Tom Hulme & Stan Boland: Lessons from Jensen Huang & How to Fix the UK Tech Ecosystem

Stan Boland 0:00 $20 trillion of value created in the last 50 years in building decacorns in the US. The UK has created two, about $170 billion of value in the UK. So, the lack of capital crimps the ambition of companies, and therefore, the best founders go to the States. We need to flood the UK with venture capital.

Tom Hulme 0:18 The biggest challenge is for every one good founder, you need five or 10 world-class operators. And I think that's the biggest gap for us. If you look at Oxford, Cambridge, Imperial, they're only graduating between them about 500 computer scientists or roboticists per year. We should five X that number.

Stan Boland 0:36 If you graduate in engineering or computer science or something here, you should have stapled to your graduation certificate a tier two visa.

Harry Stebbings 0:43 Ready to go? (upbeat music) Guys, I am so excited to make this happen. Uh, two of the smartest people, I think, in European and UK venture and startups. So,

Harry Stebbings 1:03 I want to start with a little bit of context. Stan, if we start with you and then move to Tom, uh, I- I love listening to you speak about the UK and where we are. What's the background as to how you got here and just a quick one-mid intro on you?

Stan Boland 1:16 Yeah. So, I joined a company called Acorn, which is a computer company based in Cambridge, um, back in 1997. Uh, it owned this thing called Arm, 40% of this company called Arm. So, I helped get Arm public, um, and then figured out what to do with Acorn. Set up a chip company outside, uh, out of Acorn, which got venture funding for, uh, raised $30 million of capital and sold that company to Broadcom for about $640 million, um, about a year and a half later, this amazing deal. Um, did a second deal, uh, in the chip space, which I built a company and sold that to NVIDIA, um, and did, uh, a third deal, which was in the AI space. So, I've- I've serially founded and ran and then sold companies. Raised about $330 million in venture capital and sold them for about $1.3 billion. So, so that's kind of what I've been doing for the last like 25 years is doing that.

Tom Hulme 2:10 Well, good, good luck to follow on.

Harry Stebbings 2:11 I'm mainly here just to learn from Stan. That's the reason I'm here.

Stan Boland 2:15 I'm sure this will prove.

Harry Stebbings 2:15 Tom, what about you?

Tom Hulme 2:16 Uh, so look, yeah, I- I won't give a- a long bio, just a really quick one. So, I helped set up GV in Europe the year you started 20VC, in 2014. And so we've now done over 50 companies, we've invested in, uh, 12 countries, uh, we just broke through half a billion dollars in the UK alone with our investment in Isomorphic last week, and passionate about making the y- sort of European ecosystem as vibrant as possible. So, keen to discuss that.

Harry Stebbings 2:47 So, I want to discuss it in the way that we're going to kind of cite the problems and then cite the solutions. I don't want to be a Debbie Downer and just do the problems, but I want to be also pretty granular on the solutions.

Tom Hulme 2:55 Yeah.

Harry Stebbings 2:55 I think for me, the biggest problem is actually talent supply and not being a magnet for the best developers in the world to have as London or the UK anymore, where I think it maybe once was. Do you agree that we have a fundamental talent problem today in the UK?

Stan Boland 3:11 Uh, I think we've got a bit of a talent problem in the UK. So, I- I don't think we're the magnet that we were or that we could be. Um, I think it's quite interesting, actually, if you look at where talent is being born in like AI across Europe, and you look at where it lands in terms of where it stays, actually the UK is minting about the same talent that it's keeping. Uh, but that is a net-net actually. Um, so we're losing talent to the US, um, and we're actually recovering some of that from other parts of Europe. So, net-net, we're about the same actually, but we could be 10X better, frankly. Uh, so I think that's the key point is that, you know, we ought to be making the UK the magnet, the place to set up a company in Europe actually, and all that talent that is leaving the UK and leaving other parts of Europe to go to the States, we- we ought to be capturing it and building companies here. Um, so, so we- we... I- I- I'd say we're losing a bit of it, yeah.

Harry Stebbings 4:02 I think of it in like engineering talent, and then I think of it in founding talent. How do you think that differs? Like, as you said, that net-net for like deep AI engineers, I think my worry is actually do we actually have the founder supply that is exceptional that maybe other countries do? And that's the difference that I think about.

