20VC: Why Large Seed Rounds Increase the Chances of Success | When to Sell in Venture | Why Multi-Stage Firms Do Not Do The Work | Is Europe Totally F****** and Why AI Means London Can Compete with the US with Hussein Kanji

23:15It's like a major investor that you would know, household name is seriously looking at this. We raised zero. Of a 400 million post, it got privatized at 5 .3 billion. So this is all dollars, so 400 to 5 .0. It would have been in that 10x net of fees. We left money on the table and it was painful. It was really painful. We have another, I think our best company right now and our second fund, it's an AI drug discovery company. We wrote the first million dollar check nobody believed. This is a time where people did not understand tech bio. It was before the term tech bio was coined brand new market creation, right?

23:48We were convinced we put the chief scientist to work on the phone with the company and we were pretty convinced that these guys were onto something. And worst case, the sixth person team would get acquired for the technology chops that kind of had it would be an aquair. So there wasn't that much downside in our case. And then all the data started lining up the right way after the check after us less than a year later was 40 million bucks from Best Murr and F Prime, we used to own 18 % of this company. It's an $89 million fund. To do ProRata, that's like a $7 to $8 million check. It's a big check to write out that $89.

24:20You can't really go to LPs at the Series A. I'd be like, I think this is the next big thing because it's super early, right? All it's done is raise another round on the basis of some data. And so we winded up coming down in our ownership. we own about 13, 14 % of the businesses, supposed 18%. If that company goes where I think it's gonna go, like I think in this company could be like the iconic company of tomorrow, like that 5 % is gonna be really, like, have you done many SPVs? We have nowadays. So in the run up to the Dark Trace IPO, we did a bunch of SPVs with our investors. We put more money to work in Dark Trace than the fun size of Fun1.

24:53And we think the lowest performing IRR for us was net 66%. This is all realized by the way, net 66%, and the best performing was net and 154%. So you did over 28 million in SPVs and do that? I did like 45 or 40 something like that. Whoa. What was your blended entry on this? Like you mean what was the price point that came in? I think generally we made somewhere between one and a half to three X net for our investors and a year to two. Hence why I looked at the IRR numbers. The IRR numbers are a lot more indicative because it was like they were very short holds. Like I said, I've been bullish, right?

25:27I've been, I've been very bullish on dark trades ever since I wrote the very first check, because I saw the numbers. And I think this is the delta. And when you see inside information, like you're close to the company, you know how it's doing and you see the buying opportunities and you see that they're fair prices. These weren't like not overly inflated prices. How do you think about two things? One is bias. Let's start with bias. You love the founder. The numbers look good, but you just really like the founder. They're matching you late at night. Great ideas. And you're like, you have a connection with them that you don't have with someone.

25:58So we have a fairly trained growth investor on our team who is not in these companies. We can look at the data just on a pure databases and give a view. So we basically assemble a different team other than the person leading the investment, saying, take a look at this, figure it out. But you're going back to that dark trace round, the KKR did. Four million a month. So 48 million annualized. Four hundred million dollar post. Not pre -post. That's a pretty average. Four million a month. Since thing, basically 50 a year. 50 a year. Four hundred million post. that's a pretty fair price for a SaaS business.

26:30Dude, that's ridiculous. Yeah. You have to see that, says it. I'm like, I'm like, I'm understated. Yeah, that's like a deal. You don't have to think about the founder sometimes or like the vision, you can just look at it from a numbers perspective and it's like, that's a pretty good company. And the making, by the way, the delta was they gone from about a million a month at that point to about four million a month. So it was like super exponential growth in those early days. The company when it got privatized did 732 million of revenue. But when we invested it was doing like 10k. Have you ever had a reserve check where you'd really double down it stensily and it has a watch out?

27:04Yeah, we've learned a couple of things along the way. People don't really need much from your investors when things are going well. Digging money and getting out of the way. Whenever there's a hiccup, usually end up picking up the phone and calling your investor, and we're usually the ones working it. I think this is a big transition right now in the seed world. Sometimes when those calls are being made, it's not the series A guys are the multi -stage funds that are doing the work. There used to be a time where you wrote the check as the seed firm, then the big boys came in, you exited politely, and the big boys ran the business, and they did the board stuff, they did the hiring, firing, if things that happen, they did the acquisitions.

27:40But these days with the growth of those guys, it's all call options for them, right? They will invest into something and see how it plays out so they can write the $30 -50 dollar check where it starts to get meaningful, whereas for us, it's always meaningful. So we end up usually doing all of this heavy lifting. And as a result, there's a biased that comes into this, which you use them think you can fix a lot of stuff. We had a company that hit a stumbling block. We doubled down, rolled up the sleeves, started working. The other investor with us, it was another big venture fund in with us on this company, wrote it off.

28:13Weirdly enough, still turned them to the board so they wouldn't give up their board so they wouldn't get recapped, so they defended themselves, but they wrote zero additional check. And the company needed about two million to turn itself around, and we were able to put a million, and we assumed if we did the first million, someone else would come in and do the other million, and we'd kind of get it there. And ended up raising like 1 .3 out of the two, ran out of cash, business had turned around, someone else, it went into insolvency, someone picked it up, and has been flying with it since then, right, because all the heavy lifting got done.

28:42I got a call about two months ago, and this is weird. I heard that you were such a good board member for this company. I want to give you stock options and have you back in the company on the board, and I'm giving it to you for free. But the lesson for us is that this one feels like it might actually work out. The lesson for us is like this hard work stuff, you need to be well capitalized to be able to do, and sometimes it's not our place. Like even if we could do the work, we don't have the capital base to be able to do these things. How's the series A product worsened over the last three years?

29:10I don't know if it's worse, but I think we've gone to an era where people are writing checks and then letting things play out. There's a great transcript oral history. I do a lot of reading, right? So there's an oral history that the computer history museum doesn't in California. And they've gone back and interviewed all of the good in the great inner industry, like the founders of our industry, like the early venture capitalists. They did as oral histories like eight to 12 page like PDFs that you can kind of read. And if you read those transcripts, the way venture looked in the 60s and 70s and 80s and 90s looked really different than it does in like 2024.

