Tom Hulme: Lessons from a 24x Angel Track Record, 275x on Robinhood & Making Billions on Uber |E1150

1. 0:00 – 1:09

   Intro

   1. THTom Hulme0:00

      Venture capital is like being a founder on antidepressants. You basically have all of the highs, just not as high, all of the lows, just not as low. And so with a portfolio of 20 companies, every day is a rollercoaster. (rollercoaster ride rumbling) There are basically three types of investors. You've got smart investors that know they're smart and they're gonna add value, then you've got passive investors that are gonna stay passive and they're not gonna get in the way. Both of those are absolutely fine. You need to avoid investors that are passive, or sometimes even dumb, but think they're smart and actually gonna kind of interfere.

   2. HSHarry Stebbings0:33

      Ready to go? (upbeat music) Tom, I am so excited for this. Dude, we have been friends for so many years. It's taken, what, seven or eight for me to convince you to do this. But thank you for joining me.

   3. THTom Hulme0:55

      It's a, it's a total pleasure. I feel like you, we've probably been for close to a hundred walks together, and you told me this would be just like another walk.

   4. HSHarry Stebbings1:02

      (laughs)

   5. THTom Hulme1:02

      Now I have a microphone thrust in my face.

   6. HSHarry Stebbings1:04

      Do you know, I really wanna do, like, Carpool Karaoke, but walks around the park. Uh, I think it'd be hard

2. 1:09 – 3:14

   Background

   1. HSHarry Stebbings1:09

      to do. Listen, I think we're all shaped by our childhoods in many ways, and so I wanna start with your childhood. We've chatted about it before, but talk to me a little bit about your childhood and how it shaped a little bit of your mindset today.

   2. THTom Hulme1:19

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

   3. HSHarry Stebbings2:00

      Aha, the thing I found is that I had the same, but actually it means that I just desperately want people to like me, and that can actually lead to me avoiding conflict in a lot of cases, which actually can be quite a negative trait too.

   4. THTom Hulme2:10

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

   5. HSHarry Stebbings2:33

      (laughs) No, they're not.

   6. THTom Hulme2:34

      (laughs)

   7. HSHarry Stebbings2:34

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

   8. THTom Hulme2:41

      Uh, that's interesting, but that's, I mean, if you're talking about founders specifically, I think that's a lovely example. I think the best founders are actually very attuned to feedback, they're attuned to what the market's telling them. So there's two things I'd question in that. Number one is, maybe it's just your feedback-

   9. HSHarry Stebbings2:56

      (laughs)

   10. THTom Hulme2:57

       ... they don't want. And secondly, maybe they're actually just overly rightly tuned on the market and the customers and they will adapt to that. The best founders absolutely have that in common.

   11. HSHarry Stebbings3:07

       Do you know what? I knew it was a mistake doing that. (laughs) Yeah, it's just your feedback, Harry. I thought you were gonna say, "It's just my founders." I was like, "Harsh."

3. 3:14 – 11:20

   Entry into Angel Investing

   1. HSHarry Stebbings3:14

      No, I, uh, in terms of the investing side, Tom, I do wanna parlay into that. How did you start the angel investing, and what did that en- entry look like?

   2. THTom Hulme3:21

      Yeah. I, look, I was lucky enough to sell a company. I decided angel investing looked fun, and I thought, "Right, I'm gonna run an experiment." I'm pretty entrepreneurial, so I thought, "I'm gonna try and answer a couple of questions." And the questions I wanted to answer, first question is, what kind of investor a- am I gonna be, and actually do I enjoy it? Second question was, am I any good at it? So, first question, actually one of my early investors said something I think is really smart to me. They said, "There are basically three types of investors. You've got smart investors that know they're smart and they're gonna add value, then you've got passive investors that are gonna stay passive and they're not gonna get in the way." Both of those are absolutely fine. You need to avoid investors that are passive, or sometimes even dumb, but think they're smart and actually gonna kind of interfere. And so I said to myself, I go, "Am I gonna be kind of smart smart, or passive passive, and am I gonna enjoy it?" Over time, I think I added some value to those founders, particularly on strategy and design, because I would slowly work my way onto their kind of, what we'd call in the UK, a 999 list, a list of people they call if something's going wrong. In the US, it'd be a 911 list probably. Uh, and I realized very quickly, I absolutely loved that. I loved supporting founders. So that was a tick. Next question became, am I any good at it? And I still don't really know the answer to that. I think, uh, look, it, the returns were pretty good over time, but the feedback loop in venture is so long, it's incredibly difficult to figure out if you're actually good at it.

   3. HSHarry Stebbings4:47

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

   4. THTom Hulme4:58

      So I think there's, I'd say smart smart are often investors that are making the fundamentals, uh, the core of the decision principle. I think a lot of the franchises that have been around for decades, there's a fair amount of them, but it's probably only 25%. And then during the sort of low interest rate environment when co- cost of capital has been low, you have seen a lot of the passive passive money flying into the industry.

   5. HSHarry Stebbings5:21

      Yup.

   6. THTom Hulme5:21

      In 2020, I think that was more, like, 60%.

   7. HSHarry Stebbings5:24

      Yup.

   8. THTom Hulme5:24

      And then I think the, the remaining 10% gets cleared out over time. We're probably now, because there's less capital around, seeing a lot more of the investors that actually have strategies and have fundamentals.

   9. HSHarry Stebbings5:35

      Yup.

   10. THTom Hulme5:35

       So, long may that number increase. What do you think it is?

   11. HSHarry Stebbings5:38

       I think you're a little bit overoptimistic there. (laughs) Like, the smart smart, having interviewed 2,700, I'd probably say is about 3%.

   12. THTom Hulme5:47

       Wow.

   13. HSHarry Stebbings5:47

       Like, really smart smart, where, like, the insight is, like, that really changed the way I think.

   14. THTom Hulme5:52

       I think that's true. And actually, the market changes so much.

   15. HSHarry Stebbings5:55

       Dude, most just listen to the podcast and then repeat them. (laughs) I'm really sorry.

   16. THTom Hulme5:59

       Well, it's, it's a viable strategy.

   17. HSHarry Stebbings6:01

       It, it totally is.

   18. THTom Hulme6:01

       Certainly for momentum investing, that is a very viable strategy.

   19. HSHarry Stebbings6:04

       But by the way, I think actually the majority of founders just want...... passive.

   20. THTom Hulme6:09

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

   21. HSHarry Stebbings6:24

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

   22. THTom Hulme6:34

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

   23. HSHarry Stebbings6:41

       On the danger side, I think that's overestimated. Everyone's like, "Oh, the damage they do." I find there's actually very few that actually have damaged companies. They're annoying, they're not great, but I don't think they damage-

   24. THTom Hulme6:50

       Yeah, but if you thi-

   25. HSHarry Stebbings6:50

       ... in a huge amount of cases.

