From Apartheid to Unicorns: Saul Klein on Venture, Purpose & Inequality

0:00If the only people allocating capital to the future are white men, we're fucked. But, you know, when we talk about new Palo Alto, we're not talking about another Palo Alto. We're talking about a different Palo Alto and one that is intentional and is based on values. Because, yeah, the talent is completely equally distributed. And, of course, there's plenty of talent in new Palo Alto. Also, the idea that the only talent in the world is a 20-minute car ride from Sand Hill Road is like, literally tells you how delusional Silicon Valley is. That is Sol Klein. Sol is the co-founder of the ecosystem of funds under the umbrella Phoenix Court.

0:48The flagship fund Local Globe has invested in over 13 unicorns at seed stage, putting in number one in the EMEA region. Sol is a bit of a legend in the startup world, having invested early in the likes of Weiss, UiPath, Robinhood and having operated at Skype and co-founded LoveFilm. Additionally, he serves at the UK Prime Minister's Advisory Board of Science and Technology. I had the most inspiring conversation with Sol. We talked about his upbringing in South Africa during the apartheid years and how this experience instilled in him the ambition to leverage innovation to create a more equal world.

1:22We talked about how young people can get involved into the massive technological shifts that are happening today. This is the Venture Lab podcast and I'm your host, Luis. Ladies and gentlemen, by way of introduction. If someone has no idea who you are, which is rather unlikely, and this person has just clicked on this conversation, can you give me a little bit of an overview on what you have spent the last 25 years of your career focusing on? Wow, only 25 years? you know we're cutting it short um I started like 34 years ago but you know I I guess what I would say and I've said this I think since 2008 on my Twitter account or now X account is that you know I use I've always just had five words to describe who I am and what I do number one husband number two father number three uh founder number four operator and number five investor and i mean honestly the those final three founder operator investor you know i've switched the order at different times since 2008 because, you know, I always find myself playing all of those three roles, but, you know, husband, father, founder, operator, investor, and my location, you know, also since 2008, you know, because on your Twitter profile they ask you what your location is.

3:12You know, I've always said internet. So it means that you have a fascination for technology. Where did this come from? I honestly think we all have a fascination for technology on some level. I'm definitely, you know, ironically, as someone who's been on the UK Prime Minister's Council for Science and Technology for the last five years, during which time there have been four prime ministers in the UK and six chancellors. I'm neither a scientist nor a technologist. I started in this business, whatever this business is. Like I said, you know, I guess the foundational point for me is the internet.

4:15So that's the way I think of the business since 1993. 1993. So like, this is my 32nd year. So this is over half my life, I'm going to be 55 in October. And it's all of my professional life. And so I'm not a, didn't train as a technologist, I didn't train as a scientist, didn't even train as a social scientist. You know, I'm a humanities graduates. So, you know, I studied literature at college and, you know, in my final two years of high school, because in the UK, you pick three or four subjects to sort of specialize in, you know, the topics that I focused on or the subjects, my three subjects were English literature, history, and Latin.

5:22So all of those three things and my degree in English literature, you know, prepared me very well for a career in science, technology, and innovation. And obviously in investing, because, you know, I've got a, you know, everything I learned at school and at university was all about finance yeah exactly yeah no i i get that from it but like what kind of advantages that that um this different background that you have in school and also university what what advantages did that bring to you like uh later on look i don't think as as as maybe difference if you like as that might sound for someone who's worked in technology and science and innovation and finance for as long as I have, you know, the reality is there are lots of people who are part of this industry who have, you know, very similar backgrounds.

6:27You know, my former partner and friend at Index Ventures, you know, who we first met, I want to say in 93. No, no, no, no, no, no. Sorry, let me get this right. 95 probably. So this is 30 years ago. Danny Reimer, who is a phenomenal investor at Index. You know, Danny was a history of art major at Harvard. You know, Mike Moritz, before he was an investor, was a journalist at Time magazine. And he wrote a brilliant book in the early 90s, sorry, early 80s, rather, you know, about about Apple before he became an investor. And Reid Hoffman, you know, who, you know, amazing entrepreneur and investor, you know, did symbolic systems at Stanford, but he did a master's in philosophy.

7:34So, look, you know, the way I would sort of think about this simply is if technology and science have widespread impacts on society, and I think that was always the case, but it's very much the case these days, you know, then one doesn't just need to take a scientific or a technological or an engineering lens. You know, you have to take a human lens because otherwise innovation doesn't serve society. And if it doesn't serve society, what's the point? Yeah. And do you think this is something that has changed over time? Because to me, it appears that like these days, like the majority of people in as entrepreneurs, also in venture, probably have this background in engineering, finance, and less in humanities or languages, for instance.

