# GV's Tom Hulme on Why Investing in Foundation Models is like Investing in "Power Stations"

The Conventional Wisdom in VC that is BS & Lessons from a 24x Angel Track Record, 255x on Robinhood and Making Billions on Uber

20VC · May 8, 2024 · 77 min · 15,600 words
Speakers: Tom Hulme, Harry Stebbings
Source: https://www.996.fm/episodes/20vc--ep-b89416ca/

## Cold open

**Tom Hulme** [0:00]:

Venture capital is it's like being a founder on antidepressants. You basically have all of the highs, just not as high. All of the lows, just not as low. There are basically three types of investors. You've got smart investors that know they're smart and they're gonna add value. Then you've got passive investors that are gonna stay passive and they're not gonna get in the way. Both of those are absolutely fine. You need to avoid investors that are passive or sometimes even dumb, but think they're smart and actually gonna interfere.

**Harry Stebbings** [0:27]:

This is 20 VC

## Intro

**Harry Stebbings** [0:28]:

with me, Harry Stebbings, and today is a really special one for me as I welcome one of my closest friends to the hot seat, Tom Hulme. Now Tom and I have done more walks around Hyde Park than I care to remember, and he's one of the most special people in this business. Tom is a managing partner of GV, Google Ventures, and leads the European team. Today, GV has over 10,000,000,000 in AUM, and Tom has led investments in the likes of Lemonade, Snyk, GoCardless, and Currency Cloud. And before becoming a full time venture investor, Tom was one of Europe's most successful angel investors with a 20 x TVPI track record. This show was such a joy to do, and you can check out the full episode on YouTube by searching for 20 VC.

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**Harry Stebbings** [1:06]:

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**Unknown** [3:25]:

You have now arrived at your destination.

## Conversation

**Harry Stebbings** [3:27]:

Tom, I am so excited for this. Dude, we have been friends for so many years. It's taken, what, seven or eight for me to convince you to do this, but thank you for joining me.

**Tom Hulme** [3:35]:

It's a it's a total pleasure. I feel like you we've probably been for place to a 100 walks together, and you told me this would be just like another walk. Now I have a mic phone

**Harry Stebbings** [3:44]:

thrust in my face. So I really wanna do like cardboard karaoke, but walks around the park. I think it'd be hard to do. Listen, I think we're all shaped by our childhoods in many ways. And so I wanna start with your childhood. We've chatted about it before, but talk to me a little bit about your childhood and how it shaped a little bit of your mindset today.

**Tom Hulme** [4:00]:

Yeah. Look, overall, it was a brilliant childhood, but I I think the thing you and I have spoken about before is I had a few years where I was bullied at school. It was utterly miserable. It took all my kind of grit and perseverance to actually make it into school each day. So it taught me that. I think maybe some would say it gave me a little bit of a chip on my shoulder, but it also taught me empathy. I will never assume anything about how someone feels. I will never expect others to do something that I wouldn't do myself. So, look, I'm a post rationalizer in this industry. Most of us are optimists, so I can tell you why it was probably good for me. But it was a really rough few years

**Harry Stebbings** [4:36]:

that actually I wouldn't wish on anyone. The the hard thing I found is that I had the same, but actually it means that I just desperately want people to like me. And that can actually lead to me avoiding conflict in a lot of cases, which actually can be quite a negative trait too. I think so.

**Tom Hulme** [4:48]:

I think that I've had that feedback before because I want others to be happy. I want to be liked in the same way. But I think over time I've learned actually the best thing for others, if you truly are empathic towards them, you kind of wanna give them honest direct feedback, help them grow. And interestingly, they are very grateful for it in the long run.

**Harry Stebbings** [5:10]:

No. They're not. No. They're not. This is the thing that me and Jason Lemm can talk about a lot, which is like the majority of founders actually just don't want the feedback.

**Tom Hulme** [5:19]:

Oh, that's interesting. But that's I mean, if you're talking about founders specifically, I think that's a lovely example. I think the best founders are actually very attuned to feedback. They're attuned to what the market's telling them. So there's two things I'd question in that. Number one is maybe it's just your feedback. Secondly, maybe they're actually just overly rightly tuned on the market and the customers and they will adapt to that. The best founders absolutely have that in common.

**Harry Stebbings** [5:43]:

Do you know what? I knew it was a mistake, Ding. It's just your feedback, Harry. I thought you were gonna say it's just my founders. I was like, hush. No. I I in terms of the investing side, Tom, I do wanna parlay into that. How did you start the angel investing? And what did that entry look like? Yeah.

**Tom Hulme** [5:59]:

I I was lucky enough to sell a company. I decided angel investing looked fun. And I thought, right. I'm gonna run an experiment. I'm pretty entrepreneurial, so I thought I'm gonna try and answer a couple of questions. And the questions I wanted to answer, first question is, what kind of investor am I gonna be? And actually, do I enjoy it? Second question was, am I any good at it? So first question, actually, one of my early investors said something I think is really smart to me. They said, there are basically three types of You've got smart investors that know they're smart and they're gonna add value. Then you've got passive investors that are gonna stay passive and they're not gonna get in the way. Both of those are absolutely fine. You need to avoid investors that are passive or sometimes even dumb, but think they're smart and actually gonna kind of interfere. And so I set myself a goal. Am I gonna be kind of smart, smart or passive, passive? And am I gonna enjoy it? Over time, I think I added some value to those founders, particularly on strategy and design, because I would slowly work my way onto their kind of, what we call in The UK, a nine nine nine list, a list of people they call if something's going wrong. In The US, it'd be a nine one one list probably. And I realized very quickly I absolutely loved that. I loved supporting founders. So that was a tick. Next question became, am I any good at it? And I still don't really know the answer to that. I think the returns were pretty good over time, but the feedback loop in venture is so long, it's incredibly difficult to figure out if you're actually good at it.

**Harry Stebbings** [7:21]:

I just wanna kind of break those two apart. What would you say the split is between the different types of venture investors today? Smart, smart, passive and fine, and then the dangerous.

**Tom Hulme** [7:31]:

So I think this I'd say smart, smart are often investors that are making the fundamentals the core of the decision principle. I think a lot of the franchises that have been around for decades, there's a fair amount of them, but it's probably only 25%. And then during the sort of low interest rate environment when cost of capital has been low, you have seen a lot of the passive passive money flying into the industry. Yep. In 2020, I think that was more like 60%. Yep. And then I think the the remaining 10% gets cleared out over time. We're probably now, because there's less capital seeing a lot more of the investors that actually have strategies and have fundamentals. Yep. It's like long may that number increase. What do you think it

**Harry Stebbings** [8:09]:

is? I think you're a little bit over optimistic there. Like the smart smart, having interviewed 2700, I'd probably say it's about 3%. Wow. Like really smart smart, where like the insight is like that really changed the way I think. I I think that's true.

**Tom Hulme** [8:25]:

And actually the market changes so

**Harry Stebbings** [8:26]:

much. Dude, most just listen to the podcast and then repeat them.

**Tom Hulme** [8:30]:

Yeah.

**Harry Stebbings** [8:30]:

I'm really sorry. It's a viable strategy. Totally. Certainly for momentum investing, that is a very viable strategy. But by the way, I think actually the majority of

**Tom Hulme** [8:38]:

founders just want passive. I agree. Actually, if you look at second time founders, I mean, that's an interesting framework. Think first time founders are looking for investors that add a lot of value. Those that are second time around understand it, bias, and skew

**Harry Stebbings** [8:53]:

wildly towards the passive. 100%. Or they want the one investor, Peter Fanton or you name it, Keith Raboy, who they've worked with before know is amazing, and the rest just give me passive.

**Tom Hulme** [9:05]:

Yeah. Agreed. And then in those cases when they work before, they know one another's skills, and so it's just additive. You don't get any of this interference.

**Harry Stebbings** [9:12]:

On the dangerous side, I think that's overestimated. Everyone's like, oh, the damage they do. I find there's actually very few that actually damage companies. They're annoying. They're not great. But I don't think they damage in a huge amount of cases.

**Tom Hulme** [9:23]:

So that might be true, but in a time where more companies are under more stress, don't you think the insertion of structure into so many of the deals in these companies is an example of that, and actually it's making it harder for it's misaligning incentives. I think a lot of structure in a deal can actually damage a business. I totally agree with you. Absolutely. Are you seeing a lot more structure in deals today? In what way? Firstly, price rounds are less common because people aren't willing to accept the new and fair valuation, so you get convertible notes. Why aren't they just for people listening? I mean, there's a couple of reasons, but one of the main reasons I think is the VC's report TVPI, and TVPI is marked on the most recent round often. And if it's a priced round, that sets it. And so if you've got public comps that are down 80%, instead of reducing the price by 80%, you kick down the road the decision to actually price, and it enables you to kind of claim a value in the portfolio that might not be true. So you're certainly seeing a lot more of that.

