good companies are getting a more open to the US and they're getting courted very effectively. they have the red carpet rolled out for them. That's the first one. Sentiment problem needs to be turned around. I mean, you interview Julia Hoggett. Don't know your point of view, but the sentiment isn't great.

39:51The other one I just point out is, I think it's an easy thing to measure. That doesn't mean it's the best thing to measure. Actually, if I'm completely honest, given the choice between picking where a company's HQ is or where the bulk of the employees are, or where the IP is generated, or where it's listed, I'm taking the first three. They're way more valuable. I know that they're kind of interlinked, but the most important thing is where is the sort of economic driver and where are the employees and that value creation? And so, you know, if we do have a period where the very best UK and European companies end up listing in the US, I think that's okay.

40:30As long as we have a great kind of platform of big value generation here. And I think it'd be okay if the ownership but those companies when they go public is predominantly here in the UK because because I really think we've got to set a national goal here for wealth creation I mean the UK really it's clear you just look around and the country is getting poorer really so and we can't afford All the services that we want so what do you mean a national goal for wealth like like firstly? I think tech and innovation is really the engine of economic growth here there's no other engine that we can rely on.

41:04So it's that. And if you look at the US has created this 20 trillion of value over the last 20, 30 years in new tech companies, UK 0 .1 trillion. Yeah, pro rato, we should be about 4 trillion. We should have created and we've created 0 .1 trillion. So we're about 4 trillion short of where we should be. So I think we could set a goal to say, look, what if in 20 years we set a national goal of creating 4 trillion of wealth in tech? That's a sort of escalating growth of values. So let's say year 10, the goal is half a trillion, and we grow from that point. So growing half a trillion is a really quite a big goal for us, given that we've only created 100 billion right now.

41:48But it also sets the mindset of saying, what are we going to have to invest to do that? What do these companies look like? How much capital are they going to need? They're going to need about 100 billion of capital to do that really realistically. And you think, okay, well, that 100 billion where's it going to come from? Well, yeah, it's going to be something like 10 billion a year is what we've got to put in Additional to what we're currently doing and that's roughly the gap in our venture So I think I think if you can find a way of putting more capital to work We can end up growing the half a trillion in 10 years and four trillion over 20 and fill the fill the hole In terms of putting more capital to work and encouraging that SEIS EIS has been very effective in terms of encouraging more direct investing from individuals When I look at my cap table today, or LP list today, 85 % of dollars, maybe 90 % of dollars are from the US for me.

42:36And I'm so thrilled and honored to have them, but it is slightly not alarming. But I think about it that I think we'll do very well, and I think our funds will make a lot of money, and all of that will go straight to the US. That doesn't thrill me for my grandparents who have pensions, and my mother's got pensions, and everything around us in the UK. Is there anything that can be done to unlock the huge amount of family office corporate pension fund money to invest directly into funds, whether it's an SEIS for funds, the AIIS for funds, because otherwise they're not freaking movies. I think the BBB roller spoke earlier, I think he's critical to this actually, is if you look at where the money came from in the US, you look at the distribution of where that money came from, it's pretty evenly spread across endowments and family offices and pension and funds insurance companies.

43:22So it's not just pension funds actually. There are other sources of capital that we need to energize and create. But yeah, we don't have the endowment fund pool, which is a big helping on that strip. We do have more family offices, I think. There's a lot of old money here. There's 1100 family offices in London. Blimey. Yeah, it's a lot. Yeah. So every one of them. Which is why I think we need a energised BBB actually, which is creative about the structuring of deals to bring those people into, to structure them in a way that makes it easy for them to participate in this illiquid 15 -year asset class really, where the fee structure and the carous structure works for them and works for BBB.

44:03So you'd end up with LPs that are 50 % the national balance sheet and 50 % UK based pension, endowment, family offices and the insurance companies. So I think that is the job actually of BBBs to do that. He's spending more and more time with politicians now. They're all just terrified of getting fired, and they're all just terrified of headline risk. And when I listen to you, I'm like, great, great. I see all this, but then I see the Daily Mail headline, which is about how your taxpayer dollars are going to fund Tom or Sarah's venture fund, where they have a Porsche and a nice house in Hampstead and the concentration of wealth on your taxpayer dollars.

