Plural Partner, Taavet Hinrikus: Why Founders Will Realise Multi-Stage Funds Damage Seed Rounds

1. 0:00 – 3:27

   Intro

   1. THTaavet Hinrikus0:00

      Do not be that asshole. (whoosh) There are plenty of stories out there of respectable VCs not picking up the phone during the bad times. (whoosh) We are a commoditized, uh, product, Harry. VCs are a commodity. You can press 'em down. Fundamentally, the idea of collecting a 2, 2 and a half percent management fee does not really make sense. It does not align us with the outcomes. If we can't imagine 100X, we should not be entertaining this idea of this deal. (upbeat music)

   2. HSHarry Stebbings0:26

      Ready to go? (clicking) Taavo, dude, I'm so excited for this. I've wanted to make this one happen for years, so thank you so much for joining me.

   3. THTaavet Hinrikus0:45

      Finally, I'm so glad to be here.

   4. HSHarry Stebbings0:46

      Well, dude, the pleasure is all mine. Now, I want to start before Plural. You were a prolific angel. Can you just start on the investing career there, how it went, whether you liked it, and the transition to Plural?

   5. THTaavet Hinrikus0:59

      So I made my first angel investment probably about 20 years ago, and I think, you know, through the years of building, building Wise and still working at Skype, I was like, I met other people who were building businesses. I was excited about what they were doing. I wanted to be part of the journey and wrote the small an- angel ticket. I went into overdrive once I stopped running Wise, doing 30, 40, 50 deals a year. That was fun, you know, but I think it was... It started feeling to me a little bit Wall Street-esque, high-speed deployment. I think it's been... it was a great portfolio strategy, I think the portfolio has done really well, but it felt it wasn't, it wasn't very kind of mission-aligned. I thought there is something more that can be done, and that's kind of was the beginning of thinking, "Hey, we should start Plural. We should really think about getting founders who have scar tissue from building companies to become investors."

   6. HSHarry Stebbings1:55

      What was the single best investment from that period?

   7. THTaavet Hinrikus1:58

      So one of the things I, I missed out on investing in Bolt's seed round. I was too busy building, uh, building Wise, but then, a couple years later, I was really impressed with Marcus, and I spent a bunch of time, and I spent a lot of my limited liquidity buying up secondaries in, in Bolt in, like, 2017.

   8. HSHarry Stebbings2:19

      Love that. I mean, Marcus is fantastic, and what a great story. Um, I just want to start, then, with a core question, which is, you said there about it felt a little bit like Wall Street. That kind of hit when you said it, because it made me think of Doug Leone. He said on the show to me that venture has turned from a boutique cottage industry into a commoditized, um, high-volume industry. Do you agree with that transition from boutique community to high-volume commoditized industry?

   9. THTaavet Hinrikus2:52

      I think a lot of that rings a bell, but I think we need to unpack that a little bit more. I think, you know, it's very different if you're talking about deploying big checks in mid or late stage. It's very different if you're doing high-speed investing in early stage, kind of what I did as an angel. It's very different to what we do at Plural, which is backing the most ambitious founders, and sometimes there's no one else who wants to back them. I think we need to unpack this into different parts of the venture ecosystem, and different parts, I think, are going through different journeys.

2. 3:27 – 9:53

   VCs are Spreadsheet Monkeys

   1. THTaavet Hinrikus3:27

   2. HSHarry Stebbings3:27

      You said before... (laughs) I saw this, and I was like, "This is just too good not to start with it." You said VCs are spreadsheet monkeys who have no idea how to run a business. Um... (laughs)

   3. THTaavet Hinrikus3:39

      (laughs)

   4. HSHarry Stebbings3:39

      Can you unpack that for me, Taavo?

   5. THTaavet Hinrikus3:41

      I think what I meant by this is that if you are looking at a mid-stage SaaS company, consumer company, where all you need to do is stack up the cohort curves, take away the CAC, multiply by LTV, and then pay a very high price to win the deal, that is not very exciting to me, and that's what I mean by spreadsheet monkeys. You know, I think... But if you're talking about early stage, when you're really looking, looking the founder deep in the eye, trying to figure out why is he doing it, what is his unfair advantage to build a generational business, I think that's very different. And there's su- some things that I, you know, I've said many times is that if you look at the European landscape, majority, vast majority of the European GPs have not spent a single day working in a real company. They've worked in consulting firms, banks, but they haven't worked in a real operating company, and I think the scar tissue you have from working in an operating company or, even more, the scar tissue you have from building, being the founder, being the CEO, is very different.

   6. HSHarry Stebbings4:55

      There's two elements that I want to unpack there, the first you said about kind of the movement away from the spreadsheet investing. I had Nabil from Spark on the show, who has made some great investments recently in your Granolas but also your Anthropics of the world, and he said that we're actually leaving that era, that that predictable SaaS growth era is over. You see companies like Lovable, Bolt, Makor, Mid- Midjourney, you name it, where revenue trajectories are unparalleled, and that SaaS predictability era is over. Do you agree that the era of, like, spreadsheet investing and predictable SaaS growth is over, and we're now in this unbelievably unpredictable time?

   7. THTaavet Hinrikus5:31

      So there is a lot more unpredictability, but I think there is still, you know, companies that are on a growth trajectory. I think they will look somewhat similar and, you know, more spreadsheet-like, and they need capital, and people need to give them capital. There's nothing wrong with that. But that's, you know, maybe even more similar to what public market investing used to look like long time ago. But I think if you're talking about trying to spot the next trillion-dollar company...... I think that's a lot harder, maybe even harder now than it was back in the days because, uh, competition is bigger in some sense. There are more people trying.

   8. HSHarry Stebbings6:10

      You mentioned the majority, I think, uh, you said before, is like 8% to 12% or whatever, that they actually had, like, operating experience in real companies in venture in Europe. How does just pre-service and working with founders, how does the mindset differ when comparing an investor who doesn't have any operating experience to someone who does have a lot of operating experience when it comes to actually investing and picking the companies to work with? How does that mindset differ, do you think?

