The European Startup Scene

Europe’s startup ecosystem is maturing rapidly, with companies like Revolut, Lovable, and Legora demonstrating that world-class technology businesses can be built and scaled on the continent. While the US remains the dominant force in venture-backed software as home to the largest markets, the deepest capital pools, and the most ambitious exit culture, a growing number of European founders are choosing to build at home. Edward Keelan https://uk.linkedin.com/in/edward-keelan is a Partner at Octopus Ventures https://octopusventures.com/, one of Europe’s largest and most active venture capital firms, where he has spent over 16 years leading the B2B software and enterprise AI fund. His portfolio spans seed through Series C, with a focus on European founders building in AI, vertical SaaS, and enterprise software. This long-view experience gives him a rare perspective on what it takes to build enduring technology companies in Europe. In this episode, Edward joins Elena Boroda to discuss what separates great founders from the rest, how AI is reshaping the software landscape and threatening established players, the state of the European startup ecosystem and what it needs to compete globally, and what engineers and founders should be thinking about as the industry enters a new era. https://i0.wp.com/softwareengineeringdaily.com/wp-content/uploads/2026/05/Elena-Boroda-.jpgElena Boroda focuses on GTM for developer tools and AI startups, with experience in observability and building tools for MCP servers. She is based in Berlin. https://www.linkedin.com/in/elena-boroda https://www.linkedin.com/in/elena-boroda/ Please click here to see the transcript of this episode. http://softwareengineeringdaily.com/wp-content/uploads/2026/05/SED1932-Octopus-Ventures.txt Sponsorship inquiries: [email protected] https://cms.megaphone.fm/organizations/619b680e-d813-11ea-9750-e7ecac406436/podcasts/e60108fe-e328-11ea-b2b6-1348249f900a/episodes/3913370a-bc44-11ed-ace6-8b1f96d82bba/[email protected] The post The European Startup Scene https://softwareengineeringdaily.com/podcasts/the-european-startup-scene/ appeared first on Software Engineering Daily https://softwareengineeringdaily.com.

• 0:00Speaker 00

  Europe's startup ecosystem is maturing rapidly, with companies like Revolut, Lovable and Legora demonstrating that world-class technology businesses can be built and scaled on the continent. While the US remains the dominant force in venture-backed software as home to the largest markets, the deepest capital pools and the most ambitious exit culture, a growing number of European founders are choosing to build at home. Edward Keelan is a partner at Octopus Ventures, one of Europe's largest and most active venture capital firms, where he has spent over 16 years leading the B2B software and enterprise AI fund. His portfolio spans seed through CRC with a focus on European founders building in AI,

• 0:44Speaker 00

  vertical SaaS and enterprise software. This long-view experience gives him a rare perspective on what it takes to build enduring technology companies in Europe. In this episode, Edward joins Elena Boroda to discuss what separates great founders from the rest, how AI is reshaping the software landscape and threatening established players, the state of the European startup ecosystem and what it needs to compete globally, and what engineers and founders should be thinking about as the industry enters a new era. Elena Boroda focuses on GTM for developer tools and AI startups with experience in observability and building tools for MCP servers. She is based in Berlin.

• 1:39Speaker 01

  Welcome to Software Engineering Daily. Today's guest is Edward Keelan, a partner at Octopus Ventures. Great to have you on the pod, Edward.

• 1:49Speaker 02

  Yeah, thank you so much for having me. It's a real privilege to have been asked to be on the podcast, but also really nerve-wracking as well. I feel like, I don't know, a few people sort of frowning at VCs already and engineers wondering what it is that we actually do. So I'm, yeah, I'm slightly nervous because we're going into different worlds than I'm used to.

• 2:08Speaker 01

  I think you'll be great. We already had a short chat before. So for those who don't really know, Octopus Ventures, can you tell, give people a bit of background? You're a very active, one of the most active VC funds in Europe. You are also one of the largest VC funds in Europe and you deploy around like 270 million USD. So for you, it's in pounds, 200 million pounds a year because you're based in London. So tell us a bit about that. You've been there since 2008 and you've been leading the B2B software fund. Tell us about yourself, what got you into VC and what is Octopus about?

• 2:45Speaker 02

  Yeah, I won't cover all 18 years, otherwise that will probably take the entirety of the podcast and nobody needs to hear that. But yeah, so Octopus Ventures, we manage around about one and a half billion dollars. We're part of the Octopus Group. The Octopus Group is a B Corp and sort of our purpose is really to invest in the ideas, industries and people that are going to change the world for the better. So that was kind of the overarching ethos. We do that in all sorts of ways. Lots of people know us because part of the Octopus Group is Octopus Energy, which is the UK's largest energy supplier. Interestingly, we actually started as an investment company, not an energy company. So I've actually been working at Octopus for a lot longer than the energy company was set up, but it's been a huge success. And so many people know the brand for the energy company. But Octopus Ventures is completely separate to that. And as I say, we invest

• 3:30Speaker 02

  everywhere from sort of first check fund all the way through to Series C. And we do that across Europe and also Australasia as well. So we've got investments all over the world. My personal focus, so I look after the team that runs our software fund. So we have a, it used to be called a B2B software fund. We're sort of going through a kind of branding crisis. So we probably call ourselves B2B software and enterprise AI fund because most of what we do now is enterprise AI. It's a 600 million pound fund, lots of dry powder, super active. We're trying to do a deal every single month if we can and trying to find the best opportunities that are out there. So any engineers or founders out there that are looking to raise, I'd love to talk to you. We do everything from

• 4:12Speaker 02

  kind of late seed in my team through to Series C. So checks from sort of two to 20 million pounds.