**Harry Stebbings** [10:20]:

Incentives, though, drive outcomes. As Charlie Munger and Warren Buffett have said before, there's no incentives for anyone to change. A lot of LPs have actually paid bonuses on TVPI. Managers need to raise new funds. It is not in anyone's incentive for the flywheel to stop. To

**Tom Hulme** [10:34]:

some extent, I think it's in the incentives of the businesses because eventually, you if have too many stakeholders with misaligned incentives, then you start to get problematic decision making. And I think that happens. So I agree. I think actually if you wanna maximize value for the business, you're much better off accepting the valuation that's closer to reality in the moment and building from there. But I agree with you. One of things that surprised me about the industry, I didn't see it coming, is that I thought LPs would pressure GPs to mark their portfolios closer to market. Actually, what I didn't understand is a lot of those LPs are reporting to their own LPs. And so you get this sort of propagation of the story, which is exactly what you're saying.

**Harry Stebbings** [11:15]:

Are there any other elements on structuring that you're

**Tom Hulme** [11:17]:

seeing that you

**Harry Stebbings** [11:17]:

don't think

**Tom Hulme** [11:17]:

enough people are talking about? You're starting to see liquidation preferences creep in. It's interesting. Where it won't just be a simple one times liquidation preference, there might be more. You start to see cases then where it might encourage a company to sell a small price in the eyes of the in the eyes of the investors. And actually, lot of the employees, the operators won't see any return in those cases. You're also starting to see IPO ratchets come back, which I think are interesting, particularly since kind of the IPO window isn't open anytime soon. What do you do if you're a founder, You need the cash. Cash is the lifeblood of our business. I respect that. Look, you're as good or as bad as your options. So the job to be done is have options, and then don't just select based on price. Look at the bigger picture. I mean, there's a great adage, isn't there, in VC? We've talked about it before that if you tell me the price, I'll tell you the structure. It's one of the things that your average VC will say. And so I think founders and look, some of your work in talking about the pros and cons of this stuff, think, is really important to help people make decisions in the whole rather than just on one vanity metric,

**Harry Stebbings** [12:20]:

which is price. Oh, you meant we mentioned, like, the damaging element. The biggest way that I see them damage is they just shove too much cash in. One of my best companies is, like, 4,000,000 ARR, grown very fast, fantastic business so far, and it's just got a $40,000,000 term sheet at a $1.80 whatever it is. And they're like, now we can do US. No. It's completely misaligned from the strategy, from the goal. It will divert focus. I think almost one of the biggest ways they damage is just by foie gras and companies.

**Tom Hulme** [12:47]:

Yeah. Exactly. Foie gras is the analogy you and I have talked about before. The reason I think I wouldn't say just in absolute terms the amount of money going into a company influences success or failure. It's clearly what's done with it. And I think what you're talking about is when the money's used for premature scaling, it's really damaging because costs go up. When your costs go up, ironically, you actually become less adaptable, so your clock speed goes down. So if your primary job in a business, in a startup, is actually to iterate to find, let's say, product market fit, you're making it harder

**Harry Stebbings** [13:19]:

to get there. And everyone's like, well, I'll just raise it and put it in the bank. I never see that happen. No one is unaffected by the $30,000,000 that they just get. Oh,

**Tom Hulme** [13:28]:

I think, again, one of the reasons second time founders do so well is they would be less affected. No one is unaffected Agree. But they would be less affected.

**Harry Stebbings** [13:37]:

I agree totally. If we go back to you, I I love how kind of this is taking winding turns. You mentioned, obviously, you don't know that you're good at investing, especially kind of angel investing, and that was one of the questions you wanted to ask. Results say a lot. What were the results, and how do they look today?

**Tom Hulme** [13:52]:

I mean, you could take a batch of my angel investments pre 2015, and I track this roughly 27 portfolio companies, about 4.5 x DPI, about 25 x or 24 x TVPI. So the results look pretty good. Superficially, I'd look at that and say, oh, maybe I'm a good investor. But there's two problems to that logic. Number one is my results were pretty good in that period, but I actually think we've had a massive regime change since. It's what you call it in machine learning. At that time, I was investing in startups at 4,000,000 pre. It's not gonna happen now. I mean, a dot AI domain name is more worth more than 4,000,000 pre. So that's problematic. The second thing, which is incredibly humbling, is if you'd asked me to stack rank that portfolio through that period, say in 2010, I would have got it all wrong. So I can't be that smart about predicting success when I would have actually stack ranked my own portfolio badly.

**Harry Stebbings** [14:47]:

That is why I don't believe in reserves models. Because exactly to your point there, if you were forced to stack rank great, meh, and not good, it is not what you would have predicted. Therefore, I think we overestimate our ability to predict our winners. Do you agree? How do you think about what you just said and how that leads to reserves?

**Tom Hulme** [15:04]:

Yeah. So sticking with the angel Yeah. Hat, because I think that's really important. I agree with you. It led me to draw the conclusion as an angel I shouldn't follow on. So I had examples of companies that would go up sort of 50 x. My pro rata allocation in the next round would be a million dollars plus, and they went to zero. And not only that, you're then competing with VCs. It's a completely different game. So actually, if I'd taken a strategy of doing all my follow on allocations, let's say, for the Series A after the seed I'd invested in, it would have not wrecked the portfolio, but it would have been far inferior.

**Harry Stebbings** [15:38]:

Okay. So when we look at, as you said, that kind of 4.6, that is DPI. Yeah. So when we look at kind of winners and and zeros, what are some of the biggest lessons from the winners? The

**Tom Hulme** [15:48]:

biggest lessons from the winners that generally one of the paradoxes of our business is we need to invest in people that are doing difficult things. If it's easy, it's gonna be commoditized. So if people are doing difficult things, it usually takes a long time to create real value. And so I think my biggest winners are ones that were fundamental investments, where they have just continued to grow for the decade since. Look, GoCardless would be an example, where the business kind of 9 figure ARR, they have just continued growing. It was never a super hot business, but I invested at the point they were at YC. And the team of three taught themselves to code and hustled for years afterwards, built a great business. You contrast that with others, which in very quick periods would have looked quite good. So I invested in a company that was acquired by fab.com. So I thought I had a lot of money in equity in fab at one point. I invested in a really brilliant team in California called Massive Health that were acquired by Jawbone. I thought that was gonna be very valid valuable. Both of those businesses went to zero. So if I look at it, the ones that worked for me were the fundamentals where they just grew great businesses over time. The others were kind of momentum plays, and I wasn't smart enough nor do I think I had the opportunity with hindsight to get out with secondary in the interim. There was no liquidity.

**Harry Stebbings** [17:04]:

So when I look at my portfolio, I think there's an inverse correlation between the success of a company or the eventual success of a company and the hotness of their seed in Series A. Yeah. That's probably the same point because

**Tom Hulme** [17:15]:

in that case, it drives up the valuation. It probably changes the belief of the founder. So particularly if it's a first time founder that has that heat, that can be a complete distraction. And then suddenly, there's a lot of money flying in after you. Instead, these businesses that I've loved over time have just got the fundamentals right, built value, been relatively conservative at times, and those founders can really make a difference when you just compound over a decade.

**Harry Stebbings** [17:41]:

Okay. You mentioned there also about having fab stock and having a jawbone stock at one time would have been very valuable.

**Tom Hulme** [17:47]:

Yeah.

**Harry Stebbings** [17:48]:

One hopes one has the chance to sell at points. How do you think about liquidity? Could you have sold? Did you have lessons from shit? I should have sold that.

**Tom Hulme** [17:57]:

Yep. Look, I do as well. In those cases, I don't think there was a secondary market. There was just no liquidity available. I think now that's changed. We're starting to see it happen. And my recommendation often to founders, often to VCs is to take some money off the table. It's a classic place I like to apply kind of regret minimization framework. Will you regret taking 10% or 20% off the table in this round? Probably not. Will you regret not doing it? Perhaps, if it doesn't pan out. It wasn't something available to me then. I think the market's changed so much as an angel. It's fantastic. Like, I've seen people use platforms like Angel List, a sort of GV investment, to enable them to sell their ability, their follow on rights in secondary in SPVs. I mean, idea of being able to spin up low friction SPV ten years ago, absolutely not happening now, it's actually enabled you to do some amazing work that you just wouldn't have been able to if you'd started doing this in 2005.

**Harry Stebbings** [18:56]:

Okay. So that's on you mentioned kind of the the kind of consistent compounding of great businesses, like your GoCardless of the world, like your lendables.

**Tom Hulme** [19:02]:

Yeah.

**Harry Stebbings** [19:03]:

On the zeros, what are the lessons from the bad investment decisions that you made as an angel?