29:46Back in the day Dave Markhart was the only investor. He was at August. He was the only investor in Microsoft. And very few people know this. In the early days of Microsoft, Microsoft was structured as a partnership, not an ink. It was not a company. It was a partnership. And there was weird tension between Bill and Paul. And so they needed a third party to come in and clean it up. And his firm complained that he was spending a lot of time helping these two kids out there all in their 20s at this point. And the industry is really young, like it even is it today. Helping these kids out, he did that work for about a year before he got invited into Microsoft, the end of the owning 10 % of Microsoft.

30:21And I got a lecture from my COO when I did this with another one of our companies where we did a next generation AI law firm that runs as a law firm. And obviously if you're running as a law firm, there's a whole bunch of stuff that you have to do beyond the tech. And I was giving this free advice I found, or we own 20 % of this business companies on fire, it's doing really well. But I spent like a year problem solving, troubleshooting, getting on the whiteboard. Every time you had an issue, come over to the office and we'd like to sit down and do it. And my CEO was like, what are you doing? Like your time is really valuable.

30:48We got a whole portfolio. We're supposed to be working on, you're like brainstorming with this guy, it's fun. But like, and sometimes you have to do those kinds of things in order to buy the goodwill, to actually be able to write the check. We end up coming into the deal at nine. The company's on a million pound run rate right now, a month. This work pays itself back, but I think the industry did all of these things in the 80s and 90s and we've gotten so much bigger now. Where like honestly is it worth the time to do this for like a million, two million, three million, 10 million. Like you're much better off raising a five, six, seven billion dollar fund and putting 50 to work in that.

31:23Is this good for foundercy? They got a 10 to 15 million dollar chat from a series A player who's got a billion, to four billion, five billion even. And yeah, you're a total cool option. We're gonna give you 10 million, 15 and just get out the way, see if you earn sting and we'll come back and give you 50 if you are interesting. Is that good or bad for founders actually? So if you'd ask me this question in 21, I would say it is good. Because if the market's on the way up, if everything is pulling you up, all you need is money from the investors. You don't need all that much more. It's nice if they invite you to things, but you don't really need very much out of them.

31:53If the market stumbles, market stumbled in 22. There's a whole bunch of companies out there. By the way, if you look at the public markets today, and you go look at all the SaaS companies between the first desis all the way to the 10th desis all if you break it up, Everything other than the first desile is both growing and profitable. Both. Not either or both. Which means that if you're a hundred million dollar vertical SaaS company that's private today, and you're at that kind of stage, and you're not one or the other, you're sorry, you are one or the other, but not both, you have a long way to go before you can go public.

32:25And those companies need to be, like work needs to go into them, and you probably need even if it's just a sounding board, someone to sit down and have that conversation with. and that's probably your venture person. And if you're in a call option business, it's not worth the venture funds time to do all that stuff. So I think it depends if you're in bull cycles or bear cycles or kind of in between cycles. And I think we're kind of sort of in between because we're bull on AI and then kind of bearish on a lot of other stuff. Keith Roboi who's a friend and been on the show a couple of times, he always says, like the best founders don't need your help.

32:57Do you agree? Yes, until there's a hiccup. And there are hiccups. People forget like even some of the massive outcomes in our industry have had hiccups. Some of them did not. Google did not have any hiccups. Maybe now it has a hiccup with some regulatory challenges, but did not have a hiccup. Facebook had hiccups. That was not easy to raise some of the rounds of Facebook. Like there's a reason why Microsoft ended up on the cap table. Like companies, they don't have a linear path from like zero to success. It looks like that. You stretch out the curve, and you miss all the volatility. It's like your glucose monitor.

33:28You see ups and downs on your glucose monitor, and then you see the trend line. and then the trend line, you know, when you eat, starts going up, but you do see ups and downs, you forget about the ups and downs with history, but it's in the ups and downs where you actually need someone around to have the call and maybe not on the ups, but definitely on the downs. You said about the downs set, another thing that Jason Lemkin's taught me is like, honestly, giving founders true feedback on why you're passing, don't bother. They would just argue, they'll just think you're a shit. Just don't bother, it's not worth it.

33:55I'm kind of in the same camp. There's no upside from like arguing with people. I mean, argue with your founders who are like, in your, like during your family, right? You're an investor, you're a long, but like there's the outside world. Hey, by the way, the one on one of my founders says like, you're single biggest flaw right now is you just have a overactive, and on one of our LPs, that's the same thing. OveractiveTwitterX .com. Like why are you even hunting this thing? Do you give a shit what people think did? Yeah, because you treat Joe, I was in the gym the other day, and you tweeted that some kitchen utensil company had like blocked you, and I was gonna respond to you.

34:27You know I love you, but I was gonna respond to you like even the kitchen utensil company doesn't work. I was like, that is too good. Yeah, I got blocked. I got blocked from buying frying pans. What did you do? I bought a frying pan last two holidays ago from my wife and it never turned up and I complained and then eventually turned up. And apparently though response because I complained has been to blacklist me. I'm not allowed to ever buy a frying pan from the company again. But does it affect, like, does it upset you? Right, I think you know the truth, which is that you're not the most popular to me.

35:03Yeah, I mean, I don't know if we're just shooting for the popularity contest. Does it ever happen with materially adverse impact on funds? Yeah, I mean, I think who wants to work with people who are too controversial or too unpopular? I mean, you want, like, especially when things are going up, right, you want people who are gonna be cheerleading as much as possible. So fun one, 39 months. How long do fun two take? It's gonna be better, right? Cause we've got dark tracings and delivery, so it's gonna be great. It's better but marginally better. It was 28 months. So we went on the fun raise. We finished up fun one.

