Why Large Seed Rounds Increase the Chances of Success

like I had my laptop on a pillow in my bedroom staring at me. I like, who’s this Harry kid? Like interviewing me.

Yeah, it’s a good question. By the way, I think the venture world does not need yet another fund. Like, we have a lot of them, right? They’re coming down in numbers, but the world we have a lot of, like, lot of people playing VCs. Eleven, thirteen years ago when we first started, we’re 11 years old, but we started fundraising a little bit before then. The world did not have that many VCs in Europe. Had a lot of them in The US, had a lot of them in China, had a lot of them in India, but nobody was here in Europe.

In fact, the seed funds of record year, you won’t even remember the names. They were Eden and Pond. They’re like a bygone. Right? The people raised money in the .com boom, mismanaged their capital all the way through the collapse and kind of left. And so the world really needed a venture player in Europe, and that was the thesis of Hoxton. Then if you look at where we are today, the world now has quite a bit of venture funds in Europe, but there are not that many old fashioned venture funds left in this industry.

I think most of us become momentum investors in this industry. We write the check largely to get the next markup, not to build the long term, durable, big company of tomorrow. And I don’t think there are that many people in Europe who do those kinds of things.

Well, we went into a market where money was effectively free, and the way you get promoted inside of most firms remember, we’re exceptions to the rule, right, because we own our own firms. Like, these are our businesses. So we think like business owners, not like employees. If you’re the general employee, you optimize for getting to the next career ladder. And how do you show that you can get to the next career ladder? You do a deal and then General Catalyst or Index or Kleiner or Sequoia or Andreessen, mean, there so many of these great firms, mark it up at a significant premium and then someone else, Tiger, etcetera, marks it up after that.

And all of a sudden, doesn’t make a difference if you’ve not made any money, you look like you’ve picked the hot company.

Yeah. I would say even for us, we have a challenge when it comes to LPs, and this is like not us specific, us in the general, which is the entire industry looks at what the next markup is. Who’s following your deal? Who’s marking it up? Is the company well capitalized for the future? And really, is it a signal of quality when a Sequoia ends up writing the check? Like, have you picked a really good company? I think that’s true in the general, but the problem is the venture world is not a general type kind of industry, right?

The averages and the medians are very deceptive in our industry. That’s not where the returns are. So weirdly enough, we’re in this weird predicament in the industry where you kind of have to do things that are a little bit off piste. You kind of have to build for the big outcome and you have to be a little bit contrarian, and then very quickly, about a year or two later, the world has to recognize that you’re right in order for you to really get credit.

The whole industry is, like, is massively grown, so there’s a lot of money to be made. But if you think about iconic the household name companies, the Googles, the Facebooks, the Ubers, the Netflixes, they were all mostly brand new category creators. That category didn’t exist. There wasn’t an Uber before there was an Uber. There were a bunch of search engines, but none of them really succeeded. And Google kind of became this thing. There was also Friendster before Meta, but it never really succeeded. So these kind of inventing new categories.

And I remember, even at Facebook went public when we were fundraising for Fund One, and when it went public, people really were skeptical about how it was going to make money.

Facebook hadn’t done the transition to mobile yet, right? How does Facebook really make money? Captures all your attention on the mobile phone and then as a result has the right to be able to serve you ads, and that’s that’s kind of their durable moat. But that wasn’t clear even all the way up to the IPO. So these new categories, they’re really fuzzy up until they’re not. And then when they’re not, you see realist, like, really big outcomes. And I don’t think people in Europe think in that kind of way.

I think people in Europe are largely trained in private equity. They think about how do I minimize my downside? I will do the vertical SaaS company because I know I can’t lose money on it. The metrics are really good. I can understand them. I can characterize them.

Yeah, and how investors have come on who think in this kind of language? Like, I will worry about my downside and the upside will take care of itself. But the venture industry is all about the power law, all about the outliers, all about those kinds of outcomes that I was talking about, and Europe doesn’t have those.

We think about all the range. Like, if this company falls into trouble, like, have strategy in the fund, if the company, the founder gets hit by a bus. We had an incident in one of our companies where the founder got diagnosed with bipolar syndrome late in life. I like how that explains a lot about the founder, like, But he had taken himself out of commission and was getting medicated. Was like, if something like that happens, a weird externality type of event, what do we do with the company?

Every quarter, we have an immediate shopping list, which is if this company falls into trouble, I’m picking up the phone, I’m calling this person at this buyer in this level of the organization who wants this kind of product technology, technology team. I can kind of grease the wheels to get an acquisition done. I hope I never make that call, but I’m mentally prepared for making that call. All of us are.

Yeah. And and it’s not even just a company, like, who’s the buyer? What’s the division? Who’s the person? Who’s gonna be that protagonist?

So we don’t do that from an investment perspective, but we do it once we’re actually involved in the company. So like the nice thing about being a seed investor is these companies have a little bit of life, twelve to eighteen months before they have to worry about kind of this crisis mode. But then at that point, we start building in this resilience.

