# Why SaaS is Dead

Why AI First Companies Will Win · We are in the Middle of a Cold War for AI Talent · Why Europe is F******* and We Need to Stop Whining with Daniel Khachab, Co-Founder @ Choco

20VC · Oct 28, 2024 · 73 min · 14,948 words
Speakers: Daniel Khachab, Harry Stebbings
Source: https://www.996.fm/episodes/20vc--ep-3a78a60e/

## Cold open

**Daniel Khachab** [0:00]:

100%. I think SaaS is dead. It's great companies, at least from headcount perspective, get smaller and not bigger. I mean, you go in a different country fighting for talent, that to me is cold war. In Europe, today, we're not producing the chips. We're not producing the energy. We don't have the foundational layer models. Now the real downside to me is that it's at 1,000,000,000 mark. Once we become unicorn and people think, Oh, we made it. Like, who the fuck wants to be a rainbow colored pony? Like, I don't wanna be a unicorn. We need more long term commitment as well. Like, we need founders who say, I'm gonna invest fifteen to twenty years. I'm gonna commit this now, the best years of my life, to make this happen. This is 20 VC

## Intro

**Daniel Khachab** [0:42]:

with me, Harry

**Harry Stebbings** [0:43]:

Stebbings. And today, we bring you the story of one of the hottest SaaS companies who overnight decided to kill their SaaS business and be an AI first company. From why SaaS is dead to why Europe is screwed to the cold war for talent, this episode is a cracker. I'm thrilled to welcome Daniel Khachab, cofounder and CEO at Choco, to the hot seat. Now since founding Choco in 2018, they raised over $330,000,000 from Bessemer, Coatue, and Insight, reaching unicorn status within just two and a half years. But before we dive into the show's

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## Conversation

**Harry Stebbings** [4:04]:

Dan, I am so excited for this, dude. We met at a Coatue dinner with Dan Rose a while ago now, so I'm so excited that we can make this happen in person.

**Daniel Khachab** [4:12]:

Very likewise. Thank you for having me. Really looking forward to this.

**Harry Stebbings** [4:14]:

So I wanna just dive right in. You were a SaaS company. You were a darling of the, like, traditional SaaS market, raised a lot of venture money. Why did you decide to pivot from SaaS to a 100% of your revenue coming from AI?

**Daniel Khachab** [4:27]:

I think what kind of gave the spark was just a couple of sleepless nights in a row. Because like this new technology came out, GPT and I like, ChatGPT and I I played around with it. And then at some point, I just couldn't sleep and I was literally sitting on my couch in the dark staring into nothing because I was like, man, this thing is gonna learn how to code in no time. Maybe not now, maybe not next year, but maybe '27, maybe in '28, where's our technological moat is gonna be? It might just be gone like anyone may be able to replicate what we have built over years within days. And so I'm like, wow, that's gonna be a big shift in company building and how are we going to position ourselves to win in such an environment? And while I believe that there is some modes, I think there were like three things that made us go AI first. And I think the first thing was there's two scenarios that are going to happen. First scenario is someone is going to come, going to replicate our technology, do maybe things in a better way, create more user value, and it's going to disrupt us. Scenario two is actually us doing that, us disrupting ourselves and hopefully also our competition. And so one of our core values is always play offense. And so we got to play offense also on that and we actually have to be that driver. I think that's one. The second thing is if it's true that company building is going to change so fundamentally because so much value is coming out of the API, then it's also true that there's a lot of skills to be learned and for every single role within a company. And so we might not know how the future is going to look like, but the best way to position us for the future is to learn how to build with AI on every single part of the organization. So essentially we're in a race to upscale our teams. And more so, I told our team at some point, you know, if you were to leave Choco tomorrow and you would not have the skills on how to build a FAI, then your skill set would be obsolete. So it's also our responsibility as an employer to give our employees the opportunity to learn the most relevant skills of the century. And yeah.

**Harry Stebbings** [6:31]:

So normally, I am like pushing CEOs away from selling that company. Okay? Because the promotional shows are never good shows. Yeah. I'm about to defend your company in the stance that you're not taking. You're like, hey. We had to make the shift. I would argue, and this is why I want this debate. Yeah. You have proprietary relationships with food distributors. Yeah. You have a huge amount of data on products, on financials, on invoicing, everything around that. Those are two huge moats that I could come in with a better product. I do not have the historical date relationships. I do not have the data moats. Technology doesn't matter in that respect. Why does Facebook open source llama? Because the values and the data that they have.

**Daniel Khachab** [7:16]:

Yeah. A 100%. I don't think all of the moat is gone, but I think a significant moat is gone. Like, we've still built technology for for up to seven years. And and that holds many companies that may have built tech for five years, ten, fifteen, twenty, doesn't matter. And so it's just part of their mode. And that part might vanish. And there might still other be modes and we got to focus on those more for the future, but that might still be gone very quickly. And so I think it's important to recognize that many jobs will change fundamentally in what these people do every single day.

**Harry Stebbings** [7:46]:

Which jobs have changed most significantly today and which will be slower to change?

**Daniel Khachab** [7:52]:

I think one of the easiest examples to describe is probably a product design. Previously, you might have had a UI that was very rich, and let's say you wanted to payroll and then you click. You search you have a search bar and you search for the for the right employee, and then you click into that employee, and then you maybe check, you know, like how much bonus should they get, and then you create like this PDF and then you send this PDF kind of to your tax advisor and then maybe to your bank to essentially pay out the money. And so in the future that just might be a prompt. Please do payroll. Let the tax advisor and the bank know automatically and just report back to me once it's done. And so what UI is there to design besides that chat. But who are you speaking to? What is the character of that AI, of that agent, if you want so, that you're speaking to? Is that like a very serious structured kind of character? Is it a funny, cheeky character? Are they very concise and precise in their answers? Are they more like conversational and try to take and do they maybe even flirt with you? What kind of character do you want to design that is most appropriate for that particular job? And so a designer would probably have to do that in the future before they've been drawing like great simple user interface. And today it's like, which character is AI gonna have?

**Harry Stebbings** [9:03]:

Other than developers, where CoatPilot is still a long way off and has got a lot of problems, hence the rebrand, where are you seeing meaningful, meaningful? I saw in the AI first a 80% reduction in customer service cost. But, like, build with AI, it's not really changed much yet for different people in different roles.

**Daniel Khachab** [9:22]:

Today, most SaaS companies, what they do, including what what we did is like, okay, we talked to the to the customer, we identified the problems of the customer, they say, look, we got here a neat solution for you. And then this is how the solution works and these are the features and so on and so forth. But in the future, we are more or less selling an employee. You know, here's a very highly competent employee that is specific skills, sorry, to perform in your company. It's not never going to take a cigarette break. It's never going to take a day off. And you can hire 0.1 of these employees. You can hire 1,000. You can hire 0.1 in the morning. You can hire 1,000 by noon and by night that might be 0.1 again. And so how do you demo this? How do you negotiate a price for it? Even in a job that is probably the first away from engineering being sales, like there are massive changes. How do you market that employee? Right? So for marketing, there's gonna be massive changes. And then obviously in engineering, it's like, yeah, okay, engineering. We got to plug into the APIs but how do you QA? Because if I put something to LLM, if I put the same question twice, I get a different result. So how do you QA that? Every job will significantly change. And even internal facing ones. If I work in HR today and many of the things I spend a lot of time with will just be, you know, done in seconds, then how do I stay on top of things? How do I not become obsolete in the future? It's like every single job will change.

**Harry Stebbings** [10:43]:

Respectfully, are you saying that we're seeing the end of SaaS and the agentification of all software in business as a fundamental transition?