8:34I don't know if that's the case. But again, I think, you know, we're looking, you're talking about a very narrow window of innovation. I mean, arguably, you know, let's say that modern venture capital started in the early 1970s with, you know, the invention of the microprocessor and, you know, Intel and Fairchild Semiconductor, you know, was sort of the earliest sort of venture capital investments in the early 70s. And, you know, that was very much obviously about sort of science and engineering. And, you know, if you look at the 70s, the 80s, what I would describe as the first era of modern venture capital.

9:27Let's say it started in 1971 and it ended in 1994, you know, when Netscape IPO'd. That first wave of venture was very much about science, engineering. If you think about the big companies that were created in that era, like Intel, like Apple, you know, really an engineering company, uh, Cisco, um, you know, that was an era where 80 % of the, the massive successes were kind of hard tech or science, if you like. And a small minority of the massive successes were software like Microsoft or Oracle, you know, maybe it was 80, 20 science and software. The next era of venture capital, which we're really living in the dividends of that era, although some of the first era companies like Microsoft and Apple are still just incredibly important.

10:38But the next era was probably more like 80 % or 90 % software and 10 % science. You know, the Googles, the Metas, the Airbnbs, the Ubers, the Netflixes of this world. And, you know, I think that era ended, you know, with COVID. And I think we're now in the third era of venture where it's kind of 50-50 science and software, but also the impact of science and software is sort of socially ubiquitous. You know, when I was at Microsoft, when I joined Microsoft in, in when, from a spin out from MIT, we got acquired, I think in like 95, something like that. Maybe there were 70 million people on the internet, 70 million.

11:38Today, fast forward, like 30 years, you know, they're like 6 billion people on the internet. So, you know, you can't operate, in my view, in the innovation system, if you don't have a strong balance between science, software, and, you know, as Steve Jobs sort of famously demonstrated at the intersection of the arts and the sciences. And I think there is a reason why Apple is the most valuable company in the world and is still around, even though it got started in that first era by science and engineering is because they fused these ideas that design mattered, like how people use technology matters versus like, oh, it's cool.

12:31We'll find a use for it. yeah and i always think that people are very much shaped by their early life experience so i'm wondering which early experience had the strongest impact on you on what you're doing today and also that kind of shaped those views that we just talked about i know it's a good question because i think you know one's influences are multiple so i think you know everything that we've just spoken about probably was less fundamental as a shaping experience to me than growing up for the first six years of my life and not really realizing it until afterwards in apartheid South Africa.

13:16So, you know, I, you know, when my parents decided to leave South Africa in 1976, you know, I was six years old. I didn't know what the society was that we were leaving. I didn't really understand the society that it was that we were going to in London and the UK. I mean, obviously, as a teenager, and then, you know, as I grew up as an adult, and obviously going back to South Africa, even in those apartheid years before, you know, Mandela was released, there was just this sense of like, oh my God, this is like so unfair. And I think, you know, what I've really, I would say spent the last 10 years of my life professionally and personally being very focused on, which is not necessarily something, in fact, it's not something I learned in the Valley, is this notion of trying to facilitate and support more equal outcomes.

14:31Because I think the legacy of the Silicon Valley mindset, you know, is a legacy of unequal outcomes at an extraordinary level of inequality. And, you know, this is something that, you know, I think I sensed in my 20s and 30s, but really only in my 40s and 50s have I sort of focused on, you know, moving away from and trying to sort of think much more honestly and systematically about inequality and the role that innovation plays in either reinforcing inequality or addressing inequality. And I think, you know, when people ask me, like, what motivates you from that side? You know, I think really that probably goes back to that sort of very formative experience of being born in a society that was fundamentally politically, legally unequal.

15:43Did you perceive this already once you came to the UK and once you moved? Because you said you were six, so probably it was more in hindsight, right, that you actually started perceiving those differences? I know that my parents and, you know, they would talk about this, you know, wanted us, me and my sister to live and grow up in a society that was more equal, you know, where even from the point of view of, I mean, South Africa in the 70s and the 80s was subject to political, economic and cultural boycotts. So even having access to progressive materials like literature, thinking, you couldn't read Marx.