Fund one was a bear. Fund one was thirty nine months to get going, like three nine, like over three years. You mentally think at twenty four months Did you have an anchor? No. We had a lot of friends and, like, we had two buckets of people. We went to American people, like mostly individuals, who were like, We don’t really understand this Europe thing. It doesn’t make any sense to us. We don’t understand why you want to be in Europe. But we like you.

We’ll write you a small enough ticket, which, you know, turns out to be a decent sized ticket, but a small enough ticket where if you lose all this money and we’re mentally prepared that we’re gonna lose all this money, we’ll still invite you around for dinner every once in a while. Like, so that was our and we got to about 8,000,000 on on the basis of that. And then we had a lot more to go. We had to get to at least 25 for the first fund to make it viable.

And then it was like a grind for the next two, two and a half. The early money was easy and it was two, two and half years. And then finally, we found a family who believed, who then ended up writing a check to us, and then about a couple of years later, they wrote a check to Isomer.

No, sorry, 15. 15 out of 15, and they split it between 10 for isomer and five for us. I have five from the family, 10 from them.

Yeah, And that basically made our fund. We would not have a fund without them.

yeah. So I got this advice from Mike Maples, who said, Do not do a fund raise for a size of the fund. Do a fund raise for time of the fund. So in other words, give yourself ninety days. Whatever you get, go start investing. You’re a smart guy. You can figure out how to do portfolio construction with a smaller amount of money or a bigger amount of money. Go deploy it. Go put points up on the board. Go prove that those investments are actually really good and then go back into the market to go raise more capital.

And again, Floodgate had four big LPs: Princeton, Yale, Hoarsland. I forget who the and I think Notre Dame was the fourth. And now it was a $75,000,000 first time fund. So to me, it was like, this is great advice, but it’s like kind of luxury advice. Right? Because look at your LP base and look at the size of your funds. I ignored it, but the advice I give every emerging manager is Mike’s advice, which is that’s what you ought to do. Like, give yourself a finite amount of time.

Do not do what we did. Thirty nine months to basically do nothing with your life Yeah. Other than beg, which is what you’re doing, is a lot of time wasted. Were you terrible at fund raising? Oh, awful. Why? I mean, I think we were selling a story that nobody believed in. Right? Europe is gonna produce really good outcomes. Prove it to me. Well, there’s no data. Like, you look in the rears, there are no outcomes. Now, fifteen years later or thirteen years later, it’s obvious that there are outcomes here.

So it’s much easier to tell that story. Now people shop for this product. But you’re basically selling a product that nobody’s designed to buy.

methodical and like all the way through. The only time we probably maybe sped up was like 2021, but I think the whole industry was speeding up at that point. And then we slowed down intentionally in ’22. So we do we used to do about four to six a year. In

terms of

first funds, what was the

The best investment on paper was I mean, not paper, like realized, was Deliveroo. It was about 34 x on the first on the on the on the first track First and whatever we deployed out of the fund. So how much did you put in? We put in just around 1,000,000 of that first round. Will came to me when he was still a grad student and doing his MBA, and I tried to talk him out of it. Most of the founders that we end up writing a check to are very missionary.

They’re not worried about money or fame or status. What they’re trying to do is solve a problem that they think is really broken. That’s what they want to bet their career and their life on, and that kind of becomes their project. And Will was a distressed debt guy. And I was like, You’re gonna make a lot more money in London working for a hedge fund or working for a bank. Why do you wanna get on a bicycle or a scooter and do these delivery drops? Like, you realize, it doesn’t make you doing the deliveries in the early days as a startup.

Like, you’re gonna be taking food from a restaurant and schlepping it to someone’s house. And he was like, It’s broken. He’s like, It pisses me off that I can’t get food delivered. I tried to talk him out of it when he was an MBA student. He came to the summer. Was like, I’m going to do this round. We were in the middle of closing for fund one, so we couldn’t do it. And then he launched and to be fair, was somewhat skeptical. Was like, the world doesn’t need this problem.

Like, this is a top 1% problem. Like, high income earners who have lots of disposable cash want to get food from restaurants and have a driver kind of come drop it off. I’m not so sure this is a mainstream product. And then there were lots of other delivery companies back then. And then about four or five months later, was very clear that he was the most methodical and thoughtful about the operations of the business, which is kind of the core. He built an Android stack that kind of tracked all the drivers.

Like, there was like real technology in it. And he was growing five percent, 7% week on week. And we came in and we said we’d do that. We’d write the first check, and then index came in and gazumped us. What

So the round was supposed to be like a million, million and 0.5, and it became a £3,000,000 round. And £3,000,000 is like it’s $5,000,000 back then. That was like big enough for the small seed funds, like like, which we were really the only seed fund really interested in this, couldn’t really write that check. Right? Couldn’t match. So they ended up winning the deal and then Will fought and we ended up kind of co investing with index.