35:32It was a 2013 fund somewhere around 1718. We went back out into the market to go raise and you're going from 27 to 89. We were trying to get to back to we're trying to get to 100. We thought 100 was the right number for a seat fund back then. We now think the closer numbers like 150 to 250, but back then it was about 100. If you're gonna play this game Well, that's about the size that you need to be. So we went out for 100. We got a commitment from the European investment fund. It's a long process with the EIF and they're like the anchor LP of record in Europe, especially in that era And we asked them about Brexit and they said we don't there's no such thing article 50 hasn't been invoked We got to the final we got to terms we hadn't gotten into legals We're doing the jurisdiction work and article 50 got invoked and everyone who had a check or a commitment from EIF at that point felt it Seed camp got one of the first calls they tore up the document and all of us lost at EIF commitment because they were no longer and able to invest in the UK.

36:25And then we had another big insurance company, we was like the co -investor, the co -anchor basically. We lost the insurance company's browser, we basically reset back to zero to go do the fundraiser, started from scratch again in 18, and then kind of got our way to a closing in 19. What was the big breakthrough moment there? One or two big commits? Yeah, we got British patient capital, which is BBB. So instead of EIF, we got BBB, and BBB was like a good chunk of the fund, like 40 % of the fund. 40%. I don't think we'd have a fund like do what we're always told and I know this is incredibly luxurious positions being like we're always told I don't have anyone over 10 % of your fund you don't want to be too concentrated blah blah blah you got you got to get a fund you got and you got to get though I would argue you have to get the right size fund and you know nowadays we don't have this is bad is it better to get the right size fund with imbalance of LPs or is it better to get the wrong size fund with the right balance If you're going to deliver a ton of returns for your investors, get to the right size fund.

37:24You mentioned that obviously, BBB will be PC. Should governments be funding venture? I think in Europe they've had too. I have a controversial take on this, which is the worry about government's funding, especially at those kinds of concentrations, is you end up with governments having market power. I am a big believer in capitalism. I'm a big believer in the markets. I think if you have someone like the EIF where there's 30 % of the aggregate capital of the LP commits It's too big what you should really have is what happened with with with with AT &T in the US Where they broke it down into the bells you had five different bells kind of competing with each other in telecom You probably need five EIFs competing with each other in the market if the government's gonna step in to help You don't want to concentrate it in one big power because then you end up with weird terms.

38:15Like you said, they may not be market and it's really hard for the market to then function the way it needs to function. So if you're gonna do it, do it in a competitive way. Yes, or it could actually force the hand of pension funds who sit on the side in the UK and do absolutely nothing, which is a disgrace. So I looked this up. So the pension funds in the UK, so the defined contributions scheme, about 10 % of the capital in the pension funds is invested in the top tech names in America, 10%. And about 5 % of the pension funds is invested in UK equities. So they're actually pretty long tech as far as pension funds go.

38:49They are not in venture. I have a genuine worry. It is really hard to be a VC, it is really hard to be a founder, it is I think also reasonably hard to be an LP. Like if you're coming in from scratch with no knowledge, I don't know if you really know what you're doing. It takes money and time to train a VC, I think it takes money and time to train an LP. Super hot. So, okay, pension funds now decide to allocate capital to venture. Who's gonna do it? Where's the talent base in the UK of L -experienced LPs who know how venture works, who know what kind of funds to bet on? They're a nun. Yeah, so there's gonna be a problem.

39:23There's gonna be a... By the way, no one is talking about this. I know, too, by the way, and I'm gonna argue with myself here, I say we add across a couple of pension funds, another billion a year to European venture. That is bad. But we already have way too much cash in Europe. Yeah, this is this is the other problem that I think we've had ever since 21 We have had a number of people enter the industry who we used to have like 10 ,000 people doing kind of this tech investing venture Etc. It's gone up to like 35 ,000 It's come back down to the historic norm But there are a lot of people doing this stuff and I don't know if people know how to allocate capital to who's good Who's exceptional whose average?

39:58We have a lot of data on managers through the shows and everything And a lot of LPs come to me and they say hey, here's my book tell me how I should write a size it. And they talked to me about their annual budgets. And the annual budget's generally about three to 500 million for US Endowment. Three to 500 million annually in Vanishing is almost impossible. And if you wanna do greater terms, because you're gonna get 20 in your top names. And there's probably three to four top names. Okay, so we've got 80 out. Where are you gonna put 220? It's a real question. Then you have to bet on the rate of merging managers or you have to play the index.

40:27You can't even do that. You do five emerging managers at 10. Great. Now you've got another 50 out. You've got 170 left on the small side. So then you've got to do 40 in 20. I thought the Tiger Playbook was actually really fascinating in 21. Let me not sell a product that's designed for returns. This is how I view Tiger at the time. I will sell a product for a capital deployment. And I'll just buy the index. I'll hoover up not 50 million dollar commits, but 200 million dollar commits who have to deploy into tech. And I'll just buy the index. It didn't work, right? Because I think they were overpaying on the market.

41:00it, but I could understand that the appeal to the LP base, which is, look, where am I going to put this money? I've got a group that's going to take not a little bit of money, a lot of money, and be able to play the market for me. I think the thing that's so challenging with that strategy is you assume that the outcomes at quprable independent of how much cash goes in. And what I mean by that is, they're like, okay, we'll pay up, but it'll still get a three X. It may not be a five X. And that was the mistake. But I do think, like I looked at the data on this, there is a correlation between how much money goes into a company and what the probability of success is.

41:31This is why I think if you're going to be contrarian and we take pride in being contrarian, you have to make sure your company is a capitalized because if they don't, they don't have it. The average is about 300 million to get to unicorn status and then there are some companies that do it for 200 million. But you have to raise that quantum of capital. The biggest structural problem that we have in the UK and Europe, the conversion rate between between seed and series A, series A to series B, series B to series C, is basically these days on par with the US. But the capitalization of our companies from seed to series A, series A to series B is way under what happens in the US.