**Tom Hulme** [19:08]:

There's a lot. I got sucked into momentum and heat. One of the best things I ever did was surround myself by other angels, and there were only a handful in London at the time, and learn from them. I think one of the worst things I did is I would occasionally kind of outsource discipline and due diligence to them. That's just too easy to do. I think too many people in our industry, particularly angels who have other jobs, full time jobs, will take the view that probably someone else has done the work. I actually think often it's surprising how people haven't done the work, so that is a massive trap. It's a trap I've fallen into.

**Harry Stebbings** [19:43]:

The incredibly dangerous thing is the danger of social validity, which is, okay, large fund puts in 5 okay. Large billion dollar fund puts in $5,000,000, and they've taxed the CPO of big company. Hey. Come in for this. They throw in 50 k because they think it sounds cool. That now looks like an a star premier brand deal. 5,000,000 to a billion dollar fund is absolutely nothing. It's like, you know, coffee ish money. And then the the CPO is just like, oh, well, you know, x fund is in, so I'm just gonna and suddenly, they've got this, like, artificial, incredible a star brand that's just kinda come from nothing.

**Tom Hulme** [20:13]:

Yeah. Propping it up. Yeah. Totally agree. Really risky. Another one, I think a mistake I've made, not spending enough time with the founders in the decision making. And again, it's usually a function of the fact that the deal's hot. But one of the paradoxes in angel investing is I'll spend a lot of time with founders, and I'll ask them a lot about the product they're gonna build. I know that that's probably not what they'll end up being successful with. In fact, empirically, the product often changes a lot. But I'm asking about that product to understand what makes them tick. How will they measure success? Have they actually researched the market? And I think founders will sometimes walk away and think, oh, he really cares about the product. I don't. I really care about the way they think, and it's just an easy way or lens for me to understand that. So I think at times, I made investments where, as an angel, I didn't really take the time to dig into the way the way the founders think, and that probably trapped me as well.

**Harry Stebbings** [21:04]:

Are there any questions you always like to ask to determine the muster of someone? So like one that I always ask is like, how did you first make money? I don't think great, great entrepreneurs first made money from getting a job at Bain after three years at Oxford. Like, they did something before.

**Tom Hulme** [21:19]:

Yeah. I love that. I think usually you see some trait of entrepreneurship. I think the questions I like to ask actually revolve around their unfair advantage. I'm trying to understand what their unique insight is and why they are uniquely placed to solve it. So I'll ask what the unfair advantage is. I'll also ask the question of why now. Like, it's really interesting that we have our recency biases that something may have worked or may not have worked, but we need this difficult thing to happen now with a founder at the seed stage. So I ask the question of why now? And usually, they should have a good point of view. The other one I really love to do is spend some time actually asking them how something might go wrong. What's keeping them up at night? And it's incredible how many founders will actually have nothing to share about their concerns. I mean, only the paranoid survive, as Andy Grow said. Some people have no paranoia.

**Harry Stebbings** [22:09]:

Dude, honestly, I I think a real pattern is the best founders say, are you kidding me? Here's 10 things that are challenging me, and I'm terrified about them. And I'm like, okay. Let's go through them one by one. Some of them ask for help, which is a brilliant signal. One thing that I have to pick up on there is, you mentioned that kind of, you know, why them and the secret sauce that they have to attack a problem. What if they don't have a secret sauce? What if they're not uniquely suited to it, but they just see something that the world hasn't seen? Is that okay? I think it's okay,

**Tom Hulme** [22:36]:

but probably not enough. I mean, I would have the view that I have probably never had a unique insight or idea in my life. I think I'd have to be so arrogant to think I had. Like, we Can I put that as the title for the show? Yeah. By all means. I mean, it's just true. I actually think ideas are cheap. Execution is everything. I cannot invest based on an idea. You have to tell me how you're gonna execute better. If the idea is that good, it's probably been had. If that idea is that good, everyone will copy it, and then it's a race on execution. So it's not enough for me just to say it's a good idea.

**Harry Stebbings** [23:11]:

Okay. Would you say will you take market timing risk? Because Marc Andreessen or Ben, I can't remember which one, said that, you know, there's no such thing as a new idea. It's always been done before. It's just maybe the wrong time. Statistically, that's

**Tom Hulme** [23:23]:

probably true. This is the challenge. If I sit back and look at the sort of ideas I've been most excited about, probably someone has tried to do it before. Being too early is tantamount to being wrong unless you can survive long enough for the market to come to you. We've seen some examples of this. I think VR is an interesting example. There were a lot of companies that were waiting for VR to come to them. That's market timing risk. In that case, you better have a kind of cockroach mode to be effective until the market comes and build the muscle.

**Harry Stebbings** [23:57]:

Dude, Daniel Dines, who was on the show, spoke about being at 500 k error on after nine Yeah. Nine. Years. And not raised a penny, had he? No. No. But it was a fine business.

**Tom Hulme** [24:07]:

But the beautiful thing about what he did, he hadn't raised a penny. He waited for the market to develop, and then it was an inflection point. He said, now I add fuel to this fire. If he'd thrown $10,000,000 in two years in when he was at 50 k ARR, he'd be dead.

**Harry Stebbings** [24:22]:

Yeah. I'd I think it would be a very different story. You know, you mentioned kind of those learnings then. It's often said it takes $20,000,000 to learn to be an investor. We can change the number whatever we wanna change it to. Do we agree that it takes $2,030,000,000 dollars to learn to be a great venture investor?

**Tom Hulme** [24:37]:

I mean, I'm gonna push back on it being a dollar number. It's bananas. Like, 20,000,000 What do want? Is a pre seed. Like, what what what?

**Unknown** [24:44]:

20,000,000 is the

**Tom Hulme** [24:45]:

20,000,000 is a pre seed in 2020. This is you just gotta remember how much this stuff changes. Actually, what is the sort of learning cycle here? The learning cycle is number of deals and time to see how they do. And so for me, it looks more like five deals over five years to figure out actually if you're building the muscle and you're learning than it looks like an absolute quantum of cash. Five deals. The good news, I would say five deals is a good I mean, look, it's not perfect. That's hence me saying I still Like 25. Still don't know if I'm any good at this job. But the the the interesting thing is you just have to have a number and you start to see patterns, and I'd say five is the minimum. If your goal is to get into angel investing, one of the things that no one ever says is the amount you actually invest is almost irrelevant. If your job is to learn and to demonstrate you add value, then just write small five k checks. I see so many people that never start angel investing because they think they have to invest 200 k at a time. It's crazy. If you believe you've got to learn, you wanna start early with small checks and prove you're valuable,

**Harry Stebbings** [25:50]:

and then actually see if you're any good at it. So I think the biggest mistake angels make is they think that they can vary their conviction level with check size. Oh, yeah. Which is I really believe in this one, so I'm putting a 100 k in here. This one's a flyer and it's 10. And I just do 25 every time. I love

**Unknown** [26:04]:

that

**Harry Stebbings** [26:05]:

point.

**Tom Hulme** [26:05]:

It's a similar point. Like, build a portfolio, take an amount of money that you can lose, and then actually, it's amazing to me how many I'm curious if you've seen it as you started recruiting investors. It's amazing how many potential investors, people that say that they really want to be an investor, but they've never done an angel check. How can you really be serious about something if you haven't even been

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

willing to do that? I'm going for it, and which might be a kaboom moment. But founders investing as angels. How do we feel about it? Let me caveat this. Founders investing with side funds. Ah, okay. So there's two different lenses here. There's founders as angels investing their own money, and there's founders who then raise a $10,000,000 fund on AngelList and then invest other people's money through that.

**Tom Hulme** [26:48]:

The former, I think, is actually great for the portfolio companies they invest in, because I think they're in our category of smart smart. Like, they will be specialists at something, and the founder will be able to ask them for advice. And there's no better source of empathy as having been through something yourself. So that's good. Now when you start talking about raising funds, that worries me a lot because building a company is ridiculously hard. Like, there's only a handful of people that have ever managed to kind of build multiple companies concurrently. And this idea of having a side fund is effectively building another company concurrently.

