20VC: Turning $16.5M into $2.1BN; Lessons from the Greatest Venture Investment in European History: UiPath | Why VC is Not Being Commoditised | Why Price Does Not Matter | Lessons on Loss Ratio, Selling and Signalling with Cem Sertoglu

Cem Sertoglu is one of the great venture investors of the last decade. Cem is famed for writing the first check into UiPath and over several rounds turning $16.5M into $2.1BN. Cem recently started Bek Ventures, a $250M fund that was 3x oversubscribed. In Today’s Show with Cem Sertoglu We Discuss: 1. Has Venture Capital Been Commoditised: Why does Cem believe that VC has not been commoditised? Why does Cem believe many VCs today are not even VCs anymore? How does Cem advise founders who have offers from large multi-stage firms? What questions should they ask them pre-working with them? How do the best founders select the VC they choose to work with? 2. Price, Reserves, Loss Ratios: Why does Cem believe that price does not matter? How does Cem approach reserves and reserves management? What does Cem know now about reserves that he wishes he had known when he started investing? Does Cem care about loss ratio? Does he do scenario planning when making investments? 3. Making $2.1BN on UiPath: How did Cem meet Daniel for the first time? Was it obvious he was incredible? Why did they only write a $1M check and not take the whole round with $1.5M? Why did 40 of the best investors in Europe all turn down UiPath for the Series A? What did doing the bridge round for UiPath teach Cem about reserves? When was it obvious UiPath was going to be a mega hit? How did they continue to concentrate capital with each round? When did they first start to sell shares in UiPath? What was their approach to the selldown of their position? When the company IPO’d, how much of it did they have? 4. AMA with One of Europe’s Best: Does signalling exist? How does Cem advise founders on this? What has been his biggest loss? How did that change his mindset? What has been Cem’s biggest miss? What did he not see? Why does Cem always believe you should manufacture arguments with founders before investing? Why does Cem believe a high GP commit can actually misalign the GP and the LP?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  The best single venture investments, you know, sixteen and a half million investments that has brought us back two point one billion dollars in proceeds. So Fund One is twenty time multiple on invested capital. Two point seven of that is non UI path. So about eighty five percent of proceeds of Fund One have been UI path. The UI path went from a million to a hundred million ARR in twenty one months. At the time, that was, I think, the fastest ever.

• 0:26Harry Stebbings?

  This is 20 VC with me, Harry Stebbings, and I'm so excited for the show today. So I did a walk in Hyde Park with this guest, and I was just really sad that that discussion was not recorded. And so I was determined to make this one happen. With that, I'm so happy to welcome Jem Sertoglu, one of the great venture investors of the last decade. He's famed for writing the first check into UI path. And over several rounds, he turned sixteen point five million dollars into, check this out, two point one billion dollars realized. Jem recently started Back Ventures, a two hundred and fifty million dollar fund that was three X oversubscribed. And I also think most shows on venture, honestly, don't have enough data.

• 1:10Harry Stebbings?

  People aren't open with their numbers. In this episode with Jem, he is incredibly open with his numbers, and it makes the show fantastic. But before we dive in, what do Henry Ford and AI have in common? Neither could change the world without automation. In the future, there will be two types of businesses, those that have automated and those that wish they had. UI Path, the undisputed leader in automation, is taking us into the era of agentic automation. UI Path's new AI agents don't just follow rules, they think, they make decisions. They work alongside the world's most powerful software robots, already trusted by over ten thousand businesses. If agentic automation sounds new, just think of UI Path as more growth, not more overhead platform,

• 1:55Harry Stebbings?

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• 2:10Harry Stebbings?

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• 2:55Harry Stebbings?

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• 3:40Harry Stebbings?

  by visiting fundrise.com/20vc. Carefully consider the investment material before investing, including objectives, risks, charges and expenses. This and other information can be found in the Innovation Fund's prospectus at fundrise.com/innovation. This is a paid partnership. You have now arrived at your destination. Jem, I am excited for this. We first did a walk around the park and I was like, God, I wish this was recorded. So first, thank you so much for joining me.

• 4:09Harry Stebbings?

  Thank you, Harry. It's great to be here.

• 4:10Harry Stebbings?

  Now, I would love to start. How did you make your way into the world of venture first and come to where you are today? Let's just start there.

• 4:17Harry Stebbings?

  Sure. I'm a founder turned investor.

• 4:20Speaker 00

  I started my first company in nineteen ninety nine in New York. Horribly timed, arguably the worst time in history to start a tech company. It was a company called Select Minds. We were building in social networking software, one of the earliest participants in that space. But hit the crash pretty hard. We survived, ultimately did okay, had a nice exit. And decided to move to Istanbul, which is where I grew up. I'm Turkish, born and raised in Istanbul. Initially thinking that was going to be for two years. When I moved back, I started meeting young Turkish tech companies, mostly consumer internet businesses. And got excited. I think I saw two things that not a lot of people agreed with me on. One is the fact that people behave similarly everywhere.

• 5:05Speaker 00

  Especially in their interaction with technology, with consumer technology. At the time, for example, people were telling me, oh, you know, people in France will never buy shoes online. And I'm thinking, I look at the US, I look at the UK, and I'm like, that's not right. People are people, they're gonna buy shoes online. So I saw the playing out of consumer internet in the West. And looked for opportunities to partner with companies that were trying to do the same thing in the rest of the world. And so you're an angel in these early companies? I was an angel in these early companies. I got very lucky. A few of my early investments turned out to be the biggest exits at the time in the Turkish market. An e-commerce company got sold to eBay. Food delivery company, the leader in Turkey, got sold to Delivery Hero. These were big outcomes, largest exits. So it started to.

• 5:51Speaker 00

  What was the multiple on your angel track? Must have been about ten X overall. So why made the transition to venture then? You're a super successful angel and you're liquid. Great question. It was out of getting nervous. Because what I saw is I was able to syndicate the first couple of million dollars into these companies. But then the moment they needed anything above five, ten million dollars. There was nobody that targeted that stage in our region. So I'd have to come to Silicon Valley or New York or London. And convince people who didn't really understand our part of the world. So I thought, if I raise a fund to focus on opportunities in Eastern Europe and Turkey, then I. Can follow on and maybe support these companies for the couple of rounds after my initial entry.

• 6:35Speaker 00

  Because I thought if I couldn't do that, some of these companies might actually go bust. So it was out of fear.

• 6:41Harry Stebbings?

  You'll learn that we have these beautiful schedules and then I kind of just go off piece on them. But you know, you mentioned that kind of the post five to 10 million dollars. That lack of funding that was very clear to you. I think we have this huge element of tourist capital that we saw in 2021. Moving to geographies which they weren't normally and we've seen them all retract. Have you seen a huge retraction in cash out of your market at the A and beyond?

• 7:06Speaker 00

  Of course, it happens in every cycle. They rush in and then they rush out very, very quickly. And also when they rush in, they miss out, miss out on the nuances of the region.

• 7:16Harry Stebbings?

  What nuances did they miss?