**Daniel Khachab** [10:53]:

A 100%. I think SaaS is dead. I call it agentification of SaaS. In some industries, it might happen sooner and some later, but naturally why do we have user interfaces? So I like kind of the HR example because I still remember before all of these great HR tools came out, we were managing all of HR on Excel sheets. Not Google sheets, but Excel sheets. And that was kind of every single employee and when they joined and how many holidays they took and what to earn and yada yada yada. And then these these great tools came up which made the job much easier. But you still need to learn how to use that software. Whereas in the future, we're just gonna prompt that you don't need to learn anything because you communicate with that machine like you communicate with a human in voice, in written form, in in many different things. And so it's just the adoption curve will just be faster because there's nothing to learn. So

**Harry Stebbings** [11:41]:

just so I understand, so we will have we will still have single sources of data truth, which is like your Salesforce, which is your repository of sales data. Correct? And then we will have, like, application layer on top of them, which will just be prompt engines. And it'll be the same for HR, the same for payroll. Is that it? Could

**Daniel Khachab** [11:58]:

be. It could also be that kind of in that example, Salesforce should be the application layer itself. There shouldn't not be a layer above Salesforce. It should be the application layer and what's underlying might just be a database. Salespeople hate Salesforce. Like go on there, update every single lead. Oh, I spoke to that person, upload the presentation that you have done, change the lead status. Who did I talk to? Who are like the points of contacts? Where it's like, okay, here are my notes that I took anyways. Do the rest. And you can imagine if you if you ask a sales rep, hey, you have two options. Fill the form, copy paste your notes. Like what are they gonna choose? And which tool is gonna find more adoption? And which tool makes your sales rep more efficient?

**Harry Stebbings** [12:38]:

So I have so many areas I wanna go on this one. The first one I'll just say is like, you know, we're we're in Europe. In Europe, 62% of large enterprises still don't know what Slack is. Yeah. 91% don't know what Notion is. Yeah. Respectfully, getting them to move to cloud, a challenge in itself. Embracing an agent based SaaS ecosystem is ten years out, Daniel. So

**Daniel Khachab** [12:59]:

this is where I disagree. I think it's the other way around. So I think AI is the perfect technology for traditional industries. Why? Because the problem in adoption is not that they think, Oh, digital is unimportant. The problem in adoption is like, I need to learn something new. I have done this forever. I don't want to change. I'm going to need training. My people are not ready for it. That is the problem in adoption. Versus now it's like, no, you don't need to learn anything. Do people know how to use WhatsApp? Yes. Okay. It works like WhatsApp. Kevin, what you want is going to give it back to you. So the adoption curve is going to be way faster like AI is the perfect tool for traditional industries, much more actually than for startups and tech because those are people that are tech first. They know how to work with interface and stuff like that.

**Harry Stebbings** [13:42]:

How do you respond to the data security compliance, large enterprise gnarly logistic challenges which prevent the adoption of new technologies like this?

**Daniel Khachab** [13:52]:

Yeah. I don't think everything needs to be an LLM and not everything needs to come off the cloud. I think for many use cases, small language models are completely sufficient and many of which can be hosted on even large language models, they can hosted on premise. Nothing's going to leave your doors. So you can create a product with this as well and it's completely hosted even on your internal servers. And so I think you got to go through the same questions around data security that any SaaS has to go through. That's maybe a one on one, but then on the adoption curve, you still win.

**Harry Stebbings** [14:24]:

I speak to many, obviously, AI leaders and they say the single biggest problem right now is actually implementation. It's not the sales cycle, there's budgets and they wanna spend on AI, but it's implementation, it's data readiness, it's data cleanliness. And we have this post agreement process where it's like, oh, I don't know what to do now. Yeah. How do you think about that?

**Daniel Khachab** [14:44]:

So I do think that actually two interfaces would survive. One is kind of like the interface in which you ask the AI to do something and which it returns you what you want. That can be, you know, how much revenue did you make last month, it gives you back a number, you know, make the payroll, that gives you back the result, and things like this. But AI is not is not God. Like it makes mistakes. It's just an intelligence. It doesn't have superhuman knowledge in particular, not on your proprietary data. And so you gotta train it. And so that's the second interface that I think we will have in the future. And I think that we need to think in a way that, hey, how do we make it as easy as possible for our users to train the AI? That's the key. It's not gonna be everything's gonna work from day one and that's not what you should expect and you should not oversell on it. It's not like what's the day one accuracy. It's actually the rate of learning that needs to be as steep as possible.

**Harry Stebbings** [15:40]:

I'm an investor for a living alongside the podcast. Yeah. And I have to think about where value accrues in the stack. We mentioned earlier you're using, you know, OpenAI for a lot of customer support elements. Where does value accrue and what does it make sense for foundation model companies to build applications for versus what they just let have in an app ecosystem?

**Daniel Khachab** [16:02]:

Excellent question. So I think, for example, what Anthropic has done with computer use two or three days ago is quite magical actually. For those that don't know,

**Harry Stebbings** [16:13]:

can you just explain it?

**Daniel Khachab** [16:13]:

Yeah. Essentially, Anthropic will take over your computer and it can, you know, click for you, look up things for you, fill out forms. You do everything a human does with a computer. They tend essentially take over your mouse and your keyboard, and then you prompt it, tell it what to do.

**Harry Stebbings** [16:26]:

Which is essentially the next generation of RPA.

**Daniel Khachab** [16:29]:

More or less, yes. A very, very smart RPA. And so one could argue that's application layer because RPAs exist. One could argue that's foundational layer. What is it? I think another way to think about it is how are incumbents really doing? Essentially I think they're doing quite well. But the problem is, which is the advantage for the application layer for us, it's starting to get more and more commoditized and the price decreased almost on a monthly level.

**Harry Stebbings** [16:53]:

100%.

**Daniel Khachab** [16:54]:

Like we literally had to do nothing, and our price now 80% lower than six months ago despite probably having five or six exit transactions.

**Harry Stebbings** [17:02]:

What do you use? Mostly OpenAI. A little bit of Anthropic? A little bit of Anthropic, a little bit of Mistralia. To what extent do you care about price versus utility and functionality?

**Daniel Khachab** [17:12]:

A 100% utility and functionality. Just because we are at that level of maturity and non maturity, it's just about like build value first and later on we think about cost. So we didn't invest anything in cost, but our cost still went down despite volume going up. So to that point, should foundational layer companies go on the application layer? Maybe. Because the rest might be commoditized.

**Harry Stebbings** [17:31]:

The question is, you can buy OpenAI at $1.60 or Anthropic at 40? Which one do you buy?

**Daniel Khachab** [17:38]:

So I'm not sure if these numbers are right, but I recently read that Anthropic is more or less doing 60% of the revenue of of OpenAI, and they do this with less customers. So they kind of achieve a higher price point plus the recent release of computer use, so probably do Anthropic. Having said that, I mean, you know, there's been so much shitstorm about OpenAI. Like, let's be honest, like, they're the reason why we have this conversation.

**Harry Stebbings** [17:59]:

If we go back to how it's impacted the core business Yeah. Every technology cycle, everyone goes, oh, we're gonna lose our jobs. We're gonna lose our And then every technology cycle, we actually just find new things to do. We get better. We get more efficient, more productive. Stebbuk cloners, 500, 700 people in customer support. Which way does it go?

**Daniel Khachab** [18:18]:

Yeah. So when when we look at the Western world, and when we look at Europe and US, the most significant challenge to business is labor shortage. Like with millions of open jobs that we can't fill. Not necessarily in tech, also in tech, but in healthcare, in care for children, truck driving. These tend to be like the jobs in which we have the most scarce labor. Even in hospitality, it's very hard for companies to find people to work there. So will AI maybe help us to reallocate our portfolio of labor to where it's most needed?

**Harry Stebbings** [18:52]:

I'm I'm being deliberately divisive because they're shit jobs, and what I mean by that is not shit, but they're just they're not great jobs to do. Truck driving is a bit boring. Cleaning loose in cinemas and restaurants is boring. Yeah. Being a hotel maid is a bit shit clearing up after other humans and wiping down loose, humans don't wanna do them.

**Daniel Khachab** [19:13]:

Yeah. But, you know, if if you sit customer care and everything you get all day is complaints that much better, and plus these complaints are also very repetitive. And you're sitting like like there and just also doing the same 20 prompts every single day.

**Harry Stebbings** [19:25]:

This is the point though, which is like AI will just replace the truly shit jobs.

**Daniel Khachab** [19:29]:

Yeah. Exactly. And and so and so and so that person, like we need that person very urgently. And now you don't need to be working hospitality, which is an extremely hard job, but like we need kindergarteners. Just in Germany, we're short 50 ks, 50 ks. And the government has invested billions over the last we're still short 50. So wouldn't it be great just for general society?