44:47Do you think we're actually being reasonable by thinking we can do that? And if you share my concern around, I had a lot of risk. It is definitely a challenge, I think. So I definitely see the challenge. But I actually think we've got to make the case really the why the UK needs to change really. I mean, clearly we're not really fulfilling our potential right now. Clearly we've got a lot more to achieve, actually. And it's about raising everybody's sights to build this country, to be the best it can be really, is build this value that is kind of missing in tech. Because it's not in any way coordinated right now.

45:28This 20, 30 billion a year that we pump in the front end per annum in tech. So like 150 billion over a parliament in university funding for Science to Tech in SEIS, EIS, and VCTs in Undytax credits, and Patent Box, and so on. All the things you add them up, and what's coming out the pipeline is nothing really. So, yeah, so there's some people that make into a well -for -long way, but that's not what we want. We're not achieving a national goal, really. So I think if we say, let's do this together as a country, let's build this value and let's yet to energize people, it's clear to me that But active money is the way to go.

46:09Passive money is not the way to go. An active money means when things are going well, investors double down, when things are not going well, they kill it. We've got to be courageous enough to do that really. That does require, I mean, VCs require optics cover, don't they? So you've got to basically fund them really. I think two ideas that Stan's thoughts remind me of. So the first is one of the things I admire about Sequoia is that their meeting rooms I think are named after their LPs. I think it's a really interesting thing to remind everyone who they're in the service of. And I think one of the challenges we have in the UK is we perhaps don't celebrate entrepreneurs as much as we might.

46:49If we were able to say to those entrepreneurs they can tell the story about the wealth they've given back, whether it be through BBB or another vehicle, I actually think the public would see more of the value they're creating. The second story I think about is the Norwegian sovereign wealth fund, extraordinary business. If you look at their ownership at the moment, it's mind -blowing. But the other thing they do is they effectively have a stock ticker so that everyone can see in real time what that sort of national wealth is. They have a literal stock ticker. And he's literally like, you know, the happiness of the country does go up and down, depending on the ticker.

47:26Exactly. So this is all about just reminding society that actually some of these great entrepreneurs are building business in society service. I think that's what we've lost. A side idea, actually. If we have this like four trillion gold, it'd be a great idea to have a national ticker as we climb our way towards it, wouldn't it? I think it would glue culture and society a bit more than perhaps you have at the moment where it's perceived to be haves or have not. You mentioned Norway there. Norway innovated in their tax system and they seem to misunderstand understand that kind of models are variable and that when you change a certain tax rate, you will see people leave.

48:03We've seen the removal of non -doms. Every single day I have friends saying, hey, I'm leaving, I'm leaving. Why are you staying? To what extent is the removal of non -doms a massive problem impacting the future of the UK? I think this is one of those classic cases of whether you want a sort of principled approach or a pragmatic approach. I'm a pragmatist. I do see the brain drain. I recognize it. And I do see that many of the people I know well that have chosen to leave have left. They were also incredible angel investors. They employed a bunch of people. And so do I think everyone should pay equal tax?

48:39Yes, in principle, but practically speaking, I would rather that talent was in the UK. I mean, I am seeing some exceptions to that. I heard about a billionaire VC who, you know, I think, has moved to the UK recently. You do get some movement back in the other direction, but I would take seriously, again, leading and lagging indicators, I would take seriously the leading indicator of some of the non -doms leaving. Yeah, now, it looks honestly like one of the challenges with the UK is this tug of war between principles on the one side and practicality on the other. The principles have been removed non -dom status, changing heritage and tax rules, change capital gain tax, put fees on private schools and then assume that everybody is going to have to stay really.

49:27I mean, I just think that's too much actually and the impulse on the system is too much and that we are shooting ourselves in the foot really. So I agree with Tom that in principle as a UK taxpayer, like everybody would pay the same taxis, but I recognise that everybody is in the same starting point and people do come to country with existing wealth really and it can't be fully right to then seek to tax that. So therefore there has to be some provision for that I think that makes it possible for people to stay here and so on. And I think it's also part of this thing. Look if we're serious about building the country to be a country that clearly wants to win, then we better fix this as well actually.