So we followed, but, you know, as a $28,000,000 first fund, which is what we were, it’s hard to follow your capital. And then we had a weird scenario in that particular company where our pro rata rights got taken away from us. And in the legal documents, they changed the definition of who would get the pro rata, basically singling us out. There weren’t that many other seed investors that owned above that bar and below the number that they set, and they forgot that we bought common stock from Angels, so we kind of politely didn’t comment on the legals.

And then the next round, we said, We’re going to exercise our pro rata, and then we were told, You can’t. And I was like, Yes, we can. And then they realized the mistake and then they changed it. So like we did our pro rata in the the seed round was called an A, so that it was named by the letter A. So we did the B and the C and then we then do the D,

So we’ve gone from a $28,000,000 fund to an $89,000,000 fund to a $214,000,000 fund and we haven’t really changed all that much in the way of portfolio construction or what we do, but we are now super aggressive about doubling down. So if we see early traction in any one of our companies, we will figure out a way to put more capital in, And these days for our best companies, and our best companies are much higher concentrations than our average company, we’re getting closer to like 15%, 20% ownership pretty consistently.

The first check is the first check, but we put a second check-in and sometimes it’s by the third check. So it’s between the first and the second check that we’re really getting these kinds of ownerships.

ways to take We don’t want to screw up the downstream investors who have to then write the check, and we don’t want to be cherry picking our best companies, but we find ways to get more capital into these things. And sometimes it’s as easy as, Look, whatever you’re doing the next time around, we want to do more than our pro rata, and it’s a handshake agreement. In other cases, we’ll do a safe on top of our first check. Like, we’ll find a way to put more capital to work when ownership is still really inexpensive in the grand scheme of things and build up the ownership.

Weirdly, no, because I think in The UK, it’s very easy to convert common if you buy common as like secondary into preferred. Then generally speaking, like we’re old fashioned. Like we think that the preference matters even in these large outcomes because there could be volatility downstream. And so I don’t think we’ve ever really bought common.

the hard way. So in the case of Darktrace, which we also took public, Darktrace went public at 2.50 traded up to 4. And by the time lockup was expired, it was around six and we did not sell. And had we sold Didn’t sell

I was a super long term and was all the way until the end. And to be fair, was How much did you have in that? We would have been a 10x net fund on Darktrace at its peak.

our numbers for Darktrace are way higher than our Deliveroo numbers, but we mistimed it and then you get pressure when you don’t sell at the top. And to be fair, like this is also like in ’21 where everyone, you know, the market was just euphoric in general. When did you sell? We sold it about a year later because we were coming up to the end of the life of the fund and we sold it around £4 a share. So we left we left or maybe not even 4, I think closer to, like, $33.50, and we distributed in specie.

And so I got a bunch of stock from from Darktrace, and then I held all the way until the Tom O’Bravo acquisition, which is roughly around, like, £6, I

Yeah, yeah, yeah. We made a lot of money Darktrace, but we should have probably programmatically sold. And so, I think the formula that we now have is at the time of the IPO, as soon as you’re out of lockup, a third of it you sell, a third of it you sell six months later, and then a third of it you sell another six to twelve months after that. Just make it a formula because I think there’s too much human error in this. And by the way, long term, I was right, but the markets and what you think long term don’t always map one to one.

Did you do a third, a third, a third on Deliveroo? No, no. We sold out of Deliveroo at the IPO. We thought it was very fairly valued at the time. And so there we took a view with we took human judgment, right? We’re gonna sell. Was It supposed to go public at £3.90, went public at £3 a share. Sorry. After lockup, it was £3 a share, and then it came down to about £1 a share. So we looked really smart for for selling Deliveroo on the eve of the lockup.

Were LPs grateful? Yes. I mean, we have real distributions in the first fund. Like, it’s distributed multiples back of the fund. So, like, DPI right now is a real topic, but a $28,000,000 fund, even if you multiply it by multiples, doesn’t turn out to be that much money for the LPs.

Yeah. So we we just had our AGM yesterday and we have told most of our investors do not pay attention to TVPI for the time being because what we have been doing is proactively finding ways to put more money to work inside of our best companies. We know what the best companies are. It’s about a third of the portfolio. In the second fund, that’s now shifted to a little bit over 50 of our capitals in the top third of the fund. And in the third fund, it’s getting closer to about 65% of the top, like the money’s going into the best companies.

And so when that happens, you’re obviously putting money to work at slightly depressed prices, right? You’re not sending them out to get ridiculous markups because you don’t want ridiculous markups on those companies. Mean, if the founder wants it, then we’re along for the ride. But if you can find a way to not get the ridiculous markup and put more money to work, you’re buying more ownership. And if you’re right, three, five years later, that will make a material difference in DPI.