42:11And there is a statistical correlation between if a seed round raises like 100K, the probability of it becoming an outlier is very, very, very, very small, kind of makes sense. If that seed round goes up to like 10 million, the odds between 5 million and 10 million, if the seed is five versus the seed intent, basically double. So getting companies, DELS between five and 10, because I would always, in my head, assume that actually, say three to five is the optimal, but 10 actually it becomes, that is detrimental. Yeah, yeah, yeah. So, but there is a reason for companies to raise the right amount of capital at the stage.

42:44And then too much capital, I think, becomes too much of a wash. But the big problem that we have in Europe is we raise, but we raise small rounds. So people will take the risk, but they'll mitigate the risk by writing a small check. And it's weird, because the inverse should be if you believe in this thing. Like if you believe as a seed investor to a million and you have the fundsized to be able to do this, you should believe it three. You should believe it four. It doesn't make sense to believe at 30. But there is a number where you're freeing up the capacity of the founder and of the company in order to try and achieve greatness and you're shooting for greatness as fast as possible.

43:19And I don't think people crock this fully in the European venture ecosystem. Are you price -sensitive? Yes, because we care about ownership, but know when it comes to the check. Like, we often have this debate where most of our deals like I said are contrarian, and there's contrarian that's even within the table. So like, we don't get it, rest of the group doesn't get it. We don't see an obvious reason not to do it, but like, we don't see it, and some of our best deals are usually like this. And so instead of then downsizing the commitment, we're like, okay, we don't really get it, but they're raising three and a half.

43:49Like, if they're gonna really try and make a run at this, Maybe I should have like four or five. Maybe I should go in there and buy like an extra few points of equity for that money. And I think that's the right way. Like if you're in this power law world, that's the right way to play the power law. But that requires a fun size that's bigger than the hundred. That we initially were thinking a few years ago. We're going to get into that. So but they can try and even in the partnership with partners. I want to do this deal. You really don't. You think I'm nuts. Can I do this? So we do it on the basis of is there a is there a red line like is there some flag?

44:22I mean red lines are on what red is there a flag that we can throw down that says it doesn't make sense Which is I looked at the cohorts I looked at the early cohorts and and you know all of those cohorts of deteriorating So you thought it was really good. It's growing exponentially But the data suggests that maybe that's not the case By the way, that's a real world scenario got super excited by a company in Portugal and one of my partners looked at him was like You're saying, you missed the trick here. By the way, this is why I love working in partnerships. I think partnerships are way better than solo GPs, because you get this error correction mechanism from other smart people.

44:55But if the error correction mechanism is they're blocking you for no good reason, like, is, and they're just running interference on you, then it's really a knockout. You know what I mean? There's always a reason to say no to a company. There's always a co -holders off. There's always a conversion rate that's not that. There's always a retention metric that's down. I could throw it down right far. Correct, which is why we look at like on the aggregate, like if all the cohorts, like if you've missed something and someone flags it, we generally have a lot of humility inside the firm to be like, yeah, I didn't catch that piece, like I get it.

45:27I don't know if I really wanna do it, but most of our cases go down to the following. I don't think that person's gonna be able to hire very well. It's like, okay, that's like super gray zone, right? How the heck do you just prove? Like that there's no null hypothesis to prove. And in those kinds of cases, we give each other the rope. You said 150 to 250 is where you may be naturally thinking optimal seed fund sizes. That's bigger than most people would suggest. I'm by the way in your account. I'll need funders 125 for seed. So bullpaw. Why do you think 150 to 250? So I think if you're going to try and do 20 of these, your check sizes are going to be 3, 4, 5 and then sometimes these jumbo seeds are now up to 10.

46:08Like Ed Sam has been able to done a bunch of like work on this showing like what the path is of these. and they're more and more common by the way. The jumbo seeds up six to seven times in volume than they were a couple of years ago, and the seed rounds that are five million plus are a fifth of the industry. Do you do those jumbo seeds, the inception? We did one. We did one, and you have to sometimes. I saw this as like a 10 million round, right? So it was a $30 million round where we took it off the table at 10. We locked it down, set the price. You put the board in 10. We put in 10. It was an AI company.

46:38A foundational model didn't necessarily need all the money on compute. So 10 in a foundational model and 10 is a really large number but 10 in foundational model land is still a small number We took it off the table and then everyone wanted in and then we selectively led a few funds in Nortzone came in lightspeed came in It's that around the round became 30 10 million. It's a big big back not out of a 200 million dollar fund This is why you have to be a decent size fund if you're a hundred million dollar fund That's 10 % of your fund right there. You know 5 % of the fund is very different than 10 % of your fund And I would argue maybe that number should be like 200 to 300 if you're going to double down Peractively.

47:15You have another vehicle so you can double down out of another vehicle But if you're not able to have another vehicle then you're going to do it out of the same fun You probably need to be closer a little bit higher than your 125. What is your capital concentration limits per company? How do you think about that? 10 % 10 % Okay, so you say have another 5 % for this company over time. Yeah, but I think in this case we think AI on the foundational model is somewhat binary. It either works or it doesn't, because if it works, and you've seen this with a bunch of A and A. I'm happy you wrote that, Jay.

47:45Yes. I don't know if it's going to make us money just yet, and it's pretty mature to say that. The company was funded in, we took the term, with term she was March, I think, and why are we in June? We're sitting in December. It'd be like foolish for me to say anything like about it. I don't know. I think we've seen the commoditization of different model providers very quickly over time and action. So it's not a generic model. It's a model for material science. It builds a foundational model that's bespoke. There's a piece of Microsoft research came out two years ago that proves that this kind of stuff can work.

48:12It's basically the AI building the next generation of materials using AI. It's a very different type of foundational model. So, sorry, Gary, imagine, so we have 20 companies in the portfolio. Pretty good picker at 20, by the way. Yeah, so the probability at seed of picking something that becomes a unicorn is 3 % done in a few times. Yeah. 20's not a huge amount. And so just walk me through that if you got 150 or doing 20, you'd say $5 million checks. Minus fees, plus reserves. Plus reserves, sure. It's 200. And that's one to one rule of thumb. It's not quite what we do, but just double it because that's the easiest mental way to do it.