Tom Hulme 4:19 From my perspective, so I completely agree. I think we're rate limited. I think it's the biggest rate limiter actually is supply of founders and supply of operators. The great thing about founders is they'll smash through walls to build stuff. Uh, so you have Melanie at Canva built, you know, built that business in Perth, Australia. No right to build a $50 billion business in Perth, but it can be done. If you gave me the choice to have more, uh, Niklas Zennströms or Demis Hassabisses or Stans, I would absolutely take that. I think, you know, it could only be a good thing. The biggest challenge is for every one good founder, you need five or 10 world-class operators. And I think that's the biggest gap for us. That's the rate limiter. To Stan's point, if I just look at engineering talent, we've got three of the best 10 universities on the planet here. If you look at Oxford, Cambridge, Imperial, they're only graduating between them about 500 computer scientists or roboticists per year. We should five X that number. There's a huge demand. I don't see why we aren't increasing it. And then to Stan's point, we can do a better job of actually making it appealing to come into the UK for the most entrepreneurial talent and maybe retain the talent that does study here and becomes expert.

Stan Boland 5:31 Yeah. And there- there- there's two big exporters of talent in the world, I think. One is China, one is India. Um, and the majority of the graduates there have decided to go and work in the States, frankly. Um, so even if they come to university here, they're typically not staying actually. They- they come here actually with pretty much no intent of staying. And in fact, we're not really welcoming, welcoming them either, really. So, you know, so if you, if you graduate in an engineering or computer science or something here, you- you should have stapled to your graduation certificate a tier two visa, um, and rights to stay and a right to bring your family across as well. And just make the UK the place that people want to come actually, um, is what we should be doing.

Tom Hulme 6:10 I love that. Can I build on that? I, um, I think you become what you measure, and the government are measuring a lot of kind of lagging indicators. I was inspired, we invested in Stripe in 2017, and one of the things that struck me is the Collison brothers were tracking a KPI. They were tracking the number of series A companies that transact online that they actually, you know, that are using Stripe. And the number was phenomenal. It was like high 80s percent. Taking Stan's idea, our government should be actually looking and seeing at the people that are graduating, what is the percentage that are choosing to stay? That is the leading indicator. Like great founders focus on leading indicators, not lagging.

Harry Stebbings 6:45 Totally agree with you.

Stan Boland 6:46 Yeah.

Harry Stebbings 6:46 You mentioned that attaching the tier two visa to the graduation ceremony-

Stan Boland 6:50 Yeah.

Harry Stebbings 6:50 ...

Harry Stebbings 6:51 ticket. Is there anything else that we could do to make sure we have a high talent retention number for great engineering and founding talents?

Stan Boland 7:00 I, I think the second big factor is money, actually, which we're, I'm sure we're gonna go and talk about in a second actually. But m- money is the-

Harry Stebbings 7:06 There's no structure to this.

Stan Boland 7:08 Yeah.

Harry Stebbings 7:08 ... this role.

Stan Boland 7:08 Yeah, m- I think money's the great attractor of talent as well. So yeah, part of the reason that people will come to the UK, come to London or the Golden Triangle, is the fact that they can get funded here, um, uh, they, they cannot just get funded, uh, pre-seed and seed, but series A, series B, series C, growth phase as well. And in fact, keep the company here. So, um, and, uh, yeah, I th- I think the, the, the kind of constraints that come from lack of capital, um, I think is also a factor. And, um, so, so the model in the UK has re- really been, "Let, let's build early stage companies, let's get 'em to a certain point, and then let's flip them to America." And, and, uh, and I think a lot of founders might be thinking, "Why don't I just skip that first stage? And why don't I just jump on a plane and form the company in

Stan Boland 7:55 the US actually?"

Harry Stebbings 7:56 Why do you think we have a lack of capital in the UK? I, I disagree with you, so I'm intrigued why you think we have a lack of capital.

Stan Boland 8:02 Well, I think you just need to look at the numbers. Um, you know, the, the, the numbers, uh, say that, um, I think in last year, the, uh... Because the model, I think, to copy is the US. I mean, you know, so the, the US, uh, is, is just so obviously successful in technology, uh, uh, $20 trillion of value created in the last 50 years in building, uh, decacorns in, in the US. Uh, the UK's created two, um, uh, about 170 billion of value in the UK. So, so it, it, it's like two orders of magnitude off, uh, the US. Um, so, um, so the, the US I think is a model to copy. And the, um... I, I think if you look at how much venture capital was raised by US VCs last year, it was about 76 billion raised in the US. Um, pro rata to population, the UK should be 15.4 billion. Um, the UK funds raised 3.7 billion last year. So we're short about 12 billion in venture capital.