No. Not necessarily. So I think trace was not a hot company for a good chunk of its existence. In fact, I know that they talked to a bunch of the good and the great, and people were skeptical about them. And as a result, there were buying opportunities for us. The biggest regret we had in our fund one was at the Series C. We brought KKR into the cap table of of Darktrace. We introduced KKR and kind of brokered the introduction. There was a little bit of a miscommunication at one point, and we kind of put some social capital in to kind of smooth things over.

KKR put 40 it was a $40,000,000 round at 400,000,000 post on a company that was doing about 4,000,000 a month in revenue and scaling. I would argue a pretty fair price. And the company said, we will give you 10 of that 40. Go raise it as an SPV from your investors. We think you will not get rich enough off of Darktrace and you guys are doing so much work behind the scenes helping us that we want you to have more skin in the game. This is a weird scenario to, by the way, have, right, as a small fund.

And so we went around. And I remember, got with super returns, February, cold, early, and I’m like going around to all these family offices and like and we couldn’t obviously say KKR is leading this, right, because the term she was there, this is confidential. It’s like a major investor that you would know, household name, is seriously looking at this. We raised zero. The 400,000,000 posts, it got privatized at 5,300,000,000. So this is all dollars, so 400 to 5.3. It would have been a net 10x net of fees.

We left money on the table and it was painful. It is really painful. We have another, I think, best company right now in 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? We were convinced. We put put the chief scientist to Merck on the phone with the company and we were pretty convinced that these guys were onto something.

And worst case, the six person team would get acquired for the technology chops they kind of had. It would be an acquihire. So there wasn’t that much downside in our case. And then all the data started lining up the right way after us, the check after us. Less than a year later, was $40,000,000 from Bessemer and F Prime. We used to own 18% of this company. It’s in an $89,000,000 fund. To do pro rata, that’s like a 7,000,000 to $8,000,000 check. It’s a big check to write out of that 89.

And you can’t really go to LPs at the Series A and be like, I think this is the next big thing because it’s like super early, right? So you have the company, all it’s done is raise raise another round on the basis of some data. And so we we ended up coming down in our ownership. We own about 13%, 14% of the business as opposed to 18%. If that company goes where I think it’s gonna go, like, I think in this company it could be like the iconic company of tomorrow, like, that 5% is gonna be really Have you done many SPVs?

We have nowadays. So in the run up to the Darktrace IPO, we did a bunch of SPVs with our investors. We put more money to work in Darktrace than the fund size of fund one. And 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 154%.

did like forty, thirty five or 40 something like that.

Like, mean what was the price points we came in? I think generally we made somewhere between 1.5x to 3x net for our investors in a year to two. Hence why I that’s why I looked at the IRR numbers. The IRR number is a lot more indicative because it was like they were very short holds. Like I said, I’ve been bullish, right? Been very bullish on Darktrace ever since I wrote the very first check because I saw the numbers, and I think this is the delta, right?

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.

So we have a fairly trained growth investor on our team who is not in these companies, who can look at the data just on a pure databases and to and give a view. So we we basically assemble a different team other than the person leading the investment saying, take a look at this, figure it out. But, you know, going back to that Darktrace round that KKR did, 4,000,000 a month. So 48,000,000 annualized, $400,000,000 post, not pre post. That’s a pretty average 4,000,000 a month. So it’s doing basically 50 a year. 50 a year, 400,000,000 post.

That’s a pretty fair price for a SaaS business. Dude, that’s ridiculous. You never see that SaaS. I’m I’m understated. It’s good 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 that’s a pretty good company in the making. By the way, the the Delta was they’ve gone from about 1,000,000 a month at that point to about 4,000,000 a month. So it was like it was like super exponential growth in those early days.

The company, when it got privatized, did 732,000,000 of revenue. But when we invested,

We’ve learned a couple of things along the way. People don’t really need much from your investors when things are going well. They just need money and kind of get 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 seed world. Sometimes when those calls are being made, it’s not the Series A guys or 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 had to happen, they did the acquisitions. But 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 $3,050,000,000 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 bias that comes into this, which you then think you can fix a lot of stuff. We had a company that hit a hit a stumbling block. We doubled down, rolled up the sleeves, started working. The other investor with us, who’s another big venture fund in with us on this company, wrote it off. Weirdly enough, still turned them to the board so they wouldn’t give up their board seats, so they wouldn’t get recapped, so they defended themselves, but they wrote zero additional check.

And the company needed about 2,000,000 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. I 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, this hard work stuff, you need to be well capitalized to be able to do it. 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.

I don’t know if it’s worsened, 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, like, there’s an oral history that the computer history museum does in California, and they’ve gone back and interviewed all of the good and the great our industry, like the founders of our industry, like the early venture capitalists. They did his oral histories, they’re like eight to 12 page PDFs that you can kind of read.

And if you read those transcripts, the way venture looked in the sixties and seventies and eighties and nineties looked really different than it does in like 2024. Back in the day, Dave Marcardt was the only investor. He was at August. He was the only investor in Microsoft. 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. They’re all in their twenties at this point. The industry is really young, like like it even as it is today, helping these kids out. He did that work for about a year before he got invited into Microsoft. He ended up owning 10% of Microsoft. I mean, 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. I And was giving this free advice to the founder, we own 20% of this business, company’s 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 sit down and do it. My CO was like, are you doing? Like, your time is really valuable.