   9. THTaavet Hinrikus6:39

      It's about the ability to assess the founders and think about what could this look like once we get to product-market fit. You know, one, when you have product-market fit, when you have metrics to look at, I think everything becomes a lot easier. So the challenge is really before that. And then a big part of it also, you know, we're, we're five partners at Plural. We've all built companies before. We've all raised money. We've, we've either raised money or tried to raise money from pretty much everybody who was around 10 years ago, the best of the best and the worst of the worst. And every time we were, we had the most insightful conversations with the people who had built their own companies. You know, we got... In the seed round, we got Max Levchin when we were raising money for TransferWise as it was called before, before Wise, you know. Then we raised money from Ben Horowitz. So, and same, same for my partners. We had the most insightful conversations with people who had been on operating journeys, and that's why we were always looking for people who were a couple years ahead of us. And we feel also now, you know, even so, like e- even now when we speak to founders, they really appreciate the fact that we've been in their shoes. Does it make us a better investor? Frankly, I don't know. Time will tell. But I think it makes us better partners for the people we invest in.

   10. HSHarry Stebbings8:09

       If you go through the different elements of venture, sourcing, selecting, securing, which is winning, and servicing, which is helping, do you think, if we take it one by one, the operating experience makes you better at sourcing, finding companies? Like, do more founders ch- like, go to you inbound because of the experience and the operating successes that you've had, or not?

   11. THTaavet Hinrikus8:35

       Frankly, I think venture is a brand game. So if you are a new fund, so brandy, so brand of z uh, so brand of ZGPs.

   12. HSHarry Stebbings8:45

       I would say that Plural have built a brand as being, you do deep, hard shit, (laughs) that most other people are like, "Oof, I, I don't understand that." Would you say that's a fair representation of the brand that you wanna build?

   13. THTaavet Hinrikus8:58

       We are looking to back the most ambitious entrepreneurs, whatever they're building. So we're looking at Proxima Fusion. That's maybe what you would call deep, hard shit. You know, then we look on the other side, we have T1on, which is using CCTV cameras to monitor patients. You know, it's, it's not that complicated, maybe. So I think, you know, we go the full, the full spectrum. But I think, you know, it's the character of the entrepreneur which maybe is the most, most important, you know. Approximately half of the founders we back are repeat entrepreneurs. You know, we look at Thorsten who built a gaming company, then he went into building a defense company, and he started Helsing in 2020 or 2021. So, you know, you need to have something which makes you tick differently to go building a defense company four, five years ago, before this became a hot topic.

3. 9:53 – 12:48

   Why Serial Entrepreneurs Are Better

   1. THTaavet Hinrikus9:53

   2. HSHarry Stebbings9:53

      Uh, think the world of Thorsten. Do you think... How do you feel about the value of serial entrepreneurship? Like, inherently, I find that I feel so much more comfortable backing a serial entrepreneur. There is so much learnt through the scar tissue of the mistakes you've made before. But then others say about the benefits of naivety of being a first-time founder.

   3. THTaavet Hinrikus10:11

      We love repeat founders. And when we look at the people we've backed and the ones we haven't backed, what stands out to us is that, so repeat founders, they typically go for a much bigger goal. You know, Thorsten did a gaming company, then he went into defense. And we can talk about Daniel Ek, uh, his first company was e-commerce, and then he took on a massive challenge of building Spotify. So we love the fact that these people, they go for a massively bigger goal next time. And again, I don't know if they have a bigger likelihood of success. But even if the likelihood of success is the same, the outcome is so much bigger, and they've learned a f- a fair few things on the jo- on the journey. Like, I don't think I would be that excited to back a founder who built fintech company one and then goes on to build fintech company two.

   4. HSHarry Stebbings11:03

      You know, I had Deleon on the show from Founders Fund, and he said, "If you are a repeat founder building, like, enterprise SaaS, you are doing a massive injustice." In this time, when we have income inequality like never before, climate challenges like never before, energy problems like never before, conflict and defense problems like never before, you really thought the second time you'd do payroll again?

   5. THTaavet Hinrikus11:25

      I mean, you know, I don't, uh... There are many great founders building great enterprise SaaS companies. But for me personally, it's pretty hard to get excited about the good old SaaS company.

   6. HSHarry Stebbings11:39

      I mean, I, I, I, I still get very excited. So that's the joy of this game, which is there's many different ways to do it.

   7. THTaavet Hinrikus11:44

      (laughs) We are complementary, Harry.

   8. HSHarry Stebbings11:46

      I, I, I agree totally. Do you think rich investors make better investors? I often think this with, like, a Sequoia of the world, because they are not scared about downside protection. They are upside focused. They are not scared of losing their jobs. They are not scared of not making money.... it is solely upside. Do you think rich investors make better investors?

   9. THTaavet Hinrikus12:09

      What I would ask about is, are they investing other people's money or their own money as well? I think there is one thing if you're a rich investor and you play with only other people's money, there's a different thing if you're a rich investor and you're investing your own money. So I think it's a question of alignment, and hopefully we'll talk more about this, but, like, we've thought deeply about alignment in venture and how to make sure that we are better aligned with both our LPs and our founders, and I think that to me is a core thing of, like, follow, look at what a person does with their own money, and I think that's kind of

4. 12:48 – 25:32

   Why the 2:20 Fee and Carry Model in VC is Broken

   1. THTaavet Hinrikus12:48

      the most important.

   2. HSHarry Stebbings12:49

      Do you think when we look at the current state of venture, it is aligned sufficiently?

   3. THTaavet Hinrikus12:53

      I don't think it is in general. I think, uh, fundamentally, the idea of collecting, uh, two, two and a half percent management fee doesn't really make sense. It does not align us with the outcomes. At Plural, we charge about half the management fee, and we think we are much better aligned. And also what it enabled us to do is make a few more investments per fund. So in fund one, we probably made two more investments because of this. Fund two, we think we'll make four more investments as a result. That's four more shots on goal. That is pretty damn important. And still, we have a fantastic team, we have five GPs. Everyone is being paid well, but not ridiculously.