• 4:18Speaker 01

  Fantastic. And where do you look for founders? Like, can anyone apply from anywhere in the world? Or are you geographically quite constrained?

• 4:26Speaker 02

  No, absolutely. Anyone can apply from anywhere in the world. I mean, for my fund in particular, really is partly because of the expertise we hold. We generally has a UK angle. So there has to be generally some sort of UK angle. It doesn't necessarily mean to say the head office, but where the companies are expanding into the UK and they've got UK employees and revenue. I think that's really where we're best positioned to help companies as well. So we do have companies in lots of other jurisdictions, but we do have this kind of prominence to the UK. But anybody can apply, please do. Probably get, I don't know, ten pitch checks a day. Love talking to founders, love finding out what's out there. And I don't know, sometimes I think VCs can seem like a bit of a black box, but like, you know, the most important part of our job is finding the best founders. Like, that is literally the most, you know,

• 5:08Speaker 02

  the point we can make our most critical decision is the point in which we invest. And so origination of founders is basically critical to being a good VC.

• 5:16Speaker 01

  And how do you define what is a best founder to you? You said it's all about finding the best founder.

• 5:22Speaker 02

  Yeah. And, you know, my, the human side of me really struggles with this because I'm not somebody that likes to judge other people. Especially on early judgments, I always find that really, it's a really weird one. In my outside of work life, I, I think I'm a very, I like to hope I'm a very non judgmental person. But then obviously in my, my working life, that's kind of part of the gig. So for me, there's kind of a number of things. I think number one is like, why this founder for this problem? You know, why is this founder the right person to solve this problem? I think that's a really interesting question to ask. Number two, maybe the most important of all of them. Do I think they'll motivate both employees and customers? And a lot of the time, that motivation comes from their ability to easily explain things.

• 6:04Speaker 02

  If I think back to like my worst investments I've made, there's probably where a founder has come across so bright and so intelligent and throws tons of stuff at me. And I'm like, I don't understand what this company does, but like that guy or girl clearly knows more than I do. And therefore I'm going to back them. I only to find that the trouble is no customers understand what they do. And the employees don't necessarily fully understand the direction they're going in. So. For me, communication, they don't have to be like the kind of archetype founder that's sort of all extroversion. You know, you can have very introverted founders, but with a very clear purpose and explanation of what they're trying to do and the problem that they're trying to solve. Because if they can't explain it to me, chances are they're not going to be able to explain it to their customers and future employees.

• 6:46Speaker 02

  And then just like my final point would be somebody that I can trust. I like to think that, you know, for my founders, if things go wrong, I'm the first call they make, not the last. You know, that's the relationship that I want with them because the worst thing is is where you've got a founder who who basically is trying to sugarcoat everything to you. Because as an investor, you can't then try and solve those issues.

• 7:05Speaker 01

  And are there any specificities, anything that is even different when it comes to technical founders, where you think this makes them the best?

• 7:15Speaker 02

  I think as always, we like to put things in boxes, if that makes sense. So like, we like to say, this is a sales type founder, this is a finance type founder, this is a technical type founder. And some of the best commercial founders that I've come across are are actually very, very technical. Because they deeply understand the engineering problems potentially they're trying to solve and and what they're trying to do for engineering teams potentially. So I'm always careful not to kind of box off them. But it is true, and it's a bit cliche, that with an engineering founder, they're obsessed about product and not thinking about the commercial opportunity. That can be really problematic. And we see that quite a lot, especially with kind of university spin out founders where then maybe there is a research product, they're trying to do something really crazy with.

• 7:57Speaker 02

  I don't know, we got it a lot, actually got it, we got it a lot during the metaverse kind of phase, I feel like. But there's loads of people that were doing lots of research around how the metaverse can be used for this and that. And you're like, the practical application of that and actually whether that's solving a real problem. I think is generally where you've, you, technical founders struggle. They start from the product and not the actual problem. I do think that however, it goes in waves. And right now we are in an engineering uptick wave. It's the engineers who are dictating. To the people, if you like, the wider people, like what the problems are that are now going to be solved by A I and and how those application layer products can really kind of change the way in which we work.

• 8:37Speaker 02

  I think it's almost a very weird world. It's a very different world to say the world of vertical SaaS, which we were in just five years ago. Where actually, engineering was not necessarily the the game changing thing. Because everyone knew what a vertical SaaS solution looked like, knew how to develop one, et cetera. We're in a very different world now where the premium on not just engineers to build, but engineers to help the rest of us understand. Means that, you know, if you're not backing founders that have a strong leaning toward product and the kind of more technical side of the development, then you're gonna lose quickly.

• 9:13Speaker 01

  Um hum. And are such founders and engineers ample in Europe? Like, do you have enough of them? Or is there a shortage of certain types of founders, engineers that you, like, technical people, either as founders?

• 9:29Speaker 02

  I don't really have the stats on that, but I haven't necessarily seen that. You know, I wouldn't turn around and go, the biggest problem here is that we don't have great universities and we don't have great research. I think where the UK, and I'll talk more for the UK, are probably less tapped into the kind of wider European ecosystem. But where the UK, I think, has failed with universities is that, and again, this is probably a whole podcast of thoughts, so I won't go too deep. Where we, I think we have failed in the past is we have not been able to take university spinouts and really kind of develop them into super large companies, other than in sort of maybe deep technical stuff like biotech. I think what we've seen with this wave of A I is it's really pushing universities to say,

• 10:13Speaker 02

  actually, it's not good enough to just have these little incubators where people do some research and we get one or two firms that specialize in university spinouts. Like the universities now. The students are coming out there going, no, I want to build the next application layer for health tech or for manufacturing or for whatever. And the universities are, I've really seen the step change over the last year. The companies coming out are much more commercially minded with this technology than historically, as I said, which would, they would be more like deep researchy based type companies. Universities like Oxford and U C L and Cambridge are just seeing like much more of a, so I think we absolutely have the people. I think.