**Harry Stebbings** [19:51]:

I'm a believer in Adam Smith's invisible hand, you know, where you have a shortage of 50 k, you see salary increases for the kindergarten providers, and suddenly that 50 k goes down to 10 k.

**Daniel Khachab** [20:03]:

And if we would have competent government, that would probably work out. But why does it not? So obviously, it depends on the country, but in a German example, it is mostly more or less public servants in which it's not very privatized.

**Harry Stebbings** [20:15]:

Ah, I completely disagree with all forms of regulation and government intervention as a venture capitalist. Okay. So we have this. Does that mean that we will see essentially what Klarnav said, which is the removal of Salesforce, the removal of Workday, we're building all of the tools internally ourselves. Is that what's gonna happen?

**Daniel Khachab** [20:35]:

I I I don't think so because AI today, like even the best LLM won't enable you to build something like Salesforce fairly quickly. There's so much code, so much customization in there. Even if it would, then you would have to maintain it. And suddenly you need engineering resources to maintain an internal tool as opposed to engineering resources like building useful stuff for customers. But the people using it, I think maybe, and you know, what what Clana I think part ways with 700 people in in in customer care, I think these are very, very tough and horrible conversations that are there to be had, but and and the same would help for us really. We also automate a large part of our customer care, large part of our kind of more account management kind of work and replace it with with AI and How many people did you let go? Hundreds. How do you say that? Yeah. I I think first you gotta stomach it. Right? Because, like, you have to do it. You're a business, and you operate within the rules of of business, and that thing is gonna make you so much more cash efficient, particularly in unprofitable venture. It's so important. But then these conversations are a different animal, right, because you got to go to someone who's a fantastic person, who is eventually also like a fantastic performer, who's a high performer, and you got to sit down and you say, I'm really sorry. Essentially, AI is taking your job. And that's a horrible conversation. And that conversation is obviously way different as in, Hey, look mate, there were certain goals. We gave you feedback. You didn't meet it over months. Like it's a different animal. It hurts way more. Of course, then people understand it also more from a from a rational perspective. It's still crap for them, but you you gotta do it. How did they respond? I think oddly enough, most people understood it. I mean, kind of once you as a company really embrace AI and everyone understands that it's important for you, I think the people will already start to have a sentiment. Maybe it's not it's it's not panic. They will understand, hey. It's it's a matter of time.

**Harry Stebbings** [22:38]:

And so you move those people out of the business. Yeah. It is tough. I I think you also have a duty of responsibility to your existing team members as well where none of them will have jobs if you don't move forward with times and with technology. And so sadly, that is business progression.

**Daniel Khachab** [22:53]:

A 100%. And I think, you know, our first responsibility actually is our vision. Like that's what we need to get at a mission, which is the reason why a company should exist in the first place. And we need to with every single decision that we make increase the probability of us achieving that mission. And sometimes these are easy decisions, sometimes these are hard decisions, but it's our role as leaders to sometimes also make the hard calls if it increase our probability of success.

**Harry Stebbings** [23:17]:

Did you do the let go's in one go, or did you do them in multiple rounds?

**Daniel Khachab** [23:21]:

In in so to the AI related one in one go.

**Harry Stebbings** [23:23]:

When we chatted before, you said about an AI talent cold war. Yeah. And I I was like, what the fuck is that? Can you help me understand that?

**Daniel Khachab** [23:33]:

Yeah. So I think the cold war probably has has two components, and one is infrastructure and two is talent. But we can start with talent. And so we're in London right now. I've been in London together with some other AI founders sometime this summer for conference. And we got an invitation from someone, let's say, fairly high up in the US government to meet up for dinner. And we only AI founders and then of course it was a lovely dinner. It was a fantastic opportunity for us. But essentially, they were making it very attractive for us to move our AI talent over. But we are in The UK here. But the next day, there was a similar event from someone from the British government. And and last no. So maybe two weeks ago, there was a a conference in Berlin, and same same, UAE and Saudi Arabia. So people are really fighting for this talent. They have understood how vital it is. And, I mean, you go in a different country fighting for talent, that to me is cold war, and I think it's very interesting. And

**Harry Stebbings** [24:36]:

What do they want specifically? They want you to build your AI teams in their country? Yes. And relocate there. And relocate there. Do they offer anything in return? What is their sell?

**Daniel Khachab** [24:47]:

It depends what you obviously always get is kind of like golden visa and this kind of support. Like the most extreme offers that you get is like people are gonna pay salary. Like, government is gonna pay salaries for three to five years for your top AI talent. Like, they're gonna do that.

**Harry Stebbings** [25:00]:

Why would you not do that? They're gonna take away the cost base of your AI team?

**Daniel Khachab** [25:05]:

I I think you seriously have consider it. If it's the best for your company, then and you have to do it and if your employees want that.

**Harry Stebbings** [25:11]:

Where is your team today?

**Daniel Khachab** [25:12]:

Berlin. Like, all of our r and d is in Berlin and then we have sales office across US and Europe.

**Harry Stebbings** [25:17]:

Why? Is it the best in Berlin? Is it most convenient? Is it because it's because you're there? Why is it Berlin?

**Daniel Khachab** [25:23]:

So we started Choco in Berlin because we felt we're the best network there. We felt Berlin is a very attractive city city for foreigners to come. You don't need to speak any German. It's it's the most affordable capital in Europe. I think it has one of the highest just quality of life, like living standards in Europe.

**Harry Stebbings** [25:42]:

But for specifically AI, like, there's no great institution spinning out of out of Berlin. If you go to London, though, we've got we've got DeepMind. Yeah. We have Facebook. We have Cambridge. We have Oxford. I mean, we have some amazing educational and large. Like, we're better for AI. Why aren't you here?

**Daniel Khachab** [25:59]:

Like like, yes, on the foundational layer, I completely agree, but I think on the application layer, there's just so much to learn. Like, it's it's it's fairly new, and we all start from zero. Like, the race is on since 2023. Foundation layer models that has been going on for for a while and you need those institutions that that that you just mentioned. But on the application layer, where it's like, how do I integrate with that API of foundation layer? How do I do prompt engineering? How do I design such a product? Those things are new, and you gotta upscale and and we are we are on that race.

**Harry Stebbings** [26:27]:

How many machine learning engineers do you have? Broad strokes. 15 to 18. Yeah. 15 to 18. Yeah. And there in Berlin, Where would you most be persuaded to go to?

**Daniel Khachab** [26:37]:

So when I started to actually entertain the thought was when I realized that in Europe we might be at a disadvantage. We got access as an example, we got access to the advanced voice API from OpenAI last as a continent. AppAI or App Intelligence is going to be launched last in Europe. Trust me, I tried to work around it. It's fucking hard to work around it if you're a European citizen. And let's continue. Close to a 100%, if you go on the infrastructure part, close to a 100% of all GPUs are built in Taiwan. Obviously, for geopolitical reasons, everyone is trying to de risk Taiwan. So where are these factories gonna be built? I don't see them. I see, for example, The UAE wanting to support hundreds of billions to create them there. I see The US like literally the White House probably one and a half months ago, they issued like this paper in which they urged the military to find real estate so they can build these stuff. And then we can continue like, we're gonna need a lot of energy to it as well for those data centers. People are investing into that energy production in The US, in The Middle East. I don't see that in Europe. And to me it's like, hey, in Europe today, we're not producing the chips. We're not producing the energy. We don't have the foundational layer models. So in that sense, these countries that don't possess those three elements are not really sovereign countries when it comes to AI. And if we believe that AI is truly as revolutionary of a technology like electricity was when it was first introduced, then we're not sovereign as a country in the first place. To your question, where would we go? Like, first of all, we would need to go to a country that has AI sovereignty.

**Harry Stebbings** [28:18]:

Okay. So first off, I actually interviewed Des Trainer quite recently from Intercom, actually at, like, an internal Intercom event, and he was like, I don't wanna do his accent because I suck at an Irish accent. But he was like, essentially, for most of Europe, AI is just shut off. Like, he's like, Facebook, they just won't entertain putting any of their AI products in Europe because of the regulatory lack of clarity. And so it's like, boop, you don't get AI. Sorry. Bad luck. Is that true?