   4. HSHarry Stebbings13:36

      What would you say to the GPs who say, "Hey, I- I need these fees. I need them for paying benchmark salaries against, you know, other salaries for other firms which are the same. Uh, I need a platform team, I need a head of talent, I need a, a... you name it."

   5. THTaavet Hinrikus13:51

      Earn your right to do it. You know, when hiring people for a startup, you wanna hire the people who are dying to work to build this company. You don't wanna hire the people who are coming here for the biggest salary. Yes, you wanna make sure they are compensated ridiculously well if things go well. I am very proud of the fact that when, when we built Wise, everybody had stock options, including every customer support agent. And I think the customer support agents who joined in the beginning, they all made a million dollars when, when Wise went public. I'm super proud of this. Similarly, in venture, the team and GPs, once we have this magic DPI, they should make lots of money. But I don't think people in venture should make a lot of money just because they are deploying capital.

   6. HSHarry Stebbings14:42

      Do you blame the VCs or do you blame the model? Because like fundamentally, like it's just a game of human incentives, and when we... You know, you said that DPI, liquidity is so backdated now. I mean, it is so elongated in a way that it hasn't been 15 years ago or so. Like, it's really 15 to 17 years before most funds are seeing DPI meaningfully. Do you blame the GPs?

   7. THTaavet Hinrikus15:06

      (sighs) I think it's- it's a game. Don't blame the, don't blame the player, blame the game. So- I mean, obviously it's- it goes, it goes both ways, eh? But- and you know, it's- I think, um, as the industry evolves, maybe things will change, and you know, we're hopefully doing our part to- to make this a better game for everyone.

   8. HSHarry Stebbings15:26

      Do you worry about elongated window to DPI and liquidity? Especially for some of the projects that you do. These are such hard projects, these are multi-decade journeys. Isn't it even longer for some of these projects?

   9. THTaavet Hinrikus15:39

      I do worry, and I think, uh, in the- like overall, we need to come up with better solutions for some of the long liquidity problems. Some of these companies may need billions, eh. But I think at the same time, if the companies are well-capitalized, they can reach milestones, then you have liquidity. You know, the best example of all is maybe SpaceX today. It's a private company, has had zero liquidity issues. There is a secondary market always open. It's because, say, I mean, the journey in the beginning was very hard, but being able to attract the capital to get to a place where you hit your milestone and make progress. So especially in- in the what you call crazy companies that we back, it is definitely harder, but I think, you know, we need to make sure these companies are hitting milestones, deliver- creating value, even if revenues take longer, and I think then there will be opportunities.

   10. HSHarry Stebbings16:37

       Do you think that 10 and 2 traditional venture model in terms of timeline needs to be updated, especially for a generation of companies that you invest in?

   11. THTaavet Hinrikus16:45

       I mean, 10 years is short. I mean, if I look at, you know, maybe- maybe looking back now, Wise now looks like a simple fintech company. Everyone is doing fintech companies, you know? It took us... We started working on it with Kristo in 2010, we launched beginning of 2011, we went public in 2021. That was a 10-year journey. But also, to be honest, the last three years were probably pretty liquid, even we were private. So let's call it seven years, and maybe for deep tech companies, it's 10 to 12, you know? If you hit the bad patch in the markets, it becomes 15. We need to- I think we need to recognize this, but I think also maybe at some point people just need to be more disciplined in returning some capital early, you know? There are some- some investors outside who are very vocal, you know? I think Fred Wilson has spoken a lot about taking some money off the table.

   12. HSHarry Stebbings17:38

       You mentioned, like, fees and that structure as like a misalignment in the industry. Are there any other misalignments you think that are very prominent that we don't speak enough about?

   13. THTaavet Hinrikus17:48

       Skin in the game, fees. I mean, I think there are some other kind of like-

   14. HSHarry Stebbings17:53

       When you say skin in the game, you mean like the GP commits?

   15. THTaavet Hinrikus17:56

       Yeah, I mean, GP- GP commit. I mean, I think, you know, I don't think venture should be a rich people's area only, but you know, we are pretty, we're pretty... But kind of going back to what we spoke about before, look at for someone who invest their own money, like we are the biggest investor in the fund ourselves.And additionally, every deal we do, the lead partner of the deal writes a personal check. So we are re-

   16. HSHarry Stebbings18:19

       Hold, of course. Uh, can I be blunt? How much of the fund are you?

   17. THTaavet Hinrikus18:22

       We're the... Collectively, we are the biggest investor in the fund. I, I don't think we're not- we're not gonna start talking about numbers, but you know, you've been in- you're, you're in the business. You know how much the biggest, uh, LP in a fund could be as a percent. So you can-

   18. HSHarry Stebbings18:36

       And so then on top of that-

   19. THTaavet Hinrikus18:37

       ... you can make the maths.

   20. HSHarry Stebbings18:38

       ... the lead partner will also write another check?

   21. THTaavet Hinrikus18:40

       Yeah.

   22. HSHarry Stebbings18:41

       Wow, that is unusual.

   23. THTaavet Hinrikus18:43

       We don't like... The idea of playing with, playing with the house money is something that we're not so keen on. So the personal checks, the size of it depends, depends on the individual's, uh, position. So for some people, it's small, for some it's bigger. But we want it to be something which is meaningful, so you think about like, "I'm investing my own money in addition to the fund where I'm already an investor." And I think there may be a ritual part as well of wiring from our own account the same time as we wire from the fund account.

   24. HSHarry Stebbings19:16

       The thing I love about this job is still after 10 years, you hear things that you've never heard before about this business.

   25. THTaavet Hinrikus19:22

       I, I don't-

   26. HSHarry Stebbings19:22

       I've never, I've never heard of that before because the GP commits one thing, but that as well is, is cool.

   27. THTaavet Hinrikus19:28

       I don't... I think there might be other people who do this. You know, we haven't studied the history of venture half as well as you have, I'm sure. But, uh, I think there might be other people who have heard, but I don't, I don't know facts, so I don't want to say it's-

   28. HSHarry Stebbings19:40

       You, you've been building a public company. I've been studying ventures. (laughs) So yours is probably a more productive decade. Um-

   29. THTaavet Hinrikus19:46

       But, uh, but the other... Maybe the other thing to mention, like there are other weird things in venture.