16:37You couldn't, right? You know, TV only existed in the year that I left in 1976, because the government wanted to control the way that information, you know, was received by the population. So, you know, on one level, my parents were saying, like, we just don't want you to grow up in a society where information is being controlled. You don't have access to knowledge and education that, you know, at least in Europe or in America, people would have taken for granted. And then also, you know, this is just a fundamentally unfair society. so you know that can't not have an impact on you so I didn't really understand any of that at the time but you know that was definitely would have been part of the conversation at home and you know kids are smart you know I've got three kids you know they know what's going on even if adults you know often treat kids like they don't understand and you know I mean I don't know if you have kids, but, um, you, you know, it's even, you know, in, in, you know, kids are learning from the moment they're born and they're smart, they know what's happening.

18:02So I think you assimilate some of these thoughts later, but, you know, these were definitely, if you're asking about, I think formative experiences, you know, that there was that. And then I also grew up in a household, you know, where being an entrepreneur was not something that wasn't on the table. In fact, you know, my dad was an entrepreneur, my grandfather on my mother's side was an entrepreneur. So said when I was 23, I wanted to leave a kind of a sort of a normal profession. And I wanted to go off and join a startup in, you know, the spin out from MIT. you know my parents weren't what the fuck are you talking about they're like okay you know go for it yeah but it's also great to hear that they weren't pushing towards this right because you also started off your your career in a different industry that was not necessarily related to the startup environment yeah look I mean I think when I left university you know with a non-vocational degree English literature you know it was at a time in the early 90s when at least in the UK the economy was terrible you know graduates really couldn't find work very easily and certainly graduates who didn't have like a law degree or an accounting degree or profession like you know or engineering.

19:31So, you know, I had no obvious place to go work. So, you know, I ended up first at a newspaper, The Telegraph, and then at an advertising agency, Ogilvy's. But, you know, I learned very quickly that even traditional organizations in traditional industries need to be entrepreneurial if they are going to evolve. So, you know, I don't feel that large or traditional organizations can't be entrepreneurial. And actually, I learned really great lessons in those first few years about, you know, what does it take within a more traditional business to be entrepreneurial? Because I was allowed to be entrepreneurial, both at the telegraph where we created the world's first internet newspaper a week before the san jose mercury news and you know at ogilvy's and wpp where we were you know again putting brands onto the internet and on interactive tv you know when you still couldn't even you know display an image on a browser.

20:46It's hard to imagine for me, like growing up in a very different... It's impossible to imagine, right? Yeah. I think we've already touched on this because you strike me as a person that is on a very clear mission. So, because I get this energy that there's something that you kind of dedicate your work towards. And what would you say is this a mission that you are on? Look, I think it changes. And I think, you know, I always try and reflect on, you know, why I'm doing what I'm doing. You know, as I said, you know, the way I would articulate it hasn't changed since 2008. You know, I try never to forget that before anything that I'm doing professionally, I'm first a husband and second a father.

21:36Yeah. You know, I also I'm a son. I'm a brother. and try to be a good friend, you know, and it's really hard to like, in particularly in this innovation economy, which is so exciting and future looking and seems to move at this incredible pace, but actually moves over decades and centuries. You know, it's very hard to like pause and reflect. So, you know, I try not to lose sense of important priorities. But, you know, I think definitely in the last five or 10 years, I've had a much clearer sense of professionally what I'm trying to do. And then as an organization, you know, at Phoenix Courts, we've really, I think, put a lot of emphasis and effort into understanding and articulating for ourselves, at least, because I think it has to start with your own organization.

22:48And, you know, what our purpose is, and what our values are. And, you know, that is the sort of the the core of how we, how we think and how we operate and how we behave. So, you know, we describe our purpose, which is, I think is, you know, is, is an odd purpose maybe for a venture capital firm is to be a good long-term neighbor and to help people realize their full potential. And, you know, what does that actually mean? You know, it means something in terms of how we think about our team, like being a good long term neighbor and helping people realize their full potential and how we behave towards one another.

23:43it obviously you know is about how we work with founders and their teams and and how we try and you know support them and they're in realizing their full potential yeah but you know i think most maybe difference from what many other people might expect is you know these aren't words in our business. We've baked this into the economics of our business by allocating 10 % profits in our management company, 2 % of carry in each of our funds, and then also 10 % of the management company to our foundation, which we call Phoenix Court Works. And then 80 % of the grants that our foundation makes go within a mile of our office.