   26. THTom Hulme6:52

       So that might be true, but in a time where more companies are under more stress, don't you think the insertion of, like, structure into so many of the deals in these companies is an example of that, and actually it's making it harder for... It's misaligning incentives? I think a lot of structure in a deal can actually damage a business.

   27. HSHarry Stebbings7:10

       I totally agree with you. Absolutely. Are you seeing a lot more structure in deals today?

   28. THTom Hulme7:14

       Yes, absolutely.

   29. HSHarry Stebbings7:14

       In what way?

   30. THTom Hulme7:15

       Oh, I think we're seeing that, firstly, priced rounds are less common because people aren't willing to accept the new and fair valuations, so you get convertible notes.
4. 11:20 – 17:10

   Tom’s Investment Results

   1. THTom Hulme11:20

      be less affected.

   2. HSHarry Stebbings11:21

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

   3. THTom Hulme11:36

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

   4. HSHarry Stebbings12:33

      Okay, so I wish- I just wanted this to be, like, a free-fire chat, which this has turned into, which is great. That is why I don't believe in reserves models, because exactly to your point that if you were forced to stack rank great, meh, and not good, it is not what you would have predicted. Therefore, I think we overestimate our ability to predict our winners. Do you agree? How do you think about what you just said and w- how that leads to reserves?

   5. THTom Hulme12:55

      Yes. I- d- I guess to, uh, sticking with the angel hat-

   6. HSHarry Stebbings12:58

      Yeah.

   7. THTom Hulme12:58

      ... because I think that's really important, I agree with you. It led me to draw the conclusion, as an angel, I shouldn't follow on.

   8. HSHarry Stebbings13:06

      Huh.

   9. THTom Hulme13:06

      So I had examples of companies that would go up sort of 50X. My, uh, pro rata allocation in the next round would be a million dollars plus, and they went to zero. And not only that, you're then competing with VCs. It's a completely different game. So actually, if I'd taken a strategy of doing all my follow-on allocations, let's say, for the series A after the seed I'd invested in, it would have, not wrecked the portfolio, but it would have been far inferior.

   10. HSHarry Stebbings13:33

       Yeah, it would have really brought down your...

   11. THTom Hulme13:35

       Correct.

   12. HSHarry Stebbings13:35

       Yeah.

   13. THTom Hulme13:36

       Correct.

   14. HSHarry Stebbings13:36

       Okay, so when we look at, as you said there, kind of 4.6, that is, TPI?

   15. THTom Hulme13:40

       Yeah.

   16. HSHarry Stebbings13:40

       So when we look at, kind of, winners and, and zeros, what are some of the biggest lessons from the winners?

   17. THTom Hulme13:46

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

   18. HSHarry Stebbings15:07

       So when I look at my portfolio, I think there's an inverse correlation between the success of a company or the eventual success of a company and the hotness of their seed and series A.

   19. THTom Hulme15:15

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

   20. HSHarry Stebbings15:46

       Okay, you mention there also about having Fab stock and having, uh, Jawbone stock, at one time would have been very valuable.

   21. THTom Hulme15:52

       Yeah.

   22. HSHarry Stebbings15:54

       One hopes one has the chance to sell at points. I guess my question is, how do you think about liquidity? Could you have sold? Did you have lessons from, "Shit, I should have sold that"?

   23. THTom Hulme16:04

       Yeah.

   24. HSHarry Stebbings16:04

       I have definite lessons over the last few years where I really should have taken liquidity where I didn't.

   25. THTom Hulme16:08

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

5. 17:10 – 20:51

   Bad Investment Decisions as an Angel

   1. THTom Hulme17:10

   2. HSHarry Stebbings17:10

      No, listen, I, I completely agree with you. Okay, so that's on, you mentioned kind of the, the kind of consistent compounding of great businesses, like your GoCardless of the worlds, like your Lendables.

   3. THTom Hulme17:19

      Yeah.

   4. HSHarry Stebbings17:19

      On the...... zeros. (laughs) What are the lessons from the bad investment decisions that you made as an angel?

   5. THTom Hulme17:26

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

   6. HSHarry Stebbings18:05

      The incredibly dangerous thing is the danger of social validity, which is, okay, large fund puts in fi- okay, large billion-dollar fund puts in $5 million and they tax the CPO of big company, "Hey, come in for this." They throw in 50K 'cause they think it sounds cool. That now looks-

   7. THTom Hulme18:20

      Right.

   8. HSHarry Stebbings18:20

      ... like an A+ premier brand deal. 5 million to a billion dollar fund is absolutely nothing. It's like, you know, coffees money. And then the, the CPO is just like, "Oh, well, you know, X fund is in, so I'm just gonna invest." And suddenly they've got this, like, artificial, incredible A+ brand that's just kinda come from nothing.

   9. THTom Hulme18:36

      Yeah, propping it up.

   10. HSHarry Stebbings18:37

       Yeah.

   11. THTom Hulme18:37

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

   12. HSHarry Stebbings19:30

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

   13. THTom Hulme19:45

       Yeah, I love that. I, I think usually you see some trait of entrepreneurship. I think the questions I like to ask actually revolve around their unfair advantage. I'm trying to understand what their unique insight is and why they are uniquely placed to solve it. So I'll ask what the unfair advantage is. I'll also ask the question of, "Why now?" Like, it's really interesting that we will sort of, we, we have our recency biases that something may have worked or may not have worked, but we need this difficult thing to happen now with a founder at the seed stage. So I ask the question of, "Why now?" And usually they should have a good point of view. The other one I really love to do is spend some time actually asking them how something might go wrong. What's keeping them up at night? And it's incredible how many founders will actually have nothing to share about their concerns.

   14. HSHarry Stebbings20:33

       (laughs)

   15. THTom Hulme20:33

       I mean, only the paranoid survive, as Andy Gray said. Some people have no paranoia.

   16. HSHarry Stebbings20:37

       Dude, honestly, I, I think a real pattern is the best founders say, "Are you kidding me? Here's 10 things-"

   17. THTom Hulme20:43

       Correct.

   18. HSHarry Stebbings20:43

       "... that are challenging me and I'm terrified about them." And I'm like, "Okay. Let's go through them one by one."

   19. THTom Hulme20:48

       And some of them ask for help, which is a brilliant

6. 20:51 – 23:07

   Ideas vs. Execution

   1. THTom Hulme20:51

      signal.

   2. HSHarry Stebbings20:51

      Fine. Uh, well, one thing that I have to pick up on there is, you know, you mentioned that kind of, you know, why them and the secret sauce that they have to attack a problem. What if they don't have a secret sauce? Like, what if they're not uniquely suited to it, but they just see something that the world hasn't seen? Is that okay?