   30. HSHarry Stebbings19:50

       Mm-hmm.
5. 25:32 – 29:13

   What are the Biggest Ways VC Investment Decision-Making is Broken

   1. THTaavet Hinrikus25:32

   2. HSHarry Stebbings25:32

      How do you think about... When you say that, "We're here to have GDP level impact," we're gonna get to Europe later, but just on the decision-making, I hope that you don't have like traditional investment committees, that is like the, the hailed structure of decision-making in venture. How do you think about investment decision-making on a per company basis in the firm?

   3. THTaavet Hinrikus25:51

      It is super simple and we have... It's very, actually very formulaic. There's a couple things. Every investor can only do a limited number of deals per year. You know, it looks, it looks at two to three deals per year is the right pacing. You know, if you come saying, "I'm doing deal number six," we're gonna be like, "Hey, you know, Taavet, what's going on?" So limited number of shots on goal. Skin in the game, so you are willing to commit your personal money. Third one, you write a memo about the deal. The memo starts with, why is this company important to me? We kind of like... Every deal we do, we're testing like, would you be willing to be a co-founder of the company? And all the 49 de- all the 49 deals we've invested in so far, we feel about all of them that the partner who did the deal felt like, "Bloody hell, this is so important, so exciting. I would love to be a co-founder of this company." So the memo starts with, why is this important to you? Let's talk about the founder. Why is it important for the founder? How can it be 100X from here? Because if we can't see that, we should not be entertaining it.

   4. HSHarry Stebbings27:01

      100X?

   5. THTaavet Hinrikus27:02

      If we can't imagine 100X, we should not be entertaining the idea of this deal. There are many great investments which are 5X guaranteed. There are many great investors who should do this, is not plural. And then once we have that memo, we have an investment committee and given that we don't vote on deals, so committee discussions are very honest, very brutal.

   6. HSHarry Stebbings27:27

      Can I just pause there on when's the memo sent first before that discussion?

   7. THTaavet Hinrikus27:34

      We typically start talking about the company way before the memo. Send the lead investor, says, "I'm writing a memo, we're gonna have an investment committee." We have a brutal discussion at the investment committee about the company and send the ball, goes back to the lead investor.

   8. HSHarry Stebbings27:55

      Can I just pause again on that discussion quality? I think it's most often damaged because not all of the investors or partners knowledge is at the same level as the lead partner. And so you've got some people who know nothing about the company and some who know a lot. How do you make sure that the partnership's knowledge on the company is at a sufficient enough level to have that quality discussion?

   9. THTaavet Hinrikus28:19

      Most likely, we've spoken about as a company a few times before over the past weeks, you know, during our pipeline meeting, et cetera. Uh, there are a lot of companies where more than one partner meets with the, meets with the team. So we try to bring people along the journey. But-

   10. HSHarry Stebbings28:38

       Does every partner need to meet the founder?

   11. THTaavet Hinrikus28:40

       No, absolutely not. And I think there is probably no company where all the partners met the founders before the deal. It's typically one or few partners that meets the, meets the company. But we give a lot of trust to the individual GPs. The bar for being a GP is super high, so we give them a lot of trust and we kind of felt that it doesn't make sense to hire someone brilliant and tell them, "You have to come on Mondays to ask permission to

6. 29:13 – 39:57

   Why is it BS when VC Firms Need Every Partner to Meet the Founder

   1. THTaavet Hinrikus29:13

      do a deal." So going back, we have the IC and after the IC, the lead partner goes back and thinks about the feedback. We have many cases where after hearing the feedbacks, the lead partner is like, "Hey guys, you know, Ian, you raised great points. Karina, what you said about your experience in the market is very true and I'm not gonna do the deal." Many cases where this happens.

   2. HSHarry Stebbings29:39

      What's the percentage time? I know it's unfair, but like, is it like 70/30, 50/50, 80/20?

   3. THTaavet Hinrikus29:46

      It's probably more like 70/30. 70% gets done, 30 doesn't get done. But you know, we're not really... We're not quite like... I, I'm not sure measuring this is the right thing and start setting maybe wrong incentives. And by the way, sometimes also there is a time factor. We look at a deal, doesn't make sense to lead, so lead investor comes back like, "Hey, I'm not doing it now." Six months goes by and like, "Hey guys, actually I'm gonna have a new IC." The company has, you know, done what they promised or something has changed and I wanna lean in now, so let's have a discussion again.

   4. HSHarry Stebbings30:23

      How do you feel about compressed timelines for deals, when founders are going, "Hey, I'm, I'm sorry, I'm running a process and I need answers by Friday." How do you, as a partnership, feel about being put under that urgency?

   5. THTaavet Hinrikus30:35

      I don't think it's happened to us.

   6. HSHarry Stebbings30:39

      (laughs) We do see different types of deals. (laughs)

   7. THTaavet Hinrikus30:43

      I mean, I, I, I completely respect the fact that we need to communicate to the founders how long something is gonna take. And if you tell them that, "Hey, you know, we're gonna have an IC on Tuesday, and we'll tell you on Wednesday," it makes sense. Uh, we can get things done very quickly. We probably got some things done within a number of days. And if something is super competitive, we need to move, you know, we, we need to decide soon. But I think, uh, generally, with like... We believe that we tell the founder what, what our process looks like. We try to make it compatible. I don't like... 2020, 2021 there was a lot of deals done, you know, under the gun, basically. I did some myself personally, made some big-

   8. HSHarry Stebbings31:33

      You were grabbing them.

   9. THTaavet Hinrikus31:33

      ... made some big losses. (laughs)

   10. HSHarry Stebbings31:36

       (laughs)

   11. THTaavet Hinrikus31:36

       We even may have done some together. But, you know, it's, uh-

   12. HSHarry Stebbings31:39

       They were great. They's, those were the winners. Th- Yeah, yeah.