**Daniel Khachab** [28:47]:

I mean, I'm not sure if we're not gonna get it, I think we're just gonna get last. It's just gonna

**Harry Stebbings** [28:51]:

take longer. And it's hard. And then you said there's foundation models, there's obviously chips and there's energy, the three factors. Okay. So if we just go through them, I'm a European, you're a European, you're in Germany, I'm in London. I wanna stay a European. So one by one, chips, what can we do that would make you happy and make us not lost?

**Daniel Khachab** [29:13]:

Yeah. So I think, you know, very interesting example. The German government wanted to fund Intel to put a chip production plant in Germany. Forgot if it's 10 or 20,000,000,000, which is obviously too little, but it's a but it's a great start. And because of obviously the problems that Intel is having, they said, okay, no, sorry, we won't do it. Someone So is offering them $1,010.10 10,000,000,000 and they say, no. Sorry. We won't do it. First of Intel is the wrong company to fund. So the first step you ask me is like, it to the right company. Put it to Taiwan Semiconductor. Put it to to to NVIDIA. People that can actually produce GPU GPUs, I need to make it fairly easy for them to come. And what those companies need is obviously, energy. They need they need the government support, and they need a lot of clean water. And actually, we can provide that in Europe. That's one. We need to meet meet we need to bring them here. Electricity, obviously, or energy is obviously like a a way bigger challenge, in particular of the shift to renewables. To me, it's an unsolved problem. I also see an ethical problem there because should we like, from a German perspective, should we go back to nuclear for it?

**Harry Stebbings** [30:10]:

Do you think we should go back to nuclear?

**Daniel Khachab** [30:12]:

I'm I'm personally not not not a big fan of nuclear just because I think it puts a lot of responsibility on future generations for problems that we haven't solved yet. That might be the only way.

**Harry Stebbings** [30:21]:

So we've got chips like invest in the right winner, back them, build them here. Energy, hard problem, TBD. Happy to have a TBD. We can't have solutions to all of them. And then foundation models. Why is foundation models hardest?

**Daniel Khachab** [30:34]:

Because we have a structural issue here, and and that is we have a talent gap. How are we gonna bring the right level of talent to build not not to build a foundational model, but to build a competitive foundational model. A model that can compete with OpenAI, can compete with Anthropic, that can compete with NVIDIA, with axe, with Lama, and how do we get this kind of talent and where is that founder in Europe that is willing to commit a lifetime to build such a company? I

**Harry Stebbings** [30:59]:

naively posit, well, we have DeepMind. Yeah. And we have actually huge amounts of long resources in Paris. Yeah. And incredible AI centers in Paris. Yeah. We absolutely can stand up a team. And founder wise, respectfully, I'm with you. I think the quality of European founders is much worse than The US. We'll get into that. But we only need one Samwer. Yes. 100%. We don't need 50. We need one. And so I disagree with you. We could do a foundation model. I mean, I think Maastricht is proving that we can. Respectfully, they just don't have anywhere near enough money.

**Daniel Khachab** [31:33]:

Yeah. I agree with you. I think just it's structural because it feels a bit more you need the right person at the right time who actually is willing to take the risk, whereas I think it's more in your control to provide energy and to bring a chip manufacturer.

**Harry Stebbings** [31:48]:

I completely agree, but I think we actually have it in our control to solve the talent shortage, which is why I'm so fucking visceral against the UK government right now despite being in The UK. Yeah. Whereas, like, increasing capital gains tax does not make entrepreneurs wanna build in your business in your country. Yeah. Before you said to me that regulatory is like this catchall that we use in Europe for, oh, that's why we haven't actually achieved. And actually this is a bit of an excuse for, I think it was laziness or lack of work ethic. What do you mean by that?

**Daniel Khachab** [32:16]:

So I think when we look at keynotes about tech in Europe, there's always three things that are getting mentioned. First, on the con side is we don't have enough capital. Second on the con side is we have too much regulation. And third on the pro side is we actually have enough engineering talent that is being produced by our universities and stuff. And I believe that, but today I have to say, you know, a couple years into our journey, there's not enough capital. Okay. And yes, when we started Choco, that was 2018, there was no way to raise 20,000,000, even just €20,000,000 in Germany. It just did not exist. That kind of funds that you could raise. One, you could raise five, maybe ten, twenty just did not exist. But what existed and what still exists today is five times a day a direct plane to London and two times a day a direct plane to JFK. And if you're willing to do a layover, you can get several times a day to San Francisco. And those funds in The US, in The UK, they are happy to invest in Germany as long as you're growing fast enough. So to me it's like, are we now going to hide away between, oh my god, we don't have enough domestic capital, or just gonna say, fuck it, I wanna build a great company and I'm gonna gonna get on the plane.

**Harry Stebbings** [33:25]:

First, I think we do have enough domestic capital now. Yeah. Like the amount of incredible and not incredible funds in Europe. There are too many. I think there's too much money for too little good entrepreneurs. So I think we do. And then we have the globalization of capital. So right, tick, agreed funding is not the problem. Regulatory.

**Daniel Khachab** [33:41]:

Yeah. So regulatory, look, there's certain heavily regulated industries and I don't know them very well, but I'm sure eventually they're at a disadvantage. But that doesn't hold, for example, for most of SaaS and also neither for most of marketplaces.

**Harry Stebbings** [33:55]:

What about the fragmentation of countries and the different regulatory provisions that come with each different jurisdiction?

**Daniel Khachab** [34:00]:

Hey, try to start a FinTech in The US. You have what, 52 different states and for some of them you need a different license as well.

**Harry Stebbings** [34:05]:

I agree. And that's why $15,000,000,000 is the biggest with Chime and we have a $45,000,000,000 company with Revolut.

**Daniel Khachab** [34:11]:

Interesting argument. But you know you know what I thought is that so for example about Germany. Many people complain about the the notarization of everything, and then it's it's probably twenty to thirty hours of extra work for any funding round that you do. And and I think it's unnecessary and it's and it's a burden. But I think, you know, know, Marc Zuckerberg would have said, oh, no. Sorry. I can't build Facebook here because my lawyer has to do twenty to thirty hours of extra work to go to the notary. Like, fuck no. That guy would have found a way. Like, Elon Musk built in in Germany, the home of car manufacturing right next to the capital, right next to next Berlin Airport, a factory to produce cars. He made that happen. So I'm like, okay. If we have truly great entrepreneurs that, yes, okay, there are obstacles and yes, okay, maybe the funding one is gone, then you regulatory. But truly great founders will just be stoic about it. They were like, okay, that's the situation, how do we work around it? And let's fucking go. That's what we need. We just need that pragmatism. Like we cannot always hold back and look for this kind of excuses. Just make it happen. Like it's possible. And to your point, Revolut has proven it. And Adrian has proven it. And Spotify has proven it. We're going to have more companies prove that it is possible. And so I think we should just stop whining and get pragmatic about it. And then, look, I don't think European regulation is great. Think it's horrible. I think governments are utterly incompetent. That is the case. But that should not hold us back for building great companies. And we should not even waste like one second complaining about it. Hopefully, it's gonna get fixed. And maybe we can we can we can voice our ideas how to fix it. But it should never it should never hold us back.

**Harry Stebbings** [35:44]:

So would you be long or short on Europe moving forwards?

**Daniel Khachab** [35:47]:

Stictus quo, we have to be short. Government is just yeah.

**Harry Stebbings** [35:51]:

If you were being as ambitious as you could be for your business Yeah. Why are you not in America or The UAE?

**Daniel Khachab** [35:57]:

So we are in America. And in fact, America is our largest market from a revenue perspective, and we also invest most of our money in America. And fairly recently, we're also in The UAE, and we recently opened an office there. And Do

**Harry Stebbings** [36:12]:

they give you credits for opening offices there?