• 7:17Speaker 00

  The startup venture capital playbook is now visibly played out around the world. So founders know what to say. So they come and a VC that they're meeting for the first time from Silicon Valley is sitting with them in Bucharest. And they're able to tell a very, very compelling story irrespective of what, you know, whether there's anything behind it. I think, you know, being able to reference founders to understand where they come from, get a sense of where they go to school, which companies did they work at? Like, what's the environment they developed in? Is there signal there? Is that what you would expect a great potential founder to be coming from? I think you get that only with immersion.

• 7:55Harry Stebbings?

  When you have a damn podcast like 20 VC, just give people such good storytelling. When you actually have that explosion of capital coming into the region, a lot of tourists, prices go way up. Is that when you just sit on the sidelines and go, hey, this is a crazy time? Or do you still play the game on the field?

• 8:11Speaker 00

  I think our job is to play the game. Our business structure is defined by timelines. You know, we raised 10, 10 year life funds. So our job is to expose our fund to the strongest opportunities in every vintage, not to try to time the market. So when, when it's a, you know, bull market, the prices, the entry prices are up, hopefully the exit prices are up as well. So it's kind of balanced each other. But no, I, we, we felt that our job was to continue to invest.

• 8:38Harry Stebbings?

  In terms of the explosion of. Capital. It's tied to a statement that Doug Leoni said on the show. He said, "Venture has gone from a high margin boutique business to a commoditized, low margin industry."

• 8:50Speaker 00

  I disagree with that. I think there have been attempts to try to commoditize the early-stage market. I don't think it happens. I think Doug Leoni would be the first to agree that if it were a commodity, it would be the same thing to raise from a Sequoia or from us or from 20VC or from your dentist who's angel investing. And we all know that that's not the same thing for a founder. It's not cash is green and all equal. So I don't think it is getting commoditized because it's limited. You cannot scale it by just pouring money on it. I think that's what commoditization implies.

• 9:25Harry Stebbings?

  Does the volume and multitude of multi-stage firms having very deliberate seed strategies not mean it is a commodity? The fact that literally every multi-stage firm is seed investing. You come out of a great Peak Games, top tier school, here's five million bucks on 25 million. It's kind of like, if you take these boxes, here's your application signed. Commoditization could be argued.

• 9:50Speaker 00

  I think if you look at those firms as kind of a one strategy, one investment portfolio, I think you could come to that conclusion. But what I see it is at the core of their portfolios, if they are early-stage investors, so I don't mean the later-stage or crossover-type investors, but if they're really early-stage rooted, the way Index, Sequoia, Benchmark are. Actually, that's a great point, where Benchmark has stuck to their seed strategy. So they keep playing the game that they know they have an edge in, which is keeping fund size constant and just deploying concentrated portfolio after concentrated portfolio. The other firms decide to build an asset management business adjacent to their early-stage strategy.

• 10:32Speaker 00

  And I think that's where they start to look like commoditized products, but I don't think they are.

• 10:37Harry Stebbings?

  Jim, I'm going to be honest with you. I sit in the early-stage bucket with you and in that kind of hopefully artisan boutique business. Honestly, founders want quick cash at a good price and generally don't want Someone to be involved too much. And the multi-stage funds are producing harder and harder competition for me and for other seed players. Because they say, we'll give you a higher price than Jem or Harry will, we'll give you more money and we'll leave you alone.

• 11:03Speaker 00

  It it depends on the contract that the founder is looking for. If they're wanting cash and they want to turn around and run their business, I think what you're saying might be right. Most of the best founders we partner with are looking for a contract where they try to align with co-founder like partners to be on the journey with them. And in that case, I think they start asking themselves the right questions. And that's why for some of the top founders you'll see out there that their cap tables are not filled with only the sort of very large multi-stage firms. They pick their investors as people, they almost pick them as if they found, they pick co-founders.

• 11:43Harry Stebbings?

  Will you play the game? And what I mean by that is it's a five on twenty five with a great operator coming out of a great peak games or you name your kind of great outcome. Will you say, hey, we're going to go head to head with index and try and win that round or that's not a round for us?

• 11:56Speaker 00

  Uh, no, well, well, if if we think this is a founder that we can align with. And if we feel that chemistry with the founder, if we see that the founder also understands us and can understand what we bring to the table, absolutely. And we've we've gone into situations like that where the founder ended up choosing us over some of the brand names you're bringing up.

• 12:16Harry Stebbings?

  How do you feel about price?

• 12:18Speaker 00

  Great question. Um, is it Scott Fitzgerald who said that like a a sign of a great intellect is the ability to hold contradictory beliefs at the same time.

• 12:29Harry Stebbings?

  Yeah.

• 12:29Speaker 00

  On the one hand, we look at our biggest outcomes and we do an analysis of what would have happened, what the return would look like if we paid twice as much at the first check. And the answer is that it doesn't really matter that much for UiPath. If we'd done the seed round at at twice the valuation, it wouldn't have really, you know, made a made any difference. It would have still been a fantastic outcome.

• 12:50Harry Stebbings?

  It would, but it would have halved your multiples.

• 12:53Speaker 00

  Yes, but in that case, I mean, at the type of multiples we're at, uh, I mean, that's a, you know, sixteen and a half million investments that. Has brought us back two point one billion dollars in proceeds. So yes, I'll take half of that any day.

• 13:06Harry Stebbings?

  Sixteen and a half brought back two point one.

• 13:08Speaker 00

  Yes, that's after the sell off. So it wasn't even the high water mark. It's power law in action and it's it's actually a very humbling experience to to see because it it shows you where you have to play a very disciplined game, but you also need to get lucky.

• 13:22Harry Stebbings?

  Can I be unfair and ask, how much have all your other gains been? If that's two point one billion?

• 13:27Speaker 00

  So Fund One is twenty time multiple on invested capital. Two point seven of that is non UI path. So about eighty five percent of the proceeds of Fund One have been UI path. But if you take it out, it's still a two point seven times fund.

• 13:43Harry Stebbings?

  Which is a very good fund.

• 13:44Speaker 00

  Yes, I think it would make it a top quartile.

• 13:47Harry Stebbings?

  Okay, so like two opposing thoughts at the same time.

• 13:49Speaker 00

  Yes, so on the one hand, we know that valuation doesn't matter. On the other hand, we cannot operate like that. So we also are ultimately tethered to some idea of value. And and you know, what are we paying for? And does the company we're looking at warrant that? So I think, you know, we we try to not lose on price, but constantly question us about, is this entry price a fair price that we're coming in? Or are we now at a point in the cycle? Or is this firm just getting, you know, is this round getting so competitive that the term sheet is getting getting bit up? And we've passed on price in the past. And I think we have a mixed track record on, you know, whether that was the right decision or not.

• 14:34Harry Stebbings?

  What did you not do with the benefit of hindsight you wish you had done? And what did that teach you?

• 14:41Speaker 00

  Good question. We we've we've lost, or we we didn't understand a few businesses. I mean, one example that's probably our biggest loss is we met Bolt, the car handling company. And they were called Taxify at the time, a small Baltics ride hailing company. Even though, you know, Marcus, the founder, was extraordinary, we really couldn't see the trajectory to be a global leader in that in that space. We also had question marks about take rates. Warranted take rates for an app where you just signal your location. We felt that the, you know, what Uber was establishing as the, as the market pricing wouldn't really warrant that take rate. So we had question marks about the market as well.

• 15:26Speaker 00

  So there, what would I have done differently is maybe been more open minded about what the ultimate margin structure of the business would look like.