50:08Well, this is well, like for me, like pandering Trump's pragmatism, which is like the Labour government's desire to pander to traditional left -wing policies is destroying a pragmatic approach to wealth creation and wealth sustenance, because all of the things that you said in Harrington's tax cap gains schools is bluntly pandering to traditional left -wing policy. And I'm probably going to make economic sense. It may be zero. I mean, there's my own, an interviewer, a concert live, whatever, thank you, day and they said we have to get rid of the treasury because they do not have variable models.

50:44And so they literally have static models which say if you increase the tax rate to X, you will get Y. They do not have any variability to what happens with the import and export of anything. And that is why their numbers say we should do this. Oh god, that's not good. It's terrifying. Do you believe the multiplier effect? Because I always get the pushback whenever I'm on social I might listen. It is great having non -doms. They spend in restaurants, they hire people, they buy homes, they spend in shops. Do you buy it or do you think that actually trickle down economics is a lie that we continuously...

51:19There's bans ofism trickle down economics, but there is also this need for fairness as well. And I think it is just a balance that we've got to strike between the two. People that don't enjoy a privileged tax status and pay full taxes, sitting on the same restaurant as people that do enjoy privileged status. That's also not right. So we've got to find a balance between the two is how to make it feasible for people to stay here and not be penalized at the same time, try to be as fair as possible as a country as a whole because we commonly hold hands together on this actually as a nation. So we need both people that have come from outside the UK and people inside the UK to feel we're on the shared mission together really.

52:01And so that there's got to be somewhat fair at the same time. And I just think the balance right now is probably swung too far in the opposite direction and that we're actually making it much harder to do that. I'm a strong believer in a sort of kinesian multiplier effect and just in our small world of tech, the only bit, only sort of part of the economy I know much about. I see it on a daily basis, like angel investing in go -cardless. If I look at some of the other angel investors in that business, They were non -doms, they were actually European, some Americans. The founders of that business built an important company for London, employing hundreds of people.

52:38One of the founders left and built Monzo. Another founder has left in his VC, another firm in London. If you look at the number of senior talent in Go Cardless that has gone on to create other business. And maybe alumni, though. It's an incredible multiplier effect. And so that's what we're saying. actually you've got to have those initial pockets of innovation and growth and then I do think you get this real multiplier and the good news is business is growing faster than they ever have before so I think those cycles will happen quicker quicker. Previous it might be five or ten years that you start to see the best senior operators come out and build a company now it might be 18 months, 24 months.

53:15Is there any change with SEIS and EIS? Yeah I think a lot of these EIS funds are not very effective and VCT funds are not very effective. Why is that? I agree with you, but I don't know why. Because the quality of investment managers is quite low and because they feel they've done a good job if they get anywhere close to just returning capital. So instead of saying, here's an investment, go swing for the fences, is that, you know, if I've got to say don't lose it, take the low risk return and flip the company's quickly as you can and get, if I get 80 cents on the dollar back, I'm happy. And in fact, all the returns are some of which are 80 cents and $1 .20 on the dollar.

53:53I mean, it's ridiculous. So I think those funds are freaking disastrous really. Would you get rid of them? I'd get rid of them, yeah. And I think there's a lot wrong actually with the UK tax system that is maintaining too many zombies, I think, in the UK. Like what? Well, the most obvious is on the tax credits, which is deeply unpopular for me to say. But as a founder and a CEO, I'd never say this by the way, but as somebody who's not currently a VC and who's not currently running a company, I can free to say what I think is true, which is that we're currently investing about $7 .5 billion a year in R &D tax credits for SMEs in 55 ,000 companies per annum in the UK.

54:39There is no quality check if you like on the value that's been created there All you have to do is prove that you spent the money on something you can loosely classify as R &D and you get a check from the government So yeah, so this is classic helicopter money passive money it goes to good and bad And I think if you're gonna be brutal you say that either goes to companies that don't need it or it goes to companies You shouldn't have it, but in my view it would be much much much better to take that same amount of money and put it into funder funds and put it into active venture. And that way, you know, when things are going well, you double down the things are not going well, you kill it really.

55:17And you know, so we do end up tying up national talent and national treasure in companies that are never going to be successful globally, that limp on from year to year, living on our detect rates. So I'd much, I'd much rather see it in venture. I'd much rather see valuations go up actually, which I know is a VC, probably not very keen on hearing, but I'd much rather see that because because we end up with the same dilutive effect as we get this free money from the government every year. So by being actively managed, we get to recycle our limited amount of talent and our limited amount of capital into companies that are really going to make a difference really.