We got a whole portfolio that you’re supposed to be working on. And 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 a 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 eighties and nineties and we’ve gotten so much bigger now.

We’re like, honestly, is it worth the time to do this for like a million, 2,000,000, 3,000,000, 10,000,000? Like, you’re much better off raising a $5.06, $7,000,000,000 fund and putting 50 to work.

’21, I would’ve said it was 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. Right? It’s nice if they invite you to things, but, like, you don’t really need very much out of them. If the market stumbles, market stumbled in ’22, there’s a whole bunch of companies out there. By way, if you look at the public markets today and you go look at all the SaaS companies, between the first decile all the way up to the tenth decile, if you break it up, everything other than the first decile is both growing and profitable.

Both. Not either or, both. Which means that if you’re a $100,000,000 vertical SaaS company that’s private today and you’re at that kind of stage and you’re not one or the other, sorry, you are one or the other, but not both, you have a long way to go before you can go public. And 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 fund’s 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

Yes,

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. You see ups and downs on your glucose monitor and then you see the trend line and the trend line, you know, when you eat starts going up, 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.

Yeah. I’m kind of in the same camp. There’s no upside from, like, arguing with people. I mean, argue with your founders who are in your family, right? You’re an investor, you’re along. But there’s the outside world. And by the way, one of my founders says, your single biggest flaw right now is you just have an overactive, and one of our LPs has the same thing, overactive twitterx.com. Like, why are you even on this thing? Do you give a shit what people think, dude?

Yeah. Because because you tweet you know what? I was 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 know I love you, but I was gonna respond to you, like, even the kitchen utensil company doesn’t work with you. Yeah. I was like, that is too good. Yeah. I got blocked. I got blocked from buying frying pans. What

did you do? I I bought a frying pan last two two holidays ago from my wife, and it never turned up. And I complained and then eventually turned up. And apparently, the response, because I complained, has been to blacklist me. I’m not allowed to ever buy a fry can from this company again.

But does it affect like,

Yeah. I mean, I I think who who wants to work with people who are too controversial or or or too unpopular? I mean, you want like, especially when things are going up. Right? You you want people who are gonna be cheerleading as much as possible.

better, but marginally better. It was twenty eight months. So we went on the fundraise, we finished up fund one, it was a $20.13 fund, somewhere around $17.18. 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 were trying to get to a 100. We thought a 100 was the right number for a seed fund back then. We we now think the closer number is like a 150 to two fifty, but back then it was about a 100.

And if you’re gonna this game well, that’s about the size that you need to be, so we went out for a 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 gone into legals or 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 the EIF commitment because they were no longer able to invest in The UK. And then we had another big insurance company who was like the co investor, the co anchor basically. We lost the insurance company. So we basically reset back to zero to go do the fundraise, started from scratch again in ’18 and then kinda got our way to a closing in ’19.

One or two big commits? Yeah. We got we got British Patient Capital, which is BBB. So we so instead of EIF, got BBB, and BBB was like a good chunk of the fund, like 40% of the fund. 40%? Yeah. I don’t think we’d have a fund without BBB.

And you gotta get the I would argue you have to get the right sized fund. And nowadays, we don’t have this issue. Is

If

had to. I have a controversial take on this, which is the worry about governments funding, especially at those kinds of concentrations, is you end up with governments having market power. And 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 you have 30% of the aggregate capital the LP commits, it’s too big. What you should really have is what happened with AT and 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 going to step in to help, you don’t want it concentrated in one big power because then you end up with weird terms, like you said, that 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.

up. So the pension funds in The UK, so the defined contribution 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. They are not in venture. I have a genuine worry. It is really hard to be a VC. Is really hard to be a founder. It is, I think, also reasonably hard to be a LP.

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. Think it takes money and time to train an LP. Super hard. So, okay, pension funds now decide to allocate capital to venture. Who’s going to do it? Where’s the talent base in The UK of experienced LPs who know how venture works, who know what kind of funds to bet on? There are none. Yeah. So there’s going be a problem.

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. We used to have like 10,000 people doing kind of this tech investing venture, etcetera. 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, who’s average.

It’s a real question. Then you have

I 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 capital deployment and I’ll just buy the index. I’ll hoover up not $50,000,000 commits, but $200,000,000 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, but I could understand the appeal to the LP base, which is, look, where am I gonna put this money?

I’ve got a group that’s gonna take not a little bit of money, a lot of money, and be able to play the market for me.

And that was a mistake. But I but I do think, like, looked at the data on this, there there is a correlation between how much money goes in to a company and what the probability of success is, and this is why I think if you’re going to be contrarian, and we take pride in being contrarian, you have to make sure your companies get capitalized because if they don’t, they don’t have it. The average is about like $300,000,000 to get to unicorn status, and then like, there are some companies that do it for like $200,000,000 But you have to raise that kind of quantum of capital.