   3. THTom Hulme21:06

      I think it's okay, but probably not enough. I mean, I would have the view that I would, I have probably never had a unique insight, i- or idea in my life. I think I'd have to be-

   4. HSHarry Stebbings21:16

      (laughs)

   5. THTom Hulme21:16

      ... so arrogant to think I had. Like, we've-

   6. HSHarry Stebbings21:19

      Can I put that as the title for the show? (laughs)

   7. THTom Hulme21:21

      Yeah, by all means. I mean, it's just true. I actually think ideas are cheap, execution is everything. And so I cannot invest based on an idea. You have to tell me how you're gonna execute better. If the idea is that good, it's probably been had. If that idea is that good, everyone will copy it, and then it's a race on execution. So it's not enough for me just to say it's a good idea.

   8. HSHarry Stebbings21:44

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

   9. THTom Hulme21:56

      Yeah, I think that's, uh, statistically, that's probably true. Uh, sort of, I mean, this is, this is the challenge. If you, if I sit back and look at the sort of ideas I've been most excited about, probably someone has tried to do it before.... being too early is tantamount to being wrong, unless you can survive long enough for the market to come to you.

   10. HSHarry Stebbings22:22

       Mm-hmm.

   11. THTom Hulme22:22

       I've seen, we've seen some examples of this. I think VR is an interesting example. There are a lot of companies that were waiting for VR to come to them. That's market timing risk. In that case, you better have a kind of cockroach mode to be effective until the market comes and build the muscle.

   12. HSHarry Stebbings22:38

       Dude, Daniel Dynes, who was on the show, spoke about being at 500K ARR after nine-

   13. THTom Hulme22:44

       Yeah, nine years.

   14. HSHarry Stebbings22:45

       ... years.

   15. THTom Hulme22:45

       And not raised a penny, had he?

   16. HSHarry Stebbings22:46

       No, no, but it was a fine business.

   17. THTom Hulme22:48

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

   18. HSHarry Stebbings23:04

       Yeah, I'd, I think it would be a very different story.

   19. THTom Hulme23:06

       Yeah.

   20. HSHarry Stebbings23:06

       That's something that I

7. 23:07 – 25:19

   What's the Price Tag for Great Venture Investing?

   1. HSHarry Stebbings23:07

      worry about a lot. It's often, you know, you mentioned kind of those learnings then. It's often said it takes $20 million to learn to be an investor, and we can change the number whatever we wanna change it to. Do we agree that it takes 20, $30 million to learn to be a great venture investor?

   2. THTom Hulme23:22

      I mean, I'm gonna push back on it being a dollar number. It's bananas. Like, the 20 million-

   3. HSHarry Stebbings23:27

      What d'you want? Yeah.

   4. THTom Hulme23:27

      ... is a pre-seed in-

   5. HSHarry Stebbings23:28

      Like wha- wha- (laughs)

   6. THTom Hulme23:29

      20 million is a-

   7. HSHarry Stebbings23:30

      Sorry. (laughs)

   8. THTom Hulme23:31

      20 million is a pre-seed in 2020.

   9. HSHarry Stebbings23:33

      (laughs)

   10. THTom Hulme23:34

       Like, this is, you've just got to remember how much this stuff changes. Actually, what is the sort of learning cycle here? The learning cycle is number of deals and time to see how they do. And so for me, it looks more like five deals over five years to figure out actually if you're building the muscle and you're learning. Then it looks like an absolute quantum of cash.

   11. HSHarry Stebbings23:53

       Five deals?

   12. THTom Hulme23:53

       The good news, I would say five deals is a good... I mean, look, it's not perfect. That's hence me saying I still don't-

   13. HSHarry Stebbings23:59

       Say like 25 deals.

   14. THTom Hulme23:59

       Still don't know if I'm any good at this job.

   15. HSHarry Stebbings24:02

       (laughs)

   16. THTom Hulme24:02

       But the, the, the interesting thing is you just have to have a number and you start to see patterns. And I'd say five is the minimum. One of the things I often tell people which I wish, you know, if, if your goal is to get into angel investing, one of the things that no one ever says is the amount you actually iva- invest is almost irrelevant. If your job is to learn and to demonstrate you add value, then just write small 5K cheques. I see so many people that never start angel investing because they think they have to invest 200K at a time. It's crazy. If you believe you've gotta learn, you wanna start early with small cheques and prove you're valuable, and then actually see if you're any good at it.

   17. HSHarry Stebbings24:41

       So I think the biggest mistake angels make is they think that they can kind of, uh, vary their conviction level with cheque size.

   18. THTom Hulme24:47

       Ah, yeah.

   19. HSHarry Stebbings24:48

       Which is, "I really believe in this one so I'm putting 100K in here."

   20. THTom Hulme24:51

       (laughs)

   21. HSHarry Stebbings24:51

       "This one's a flyer and it's 10." And they just do 25 every time.

   22. THTom Hulme24:55

       I love that point.

   23. HSHarry Stebbings24:55

       Every time, 25.

   24. THTom Hulme24:56

       Love that point. It's a similar point. Like, build a portfolio, take an amount of money that you can lose, and then actually, it's amazing to me how many... I'm curious if you've seen it as you started recruiting investors. It's amazing how many potential investors, people that say that they really want to be an investor but they've never done an angel cheque.

   25. HSHarry Stebbings25:14

       (laughs)

   26. THTom Hulme25:14

       Like, how can you really be serious about something if you haven't even been willing to do

8. 25:19 – 28:11

   Founders Investing as Angels

   1. THTom Hulme25:19

      that?

   2. HSHarry Stebbings25:19

      (laughs) Yeah. No, I, I, I totally agree with you. I, I'm going for it, and which might be a kaboom moment-

   3. THTom Hulme25:26

      (laughs)

   4. HSHarry Stebbings25:26

      ... um, but founders investing as angels, how do we feel about it? Uh, so, uh, let me caveat this. Founders investing with side funds.

   5. THTom Hulme25:37

      Ah, okay, so there's two different lenses here. As-

   6. HSHarry Stebbings25:39

      There's founders as angels investing their own money, and there's founders-

   7. THTom Hulme25:42

      Yeah.

   8. HSHarry Stebbings25:42

      ... who then raise a $10 million fund on AngelList and then invest other peoples' money through that.

   9. THTom Hulme25:47

      Yeah, so y- the former, I think, is actually great for the portfolio companies they invest in, because I think they're in our category of smart smart.

   10. HSHarry Stebbings25:56

       Mm-hmm.

   11. THTom Hulme25:56

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

   12. HSHarry Stebbings26:24

       I totally agree. I also think, though, when you raise money from people, it is like an immense responsibility. And so when you raise another pool of money from another group of people, what are you saying about the first cl- group of people that you raised money for?

   13. THTom Hulme26:35

       Totally agree.

   14. HSHarry Stebbings26:36

       Yeah?

   15. THTom Hulme26:36

       Really tough.