**Harry Stebbings** [27:23]:

I totally agree. I also think that when you raise money from people, it is like an immense responsibility. And so when you raise another pool of money from another group of people, what are you saying about the first group of people that you raised from? I do agree. Okay. So let's talk about the transition to venture then. We've been an angel. We have this you know, you're more modest, but it's a very, very good track, and one could determine that you're very good at angel investing. So making the transition to venture, just talk to me about how you see this core pillars of venture. We've discussed it. Yeah. We

**Tom Hulme** [27:50]:

you and I have often talked about whether they what this should look like. So my version is the three s's. But actually, as I think about it, I think it should now be four s's. So my three s's were sourcing deals, selecting them, and supporting them. Those are the three jobs of a VC. And actually, the world's best VCs are pretty good at all of those. And through their career, they move less sourcing and actually selecting and then supporting as they've got a big portfolio. That's one of the interesting traps of ventures. You can just spend all your time supporting. I think it's really important to keep the muscle building. I think I read somewhere Alfred Lin will meet 10 companies on a weekend just to keep the muscle going of sourcing and selecting. But those are the three buckets. The fourth s that I increasingly think is important is actually selling, salesmanship. Like, great VCs are selling to LPs. They're selling to to founders to take their money. And then increasingly, they're also selling to exec hires to go into portfolio companies. It's a lot of selling, and I think it's more of a sort of people business that people give it credit for. I think it would be very difficult to be a VC and hate people.

**Harry Stebbings** [28:58]:

I listen. There are quite a few. You'd be surprised. I know. You know what's funny is actually, you you mentioned it that actually maybe on the sourcing side over time, it's where people get a little bit weaker or wane. A lot of the more mature but amazing investors like your Keeter boys have said on the show, it's a constant fight for relevance to me. Yeah. But on the sourcing side, that is the one I worry about. Totally agree. Which one do you think you're best at? It's a great

**Tom Hulme** [29:22]:

question. I would say sourcing, I'm an enthusiast. I'm enthusiastic about pretty much everything. The great thing about it being an enthusiast is you could sit me with a founder that has pretty much any idea, and I will engage and pay attention, and I will care about what they're saying. That means that I can cast my net wide in opportunities. And then over time, I think I've been lucky enough to build a network of people around me that I trust that actually will refer in opportunities. So I think I have more of an edge sourcing today, certainly than I did when I started. But similar to Keith, I am paranoid about that as well. Which one are you worst at? I would say I'm probably worst at supporting because I built companies. I have a lot of empathy, and I wanna roll my sleeves up and help. When a founder is hurting, I feel it. I mean, best way I can describe venture capital, I've said this to you before, I think you looked at me like I was idiot then. The best way I can describe venture capital is it's like being a founder on antidepressants. You basically have all of the highs, just not as high. All of the lows, just not as low. But you are feeling the ups and downs all the time. And so with a portfolio of 20 companies, every day is a roller coaster. And so I hope that I'm effective at picking my battles in how I support a business and doing the right thing by them. I think Rodolph both both from Sequoia once said something that I thought was smart. He said, actually, great board members are like shock absorbers. They kind of reduce the highs and they will cushion the blows and let founders know the negatives aren't as bad. But I wonder whether sometimes I almost care too much when it's coming to supporting the businesses.

**Harry Stebbings** [31:09]:

I actually think we've had a generation, especially in the last few years of, like, tourist VCs who are just relatively apathetic, and they kind of like the lifestyle. It's kind of fun going to the conferences. It's kind of fun meeting great entrepreneurs, but I don't think they feel in the same way. And I do you've you've run a business. I've run business now with a media company, raise money for funds. I

**Tom Hulme** [31:28]:

love the way you look at the lighting when

**Harry Stebbings** [31:30]:

you say you run a business. Well Like, you put the bald in early in the day. Looking for salvation. Please, god help. But it's like, I just see so many 30 year olds come out of Bane who are writing $10,000,000 checks at large funds, and I'm like, have no fucking idea Yeah. How hard it is to raise money to run a business.

**Tom Hulme** [31:47]:

And it's right, it should be tough.

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

Yeah. You said before luck favors the connected.

**Tom Hulme** [31:52]:

Yeah. This I

**Harry Stebbings** [31:52]:

naturally liked this statement.

**Tom Hulme** [31:54]:

Yeah. Exactly. Because your network is just off the charts. I can see why. So I'd write a piece for Wired, and I think I called it Serendipity Favors the Connected. And the basic idea is I think it's really easy for other people to look at great investors, great founders and say, oh, they're just the right place, right time, or they've just been lucky. Actually, those people usually have an incredible network around them. And it's like Metcalfe's law, the value of a network. It increases to the square of the number of nodes. Networks are incredibly valuable, deep sort of effective networks even more so, and I think so much good stuff comes from them. I would say so much of my career has come because I've been lucky enough to be in a network of amazing people. And then I stay kind of optimistic and excited and willing to grab any opportunity in front of me. Do you think Venge is a game of access? Without doubt, it is. I think it would be really unfair to say that actually everyone has even access. I think it's, to to some extent, a meritocracy because when you get into the industry, you have a shot on goal and you can do something spectacular. It's one of those rare places the American dream kind of can still happen. But I completely recognize that getting into the industry is really tough, And there's people that would not even have heard of venture capital, let alone know how to find

**Harry Stebbings** [33:10]:

their way into it. You've mentioned being enthusiastic about everything and, like, that optimistic mind. You said before to me, surround yourself with optimists and the importance of premortems. Most VCs, I'd say, are optimists.

**Tom Hulme** [33:23]:

Do you reckon?

**Harry Stebbings** [33:23]:

Yeah. Think you have to

**Tom Hulme** [33:24]:

be an optimist? You have to be. Yeah. Have to be a spirit. Yeah. Otherwise, you'd never actually invest in. Okay. So if you're surrounded by optimists and you create that culture, and I think we do a good job of creating that at GV where anyone can bring forward an idea, we explore it, you have to also create space to look at the downside. And Daniel Kahneman, the behavioral economist, passed away, I think, just three or four weeks ago. Incredibly interesting guy, wrote Thinking Fast and Slow. He talked about a process of having premortems when when you're making a decision, you think through how the decision might be wrong, and you give people around you permission to actually say why something might be a bad idea. And think the best VC firms actually create this space. So have optimists, have people default. Former colleague who passed away, Tyson, had a beautiful expression for this. He says, right. Press the belief button. Tell me how this is gonna be amazing. But then the flip side is occasionally, you have to also describe actually why something might go wrong, partly so you can inoculate yourself against it and evaluate whether something's a good idea.

**Harry Stebbings** [34:28]:

I think we always underestimate the size our winners. That's one thing I always kind of worry about or look at, which is that when you read Bessemer's kind of investment memos, which they put on their websites, they, you know, they've said Twilio would be a $500,000,000 company. We consistently underestimate the size of our winners. Has that been true for you?

**Tom Hulme** [34:45]:

Yeah. I think so. And I think it's because we have a sort of bias that whenever we're looking at businesses, we see them on an s curve. It's very difficult to imagine new s curves, but the best businesses will continuously put themselves on new s curves and create new opportunities. So I've yet to see people that do an amazing job of actually talking through what three, four, five s curves

**Harry Stebbings** [35:10]:

might look like for a business. So do you outcome scenario plan when you do deals? Cause you see a lot of people say, well, I just I don't think it can be big enough. I don't think the market's got enough depth. Do you do outcome scenario plans? And how do you think about that given the challenge of seeing the next S curve? So we do.

**Tom Hulme** [35:26]:

And the way we frame it is we ask actually what is the kind of option value in this business. Great founders understand the value of options. Like an example will be, most of the best founders I've ever worked with have collected data without knowing really what it might be used for, but they've instinctively known there's option value in it. They know that it might create some value. And so we try and scenario plan by saying, okay. This is the plan. Do we have confidence in it? And then what's the upside? If this goes right, what opportunities might it unlock? And then obviously, we reframe it and say, okay, what are the risks therein? Pre mortem, how this might go wrong? And then you get a kind of balanced view of what all the outcomes might be. But then, look, you and I have talked before. I don't understand in our industry how anyone can have complete conviction on anything. That makes no sense to me. I studied physics at university. We would go through a proof, and I still didn't have complete conviction that I got it right. And then now we're in a venture capital industry, and we see investments, and we're supposed to have complete conviction that it's gonna work. I can describe a bull and a bear case for every one of my portfolio.

**Harry Stebbings** [36:32]:

Do you not think we're just selling to our customers though, which is the founders? Because we don't wanna say, well, I mean, I believe to an extent. Yeah. Basically.

**Tom Hulme** [36:38]:

That doesn't worry me. I I think the best relationships you have with founders are more honest with that. And you say these are the things that I would watch out for. This is how I see the sort of balance of reward and risk. I think one of the challenges, it's also easy just to sell to your partnership so you don't have those honest conversations.

**Harry Stebbings** [36:56]:

In terms of the outcome scenario planning, you know, I recently did a deal, and everyone was like, no, I think it's gonna cap out at, you know, a billion or 2,000,000,000. I always find that kind of quite SpaceX. But I always think it's kind of facile thinking because it's like, I think the difference between a 2,000,000,000 and a $10,000,000,000 business is a fucking great exec team and founder.

**Tom Hulme** [37:13]:

Yeah. That's interesting. I not always. I mean, if you look at the market opportunity, it takes usually a long time to build a $10,000,000,000 business. So you need the market opportunity to persist.