24:50And so being a good long-term neighbor and helping people realize their full potential is very focused on our physical neighborhoods. And the reason why we've done that, you know, you asked me where I'm based, you know, On the one side of our office, people who've been to London would know St. Pancras because that's where the Eurostar goes to Paris and Brussels and Amsterdam. They'd know King's Cross because that's how you go to Cambridge and Edinburgh and Glasgow or Hogwarts if you want to go from platform nine and three quarters. and then on the other side of our office is Houston, which is, you know, the train to Manchester and Birmingham, etc.

25:39And, you know, if you think about any city in the world, the poorest neighbourhood, whether it's in, you know, Dusseldorf or Santiago or Calcutta, will be next to mass transit. and if you have the three points of mass transit for you know 150 200 years this neighborhood that is sort of stuck in between them summerstown which is where we're based is still one of the poorest neighborhoods in london and in the uk so if you're an adult who lives in this neighborhood you'll live 20 years less than you know the neighborhood i live in in golders green and and Highgate, you know, which in a G7 economy is unforgivable.

26:31But by the way, this is not the only city in the world that has that level of inequality. And so, you know, when we talk about being a good long-term neighbor, it goes back to this point about how do you use innovation to sort of shorten the distance and reduce inequality, health inequality, education inequality, economic inequality, because like otherwise, what's the point? So you decided also to go there to have the impact on the very physical environment. And then probably also with the companies that you invest in is like the more on the macro scale to like pursue this idea of creating the releasing the full potential of people.

27:21Yeah, but also being a good long-term neighbor. So, you know, I would say that my observation, which I don't think is a novel observation, is that, you know, entrepreneurs who end up having outsized impact, you know, are missionary. they're not mercenary it may be that even on their mission there are unintended consequences if I'm being generous that they may not have thought of at the beginning so you know yeah I mean my sort of rational versus emotional bet on this mission is that a mission like this means you attract and retain a team that has very strong purpose very strong values and i think you know we've got a team of 30 people who hopefully really manifest those values secondly you attract founders who are attracted to having like a positive impact on the world not for the sake of having an impact, but because if they are successful, you know, they will have a positive impact.

28:47And then finally, it also means that the LPs or the investors in our funds is very important to us that they are aligned to these values as well. and that we are clear, you know, if we are successful in investing in founders who are successful and therefore generate returns for our LPs and ourselves, you know, because the founders have built these great companies, that the beneficiaries of these returns, you know, are value aligned. So, for example, you know, if we have a Danish pension fund as investors that represents nurses in Denmark, I know two things. One, if we are successful, the beneficiaries are nurses.

29:43Great. I also know that, you know, for better or for worse, 90 % of nurses are women. so again not only are nurses benefiting but it is more skewed towards women benefiting than not because again this is about improving the equality of outcomes if you look at the innovation system the major beneficiaries of the innovation system since 1970s have been white men I've got nothing against white men I am one but it doesn't mean that that is even close to improving the equality of distribution. I'm really impressed by the vehicle that you created that actually attracts what you just explained, like-minded people.

30:35And you already mentioned Phoenix Court. And I wanted to ask, could you give us a brief introduction to what you're doing at Phoenix Court and how it is composed. You mean other than being a good long-term neighbor and helping people realize their full potential? That doesn't cut it for you? Let's get down to the action. Specifics, what we do. So we've got, I mean, other than our foundation, Phoenix Court Works, you know we have our space which is the group is named after Phoenix Court you know which is in Somers Town you know we operate the space for our team for the founders that we work with you know it's used very actively by founders and their teams but also by you know some of the 35 plus local organizations that we work with in the neighborhoods the schools, the doctor surgeries, the youth center, et cetera.

31:43So that's Phoenix Court Works, the foundation, Phoenix Court is the space. And then I guess you want me to talk about the funds that we invest in? Let's do it a little bit, enough that we can come back to the storytelling garden, for instance. Okay, so yeah, the funds. So, you know, probably the fund that we are best known for in the last 20 years is a fund called Local Globe. I mean, to put Local Globe in perspective, there are 3 ,800 active VCs in Europe, Europe, Middle East, and Africa, EMEA. I think 0.8 % of those VCs have invested in more than five unicorns at seed. 0.8 % have invested in more than five unicorns at seed in EMEA.

32:44We've invested in 13 unicorns at seed in EMEA. that puts us number one on that list of 3 ,800 VCs active in EMEA. So, for example, while we've done 13 at seed in EMEA, Accel has done three, or Sequoia's done six. Now, granted, they are specializing at Series A versus seed. So that fund is Local Globe, which invested pre-seed and seed. We then have created in 2018 a sister fund called Latitude that invests in what we call the breakout stage. So, you know, this is when products have kind of all companies have really kind of are breaking out, you know, typically a sort of a Series B, Series C, rounds of 15 to 100 million.