• 15:34Harry Stebbings?

  What round was this?

• 15:35Speaker 00

  Uh, that was their seed round.

• 15:36Harry Stebbings?

  Respectfully, the margin structure of their seed round, or the margin structure of their business, the take rate that they have, who cares?

• 15:44Speaker 00

  No, of course. If I, if I'd been able to see that they'd be a global contender, of course, it wouldn't have mattered, but they were just a little Baltic player in ride hailing.

• 15:53Harry Stebbings?

  So, I mean, I can, I can trump you every day that we've won the biggest loss. I turned down Deal and Vanta at pre-seed. And I did both the times because I knew the founders were amazing, but I just didn't like the business. I didn't like the category, something else other than the founder. And so now I have this, and I'm kind of intrigued to hear your thoughts because, you know, you're much wiser than me. I just have this obsession on founder. Um, I don't care what they do. If they're an amazing founder, they get a check from me. How do you prioritize the stack between founder, market and traction?

• 16:25Speaker 00

  In that order, founder number one. Ultimately, at our stage, I think it's the only thing that matters. We've seen great starts get bungled badly because of founder problems, character problems, ethical problems, values. So the founder trumps all. We've passed on a few very interesting, promising companies because we just could not see ourselves partner with the founder across the table. Secondly, would be market because everything we do ultimately needs to be able to return our fund if all goes well. But we're in a sort of a high return business by taking high risk. So the high return should be there. So if it's a small market, if it's a crowded market, we'll pass. The traction at our stages tells us something in some cases, but it's a distant third.

• 17:09Harry Stebbings?

  Can I ask, on the, it needs to return the fund. I agree, and I take the same approach. Do you scenario plan on outcome sizing and where you think that would be?

• 17:18Speaker 00

  We do, but then in Hindsight, sometimes we do the, you know, post-exit, we look at our early memos and we laugh about it. In the case of UiPath, I mean, we thought it could return the fund. I mean, it has, it has returned twelve and a half times the fund already. So that's been, you know, very miscalculated analysis. But we, we do do it. It's a part of the, I think, the discipline of just making sure that the market's there.

• 17:41Harry Stebbings?

  So when we go back to the kind of cottage industry-like vibe that we both sit in, and then also the multi-stage asset class vibe that is also there. Founders have a choice. What do you advise founders who are sitting, looking at these two very different products, contemplating raising a seed round?

• 17:57Speaker 00

  I think the word we end up coming to is care. When you are a small partnership, I mean, in our firm, for every fund, each partner writes about four or five checks per fund. Each year, we talk about one or two investments at most. So in terms of the capacity, attention and care that founder stands to receive from that partner is probably very distinct from what you would see at a firm with a much broader portfolio.

• 18:24Harry Stebbings?

  Do you need a board seat with every check?

• 18:26Speaker 00

  If it's warranted, if our, if our check is big enough, if our space in the cap table warrants it, yes, we usually like to get a board seat, but not every time.

• 18:35Harry Stebbings?

  Will you do a single-digit ownership deal?

• 18:38Speaker 00

  We will. We, we try not to be dogmatic. If it makes sense, if the math works. Typical first check ownership is between ten and twenty percent, but we've gone on either side of that.

• 18:48Harry Stebbings?

  Always a hard one. My biggest mistakes, most recently, Eleven Labs in particular, is where I was like, you've got like two percent, and I was like, it's just not enough. And actually, two percent would have been great in hindsight.

• 18:59Speaker 00

  Yes, but then, you know, I think, I think you should stick to principles. I mean, and we do that as well. We've passed on, in some cases, because of the ownership just. Because it's, we have really a certain number of bullets. We can, we, we have only four or five investments per partner, per fund.

• 19:16Harry Stebbings?

  How many, how many companies per fund?

• 19:17Speaker 00

  Fund one had only fifteen, but I'd say that's probably.

• 19:20Harry Stebbings?

  And that is super concentrated.

• 19:22Speaker 00

  Yes. Fund two has eighteen.

• 19:25Harry Stebbings?

  And this is seed?

• 19:26Speaker 00

  Seed and A.

• 19:27Harry Stebbings?

  Okay.

• 19:27Speaker 00

  And we've done selective pre-seed and. Selective B round joiner checks as well from both funds.

• 19:33Harry Stebbings?

  Are the B round joiner checks good?

• 19:36Speaker 00

  Yeah, Fund One, we have one of them, we'll make money from it. It's not the strong performance driver for the fund. But if that company goes into a billion dollar outcome, which it might, then it'll, it won't return the fund, but it'll, it'll carry its weight.

• 19:51Harry Stebbings?

  A lot of founders hear from us that signaling is very real and the dangers of it. Do you think signaling does exist or do you think it doesn't?

• 19:59Speaker 00

  I think signaling does exist very strongly. And we try to, in every investment we make, we really try to analyze the signals we're getting from the cap table, from really everyone and how they're behaving, how they're voting with their shares, not literally, but like, you know, their follow on decisions, lack thereof, they provide lots of interesting insight.

• 20:20Harry Stebbings?

  What are the biggest reasons for you, from your experience, companies don't scale efficiently? From zero to one, from seed to A, raise a great A round, what are the biggest commonalities and why they don't?

• 20:31Speaker 00

  I think the biggest impediment to that scale for some companies is assuming product market fit prematurely and being tempted into going into hyperscale mode prematurely.

• 20:45Harry Stebbings?

  Why do they assume it prematurely? Do they have the wrong data? Do they have the wrong objective? Do they just believe the hype? What is it?

• 20:53Speaker 00

  I think it's a combination of all the three you mentioned. First of all, ours is a, is an industry that fetishizes growth. And as you know, the easiest metric to grow for a founder is headcount. It creates this sort of perverse validation sense. They've just raised a large round very successfully. They have the budget, they put out the ads, they hire the recruiters and off to the races they go. And of course, when you're especially on the go to market side, if you're scaling your go to market team, then you give them a script and they start working off that script. If that script is not a perfect fit for where that company is at the moment, then the sideways trailing starts to happen.

• 21:37Speaker 00

  Losing the ability to. Adapt and iterate, especially on the go to market side, is is what we've seen as the as the biggest cause of that kind of sideways sideways trailing off.

• 21:48Harry Stebbings?

  When that sideways trailing off happens, do you communicate that super clearly to the founder? And how do you think about when enough time is? You don't want to be jumping too fast. You don't want to be too negative too soon. How do you think about it?

• 22:01Speaker 00

  Uh. First of all, we we believe in being quiet on the board. It's a skill that we have spent a lot of time thinking about and and also through our kind of apprenticeship model internally. We try to distribute within the firm.

• 22:17Harry Stebbings?

  Why?

• 22:18Speaker 00

  Because, you know, we're the only asset class where the asset chooses the investor, right? So there's this enormous pressure to demonstrate value add. What this means, and social media unfortunately compounds this, that there is this temptation for VCs to be coming up with aphorisms around what a company story should look like. Whereas every company is unique, every company has its own pace, its own trajectory. We think that you, of course, learn from your experiences in other journeys, but then synthesize that and distill that to very carefully chosen moments to provide input to the founder.