**Unknown** [37:23]:

Mhmm.

**Tom Hulme** [37:24]:

You need competitive threats not to come in, and you need it to be big enough. Those three things are not always true. But

**Harry Stebbings** [37:30]:

a truly fucking great founder with a great, great team around them will have a second act if the first is not big enough. They'll parlay it into a product suite. They'll parlay it into a new platform play. If they're really great, the insertion point, which you might be right in identifying as a 1 to $2,000,000,000 business, will capitalize into a 10,000,000,000.

**Tom Hulme** [37:47]:

Yeah. I agree. I mean, there's look, there's option value in intellect, brilliant team. I completely agree with that. And if they're well resourced because they've already got to a 1 to $2,000,000,000 business, it's absolutely possible. But, oh my gosh, if you look at the sort of life and the probability that businesses get to that point, it's sub 1% of all of the companies that

**Harry Stebbings** [38:07]:

start. What I'm so worried about right now is that, you know, you've got IPO windows pretty much shut. Everyone said, oh, it'd be h 02/24 when they'd open. It's not gonna be really that. Now kind of two thousand twenty five's actually still doesn't look like it's gonna be that open for h one there, and m and a's more shut than ever before. My question is we're seeing PE come in a little bit more actually as the liquidity provider in the wake of those two being out. Are you as concerned as I'm about the lack of liquidity in the ecosystem with this changing environment?

**Tom Hulme** [38:36]:

I mean, look, it's a problem. We need a multiplier effect. And I don't think it's just VCs because they need to raise more money. I think more importantly, the great thing about significant exits is founders will go on and do something else. And then for every sort of large unicorn that succeeds, it spills out an amazing number of entrepreneurs that are able to swing for the fence because they've got some cash in their bank and they can go for it. You and I have talked before. I think one of the best groups of founders are those that have come out of the rocket ship companies because actually they kind of instinctively know they need to aim at big opportunities and they know how to run a fast growth business.

**Harry Stebbings** [39:14]:

Yeah. We're gonna get to that because I think it's a really important one. But I do just wanna stay on the kind of outcome scenario planning because it's such a big part of venture, and it's always predicated around that, oh, we need a fund returner. That's why we do it. Do you agree about the importance of yeah. You have to have fund returners. It's the only thing that matters. And how do you think about that?

**Tom Hulme** [39:31]:

Yeah. No. I I don't agree with it. I think a lot of VC strategy is a lagging indicator of what did work in the past, and the test or the experiment that worked very well in the past is funds with 25 portfolio companies, power law of returns, and one or two return the whole fund, and then everything else drives decent return and IRR for the LPs. That has absolutely worked, but just because that has worked doesn't mean other approaches can't. And I think we see from different PE models, we even see from debt models, there's other ways to actually be very successful at kind of growth stage. I would not wanna say that I would only structure a portfolio that can deliver or return, make investments that could, return the whole fund. It doesn't make sense to me. The important thing is have a strategy and stick to it. You made this point in angel investing. It's super important. Have your strategy and stick to it. Don't fall in love with one company. Throw your strategy out of the window and then dump the whole fund into it.

**Harry Stebbings** [40:27]:

Incredibly dangerous. Saw that the other day. One was like, so I put two fifty in. I'm like, what are you doing the others? 25. I'm like, oh. High risk. Honestly. It may work. How do you think about the never sell your winners?

**Tom Hulme** [40:40]:

Our approach at GV is primarily be founder first, and we can take a very long time. We have $10,000,000,000 under management. Alphabet does not put us under time pressure. We're less worried about IRR than we are absolute returns, and so we focus on kind of generational companies. Actually, our dream scenario is to hold for a long time, a decade, two decades, if you really wanna build fantastic generational companies. I think it makes sense. But I always do advise founders, do advise early investors. If they get the opportunity to take some capital off the table, I think it makes sense. I completely agree. And so Johnny took 200,000,000

**Harry Stebbings** [41:19]:

off. Yeah. Fair play. I think By the way, by the way, I I I actually think I actually would I was kind of bold to do this, but, like, I think he's unfairly demonized too much. And actually, it was capital which pushed him to do it, and he was absolutely within his rights to do it.

**Tom Hulme** [41:35]:

I totally agree. I mean, look, you look back. I remember you and I walking at the time and the conversation I remember us having. Does Hopin have product market fit or product COVID fit? It clearly had product COVID fit. No one was excited to do events online. They were forced to do events online. I remember doing sort of family quizzes on a Sunday night over Zoom, the most dystopian thing I can possibly imagine now. We were all forced to do that. COVID forces Dude, that's called marriage, Tom. No. That's not that's not fucking COVID. You can do that in person.

**Unknown** [42:07]:

You don't have to do marriage over Zoom. You can actually spend time in the same room. Do quiz on Sunday Yeah. On Zoom. Correct. Everyone was doing it. It was terrible. Correct.

**Tom Hulme** [42:17]:

I agree. COVID. I've got repressed memory syndrome. You probably have as well. I bet you were doing it. You just can't remember. You're gonna get flashbacks. On a fucking Peloton just for the whole It's gonna be like PTSD. You're gonna get

**Unknown** [42:27]:

flashbacks in a month's time, and you'll know what I was talking about. Depressing. I would be depressed at that.

**Tom Hulme** [42:33]:

But going back to your point, I I understand why he he probably recognized COVID product, COVID fit, took money off the table. There are investors that, in order to get into the deal, enabled him to do that. That was one of their competitive edges is they freed up the founder to take a lot of cash off. Yeah. I think one of the interesting questions we should all ask is how are the other people in these businesses treated? I don't know anything about that business, so I don't have a point of view. But I do see a lot of cases where an individual will do incredibly well and then others in the team don't, and that sits uncomfortably with me.

**Harry Stebbings** [43:07]:

That was reflection of supply side of cash pushing a founder to take money because they wanted in on the deal. Crazy environments. It has not changed. Like, the same dynamics are happening today, which is what worries me so much. I'm seeing a thousand x AI roles on Gen AI companies. I'm seeing the same irresponsible investor behavior. Have we learned?

**Tom Hulme** [43:28]:

Maybe not. I hope that we're not sort of participating in that frenzy. But the market's a tale of two cities. It's like anything that's generative AI looks like 2019, twenty twenty ZERP. Everything else is a struggle. My own belief is that actually Gen AI is not gonna drive enough value in growth business is that it can justify that investment. Just unpack that for me a little bit. Yeah. Okay. So there's a few things in it. My first observation would be the technology is commoditizing incredibly quickly, which worries me a lot. So I think I likened when we talked the other day, it to investing a few 100,000,000 into a power station. That's the training time, and then you can turn it on and you've got inference coming out the side. That's your power. Now the problem is this is an industry where it's gonna take you a few months to build your power station, and everyone else is building similar power stations next door with relatively little edge. They're still they're all using the same GPUs. They're marginal improvements. But you basically gotta depreciate that asset in these foundation models over a few months. I just can't see it happening. And then now we've got Meta coming into the market. I mean, Zuckerberg's done an amazing job. He'll have 350,000 h one hundreds by the end of this year. That is 14% of the world's h one hundreds, and he's gonna open source the result. Lama three released last week is already incredible. He's pledged that he's gonna invest another $100,000,000,000 or so. He's already started to train Lama for that team, and they're world class. They're formidable competitors. So to invest now in an asset that you think you're gonna have to depreciate, you know, over the space of weeks or months is very difficult to do. Now we have made investments in Gen AI, but more in infrastructure, more in the application layer, more in the sort of picks and shovels to support, but we've not thus far invested in foundation models.

**Harry Stebbings** [45:21]:

Is there money to be made investing in foundation models? When you look at the quantum of capital that is required to go in, there's obviously rumors of Mr. O's new funding around, you see the amount of cash that's gone into OpenAI and everyone else. The dilution inherent within that is just gonna be monstrous. Is there money to be made investing in foundation models, do you think?

**Tom Hulme** [45:39]:

There definitely has been. Because if you were to invest in OpenAI in the $10,000,000,000 round, there's liquidity in the market. You could sell that for a five x now, and you could have done that over a year. So if you've got a momentum strategy and you believe that firm that you're investing in is gonna be at the front of the pack and continue to be, I suspect there's money to be made. But if you're investing in fundamentals, it's very difficult to invest in something that actually is gonna commoditize that quickly. In fact, I'd say the best teacher I ever had was Clay Christensen. Just unbelievably smart human being. He wrote The Innovator Solution. We all know that. And he will talk about or he did talk about sustaining and disruptive innovations. I think one of the frustrations with Gen AI, as the technology is commoditizing so quickly, is it's a sustaining innovation. It's actually gonna get sprinkled across all businesses to lower costs in call centers or to improve the product in personalization. Is not gonna have a creative destruction effect like the internet did on many industries. And so as an investor, that's frustrating because you want to invest in stuff that persists and completely rebuilds industries from scratch. But I can't really see it. I mean, we found some targets and we made quite a few investments, but it's not for me the sort of radical sort of shift or opportunity from an investment perspective that we perhaps saw with the internet.