   13. THTaavet Hinrikus31:41

       Definitely. So, um, I think it depends on type of deal. Like, I don't see the crazy companies moving so quickly. That's a momentum spreadsheet investing, which starts moving way quicker.

   14. HSHarry Stebbings31:52

       Tell me, do you have some form of scoring, voting mechanism in the partnership to give that very objective feedback to the lead partner to go take home?

   15. THTaavet Hinrikus32:02

       Not really.

   16. HSHarry Stebbings32:03

       Hm.

   17. THTaavet Hinrikus32:03

       Not really. We, we talk about it. We share our feedback very, very kind of directly.

   18. HSHarry Stebbings32:10

       Do you think-

   19. THTaavet Hinrikus32:11

       But then-

   20. HSHarry Stebbings32:11

       ... you should? And so we are the same as you, and people say to me, "It's very helpful to have a historical record, so you can see bluntly how the partnership picks and thinks over time, and you can look back and go, 12 ho- Historically."

   21. THTaavet Hinrikus32:27

       L- We keep, we keep notes directionally because I think it does help calibrate, and, you know, I think in an ideal world, we wanna come back to it years later and say, "Hey, let's recall that IC and how, what do we learn from it?"

   22. HSHarry Stebbings32:42

       Hmm. Is there anything that you sh- think you should change about your decision-making process?

   23. THTaavet Hinrikus32:46

       Absolutely not. We're brilliant.

   24. HSHarry Stebbings32:49

       (laughs) On the reserves side, how does the reserves decision-making look?

   25. THTaavet Hinrikus32:55

       So through, so reserve, like follow-on checks-

   26. HSHarry Stebbings32:58

       Mm-hmm.

   27. THTaavet Hinrikus32:58

       ... we flips, uh, we flip it around. On the reserve decisions, like second, follow, follow-on checks, as we call it, the, um, the lead investor writes a memo, comes back with a proposal, but this needs a majority vote.

   28. HSHarry Stebbings33:15

       Gotcha.

   29. THTaavet Hinrikus33:15

       Like, we feel that it's a idea of marking up your own homework, and, uh, kind of the idea of the fund is we write whatever, 25, 30 first checks. Everyone does four, five, six, seven, like, doesn't matter who does more or less really. But when we talk about the reserves, that's a finite allocation, a finite asset we need to divide up, and you cannot do that unless you take collective, uh, collective feedback, collective input. So, we think these ones are, are done best collectively. Uh, you know, we're trying to balance, you know, how could we keep a bunch of reserves for the best companies? But you don't know the best companies, so next round you might not know it's, uh, it's the round after next either.

   30. HSHarry Stebbings34:04

       Mm-hmm.
7. 39:57 – 42:48

   When and Why Will Founders Realise Multi-Stage Firms are Bad Early Investors

   1. THTaavet Hinrikus39:57

      rest of the time.

   2. HSHarry Stebbings39:57

      On the early stage being art and all the science, what worries me is, like, the multi-stage funds have so much money now, your 8 billion, 10 billion, D- Andreessen raising 20 billion, the, the, the pre-seed and seed is literally just the massively high-velocity option game. Five on 50? Fine, doesn't matter. It's five million, we just wanna have a chance to write 25 at the A and 100 at the B, and all that matters is it could be the next Databricks. And actually, seed is being destroyed-

   3. THTaavet Hinrikus40:24

      (sighs)

   4. HSHarry Stebbings40:24

      ... by this high-volume game.

   5. THTaavet Hinrikus40:26

      I don't think this game will last. Uh, I think the best founders will realize that, uh, getting, uh, a check on good terms from a multi-stage firm is by no means a guarantee of raising money from them, uh, in the future. I think they will... I think the game will change. You know, it's, uh... The industry will change, the game will change over time. Found-

   6. HSHarry Stebbings40:50

      Found-

   7. THTaavet Hinrikus40:50

      But it is becoming more, you know, it is becoming... There're more, more capital coming in. The question is, are we gonna have more founders? Like, how do you keep it in balance? If you have more capital, then founders are getting better terms. If you have more founders, then it flips.

   8. HSHarry Stebbings41:06

      Do you think we have an excess supply of capital for the founder base that we have today?

   9. THTaavet Hinrikus41:13

      Yes, in certain sectors which are deemed hot. You know, 2021, if you were an ex-Wise employee, everybody would write a check to you without even meeting you. Does that make any sense? No. Same happened to Google employees maybe five years before. I do think that you need to separate kind of the early pre-product market investing from the later stage, but, but I guess, I think also at the same time it's safe to believe that the returns will be coming down over time as the asset class matures, becomes bigger. I think it's, what's-

   10. HSHarry Stebbings41:52

       Do you think they will come down as the asset class matures and becomes bigger or they will go up as outcome sizes become bigger and trillion-dollar companies become more and more commonplace? I mean, trillion-dollar companies 10 years ago, we were like, "Pfft." Now there's several.

   11. THTaavet Hinrikus42:05

       The best investors will continue generating best returns, but I think the median is probably gonna come down over time.

   12. HSHarry Stebbings42:17

       If Plural does not hit the heights that you would like it to, what will be the reason?

   13. THTaavet Hinrikus42:23

       ... Europe did not have enough ambitious entrepreneurs. It's them, not us.

   14. HSHarry Stebbings42:28

       Speaking about putting in the effort, I do want to move to Europe. You said that n- now is the time of all times for European sovereignty. On the why now, why is it so important now more than ever that Europe stands on its own two feet, do you think?

   15. THTaavet Hinrikus42:42

       Even zooming out, when we were starting to think about Plural in 2021, so we raised

8. 42:48 – 44:26

   Why Does Europe Need to Build it’s Own Tech Now More Than Ever

   1. THTaavet Hinrikus42:48

      our first round in 2022, so thinking of creating Plural, we were re- we had two things which were really important, European sovereignty and GDP level impact. So that was true four years ago, and it's even more true now. Two things which have happened in between, one is the Ukraine war, which, you know, before that, investing in defense felt strange. After the Ukraine war, it feels like we need to do this in Europe. And I think the other thing, second thing which has changed is, I think really what happened in the White House in February, where Zelenskyy was taken for a grilling and the way that US cannot be trusted anymore to be the protector of Europe. You know, we... This kind of results in a world where we need to rebuild a lot of things on our own. We need to build our defense sector. We need to build our space sector. We need an independent energy sector. We need security, intelligence, a lot of sectors where I think we're going to be living in a... it's tripolar world. Is that a word?