55:53That is one thing we can do. All right. So unsurprisingly, I think tax credits are pretty important. What I hadn't thought about because I have a sort of biased view of just higher growth companies at the early stage of their life where you're investing in the future. I like in the same way as I like your point about EIS and ESCIS because I just think about angel investors when I think that stuff doesn't make sense. But to your point, actually, just on the R &D tax credit, what I don't see is these kind of zombie companies that have been claiming it for a decade and actually aren't necessarily building for the future.

56:25So maybe we should start to take into account time, like they're doing the US with capital gains tax and start to actually maybe taper off R &D tax credits to avoid what you're describing. Yeah, we're running roughly 2x the rate of the US. So I think if you look at four big differences between the US and the UK, one is the attention to talent and the need to sort of keep people in the country. The second is the quality of mentoring very early stage needs to be ratcheted up a lot higher and it can be I think, it just needs more coordination. The third is the excess of props in the UK for companies that are not making it that limp on forever.

57:06And the fourth is the massive shortfall, which again, I don't feel quite the agreement expected. The massive shortfall in capital that I think we just need here actually. We need to really, we need to flood the UK with venture capital. That's what we need to do. My takeaway from this show is that we just need to put Stan in for the BBB lead and just let him run it. I mean, that's not sure about Ben could do it. I think you do a brilliant job. I qualified. You're high. You mentioned the mentoring there. And you said there are ways that we could do it. How do you think we could do it and increase that level of mentoring?

57:39I agree with you. And one of the things we do is just whenever I think we're making investment, we will bring in often other founders from our network, people that we've worked with before, and the value add from those people, partly because they've got experience, partly because they're paying it forward, is unbelievable. So I totally agree. I always say to founders like never have a minimum check size for amazing angels The sum who can only do 5k or I mean some of one can you do that with angelic syndicates like it is just as vany But often they'll give more because it means more to them and so I really always push on that Obviously we have project Europe now and I spend a lot of time with Kitty to see you Congrats.

58:15Thank you. We love it. That is very kind to so please that you're in it Stan. You're not allowed

58:24I mean, it's not stopped. He's the last to be the last for a year. Yeah, yeah, Tom has heard it all. My question to you is, Kitty always tells me that the biggest enemy of talent in the UK is quant funds. And I was like, and she goes, yeah, quant funds, they go to the universities, maybe I'm a, maybe this is a private conversation and Kitty's gonna kill me, but let's roll with it. Quant funds go to universities, they source the best talent and they throw 250K at them straight away. So the best engineering talent is just going straight to quant funds and quant funds are much better recruiters than anyone else.

58:56How many people working quant funds? Is it a big number? A member of our family works at a quant fund actually and who's paid a lot of money I think to do something very similar. So but there can't be that many people. So it can't be the biggest drain on talent. Maybe not, but probably a thousand, which is two years of full computer science and robotics graduates, which is quite a lot. I mean a thousand more in the ecosystem would probably be a pretty significant. Yeah. There's definitely competition from that from the smartest quants. I think one of our jobs is to make startups even more appealing, celebrate the successes, actually show the alternative.

59:31I think EIA, like the sort of entrepreneur relief is a wonderful example of something that can maybe tip that balance because often the economics from a quant funder income tax. So I think things can be done. What would you do with entrepreneur to make championing entrepreneurship better. I'd expand it. It is what is limited to like a million quid or something. Yeah, from it was taken as town, exactly, which to me, given the amount of time and effort that people are spending, I understand that the... But those that don't know, entrepreneurial is what and what does it mean? Entrepreneur relief is the ability for you to get preferable tax treatment if you've grown a company.

1:00:09Now I actually think the idea of making for entrepreneurs capital gains exempt would maybe tip that balance when you're comparing against quantum funds if that's a competition. I do just want to touch on the wider world around us. In two ways, one is the US and the other is China. Again, this wonderful politician that I interviewed the other day said, ah, you know what, we were an afterthought for the US and now we're not even that. In a wider world perspective, what does not even being an afterthought mean for us and what we need to do. We do actually have, as Tom was saying, universities that are global grade universities.