• 22:59Speaker 00

  I think your job as a board member is to understand the company, be very well prepared on any interaction like the board meetings, et cetera. We're obsessive about preparing for board meetings. But we are very careful in choosing when we share strong opinions.

• 23:16Harry Stebbings?

  So I'd love your advice then. When I have tough topics that naturally come up in a board meeting, I'm always torn in two ways. One, I should air my thoughts and opinions and concerns because Gem might have something important to add, someone else might have something important to add, and it might be a valuable exchange of perspectives. But then also caveat that with, it's also a sensitive topic. It's maybe personal towards the founder that it might be a criticism in a bad way. And I want to be just respectful of not throwing them under the bus, so to speak. How do you balance between the two?

• 23:50Speaker 00

  Well, I think the healthy board dynamic is one where with all the board members around the table, but also in one-on-one conversations with the founders as well. So I think it's very difficult to have that conversation come up for the first time in a board setting. If it's sensitive like that, I think, you know, the valuable relationship with a founder that the board member or the V C has should allow for a better introduction, better timing, et cetera, for that sensitive topic. But I think beyond that, as long as you're choosing what important few topics are carefully, then bringing them up should not should not be a problem.

• 24:26Harry Stebbings?

  You said most investors have lost the skill of being quiet. My pushback on that is we sell the most obvious commodity of all, which is cash. Yours is the same as mine, and mine needs to be greener than yours. We are marketing and we are a marketing machine as an asset class. Is that not understandable?

• 24:45Speaker 00

  I disagree with that. I think what we sell is not our cash. The cash is available. It's, you mean, the seeds and A rounds are flush with new capital coming in all the time. So I think what we sell is our time and attention and capacity. And we're selling one of those twenty slots in that fund's portfolio that I'm going to be devoting my entire set of resources for the next ten years. That's what I'm selling.

• 25:12Harry Stebbings?

  Do you think the best founders really need their investor?

• 25:15Speaker 00

  The best founders need a group of smart, aligned individuals that they know are on their side and pushing in the same direction, rowing in the same direction as they are when they're trying to create this miracle called a successful startup. Because I think every successful startup is a miracle. They shouldn't happen.

• 25:33Harry Stebbings?

  Do you think the boards that you're on are valuable to the founder?

• 25:36Speaker 00

  I hope so.

• 25:37Harry Stebbings?

  Not you, but the boards.

• 25:39Speaker 00

  We've seen board dynamics where, alluding to what I was saying a minute ago, there's just so so much pressure to demonstrate value add that we find some board members just get overly eager to contribute, to add, to maybe even iterate over and over topics that

• 26:00Speaker 00

  Maybe don't warrant it, but I think it's important to understand that, first of all, the founder always knows their business better than us. A lot of times they're smarter than us, they're certainly harder working than us, they have more skin in the game with us. So our job is to just support them when we can and when they need us.

• 26:19Harry Stebbings?

  How do you advise founders on the valuation they raise that early? I'm sorry for this being an off-field question, I was actually just going through it. And I said to the founder, raise it a valuation you feel incredibly confident you can raise it three X the price of on the next round. It's a good heuristic.

• 26:33Speaker 00

  I think for practical reasons, that's a, that's a good benchmark, whether it's two, two and a half or three. That could be discussed based on the stage, but more or less, I think that's a good heuristic, a good rule of thumb. What we try to align with our founders is the early rounds are not real rounds. They are contracts where you're demonstrating alignment around a target that is very far out ahead. Every early stage check, you're buying a very out of the money call option on these businesses. It's not a trade. I think a lot of people get that wrong. It's not a trade. It's really a construct for alignment, for a partnership where the founder is saying, I'm going to have a few people around this table on this journey with me.

• 27:16Speaker 00

  And what I'm saying in return is this company and your team, the founder team, is going to be one of my four or five slots for this fund. So for the next five years, I'm all in with you on this. The early stage, the seed round, A round, is really a contract that establishes this alignment. It's not a real investment. It's not, it's not the same as buying Apple shares in the market.

• 27:39Harry Stebbings?

  What are the biggest ways that founders and VCs become misaligned?

• 27:42Speaker 00

  I think we usually try to sort of disagree with the, with the founders in the term sheet process at least once, so that we kind of see the dynamics of what, what happens around that. So usually what, what we see companies go in a wrong direction and board dynamics go in a wrong direction is if there was a lot of tension in the early round discussions, if this was a very contentious negotiation around specific governance terms, et cetera, sometimes Leaves a bad taste in the mouth on both sides. And there is this lack of trust that is in place as soon as the investment is done. We've had very few cases of this, but it's a very negative environment to operate in.

• 28:24Harry Stebbings?

  A lot of founders are told like run an efficient process. You know, make sure that you align meetings, this week's first meetings, this week's second meetings, this week's term sheets. Do you mind feeling part of a very manufactured process?

• 28:37Speaker 00

  If we feel rushed, we mind and we will not get rushed into decisions. In two thousand twenty one, when the market was in a frenzy, we would never categorically pass on evaluation. So we've written very expensive checks in that period. But we would categorically pass on not having enough time to understand the business and digest the opportunity. And sometimes the process that gets communicated to us will not let us understand and digest the company. In those cases, we'll pass and it doesn't feel good because categorically passing is not right. And I'm sure there's probably some good companies in there we may have passed on because it felt rushed.

• 29:18Harry Stebbings?

  The expansive checks that you wrote, have they matured into great companies? And the real question I'm asking is, do high prices lead to high quality?

• 29:28Speaker 00

  The jury's out on on the entire set. A few of them, a few very critical ones have matured into now grown into the multiples that we ended up paying for them at the time. A few others are still on their way there and it's a young portfolio, so I can't really.

• 29:44Harry Stebbings?

  It's interesting, the worst performing segment of our seed portfolio on our farm one was five on twenty five. Cause they had too much money too soon. There was a lack of focus, a lack of urgency. And actually they struggled to raise their next round because it was already at too high a price for the round that they were going to go and raise.

• 29:59Speaker 00

  Right. I think one difficulty in analyzing our track record and and mistakes is the round parameters have become quite fungible. What's called a pre seed, what's called a seed, what's called an A are a bit all over the place.

• 30:14Harry Stebbings?

  Sure.

• 30:15Speaker 00

  I mean, last week was the announcement of a a seed round a hundred million. Seed round at a billion dollar valuation. So that's not really a seed. That's a unique case. That's something else, but it's not a seed round.

• 30:26Harry Stebbings?

  Do you agree we've seen the eradication of pre-seed rounds?

• 30:28Speaker 00

  To us, pre-seed is that there's nothing to look at. That's what we call a pre-seed.

• 30:32Harry Stebbings?

  So I'm looking at one now, which is five million dollars for the round. I'd do four million, two people, just with an idea.

• 30:39Speaker 00

  So, okay, that sounds like a very big seed round. I'm sorry, very big pre-seed round if there's nothing to look at.

• 30:44Harry Stebbings?

  Would you do that?

• 30:45Speaker 00

  If we're sold on the founders and the markets, since there is no traction, we can't look at that.

• 30:49Harry Stebbings?

  Yeah. Do you find it hard to get comf- I'm finding it hard to get comfortable in this situation, obviously, Jim, which is like, I get it. They're great. They come from great companies. They're mature product leaders, but it's forming in on nothing.