   2. HSHarry Stebbings44:03

      Mm-hmm.

   3. THTaavet Hinrikus44:03

      Did I make it up? So there's going to be an American version, let's call it Anduril. There is a European version, Helsin, a Chinese version, s- defense, space, energy, security, intelligence, everything, all of the critical services. And these critical services, they make up a vast portion of GDP.

9. 44:26 – 50:02

   What are the Dangers of Having US Made Tech in Europe

   1. THTaavet Hinrikus44:26

   2. HSHarry Stebbings44:26

      Do you think our relationship with the US has fundamentally changed?

   3. THTaavet Hinrikus44:29

      I think it has.

   4. HSHarry Stebbings44:31

      Does that worry you?

   5. THTaavet Hinrikus44:33

      I think we probably were living in a slightly naive world before this. We thought human nature has changed and, you know, we're now post-Cold War in a different world, and maybe history could have worked out differently. But I think now, looking back, you know, I think it's still... The world is pretty similar and the idea that we overly rely on the US probably was already wrong back then. I think we all need to punch our weight. I believe we are better collectively. Estonia is better part of Europe. UK is better being part of Europe. Europe is better together with the US. But I think we all need to collectively put in the effort, and maybe we were relying slightly too much on the US before. I don't know. But, you know, I think today-

   6. HSHarry Stebbings45:31

      Especially when you look at NATO contributions and 75% coming from the US.

   7. THTaavet Hinrikus45:35

      I think-

   8. HSHarry Stebbings45:35

      Like, we might be over-relied on the US.

   9. THTaavet Hinrikus45:37

      Yeah. So I think that's... you know, that's very kind of clear. But I think also what we're seeing now with the US saying, you know, "We'll sell you a 10% worse fighter jet," right? Who's, who is ever going to buy US defense equipment? Or, you know, we have, uh, we have, uh, com-... Uh, I mentioned Tieton before doing, uh, monitoring patients. Do we want a US patient monitoring solution in our, in our hospitals? Do we want... We have a company which is making-

   10. HSHarry Stebbings46:07

       So why do we not want a US patient monitoring system? We have US data storage systems. We have US systems.

   11. THTaavet Hinrikus46:12

       What if they turn this off, when they don't don't feel good about Europe anymore? Do we want US robots roaming around our streets collecting intelligence information? I think it's pretty clear we don't want Chinese ones.

   12. HSHarry Stebbings46:26

       But, uh, uh, at what stage do you draw the line and you are living in a completely compartmentalized, deglobalized world where you could say that for everything? You- you- you have to.

   13. THTaavet Hinrikus46:34

       I think I'm hopeful that-

   14. HSHarry Stebbings46:36

       You know, Germany are buying a billion dollars of energy a day in some circumstances from other countries because they are so woefully inadequately supplied by energy.

   15. THTaavet Hinrikus46:46

       I think we are going into a world of declub- decoupling for a while. I'm kind of hopeful that, uh, Western world will come closer together after going through a rough patch. But, you know, this is, uh... these are complex topics.

   16. HSHarry Stebbings47:03

       Why do we need national sovereignty or, like, uh, continent sovereignty around your Helsins for Europe and Andurils for the US? Why is that important? Anduril's sold in Europe.

   17. THTaavet Hinrikus47:14

       What if the US says, "We're going to disable Anduril in Europe"? You need independence. If we don't... as lo-... if we can't guarantee that the Anduril solution works regardless of what people do in the US, we cannot trust it. And I think if you're thinking about anything else which has access to vast amount of information, you know, if we talk about anything that gets visual, audio information, robots, cameras, we probably want to control who has access to the information we gather and who has access to a kill switch.

   18. HSHarry Stebbings47:59

       Robots, intense information, defense, space, energy. Okay. Do we have anywhere near the supply of capital currently today to fund this incredible depth of sovereignty supply needed?

   19. THTaavet Hinrikus48:19

       Do you remember how much capital Germany allocated to this, to the last couple of weeks of February?

   20. HSHarry Stebbings48:27

       ... no.

   21. THTaavet Hinrikus48:27

       I think it was between 1.5 and two trillion that Germany allocated just after the Zelensky White House meetings. These discussions are happening everywhere in Europe today. And the reality is we probably cannot use two trillion today. We need a trillion this year, two next year over time. So I'm feeling-

   22. HSHarry Stebbings48:50

       Is that the right approach, just like Germany saying, "Here's a trillion." What does that mean?

   23. THTaavet Hinrikus48:56

       I mean, I do believe that we need to work together in Europe, but we need to work together maybe i- in ways which are slightly more... slightly faster than the way we've done it before. Like if you think about some of the defense collaborations that ha- have happened in Europe, they're very painful. Italy says, "We will take part in this project, but this widget has to be produced in Italy." And that makes things very slow. Like if you look at how the, how war has happened in Ukraine, you know, you don't have time to go and bring some... like you need to be building and training constantly. So I think we need to be a little bit more modern about the way collaboration happens, but we do need to collaborate around Europe, and I think there's... so capital, everyone was realizing that, uh, defense contributions, you know, we were not at 2% in Europe before. Estonia was ahead but... and, and Poland was ahead, but, you know, we need to get to 3, 4, 5% everywhere, and same in other critical industries.

   24. HSHarry Stebbings49:57

       Estonia, Finland, Baltic countries have been ahead for a while.

10. 50:02 – 52:27

    Will Putin Invade More European Countries

    1. HSHarry Stebbings50:02

       To what extent is it a very real concern for you about Putin wanting to expand beyond where he is now?

    2. THTaavet Hinrikus50:09

       I think it's a very serious, very real concern. We should be living under the assumption that whatever happened in Ukraine now, Russia will try in another country over the next years, and we need to be ready for this.