Harry Stebbings 8:57 I absolutely hear you. But as a day-to-day venture investor on the ground trying to find companies and great people to invest in, there is simply not the supply of entrepreneurs, if I were to keep my bar as high as it needs to be to build great companies, to deploy that money.

Stan Boland 9:12 I think the, there is a chicken-egg situation here. So, you know, traditionally the way to think about this is that, you know, you create this, um, you create this momentum of, you know, building successful companies. The idea is that capital flows to places it gets a return, therefore you, you, you create a track r- record of building companies here, and capital will flow to the UK. And that's the causality. I think the causality actually is the other way around. Um, and the causality is that if we put capital in place here, great companies will rise to the occasion and, and, and supply of companies will come. And the, the reason I say that is that there's a country you can look at where this is true, and that country's China. Um, and so 20 years ago, China's got, you know, pretty much nothing really in technology. And, and the Chinese studied the US model, and it put huge amounts of capital in place. And now China is clear global number two in terms of technology. Uh, you look at, you look at the amount that's invested in AI, for instance. I mean, it, it's, uh, there's only two countries really investing in AI, uh, US and China. And European investments are diddly-squat. You almost, you almost can't see them they're that small. Um, and, um, and, you know, net result being, we got a very successful Chinese, uh, tech sector. Um, so I, I, I actually think that, you know, by the lack of capital crimps the ambition of companies. And therefore, the best founders go to the States, and that we, we end up underachieving really.

Harry Stebbings 10:43 Mm-hmm.

Stan Boland 10:43 Um, so...

Tom Hulme 10:44 I, I think that's fair. I would just maybe make a caveat that I think the goal should be that the best capital gets concentrated in the best companies. Like China's an amazing example. You get concentrations of talent and then concentrations of funding taken to an extreme there. I think one of the data points that makes this so difficult is none of us, I would think, think that all companies should get funding.

Harry Stebbings 11:07 Mm-hmm.

Tom Hulme 11:08 Uh, and the, the real challenge is if you ask any founder, and by definition at seed stage, maybe the majority shouldn't get funding. When they don't receive the funding, they think it's a funding gap.

Harry Stebbings 11:18 Mm-hmm.

Tom Hulme 11:18 So I don't think what we should be doing is necessarily just sort of evenly distributing capital across the whole market.

Harry Stebbings 11:25 Mm-hmm.

Tom Hulme 11:25 I actually think that's damaging for talent concentration as well. Instead, we should have sophisticated people say, "These are the companies that can win. These are the companies that can actually absorb more capital because the founders are great. They're not gonna be over-capitalized." They'll then bring in the best people, and maybe they can just be more ambitious.

Stan Boland 11:43 Yeah. I, I've got a good example of this actually. There's a, a company I've invested in, uh, called WordWhere. Um, it's a good name check for them. (laughs) Um, but, uh, the two guys, uh, studied, uh, computer science in Cambridge, um, could have set up a company here, uh, could have raised probably five million on a 20 pre, uh, could have built a really int- it's, it's basically, um, a set of tools for LLM prompt engineering. Um, but they went to San Francisco instead. Um, they ended up raising 30 on a 220 post.

Harry Stebbings 12:14 This is Philippe Cozara?

Stan Boland 12:15 Um, this is Philippe, yeah. Yeah.

Harry Stebbings 12:17 Ah.

Stan Boland 12:17 So, those investors are expecting them to build a business worth two to three billion-... you know, sort of 10x. Um, so, uh, so that stratospheric raising of expectations, um, is part of the US playbook. Um-

Harry Stebbings 12:31 I think those investors are expecting him to build a 10 billion business.

Stan Boland 12:34 Or maybe a 10 billion business.

Harry Stebbings 12:35 It's, it's Spock.

Stan Boland 12:36 Yeah, yeah.

Harry Stebbings 12:36 We, we, on a 10% ownership, you need a billion dollars.