**Daniel Khachab** [36:14]:

They certainly give us give us some sort of support, yes, but not in terms of of of money, more like in terms of visas and stuff like that and cooperation. So how I view is when when I look at okay. So we got US, we got Europe, and then we got, let's say, Middle East. And so this is our portfolio of markets. And then how I look at it is that, okay, we got US, that's the largest software market on the planet, and if you want to win globally, you got to win The US and that's kind of where dollars come from. Then you have The Middle East, in particular UAE and Saudi. And it's like these are just very fast growing economies, very ambitious economies, very little legacy, which is obviously for SaaS, to your point, implementation is so hard usually because of legacy, but they have very little legacy and they want to be the best. They to show the world we can do something great and they actually are on a fantastic trajectory. So that's kind of the growth market. And then you have Europe. And Europe is just that almost like post competitive robust market in which you can grow. And if you have the US dollars because you're active in The US, you can likely build a great business out of Europe. But it's kind of like that more or stagnant kind of thing in the middle. So I think you you need to think portfolio and you gotta diversify.

**Harry Stebbings** [37:25]:

Do you live in The US now? No. I used to live pre COVID. Talk to me about COVID. COVID, have I mean, dude, you're a restaurant platform and you'll hate that description, but, like, serve restaurants at the end of the day. What happens?

**Daniel Khachab** [37:38]:

So so Coatue, we're about to turn two years old, like eighteen months life, probably up to three hundred four hundred million annualized GMV, growing very fast, having a good time, and then COVID hits. And I was in New York back then, I'm like, I'm not going to do COVID in my shoebox apartment in New York. I'm going to go back to Berlin. And as a direct flight from Newark to Berlin, it's seven hour flight, I bought that plane. I still remember I opened my phone, I checked Looker, and I see our GMV, and it's a Sunday. And I land Monday morning 7AM in Berlin on the runway. I put up my phone, I checked Looker, 98% of our GMV is just gone. And lockdown hits and our business is just gone. It vanished overnight. Lockdowns everywhere, a lot of uncertainty in the market. And it was tough time and I started smoking. Smoked two pack cigarettes a day, got a beard like this, got gray hair, lost my humor. It was horrible. It was tough. And also because it was such a big break from like, hey, we're just growing and working hard with product market fit. Okay. Like, stop. Not only stop, but go to negative, like lose your business essentially.

**Harry Stebbings** [38:47]:

How did you communicate that to team and to investors?

**Daniel Khachab** [38:51]:

I think two things. The first thing I did was I googled best books on crisis management. And I think the best book is kind of a biography about Ernest Shackleton and he's that guy who took a boat and he wanted to be the first one on the South Pole and he tried three times, failed all the three times, he never lost a man. And it's a fantastic book and there's couple of lessons in them. And one of the lessons is like never lose your humor. Like if you lose your humor, you lose your sanity and you're going to lose your clear thinking. Never change your values, like stay true to them. And so I think that was really the first step, going to the team and say, Hey guys, look, we don't appreciate the situation, but that's how it is and we got to make the best out of it. We hope everyone has sufficient toilet paper. There was a time back then. And then I think the second thing is stay true to your values. And at that point, one of our values really got really part of our culture and that is always play offense. And so I think when COVID hit and when you lose 98% of your GMV and it's a very first week of it, you know, no one knows what's happening. Like are we all gonna die? Is it gonna be gone in two weeks? No one knows. It's very easy to play defense and say, okay, like, look, we're gonna hibernate now. We're going to do mass layoffs. We're to preserve runway. We're to preserve cash. We wait until it's all over and then we pump it up again. That's a defensive move. And we just say, No, like, what do I have to do to play offense? And that was really formative experience for our company because there was always one country in Europe. There was always one state in The US which was not in lockdown. And our Spain team moved moved to Florida because you can do sales speaking Spanish in Miami, probably better actually than than than English. And Miami became our best city launch to that date. And our France team, they moved first to California, ended to Texas, and the German team, I think, went also to Texas. And we always had to leave Schengen for fourteen days, so we always went to Dominican Republic, waited fourteen days, and then we entered The US. And so we've been growing throughout and we changed in our go to market from like a field sales approach and a product optimized for field sales approach to a product optimized for like a telesales approach and then to a product led growth approach. And so we just said, okay, look, let's be stoic about the situation. That's how it is and let's just change. We didn't do a layoffs. We burned a bunch of cash in that period, 100% sure. But hey, we stayed true to our values. We kept playing offense. We kept our human positivity and then once the curtain of COVID lifted, like we were just ahead of the competition who may have chosen to hibernate.

**Harry Stebbings** [41:20]:

When was your most recent round?

**Daniel Khachab** [41:22]:

Was beginning of twenty twenty three.

**Harry Stebbings** [41:25]:

Got you. What price was the round?

**Daniel Khachab** [41:27]:

1,100,000,000.

**Harry Stebbings** [41:29]:

1,100,000,000. Do you feel that is high now? I think we have a generation of companies that are growing into valuations. A 100%. Do you regret raising it at $1,100,000,000 valuation?

**Daniel Khachab** [41:41]:

You know, there's elements of it that I regret, elements of it that I don't regret. I think what I don't regret is that, you know, someone once told me if can take the cash and if your father is not a billionaire, then you should take it. And why? It's because more cash increase your probability of like an outcome of you achieving your mission and everything, every decision that you do has to be increased at. But do you buy that? I don't buy

**Harry Stebbings** [42:03]:

that. I think it increases distractions. It reduces capital efficiency. It gives you more runway, which does not increase execution speed.

**Daniel Khachab** [42:12]:

So here we come to the downsides, right? So I think everything you say is true. However, we also outlived something like COVID because we were doing this strategy. We also kind of came, I don't want to say smooth sailing, like we had our tough patches certainly during the high interest rate area, but also through debt we came because we always took the money. Now the real downside to me is that it's at 1,000,000,000 mark because once we become unicorn and people think, Oh, we made it. We're great now. Kind of people get less hungry. And then you get applications of people who look for safe space to work. It's like, No, fuck it. We're not safe. Like, we're at high risk. We're work our butts off. Have to take risks. It's gonna be chaos and you're gonna need to thrive in it and there's gonna be a lot of change. We're not a little change company now just because we cross. And also, like who the fuck wants to be a rainbow colored pony? I don't want to be a unicorn. Just that cultural component is and I remember we made the mistake and we did a unicorn party. I wish we would have never done it. And then we had like flags. And then I realized what had changed in people and then like two weeks later, I told everyone, remove those flags in all of our offices and trash them. We're not done. That's definitely what I regret. Why

**Harry Stebbings** [43:22]:

did you let that party happen? Like, straight away there, I'm like, oh. Like, you know, we closed the 400,000,000 fund. Yeah. We did not have a celebratory dinner. Yeah. But I had a walk and then dinner with my mom.

**Daniel Khachab** [43:32]:

Yeah. And and and I think that's fantastic mindset. You know, Dan Rose, one of our board members at at Coatue, and he told me once I met him the first time in flesh again after COVID, he told me, you were the only company portfolio that suffered from COVID. All of others went bonkers. Food delivery and quick commerce at that point in time. And many other companies just had so much growth and so much equity value was built. Our equity value was destroyed because of COVID. Like, we just came out of a really, really tough patch. We were working seventeen hours a day. Again, we started smoking. It's it's it's just it's been been tough for most of our our people. And we probably also did partly just because like, okay, like, it's over. We survived. So I guess it's partly as an excuse how we did the party. Yeah. In hindsight,

**Harry Stebbings** [44:17]:

wouldn't do it again. When you look back at your management through COVID, is there anything that you would change?

**Daniel Khachab** [44:22]:

So the very first week again, I'm in New York, and one of our angel investors, Daniel Khachab, he told me, you know, just be close to the team. Like and most of our team was in Berlin, I said, I go back to Berlin. I arrived Monday morning and we're looking like, what are we supposed to do? Like food distributors are not working and restaurants are closed, like what and so we said, okay, first week of COVID, everyone gets a week off. And we said, okay, might be great. Everyone can adjust to new situation. Like the opposite was the case. Like purpose was gone. So I think that was a mistake. It certainly helped us to regroup and then to actually play offense and to give a lot of purpose to the team thereafter. But I think that week was not appreciated, and we should probably have thought about this earlier.