33:39and then we piloted in 2022 and now are sort of on fund moving into fund one a sort of a third fund called solar and that invested the scale-up stage so you know typically rounds of 100 million plus where companies are two or three years away from being IPO ready. So if you look at local globe, you know, the job of local globe from our point of view or from our investors point of view is like be really good picking unicorns that seed. Going well, you know, going well, but don't rest on your laurels. You know, we're not in a European market anymore that no one is excited about. So, you know, we can't lose our edge.

34:37Then we are focused with latitude and solar in what we would call concentrating capital in the companies that are breaking out latitude or scaling up. and if I look at the sort of the cohorts, the active cohorts of companies that are at that stage and we would define that stage as doing over 25 million in revenue, 25 to 100 million in revenue, we call a cult, 100 million in revenue plus we call a thoroughbred. Unicorns are just about valuation, cults and thoroughbreds are about revenue. So we have 46 companies in our portfolio that are doing over 25 million in revenue. We've got 26 that are doing over 100 million in revenue.

35:32And we have even 11 fintechs that are doing over 100 million in revenue. So, you know, what we're doing with Local Globe, Latitude and Solar is giving ourselves the opportunity to, you know, pick as early as humanly possible. and by the way of those 46 companies doing over 25 million in revenue i think over 60 percent we invested in at seed and 75 percent are in this five-hour train ride from king's cross we call new palo alto so you know what we want to do and i think wise is probably one of the great examples of this is, you know, we want to invest in a company at seed stage, as we did with Wise, and just keep investing, you know, at Latitude, which we did, and at Solar, which we did.

36:28So, you know, my view is, even if you are a year or two, I mean, quite frankly, even if you are public, you can still be early. So if I look at, you know, some of the personal investments I've made, for example, I invested in Netflix in 2002 because I was competing against Netflix at Love Film. I knew they were a really good company. I haven't touched that stock in 23 years. and I think it's been a 300 plus X. Yeah. You know, I bought Salesforce in 2003. I bought Tencent in 2008. It's like if you'd bought Amazon in 2003, 2001, three or four years after it'd gone public, you'd have a 20 ,000 X.

37:32for every dollar you put in, then it would be worth$20 ,000 plus today. So to me, early is a state of mind. It's not a stage. It's like all about, and we want to be in a position where if we are lucky enough to work with a founder who we met at seed stage, just because their company is public, it doesn't mean they've reached their full potential. So we've created with LocalGlobe, Latitude and Solar funds, a fund family that allows us to keep following the breakouts, the scale ups all the way for as long as we like. And then we have a fourth vehicle, which currently is just from our own balance sheet that we call Basecamp.

38:31And Basecamp is a community of micro VCs, solo GPs, people like us, you know, 20 years ago when we started out as angels 23 years ago. And, you know, we are an angel LP in around 70 of those. Wow. 45 % in the US, 45 % in EMEA, 10 % in APAC. So if you think about the private markets, there are 150 ,000 venture-backed companies that are still alive globally. It's really hard to pick signal from the noise. We start with Local Globe as number one in EMEA picking signal from noise, i.e. picking unicorns at seed. And on a look-through basis, as it's called by LPs, our Angel Funder Funds Basecamp is number four globally picking unicorns at seed.

39:50So theoretically, that should make the job of latitude and solar a lot easier if you are picking from this super high signal to noise ratio. There are around 13 ,000 companies we have in our pipeline. you know and obviously in the last decade we've built software now we can use machine learning and ai to sort of improve our insights and we have a software platform we call it nazare which is the biggest wave in the world yeah it's beautiful because you know we are you know picking the surfers who can ride the biggest waves over multiple decades. And so, you know, we have these four funds, Local Globe, Latitude, Solar.

40:48We have Basecamp. And then Nazare pulls it all together as a tool for our team to kind of support our picking and our capital concentration. I wanted to ask like to the effect of cross-pollination among those different companies but I think you you already answered it though is there is there anything that you would add to like how each entity positively affects the other by the ecosystem that you that you created. Look, I think the only thing that can cause positive cross-pollination is a team that is well integrated and works well together. Yeah. So, you know, we emphasize both in the design of our space, the fact that we treat and compensate investors and operators at, you know, in the same level.