1:00:46I mean, Cambridge is not that different to Stanford. They're maybe a little bit smaller, a bit less funded, but the quality of research that we're doing here is as good. So there is raw talent here. I do think London is a really great city. Probably the best city, the south of the Atlantic, and arguably the best city in the world actually to do this. So I think it's a great You don't think London's got worse. Everyone says the crime, the lack of public services or the poor quality of public services I think London will revert back to London in the 70s, which is grim. It's gloomy. It's no growth.

1:01:19Well, it could if we let it, but I think it's possibly not as shiny and smart as it was, but I actually still think it's a pretty good city Actually, and there's lots of good things to like about life. Are you concerned that Labour will let it get to that deplorable state in the next four years? I don't think they will, but I would like to see them move more quickly on policy changes and action than they're currently doing. That's certainly true. But I think they will listen and change, actually. So I'm optimistic about our ability to get change. Yeah, I think London's a special place and I feel lucky if I compare living here to other places, just it's the sort of multiculturalism, the diversity, but actually just it's an interesting place to live.

1:02:06The fact that I can jump on a line bike, come over to do this in the afternoon. I could have a meeting at number 10 shortly thereafter. I could go to the European headquarters of a big brand. I could do that all on the line bike. It would take five hour flights to do it between those stakeholders in the US. So actually that proximity effect, I think adds a real richness to life. So does it have its challenges? Yes, but there's an incredible pool of talent. So I think the kind of petri dish for continued growth is there. Well, if that's a standard afternoon, you're a very important person. I mean, you do this right.

1:02:39I just pop down to number 10 and pop down to like a global CEO. Only sightseeing. Wow, that's amazing. I was mainly sightseeing. I just met a buddy man just to get through the emails. Well, the line bike is, the line bike is actually a portfolio company. So I'm just driving up the revenue. Ah, yeah. Just constantly cycling right on the road. I'm the leopard. Yeah, exactly. I'm going to expense it to your show. Thank you so much. I'm sure we're gonna get Brad to sponsor it. That's amazing. Final one for a quick fire. China is changing faster than ever. Tom, you said before when we were walking around the block that China is the thing that you've changed your mind on.

1:03:13Yeah, I've changed my mind on China a lot. So I think strategically they're in an amazing position for the obvious reason, which I think actually more countries are more open -minded to working with them, given what's happening in the world. But I think there's a less obvious reason. And that is partly as a result of deep seat, but more broadly, we've learned a lesson in the last 12 months and that is that actually foundation models can be distilled relatively quickly. When I was on your show last time, I talked about how foundation models were sort of going to be the fastest depreciating assets in human history, like weeks, it's almost days now.

1:03:49And so if you live in a world where the foundation models can monetising really quickly, then you say where does the value accrue? and I think the value of crews at the application layer. So we're investing companies like Synthesia in London or Harvey in the US at the application layer. And then I actually think it accrues to in hardware as well. And if I look at hardware, China is so much better than the rest of the world at manufacturing and hardware and value ad. And I think those devices are actually gonna be the conduit for commoditized AI. So in that world, I've probably gone from thinking, been excited about the US dominance on foundation models to some extent, to thinking, actually, maybe the value is going to accrue also in the hardware layer.

1:04:35And that's somewhere that I think we're playing catch up. Yeah, I think I completely agree with that. I think actually the hardware layer is just sitting just above the semiconductor layer. And actually, I think the one that we can play in is the semiconductor layer. But I do agree with it. I think China is in a really good position. Part because it has done this very significant continuous investment in startups and adventure over the last 20 years and as a result, if you look at a blob chart, what investment is going into AI and you colour code it for US, you colour code it for China, you colour code it for Europe, it's basically US and China and these tangible dots of Europe actually.

1:05:15So Europe is really missing. So it is kind of US with China sort of chasing its tail actually. But I also think the sort of geopolitics of America trying to dislocate itself from the rest of the world will put China in a much better position actually as well geopolitically. So I think Europeans are going to be much more open to working with Chinese companies and doing business in China than they were even a year ago. So I do think I do think things are changing and it's probably not good for the US actually but that's what I think is happening. You think we should be open to doing business with them?