**Harry Stebbings** [45:02]:

People need purpose. I totally agree with that. 100%. Do you believe at all in work life balance?

**Daniel Khachab** [45:08]:

No. I think it's bullshit. You know, what I always tell our people is like, like, we have to be a 100% present and a 100% intense. So when you're at work, I expect you to be a 100% here. Not on Instagram, not with your head somewhere else, but like a 100% present with all of your intensity. But when you're at home, I expect the same that you give 10% at work to be 10%. And I think that's way more important because like work life balance is like, yeah, you know, I'm gonna work every day until like, you know, seven p. M.

**Harry Stebbings** [45:36]:

But I would push that. Would say even at home, don't want you to be 100% at home. I'm really sorry. By nature of like our business, if we are gonna be the best fund in the world, we are gonna have to do extraordinary things.

**Daniel Khachab** [45:47]:

Yeah. A 100%. And look, I think there's always phases where that's gonna expect it from you. And yet you might get that Sunday morning call Like that you you gotta be ready for it. But if that Sunday morning call doesn't happen, like be present because otherwise you're gonna burn out and your partner's gonna complain you're 100 gonna

**Harry Stebbings** [46:02]:

Totally agree with that.

**Daniel Khachab** [46:03]:

Like, you need to be ready for war any given moment in time. How much cash

**Harry Stebbings** [46:07]:

have you raised so far?

**Daniel Khachab** [46:08]:

330,000,000.

**Harry Stebbings** [46:09]:

330,000,000? Yeah. What's your single biggest lesson on fundraising? Mine is, like, fundamentally, no one will give you money the first time they meet you. This is for funds in particular. The big problem with managers is they're like, oh, I'm fundraising, and they expect people to give them money. My biggest check-in this fund was $40,000,000, and they've known me for eight years. Never invested before.

**Daniel Khachab** [46:31]:

Yeah. Look, what I tell to our team is that fundraising is a several step process. And step one is you need to bring a fantastic group of people together. Step two is you need to work on a mission and on a strategy that makes sense and most people have to create that. Step three is you gotta work butt off. Step four is you're going to look how well you're doing and you put this on an ugly slide. It's ideally just a couple of graphs. And step five is you just hand those slides out and that's a fundraising process. So yes, there's many of things within the fundraising process that you can do good and many things that you can do bad. But fundamentally, if the graph is going up into the right, you're going to raise money. And if not, it's going to be fucking hard. So the best way to fundraise, just make your company do well. And then I think, you know, for like first time founders or like when you raise, when you first, when you raise the first couple of rounds, it's like, you know, like don't beg for money. Like the investor's job is to invest, not to not invest. Like understand. And also what is the psyche of a VC? Psyche of a VC is like, hey, I have a portfolio and everyone knows 90% of my portfolio are going be write offs. They're to fail. That's normal. That's accepted in the venture world. What is not accepted is if you meet the entrepreneur and you decide not to invest, your negative portfolio. If you missed a deal. So naturally, the investor is to enhance to be to a certain extent formal driven. So, you know, in the end of the day, cash is a commodity, the dollar is green. Your company is singular. And yes, you're also reliant on the investor, but like don't beg. Like it has to be a conversation on eyesight. Don't be arrogant either. But like meet on eyesight. You have an asset and other person eventually wants that asset. And by the way, you cannot choose any investor. You probably can only choose one or two, maybe three per round.

**Harry Stebbings** [48:15]:

To your point on upside, the thing founders don't often articulate best is like, how's this a $10,000,000,000 company? And I think we're almost trained not to in Europe because it's arrogant or it's too idealistic or it's but I have to see a billion dollar revenue business.

**Daniel Khachab** [48:30]:

You know, I love that you said idealistic because it ties us back to previous points like why Berlin? I think Berlin is a very idealistic city, maybe the most idealistic city in Europe. And I think a founder to a certain extent has to be idealistic and has to put a great vision because in the end of the day, like our vision, for example, is to enable sustainable food system and that's very important for the globe many respects. But I'm like, Okay, like, you know, we went through COVID, that has been tough, and then it's the high interest rate period, and then there's late that AI pivot. And every company has to go through such things. Yesterday I watched an early interview with Steve Jobs and he said, You have ninety days of money left. And so like, what is going to make you stand in front of your team, not in front of the investor, but in front of your team and authentically say, Hey guys, we need to work extra hard now because it's really, really important that we achieve our mission. If that is not like a compelling vision, then you're gonna have a hard time doing it authentically. When you have that, and this is what you have to voice to the investor, And then I don't think you need to put a number behind it. It just needs to sound compelling. It needs to sound large, need to sound long term. And I think long term is another component like we spoke about, okay, like Europe and regulation and extra capital and stuff like that. We need more long term commitment as well. We need founders who say, I'm going to invest fifteen to twenty years. I'm going to commit this now, substantial part of my life, the best years of my life to make this happen. I'm not give the fuck up. I'm not gonna do. I'm gonna win. I'm gonna push through. And I think the investor needs to know this. You need to, I think this you need to articulate like, what is this? Is this a company that we're gonna, you know, try to increase revenues fast and sell it? Is it IPO? Leave the company and make holidays on The Bahamas. So it's like, are we gonna build a generational company? And and by the way, that's what we need in Europe, generational companies.

**Harry Stebbings** [50:17]:

There's a very sad moment for me in a Jensen Huang interview where they said, would you do this again? Yeah. And he goes, no. If I knew how hard it was, I wouldn't do it again. Respectfully, Daniel, you know, you're in a great place now with AI-two, but with COVID, with the transition, with everything that we've been through, would you do it again?

**Daniel Khachab** [50:37]:

I ask myself this question often. There were years when I said, would would say, fuck no. And there are years where I said like, yeah. And I think that you got to be realistic about, like, it's going to be tough. And every cell in your body has to tell you start and build that company. If one cell in your mind and your body is telling you, yeah, maybe, then don't do it. But if every cell tells you to do it, then you got to do it. And I think, you know, people say, some people jump in the pool and they get out and they're still dry. And I think a real founder is wet before they even jump into the pool. It has to be part of you and then I think you might do it again.

**Harry Stebbings** [51:15]:

I remember when I was once fundraising, it a tough time fundraising. It was a couple of years ago. And my friend who started Coat on, Alex Will, said to me, Harry, you don't get it, dude. Entrepreneurship is about getting punched in the face time and time again and going, give me more. And you have to enjoy that. Not, like, be okay with it. You have to, like, actually seek it out. Like almost this masochism of like, yeah, I'll take it.

**Daniel Khachab** [51:39]:

A 100%. And I think there's many parallels. So when I was young, I grew up in the Alps and I was a ski instructor because that was just like the kind of the job that like 16 year olds would do where I grew up. And what I saw very early on is like the kids that fell all the time, learn the fastest. And like, you know, everyone falls for the first time. That's just part of the process. But then it's like the ones that I wind around, oh, and I don't want to fall again and blah, blah. Then just not going to learn. But if you're willing, like, to fall again and again, like, those are the kids that that make it and that will become great great races.

**Harry Stebbings** [52:11]:

Can I ask a final one, which is you said you raised $303,130, whatever Yeah? It did you spend on that you wish you hadn't spent on first?

**Daniel Khachab** [52:19]:

Yeah. So at some point, like we had a team of really great people in there. That's not the people's fault. It's more like my fault. And it was a special projects team. And it's kind of like, okay, like here's our core business and here's a special projects team, figure out great things. And once they're great, bring it back to the core and then the core is going to scale it. And I think today I'm convinced that that's the wrong way to think about company building. Actually, AI would be another example. We could give it back to a special project kind of skunkworks kind of team. Figure out AI and then you give it back. So that doesn't work. And the reason is that if the core of your company doesn't have the skills, capabilities to innovate, then you have a problem in the first place. Like your core needs to be able to innovate, you know, to get it there. So the skunkworks team might just be an excuse to not being able to do it in your core. That's one. Two, let's say your special projects can figure something out and it's fantastic. And then you give it to other people and you say, what they did is fantastic. Now can you please like productize it and roll it? Like, I want that person who figures it out. I want to allow this person to own it, to be the responsible individual for it, to scale it, to build it together with with with that. That is much more motivating. Right? Yeah. I think that understanding that likely if you have a special project, seeing something is not well in your core, we should not have spent money on that. Which is the worst market for you? Spain. Next level fragmented. To give you an example, the average restaurant in The US and Germany orders from from four and a half different suppliers. Yeah. So say one for fish and one for meat and one for drinks and so on. In France, had nine, much more specialized team are focused on food and so on and so forth. In Spain, at 18 and likely you need a different product for that, right? Because so the distributors, they're smaller, so does it justify your sales cycle? You need probably more like a self onboarding kind of product like growth kind of thing. And so that's why I think the market is challenging. On other hand, Spain has many other advantages. It's one of the very few economies in Europe that are actually probably growing in GDP. Obviously, access to talent is is okay. People want to move to Barcelona. It's easy sell.