• 10:51Speaker 02

  What we really need is the flywheel. And by that, it's amazing to see how many founders come out of other great companies. And not necessarily even come out of, but see, visualize other great companies. So if you look at, and this is where like Sweden is like absolutely. I mean, Spotify, I think not necessarily through the Spotify teams, but just having Spotify. Has, I think, inspired Lagora and Loveable, you know, it's given those founders like, just because I'm in Sweden, doesn't mean to say that I ain't gonna build. Something like Spotify or something like Klarna, like really game changing companies. And we really need them, like we really, really need those kind of foundation businesses.

• 11:33Speaker 02

  I always sort of talk about, I think Scotland's really interesting. They, obviously Skyscanner comes out of Scotland, everything. When you talk about Scottish entrepreneurship in tech, in tech, like often points to the Skyscanner, kind of like what happened there. Yeah, I really hope that through the success of Revolut and Monzo and other great sort of UK based businesses, that we can hold and frame those ones. Because that's what's going to inspire the next layer as a founder is either coming from those leadership teams or actually just saying if they can do it, why can't I?

• 12:03Speaker 01

  Where do you see kind of the hubs of like really this engineering talent problem? Like if you want to speak, obviously about Europe, feel free to or just point to the UK.

• 12:13Speaker 02

  Yeah, it's everywhere. I wouldn't necessarily say, some of our companies have got fantastic development teams across Eastern Europe. But that's been a trend for a long time. I think the nearshoring, obviously with what's going on more geopolitically, that has become more difficult. But engineering talent is everywhere. We've got a lot at the moment in Portugal and Spain. Like, I, I wouldn't, if I think, I wouldn't say there's like, oh my goodness. If you want the great engineers, they're all coming out of whatever. So yeah, I, I couldn't be specific. And obviously within the UK, it's the normal hubs of engineering, the triangle.

• 12:47Speaker 01

  It's quite distributed, right, when it comes to engineering talent, so it can be anywhere. And would you also say it's possible to build a company from anywhere in the UK, in Europe?

• 12:57Speaker 02

  Yeah.

• 12:58Speaker 01

  Or do you have to go and move to London and you have to move to Paris and you have to move to maybe Berlin?

• 13:06Speaker 02

  Well, I think everyone should always move to London because that's where we are. So please come and join us. Look, I can only talk about my experience and how I've invested. So I'm careful to not frame this in a kind of like a researched way. Like from my research, I find this, but I'm just talking from like personal experience really. But from my personal experience is that London is a great place to start companies. Not necessarily because that's where the engineering talent is, because I actually think you can have the engineering talent. You can start the companies anywhere, but like it or lump it, London is in the English language. And the biggest markets in the world are in the English language. There's not a huge call for like people building companies in the UK saying what we really need to do is get ourselves into this French speaking world.

• 13:49Speaker 02

  They want to keep in the English speaking world and that ease is is just that much easier when you're in London. So does London benefit from engineering? No, I wouldn't say so. Not that I think it's got particularly better engineering talent. But does it have other tangential things that are really important and why it's such a great place? Yeah. And it's a fantastic stepping stone over to the large US market, which is kind of the mecca of all software companies, really. You know, there's a reason why the likes of Legora are throwing the kitchen sink at Eleven Labs. Whoever it is throwing the kitchen sink at getting into that large US market, because that's where you build really big businesses.

• 14:25Speaker 01

  When you look at where is the constraint, you said in Europe, the constraint is not necessarily when it comes to technical talent. Is there a constraint when it comes to kind of capital density? Is there a constraint when it comes to the speed of iteration in some way or form?

• 14:43Speaker 02

  Might be a bit controversial in this. I don't actually think there is a particular shortage in capital in Europe. Great companies will get funded. Just look at the big companies that have been built, like the Legoras and Eleven Labs. And they're not struggling for funding. So I think the biggest problem within Europe is our ability to take. Early stage kind of startups that are scaling, keep them in Europe and then build them out bigger. And turn them into the next Spotify, you know, and actually, I think that is changing. I think companies like Lovable, for example, would have been like in years gone by, may well have been sold. Like very, very quickly to a big American, you know, anthropic or something. And I think it's our ability in Europe to hold on to the ownership of the companies that we can then.

• 15:27Speaker 02

  Build them much, much bigger such that they build those beacons for other entrepreneurs to not sell early to carry on. Clearly, there are structural disadvantages in Europe around the fact we don't own large language models. And we don't own the chip manufacturers and we don't do these things, but I, I don't think. Necessarily that should prevent us from building some really big companies. So I don't know if that's a good answer, but I don't think it's a capital issue. I think it's a kind of ambition to build really big.

• 15:56Speaker 01

  So you see the constraint with the ambition to build big.

• 15:59Speaker 02

  Yeah.

• 16:00Speaker 01

  At times.

• 16:00Speaker 02

  And risk appetite. And, and to, to keep following that risk appetite, to keep pushing, like, once you get to a certain size, I think we probably. And again, I don't have the data to hand, but I think we probably, European founders will tend to exit much quicker than, say, a US founder.

• 16:16Speaker 01

  And that's a cultural thing, that's a cultural thing.

• 16:19Speaker 02

  I think so, yeah.

• 16:19Speaker 01

  Confident.