• 31:01Speaker 00

  It's our job to be uncomfortable because we're writing very high risk checks that that should lead to high return. So, but the high risk always feels uncomfortable. So I think it's normal to feel uncomfortable.

• 31:15Harry Stebbings?

  Has it got easier over time for you?

• 31:17Speaker 00

  Uh, no, it hasn't. No.

• 31:18Harry Stebbings?

  Bugger.

• 31:19Speaker 00

  Financial investing is never easy. I think it's a very hard profession.

• 31:22Harry Stebbings?

  What's the hardest thing that people don't often see, do you think?

• 31:25Speaker 00

  How long things take. And I'm saying this as a very fortunate VC that, you know, the big performer in our first fund matured very rapidly, but things take long.

• 31:35Harry Stebbings?

  I think one thing that I think about a lot is wealth and how that impacts on investor mindset. Does the fact that you are now incredibly wealthy make you a better investor? In other words, are richer investors better because they only see upside? You did very well from your angel portfolio and from being an entrepreneur before. Do you think richer investors are more successful?

• 31:54Speaker 00

  I think it should help with the with that risk equation. We think a lot about GP commitment size. We have a very high GP commitment in the fund and.

• 32:05Harry Stebbings?

  Karz, what is it?

• 32:06Speaker 00

  It's it's close to 10% of a 250 million dollar fund. We were very proud of this, saying that, look, you know, this shows our confidence in what we're doing and it gets us aligned with our with our LPs. A very experienced LP challenged me on that and said, wait a minute, I don't like that. What I'm allocating to you to your fund is the highest return, but the highest risk part of my portfolio. I don't want. Your team nervous because you personally have a lot of money in this fund. I want you to take very, very high risk investments as long as the return is there. Will this high GP commitment make you nervous, make you more risk averse? I thought that was a brilliant challenge, brilliant question. So I think plays out on both sides.

• 32:47Harry Stebbings?

  I also think GP commits are actually flawed in many ways because a lot of people will say, with total respect, look at me and look at you and our GP commit is one percent.

• 32:56Speaker 00

  Right.

• 32:57Harry Stebbings?

  But it's just me and it's the start of my career.

• 33:00Speaker 00

  Right.

• 33:00Harry Stebbings?

  And I don't have the liquidity that you've done very well with. And they go, well, you know, other funds have much larger and it's so much about proportionality.

• 33:08Speaker 00

  Of course, and if LP can't see that, shame on them. I think that's inexcusable to hold a young emerging manager to that hurdle. I mean, without my first fund outcome, I wouldn't be able to put the large GP commitment in fund three.

• 33:21Harry Stebbings?

  Have you seen institutional American LPs come to your region en masse and allocate? Or has it still been a gray area for them?

• 33:30Speaker 00

  It's too exotic for most traditional allocators to VC funds. So our LP base is very diverse, but it's not concentrated in large North American institutions.

• 33:41Harry Stebbings?

  What should they know that they don't know?

• 33:43Speaker 00

  I think venture capital has made the mistake of following private equity in terms of LP allocation categorization. And in private equity, regional investment strategy ultimately is exposed to the regional macro dynamics. Whereas in venture capital, because the outcomes are typically global outcomes, you may be hunting in a region with certain macro dynamics, but the outcomes are never impacted by the macro. My portfolio is a global portfolio. My outcomes are American outcomes, you know, London Stock Exchange outcomes, you know, acquisitions by global tech companies.

• 34:23Speaker 00

  They're not outcomes that are subject to the turbulence of whatever country that founder team may be coming from.

• 34:30Harry Stebbings?

  How do you respond to an LP who goes, there's political risk, there's currency risk? Oh, building a business is hard enough.

• 34:37Speaker 00

  We go to our track record and show them that there Was not a single case where any of our portfolio companies were impacted by those risks. When things, when bad things happen to our portfolio companies, they're the same bad things that can happen to a Silicon Valley based company.

• 34:52Harry Stebbings?

  When you lose a deal, why do you lose the deal?

• 34:55Speaker 00

  Sometimes on price, ultimately, we have to underwrite to a certain level of return. I always feel that there are venture investors out there with a very much lower cost of capital than us. So somebody will come and underwrite the same opportunity to a lower outcome. In those cases, our offer ends up being not high enough. So we've lost on price. Sometimes we've lost on ownership, desired ownership, where we find the existing investors would not let a new lead investor get to the level of ownership that they would like to get. Those have been some cases.

• 35:33Harry Stebbings?

  We mentioned turning sixteen and a half into two point one million. I do want to discuss that. I spoke to Daniel before the show. I think it's probably one of the greatest venture deals in European venture history.

• 35:44Speaker 00

  Probably the best single venture investment.

• 35:47Harry Stebbings?

  Pretty good intro to the show, isn't it? I mean, let's be honest. So I want to start on that. How did you meet Daniel for the first time?

• 35:54Speaker 00

  So Daniel had been building a company called Deskover, I think since two thousand five or two thousand six. It was a more of a consulting firm that was doing custom automation and different sort of back office applications for different workflows for various clients. We met him in Bucharest. I think the company was twelve people when we met him. And he struck us as having, being at the right place where, you know, here's a founder who was deeply immersed in the problems that his clients were facing. Very technical, had a very strong vision on the immediate problem he wanted to solve. He didn't start out with painting ultimate picture of what UiPath would look like

• 36:39Speaker 00

  ten years out as a, you know, large global enterprise software company. But he was very keenly focused on what is the next feature?

• 36:50Speaker 00

  He would need to add and how long that would take and what would that solve at what customer or what new customer would that then allow him to sign. So very pragmatic, very iteration focused, very technical, very hands on. And he also wowed us on how he saw what he was building to be so applicable in so many diverse situations. And he came and convinced us that at one point, every single company in the world could be his customer.

• 37:18Harry Stebbings?

  Was he immediately exceptional?

• 37:20Speaker 00

  In these regards that I talked about, yes. Now, what we were worried about when we first met him and we spent a lot of time with him. We met him in 2014. We ultimately wrote the first cheque in 2015. So we had six to nine months that we were able to spend with him and the team. One concern we had was, is he a go to market leader? Our Eastern European rooted founders are not polished. His English wasn't fluent. He was not a great narrative storyteller at the time. Can he be the sales leader here? We introduced him to a few early hires or potential co-founders to to to kind of join him with very senior responsibility in the company. And then, but along the way, the way he interacted with them, one, we saw how earnest he was

• 38:04Speaker 00

  and how much he wanted to make this happen. So he was giving these people the time, the effort to try to see if they would work. In the process, we got convinced that no, Daniel will be able to handle all the responsibilities of a of a of a leader and a founder of the company. So we didn't insist on this go to market question being fully answered at the time. But yeah, he didn't fit the fit the enterprise software founder mould.

• 38:34Harry Stebbings?

  So when you finally build that conviction to go, you know what, we want to buy Daniel and we want to do this, what did the deal look like?

• 38:40Speaker 00

  He was raising one and a half million. Initially, we thought we should do the full one and a half million. I mean, this is a hundred and fifty million dollar fund. We would have been able to write that cheque. But then we thought, this is a big enough vision that this company, at the time, he was struggling to raise. We showed the company to, I think at that first seed round, we showed it to 14 funds to co-invest with us. Credo ultimately came in with a half a million cheque. We led with a million dollars and then Seedcap joined us with a hundred thousand dollar cheque. So it was 1.6 million raised. I believe it was just south of seven million pre. So that was the that was the initial round.