**Harry Stebbings** [46:59]:

If we just say on foundation models before we move to kind of application layer, like, what do you think the end state then is for models? You know, I was with a friend who will remain nameless because he hates being publicly named anywhere, and he mentioned that bluntly, cloud providers will be the cash cow business, and they will buy your Google's, your Amazons, and your Microsoft's, will basically buy the foundation model companies, acquire them, a la inflection, and then have cash cow businesses in the cloud providers, and then give away the foundation models for free.

**Tom Hulme** [47:28]:

Yeah. That's to date been my thesis as well. It will look more like a utility, and the cloud providers rationally are saying we wanna provide that utility on our compute, and they're gonna charge on that basis. And they already are, whether you're on AWS, GCP, anywhere else. I think inflection is interesting. I feel like that deal was almost misreported. I do not believe that Microsoft were buying the pie model. I think Microsoft are GPU constrained and were buying a cluster of 12,000 h one hundreds. So I think it was incredibly smart move by Nadella in order just to lock in a cluster for training. It was just a convenient story for the press to say, oh, they're gonna give access to the model. But that model was obsolete months ago. Absolutely no one is queuing to use it now.

**Harry Stebbings** [48:20]:

Dude, I love how direct you are. I have no unique insights. No one is queuing for that model. No. I mean, I agree with you. Going back to your point on the power stations and the the the speed of how quickly something becomes outdated, I completely agree with you. Agreed. Do you think there's one or two that stand true as standalone businesses outside of the cloud providers?

**Tom Hulme** [48:39]:

Yeah. I mean, I I don't know the answer to that, but I would say Would you be a buyer of OpenAI at 90,000,000,000? I would struggle to make that investment today. And it's not because I don't respect the team. My biggest concern at the moment but if I observe the emergence of what Meta's doing, if I look at the arms race of what the cloud providers are investing in and the sort of Gemini, etcetera, any advantage is pretty ephemeral, and the consumer facing product that doesn't that drives, I don't know, is it 50% of the revenue, something like that, is not sticky. So to invest in a foundation model, what would I want to be true? I would want to believe that they had some unique approach that made them more defensible. So an obvious one is memory. But actually, none of these have cracked memory yet. But if you have a personal assistant, a chat GPT equivalent, and it it remembers so that it can actually be applied probabilities as to what you want going forward, then it's interesting. If it's unique in its ability to take agency, then it might be interesting. There's other orthogonal approaches that might be interesting. But if we're just talking about a foundation model where you're gonna throw huge amounts of data, hundreds of millions of dollars of compute at h one hundreds like everyone else. It's very difficult to see a return on these investments.

**Harry Stebbings** [50:02]:

So if we move then to the application layer, how do you determine between, like, sustainable value generation versus, like, I think we see with quite a lot, like, flash in the pound, fast revenue scaling, but not sustainable value generation opportunities.

**Tom Hulme** [50:14]:

Yeah. My colleague we do in London invested in Synthesia, which I think is an interesting business. So that is a business that creates synthetic video. They do it into learning and development environments, and there wasn't really incumbent there. So they've concentrated on building a whole go to market business. To me, it's what's important in the application layer. You better have something proprietary in terms of data or distribution. In their case, they're just building an end to end enterprise ready solution with security and everything that enables you to spin up the videos. So those are the sorts of things that we're looking for. I like the framework that I think Sam Altman on your pod said, which is the easiest way to look at applications in Gen AI or to cut them is to say to yourself, are they happy or devastated if the models improved by 100 x? I've got to look for businesses that are happy they're gonna improve by 100 x. Otherwise, it's just ephemeral in the same way as I think the foundation models are ephemeral.

**Harry Stebbings** [51:09]:

What do you not think people are asking enough when investing in AI today? I think everyone is running to invest so fast. And it it's so hard because, you know, all LPs are saying, what's your where's the AI in your portfolio? So it's kind of tail wagging dog in some respects.

**Tom Hulme** [51:24]:

Yeah. I think the question they're not asking enough is whether these people have experience, or the founders have experience of commercializing businesses, iterating fast, and creating value. I think a lot of these researchers are unbelievably smart human beings, but they've often been in an environment which gives us confidence they're smart, whether it be DeepMind, whether it be Meta. Actually, the idea that they can all go out and create highly profitable, fast moving businesses seems ridiculous. And I think the question is not is only ever asked about how technically strong they are, but if you believe that this is a fast moving industry that commoditizes fast, you better be able to run fast. What percent of dollars going into AI today will go to zero? Foundation models, 90%. Yeah. Application layer, 70%. And in the incumbents, the value going into the incumbents, only 20%. If you look at the proportion of the Fortune 500 that are using Copilot, I think it's 60 or 70% I heard last week. It's an extraordinary amount. Like, that is a good investment. That is improving productivity, but that has all the hallmarks of a sustaining innovation. So these applications can make an unbelievable difference. The challenge for you and me in our job is is actually a lot of the value is going to the incumbents. Now the the big

**Harry Stebbings** [52:44]:

challenge, I think, is just that you've never seen incumbents with the strength that we have today. Everyone's like, well, there's always incumbents. There's always incumbents. Microsoft is throwing off 350,000,000 in cash a day.

**Unknown** [52:55]:

Yeah.

**Harry Stebbings** [52:55]:

It's a fucking insane amount. Amazon gave their results last night. They were just disgracefully brilliant. Like, just so tight. Agree. And I find that really challenging to consider how it changes oral. Yeah. I

**Tom Hulme** [53:08]:

agree. The flip side From Google Ventures. Well, one of the one of the fascinating things about this, like, if you look at Microsoft, if you believe it's a sustaining innovation, the value the tech is commoditizing, the value migrates to whoever's got data and distribution, and you say, what's particularly well suited to an LLM type approach? It's law. Microsoft is quite well placed. They've got Word that is in the workflow. It's coding. They're well placed. They've got GitHub. It's in everyone's workflow. It's probably in healthcare. They've got Epic in sort of patient record recording, etcetera. They've done a phenomenal job of sowing

**Harry Stebbings** [53:44]:

the seeds for distribution. Correct. And all these, like, vertical providers were like, but we're a little bit badder. At 5% better on UI, Doth butter, no parsnips. Correct.

**Unknown** [53:53]:

That is you've never used that expression before. I feel like I've just walked onto the set of Blackadder. It's one of my favorites. It is fantastic. Oh my goodness.

**Harry Stebbings** [54:04]:

We should have had Sunday lunch. Yeah. Yeah. You can take it home. I'll give that one for free. No. Listen. I I completely agree with you there. You said before about FOMO in ZURPS that then led to folds.

**Tom Hulme** [54:16]:

You and I were talking about fear at the time, and I think fear is a primary driver that actually really wrecks industry returns, VC returns. And I think it goes through waves because it's kind of herd thing fear. The kind of zurp fear was FOMO, fear of missing out, and people were heat seeking into deals, not doing their work. They were investing in things just assuming it would be up and to the right. And if you're a momentum investor and you can get out, that is a strategy. It's just one that I wouldn't be comfortable about. Then I think the pendulum has swung too far the other way, and we have now have this kind of falling knife problem, fear of looking stupid. And so people are not investing because they're worried the market keeps going down or there's gonna be a down round afterwards. And so that's kind of paralyzed the industry, but I think fear has this effect that actually exaggerates the worst behaviors that influence decision making. So I hope that we can sort of I hope in our process at GV, we sort of step back from that. We move aside the fear and say, okay. In this moment, is this a good investment to make? During COVID, a deal that I'm really proud of that we didn't really talk about is we invested a $100,000,000 into Stripe in 2020. '20. We extended the Series g round, but I think that was a moment where actually there was a lot of fear of looking stupid because of COVID. There was a lot of fear in the industry, and we were able to kind of put that aside and say, this is a great business. We invested in 2017. We've seen what they can do. We believe it will continue growing. And in the long run, generational company, absolutely. So that was an example where I think we did a pretty good job. What was the price then? I think it was $32,000,000,000, Series G.

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

I struggle with how you underwrite that one. Like, if you're thinking about, like, I need to do a three to five x and add on that, dude, you're hard stretched in a five to seven year period. Well, firstly,

**Tom Hulme** [56:08]:

I don't think we need to look five to seven year period. Bizarre LP will take a longer view. Yeah. Secondly, that business is like an extraordinary mutual fund on technology. You invest early and it grows because they're sort of developer first, do a phenomenal job of getting early and growing with the next generation of incumbents. I've seen them do that repeatedly, and their execution's been brilliant. Now they had huge amounts of capital thrown at them. They had to actually reduce the OpEx at time. They got more thoughtful about that. But do I believe that Stripe is gonna be a hugely bigger business in ten years than it is today? Absolutely.