• 16:20Speaker 02

  Maybe, maybe, I don't know, but I mean, if you just, you know, you look at the big, the big seven, they're all US companies. There's no European companies in that big seven. We haven't built those. And so there is obviously something going on because I don't think it's talent, maybe it's the way in which we kind of spread around Europe. There is too many constraints, regulations, I don't know, but actually I think there is a bit of a cultural thing going on there as well. And I think that's changing. And I, as I said, I really think that's changing. I really feel like we're seeing a step change. I think there's a desire for European founders now to build much bigger. And we're seeing that.

• 16:52Speaker 01

  So that's kind of interesting because like it seems that AI is really accelerating, obviously how fast you can build something. What team size you need to build something in engineering and yeah, that also fuels ambition.

• 17:07Speaker 02

  Yeah, absolutely. I I say I've I've been around for a while, because I'm quite old. I mean, I was in San Francisco during the first dot com. And the old saying that history doesn't repeat necessarily, but we can kind of learn from it, it replicates. And so the dot com boom was very, very different to the current A I boom, because in the dot com boom. I was there, there was loads of crazy companies that were never gonna, like, they were never revenue generating, and the unit economics made zero sense and all of this good stuff. So when the money stopped, the companies all stopped because they didn't generate any revenue. The A I boom is completely different. It's completely different. These companies are generating revenue really quick. We're investing into companies.

• 17:45Speaker 02

  You know, likes of Definely, Sales Ape, and Heals Good, and like, they are, they're real revenue generation, and it is growing rapidly. So it's like, these are not companies that are just kind of in hope value, you know, getting eyeballs on things. They're actually generating real tangible revenues. If I look back over the last ten years of like hype cycles around the metaverse and hype cycles around crypto and blockchain, none of those felt that exciting, if I'm honest. It's not like, some people thought it was big, changing. I wasn't sure. Solutions looking for problems. That is not the case with A I. Like, this is an industrial cycle, generational, that is completely gonna change the game.

• 18:26Speaker 02

  I think, and I think we very much believe that because we're seeing it play out just very, very quickly. And I think the people and the founders that are leading into that, that brings huge amounts of opportunity because there's tons of stuff that hasn't been invented yet, you know? And so take a blockchain, B M blockchain kind of technology, everyone's trying to, I'm gonna build a blockchain for, oh, don't know, supply chain management, and do we need that? I don't know, maybe we do. It's like with A I, it's like, I'm gonna completely change the way in which you create presentation materials, or I'm gonna completely change the way in which you test products. Is it just like, everything is being recreated again, and therefore, as a European ecosystem, it's on us to make sure that we're at the forefront of that, that we're absolutely building into it, and we're we're the ones as well that are building it.

• 19:12Speaker 02

  And this is moving so fast, by the way, that if we haven't started doing it already, then we're too late. Our biggest fear, probably our biggest fear as a team is like, and we've been investing in A I pretty hard now for a couple of years, but like, are we too late? Have we missed the boat already? Which might surprise some people, but that's just the kind of way we feel.

• 19:29Speaker 01

  Is that also like, let's say if you are looking at founders or very successful like engineering hires at companies, at successful companies that you invest in, do you want people who are AI native? Is that something you really, really expect people to be? And what would that actually mean?

• 19:47Speaker 02

  Yeah, I think so. You know, I can't be, like, obviously, given the confidentiality, I can't be specific about the companies, but like, we've literally removed a CTO from one company who was probably more of the old school, an old school managerial type CTO and moved somebody who is absolutely at the forefront of the world of AI, because it's like, if that is not where your brain is, that's not what you're thinking about, then you're gonna very quickly lose. You know, you're gonna, you're gonna be overtaken. I mean, the way in which we see the competition of AI, I can go into if you want, but like, if you're an existing software company and you are not pivoting and turning and thinking about this, you will be destroyed quite quickly, one way or another.

• 20:26Speaker 01

  So there has been what public markets called soft market, which basically meant that there was like many public companies whose stocks crashed because of, you know, Claude with new tools, tools came out. And we can also go into the details, so that actually happened to Monday dot com. So what happened is that was basically back in February where.

• 20:50Speaker 02

  It was, it was like ancient history. It happened like two weeks ago and it's like, everyone's now like, oh, that's two years ago. What's happened today?

• 20:56Speaker 01

  That is already ancient history. That was really, really interesting. That really spooked kind of also this AI is eating software narrative. And separately, there was a CNBC reporters with zero coding experience and used Claude code to build a working Monday dot com clone in under an hour for very little money in compute credits. It was like five to fifteen dollars. And that went viral, obviously, and hammered the stock even further. Yeah. So it's kind of interesting to look at that and is actually AI eating software and how does it affect your investment thesis?

• 21:34Speaker 02

  Yeah, I mean, this is literally our conversation, probably every other hour of the day. We flip into this conversation and trying to work out, can I get what software is safe out there is the big topic of the day when we're looking at, we're working at stuff. I mean, I, my hypothesis changes on a daily basis about this, so I'll be, I'll be careful. But if it's okay, I'll sort of double click slightly into this. It might take a couple of minutes to sort of explain my thinking, but I think first of all, you can sort of split the world into things that were built pre-AI, you know, pre the big twenty two chat G P T bang and A I native software. I think if we're looking at A I native software, and generally when we're thinking about new investment, we're talking about A I native software. That really, the big question for me there is can you replicate that software using an