**Harry Stebbings** [54:18]:

What did you not final one before we do a quick fire. What did you not spend on that you wish you had spent on?

**Daniel Khachab** [54:23]:

So we we were lucky. We found product market fit for our first product very early on and probably even actually before we started coding, to be fair, because we just did a trillion iterations just on design. So we product marketed early on. And then we went out to the market and it was growing and then we launched like Berlin and then Germany and then France and The US and so on and so forth city by city. And it was working well. And I think, you know, something working is actually very rare. And so once you have something that's working, like you got to go all in. Like I wish you would have, you know, spent double the amount of money, have tripled the amount of burn probably in the first twenty four months to our company, and just just go big because What what would that have allowed? A land grab on distributors? For sure, a land grab. I think more importantly, it would just have created a larger brand within the industry.

**Harry Stebbings** [55:11]:

When everyone is raising a lot of money around you, the space got very hot very quickly. Yeah. Some people say, you've gotta raise two. You gotta compete. Others say, the money will dry up. What matters is actually not getting involved in the frenzy and playing your own game. Which one makes sense?

**Daniel Khachab** [55:28]:

You know, I'm not sure if it's an if it's an either or. Like, I'm not saying you should like just triple your burn. I say you should triple your burn when something's working really well. Like, within within the constraints of of good economics and and capital efficiency. But once you figure that complete thing out, not only the product market fit, but also like a go to market of good economics, then just go as fast as possible because that's when you actually will attract copycats. It needs to be the complete thing. And then we can also answer this question in isolation. Like, we also need to look at the competitive situation. And the competitive situation

**Harry Stebbings** [56:01]:

Do you think you had good competitors?

**Daniel Khachab** [56:02]:

Yeah. I think I think we had good competitors. I think we still have good competitors.

**Harry Stebbings** [56:05]:

Which competitor do you most respect?

**Daniel Khachab** [56:07]:

So early on, certainly a a company, it was called Recce. And I I just think they had a fantastic product for restaurants and probably still have. And, like, we were directly competing in Paris and Chicago, New York, Berlin, everywhere. It was like a multi frontier war if you want. I think we just sat down and analyzed the strength and weakness and just made a plan on how to win and execute on it. I think fantastic that we had a good and actually a competitor that at that point was probably already 10 times larger than us. We had maybe raised 2,000,000. They had raised 20,000,000. That was very fertile ground for us to start.

**Harry Stebbings** [56:48]:

I always say be grateful for your competitors.

**Daniel Khachab** [56:50]:

100%. 100%. And it's it's it makes you better, but it's also like it's a simplest motivational tool, right? It's like, you know, when you're second, when you're like what's the goal? Here's the number one. The goal is get a bit above the number one. It's as simple as that. Now once you're number one, okay, what's the goal now? Stay number one is a bit defensive, right? So like kind of like you need to go from like winning to like dominating. How do you define it? And suddenly things become a bit unclear. Like you essentially always pushing forward and excellence, stuff like that.

**Harry Stebbings** [57:18]:

You also need to create a common enemy.

**Daniel Khachab** [57:21]:

Yes. To a certain extent, right? Because I think a common enemy, an extrinsic motivation, if you want so, works. But I still believe what works better is an intrinsic motivation. It's like we are here to achieve our mission. That's why we're here. You know, and by the way, lions don't lose sleep over sheep. Like we need to focus on what we are doing and not focus on winning against competition, but like at achieving our mission and doing it as fast as possible. And so I think that intrinsic motivation still has to be number one. You know, I'd rather think like the kind of the extrinsic one, like the competition, the market, that that has to be like a far too.

**Harry Stebbings** [57:55]:

Lions don't lose sleep over sheep. I love that. I haven't had that before. Listen. I've loved doing this. I wanna do a quick fire with you. So I say a short statement. You give me your immediate thoughts. So what do you believe that most around you disbelieve?

**Daniel Khachab** [58:08]:

I I do believe only AI first companies will win. And by AI first, I mean that a majority of your total revenue or of your new revenue has to come from an AI product. Why? Because you're gonna be more capital efficient. It can provide more more more user value. It's just fast adoption curve. And on top of that, kind of using AI internally. So revenue is kind of more external to product, but using it internally to get more productive to automate things. It's just going to be the required status quo. A company with a social media account won't become a social media company. It's just a requirement of an Instagram account just to hold the status quo of a company. And we companies that automate the process of AI, we don't call them AI enabled. We just call them a company in the future.

**Harry Stebbings** [58:55]:

I know your revenue growth has scaled immensely. Yeah. If I'm allowed to ask, what's your revenue?

**Daniel Khachab** [59:01]:

I think we're in a very competitive situation, so I don't don't think we like talking about it. But I can tell you our GMV, since this AI transition grew, like, tremendously. I think it took us with kind of, like, the two years of COVID break, it took us probably five years to get to 1,500,000,000 ish, and it took us then less than a year at another billion.

**Harry Stebbings** [59:20]:

That is insane that when you look back to that flight and you look back to the thinking reminding you of that looker. Yeah. Yeah. Yeah. But, like, 300, and it's like, that was that was the great, and then it got shot. And now to be at two and a half? Yeah. Yeah. It's it's been wild. It's good to have the really shit times because it keeps you level on what truly shit can be.

**Daniel Khachab** [59:39]:

Yeah. And I I and I don't wanna miss it. Like, I I always tell tell our people kind of like, Hey, running a company is like, we need to cross a jungle. Okay? And then we're here and then there's a jungle. We need to go to the other side and with different jobs. And some people need to cook and some people need to carry and some people need to build tents. Sometimes it's fantastic. You're like on the top of a mountain and the sun is rising and the birds are chipping. It's just beautiful. And sometimes it's just raining for three days. It's cold. We're all wet. We're hungry. Don't find food. And right then middle of the night we do cross a river full of piranhas and crocodiles and we're like, fuck. But when we're all old and gray and we look back, the cooler story is actually like, mate. Remember when we used the hat to cross that river in the middle of the night full of piranhas and crocodiles? Like that's actually what makes it what makes a great experience.

**Harry Stebbings** [60:27]:

You can be CEO of another company for a day. Which company would you like to be CEO of?

**Daniel Khachab** [60:31]:

One on the inspiring side and one of the, okay, what the heck is actually going on side. And I think I mean, Pixar, just because of like the talent density and kind of like this creative work, which is very far from what we do, we like more like B2B and hardcore efficiency, like I think that will be a fantastic environment to experience that. I think on the what the fuck is going on side, it's like the German rail system, like like Deutsche Bahn, it's like, what the heck are those guys doing every single day? 300,000 people. I think Why?

**Harry Stebbings** [60:59]:

What the heck are they doing?

**Daniel Khachab** [61:01]:

So a couple of examples. So last year, 2,023, there was like this big bonus. Okay. Like bonus payments to the executives, but to every single employee at Deutsche Bank if they were to get more on time, more punctual. And so they did not only like miss that goal of getting more punctual, not like only get half more punctual. No, They went negative. 9% negative. 100% of the bonus was paid out. So like, okay, like, what the heck is going on in that? And it's getting worse by the day. What are they doing? Like French, and I believe even Italian railway system doesn't let German trains anymore enter their countries because they're just too fucking late all the time. What's up? Sorry, guys. So how dysfunctional must the company be? I'll give you an example.

**Harry Stebbings** [61:44]:

Also, precedent do you set that you missed the gold and still pay it? Yeah. Exactly.