    3. HSHarry Stebbings50:28

       I hate this question, but I do kind of worry. Are we too far behind already? When you look at China, and when you look at the supply of talent that they have, the depth of talent they have, the control that the CCP has, the funding that they have, and America... what America have shown in the last few years, have we already faded into irrelevance?

    4. THTaavet Hinrikus50:52

       I think that if we go back to the question around defense and timeline of a couple years, I think if these budgets are unlocked soon, we can actually still get a lot done, but we need to... the urgency is higher now than it's ever been, and I think politician at highest levels are thinking about it in the same ways today. So I'm hopeful that they will come up with the right answers, but it's by far not guaranteed.

    5. HSHarry Stebbings51:25

       Do you... I don't think the political structures allow them to come up with the right answers in a way that's best for us in the long term. They are focused on a four-year reelection cycle, and a lot of the projects that we're talking about are 10, 15 years out, and actually the capital requirements and prioritization, like, you know, uh, strategies needed don't favor reelection.

    6. THTaavet Hinrikus51:48

       I think it's a, it's a correct thing to worry about, but I think also we need to be more entrepreneurial and find ways to build things quicker, and I think it's doable. Look at Helsink. It's a four- or five-year-old company. They've built a lot. If we're looking, like we invested in this exploration company doing, uh, working on space, they are two, three-year-old company. So I actually think a lot is doable in a short amount of time if there's right capital available for this, so right talent and right capital. And in terms of both, I think we are in a better place in Europe than we've ever been.

11. 52:27 – 59:40

    How Does the Change in Relationship Between the US and Europe Impact How We Build Our Tech Ecosystem?

    1. THTaavet Hinrikus52:27

    2. HSHarry Stebbings52:27

       If we go through like problems that we need to overcome, what do you think are the single biggest barriers we need to overcome in the race against China and the US?

    3. THTaavet Hinrikus52:36

       A lot of this comes down to sufficient early-stage capital for deep tech companies. It's the crazy investments that we like to do in plural. You know, if we're looking at, for example, Proxima Fusion building a fusion power plant, it's the most advanced fusion company in Europe. And by the way, German... so new German government has said say want a first not one but two fusion power plants to be built in Germany. So we're seeing there is a political will to act now as well.

    4. HSHarry Stebbings53:12

       Okay, so more deep tech cash earlier in Europe. We're not ambitious enough e- e- if, when we often get told, "Hey, we don't work hard enough," the other one is, "Oh, you're happy with a 50 million sale or an early-"

    5. THTaavet Hinrikus53:24

       H- Harry, we don't brag about it as Americans do. That's the difference between European and Americans. We're too, we're too humble, and I think, you know, we need to learn to become better marketeers, absolutely. Maybe we need to hire American marketeers.

    6. HSHarry Stebbings53:41

       Another that I, I never have an answer for, and it's like the regulatory hurdles that come from a fragmented Europe being a barrier to stopping us. To what extent do you think that is a very valid problem?

    7. THTaavet Hinrikus53:53

       Two ways to look at it. No entrepreneur ever has not started a company because of regulation. It's the best entrepreneurs, they go through walls made out of titanium to make it happen. So I think, you know, in some sense, you know, it's, it's an excuse. But on the other hand, I mean, Europe is a fragmented market of I don't know how many countries. You know, we need to streamline things. I'm, I'm excited to see there is like... what is it? 28th regime that Andreas Klingler is doing with EU Inc.... that's great, you know, but we need to, we need even more to make Europe a more unified market. Labor, capital. Like, why do we need to have a stock exchange in Amsterdam, great companies listed there, London, Estonia? I mean, I would, I would love there to be-

    8. HSHarry Stebbings54:51

       There's an Estonian stock exchange?

    9. THTaavet Hinrikus54:53

       Unfortunately, yes. (laughs) I mean, I would lo- I would love there to be a single global stock exchange. Maybe we could build it on a thing called blockchain.

    10. HSHarry Stebbings55:03

        I asked Julia Hoggett, the CEO of the London Stock Exchange, whether we should have a European stock exchange. You know, when you look at the stock exchanges across Europe, they're all subpar and they're all subscale. I was met with a frosty reaction, let's put it that way. Um, hmm. Do you regret going public in London?

    11. THTaavet Hinrikus55:21

        I don't regret going public in London. I think Wise is an example of a company that is well known amongst the investor universe that can go public anywhere. At the end, went public in Amsterdam, whoever knew they have a stock exchange? They've done very well. Wise has done very well in the UK.

    12. HSHarry Stebbings55:42

        Do you think you would-

    13. THTaavet Hinrikus55:42

        It's been a passive up and down, but that's something which I think would happen similarly in the US.

    14. HSHarry Stebbings55:49

        Do you think you would have a pricing premium if you're in the US?

    15. THTaavet Hinrikus55:52

        I don't believe Wise would have a pricing premium in the US. We spent a lot of time agonizing this over the years before the IPO. So I think it, for Wise, it has worked out well. However, structurally, we have a lot of issues here. We don't have enough retail participation in the UK. We don't have enough institutional parti- participation from the pension funds. So, I do think the UK stock market is subprime in that sense, and I think, you know, if you are a co- a, if you're a retail product, you want your consumers to buy you, so makes sense to go public in the US. But I also think in some sense maybe some of this is a bit of a wrong thing to spend so much energy on. Wise would have gone public in the US, result would be the same. We would not be paying more tax in the US. We would still be headquartered here. So sometimes it feels to me people love to talk about this, but I'm not sure how big is the actual difference for certain companies.

    16. HSHarry Stebbings56:52

        Do you think Nick should go public in London? He's built the business in London. The team primarily is London HQ'd. Do you think you have a duty to go public in London?

    17. THTaavet Hinrikus57:04

        I don't know the du- I don't know what duty Nick feels, so I'm not... I can't answer on this.

    18. HSHarry Stebbings57:08

        What would you do?

    19. THTaavet Hinrikus57:09

        If he, if he wants to build a big... I think here, here's what I would tell Nick. If he wants to build a big business in the US, then, then he should go public in the US.