• 39:17Harry Stebbings?

  Seven million pre.

• 39:18Speaker 00

  This is a company doing about half a half a million in revenues.

• 39:22Harry Stebbings?

  Amazing thing is, we had Daniel on the show and it took nine years to get to that stage.

• 39:26Speaker 00

  Yes, although, I mean, he he it's not the same business. I mean, he he started out as more of a solutions provider and then ended up finding the product idea along the way and building a product.

• 39:37Harry Stebbings?

  With respect, it's a hundred and fifty million dollar fund. Doing a one point five million dollar check is a one percent check.

• 39:43Speaker 00

  Correct.

• 39:43Harry Stebbings?

  Why didn't you?

• 39:44Speaker 00

  The most you can invest out of a hundred and fifty million dollar fund is fifteen, twenty million dollars. And we know that it costs more than that to build a global software company. And again, this looked so off the beaten path for a, you know, London based or New York based growth fund to come and invest into. We thought we may have to support the company. In fact, probably about a year later, a year and a half later, we ended up then showing the company to about forty firms. Everybody passed. Every single European VC has passed on UI path at least once. So we had to bridge the company by ourselves. I mean, not by ourselves. Our co-investors came in.

• 40:21Harry Stebbings?

  Was it doing well?

• 40:22Speaker 00

  It was. Yes, it was headed in the right direction. The the the numbers were not exceptional, but we could see how the clients were getting value out of the product. It was certainly headed in the right direction. That's what our reserves are for. Our reserves are for those companies that will be misunderstood by the market or overlooked by the market because they don't fit into the mold. And we were able to write that check with conviction.

• 40:46Harry Stebbings?

  Okay, so we have this kind of tween around.

• 40:49Speaker 00

  Yes.

• 40:49Harry Stebbings?

  And I spoke to Daniel and he said, you proposed to the deal at twenty and he would have taken twenty five.

• 40:56Speaker 00

  So there's a learning from there. Like when the numbers are pointed in the right direction, double down, do the price round. We felt that feedback from the market was so poor that nobody else was interested.

• 41:08Harry Stebbings?

  What was the feedback?

• 41:09Speaker 00

  The feedback was, uh, okay, keep us posted. Not enough traction for us to care at the moment. And this is coming from

• 41:16Harry Stebbings?

  Forty five.

• 41:17Speaker 00

  Very large number of firms.

• 41:19Harry Stebbings?

  Okay, and so we get that feedback.

• 41:21Speaker 00

  Right. So we then do the do the, we agree on a convertible structure. I think ultimately it converted at some. Thing in the sixty million dollar range, uh, because A was eighty, I believe. But we did the convertible, we then regretted the price. But of course, I mean, from that point, when the numbers start to show, then the picture changed one hundred and eighty degrees. When All of a sudden, everybody was How much did you do in the convertible? Uh, two and a half. So you do two and a half in the convertible? We did one in the seed round, two and a half in the bridge round. And then we put in three million dollars at the A round. We introduced them to Excel. What changed in that business? The numbers, the traction numbers, essentially, the, all of a sudden, the proof was there, out there for everyone to see. In that case, everybody got it. Everybody, it clicked, lots of interest.

• 42:06Speaker 00

  Everybody was, wanted a piece of the company. Excel came in and led the A round. Uh, we joined and yeah, it, they raised at that eighty million dollar valuation. And then, uh, about a year and a half later, or two years later, Rich Wong at Excel Growth came and led the, the B round at a billion dollar valuation. Did you do more at the billion? Yes, we did. We wrote a ten million dollar late check with our hands shaking at the time, uh, but That's a bold check for that. That's actually, I mean, this is, uh, the, the way we ended up continuing to invest into what looked like a very strong performer in our hands. That's why we raised the size of fund we, we raised. At a billion dollars, that's a tough one to underwrite. Right. How did you think about that?

• 42:52Speaker 00

  The trajectory, the trajectory and the fact that there were a few things in, in place. One, we saw what happened in Japan. Japan was a very important early market for UiPath and, uh, the Japanese uptake was very, very fast. So we could see that when the market conditions are right, back office clerical work in Japan is hard to fill by, uh, enterprises there, uh, because of the demographic reasons. So, but we could see if one market behaves like that, we could see this in other markets as well. So the revenue trajectory at the company, I believe, I believe UiPath went from a million to a hundred million ARR in twenty one months. Uh, at the time, that was, I think, the fastest ever for a company to, to have grown that fast. So we could see early signs of this, this trajectory.

• 43:36Harry Stebbings?

  My question to you is, you said reserves are for the overlooked. When they get money from Excel and then Excel growth at the prices they do with the brands that they do, this isn't overlooked.

• 43:46Speaker 00

  Correct. At that point, no. This is, this is more, let's ride that big momentum that we have.

• 43:52Harry Stebbings?

  At what stage do you think, actually, I'm no longer getting paid for the risks that I'm taking? And I could put this into three more new companies?

• 44:01Speaker 00

  No, that was, that was an internal question for us. At that billion dollar valuation, we ended up deciding to write that 10 million. And that was, that turned out to be the right decision, but it was not a fast decision for us. Then when Sequoia led the $3 billion next round, we sat it out. We did not participate. And then when the $7 billion valuation, series C happened, then we started to carefully divest. Uh, so start to, I mean, again, uh, you know, this had been such a big, uh, win for us in terms of returns. Our prudent investor responsibility to our LPs would be to then try to start to realize, uh, some of these, some of these, uh, gains.

• 44:44Harry Stebbings?

  A hundred percent. I mean, very wise. I think we taught a generation of investors, it's all about leaning in and actually the best, we have a huge amount of data on this, but the best lean out strategically over time. How much do you sell in those increments?

• 44:57Speaker 00

  It was in, in, in each case, it was between one and 10% of our holding at, I mean, I don't think we ever went up as high as 10%.

• 45:06Harry Stebbings?

  Is there a kind of strategic thought process behind how much you sell?

• 45:10Speaker 00

  It, it's an analysis at the time of what our holding of that company looks like at the time. And we tried to just triangulate to the price we may be able to sell at. I mean, our, uh, our secondaries were all at a premium to the primary round. So there was, each round was so oversubscribed that we were able to actually sell at a premium. Our share class, you know, shares that are at a, at a lower class on the, on the liquidation stack.

• 45:39Harry Stebbings?

  What did the subsequent sell down look like?

• 45:41Speaker 00

  Uh, we ended up, I think our high watermark ownership was 18% in the company. And we entered the IPO slightly below ten percent. So we sold about, I mean, I can't, I can't remember the dilution effect on that. But, you know, we were still the largest shareholder going into the IPO in the company. You know, we had also realized already, I think, three, four times the funds at that point.

• 46:07Harry Stebbings?

  And then you just sell down ten percent a year for the remaining five years?

• 46:11Speaker 00

  Um, post IPO, we executed a divestment structure that was faster than that. Uh, of course, we didn't want to impact the price of the shares. But as, you know, once the stock is public, we felt that we have lost our entire edge in trying to manage that investment. I think as early stage investors, our job is to then leave that decision to our LPs. Uh, we were able to distribute in kind to our LPs who prefer to receive shares as opposed to cash.