And the biggest structural problem that we have in The UK and Europe, the conversion rate 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. And there is a statistical correlation between if a seed round raises like 100 ks, 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 10,000,000, the odds between 5,000,010, and if the seed is five versus the seed in 10, basically double.

Yeah. Yeah. So I do but there there is a reason for companies to raise the right amount of capital at this stage you’re in. 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 at a million and you have the fund size to be able to do this, you should believe at three.

You should believe at 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. And I don’t think people grok this fully in the European venture ecosystem. Are you price sensitive? Yes, because we care about ownership, but no 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 contrariness even within the table.

So like, we don’t get it. The 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 3.5. Like, if they’re gonna really try and make a run at this, maybe I should have like four or five. Maybe you 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 fund size that’s bigger than the 100 that we initially were thinking a few years ago.

basis of is there a is there a red line? Like, is there some flag? I mean, red line’s the wrong word. 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 are 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. I got super excited about a company in Portugal and one of my partners looked at it and was like, Hussein, like, you missed the trick here.

By the way, this is why I love working in partnerships. Like, I think partnerships are way better than solo GPs because you get this error correction mechanism from other smart people. But if the error correction mechanism is they’re blocking you for no good reason, like as in they’re just running interference

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. I 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 is gonna be able to hire very well. It’s like, okay, that’s like super gray zone. Right? How do how the heck do you disprove?

Like, that there’s no null hypothesis to prove. And in those kinds of cases, we give each other the rope.

So I think if you’re gonna try and do 20 of these, your check sizes are gonna be three, four, five, and then sometimes these jumbo seeds are now up to 10. Like, AdSense has been able to done a bunch of work on this showing 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 5,000,000 plus are a fifth of the industry.

Do you do those jumbo seeds, the inception round? We did one. We did one and you have to sometimes pay I saw this.

So it a $30,000,000 round where we took it off the table at 10. We locked it down, set the price. You put in 10? Put in 10. It was an AI company, a foundational model, didn’t necessarily need all the money on compute. 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 let a few funds in. Nordzone came in, Lightspeed came in, etcetera, and the round became 30. 10,000,000 is a big, big bet.

Not out of a $200,000,000 fund. This is why you have to be a decent sized fund. If you’re a $100,000,000 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 proactively. You have another vehicle, so you can double down out of another vehicle. But if you’re not able to have another vehicle and you’re going to do it out of the same fund, you probably need to be closer, a little bit higher than your 125.

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 AI Very happy you wrote that, Jay. Yes. And I don’t know if it’s gonna make us money just yet. It’s premature to say that the company was funded in we took the term with term sheet was March, I think YR went in June. We’re sitting in December. It’d be like foolish for me to say anything like about I don’t know.

I

So, it’s not a generic model. It’s a model for material science. It builds a It’s 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. It’s basically the AI building the next generation of materials using AI. It’s a very different type of foundational model.

Yeah, so the probability at seed of picking something that becomes a unicorn is 3% done in a few times.

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.

$75,000,000 I’m worried. Like, I think in a bull market where you’re writing the first ticket and someone else is then carrying the slack and picking it up, it’s easy to be the feeder fund for those folks and write the small checks. I think we have too many of them right now in the industry. I think right now the real opportunity in Europe is there are a handful of really good venture funds at the top. We we know who they are. Right? Index, Accel, Sequoia, etcetera, like all very active in Europe.

What do think sorry. Do you think there’s actually a

I’m being I I think it’s slightly more broad than that. I mean, think Crandom would feel really annoyed if you weren’t if you didn’t put them on the list. I think that’s true of a bunch of other funds. No. Think they’re Series A fund, but okay. Fine. Nomenclature. 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 in venture.

These days, about 30,000,000,000 that goes into Europe in venture. Weirdly enough, people seem to think markets that get more liquid and more competitive are bad. I think markets that get more liquid and more competitive are good because the market’s actually working. 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 feel like I 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 microcap fund. I think what we need is like five to 10 dominant superstar venture funds in Europe, kind of the way in the Bay Area, are 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 they’re first time founders.

But I think a lot of the interesting outcomes in our industry, and you can think about this anecdote. Do prefer younger founders? Doesn’t matter, younger or older. I think people who are doing their life’s work, usually if the company captures their life’s

Yeah. Because I think if you’re saddled with a family, it’s harder because you have dual interests and you end up in this solo, like one mindset, right, which is build my company, that’s much harder to do when you’re raising your family. And I think if you’re 15, 20, unless you’re a superstar and really precocious, probably you don’t have the accumulated wisdom to learn lessons. 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.

I I don’t know about the general market, in our portfolio for sure. And that’s why we’ve ended up concentrating on 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. 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 oral histories, you will see what I mean by companies actually getting guidance on what to build. We’re in that mode and 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.