    20. HSHarry Stebbings57:20

        Kaus, you're a very wise, thoughtful, premeditated person in a, in a nice way. Um, when you go public also after lockups, you have liquidity. Just out of interest, like for me personally, how did making money change your mindset, approach to life, approach to relationships? How did it change who you are?

    21. THTaavet Hinrikus57:43

        Frankly, I think it has not changed. I've, um, I have realized... Like, I, I have generated liquidity through the years from Wise. I mean, not until we were valued at billions. I didn't sell a single, single share of second- secondary, but after that, I've done it in a, I would say, systematic way. I was also lucky to make money from being the first employee at Skype from stock options. So in that sense, I've been financially independent since 2002, '03.

    22. HSHarry Stebbings58:24

        Does it change your mindset, though?

    23. THTaavet Hinrikus58:26

        I'm all interested in the upside.

    24. HSHarry Stebbings58:29

        Yeah.

    25. THTaavet Hinrikus58:30

        And I'm interested in what is the good things I can do with, uh, with the returns. So-

    26. HSHarry Stebbings58:34

        But I wasn't before. I was like, "I need to pay for my, my family's home," and I... Do you know what I mean?

    27. THTaavet Hinrikus58:38

        (laughs) Of course, I think for everyone, once you, once you get through that moment, that's super important. Once you get through the moment of "I don't, I don't need to go to work for the monthly paycheck," I think that is an incredibly powerful moment for everyone.

    28. HSHarry Stebbings58:54

        Final one. If you were to sit in a room with the leaders of Europe and say, "Okay, US, China, we need to compete. This is what we should do from here to change." Are there any policy changes, changes that you would recommend to make us as competitive as possible?

    29. THTaavet Hinrikus59:12

        More capital for deep tech investment. Look at encouraging entrepreneurship, look at reducing some regulatory burden. And I think the way we do government purchasing decisions, whether it's in defense or other areas, the government should be the biggest customer for European startups.

    30. HSHarry Stebbings59:37

        Cost plus is one that I've talked a lot about before. It's a challenge.

12. 59:40 – 1:02:50

    Quick-Fire Questions & Reflections

    1. HSHarry Stebbings59:40

       Um, listen, I want to move into a quick fire because otherwise I could talk to you all day. Uh, so I say a short statement, you give me your immediate thoughts. Sound okay?

    2. THTaavet Hinrikus59:48

       Yeah, let's try.

    3. HSHarry Stebbings59:49

       Okay. What do you believe that most around you disbelieve?

    4. THTaavet Hinrikus59:52

       Estonia is a fantastic country. We have the biggest number of unicorns per capita, and nobody knows this.

    5. HSHarry Stebbings59:59

       (laughs) Why do you think that is? Like, what is in the waters of Estonia?

    6. THTaavet Hinrikus1:00:03

       We had great education during Soviet times. Uh, and I think we had an early start thanks to Skype. The, the ecosystem acceleration from an early success story is humongous.

    7. HSHarry Stebbings1:00:18

       Which company today in Europe do you think will be the biggest accelerator in the way that you mentioned there with Skype?

    8. THTaavet Hinrikus1:00:25

       I mean, I have to say, it r- there seems to be a lot of companies coming from Revolut today, which is pretty, pretty cool to see. I don't know how many of them are doing exciting things compared to do, trying to do fintech widgets, but...Uh, maybe today I'd say Revolut. I mean, Wise has a fair share of startups. Uh, Monzo has been great. Spotify, I don't know off the top of my head. Must be.

    9. HSHarry Stebbings1:00:49

       Spotify's been pretty good, yeah. Um, what buy in the public markets would you make for a 10-year period? What's your, like, buy and hold? (exhales)

    10. THTaavet Hinrikus1:01:00

        I have never bought a public stock.

    11. HSHarry Stebbings1:01:03

        What?

    12. THTaavet Hinrikus1:01:04

        Uh, that's really hard. For 10 years?

    13. HSHarry Stebbings1:01:06

        Yeah.

    14. THTaavet Hinrikus1:01:07

        I mean, actually, maybe I would go very classic, Berkshire Hathaway for 10 years. I think, uh, that is gonna compound in a much more predictable way, if it's the only thing I'm allowed to ho- hold.

    15. HSHarry Stebbings1:01:22

        I love that. You haven't bought a public stock? Wow.

    16. THTaavet Hinrikus1:01:25

        Lots of private stocks.

    17. HSHarry Stebbings1:01:26

        What have you changed your mind on in the last 12 months?

    18. THTaavet Hinrikus1:01:30

        I've become a whole lot more optimistic on Europe. I think, frankly, everything that has happened in relation to US, I've become so much more bullish on Europe. We will rebuild the critical industries.

    19. HSHarry Stebbings1:01:43

        When you look at your best investment, we mentioned Bolt earlier, is there another one that you think will be the standout?

    20. THTaavet Hinrikus1:01:49

        Maybe Synthesia.

    21. HSHarry Stebbings1:01:50

        Hmm.

    22. THTaavet Hinrikus1:01:50

        I made a pretty big angel investment early on when it was two crazy guys. AI was, I don't think so, er, I don't think, uh, abbreviation AI was used. They were doing video generation using, using smart, uh, engineers. So they've done an amazing job and still early in the journey.

    23. HSHarry Stebbings1:02:14

        Tell me, if everything goes to plan with Plurals, what happens? Like, what does the world look like then?

    24. THTaavet Hinrikus1:02:20

        Trillion-dollar European companies.

    25. HSHarry Stebbings1:02:22

        In 10 years?

    26. THTaavet Hinrikus1:02:24

        We will see.

    27. HSHarry Stebbings1:02:27

        (laughs) Taavet, listen, thank you so much for this. I love it when conversations bluntly don't go to plan. It's always the joy of what I do. I, I, you know I've wanted to do this one for a long time, so I really appreciate you taking the time. This has been fantastic.

    28. THTaavet Hinrikus1:02:39

        Me too. Thank you, Harry.

Episode duration: 1:02:51