48:49What do you think of all these seed funds that are $75 million? I'm worried. Like I think in a bull market where you're writing the first ticket and someone else is in carrying the slack and picking it up, you know, it's easy to be the feeder fund for those folks and write the small checks. I think we've too many of them right now in the industry. I think right now the real opportunity in Europe is there a handful of really good venture funds at the top? We know who they are, right? Index, Axel, Sequoia, etc. Like all very active in Europe. Which you think is right. Do you think there's actually a handful?

49:16I think there's index, that's all in Sequoia. Being, I think it's slightly more broad than that. I mean, I think random would feel really annoyed if you didn't put them on the list. I think that's true of a bunch of other funds. No, but on a mercy fund. I think they're serious, they're fun. But okay, fine, no minklature. There are a handful of funds that are bigger and aiming for big outcomes in Europe, but the market here has grown 30 -fold. Like when we first started, there was about a billion that went into Europe and venture these days about 30 billion that goes into Europe and venture. Weirdly enough, people seem to think like markets that get more liquid and more competitive or bad.

49:48I think markets that get more liquid and more competitive are good because the market's actually working. If when the market goes up 30 -fold, even if there's more competition, I'd much rather play in the bigger market than the smaller market, but I think there's a chance now for a few more funds to be on that list. I think you have that ambition. I have that ambition. I feel you have that ambition to blossom. And some of us are going to make it. I don't know if the world right now needs yet another emerging manager yet another micro cap fund. I think what we need is like five to ten dominant superstar venture funds in Europe kind of the way in the Bay Area.

50:22They're like 10 or 15 of those. Yeah, but we don't have the supply of entrepreneurs. We will do a lot of first time founders. I think a lot of people in Europe won't back someone if they look like their first time founders, but I think a lot of the interesting outcomes in our industry, and you can think about this anecdote. Two for younger founders. Doesn't matter younger or older. I think the people who are doing their life's work, usually if the company captures their life's work, that's kind of the only thing they do with their career. But we had Nick on the show from Revolting, he said that when they look at the work they do with quantum light and analyzing a found age, 25 to 35 is actually the optimal time they find best performance.

50:55Yeah, because I think if you're saddled with a family, it's harder because you have dual interest and you end up in this like solo, like one mindset, right, which is built by company and that's much harder to do when you're like raising your family. And I think if you're like 15, 20, unless you're like a superstar and really precocious, you probably don't have the accumulated wisdom to learn lessons. And I think there's a like that 25 to probably 35 age or 25 to 40, like you can grind and you have enough experience to know what to do. Do you think there is enough high quality seed companies graduating out of London, out of Europe for the multi -stage funds to do?

51:33I mean, I don't know about that general market, but in our portfolio for sure. That's why we've ended up concentrating on that. Because you are seeing the US players come in with large amounts of cash. Again, the challenge in Europe is most of these companies need a little bit of tinkering versus like being... You can't just fully, fully leave them alone. But you have to think of Europe the way venture was in the 80s or 90s in the US, where these companies, if they didn't have a strong partner on board helping them build. And you read these like oral histories, you will see what I mean by like companies like actually being like getting guidance on what to build were in that mode.

52:08And I think the industry has shifted in the US to be like, you know what, the market takes care of that stuff. I just have to deploy capital. And in Europe, the market doesn't take care of itself. Do you think founders are aware of that? They read found a mode from Paul Graham and they read the US articles and they read everything that the US founders consume and then it's maybe operating in a different environment. I don't know if this necessarily always resonates but the minute there's a hiccup and you have these hard conversations with founders, people grok it. Do you think the criticism will have it towards Europe today, which we both see on Twitter like never before?

52:39Do you think that's fair or completely unfair? From a macro perspective, that's not what I do, right? I think this is underlying fundamentals for my business. We're living in a world of AI. I think this is the big seismic shift for the next 10 years. This is where the next wave of wealth creation is going to be. I'm looking at the conditions on the ground. We used to produce really interesting gaming companies when I was at Axel. We were really strong in Europe. That was probably the only thing we were really strong at. Then the government lowered the regulation in finance. We were really good at building Fintech companies here.

53:12Mons are revelators. I remember. And this was the place to build Finties. Exactly. And the FCA really made it easy from a sandbox perspective. When you look at this new big, and but those are a niche, they're big niches, but they're niches, like in the tech industry. AI is much more horizontal. When you look at what's happening in AI, you got deep mind down the road in London. You got meta -running its AI stuff in Paris. Like we are for the first time ever in European history, on par from the company creation or technology creation as the US and not a niche field but in a horizontal field. I cannot interpret that in any other way that there's going to be opportunity in this stuff.

53:48Yes, I'm really terrified that the German car industry is going to get wiped out by China, but by the EVs in China. I think they're asleep at the wheel. What happens then? I don't know and I don't know what's going to happen to energy prices in Germany. I am worried and petrified about UK growth stagnating and quality of life here deteriorating, but from a company creation investing perspective, these two things, or these things are not at all related to what we do as an industry. And then I would argue. Well, they know, because actually, if you consistently say in your case, don't run Rachel Reeves, we consistently will not have growth in the next three years.

54:21You are not putting up a banner for great entrepreneurs say, hey, come build here. And so there is a correlation effect. I don't know if entrepreneurs are engineers and techies are thinking about macro when they're thinking about doing something that is a problem. And then the question is like how do you scale the company? And I do worry that if you're scaling the company, your best path to scale from a financing perspective is America. The rounds are bigger. Chances of success are correlated with bigger round sizes. Experience set is bigger in the US. The market is bigger in the US. The trajectory of travel, and by the way, there's always been the thesis that Auguston, like Darktrade's made more money in America than it did in the UK from the very early days, and more staff in America than it did in the UK.

55:00Our directory of travel, direction of travel, is find the best here and be the bridge to America and take them over there. From my perspective, I feel fine, regardless of what's happening in Macro. As someone who's living here though, I'm terrified about Macro because I think there's real quality of life repercussions if policymakers here do not get this stuff right. But I find that the policymakers here are focused on the wrong problem. Everyone here is talking about the London Stock Exchange. I just told you the pension funds in the UK to find contribution schemes are investing 10 % into the big tech names in the US.