I don’t know if this necessarily always resonates, but the minute there’s a hiccup and you have these hard conversation with founders, people grok it.

macro perspective, that’s not what I do. Right? I I think of this as, like, underlying fundamentals for my business. We’re living in a world of AI. I think this is the big seismic shift for the next ten years. This the is next wave of wealth creation is gonna be. I’m looking at the conditions on the ground. We used to produce really interesting gaming companies when I was at Accel. We were really strong in Europe, and that was probably the only thing we were really strong at, and then the government lowered the regulation in finance, and so we were really good at building fintech companies here, Monzo, Revolut, Executive.

A 100%, I remember. And this was the place to build fintechs. Exactly, and the FCA really made it easy from a sandbox perspective. When you look at this new big but those are 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 DeepMind 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 in not a niche field, but in a horizontal field.

I cannot interpret that in any other way than there’s gonna be opportunity in this Yes, I’m really terrified that the German car industry is gonna get wiped out by China, 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 gonna 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.

or 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, this has always been the thesis at Hoxton.

Like, Darktrace made more money in America than it did in The UK from the very early days. It had more staff America than it did in The UK. Our 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 defined contribution schemes are investing 10% into the big tech names in The US. It 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 don’t

What does a local liquidity market matter? If the pension funds if the pension funds here were like they were twenty, thirty 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 if you list on the LSE, Goldman in London gets the gets the the mandate. Lazard in London gets the mandate. Ernst and Young gets the mandate in London. You create more jobs around the industry, but the company is fine.

The corporate tax is still a UK company.

If you’re not going public these days, unless you’re top 1%. Gone are

So we looked at the data. The bar for an IPO today in The US is north of 200 to $300,000,000 Gone are the days where you could take a company public, where you could raise like, I remember when I was growing up in the industry, like ten, fifteen years ago, an IPO was like $100,000,000 of revenue or an IPO candidate. Doesn’t exist in the world. That world has shifted. That was a 20 that was a ten year old world. There used to be a time, by the way, like, remember Yahoo when Yahoo went public?

Yahoo went public on like $1,020,000,000 of revenue, etcetera, and like, was worth billions in the market? Those days are gone. We now have very deep, very liquid, very large markets across the industry. Like me. Other thing is the private markets are so big now that there 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 companies couldn’t go public, fair.

We have a real problem. And if our pensioners couldn’t access that, fair.

those companies. Get those companies to 200. We have a company in our portfolio. It’s about two years away from IPO. It’s appointing bankers right now, and 61,000,000 net revenue right now on a run rate basis. We’ll easily get to two fifty of 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 on the LSE that was supposed to reinvent, repower the LSE were ours, Deliveroo and Darktrace. And

Deliveroo was LSE, Darktrace was LSE. And then right after that topic went public with Wise on the LSE and I tried to talk him out of it. And I said, go go in America. Would Deliveroo be performing differently if it was in America? I’m not so sure about that one. I think Darktrace definitely would. How so? I think it was trading at huge a huge multiple discount. 732,000,000 of revenue, like I said, trailing, trailing, and got privatized at 5,000,000,000. And that was a premium. I forgot what 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.

It’s like the same thing. It’s like people wanna solve Europe Inc. They wanna make it really easy to incorporate a company in Europe. Like why? Incorporate

but I think Anything that makes it easier, I’m supportive of. If the LSE is able to transform itself and become a viable exchange, great, another path of liquidity. But as a policymaker, if that’s the problem that you’re focusing, I’d much rather have the how do we make sure our companies get capitalized the right way and can become the top 1%. I was at a dinner, CEO dinner last week, The Wall Street Journal threw it. But 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 thirty years ago.

There is, and I had to look this up because I didn’t believe it. We have a, this is a country, by the way, where it rains a lot. Like, water is not our scarce resource. I’m British. You’re not. I’m not. I know this. So we do not have enough reservoirs. If we wanted to build 10,000,000 additional units of housing for 10,000,000 more people, infrastructure and 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 twenty, thirty 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 thirty years from now. Are policymakers doing that kind of stuff? The infrastructure that makes our lives easy, that allows our countries to thrive, is oftentimes being neglected. This reservoir is just one of many problems, and then it cascades and creates all kinds of problems thirty years from now. You are advising Keir Starmer? I am not.

I’ve never been called. You are? I was, I was, oh, a hypothetical. In a hypothetical, what would you advise him? I would not have tinkered around with the tax rates. I feel like there was enough own goal. The

Dom

Yeah. And I don’t say I mean, I’ve passed my Don 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 at work doing it, it’s because I’m doing my job. So, like, I have no problems with this. But I think tinkering around with stuff and tinkering and then changing it frequently and the worry that I have is, Okay, capital gains has now gone up in 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 like 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 up or have the founders kind of navigate. So it’d be, hey, stick to a strategy. Boring is good for 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 more kudos and more attention.

And 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 you have 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 at new rates. Do

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. But you normally would have said do that, you get your 50x 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 you do it one year in.