   16. HSHarry Stebbings26:37

       Good. Okay, so let's talk about the transition to venture then. We've been an angel, we have this... You know, you're more modest, but it's a very, very good track and one could determine that you're very good at angel investing. So making the transition to venture, just talk to me about how you see the s- core pillars of venture. We've discussed it before.

   17. THTom Hulme26:53

       Yeah, we... You and I have often talked (laughs) about whether the-

   18. HSHarry Stebbings26:55

       (laughs)

   19. THTom Hulme26:55

       ... what this should look like. So my version is the three S's. But actually, as I think about it, I think it should now be four S's. So my three S's were sourcing deals, selecting them, and supporting them. Those-

   20. HSHarry Stebbings27:08

       Mm-hmm.

   21. THTom Hulme27:08

       ... are the three jobs of a VC. And actually, the world's best VCs are pretty good at all of those. And through their career they move f- less sourcing and actually selecting, and then supporting as they've got a big portfolio. That's one of the interesting traps of venture is you can just spend all your time supporting. The... I think it's really important to keep the muscle building. I think I read somewhere, Alfred Lin, you know, will meet 10 companies on a weekend just to keep the muscle going of sourcing and selecting. But those are the three buckets. The fourth S that I increasingly think im- is important is actually selling, salesmanship. Like, great VCs are selling to LPs, they're selling to p- to founders to take their money, and then increasingly, they're also selling to, you know, exec hires to go into portfolio companies. It's an incredibly... Actually, it's a, it's a lot of selling, and I think it's more of a sort of people business that people give it credit for. I think it would be very difficult to be a VC and hate people.

   22. HSHarry Stebbings28:06

       Uh, there's not (laughs) -

   23. THTom Hulme28:08

       (laughs)

   24. HSHarry Stebbings28:08

       There are quite a few. You'd be surprised.

9. 28:11 – 33:23

   Tom’s Strengths & Weaknesses

   1. HSHarry Stebbings28:11

   2. THTom Hulme28:11

      I know (laughs) .

   3. HSHarry Stebbings28:11

      You know what's funny is actually y- you mentioned it that actually maybe on the sourcing side, over time, it's where people get a little bit weaker or wane. A lot of the more mature but amazing investors, like your ??? boys have said on the show, it's a constant fight for relevance for me.

   4. THTom Hulme28:25

      Yeah.

   5. HSHarry Stebbings28:25

      Like, on the sourcing side, that is the one I worry about.

   6. THTom Hulme28:27

      Totally agree.

   7. HSHarry Stebbings28:28

      Which one do you think you're best at?

   8. THTom Hulme28:31

      I would say I'm best... I mean, I don't think I'm brilliant at any of it. But if I had to say I'm good at, I would say, sourcing, I- I'm an enthusiast. I'm enthusiastic about pretty much everything. The great thing about being an enthusiast is you could sit me with a founder that has pretty much any idea and I will engage and pay attention, and I will care about what they're saying. And so that means that I can cast my net wide in opportunities. And then over time, I think I've been lucky enough to build a network of people around me that I trust that actually will refer in opportunities. So I think I have more of an edge in sourcing today, uh, certainly than I did when I started. And I think, I hope, that it continues to stay relevant. But similar to Keith, I am paranoid about that as well.

   9. HSHarry Stebbings29:24

      Which one are you worst at?

   10. THTom Hulme29:26

       I would say I'm probably worst at supporting because I built companies, I have a lot of empathy, and I want to roll my sleeves up and help. And so when a founder is hurting, I feel it. I mean, the best way I can describe venture capital, I've said this to you before, I think you looked at me like I was an idiot then as well.

   11. HSHarry Stebbings29:48

       (laughs)

   12. THTom Hulme29:49

       But the best way I can describe venture capital is it's like being a founder on antidepressants. You basically have all of the highs, just not as high, all of the lows, just not as low, but you are feeling the ups and downs all the time. And so with a portfolio of 20 companies, every day is a roller coaster. And so I hope that I'm effective at picking my battles in how I support a business and doing the right thing by them. I think Roelof Botha from Sequoia once said something that I thought was smart, he said, "Actually, great board members are like shock absorbers. They kind of reduce the highs and they will cushion the blows and let founders know the negatives aren't as bad." But look, I- I wonder whether sometimes I just... I- I almost care too much when it's, uh, coming to supporting the businesses.

   13. HSHarry Stebbings30:39

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

   14. THTom Hulme30:59

       I love the way you look at the lighting when you say you've run a business.

   15. HSHarry Stebbings31:01

       (laughs)

   16. THTom Hulme31:02

       It's like you've put the bulb in early enough, you know?

   17. HSHarry Stebbings31:05

       Just looking for salvation. Please, God, help. Um, but it's like, I just see so many 30-year-olds come out of Bain who are writing $10 million checks at large funds and I'm like, "You have no fucking idea-"

   18. THTom Hulme31:16

       Yeah.

   19. HSHarry Stebbings31:16

       "... how hard it is to raise money to run a business."

   20. THTom Hulme31:19

       And it's right, it should be tough.

   21. HSHarry Stebbings31:21

       Yeah, I totally agree.

   22. THTom Hulme31:22

       Because it's a real privilege.

   23. HSHarry Stebbings31:23

       You've said before luck favors the connected.

   24. THTom Hulme31:26

       Yeah, this is-

   25. HSHarry Stebbings31:27

       I naturally liked this statement. (laughs)

   26. THTom Hulme31:28

       Yeah, exactly, because your network is just off the charts. I can see why. So I'd, I'd write a piece for Wired and I think I called it Serendipity Favours the Connected. And the basic idea is I think it's really easy for other people to look at great investors, great founders and say, "Oh, they're just the right place, right time," or, "They've just been lucky." Actually, those people usually have an incredible network around them. And it's like Metcalfe's law, the value of a network, it increases to the square of the number of nodes. Networks are incredibly valuable, deep, sort of effective networks even more so. And I think so much good stuff comes from them. I would say so much of my career has come because I've been lucky enough to be in a network of amazing people, and then I stay kind of optimistic and excited and willing to grab any opportunity in front of me.

   27. HSHarry Stebbings32:18

       Do you think venture's a game of access?

   28. THTom Hulme32:21

       Of access or excess?

   29. HSHarry Stebbings32:23

       Access.

   30. THTom Hulme32:24

       I (laughs) think it's a game of excess in 2020. Um-
10. 33:23 – 38:45

    Creating Environment & Culture

    1. THTom Hulme33:23

       their way into it.

    2. HSHarry Stebbings33:24

       You've mentioned being enthusiastic about everything and, like that optimistic mind. You said before to me, "Surround yourself with optimists" and the importance of pre-mortems.

    3. THTom Hulme33:33

       Yeah. I... So most VCs, I'd say, are optimists. Do you reckon?

    4. HSHarry Stebbings33:38

       Yeah, I think so.

    5. THTom Hulme33:39

       Would you think of yourself as an optimist?

    6. HSHarry Stebbings33:40

       You have to be. Yeah. Yeah, you have to be to be an optimist.