55:32It is not hard on a Bloomberg terminal to put a few extra characters and to buy a share on a New York exchange or a NASDAQ exchange as it is on the LSE exchange. It just doesn't matter the world is global these days. And if you live in a global world, why not?

55:55Why don't you just take the companies public in the US? I don't have no local liquidity markets. What does a local liquidity market matter? If the pension funds, if the pension funds here were like they were 20, 30 years ago where they had to invest locally, it matters because the pensioners are being screwed. The pension funds can invest globally. The only people who realistically get screwed are the service providers around the company. If you list on the LSE, Goldman in London gets to the mandate, Lazard in London gets the mandate, Ernst in Young gets the mandate in London. and then you create more jobs around the industry, but the company is fine, the corporate tax is still a UK company.

56:29Well, I think you'd argue then that it only allows for the top 1 % to flourish. And what I mean by that is only if you are Spotify or Revolut. I'm sorry, if you're not going public these days, unless you're a top 1%, you've got to say in the top 1 % of the IPOs, which is a Revolut or a Spotify, which can go to the US. So we looked at the data. The bar for an IPO today in the US is north of 200 to 300 million. Gone are the days where you could take a company public where you could raise like I remember when I was when I was growing up in the industry Like 10 15 years ago and IPO is like a hundred million of revenue or an IPO candidate doesn't exist in the world that world is shifted That was a 20 those a 10 year old world there used to be a time by the way like remember Yahoo when Yahoo when public Yahoo in public on like 10 20 million of revenue etc And like was worth billions in the market though those days are gone We now have very deep, very liquid, very large markets across the industry.

57:22But the other thing is the private markets are so big now that there are other ways than going public of getting liquidity. I just don't know if this is that much. I mean, why are you solving a problem that is a really hard to solve? And I would argue, really probably doesn't matter. If the path to New York Stock Exchange listing was closed from here, and our best company's are couldn't go public, fair. We have a real problem. And if our pensioners can access that, we fare. We have a real problem. Can we access NAS back in US markets on mass? Not the 102, but like hundreds. We have to go build those companies.

57:55Get those companies to 200. We have a company on our portfolio. It's about two years away from IPOs, appointing bankers right now, 150 million net, 160 million net revenue right now on a run rate basis. We'll easily get to 250 a revenue, which is I think where the bar is to be able to go public. New York Stock Exchange. By the way, the first two big tech IPOs, and the LSE, those were supposed to reinvent, repower the LSE, were hours, deliver room dark trays. And we delivered... We delivered rooms on the LSE. Deliver rooms LSE, dark trays was LSE, and then right after that tablet, when public with WISE on the LSE, and I tried to talk him out of it, and I said, go, go in America.

58:29Would delivery be performing different if it was in America? I'm not so sure about that one. I think dark trays definitely would. How so? I think it was trading a huge, a huge multiple discount. 732 million of revenue, like I said, trailing, trailing, and got privatized a five -billion. And that was a premium. I figured out the number was 20 to 37 premium over the stock price on the day of the stock price bumped right on the day of the acquisition or the announcement of the acquisition. So we had class almost on the show and he was like, no, what we need is actually a European liquidity. Why? It's like the same thing.

59:01People want to solve European. They want to make it really easy and corporate to company in Europe. Like why? Incorporate in Delaware, the UK, like problem solved. Is this not, I mean, I've seen these, I think we signed the petition, whatever. I mean, I'd love for it to happen because it just makes it easier. And it removes the borders and it makes, but I think anything that makes it easier, I'm supportive of it. If the LSC is able to transform itself and become a viable exchange, great, another path of liquidity. But as a policy maker, if that's the problem that you're focusing on, much rather have the, how do we make sure our companies get capitalized the right way and can become the top 1%.

59:36I was at a dinner, a CO dinner last week, the Wall Street Journal throughout. But what I was told, one of the biggest impediments to housing in the United Kingdom, and housing is a big deal in the United Kingdom. We don't have enough houses. Is we did not build reservoirs 30 years ago. And I had to look this up because I didn't believe it. This is a country, by the way, where it rains a lot. Like water is not our scarce resource. I'm British. You'll know. I know this. So we do not have enough reservoirs. If we wanted to build 10 million additional units of housing for 10 million more people, we would not have enough reservoir infrastructure.

1:00:10And I think the worry that I have for the governments in Europe, and it's also true in the US, but definitely pronounced here, are we making the long term right bets that take 20, 30 years that are not election cycle bets? You don't get elected because you built a reservoir and it takes like a few years to kind of build a reservoir and really kind of fully come online and you benefit 30 years from now. our policymakers doing that kind of stuff. The infrastructure that makes our lives easy, that allows our countries to thrive, is oftentimes being neglected. In this reservoir, there's just one of many problems.

1:00:41And then it cascades and creates all kinds of problems 30 years from now. You are advising Kastama. I am not. I've never been called. You are. I was. I was. Oh, within a hypothetical. In a hypothetical. What would you advise him? I would not have tinkered around with the tax rates. I feel like that there was enough own goal. The Donald Trump removal is bullshit. Yeah, and I don't say, I mean, I've passed my non -dom. So I'm in the camp, I've said it publicly on X. Like I have no problems paying income tax on carried interest. Like I think it's income, right? I mean, it's not my capital work doing it.

1:01:14It's because I'm doing my job. So I have no problems with this. But I think tinkering around with stuff and tinkering and and changing it frequently. And the worry that I have is, okay, capital gains is going to have gone up when the UK fine. Are they going to tinker it next year? Like, I want stability, right? I want these infrastructure things long -term, stable, consistent, so I can focus on the really hard things of building these companies. If they start tinkering with the stuff that I'm taking for granted, it becomes infinitely harder for me to actually figure out how to adjust to that and build these companies.