Stan Boland 12:38 Yeah. Okay, yeah, so even, even better. Um, but the fact is they've got the capital to do it really as well. So, so this cranking up of expectations and the provision of capital behind founders with energy and enthusiasm, I think, it does work. I mean, it's part of the US playbook. Yeah, I completely agree, Tom, that, you know, it's concentration that really matters really and the ability to put a large amount of money at the right point behind founders that have the energy and intellect and the, um, pivotability and the coachability, I think is absolutely critical really. And, uh, it's the bit that is sort of missing, I think, in the UK and in Europe as a whole,

Stan Boland 13:15 actually.

Harry Stebbings 13:15 I don't think we need more money. I'm seeing everyday the most inflated prices. And it's just because you see this concentration of capital to obviously good people like your WordWears, where you can get a five on 30, five on... And then Lightspeed and General Catalyst come in, and suddenly, it's six on 80, and it just goes nuts. I see now complete removal of liq prefs, and it's because we don't have the supply. The capital concentrates and just inflates in a way that's much more so than the US, and, uh, so I think we have this fundamental talent problem, and then we have a narrative problem, which is based around behavior of venture investors in Europe, which is if you speak to Philippe, uh, or Philip, um, he'll tell you that, like, "It was super fast in the US. They totally got me. They w- gave me a great experience." And in Europe, it takes weeks, the partners aren't here, and they're slower. Uh, we have a very bad customer experience for founders in Europe, which I think makes it a less attractive funding product than the US.

Stan Boland 14:11 Yeah, I think that's certainly true, but, uh, but by... My, my solution for that would be, um, let's increase the amount of capital here, and the best founders will seek out the best VCs. The best VCs will generate outsized returns, and they'll be able to raise the next round of the next capital basically. So you will gradually, and may- may hopefully quickly, ratchet up the performance essentially of venture in Europe

Stan Boland 14:37 actually.

Tom Hulme 14:37 The thing that has scared me historically when people have talked about, for example, government investing in startups is, I think it's an incredibly difficult thing to do. I think VCs take... I don't know if I'm any good at it still because the feedback loop is probably a decade.

Stan Boland 14:52 Mm-hmm.

Tom Hulme 14:52 It's like the worst learning loop ever. And so the important thing is to make sure that if there is more capital in the system, it's deployed by the experts-

Stan Boland 14:59 Correct.

Tom Hulme 15:00 ... and they can sort of really see that kind of compound effect.

Stan Boland 15:03 Completely agree. It, it'd be absolute disaster for government to be making direct investments in companies, I think, 'cause there's, there's v- well, it, yeah, there's no way they can do it, I think, uh, successfully, uh-

Harry Stebbings 15:13 I mean, I mean if we want to get really spicy then, uh, Tom's seen my Twitter, and I give not many shits anymore. Um, I, most of the BBB's portfolio is just dire. Like the fund d- the, the, you know, the funder funds investing.

Stan Boland 15:26 You mean their direct portfolio?

Harry Stebbings 15:27 I mean, the- th- these funds should not be in existence. Like, the question is, do you have a right to win? Do you have a right to find companies, pick them, win them, help better? And the majority are honestly dire, and they will not do well. Government money will be wasted, and I think I get both of what you're saying, but I think then if you're like, "Well, I want this to go to truly gifted individuals who will invest it wisely," well, then we should see real concentration of capital to three to five players in the UK, because honestly, I think that's only the amount that's very good. And I think probably, Tom, if I push you, you would agree.

Tom Hulme 16:00 I do- I mean, f- couple of quick reactions. Firstly, I don't think it needs to just be, uh, to players in the UK. It can be global funds. I think you have some of the best. And the second thing is, uh, the best funds have proven themselves for multiple vintages now. Uh, they're oversubscribed, but I would hope that the UK, UK PLC could get into those funds.

Harry Stebbings 16:20 But there's no way they can, there's n- well, that's-

Tom Hulme 16:22 Particularly if they could add value. Well, that's the question.

Harry Stebbings 16:23 Again, calling a spade a spade, there's no way they could get into Excel Index or any of the brand names.

Tom Hulme 16:27 That's the question.