• 46:41Harry Stebbings?

  Hard question. When the firm does so well, it is, as you said, probably the greatest venture investment in European history. There's a concern of like, actually, people just don't need to be here anymore. People can go and be an angel, they can stop venture. It's a very big concern for a lot of firms who are very successful. How did you think about that problem?

• 47:00Speaker 00

  I think it's a very personal question, a personal decision. Uh, you're absolutely right, but for us, I understand that my team wants to work for a firm that one day they will inherit. And I want this to be bigger than me, that this is around for decades, if not longer. And when I look at the best, most inspirational venture firms out there, I see that the ones that have done the best are the ones who are able to create that institutionalization. And that doesn't happen with your family office.

• 47:32Harry Stebbings?

  I agree. It's much harder to find that mission and love for the family office. You said you lost your edge when it went public in terms of what you know and how you act. There are firms which feel that actually they are best placed to manage positions because of asymmetric information. We've known Daniel for years, we know the market, we know, we know all these things part of the market doesn't. So we should manage that. Why do you feel you've lost edge when company? Needs to go public and they don't.

• 47:58Speaker 00

  In our opinion, tech sector moves too fast for your edge to remain. It it decays, your your whatever insight or asymmetric information you have until the point of the IPO starts to decay. If you're still on the board, if you're still an insider in the company, then your ability to manage that position is diminished. Right? I mean, then you're essentially like a founder long term and our our funds have a very specific lifetime. So, you know, even if I wanted to hang on to my stake, it would only post IPO. It would only for a few years, be for years, for a few years, because then we have to divest anyway because structurally.

• 48:36Harry Stebbings?

  You said there about kind of the biggest, hardest thing that most people don't know is the length of time it takes to achieve liquidity. Do you think venture structures need to change?

• 48:43Speaker 00

  I'd love for them to change. I think a 10 year life for a seed and A focused fund is too short. This is evidenced by the fact that almost, I don't know a single early stage VC fund that was liquid by year 10. But it's also probably a healthy pressure and friction to put on a GP team. So that they're actually thinking about liquidity as they approach that 10 year mark. Even though there's perhaps understanding implicitly around around the table with all the investors. That it'll probably not be fully liquid by by the end of fund life.

• 49:17Harry Stebbings?

  Is there anything with the UI path process where you look back now and you're like, I wish we'd done that differently?

• 49:23Speaker 00

  In hindsight, we should have participated in that $3 billion round by by Sequoia. We post IPO, we did some block trades that felt as if we were playing in a in a market that we're not naturally suited for. So maybe the divestment strategy post IPO would have been a bit different.

• 49:44Harry Stebbings?

  16 to 2.1, amazing. Sadly, it's not all that. There is sometimes a loss.

• 49:50Speaker 00

  Of course.

• 49:51Harry Stebbings?

  What's been your biggest loss and how did it change you as an investor?

• 49:54Speaker 00

  Fortunately, we haven't had big losses and we've had relatively low loss ratios, which is maybe even a criticism of.

• 50:00Harry Stebbings?

  What is a low loss ratio?

• 50:02Speaker 00

  In Fund One out of 15 investments, only three of them did not. Return capital for us. Now, six companies are still live, but we expect to make money from all six of them. So they will not be lost. So we will have made a positive return on twelve out of fifteen investments in Fund One. Now, when I think about it, some of those returns were capped returns. Probably lower risk investments than we should have made, even though they returned us capital. They cost us two higher risk, higher return opportunities we should have probably backed. That was a learning for us from Fund One. Do you think about downside protection when investing?

• 50:43Speaker 00

  I do, maybe because I was an angel investor before, or maybe I'm human. I know I shouldn't be thinking about downside protection, but it enters the thought process, it enters the equation. I think it's overrated. Why? You know, as I mentioned before, our deals, our investments are not real investments the way you go buy Apple shares on the stock market. They are long-term contracts around a vision. Ultimately, it doesn't really move the needle that much, whether you have a liquidation preference that can lock in some asymmetric returns if things go bad.

• 51:21Speaker 00

  Many times we've seen those type of structures get renegotiated at the point of liquidity because it just serves one right purpose or another. We've never really seen downside protection measures make a big difference in any outcome. What has been your biggest loss? About six million in a in a company that was faced with some regulatory. It was an HR business that faced some regulatory issues around it. Laws changed that made their vision very difficult to execute and they ended up liquidating. Did that impact your mindset moving forwards in any way? In that case, we had written a follow-on check where I think about that follow-on check

• 52:05Speaker 00

  that we maybe didn't have enough data to evaluate that follow-on check. So that could have been a smaller loss, learning there. That was an early investment of ours in our. First fund. So I think we were still somewhat novice around fund management and fund investing as opposed to personal investing. So the the learning is around maybe

• 52:26Harry Stebbings?

  Do you think

• 52:26Speaker 00

  Diligencing a follow on investments more thoroughly.

• 52:30Harry Stebbings?

  How do you approach the diligencing and follow on investments today?

• 52:33Speaker 00

  Depends on the follow on investment. I think it's different when you've written a half a million dollar check and you're writing another half a million dollar check early on in a journey. Whereas you're really doubling down with a 10 million UI path late check. So

• 52:46Harry Stebbings?

  Like point nine, they have the rule, which is like, you know what? If a great if a great fund does your next round, we'll do it too.

• 52:53Speaker 00

  Of course, that's a very strong signal, but we've we've done, I mean, the bridge round at UI path, no great fund was touching the the company and we had to build our conviction internally. I think if you have the luxury to get validated the way you you mentioned, of course.

• 53:08Harry Stebbings?

  Final one for you. Are you worried by liquidity markets today? You know, we've seen M and A markets close up a lot of competition, but M and A happening today. We've seen IPO markets, you know, almost shut down entirely. Are you worried about that?

• 53:23Speaker 00

  If it's if it's a sustaining trend, I am. I suspect it's not. I think markets are cyclical. I think exuberance will come back. We've started the rates, changed direction recently. You know, we'll see what the FTC governance will look like post-election. So I think those are cyclical. I think it'll come back. Great companies are defined by sustainability, that that they're not dependent on the mood of the markets. The outcomes are very dependent on the vintage. You know, the I think a very humbling fact is the biggest predictor of a fund's performance is its vintage, you know, irrespective of how

• 54:02Harry Stebbings?

  Do we all get a pass for last vintage?

• 54:04Speaker 00

  Depends on how you played it. I don't think you get an automatic pass. I think, you know, the the question that will get asked would be, what did you say you would do? Did you do what you said? If there is a performance issue, can it be attributed to the markets? Or was it other factors that led to it? If it's pure vintage related, I think I think It's not a coincidence that funds get benchmarked based on, based on vintage.

• 54:32Harry Stebbings?

  The majority of funds from twenty one will not do one X. Agree or disagree?

• 54:36Speaker 00

  I would suspect that is probably the case. I'm afraid that is a right prediction.

• 54:41Harry Stebbings?