    7. THTom Hulme33:41

       Yeah, otherwise you'd never actually invest in-

    8. HSHarry Stebbings33:43

       Yeah. (laughs)

    9. THTom Hulme33:44

       ... fundamentally. Okay, so if you're surrounded by optimists and you create that culture, and I think we do a good job of creating that at GV where anyone can bring forward an idea, we explore it, you have to also create space to look at the downside. And Daniel Kahneman, the behavioral economist, passed away, I think, just three or four weeks ago. Incredibly interesting guy, wrote Thinking, Fast and Slow. He talked about a process of having pre-mortems when when you're making a decision, you think through how the decision might be wrong and you give people around you permission to actually say why something might be a bad idea. And I think the best VC firms actually create this space. So have optimists, have people default. You know, former colleague who passed away, Tyson, had a beautiful expression for this, he says, "Right, press the believe button. Tell me how this is gonna be amazing." But then the flip side is occasionally you have to also describe actually why something might go wrong, partly so you can inoculate yourself against it and evaluate whether something's a good idea.

    10. HSHarry Stebbings34:46

        I think we always underestimate the size of our winners. Uh, that's one thing I always kind of worry about or look at, which is that when you read Bessemer's, um, kind of investment memos, which they put on their website.They, uh, you know, they've said Twilio would be a $500 million company. Um, I mean it might be again soon, who knows? I'm, I'm a holder. It doesn't look great. Um, but, uh, y- we consistently underestimate the size of our winners. Has that been true for you?

    11. THTom Hulme35:11

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

    12. HSHarry Stebbings35:39

        So do you outcome scenario plan when you do deals? 'Cause you see a lot of people say, "Well, I just... I don't think it can be big enough. I don't think the market's got enough depth." Do you do outcome scenario plans and how do you think about that given the challenge of seeing the next S-curve?

    13. THTom Hulme35:52

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

    14. HSHarry Stebbings37:01

        Do you not think we're just selling to our customers though, which is the founders, 'cause we don't wanna say, "Well, I mean, I, I believe to an extent."

    15. THTom Hulme37:07

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

    16. HSHarry Stebbings37:28

        Totally agree with you and we'll get to selling to partnerships. Uh, in terms of the outcome scenario planning, you know, I recently did a deal and everyone was like, "Oh, I think it's gonna cap out at, you know, a billion or two billion." And I always find that kind of quite fa-

    17. THTom Hulme37:38

        SpaceX. (laughs)

    18. HSHarry Stebbings37:40

        (laughs) I mean Starlink. Uh, but I always think it's kind of facile thinking 'cause it's like, I think the difference between a two billion and a ten bill- ten billion dollar business is a fucking great exec team and founder.

    19. THTom Hulme37:49

        Yeah, that's interesting. Uh, not always. I mean, if you look at the market opportunity, it takes usually a long time to build a $10 billion business.

    20. HSHarry Stebbings37:57

        Sure.

    21. THTom Hulme37:57

        So you need the market opportunity to persist.

    22. HSHarry Stebbings38:00

        Mm-hmm.

    23. THTom Hulme38:00

        You need competitive threats not to come in. And you need it to be big enough.

    24. HSHarry Stebbings38:05

        Mm-hmm.

    25. THTom Hulme38:05

        Those three things are not always true.

    26. HSHarry Stebbings38:07

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

    27. THTom Hulme38:24

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

11. 38:45 – 46:38

    Liquidity Concerns Amid Shifting Investment Landscape

    1. THTom Hulme38:45

       that start.

    2. HSHarry Stebbings38:45

       What I'm so worried about right now is that, you know, you've got IPO windows pretty much shut. And, you know, everyone said, "Oh, it'll be H2 '24 when they'd open." It's not gonna be really that, uh, uh... Now kind of 2025 is kind of-

    3. THTom Hulme38:58

       Agreed.

    4. HSHarry Stebbings38:59

       .... actually still doesn't look like there's going to be that open for H1 there and M&A's sh- more shut than ever before. My question is, you know, we're seeing PE come in a little bit more actually as the liquidity provider in the wake of those two being out. Are you as concerned as I am about the lack of liquidity in the ecosystem with this changing environment?

    5. THTom Hulme39:17

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

    6. HSHarry Stebbings39:58

       Yeah. Uh, we're gonna get to that 'cause I think it's a really important one. But I do just wanna stay on the, uh, kind of outcome scenario planning 'cause it's such a big part of venture. And it's always predicated around the, "Oh, well, we need a fund return. That's why we do it." Do you agree about the importance of yeah, you have to have fund returns? It's the only thing that matters. And how do you think about that?

    7. THTom Hulme40:16

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

    8. HSHarry Stebbings41:18

       (laughs) I saw that the other day where one was like, "So I put 250 in." I'm like, "What do you doing in the others?" "25." I'm like, "Oh-ho!" (laughs)

    9. THTom Hulme41:27

       It's high-risk.

    10. HSHarry Stebbings41:28

        Honestly.

    11. THTom Hulme41:28

        It may work.

    12. HSHarry Stebbings41:29

        Yeah. I- I- I get you. How do you think about the never-sell-your-winners?

    13. THTom Hulme41:33

        So, our approach at GV is primarily be founder-first, and we can take a very long time.

    14. HSHarry Stebbings41:39

        Yeah.

    15. THTom Hulme41:40

        You know, we have $10 billion under management. Alphabet does not put us under time pressure. We're less worried about IRR than we are absolute returns. And so we focus on kind of generational companies. And so actually, our dream scenario is to hold for a long time, a decade, two decades. If you really wanna build fantastic generational companies, I think it makes sense. But I always, just authentically, do advise founders, do advise early investors, if they get the opportunity to take some capital off the table, I think it makes sense.

    16. HSHarry Stebbings42:14

        I completely agree, and so Johnny took 200 million off. (laughs)

    17. THTom Hulme42:17

        Yeah. (laughs) Fair play.

    18. HSHarry Stebbings42:20

        By the way-

    19. THTom Hulme42:20

        I think the thing-

    20. HSHarry Stebbings42:20

        By- by the way-

    21. THTom Hulme42:20

        By the way, fair.

    22. HSHarry Stebbings42:21

        ... I- I- I actually think, I actually would, uh, it's kind of bold to do this, but, like, I think he's unfairly demonized too much and actually it was Capital which pushed him to do it, and he was absolutely within his rights to do it.

    23. THTom Hulme42:33

        I totally agree. I mean, look, you look back, I remember you and I walking at the time and the conversation I remember us having is, is Hopin ... Does Hopin have product-market fit or product-COVID fit? It clearly had product-COVID fit. It was, you know, no one was excited to do, uh, events online. They were forced to do events online. I remember doing sort of family quizzes on a Sunday night over Zoom, the most dystopian thing I can possibly imagine now.