1:01:44Upper -out of the founders kind of navigate. So it'd be, hey, state -to -estrology. Foring is good for governments. But that's not the world that we're in, especially in an amplified social media where being a little bit more exciting is more fun and also gets you more credit and more kudos and more attention. We mentioned that like, oh well, you know what actually in terms of liquidity markets, we just go to the US or Nordart tool, we have PE, we have different players. The extended window of privatization or like the private capital is so real, you've got Stripe, you've got Databricks, you've got SpaceX, you've got Starlink, you've got all these companies, which, but they didn't need to go public for the foreseeable.

1:02:19I mean, the SpaceX tomorrow right now is off the fucking shores. And I don't think most people realize this like once you get to that kind of size you end up having to comply with all the SEC stuff So you may not be publicly traded, but you're complying and do it you evolve all the infrastructure to actually go public at any time that you want Because you've had to build that because you've got too many shareholders that new rear -end Do we have to navigate secondaries liquidity markets differently? I don't think so. I think as a seed firm you build great companies By the way, if someone offers you like 50X on your first investment, maybe there's actually a reason to take some money off the table.

1:02:54But you know, normally what I've said do that, you get your 50Xs at the IPO stage or at the very late stages. And then the same argument would apply, but if you get that in one year, the same logic applies, right? And you just do it one year in. Are you ready for a special type of round? Sure. We get these questions from either mutual friends or industry. You got it. and we put down a number and you can either answer the question or donate the number to a charity of your choice. Okay. So what number do you want to set as the donation? What's market in this? Between one and five thousand. Two thousand?

1:03:28Okay. Let's do it. You caused a bit of a for all on social. We're the post about hiring women. What did you say and what did you mean? It is hard to find people to come into a partner only organization and you require people to be reasonably well trained. You're taking a chance on them, but you expect them to kind of be able to hit the job running. There are some great women who are very capable. It is hard for me to poach them because they're very well taken care of in their existing funds. For very good reasons, because there's a shortage of them. One of my LPs is a woman sat down with me. She's an individual entrepreneur, like, uh, And she's like the one thing that I didn't think about.

1:04:06And this is a genuine thing that she really made me reconsider. Is I always used to think of us as like a two year scrappy startup as a fund. Brand new fund, like 39 months to go raise fund one. It's like sketched it. It's like etched in my brain, right? It is like hard and hard yards. You know what? We're 11 years old. We managed a $200 million fund. As much as I don't like to admit it, like we're one of the establishment now. Like we're no longer the scrappy startup. Like we're establishment. And if there is a shortage of women that I can't recruit from laterally because they're well taken care of, and there's a shortage of women in the industry, it is in combantum upon me.

1:04:41Like I have a responsibility to grow the next generation because if I can't recruit laterally and I know they're not enough people coming up through the pipe in the industry and I'm one of the establishment now, I can't be scrappy anymore. I probably have to invest some dollars and train someone and fix this problem. like the problem falls on my shoulders. I think that's an interesting lens to think about this, and that's kind of lens. I can't do that just yet. I don't have enough partners in my partnership. We have a small partnership with three GPs. Do you feel like you have freedom of speech today?

1:05:14Yeah, yeah. I mean, you get freedom of speech and then people will call you out on it, like which is what happened. Do you think it was a far response? I do not, I reached out to the person who wrote the LinkedIn post multiple times to grab coffee. Before that went out, the day that it went out, after one out and I've chased afterwards, she's never met me. That's where society's gone a little bit more toxic. I would have much rather had that debate. You can have the debate on LinkedIn and call me out. Like, look, if I say something stupid, call me out. Like, I have no problems with that. I can take it.

1:05:43And it was a fair criticism, I thought. But then sit down with me and have coffee and let's break bread. You said $2 ,000. This is the new daughter. You sped up the apartment, Rob. What actually happened? That's also an easy one. So 10 years in, we grew apart. That's what happens. I think as we've gone success, the nice thing about having success. And we made real money on Fun One, even those are $28 million fun. We did really well for ourselves personally. You get to build the firm in the way that you want to build it. And the big difference to enraubing myself is Rob wants to build a different type of firm.

1:06:15And we can think about how to make that work within the constructs of Hawksdon, but it would be hard, right? You'd have to change the character of the firm. You'd almost be like a millennium where you have people like or PMs running their own book or you could say Go gracefully go build it by the way MLP and what props fun and go do your own thing I'll be the first check in the fund You've got the full support you have no restrictions on trade et cetera et cetera Like you you keep your track record you keep the LP base and go do it the way you want to do it And that's basically what we ended up deciding it took a while to be able to do that But like we very much want to build the next generation bigger earlier stage firm like we want to be one of those dominant five to ten firms I think Rob does not want to do that and Rob very much wants to build a very science oriented deep tech type firm And it's just different which venture investor to many people in Europe think is great that you do not That's a good one.

1:07:11That historically would have been able to easily answer that but these days I don't know Historically quick commerce Amazon roll ups No, I'm saying ventrination. Investment firm. Oh, which, sorry, I thought ventrine investing. Oh, this one's an easy one. I should donate anyway, so 2000. 2000? I don't wanna name a firm. That's not nice. That's not nice. Listen, I wanna do a quick fire. So I say, I love the way the guy at Sneak was like, yeah, sure, just like slam, those eggs. Listen, I wanna do a quick fire. So I say, a short statement, you give me your immediate thoughts, sound okay? Yeah. What if you change your mind on in the last 12 months?

1:07:47that you can actually make money across the spectrum in AI. I'm proud of that one. Cost was one of these. The foundational of we would have been we are not doing foundational model deals. They're too expensive, too capital intensive, never going to go in, not to seed funds, not a small seed funds place to do that, and then cusp locked in the door, which is this foundational model for material science. We wrote down a double check, took our reserves and did one big investment, own 11 % decent size investment, And if it goes to distance and they raise $100 million or $200 million like some of these then it will be fine.