• 22:19Speaker 02

  L L M? And that's, you know, like Anthropic go, hey, we've got a new legal plugin. All of a sudden, you know, legal tech, even native A I legal tech, unless it has a very specific purpose and we're invested in the finally a legal tech tool, which we believe does have that very specific purpose that can't be replicated by L L M's. But the generic ones, there's going to be a huge amount of pressure there. It's like, why do I need to buy Harvey if I can just get Anthropic's plugin to do this at a tiny fraction of the price? And I liken that to the kind of the spell checker world of software, like back in the eighties, it was like thirty five spell checking companies. And then we're just put a spell checker plugin in and all the spell checking companies died. So there's the same sort of thing could repeat there. But A I native companies that have a very specific purpose that aren't going to be disrupted

• 23:03Speaker 02

  by the L L M is that makes much more sense. That's kind of like where we're thinking we're going to invest into. So we just did invest into heals good, for example, which is using A I to disintermediate agency from healthcare. It's like Anthropic is not likely to build the application layer to disintermediate healthcare resourcing. It's just too verticalized for them. That's A I native. If you then think about the older softwares, the Mondays dot com, I think they fall into some broad buckets of companies where you go, are you kind of an old school creation tool? Are you building stuff on a platform manually? They're dead. I mean, creation tools are dead. Loveable, Replit, they're building products, A I native tools like that. They're just, they're just building product really quickly. And I think those creation tools are going to

• 23:49Speaker 02

  Really struggle if they can't switch and and all of this is if they cannot then switch themselves over. And they can't tilt into that kind of A I world. You've then got like discover what I'd call discovery tools. So things like data analytics tools or penetration testing tools and things like that. I think that all becomes about the data. Like if you're a discovery tool that really owns its own data and owns it has that flywheel, then you you may be safe. But if you're just picking up third party data from here, there and everywhere and then presenting it to people. Or you're that type of thing, then I think you're in trouble because it's like. A I agents can go and get that data and they can present it much quicker than you. And then the sort of the final category and the one that's more complex would be around system of record and workflow.

• 24:33Speaker 02

  And then with system of record and workflow, so I'm talking about your kind of vertical S A S E R P systems, your C R Ms, those types of products, your accounting software or whatever it might be. It's like, first of all, can your workflow tool be easily built by A I? You might say this is like a monday dot com problem. And it's like, yes, it can. Like A I can just build what you've got. You're stuffed, you know, like you're going to be in trouble because companies will probably build a lot of that type of basic workflow stuff themselves using A I because why wouldn't you? It's free. You don't have to have headcount. And then you get on to like, if you're a system of record, will there be naturally an A I native competitor? And if if you're a workflow management tool or a system of record where actually right now, there isn't one, there isn't any A I native competitor.

• 25:17Speaker 02

  Maybe it's an accounting solution or something like that. You're probably all right for a time.

• 25:22Speaker 01

  You recently said, growth at all cost is out. Metrics like profitability, burn multiples, gross margins and rule of forty now matter immensely. Can you explain what you mean? And what is a change for who gets funded for engineers? Is that again driven by A I? That it's really about growth at all costs being out?

• 25:42Speaker 02

  I don't know. When I said that, it's probably like a few weeks ago, which makes it as as we've talked about immediately out of date. Right now, what we're getting, we we are in a massively polarized world. So you've got A I native businesses that are growing at all costs still and nobody cares about buying multiples. No one cares about that stuff. It's like if you're growing super fast. And the funny one is no one cares about gross margin anymore. I listen to podcasts and listen to hear about businesses that are growing super quick. They're the darlings of European tech. I won't name them. And then they're like, oh, what's your gross margin? And they're like, well, I'm happy to tell you my top line A R metrics, but I'm not going to tell you what my gross margin is. It's like, people just don't care.

• 26:20Speaker 02

  It's like, at some point, we'll work out the token costs and whatever, but like, that kind of scares me. I'm probably not brave enough as an investor to just dismiss the fact that you're losing money every time you win a customer. So yeah, you've got this world where these types of companies over here will get funded on the basis of their growth and the burn and all the rest of it is just not important. On the other side is, if you're not kind of hyper growth, if you're not super growth, then you're still in a world where metrics really matter. So if you are a kind of vertical SaaS solution that's leaned slightly into AI, you know, you've got a bit of an AI story, probably still fundable. But if you're like growing a hundred percent a year, so take a company going from a million to two million A R R,

• 26:59Speaker 02

  annual recurring revenues, sorry, so talking financial terms, the yeah, million pounds worth of annual recurring revenues, two million pounds worth of annual recurring revenue. And you've burned ten million pounds to get there. So you're like, you're at what they call a ten X burn multiple. You're not getting funded. You're like, you're not getting funded. You're not growing quick enough as an AI native company. You're still in that kind of vertical SaaS world. And therefore you need to basically have a burn multiple of like one or, you know, maybe one and a half. So you're basically saying like, if you're adding a million pounds worth of A R R, most you can really afford to burn is a million pounds at this stage. And you might get away with that. And even that's high. I think just, and I don't know if going off on a tangent here, but one thing that's quite interesting about the whole like death of software and SaaS topless or whatever they called it.

• 27:42Speaker 02

  There's so many factors that are coming into this. So retention for a lot of these products is still very high and it will remain high for a while. But seat count is going down. So because like people are hiring less people and therefore they require less seats. So on one, there's like revenue pressures coming down on these companies as a seat count comes down and growth is harder as. But on the other side as well, like you see with Block, I mean, like people are firing people, like the numbers of people that are required to be in these companies from the, you know, sales and marketing and data analyst teams and all this like are coming down as well. So theoretically, EBITDA margins should also be coming up. And so when you're looking at the kind of earlier stage versions of these companies, you're like, actually, this is not twenty twenty.