**Harry Stebbings** [56:45]:

Okay.

**Tom Hulme** [56:47]:

You don't. That's a bet. Ten years

**Harry Stebbings** [56:49]:

time, we'll come back and we'll talk to you Listen, I think IDEO is what? A $45,000,000,000 business? Yeah. Great business. Pretty good business. Great business. A $100,000,000,000 business, seven to ten years. And if that is the case but this is my point that if that is the case and you know, we might you might have to edit this out, but if that is the case in seven to ten years, I'm great. Well done. That's that's just a three x. Mate, if you have no more dilution, the opportunity cost of that cash is very real. They actually probably could have got more than a three x somewhere else on that cash. You could have got a two point set if that is on the S and P. That is often true,

**Tom Hulme** [57:23]:

but I do believe there are sort of outcomes that are better than that.

**Harry Stebbings** [57:27]:

This is I love hanging out with the optimist. Yeah, I am.

**Tom Hulme** [57:30]:

Maybe I'm not an optimist. Eternally, you are an optimist.

**Harry Stebbings** [57:32]:

I am an optimist. You're right. There are a couple of things I just wanna talk about on, like, building companies and from the founder perspective. We often hear the hailed, it's great to have naivety as a founder. Do you love the outsider to a market who's kind of naively optimistic? Or do you like insider to a market who knows the mechanics well? That is a great question,

**Tom Hulme** [57:51]:

and this is gonna be a frustrating answer to someone that probably wants to have a sort of sound bite from it, but it depends. And actually, I've got excited about both before. So I'll give you extreme examples. Don't worry. We'll cut out the it depends. Yeah. Perfect. That's a great solution. Fine. So it's and it I'll give you extreme examples of both. So we invested in Lemonade, Series A, wonderful founders. One, Shai, had done Fiver, product and design guy. Daniel, lawyer, had done hardware, and they were going into insurance. Combined insurance experience between those two, zero. What was their unfair advantage? They understood, like, through his Daniel's legal background, he knew how to manage a business. They understood the tech side, and they would have an incredible clock speed. They were releasing on a daily basis, whereas that industry is every month. So their unfair advantage was speed, and they recruited in-depth. They brought in amazing people like Tim, who had actually deep industry insurance experience. So in that case, I was happy to invest in the naive approach. Other end of the spectrum, we invested in Currency Cloud. Mike Lavin, the founder, I think had thirty years experience in FinTech. He was so well placed to understand actually what those buyers wanted and ultimately sold the business to Visa for a billion dollars. Like, he was the not the ultimate insider, but he had real depth. I am absolutely comfortable with both of those approaches. But my question is for the industry, how much inside knowledge do you need? And if you don't have it, can you bring it in? I think the danger is often founders don't have the humility, so they're not willing to learn, and they have to learn everything from scratch. That's madness. If you have the naive approach, then you better bring in specialists that can help you learn fast. Is speed of execution the single most important thing in moving from zero to one? Yes. And I would say it's clock speed. I think every startup is a series of unanswered questions, and the best founders choose the order in which they answer the questions, and they answer them extremely efficiently. And that is basically speed of execution. One of the biggest things that I tell founders is perfection is the enemy of progress. I see founders all the time that just want the perfect solution, and they'll never do anything. They'll never release anything. The best founders are pragmatists. They are running the scientific method. Want to answer this question. I'm gonna answer it this efficiently, and then I'm moving on to the next. Do you agree you're always embarrassed by your v one? With hindsight, yes. At the time, no. The question is, is the v one good enough for you to get meaningful feedback? I mean, I've seen v ones that don't even describe what the product is. There were there was a period of time, you'll remember this, when people were getting sign ups for their product without describing what their product did, and they would call it product market fit. Makes no sense. V one should be the minimum amount to get good feedback about whether actually you have something that customers value. You say, like, good feedback. You've said before to me that free kills feedback. So this is when I see I talk to founders about a lot. I see a lot of businesses, and it's slightly different in consumer, but they will not charge their early adopters. They won't charge their design partners. They won't charge their ICPs. And the problem with that is you don't know if it's valued, and generally, people don't value what they don't pay for, so you get bad feedback. And in the early stages of a startup, you have to get good feedback from the market, which means fast and accurate, and that customer set has to be representative of where you wanna go.

**Harry Stebbings** [61:22]:

It's funny. I always remember Ryan at Flat Ear Sport said to me, it's not speed, it's velocity, which is speed in a given direction.

**Tom Hulme** [61:28]:

I love that.

**Harry Stebbings** [61:29]:

Yeah?

**Tom Hulme** [61:30]:

I totally agree with that.

**Harry Stebbings** [61:31]:

But I do think you need activity to get enough data to know the direction. One thing that I often see is people just kind of sit in a room and think for too long. 100. I agree.

**Tom Hulme** [61:39]:

I had never thought about the velocity argument. I think it's exactly right. The direction makes No. I'm just in a book of like Because quotes from other people. I love that. I love that. In that case, you attributed him. I'm proud of him. Yeah. Yeah. Yeah. Unlike most VCs. That's true. I love that point. I think if you, like, pointing the organization effort at a specific problem is incredibly important, and just running for the sake of it doesn't matter. What I will say, which is just reframing of what you said, is just starting to do something creates data and information. Like, actually picking up the phone, launching a product, getting out the door in order to learn creates information. And so you better have a great reason for not doing it.

**Harry Stebbings** [62:19]:

So you need that data and you need some form of clock speed. It's very difficult when it's on people because it's a clock speed that can be challenging to reverse back. And we've spoken before about culture debt. How do you think about that in the early stages of company building?

**Tom Hulme** [62:33]:

I worry about culture debt a lot. And you and I have talked about for a long time, technical debt was the thing we were all scared of. I actually think technical debt is almost less of an issue over time, particularly with generative AI, which is actually incredibly forgiving of how you integrate it. You don't have to have perfect systems like you perhaps used to, or certainly not as monolithic. The thing with cultural debt is it's more insidious. You can have in a company sort of culture that evolves that makes it slow moving or negative or cynical, perhaps too top heavy or untrusting. And then you

**Harry Stebbings** [63:08]:

are a

**Tom Hulme** [63:08]:

venture capital

**Harry Stebbings** [63:09]:

firm.

**Tom Hulme** [63:09]:

Yeah. I've done. In many in many cases. You were sidetracked. Was like, oh, It's top heavy. Which is probably why most VCs only go into the office on Monday for the partner meeting. But everyone

**Harry Stebbings** [63:21]:

else, it's an impersonal thing.

**Tom Hulme** [63:22]:

Yeah. Exactly. Exactly. No. Cultural debt is a real thing. And I think it's a big problem after the period we've been in where actually companies got bloated. They spent more than they should. There was less accountability, and it's very difficult to kind of retrospectively put that back in. I think it's one of the reasons you've seen the best founders are quite aggressive in cuts. They never do shallow cuts too often. They see that burning platform as a way to actually shift the culture and maybe move this cultural debt to the side.

**Harry Stebbings** [63:52]:

A lot of cultural debt, I think, happened, especially in COVID when people were fully remote, never actually met their teammates at all. What are your biggest observations when you compare remote versus in person and the cultures that you have in the portfolio?

**Tom Hulme** [64:04]:

I'd first carve out companies that are sort of natively remote. So Dave Monachello, who you know, led our investment in GitLab at the Series A, phenomenal investment, never had an office. They also Sid, the founder, is incredibly thoughtful. He's very careful that all meetings are recorded asynchronously. Everyone can contribute to the board meeting document. They get the whole team together. It's not a great cost saving thing. It just works for them. So look, there's native remote businesses that work very well. Then there's everyone else that was forced to be native during COVID and I think executed badly. Yeah. And generally went through this arc where they said, oh, this is really good. Everyone can work at home. Everyone works really efficiently. Then over time, everyone realized, actually, we're not innovative. The junior people on the team are not learning. People are getting frustrated. Like, you and I went for walks during that period, and I remember us joking that we just became very efficient at our jobs by doing 30 Zoom calls a day. But actually, we become efficient at our jobs by taking all the fun bits out.

**Harry Stebbings** [65:05]:

Yeah. And losing the creativity, losing the morale, totally agree. I and I think actually we've kind of reverted now, especially in The States, and we're back now just to in person in The UK. But in The US, it's actually the worst, I think, which is hybrid, which mostly lacks synchronicity amongst teams, which is like, oh, we're in two days a week. But they generally don't have cohesion around which two days. Yeah. That's it's That's

**Tom Hulme** [65:26]:

false economy where people say, we can have a small office and then we can have a third of the team in at any one time. Much better to have the full office and have all of the team in a third of the time.