1:08:20What's the best investment advice you've ever received? Play the long game, be contrarian, but you gotta make sure that you get, the market sees you as right within a very short amount of time. So you can't be contrarian for like 10 years plus. What's the biggest sin of the zero interest rate environment? Oh, so much money went into some of these things and people just relax diligence. And we're seeing that today and she think we'll see many more frauds. We're, it frauds like just people not paying attention to details, people not turning up to things like it was, it was just, it was a mess. And I think we're seeing some of that same stuff in AI.

1:08:55Like, there's so much, there's so much euphoria for, for AI that people feel they have to have some of these companies in their portfolio. We as a venture industry have to think about how to create monopolies. The regulator doesn't want monopolies, but we want monopolies. We want companies with increasing returns to scale with deep defensible modes. You build this thing and has this huge mode and every extra of revenue, customer, whatever it gets increases the size of the modes, but distance between it itself until eventually it has to get broken up by regulators because it's just too darn powerful.

1:09:28That's that's what I want to put money into. I'm not so sure most of these companies, which get highly commoditized super fast where they're 20 versions of the same thing and the expression of Brian and our team uses is knife fight and a phone booth. I'm not so sure and the reason why we're doing them is because people want to deploy. They want to write checks into these things. They don't want to miss out on the next big thing because they look foolish as a big firm missing out on the next big thing. This doesn't sound like a rest and it sounds like it can go the right way but it reminds me like hauntingly of like 1995 1996 1997 .com.

1:10:01Do you play the game on the field? You have to. You can't you can't sit. Does that not go controversial what you just said? Yes, so this is but most of most of our investments are figure out how to be contrarian and still play the game on the field It's not possible. Yes You have to be prepared to be a little bit lonely and you can't be too lonely for too long because if you are your companies Don't get capitalized so you need the capital to come in But you have to be prepared to be a bit of an iconoclast for a little bit Do you think we will go through an AI winter in 2025? I think we're gonna go through some something and I don't know what this something is like you know You look at the dot com industry, the household name companies of the time didn't necessarily turn out to be the big outcomes.

1:10:41The Yahoo's, the net scapes, they went away. Amazon powered through, but Amazon was never the super hot company. eBay was the hot company back then. And then the Googles didn't exist. The sales forces didn't exist. Like they came, they came at the tail end of that. I don't know what AI is going to look like five years from now. Do you think Nvidia is undervalued today? One of the pieces of investment advice is you can't think of something as too cheap or too like you can't walk away you can't go into a company because it's too cheap and you can't walk away from a company because it's too expensive.

1:11:10The big question for me for Nvidia, Nvidia's grown its net margins from 10 % to 50%. And besides the revenue growth which everyone looks at, it's like it's become this like natural monopoly. But if you look at what everyone is doing today, you look at what Apple is doing, you look at Amazon is now doing and Matt has been working on this. They're all building chipsets to remove their dependence on Nvidia. I don't know if those chipsets will actually get anywhere. I don't know what's coming around. I'm not a semi -guy. I don't know what's coming around the corner that could commoditize it. 50 % net margin feels high.

1:11:40And if that margin comes back down to even even a very good margin, 30 % net margin, the multiple changes. The end answer for that question. And this is why I think you have to be a technologist to do a technology investing is what do you think is coming around the corner that may or may not threaten them margin. If you can figure out the answer to that as a semi -person, you can play the Nvidia game. Open AI at 160. Unthropic at 40. Axe at 50. Which one do you buy? I mean, Open AI has real revenue and I think there's an increasing returns to scale, but I think the same thing I just said about Nvidia applies to a lot of this AI stuff.

1:12:15And the AI stuff, like I had dinner with Alex who founded Wave, which is one of the AI companies here that does self -driving cars. In our discussion, this market is commoditizing so fast. The tools are getting so good and then other people are building tools. I mean, you saw a couple of weeks ago China's now like Kaifu has a company, Kaifu's Myelbus, and Microsoft Kaifu has a company that's been able to replicate what GPT has, but with like a fraction of the compute because China does another computers and they kind of published around this stuff. It's commoditizing so fast. I don't know how much of this ends up as consumer surplus.

1:12:47In other words, we all benefit as humanity because the spend kind of goes in and everyone benefits, but it come on ties so fast, no one company ends up skimming off enough of the cream to become the big, like the kind of the big winner. I just don't know where any of this stuff goes, but I think if you don't play, you have no way of knowing where this stuff goes. You have to be, you have to be on the field to even learn. You've got to choose one of the three. Open it up. Does Trump open up M &A and IPO markets? Yes, because I think JD fans has made that very clear. That's sub five hundred million dollar deals.

1:13:17The FTC has no business is trying to block transactions. Which is phenomenal for seed funds on a recycling and actually really getting as much dollars to put to work. I mean, it helps that their vice president used to be a venture capitalist. Final one, where do you want Hoxton to be in 10 years? You said I want to be one of the big, you know, generational players. 10 years out, 2034. I'll answer it a little differently. I mean, I, you know the direction of travel for the company, I would love for us to have built the partnership and I'm thinking actively about this and I can hand the reins over where I'm just one of a few and someone else is running the firm.

1:13:48If I can do that successfully over the next decade, I know I have a durable firm. I want to build a firm first of boutique, first of project. It's not a shell over me. I want the firm to be around and I want to be able to pass the reins over within the next decade. It's only been nine years, so, you know, not a huge amount of time. I've so enjoyed this. Thank you so much for coming and I really appreciate it. Yeah, my pleasure. And hopefully we do this again in another decade. I have to say, I really like her saying, I think his willingness to not be popular is very special respectfully, and also he's a very, very good picker.

1:14:24That was such a special show for me to do as you heard, with done one nine years ago, so an even more special ones to do that today. If you'd like the show and you want to see more, you can find it on YouTube by searching for 20VC, that's 20VC on YouTube. But before we leave you today, it can be difficult to build a team that's aligned on everything from values to workflow. But that's exactly what Coda was made to do. Coda is an all -in -one collaborative workspace that started as a napkin sketch. Now, just five years since launching in beta, Coda has helped 50 ,000 teams all over the world get on the same page.

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