• 28:25Speaker 02

  It's no good to just hire like endless engineers anymore. Why are you hiring all these engineers? Like, what is wrong with your code? Because like, can't you just create it using any of the many A I code generation tools? You should be much more efficient. So we're expecting companies as well just to be efficient, not only because burn matters, but also because the tools are there to be more efficient. And if you aren't, then that's a question for management. It's like, what are all these people doing?

• 28:51Speaker 01

  That's obviously something many corporates are starting to ask as a question, right?

• 28:56Speaker 02

  Yeah, definitely. And the people that are getting really impacted first are the the new hires and usually the young people. I I I'm obviously slightly at the forefront of this movement and at the way in which the technology is coming in. I am very, very concerned from a social point of view is like graduates are struggling to get jobs. Like the number of jobs for graduates has gone down by twenty five percent over the last twelve months. That number is just going to increase because I think companies, large companies are going, we don't want to hire. We don't want to hire graduates. Maybe not because today we're ready with all of our A I tooling. But in twelve months, twenty four months, we need to be more ready with our A I tooling. And if we're not, I know that our competitors will be.

• 29:37Speaker 02

  And therefore, if you're at the top of an organisation, making a strategic choice about whether to hire your next batch of graduate engineers, you might be like, well, we'll just part that decision for a while and see if this A I tooling can do it for us, because what we don't want to do is hire them all and build up that cost base and then have to somehow row back from it. So, yeah, you know, large companies are absolutely making those decisions. But at the moment, I think it comes at the entry level. And I think that's really hard, you know, so so I think I don't know what we, you know, how do we describe that to our young people? And people have have spent the last ten years learning how to be a computer scientist, like some of them, the top ones, the ones that are like at the fourth, at the absolute forefront, they're going to get paid mega bucks. Those ones are going to like zoom into the best positions because of such a race for A I talent.

• 30:20Speaker 02

  But the bottom fifty percent, that's going to be much harder.

• 30:23Speaker 01

  Where is Europe in the A I race? So we are always talking about like U S versus China at the, let's say, kind of layer where we have lovable, we have Licora and companies like that. Can Europe win? And you also said, like, the talent is here, the capital is also available. Can actually Europe win? And what does winning actually mean?

• 30:48Speaker 02

  Yeah, I was actually gonna push that question back to you. It's like, what does win mean? What do we want to do by meaning win? I don't, I don't think society necessarily wins because, like, does American society win? Because Elon Musk is a trillionaire and because they've built these massive companies. I don't think that's great for society. And I, I think there's disparity between wealth is grown like tenfold plus over the last decade. I mean, it's crazy. No one's talking about it. I don't think America's winning in that in for wider society. If the, if the winning is just building the big companies, I think what's important is we don't get left behind and that we build our own great companies. And we do that in such a way that we lean in to what we're good at. And I do think the geopolitical world means that

• 31:28Speaker 02

  actually, Europe has an opportunity. If we can get together, we can work together, we can share talent, we can share resource. Obviously, I'm sat in the U K here, so people might be throwing rocks at me. But, you know, if we can do that, we have a real opportunity because I think there's a, there's a category of talent that would prefer to be here. I mean, I don't know. If you're an engineering talent, do you want to go and work in the U S right now? I'd be really careful, probably.

• 31:50Speaker 01

  Well, it really depends where, right? If it was in New York or San Francisco, potentially, yes, because still it's just so incredibly interesting to spend time there sometimes, right? Just to see like the raw ambition people have.

• 32:05Speaker 02

  Yeah, I mean, I love New York and San Francisco, having, having lived in San Francisco. So I'm just meaning more like, I think there is a moment in time for Europe right now. And I'm seeing us start to capture it. I really am. I truly think there has been a step change. Project Europe and as I say, the way in which the universities are starting to actually kind of get their act together. I just, I think there is a, a moment in time where we can say, actually, and, and I would say Sweden has done this better than anyone right now. I mean, is the, the, the evidence is there culturally, they seem to have like absolutely got it. They seem to be doing it. But yeah, we've got that moment in time right now. And I really hope we lean into it. And I think we will. I actually genuinely think we will. I think it's gonna be a really exciting time and I don't. The question I flip around on is whether Europe should really get their act together and build its own

• 32:49Speaker 02

  super large language model. Like, should we be doing that? I don't, I don't know. I know you're probably better positioned than I am to answer that question, but just a, almost more as a defensive move, but then building technology for defensive moves isn't probably the right thing to do either, so who knows?

• 33:04Speaker 01

  Hmm. We just talked about Europe also building like great companies and part of that is also having just the environment to do so, the political and the business environment to do so. And this year, Fonder Lyon, who is the president of the European Commission, she's just announced EU Inc. Quite interestingly, that was initiated by the ex-CTO of Product Hunt, Andreas Klinger. He's also a European person, has been campaigning for this really like a champion. So what it promises is a forty-eight hour incorporation across the whole block and standard ESOPs and it's just costs like a euro, which is a bit over a dollar. It would come in effect sometime in twenty twenty seven, so it's definitely still more than a year out till it

• 33:48Speaker 01

  becomes effective. Like, do you think that can actually change the engineering reality for people, the founding reality for people in Europe? Would it be relevant for the companies or solve problems for the companies you invest in?