    24. HSHarry Stebbings43:01

        (laughs)

    25. THTom Hulme43:01

        We were all forced to do that. COVID forced us to do it.

    26. HSHarry Stebbings43:04

        See, that's called marriage, Tom. (laughs)

    27. THTom Hulme43:05

        (laughs) That's not, that's not fucking COVID.

    28. HSHarry Stebbings43:07

        (laughs)

    29. THTom Hulme43:07

        You can do that in person. You don't have to do marriage over Zoom.

    30. HSHarry Stebbings43:10

        (laughs) Look at that.
12. 46:38 – 51:45

    Potential in Foundation Models?

    1. THTom Hulme46:38

    2. HSHarry Stebbings46:38

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

    3. THTom Hulme46:57

       Uh, so there definitely has been. Because if you were to invest in OpenAI in the $10 billion round, there's liquidity in the market, you could sell that for a 5X now-

    4. HSHarry Stebbings47:06

       Hm.

    5. THTom Hulme47:06

       ... and you could have done that over a year. So if you've got a momentum strategy and you believe that firm that you're investing in is gonna be at the front of the pack and continue to be, I suspect there's money to be made. But if you're investing in fundamentals, it's very difficult to invest in something that actually is gonna commoditize that quickly. One of the, uh, one of the, uh... in fact, I'd say the best teacher I ever had was Clay Christensen, just unbelievably smart human being. He wrote the innovator's-

    6. HSHarry Stebbings47:32

       Oh, yeah, yeah.

    7. THTom Hulme47:32

       ... solution. We all know that. And he will talk about sus- or he did talk about sustaining and disruptive innovations. I think one of the frustrations with gen AI, as the technology is commoditizing so quickly, is it's a sustaining innovation. It's actually gonna get sprinkled across all businesses to lower costs, in call centers, or to improve the product in personalization, but it's actually not going to create the sort of, it's not gonna have a creative destruction effect like the internet did on many industries. And so as an investor, that's frustrating because you want to invest in stuff that persists and completely rebuilds industries from scratch. But I can't really see it. I mean, we found some targets and we made quite a few investments, but it's not, for me, the sort of radical sort of shift or opportunity from an investment perspective that we perhaps saw with the internet.

    8. HSHarry Stebbings48:24

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

    9. THTom Hulme48:54

       That's, to date been, my thesis as well, is that it will look more like a utility and the cloud providers rationally are saying, "We wanna provide that utility on our compute," and they're gonna charge on that basis. And they already are, whether you're on AWS, GCP, anywhere else. I think inflection is interesting. I feel like that deal was almost misreported.

    10. HSHarry Stebbings49:15

        Hm.

    11. THTom Hulme49:16

        I do not believe that Microsoft were buying the Pi model. I think Microsoft are GPU constrained and were buying a cluster of 12,000 H100s. So I think it was an incredibly smart move by Nadella in order just to lock in a cluster for training. It was just a convenient story for the press to say, "Oh, they're gonna give access to the model." But that model was obsolete months ago. Absolutely no one is queuing to use it now (laughs) .

    12. HSHarry Stebbings49:48

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

    13. THTom Hulme50:09

        I don't know the answer to that, but I would say-

    14. HSHarry Stebbings50:12

        Would you be a buy of OpenAI at 90 billion?

    15. THTom Hulme50:15

        I would struggle to make that investment today. No.

    16. HSHarry Stebbings50:21

        Yeah.

    17. THTom Hulme50:22

        And it's not because I don't respect the team, just a world-class team. My biggest concern at the moment... and look, I'm constantly learning. I revise this opinion all the time. But if I observe the emergence of, uh, what Meta is doing, if I look at the arms race of what the cloud providers are investing in and the sort of Gemini, et cetera, any advantage is pretty ephemeral. And the consumer-facing product that doesn't, that drives, I don't know, is it 50% of the revenue? Something like that, is not sticky. So to invest in a foundation model, what would I want to be true? I would want to believe that they had some unique approach that made them more defensible. So an obvious one is memory. Like actually none of these have cracked memory yet. But if you have a personal assistant, a ChatGPT equivalent, and it m- it remembers so that it can actually be, apply probabilities as to what you want going forward, then it's interesting. If it's unique in its, um, a- ability to take agency, then it might be interesting. There's other orthogonal approaches that might be interesting. But if we're just talking about a foundation model where you've gotta throw huge amounts of data, hundreds of millions of dollars of compute at H100s like everyone else, it's very difficult to see a return on these investments.

13. 51:45 – 1:00:00

    Sustainable Value in the Application Layer

    1. THTom Hulme51:45

    2. HSHarry Stebbings51:45

       Uh, listen, I, I do totally agree with you. So if we move on to the application layer, how do you determine between, like, sustainable value generation versus like, I think we see with quite a lot, like flash-in-the-pan fast revenue scaling, but not sustainable value generation opportunities?

    3. THTom Hulme52:00

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

    4. HSHarry Stebbings52:59

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

    5. THTom Hulme53:15

       Yeah, I think the question they're not asking enough is whether these people have experience of comme- or the founders have experience of commercializing businesses, iterating fast, and creating value. I think a lot of these researchers are unbelievably smart human beings, but they've often been in an environment which gives us confidence they're smart, whether it be DeepMind, whether it be Meta. Uh, but actually the idea that they can all go out and create highly profitable, fast-moving businesses seems ridiculous. And I think the question is not, it's only ever asked about how technically strong they are, but if you believe that this is a fast-moving industry that commoditizes fast, you better be able to run fast.

    6. HSHarry Stebbings54:00

       What percent of dollars going into AI today will go to zero?

    7. THTom Hulme54:04

       Foundation models, 90%.

    8. HSHarry Stebbings54:06

       Yeah.

    9. THTom Hulme54:08

       Application layer, 70%. And in the incumbents, the value going into the incumbents, only 20%. Now if you look at the proportion of the, like, Fortune 500 that are using Copilot, I think it's 60 or 70% I heard last week. It's an extraordinary amount. Like, that is a good investment, that is improving productivity, but that has all the hallmarks of a sustaining innovation.

    10. HSHarry Stebbings54:33

        Yeah.

    11. THTom Hulme54:34

        So these applications can make an unbelievable difference. The challenge for you and me in our job is it's actually a lot of the value's going to the incumbents.

    12. HSHarry Stebbings54:42

        No, the- the big challenge, I think, is just that you've never seen incumbents with the strength that we have today. Everyone's like, "Well, there's always incumbents, there's always incumbents." Microsoft is throwing off 350 million in cash a day.

    13. THTom Hulme54:53

        Yeah.

    14. HSHarry Stebbings54:53

        It's a fucking insane amount. Amazon, uh, gave their results last night, they were just-

    15. THTom Hulme54:57

        Yeah.

    16. HSHarry Stebbings54:57

        ... disgracefully brilliant. (laughs) Like just so good.