1:05:46I do actually, yeah. I mean, I've sold a company to Huawei actually, so I spent about, I only spent about month working for them, I have to say, because they didn't give me authority to buy a box of pencils after they bought the company. So it was, it was, it was, it's the, it's the country that doesn't allow our companies in that. They put their companies in us. They acquired data on all of our consumers. We don't know where it goes. Every single piece of data that a Chinese company has, the Chinese government has authority to require at will. Yeah, all that's probably true, but also they are commercial as well.

1:06:20So you can do business in China. So when I ran this chip company, I saw actually our biggest customers were in China. So our biggest customers were Huawei and ZZ. And it was easier to get them to do a deal with you, to sell product to them that it was kind of US company or a European company because they had to negotiate pretty hard on price and stuff. but nevertheless they were willing to engage and we built some really good relationships with them and at a personal level I think people are actually pretty decent people and you know I think that you can do business with them. The Chinese state is something different obviously we worry of but I think I think there's a lot of scope actually for us to do a lot more business in China than we're currently doing.

1:07:01If I look at the talent the areas that they have decided to focus on, they're all important. Battery technology, BIDs are forced to be reckoned with, DJI is forced to be reckoned with, if I look at deep seek in the emergency. But do you not, as we mentioned BID, do you not worry about the Chinese subsidization of their car industry and what it stands to European car markets? I mean, the German car market is being destroyed by BID and Chinese cars, and it's because the Chinese government are subsidizing between 20 and 30 % of their car production. It feels a little bit unfair. It's certainly called of the market in some of the rare materials and history of the batteries and so on and I think it's got scale and it's got Abilities to compete really so so in that sense, but I mean the German car industry's got other challenges So one of the other businesses I sold was to to Bosch actually and so I'm told Beggley where what's like working in a large German company and yeah, they they have their own challenges And they're not your own pencils though not really I'm not all petting me.

1:07:58He's just waiting for the choir, saying he can buy a rubber. I love states, yeah. Listen guys, I want to move into a quick fight. So I say, short statement, you give me your immediate thoughts, that sound okay? Yeah. Stan, what do you believe is that most around you disbelieve? Things like R &D tax credits ought to be curtailed and we should put the money into a lot more venture. Is it really unpopular thought, actually? But I still think it's right. Mine would be, I think I keep hearing people talking about the first one person billion dollar business is already created. I think that's absolutely ridiculous.

1:08:32On the one hand, companies growing faster and more efficiently than ever, like Bolt .new, 40 million dollars revenue run rate in three months. They're going to grow incredibly quickly, but I think we've seen distillation of foundation models. We're going to start to see distillation of business models businesses. And so I would expect these really successful businesses to get copied ridiculously quickly. So I think this idea that you're going to have a sort of moat that enables one person to deliver a billion dollars of revenue a year is a myth. What is the distribution of value in the foundational model landscape in five years?

1:09:07My big one here is that I've changed my mind. I thought OpenAI was a foundation model company. I now think it's a consumer company. It's at a $12 billion run rate or something. So my thought here would be It's going to aggregate to the application layer and brand is really important They signed up a million chat GPD users in an hour last week. It was announced brand is incredibly important The application layer is important and then I think hardware as I mentioned is important This is one of the things reasons we invested in nothing we believe they've got seven million and devices out there that are potentially conduits for their AI.

1:09:45Yeah, I think that might be right, Tom, that the value is gonna be balanced up at the application layer, but also think at the hardware and semi -con out to layer below. It's sort of plausible, because the LLMs are not the end of the story here in AI. So there are some, obviously, there's some big limitations on what LLMs are gonna be able to do. So there's more innovation to come, and that's gonna change models. to change a math that we got to do and so on. But some of the things that are going to be content, we're still going to be doing very large matrix -effective multiplies at high speed in Silicon.

1:10:18And I think, yeah, that's the sort of thing that we can build competitive long -term advantage in here. So I think that we value a crewing, even more value a crew into competitors to say, in video, I think we'll be big. And I think at the application layer, exactly as you say, I think, there'll be value crew in there. And how about inference at the edge as well? I mean, that's something you understand better the me, but they're lighter these models, more and more could happen on device. Yeah, that's true. But with that is coming a lot more sort of chain of thought reasoning, a lot more test -time compute.