Stan Boland 16:29 Yeah. Well, I would say that there's, um... Fir- firstly, no large funder funds has ever lost money. So, yeah, so, so I think from a, from a investment perspective, I think, you know, government ought to be willing to take a much bigger risk on funder funds investments here in the UK. I think BBB puts something like 424 million dollars a year into funded funds investments, which is a drop in the ocean compared to the 15.4 billion that we ought to be investing. So, uh, so yeah, that number needs to be like 10xed in my view. Um, and, and then secondly, I think, I think there is a venture talent pool that can be energized. I think below partner level in a lot of these firms, there are a bunch of people who are principal level, uh, who could be interested and willing to run a new fund and would do a bloody good job at it actually. Um, and I also think that we're at a time when, uh, US partners would consider coming to Europe if the capital was available. If we g- because here, you know, there is, there is talent in Europe, um, valuations are lower. If you could put the money in place, um, then I think we owe... Not only would we have some homegrown talent we can release from venture firms, but I think we could also imagine, you know, some of the, uh, leading partners in US firms coming to London or, or, or UK to, to basically get this economy really moving actually. Um...

Harry Stebbings 17:57 (laughs) Sometimes in my head, I think, how many friends do I want to lose in one single show? Um, my question to you (laughs) , I mean, I, I don't agree that prices are better here, honestly. Like, for the best companies, for your WordWears, if they were to stay, they're just so high, they're so inflated.

Tom Hulme 18:12 I think just a quick thought on-

Harry Stebbings 18:13 Do you agree?

Tom Hulme 18:14 No, no. I... Sorry, if I look at where we sit today, some of the best deals are overpriced. I think it's often because they're the ones with the traction.... uh, and they're therefore somewhat de-risked. And I think there's two things that make this a really difficult thing we- to answer. We talked about lagging indicators. The first is, we're basically trading against, or we're working against sources of capital that were raised in the past, right? These are not brand new funds, often. And often they were raised in zer-... The cost of capital has gone through the roof, like given the current interest rate environment. I think that's gonna get worse, if anything. The fact that a lot of these funds are giving out so many stock grants, you basically need to hit 20% IRR to break even. These numbers are really high. So, that's the first thing. I actually think there's probably gonna be less money in the market for venture, uh, in two years than there is today. It's kind of a question for us. And then the second thing is, classic machine learning, I think we're overfitting to history. I don't think we know what the biggest companies look like going forward. And so it's very difficult for me to just say that actually, the sort of returns profile that funds got from investments 10 years ago, are they gonna be the ones they looked like before? My belief is that AI is creating a real power law, far more than we've ever seen before. And so the job to be done is gonna be, be in those handful of global champions. If you look at, I think, uh, Israel is an interesting example for us at the moment. Amazing story recently, the Wiz acquisition, 32 billion, that's like 7% of Israel's GDP. Uh, a lot of that is actually flowing back to Israel, and it will create this multiplier effect. That business was basically built in five years.

Stan Boland 19:57 That's nuts.

Tom Hulme 19:57 It was assembled without actually a clear sort of, uh, problem identified. They just got a world-class team, and they really well-capitalized the business on day one. I think the businesses we want to build look more like Wiz, and so concentrate capital into the best founders. Can that be done from the UK or Europe? Hell, yes. What we do often at the moment is we say, "Be close to your customer." We say, "Go to the US because the market size is roughly an order of magnitude bigger than it is in the UK." We're not saying, "Give up the US market." Absolutely go to the market, but build a global business on day one.

Stan Boland 20:33 Yeah. I think that's right, yeah. I- I- I think it's almost pointless building a sort of number three or number four in the marketplace today. So, if- if we're gonna under-capitalize businesses and build businesses that are number three or number four, it- it- it- it's not what we need, because those businesses have got no choice but to be sold to US companies. We're never gonna create companies here that stand up on their own two feet and generate the jobs growth and the diffusion of wealth that the country desperately needs, really. So- so- uh, so I think, yeah, we've got to concentrate on companies that could be global number one or global number two, which does require big cheques to be written to those companies at the right point, um, to-

Tom Hulme 21:11 Can I give another example-

Stan Boland 21:13 Yeah.

Tom Hulme 21:13 ... with this, where I think actually, because we are s-... In a way, we've got a problem that we're sub-scale, in the way we've-

Stan Boland 21:18 Yeah.