  Final one, uh, before a quick fire. Um, I'm really worried actually about now. It's, it's a really hard time to be investing, Jam, I feel. Pricing is insane. The AI bubble is just almost more prolific than twenty twenty one from my perspective. Do you agree with me and do you share my concern?

• 54:58Speaker 00

  I agree. Is it more difficult than it's ever been? I'm not sure. I think in these uh, kind of in between cycles situations, I think things get a bit more murky. That's why it's important to have clear strategy. It's like, what's the game you're playing? What do you think your edge is there? Are you sticking to that game? I think that delivers. That gives me confidence.

• 55:20Harry Stebbings?

  I agree. Do you play the game on the field for AI companies or do you just say this is a bubble right now?

• 55:24Speaker 00

  Everything that touches software today is AI. There is no software company that doesn't utilize machine learning and artificial intelligence in some way to do their job better. So of course, every investment we've made out of fund three, the last five investments are all in one way or another, AI companies. Now, are we investing into, you know, hundreds of millions of dollars rounds of, you know, foundational models? We're not, we're not in that.

• 55:50Harry Stebbings?

  Come on, Jam, just, it's only a hundred billion.

• 55:56Harry Stebbings?

  Did you see that Larry Ellison on stage? He's like, it costs a hundred billion dollars to enter the race. I saw it at like, you know, one AM.

• 56:02Speaker 00

  Well, he'd like that to be the case because then, you know, there's only four players in that game, right?

• 56:07Harry Stebbings?

  Yeah, I mean.

• 56:09Speaker 00

  I'm not sure that's the, that's the game.

• 56:11Harry Stebbings?

  Listen, I want to move into a quick fire. So I say a short statement, you give me your immediate thoughts. What do you believe that most around you disbelieve?

• 56:18Speaker 00

  I believe that most people believe wrongly that an early stage investment is, is a trade. You're, you're buying something for, uh, you know, you're buying a share for, for a price. I believe it's a contract for long-term alignment to build a great company.

• 56:36Harry Stebbings?

  Investor you most respect and learn from outside of your own firm.

• 56:40Speaker 00

  Fred Wilson was the first person to tell me that I, he thought I might make a good venture investor. This is back in two thousand and five, when I just sold my company.

• 56:49Harry Stebbings?

  Did he say why?

• 56:50Speaker 00

  He thought I was well rounded and he's been an inspiration and a source of learning for me like through his writing online. As I developed into an investor, I also have a lot of respect for USV and Benchmark in how they've kept their discipline around. You know, what they think they do better than anyone else. And I think the the results show. So those are the two firms I would name.

• 57:13Harry Stebbings?

  Most memorable first founder meeting?

• 57:15Speaker 00

  One of our fund two founders I met when he was six years old. Yeah, I I picked him for my soccer team.

• 57:22Harry Stebbings?

  How old was he when you funded him?

• 57:23Speaker 00

  Uh.

• 57:24Harry Stebbings?

  Twelve.

• 57:26Speaker 00

  No, he's uh, he's about forty two, I think, when we founded him.

• 57:30Harry Stebbings?

  Wow, that's amazing. Tell me, what's the most contrarian or unorthodox advice for founders listening?

• 57:35Speaker 00

  Founders usually underestimate the leverage they have on their cap table. They negotiate things for very obscure situations, et cetera. Experienced founders know that it's their company. They will have a lot of flexibility around managing things when it happens, uh, when the opportunity comes down the road. I always find myself smiling when, you know, we're negotiating a very sort of obscure, one off, you know, far fetched scenario. Where I just know in my actual portfolio, I know how much weight the founder carries. And it's their company, you know, this is kind of funny.

• 58:12Harry Stebbings?

  What do founders most care about in the term sheet that they shouldn't?

• 58:16Speaker 00

  For the founder, I think the most important thing is probability of success. Is this round that I'm closing, is this gonna impact my potential of getting where I want to get to? As a percentage, will it make up for the dilution I'm suffering? So if I'm giving up twenty percent in this round, after this is signed, am I twenty percent more likely to get to that vision? If the answer is yes, then they should sign.

• 58:40Harry Stebbings?

  Have we seen predatory terms come back in the departure of tourist capital?

• 58:45Speaker 00

  Very rarely. We've seen. A few, but usually they're in very difficult situations. So I doubt there will be any good outcomes coming from those dirty terms.

• 58:56Harry Stebbings?

  What concerns you most in the world today?

• 58:58Speaker 00

  Technology has been a factor in concentrating resources in the hands of very few. And I think that is causing a lot of problems right now. And I think it's going to get worse before it gets better.

• 59:11Harry Stebbings?

  Is there any way that can be solving that? Is that not by nature just capitalism and innovation that is?

• 59:16Speaker 00

  I'm hoping, you know, with the existential threats that our world and humanity faces, solutions that are compatible with capitalism or how resources get allocated will also emerge. However, in the short term, technology has been a very strong accelerator of the trend.

• 59:33Harry Stebbings?

  What do you know now that you wish you'd known when you got into venture?

• 59:36Speaker 00

  That things take long, so I should be patient.

• 59:39Harry Stebbings?

  Final one, what question have you not ever asked that you should be asked more?

• 59:43Speaker 00

  I'm surprised founders don't ask us about data around our follow-ons. You know, at the seed stage, early stages, that when I mentioned that founders are buying care by investors, that's actually a very good indicator of care.

• 59:57Harry Stebbings?

  I think it's really important to ask, in the cases where you haven't, why have you not?

• 1:00:01Speaker 00

  Right.

• 1:00:01Harry Stebbings?

  Jim, listen, I'm so appreciative of you doing this. As I said, I walked around the park and I was like, I really wish that we were doing this as a show. So I'm so grateful that you did this and thank you for joining me.

• 1:00:10Speaker 00

  Thank you for having me. I've been a fan of yours for a long time. It's fantastic to be here. Thank you.

• 1:00:16Harry Stebbings?

  I mean, the greatest venture investment in European history, I cannot believe that. Sixteen million into two point one billion. If you'd like to see more, you can find us on YouTube by searching for twenty VC, that's two zero VC. But before we leave you today, what do Henry Ford and AI have in common? Neither could change the world without automation. In the future, there will be two types of businesses, those that have automated and those that wish they had. UiPath, the undisputed leader in automation, is taking us into the era of agentic automation. UiPath's new AI agents don't just follow rules, they think, they make decisions. They work alongside the world's most powerful software robots. Already trusted by over 10,000 businesses.

• 1:00:59Harry Stebbings?

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• 1:01:44Harry Stebbings?

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• 1:02:28Harry Stebbings?

  now, if you're looking to stay ahead on the investment side too, Fundrise's Innovation Fund is taking venture capital to a whole new level. It's a public venture fund anyone can invest in, not just institutions and accredited investors. The Fundrise Innovation Fund is democratizing venture capital, which could have big consequences for the industry. The fund is already off to a good start, with 100 million into some of the largest, most in-demand AI and data infrastructure companies. Companies like OpenAI, Anthropic, and Databricks. Check out the Innovation Fund's impressive list of investments for yourself by visiting fundrise.com/20vc. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses.

• 1:03:12Harry Stebbings?

  This and other information can be found in the Innovation Fund's prospectus at fundrise.com/innovation. This is a paid partnership. As always, I so appreciate all your support and stay tuned for an incredible episode coming on Friday.