1:10:49So the token generation is still going up actually. So I still think there's going to be a large amount of silicon required to better do sort of high performance inference, even at the edge of it. So there's a lot of scope, I think. What inference? I think the investment in inference has grown like 57 times in the last year. that rate will probably continue for a while. You know what I just can't get? I can't get how if we all appreciate the shift in focus from training to inference, how, in Jensen and Nvidia are just sitting there going, oh well, we're going to get screwed because actually our architecture means that we're not optimized for inference.

1:11:25That is not happening. Jensen is not just saying, oh fine, we'll just enjoy the training era while it lasts. Help me understand, why am I missing this? They are making a bunch of architectural changes to GPUs to make them better and better inference. There is a lot of architectural change going on there. It's obviously not a big surprise to see if we saw Jensen starting to adopt and reinvent himself as an in -memory compute company. I mean, that wouldn't really surprise me actually. You'll be working on that. So whether it does that organically internally or it does it through some sort of acquisition who remains to be seen really.

1:12:01But I think that it's certainly likely that, he's got the resource and he's got the cash to be able to sort of move the organizational, build an organization pretty much any area he wants. And one thing about Jensen, I'll spend about a year and a half working board, is he's definitely paying attention to and listening to the market. And he's got very big ears and tracks what's happening with enormous study. So I do think we've got to expect them to be tracking in the direction towards being more efficient at inference What's your biggest takeaway from marking with Janssen? Well, firstly, he's a good human So so that's good I think so we got you know one of the world's richest people is actually I think a good person He is however a bit of a control freak many would be the time with just about to give a sort of presentation to a major customer and gentleman's go to the deck and will change product name, schedule, pricing and resources and everything on the fly, like with like 10 minutes of spare before the meeting.

1:13:04So he's quite hard to work for in terms of his desire to have command of detail and to be in control of the most important variables in the company. But in a way, as a sort of founder, I do sort of respect actually. So within Nvidia, we used to have a gen so at the top, we had a layer of people whose job was to buffer everybody else in the company actually. And so this buffer layer would deal with gensen, which is great. Grim and shield. A human shield. And the people below that can actually get on with stuff actually. But obviously, I like the guy in these, he's incredible communicator. We always hear of his, I don't have direct, you know, the direct reports I have so many of 50 or 60 and it sounds great when you hear him say it.

1:13:49But the 50 or 60, we never hear from them. Is it good for them? Well, I mean, it's a sort of, it's a brutal culture, I'd say. Yeah, it is, yeah. But in a way that is not malevolent, so if it's possible to imagine. So, you know, so he will tear people apart in public on stuff that they've not got command of or he thinks they're wrong about and he will rip them to shreds and leave them wimpering in the corner to lick their wounds. But I think he then sort of forget it and hopes that the exercise will have resulted in some improvement in the way the person thinks and acts and so. So so yeah so that it's not it's not for everybody that that style of management.

1:14:40But honestly you've got to admit it's worked. So he has done an amazing job. Would you buy OpenAI at 300 billion? Yes, no. My yes, why not? I think if you look at it as a consumer business, it has extraordinary momentum, and it's only just started integrating notes. So historically, there's been no switching cost, one of the most important powers of a business, but now people have started using it. I actually think the memory is helping people stick. So if I just look anecdotally at my kids at school, for them, LLMs are chat GPT. So they're very well placed. Now do I think the rough on the other on the other end of the age spectrum, same thing?

1:15:20Yeah, they own brands. So it's incredibly powerful. It doesn't mean I think it's the best Gen AI investment, but if I was sitting independently, do I think it's a good investment now when your downside is somewhat protected and they're at a $12 billion run rate, let's say it's a 20 times forward multiple. I think it's a reasonable place to put money. Yeah, and I think a lot of the demand on these planned as you're going to be through APIs by application software that are basically sort of those APIs are going to be driven by latency and performance of the model and so on. And things like Claude are as good if not better than opening eyes models.

1:15:58And that given this demand will have agents that are basically calling APIs will be driving a lot of demand here, it's not obvious to me that the consumer chat interface is the winning interface really, it seems to me that the API interface and the application calling agent calling might be a bigger interface. So I'd probably put the money elsewhere. Both good answers. Would you? I would. I always love businesses wherever I think it's kind of reaching the top and then actually it's just actually reaching escape velocity. I think the same with actually revenue right now. Whereas like people think 45 billion or 60 billion new items pricey.