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 who sat down with me.

She’s an individual entrepreneur, like, she’s like, the one thing that I didn’t think about, and 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 thirty nine months to go raise fund one. Like etched in my brain, right? It’s like hard yards. You know what? We’re 11 years old. We manage a $200,000,000 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 incumbent upon me, like, I have a responsibility to grow the next generation because if I can’t recruit laterally and I know there are 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’re a small partnership. We’re three GPs. Do you feel like you have freedom of speech today? 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 fair response? I do not. I 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 it went out, I’ve chased afterwards.

She’s never met me. That’s where society has gotten a little bit more toxic. I would have much rather had that debate. You can have the debate on LinkedIn, like, and and call me out. Like, look, if I say something stupid, call me out. Like, I have no problems with that. I I can take it. And like and it was a fair criticism, I thought. But then sit down with me and have coffee and let’s break bread.

That’s also an easy one. No. Ten years in, we grew apart. That’s what happens. I think as we’ve gotten success, the nice thing about having success and we made real money on Fund One, even though it was a $28,000,000 fund. 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 between Rob and myself is Rob wants to build a different type of firm. And we can think about how to make that work within the constructs of Hoxton, 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, I’m an LP in the Low Probs Fund 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, etcetera, etcetera. Like, 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 us a while to be able to do that, but we very much want to build the next generation, bigger, earlier stage firm. We want to be one of those dominant five to 10 firms. I think Rob does not wanna do that and Rob very much wants to build a very science oriented deep tech type firm. And it’s just different.

Historically, I would have been able to easily answer that, but these days, I don’t know. Historically, Quick Commerce, Amazon roll ups, electric No. I’m saying venture investment firm. Oh, which oh, sorry. Oh, sorry. Thought venture investing. Oh, this one’s an easy one. I should donate anyway, so 2,000. 2,000? I don’t wanna name a firm that’s that’s not good.

money across the spectrum in AI. I’ll unpack that one more. Was one of these. The the foundational we would have been we are not doing foundational model deals. They’re too expensive, too capital intensive, never gonna go in not a seed funds not a small seed funds place to do that and then Cursor walked 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 sized investment. And if it goes the distance and they raise $100,000,000 or $200,000,000 like some of these vendors, we’ll be fine.

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, ten years plus.

So much money went into some of these things and people just relax diligence. Are we seeing that today? Do you think we’ll see many more frauds? Frauds, like just people not paying attention to details, people not turning up to things. Like, was it was just it was a mess. And I think we’re seeing some of that same stuff in Wait. Oh, wow. 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 moats. You build this thing, it has this huge moat, and every extra revenue, customer, whatever it gets, increases the size of the moats, puts distance between it and itself until eventually it has to get broken up by regulators because it’s just too darn powerful. That’s what I want to put money into. I’m not so sure most of these companies, which get highly commoditized superfast, where there are 20 versions of the same thing and the expression that Brian and our team uses is knife fight in 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 wanna 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, 1990five, 1990six, 1997.com. Do you play the game on the field? You have to. You you can’t you can’t sit down.

Does that not go contrary to 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. Is that 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

I think we’re gonna go through some something, and I don’t know what the something is. Like, you look at the .com industry, the household name companies of the time didn’t necessarily turn out to be the big outcomes. The Yahoos, the Netscapes, 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 Salesforce didn’t exist. Like, they came they came at the tail end of that. I don’t know what AI is gonna look like five years from now.

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. The 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’s doing, you look at what Amazon is now doing, and and Meta’s 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, and 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 technology investing, is what do you think is coming around the corner that may or may not threaten that margin?

If you can figure out the answer to that as a semi person, you can play the you can play the NVIDIA game.

I mean, OpenAI has real revenue, and I think there’s increasing returns to scale, but I think the same thing I just said about NVIDIA applies to a lot of this AI stuff. And and the AI stuff, like, had dinner with Alex who founded Wave, which is one of the AI companies here that does self driving cars. And 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, like, couple weeks ago, China is now like, Kai Fu has company.

Kai Fu is my old boss at Microsoft. Kai Fu is a company that’s been able to replicate what GPT has, but with, like, a fraction of the compute because China doesn’t have the computers and they publish around this stuff. It’s commoditizing so fast. I don’t know how much of this ends up as consumer surplus. In other words, we all benefit as humanity because the spend kind of goes in and everyone benefits, but it commoditizes so fast, no one company ends up skimming off enough of the cream to become the big, 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. To be on the field to even learn.

Yes. Because I think JD Vance has made that very clear. That sub $500,000,000 deals, the FTC has no business trying to trying to block transactions.

I mean, it helps that that our vice president used to be a venture capitalist.

answer it a little differently. I mean, 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. If I can do that successfully over the next decade, I know I have a durable firm. I wanna build a firm versus a boutique versus a project. It’s not a shell over me. Want the firm to be around, and I want to be able to pass the the past reigns over within the next decade.