**Harry Stebbings** [65:36]:

Or or a GitLab. You said that you're suspicious of ambitious young people who insist on fully remote. Why is that?

**Tom Hulme** [65:43]:

So again, I think people early in their career, being in the office is a ridiculously important learning opportunity. You learn the interpersonal stuff. You can shadow people in a way that's pretty hard on a Zoom call. You can speak to colleagues in different areas about the sort of business and opportunity around the the cliche water cooler. All of that stuff disappears. And so I wonder why on earth would someone not want to do that. Now sometimes it will be because of costs and you have to understand and respect that. But the times when it's actually because they think they'll be more effective by just working from their bedroom don't understand it.

**Harry Stebbings** [66:19]:

I always say kind of about the value in in the kind of chasm, all the cracks, which is like at the end of the sales meeting, you come out with your boss and he goes, you know what? We should have structured it this way. Nothing. Could have done it this way. That's yeah. If you're in person, feedback is zero friction. Dude, I remember with Marc Evans, I was an intern to him twelve years ago, I'd go to board meetings with him, and then he'd always go, how do you think that went? After the call on the way back, like, after on the way back, in the taxi home or in the tube home. Zero friction fee. You never got an end call done. If we were interns, well, I I would never have got that.

**Tom Hulme** [66:50]:

And he's a wise man, so kind of Yoda esque. A few seconds of Mark Evans' wisdom is worth a lot.

**Harry Stebbings** [66:57]:

Totally. Okay. We're gonna do a quick fire. How does that sound? Yeah. Sounds great. First one, what is the best board you sit on and why that one?

**Tom Hulme** [67:04]:

This is a great question. I think I'd say nothing. Incredible business, hardware company founded by by Carpay. I love that board. It's truly global. We have insight from India, China, design in Sweden, the design and marketing team in London, and it's all coalesced around that table. And they work together with a real focus on creating value for the end customer, and it's a global customer. I think they'll do $600,000,000 revenue this year. They've sold three three million devices so far. Like, there's hardly any phone company that's done that. And you've seen the press in the last few days. There are a lot of hardware companies that are not selling products. They're selling promises. Climate change needs AI's

**Harry Stebbings** [67:48]:

PR team.

**Tom Hulme** [67:49]:

Oh, yeah. This is something you and I joked about. This I still believe this. Like, look, climate change, existential risk, absolutely. AGI, existential risk, yes. But I think much lower probability. The interesting thing about that, which is kind of fascinating, is one of them gets all of the mind share, the other gets very little. So they're ad joke, which I still agree, I still believe is actually the doomers in AGI should teach a lot to the climate change.

**Harry Stebbings** [68:18]:

You mentioned kind of the doomers of AGI versus those who think it'll be much further out. What are the observations on those and the capital requirement needs that they have?

**Tom Hulme** [68:27]:

Oh, yeah. It's fascinating to me, and I've never seen anyone share this. But I think there is a correlation between how aggressively people predict AGI is coming and how much capital they need to raise. So you've got a Modi from Anthropic. You've got Altman, OpenAI, Musk, xAI. All of these guys are saying that it's just around the corner, and this industry is moving incredibly quickly. Then in contrast, you've got Zuckerberg at Meta. You've got Assafis at DeepMind, and they're a lot more cautious. They don't need to raise money. And so I wonder my general bias would be to look to the people that don't have to raise money for their point of view, assuming they're all equally smart. What's the most memorable first founder meeting you've had? Oh my gosh. I've had a few, but I had one for GV in California where the founder brought his life coach who sat at the room with a moleskin. That one, we will skip over. But I would say the most important the deal. We didn't do the deal. The company was subsequently in the headlines a lot for the wrong reasons. I would say the most memorable one was during COVID, we invested in Eurolink. Incredible founders, Elon, Max, amazing. And they shared with us how they were gonna do the human machine interface. They've been testing on primates. I have never had so many mixed emotions as in a pitch, but I left that pitch thinking these people have the potential to change the world. Do you meet Elon as part of that? Yeah. Was it a good pitch? It was a brilliant pitch in that case. We've been lucky enough to see him at events when they've unveiled their progress. I went to one actually in California where there were a series of phenomenally talented PhDs. And at this point, Elon was running three or four companies. I can't remember which. And he was able to go toe to toe with all of those PhDs technically on that business. His throughput and horsepower in understanding the business from first principles completely blew my mind. Are you a Superbull on Elon? I have to say I am. Hard to look at anyone that has shaped

**Harry Stebbings** [70:35]:

the world in my lifetime more. What have you changed your mind on most in the last twelve months? That's a great question.

**Tom Hulme** [70:42]:

I would say the the potential of robotics. I thought of robotics as almost uninvestable for most of my time at GV. We have made investments, some of them being tough, but but they felt very narrow, and they've been incredibly specialized. I think the thing that's changed for me recently is actually in the same way as AI historically was specialized and now is generalizable, I wonder whether robots are more generalizable. And so the combination of computer vision, large language models, multimodal, cheaper componentry, etcetera, we might see, and I think a lot of smart money has figured this out way before me, we might see the potential in robotics.

**Harry Stebbings** [71:22]:

What do you believe that very few around you agree with you on?

**Tom Hulme** [71:25]:

I'm gonna say working with the military is important, and it's gonna become more important over the next twenty years. So you know Do

**Harry Stebbings** [71:32]:

do do you think the military are ready to work with us in structure, in mindset, in process?

**Tom Hulme** [71:37]:

No.

**Harry Stebbings** [71:38]:

But I think there are parts of

**Tom Hulme** [71:39]:

the military that can, and just because it's difficult doesn't mean we should do it. I've been a reservist for a long time, as you know. I think that's important work, and I think it's gonna become more important. The geopolitical threats are real that are surrounding us. And for my kid's generation, that worries me more than anything else.

**Harry Stebbings** [71:56]:

Do you think we see kind of national leaders on the innovation of military spending side, where you have Andrew will win The US, you have Helsinki win Europe, and you'll have this kind of tribalism around those winners?

**Tom Hulme** [72:08]:

Yeah. I mean, I think naturally, there is a sort of winner takes all dynamic naturally because procurement's so tough. Yeah. Because actually, you do need to have all the skills in house. Yeah. It's not something you can just outsource to a distributed team and be particularly agile. So there's some structural stuff that means that I think we will get very big companies. I think those companies are doing incredibly important work. And so I do think a lot of the value will kind of aggregate to them.

**Harry Stebbings** [72:33]:

You can call yourself up the night before your wife has her first. What do you say to yourself now, knowing all that you know? I think

**Tom Hulme** [72:42]:

the biggest change of opinion I've had is before having kids, I think I would have told you it was 75% nurture and 25% nature. Since having kids, you realize that actually it's predominantly nature. People pop out with personalities, and our job is to just put them in a position where they can be successful, protect them, support them. And actually, I think it's a stretch. But if I had to translate that to our job, I think it's a good reminder that you can't change founders. But you can help them be better. You can give advice, etcetera. But this idea that you can fundamentally change founders, I think, is completely wrong. Tell me about GV's best wins. In terms of multiple, it was seed investment in Robinhood, which was 277 x. What types of right? I think $250,000. I think Did you sell? Yes. Biggest dollar return was Uber, which we put $330,000,000 in, returned billions. And we've had some really fantastic ones, like Krishna invested in Flatiron at Series B. That was incredible. Dave did GitLab. That's now a public company. That's been brilliant. So I have to say, one of the lovely things is the returns have really beautifully

**Harry Stebbings** [74:00]:

sort of distributed around the team. That is nice. Final one. What's the most recent publicly announced investment? And why did you say yes and get so excited? That's an easy one. Definitely

**Tom Hulme** [74:10]:

not announced. We, as you know, we did the Series A of Snyk Mhmm. 2016. Guy Podjarny is an incredible founder, worked with him for years. We have just invested in his stealth startup a few weeks ago. To be able to sort of back him again is a real privilege. I'm really excited.

**Harry Stebbings** [74:29]:

Dude, I am so thrilled we got a chance to do this. Thank you so much for putting up with me and this has been so much fun.

**Tom Hulme** [74:34]:

Thank you for putting up with you, Cam, for all the work. I'm waiting for the invoices.

**Harry Stebbings** [74:40]:

And

**Tom Hulme** [74:41]:

low charge. I hope that you got some sandbox I out of loved it.

**Harry Stebbings** [74:45]:

I I mean, what can I say? He's one of my best friends. He's one of the kindest, most generous people in this business. I absolutely love doing that show. If you wanna watch the full episode, you can watch it on YouTube by searching for two zero VC. That's 20 VC on YouTube. But before we leave you today,

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