1:16:33I would buy this shit out of revenue right now. But I totally agree with you in terms of just introducing the modes and the memory I think is so important. You go back to where they remember what you did past. I'm always doing past searches. And actually I do, it's so funny for every single show I put the prompt in to GROC PPLACITY OpenAI. You can buy an whole one -publet stock for 10 years, which one you know. I'm so concentrated it in tech. I'll avoid tech stocks and say Uranium ETF. I have concerns about cost of energy for productivity. I think climate change is real. I think the best source of energy going forward is nuclear fusion and potentially fission and SMRs are going to be important.

1:17:17I think it's the predictable cleanest energy source we have, I'm not betting on one individual company that's difficult to do. So I think if I take an ETF in Uranium, I might enjoy the upside of the market because it'll be needed. What's your stand? Yeah, I probably would avoid tech as well actually. Same reason. Probably Rolls Royce actually, because I do think defense is going to be a big kicker in terms of demand. So the Air Engine business, and I mean, it's actually gone like a rocket this year anyway, that stock, I mean, this is about three X's a year. But I actually think we're at the beginning of a journey, and I think it could be much bigger, because as a European air engine vendor, I think it's going to see high demand, actually.

1:17:57You can snap your fingers and change one thing about the UK tech ecosystem. What would you change? Flood it with venture capital. I mean, seriously, I think that's the thing that will, the one lever that we can pull that will make a big difference is that everything else will take time and stuff. But I do think a lot flows from capital availability. And of that, I would say sentiment at the moment. I think there's more, this question as being asked so much, it becomes a drag. What's the most under invested, but exciting area today? Tom, you do this for a living. I go hardware. I think if you take a hardware company out to market, the people, investors, immediate responses, oh, that's really hard.

1:18:41But the paradox about venture capital is you need it to be difficult to be valuable. You need to be contrarian and right. And I think hardware is a place you can do that at the moment, a huge amount of value will accrue there. I'd go the level below, semi's, I think semi connectors that fit into the hardware that Tom's talking about. Which politicians, you most respect and admire, and why? Lee Kuan Yew, specialization. Yeah, so I'm gonna stick to UK. So at the moment, I say, The current government really filled me with enormous enthusiasm. I think Patrick Valance is a useful guy who's trying his best to make an impact on the UK, so I think he's not really a politician.

1:19:23I do think in the current government, Darren Jones, I think has got potential to be great. Final one, guys. 10 years time. Where is the UK? One, and how many 10 billion dollar companies will we have on the other side then? I think we will get the UK point in the right direction. I think it will require some government embracing of the challenge and a lot more communication by government on what we're going to do and how we're going to do it. I think we're approaching a point where about a year into this current government, four years to go to the next election, things have not gone well. And I think we're approaching a point when they've got to recognize a change and make some changes.

1:20:09And I think we aren't going to see some changes that will be positive. And assuming that happens, I think in 10 years' time, I think we will have achieved this $500 billion valuation in tech. And the UK will be seen as the magnet in which people come to build these companies. So that's what I think we're going to achieve. So I'm an optimist. I think sometimes the best companies grow from adversity. Partly because of the concentration of talent they'll just aggregate more than they have. So I don't know, 1999 was its sales force and then you have Airbnb and Uber in 2008. I think we'll look back on the companies that are most impactful in the decade.

1:20:52Wheel of grown in the UK and they won't be names we know today because these companies are growing faster than ever. So there'll be AI native, incredibly fast growing businesses, and it's not clear to me. They'll list at all. If you look at the trend direction there, we spent a lot of time assuming listing makes sense, but some of our best portfolio companies like Stripe aren't listing any time soon, and they're finding ways to deliver liquidity. So I wonder whether we'll even be talking about whether they did or didn't list in the UK. Got that's opening up a can of worms. Sorry. We spent another two hours on that, but I cannot thank you both enough for joining me.

1:21:27It's been such a fantastic discussion. Honestly, there were two people that I most wanted being YouTube, because I think it's such a different perspective you both bring. So thank you so much for doing it. Thanks for inviting us. We enjoyed it. Love it. Really fun. Thanks a lot. I mean, that was such a special show for me to do. If you want to watch the episode you can find it on YouTube by searching for 20VC. I also want your feedback. Let me know what you think of having three together in the studio. I really want to do more of them. And so if you like them, let me know and we'll make sure they happen.

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