• 34:02Speaker 02

  Yeah, I mean, absolutely. A hundred percent. The UK, one of the reasons the UK does really well at founding companies is because we have company law. I think our company law is pretty damn good, like model articles. You can found a company in the UK within an hour. I mean, like literally just go online. It's even better. You can start a company in the UK in an hour with a bank account. Tangentially, my children run happyfidgets.shop, which is not currently live. And we've got our little company set up and it's like, you know, because they they're really into their fidgets and they don't ask this whole other discussion. But the point being is like, to set up that company was literally open a tied bank account, register a company at the same time, you can start trading, you can start trading on the same day

• 34:44Speaker 02

  without going into which European countries, because I don't want to sort of like this on any specific European country. It can be a nightmare, an absolute nightmare. It's like costing hundreds of pounds. Some of them, you have to put tens of thousands of pounds into bank accounts. I mean, that is nuts. Say you get a university graduate that's come out of university, wants to start their own company. They're like, right, start your own company. You need to put twenty thousand pounds into a bank account. And by the way, you also need to go along physically and you need to get a notary to sit there and blah, blah, blah, blah. And then the company law is horrible. Every time you want to make changes, it's horrible. And yeah, we've really felt it across Europe, you know, where there are jurisdictions across Europe where we have really felt like, wow, not just on the founding of companies, but also on then

• 35:26Speaker 02

  when stuff happens, maybe especially when things go wrong. God, this is like treacle. Like, God, I am not like, I won't name the country, but it's like, we are never doing a business in that country again, because when things go wrong, it's just so archaic, the shareholder rights that they've got. And not only that, the way in which you have to, sometimes have to physically be there with all the shareholders to make, so yeah. Anything we can do here to make it so much easier to incorporate and unify companies would make a huge difference across Europe. I think we're quite lucky in the UK that we've kind of already have that.

• 35:58Speaker 01

  Super interesting, yeah. Amazing. Which constraints do you see beyond that that need to be fixed to really help Europe become really attractive for founders and really easy to scale companies too?

• 36:12Speaker 02

  So yeah, beyond the founding, and I think we've talked about it in large part. I don't know how to put this. I don't think we need to attract founders. There are loads of potentially incredible founders within Europe. So it's not like we're trying to attract the best talent. Like what we really need is we need to attract the best talent from China to come and start businesses in in Europe. No, no, it's here. It's here. It's ready. It's ready to go. I think what we need to do is build the institutions that encourage it and the universities, as we've talked about at length, and the organisations that really, really encourage those founders. I think there was somebody who was talking about something they're doing in France, which I think is really interesting. For example, if somebody wants to start a company, they will pay, and I don't know the rules, so I'm sort of picking up little bits, but in France, they're like,

• 36:54Speaker 02

  they are paying for accommodation and food costs of potential founders who wants to start companies as part of a programme to say, look, we know that actually it's really risky starting a company. You know, there's a lot of risk. You put your life out there, you're gonna spend huge amounts, hundreds and hundreds of hours, you're not gonna get paid very well. The gold at the end of the rainbow comes years and years down the line. It's really a passion that you must have. And so for a lot of people, they just don't wanna take the risk, you know, that it's like, I need to live. And so I think this idea that they've got in France have actually, I can't remember the name of the program, I'm sure you could. AI it and find out what it is, but is around like covering a lot of those living costs to make founding companies feel much more secure.

• 37:36Speaker 02

  And I think once we start to do that, then I think it becomes much easier. So and I do think it's a flywheel, I think, as hopefully some of these companies do start to get big, you know. I imagine lovable is gonna spout an amazing amount of new entrepreneurs, like, just like Fuse Energy started out of Revolut, that's an interesting company. And many, many others. So, yeah, I think we have to make entrepreneurship easy for people from all backgrounds.

• 38:03Speaker 01

  Does regulation slow down entrepreneurship in Europe? Does it slow down like engineering in Europe? I mean, you have to think of GDPR. There are many compliance issues that you might have with enterprise. There are many consumer rights that you might need to take into account when building. So does it slow down?

• 38:24Speaker 02

  Not that I've seen, to be honest. I wouldn't say that I've ever had a company that has said, oh, the biggest problem is is the regulations here, like. A lot of these regulations like GDPR are there to protect customers. They're not bad regulations, you know, they're there for a reason. I haven't seen it. In terms of engineering, and sorry, I'm gonna answer a different question. That's all right. But in terms of engineering, the biggest problem we have when we invest into a company is around engineering is where the engineering. Structures are potentially wrong and where a lot of the legacy ways of doing things create problems in the future. If I looked at, okay, what's been the biggest engineering issues that I've had in my companies versus regulation of that?

• 39:09Speaker 02

  The internal issues with the way in which the technology has been developed are way greater. Then, oh, we didn't comply to the right GDPR legislation, or we had this security issue, we had to report this. It's just, it's just like, you can hire people generally to do that stuff anyway. But like, I've had much more growing pains with engineering around things like monolithic codebases that have tons, you know, the amount of companies you invest into, you invest in them. Before you notice, spending two years refactoring everything, because actually the layers and layers of terrible coding on top of each other just mean that it's much more difficult. And, you know, the big crises we've had with companies like, I've had multiple exit processes fail, for example, because when you get under the bonnet, maybe that SaaS product is all stitched together and it kind of works, but actually

• 39:54Speaker 02

  people are like, no, that code is just not, there's too many risks within that code and how it's put together that I want it. So, yeah.

• 40:02Speaker 01

  Is that something you try to, because of the experience you've had, like with, as you said, exits failing because of that? Is that something you factor in earlier that you really double check, like the technical talent that is hired or that is senior in a growing company?