    17. THTom Hulme55:00

        Totally agree.

    18. HSHarry Stebbings55:01

        And I find that really challenging to consider how it changes our world.

    19. THTom Hulme55:06

        Yeah, I agree. I think the flip side is one of the fasci-

    20. HSHarry Stebbings55:09

        From Google Ventures? (laughs)

    21. THTom Hulme55:11

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

    22. HSHarry Stebbings55:44

        Of s- sowing the seeds for distribution.

    23. THTom Hulme55:46

        Correct.

    24. HSHarry Stebbings55:46

        Yeah, I completely fucking agree. And all these, like, vertical providers who are like, "But we're a little bit better," uh, 5% better on UI, uh, dos butter, no parsnips.

    25. THTom Hulme55:54

        Correct. That is, (laughs) , you have never used that expression before.

    26. HSHarry Stebbings55:59

        (laughs)

    27. THTom Hulme55:59

        I feel like I've just walked onto the set of Blackadder. (laughs)

    28. HSHarry Stebbings56:02

        (laughs) It's one of my favorites.

    29. THTom Hulme56:05

        It is fantastic.

    30. HSHarry Stebbings56:06

        Isn't it good? Huh.
14. 1:00:00 – 1:06:38

    Founder Perspective: Naivete vs Insider Knowledge

    1. THTom Hulme1:00:00

       are an optimist.

    2. HSHarry Stebbings1:00:00

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

    3. THTom Hulme1:00:19

       I... Look, that is a great question, and this is gonna be a frustrating answer to someone that probably wants to have a sort of soundbite from it. But it depends.

    4. HSHarry Stebbings1:00:28

       (laughs)

    5. THTom Hulme1:00:29

       And actually, I've got excited about both before, so I... Look, I'll give you extreme example. We invested in Lemonade, Series A, wonderful founders, one shy, had done Fiverr, uh, product and design guy. Daniel, lawyer, had done hardware, and they were going into insurance. Combined insurance experience between those two, zero. What was their unfair advantage? They understood, like through his, uh, Daniel's legal background, he knew how to manage a business. They understood the tech side, and they would have an incredible clock speed. They were releasing, uh, on a daily basis, whereas that industry is every month. So their un- unfair advantage was speed and they recruited in depth. They brought in amazing people, like Tim, who had actually deep industry insurance experience. So in that case, I was happy to invest in the naive approach.

    6. HSHarry Stebbings1:01:16

       Mm.

    7. THTom Hulme1:01:16

       Other end of the spectrum, we invested in CurrencyCloud. Mike Lavin, the founder, I think had 30 years experience in fintech. He was so well-placed to understand actually what those buyers wanted, and ultimately sold the business to Visa for a billion dollars. Like, he was the... Not the ultimate insider, but he had real depth. I am absolutely comfortable with both of those approaches. But my question is, for the industry, how much inside knowledge do you need? And if you don't have it, can you bring it in? I think the danger is, often founders don't have the humility, so they're not willing to learn, and they have to learn everything from scratch. That's madness. If you have the naive approach, then you better bring in specialists that can help you learn fast.

    8. HSHarry Stebbings1:02:00

       Is speed of execution the single most important thing in moving from zero to one?

    9. THTom Hulme1:02:04

       Yes. Uh, and I would say it's clock speed. I think every startup is a series of unanswered questions, and the best founders choose the order in which they answer the questions, and they answer them extremely efficiently, and that is basically speed of execution. They are just... The, the... One of the biggest things that I tell founders is, "Perfection is the enemy of progress."

    10. HSHarry Stebbings1:02:28

        Mm.

    11. THTom Hulme1:02:28

        I see founders all the time that just want the perfect solution, and they'll never do anything. They'll never release anything. The best founders are pragmatists. They are running the scientific method, "I want to answer this question. I'm gonna answer it this efficiently, and then I'm moving onto the next."

    12. HSHarry Stebbings1:02:44

        Do you agree you're always embarrassed by your V1?

    13. THTom Hulme1:02:46

        With hindsight, yes.

    14. HSHarry Stebbings1:02:48

        Mm.

    15. THTom Hulme1:02:48

        At the time, no. The question is, is the V1 good enough for you to get meaningful me- feedback?

    16. HSHarry Stebbings1:02:53

        Mm.

    17. THTom Hulme1:02:53

        I mean, I've seen V1s that don't even describe what the product is. There were, there was a period of time, you'll remember this, when people were getting signups for their products without describing what their product did, and they would call it product market fit.

    18. HSHarry Stebbings1:03:06

        (laughs)

    19. THTom Hulme1:03:09

        Makes no sense. V1 should be the minimum amount to get good feedback about whether actually you have something that customers value.

    20. HSHarry Stebbings1:03:17

        You say, like, good feedback there. Uh, you've said before to me that free kills feedback.

    21. THTom Hulme1:03:21

        Yeah. I... So this is one I see. I talk to founders about a lot. I see a lot of businesses, and it's slightly different in consumer, but they will not charge their early adopters. They won't charge their design partners. They won't charge their ICPs. And the problem with that is, you don't know if it's valued. And generally, people don't value what they don't pay for, so you get bad feedback. And in the early stages of a startup, you have to get good feedback from the market, which means fast and accurate, and that customer set has to be representative of where you wanna go.

    22. HSHarry Stebbings1:03:54

        I totally agree with you in that respect. It's funny, I always remember Ryan at Flight Support said to me, like, "It's not speed. Uh, it's velocity, which is speed in a given direction."

    23. THTom Hulme1:04:03

        I love that.

    24. HSHarry Stebbings1:04:04

        Yeah.

    25. THTom Hulme1:04:04

        I totally agree with that.

    26. HSHarry Stebbings1:04:05

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

    27. THTom Hulme1:04:12

        100% agree.

    28. HSHarry Stebbings1:04:13

        Mm-hmm.

    29. THTom Hulme1:04:13

        Actually, like, I had never thought about the velocity argument. I think it's exactly right. The direction makes sense-

    30. HSHarry Stebbings1:04:18

        Now, I'm just a book of, like-
15. 1:06:38 – 1:09:53

    Remote vs In-Person Observations

    1. THTom Hulme1:06:38

    2. HSHarry Stebbings1:06:38

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

    3. THTom Hulme1:06:51

       Yeah, I mean, it's an amazing array. So I'd, I, I'd first carve out companies that are sort of natively remote. So Dave Monacello, who you know, led-

    4. HSHarry Stebbings1:07:01

       Mm-hmm.

    5. THTom Hulme1:07:01

       ... our investment in GitLab at the series A. Phenomenal investment, never had an office. They also said the founder is incredibly thoughtful that actually he's very careful that all meetings are recorded asynchronously. Everyone can, you know, contribute to the board meeting document. They get the whole team together. It's not a great cost-saving thing, it just works for them. So look, there's native remote businesses that work very well, then there's everyone else that was sort of forced to be native during COVID and I think executed badly-

    6. HSHarry Stebbings1:07:31

       Yeah.