**Daniel Khachab** [61:49]:

And, like, significant bonus. I know someone there, not very senior, fairly junior, I would even say, and the guy bought a small wooden boat with that bonus. It's like, the fuck. Great year for him. No? This is government

**Harry Stebbings** [62:01]:

funded railway? Yeah. Mostly. Yeah. Wow.

**Daniel Khachab** [62:04]:

Yeah. So so it's horrible.

**Harry Stebbings** [62:05]:

This is where if you were in The US and if we were asking for generational companies, don't laugh, you'd have someone who'd say, I'm gonna build another railway. Deutsche ban is shit. They are completely lacking the profit incentive. They're terribly run. And then that's the European Elon Musk who go, I can do it better.

**Daniel Khachab** [62:22]:

Yeah. And I think, for example, Flixbus is doing alright. They have this Flix train kind of thing, and it's obviously challenging. We get cost to need to use the infrastructure of their competitor. That would be an interesting thing for a day. It's like, okay, how dysfunctional can it get?

**Harry Stebbings** [62:33]:

I'd choose Palantir, like just to peer into any global conflict and be like, what's going on?

**Daniel Khachab** [62:38]:

Yeah. Fair enough. I mean, a short Taiwan Semiconductor, very interesting as well in the video, obviously.

**Harry Stebbings** [62:42]:

What statement in startups is said most that is most BS?

**Daniel Khachab** [62:47]:

One thing I thought about so I heard the story about Jeff Bezos. Okay? And so they're somewhere in The US and then they want to build something and I can't figure it out. But there's a company in Paris and they figured it out and I think they're on a plane to Chicago. And then Jeff says, Okay, let's just let's fly to Paris now. Like right up now. And all of the Xs go like, Okay, the fuck. I thought we were going to Chicago. And so I think many people would call this bias for action. But I think also many people would describe this as impulsiveness. So actually, so depending on outcome, it's either bias for action or impulsiveness. So so you judge afterwards. And so I think you you just you just gotta have that pulseness, for action no matter how how you wanna call it. And and afterwards, you judge and you gotta be willing to make those mistakes.

**Harry Stebbings** [63:31]:

What have you changed your mind on in the last twelve months?

**Daniel Khachab** [63:34]:

I think one thing that became very clear is that to me, great companies, at least from headcount perspective, get smaller and not bigger. And the reason is that you have to automate as much as possible, and with AI, that is fairly possible. And I 100% do believe in kind of this thing about really have, like, the one person unicorn. Might not be a one person, might be a 10 person unicorn, but I I do believe that will happen. I do believe it's it's actually possible probably today with the right 10 people.

**Harry Stebbings** [64:00]:

Daniel, final one. What question are you not ever asked by investors, by team members, by media that you think you should be asked?

**Daniel Khachab** [64:09]:

I think at the end of the day, the most important question is like, why are you doing that? Right? Because from an investor, you can ask them, what are you doing and how are you doing it and why is it a great market? It's like, but but why you, as a person, why are you willing to commit? And are you willing to commit actually fifteen, twenty years to that? And I think that needs to be a fantastic answer to it. And Is it okay to do it for money? Short answer is no. It's just too hard. It's it's not worth it. Money is a symptom of you building a great company.

**Harry Stebbings** [64:41]:

But if you thrive on competition, if that's what gets you off, the win is everything.

**Daniel Khachab** [64:47]:

Yeah. 100100%. And and like like, I I think being competitive is fantastic and I love being competitive and I wanna and I wanna build the best at what we do, but I wanna be the best I wanna be the best in hiring. I want to be the best in competitive strategy. I want to build the best in product. I want to be the best in adopting new technologies such as AI quick. I want to be the best in engineering. Want to be the best in international expansion and sales and so many things. Want to be the best. And I think kind of like the valuation or the outcome is just a way of quantifying if you're actually the best. But it's a result, it's a symptom of all of these inputs that you have to give. And so I think if you're just chasing the symptom, then naturally like your headspace already diverted from what you should actually focus on, which is like be the best at that one particular thing. And then it will follow. It will follow. But I do also believe, you know, there's a certain responsibility that we should all have. And let's think about San Francisco and Silicon Valley. Like there's this fucking Caltrain, which is a garden shed on rails going from San Francisco to all of these nice towns in Silicon Valley. And at every stop you have a $100,000,000,000 plus company, if not by now a trillion dollar plus company. And that train sucks. And if you take the road, like the road also sucks, but you need to have a car for it. And homelessness is nuts there. It's absolutely next level. And so why doesn't this get fixed? We have the best foundational layer models on AI on the planet coming out of that little piece of land. We got great fantastic companies out there in every different vertical coming out of that piece of land. And so but none of it seems to have increased the average life quality, if you want so, of the population. None of it. Like, it's literally going south.

**Harry Stebbings** [66:42]:

Do you ever think like, am I doing something big enough? It's like you could reinvent how a million Germans get to work every day. 10,000,000 Germans, 20,000,000. How fundamentally children learn with respect. Do you ever think, am I doing big enough? Like I have one life. Look,

**Daniel Khachab** [66:59]:

I think about it every single day. There's not a night where I don't think about it. Now, one of the symptoms of our work is this massively decreased food wastage as an example. Food wastage is one the major drivers, carbon dioxide, of climate change and of inequality in particularly developing countries and so on and so forth. So I think it's contributing to that. Do I think are we going fast enough every single day? But do I think that it fundamentally needs a different economic model? Yes. We've been essentially transitioning through three different generations of companies. And generation one is like what I do is completely disconnected to what's good for society or for the environment. So I might be an oil company and at the end of the year I have a profit and then I plant some trees through it, fantastic. But by no means I'm incentivized to actually do that. And if business is bad, that's the first thing I'm going to cut. So that's generation one. Generation two is I actually recognize that every single human being and every organization as such, every company has first a negative impact and I'm going to strive to go for zero impact. And that's already fantastic and very few companies actually manage to achieve that. And now I think we're approaching generation three of companies in which every unit of economic success is in direct correlation to a unit of successful economy and to the planet by the very foundation mechanics of the business model. So as an example, let's say Amazon, if every single box that they would ship magically agree would be grown. Fantastic. Because every single box that they ship, the revenue goes up, it's economic success and then magically that grid should be grown. Now imagine you have a software with every single unit that you sell, maybe there's going to be a little less carbon emissions. Maybe there's whatever, cost of housing is going to go down just a tiny bit. Indirect correlation, you cannot break that correlation. I think that is a fantastic business and I call these third generation companies. And I think that is actually the only way how to scale positive impact. Do you eat meat? Sometimes, yes. I come from a butcher's family. But hey, you know, same there. Like I think it's very important to put our focus on the highest levels. What do I mean? So how much in the general population? How much mind space goes to EVs, electric cars? Everyone's talking about it's a sexy thing. It's like, you know, zero to 100 and less than three. It's cool. How much goes to food waste? A bit, but not as much as it. So what's the difference in impact? Reducing food waste, and I'm not saying alternative foods. I'm not saying eat less meat. I'm not I'm just saying don't produce that waste. That's the only thing. Has 5x the impact as if all cars would be gone. Not electrified but gone. 5x in terms of carbon dioxide emissions. But it's sexier to talk about cars. And so that's why I think we have to stay methodical and we can't be taken away emotionally because we love the environment and this is so much. Like, we have to stay methodical and think, where are our highest levels? And I think we gotta focus on those.

**Harry Stebbings** [69:56]:

Daniel, listen, I've so loved doing this. You have been an amazing the guests that I love are ones where there's a real opinion, where we can have a conversation and it's like you have a point and you're ready to make it. The worst are when you sit on the fence. It's amazing how many people come on a podcast and sit on the fence. You've been fantastic, so thank you so much. And I've loved doing this, man. Harry,

**Daniel Khachab** [70:18]:

it was really, really cool.

**Harry Stebbings** [70:19]:

Thank you so much for the invite. Appreciate it. If you wanna watch the full episode, you can watch it on YouTube by searching for 20 VC. That's two zero VC on YouTube. But before we leave you today,

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**Harry Stebbings** [70:29]:

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