• 40:17Speaker 02

  I would think as a team, we've probably learned that. I think as a team, we've probably learned to double down on it. If I had to frame it, it was like, you know, technical due diligence used to be a bit of a tick box exercise. It's like, has the technical DD person looked at this and said, yes, that's a technology product? If they have, tick it. And now it's like, what's actually coming out of those reports? What are the actual risks and how real are they? And we have, have you seen this pattern of those risks before? Like, can we start to understand that? So, yeah, I would say we've matured as a team to double down on the quality of engineering. And a lot of this happened during twenty one, twenty two, when people just could not hire enough engineers. Like, we'd be going around, and actually, I hope I don't speak out of town, but I think what happened is a lot of technical leaders just didn't have much experience because CTOs were getting paid more than CEOs and

• 41:00Speaker 02

  everybody that was, has a senior engineer for a year, became a CTO the following year. And, and we just saw a lot of, I think, product probably not necessarily built in the best way, maybe as well. And also a lot of money spent, probably not building the greatest product, but in that little crazy period where everyone had hired an engineer. So, yeah, I think because of that, certainly over the last five years, we, we spend a lot of time thinking about the scalability of the software and the history of it. Has it been put together in such a way that can continue to scale that we're not just going to spend the next two years refactoring something? And like, that's not where we want to invest. We're not trying to invest in rebuilding products that are already built. We're trying to invest the growth of those products.

• 41:39Speaker 01

  So following up on that is technical debt. So basically the cost you pay for taking shortcuts. Is it perceived differently in European companies than it is perceived elsewhere? Or in the US specifically?

• 41:53Speaker 02

  Yeah, I wouldn't have a good answer on that. Maybe it's a maturity of market thing. I don't know. Maybe, you know, the US VC market, investor market is probably had a longer history, maybe therefore that they have a better understanding of it, I can say. But certainly for us now, like, technical debt is probably a much bigger red flag than before. Interestingly, in the current wave, this current wave over the last few years, it's like the technical debt isn't such an issue for a lot of the companies we're backing right now because they've literally built it over the last six months to twelve months. So when you're investing in a vertical SaaS solution that's been around for seven, eight years, that's very different to a native AI company that's been around for six, twelve months. There you have very different technical questions. And that then becomes about scalability and, you know, risks of the models that companies are using.

• 42:38Speaker 02

  Those questions are much more prevalent and, and actually the discussions with the technical leaders, the CTO, the heads of engineering to try and understand where their mindset is.

• 42:47Speaker 01

  How does founder-led go-to-market intersect with engineering decisions? So let's say you still have founder-led growth. And then the founder is kind of like in the position of being the product owner and being the salesperson at the same time. And that can kind of create quite a lot of pressure on engineering to go and build something, even if it's maybe not one hundred percent validated. So, yeah.

• 43:13Speaker 02

  Yeah, I've written a lot about founder-led sales to team-led sales and product market. Well, something I've classed as like losing product market fit happens a lot in founder-led sales where product teams built a great product, founder's selling it, and then because they're doing well, some, like, you're a health tech company, and then all of a sudden a financial big bank comes up and says, I know you do healthcare, but we'd love to take your solution and put it into the finance market. And the founder's like, jeez, that's another half a million pounds. And the product team are like, well, hang on a sec. Everything that we built has been directed at healthcare professionals, not at bankers. And you can very, very quickly lose product market fit. And it's like a very disciplined CEO. That stays on course and the product teams that go with it. And as I said, I so I think a lot about that, like I am very, very nervous about companies that have

• 43:57Speaker 02

  that are trying to boil the ocean and serve many, many sectors and geographies early on. Cause I think that what happens is you end up with a frank, what I'd call a Frankenstein product, you'd end up with a bit of product over here, a bit of product over there. And rather than having something scalable, you end up with something that actually now you need umpteen different people to maintain various bits for various customers. And that is a nightmare place to end up as a company, as a tech company. And as I said, there's this pendulum that goes on where you get like, you know, back in the dot com area, it was all about engineers. Because to build websites, you needed like super duper technical expertise. And then by, I just read a book from Julie Wainwright about the real real and she was like, you know, she was at pets dot com in two thousand, it was all about engineering.

• 44:38Speaker 02

  By sort of twenty eighteen, when she started the real real, it was all about, actually, engineering wasn't that important. Because anyone could build a website, it was all about distribution and blah, blah, blah. I think that pendulum then now has swung again, because you're now in the points like it's the engineers and it's the product people that know what is possible. And what solutions are to problems are doable and how it can be used and how it can be applied. For the next five years, I think engineering is going to have a huge role, huge, huge role. In actually how the go to market function works within companies, because it's it's only the engineers that are going to really understand what is possible. Which is why I say we're probably, you know, we over index on that as we're now looking at potential future investments. Difficult for founders, you know, difficult for founders to how that works.

• 45:24Speaker 01

  Edward, if you had a friend who had a choice to make and an engineering friend and he's he or she is choosing or they are choosing between a well-funded European series B and a US offer with a higher salary. What might they not be thinking about that they should be thinking about when making that decision?

• 45:45Speaker 02

  Oh, I mean, I would have to get to know the friend better first. There's a lot in that, and I think it depends so much on their personality of who they are and what they're looking for. Like, the US world of startups is, as you say, is unbelievably exciting. It's unbelievably brutal. Like, you go to the States, you start in San Francisco, join a startup, six months later, they've run out of funding, and you've got two weeks' notice and see you later. You'd think culturally the European startup is probably much more secure in terms of job security. I would like to hope that more and more engineers will start staying in Europe and will want to build in Europe and will want to see us build the next great seven. Maybe not the next great seven companies, maybe that's a silly ideal, but, you know,

• 46:29Speaker 02

  the great companies that will continue to spawn other great companies again. That is my hope, and I truly believe that's going to happen. So I would encourage them to stay in Europe for that reason.

• 46:38Speaker 01

  Yeah, thank you for the conversation, Edward.