    7. THTom Hulme1:07:31

       ... and generally went through this arc where they said, "Oh, this is really good. Everyone can work at home. Everyone works really efficiently." Then over time everyone realized, "Actually, we're not innovative. The junior people on the team are not learning. People are getting frustrated." Like, you and I went for walks during that period, and I remember us joking that we just became, like, we became very efficient at our jobs by doing 30 Zoom calls a day, but actually we'd become efficient at our jobs by taking all the fun bits out.

    8. HSHarry Stebbings1:07:58

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

    9. THTom Hulme1:08:17

       Yeah. That's... It's so interesting.

    10. HSHarry Stebbings1:08:18

        ... they, they're kind of hot desk.

    11. THTom Hulme1:08:19

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

    12. HSHarry Stebbings1:08:30

        Or, or a GitLab.

    13. THTom Hulme1:08:31

        Yeah. Exactly.

    14. HSHarry Stebbings1:08:32

        To- totally agree with you there. You've said that you're suspicious of ambitious young people who insist on fully remote. Why is that?

    15. THTom Hulme1:08:39

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

    16. HSHarry Stebbings1:09:15

        I always say kind of about the value in, in the kind of chasm or the cracks, which is like at the end of the sales meeting you come out with your boss and he goes, "You know what? We should have structured it this way."

    17. THTom Hulme1:09:25

        Nothing like feedback.

    18. HSHarry Stebbings1:09:25

        "We could have done it this way."

    19. THTom Hulme1:09:26

        That's... Yeah. If you're in person, feedback is zero friction.

    20. HSHarry Stebbings1:09:30

        Dude, I remember with Mark Evans when I was an intern to him 12 years ago, I'd go to board meetings with him and then he'd always go, "How do you think that went?" After the call on the way back.

    21. THTom Hulme1:09:38

        Yeah.

    22. HSHarry Stebbings1:09:38

        Like, after, on the way back, in the taxi home or in the tube home.

    23. THTom Hulme1:09:41

        Zero friction fee.

    24. HSHarry Stebbings1:09:42

        You never got an end call done. If we were interns or what, I, I would never have got that.

    25. THTom Hulme1:09:46

        And he's a wise man, so kind of Yoda-esque.

    26. HSHarry Stebbings1:09:49

        Yeah.

    27. THTom Hulme1:09:49

        A few seconds of Mark Evans wisdom is worth a lot.

    28. HSHarry Stebbings1:09:52

        Totally.

16. 1:09:53 – 1:14:54

    Quick-Fire Round

    1. HSHarry Stebbings1:09:53

       Okay, we're gonna do a quick fire. How does that sound?

    2. THTom Hulme1:09:55

       Yeah, sounds great.

    3. HSHarry Stebbings1:09:55

       First one, what is the best board you sit on and why that one?

    4. THTom Hulme1:09:59

       I think I'd say Nothing. Incredible business, hardware company founded by Car- by Carl Pei. I love that board because it's truly global. We have insight from India; China; design in Sweden; uh, the, the design and marketing team in London; and it's all coalesced around that table. And they work together with a real focus on creating value for the end customer and it's a global customer. I think they'll do $600 million revenue this year. They've sold three, three million devices so far. Like, there's hardly any phone company that's done that. And you've seen the press in the last few days, there are a lot of hardware companies that are not selling products, they are selling product. Sorry, they're not selling, they're not selling products, they're selling promises.

    5. HSHarry Stebbings1:10:50

       O- I think what Carl's done in this short space of time is incredible.

    6. THTom Hulme1:10:53

       It's incredible.

    7. HSHarry Stebbings1:10:54

       I totally agree with you there. Climate change needs AI's PR team.

    8. THTom Hulme1:10:58

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

    9. HSHarry Stebbings1:11:29

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

    10. THTom Hulme1:11:38

        Uh, yeah, uh, th- uh, it, it's fascinating to me and I've never seen anyone sort of share this. But I think there is a correlation between how aggressively people predict AGI is coming and how much capital they need to raise. So you've got a Modi from Anthropic, you've got Altman, OpenAI, Musk, xAI, all of these guys are saying that it's just around the corner and this industry is moving incredibly quickly. Then in contrast, you've got Zuckerberg at Meta, you've got Demis Hassabis at DeepMind and they're a lot more cautious, they don't need to raise money. And so I wonder, my general bias would be to look to the people that don't have to raise money for their point of view, assuming they're all equally smart.

    11. HSHarry Stebbings1:12:25

        What's the most memorable first founder meeting you've had?

    12. THTom Hulme1:12:28

        Oh my gosh, I've had a few. But, um, I would say I had one for GV in California where the founder brought his life coach who sat at the room (laughs) with a moleskin-

    13. HSHarry Stebbings1:12:39

        Mm-hmm.

    14. THTom Hulme1:12:40

        ... we won't (laughs) , we, that one we, we'll skip over. But I would say the most memorable-

    15. HSHarry Stebbings1:12:43

        You didn't do the, do the deal.

    16. THTom Hulme1:12:44

        ... we didn't do the deal and the company was subsequently in the headlines a lot for the wrong reasons.

    17. HSHarry Stebbings1:12:50

        (laughs) .

    18. THTom Hulme1:12:50

        But the, I would say the most memorable one was during COVID we invested in Neuralink. So incredible founders, Elon, Max, amazing and they shared with us how they were gonna do the human machine interface, they'd been testing on primates. I have never had so many mixed emotions as in a pitch, but I left that pitch thinking, "These people have the potential to change the world."

    19. HSHarry Stebbings1:13:14

        Did you meet Elon as part of that?

    20. THTom Hulme1:13:16

        Yeah.

    21. HSHarry Stebbings1:13:16

        Wow, that's pretty cool. Was it a good pitch?

    22. THTom Hulme1:13:19

        It's, it was a brilliant pitch in that case. Uh, we've been lucky enough to see him at events when they've kind of unveiled their progress. I went to one actually in California where there were a series of phenomenally talented PhDs and at this point Elon was running three or four companies, I can't remember which. And he was able to go toe-to-toe with all of those PhDs technically on that business. His just throughput and horsepower in understanding the business from first principles completely blew my mind.

    23. HSHarry Stebbings1:13:56

        Are you a superboy on Elon?

    24. THTom Hulme1:13:58

        I have to say I am. Uh, it's-

    25. HSHarry Stebbings1:14:00

        I am.

    26. THTom Hulme1:14:00

        ... hard to look at anyone that has shaped the world in my lifetime more.

    27. HSHarry Stebbings1:14:07

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

    28. THTom Hulme1:14:10

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

    29. HSHarry Stebbings1:14:47

        Mm-hmm.

    30. THTom Hulme1:14:47

        ... we might see the potential in robotics.

Episode duration: 1:17:50