Tom Hulme 21:18 ... described it at the moment. I agree with that. The other place we could sort of, uh, that I think our, uh, relative size hurts us is in the sort of, you know, the sub-scale pension funds, for example. You've got 90 local pension funds. Actually, a policy that I was really excited about, the, uh, the chancellor, I think mentioned last year, is this idea that they should be aggregated so that they can have a world-class investment office, so they can do something like Yale. Like when I do LP calls, uh, for emerging talent-

Stan Boland 21:49 Thanks, dude. (laughs)

Tom Hulme 21:50 (laughs) You're very welcome.

Stan Boland 21:51 Tom had to do like 10. (laughs)

Tom Hulme 21:52 Yeah, I think it was more, dude.

Stan Boland 21:53 Literally, yeah.

Tom Hulme 21:54 I just told you about the 10. Uh, no, I did do a few, and the thing that's stunning about the US firms and then the sec-... They really, I think, more sophisticated ones here, like Wellcome Trust, just phenomenal investors, is they understand the power law, they understand they've got to build relationships for the long term, uh, and they can actually have world-class analysts inside those firms. And you can't expect a tiny fund to do that. So, this idea that we might aggregate 90 local pension funds in the UK to enable them to think more like Yale, rather than just replicating the asset split, I'd be really excited about.

Stan Boland 22:30 I thought it was so interesting you said that it doesn't make sense to build these, like, three or four tier players in a market, because, uh, I've been in venture for 10 years now. A lot of the job has been like, "Oh, well, it's like a HR platform X, but in Europe. It's Y for Europe." And actually, you can build billion-dollar, $2 billion or $3 billion companies on the back of that. Where can the UK and Europe then be a number one market leader and beat the US and China? Well, I- I think you, if you think of it as a stack from like, uh, semiconductors and hardware, up to sort of applications layer, um, then, uh, I- I think it's easier for Europe to think about building at the bottom of the stack or at the top of the stack, actually. Um, I think it's quite hard for Europe to sort of build in the middle of the stack. Um, so- so- so I think AI application companies that are solving a particular problem, particularly if there's a sort of defensive moat that exists in Europe, obviously, a- a good place to sort of start. Um, um, and, um, and- and then I think at the bottom of the stack, I mean, um, I think something that's attached to the metal, so semiconductors that are solving a particular problem, happen to be somewhere where we have the expertise to do that, and it happens to be a B2B sale, where we get paid for the value of the architecture that we put down and the utility it delivers. Um, and- and so I think it- it's easier to think top and bottom of the stack as the places that we can build those companies, actually. So, it's not necessarily where we're focused on, but it is kind of where we should be focused, whereas I think if you're building some middleware layer or some tools layer, I think it- it's a little bit easier to imagine doing that in the States, I think, than doing that here.

Tom Hulme 24:06 I think the interesting, uh, thing with Stan's argument, I- I really agree with it. I like the idea of focus and specialization. One of the things that concerns me is just this idea that we can be experts at everything. Instead, I think we have to say, "Actually, let's- let's have- understand our unfair advantages." If, for example, and I agree with it, the bottom of the stack, the infrastructure layer, is somewhere we can be world class, we've certainly got the technical talent, then I think we have to build the whole ecosystem and structure it and say, "Actually, in this one location, we're going to be effective." We ha- then have to do second order things, like we have, uh, the- probably the highest electricity or energy costs, uh, in the whole of the Western world in the UK. That just does not enable you to do a great job of this. It doesn't even enable you to do a great job of training foundation models. Like if the blended cost of training a large language model is 20% energy, we're already kind of losing. So, the important thing is to say, "Actually, what are we going to be world class at? And where are we going to be?" And we have some advantages, like one of the things that's interesting, we've done it in this conversation, it's easier to sort of aggregate everything at the national or continental level. In truth, we should be honest that London is incredibly difficult- different, for example, from the rest of the UK. Building a startup in Europe is doing it on ultra-hard mode. We've talked about it before. But actually, if you do it in London, it's slightly easier mode at the moment, because of the talent, because it's where the investors are. So, we have to start to just acknowledge that, lean into it, and actually have these pockets of specialization, I think.

Stan Boland 25:43 Yeah, I think that's right. Yeah, I mean, uh, I, I wasn't so much thinking, by the way, of, uh, of building lots and lots of data centers on a-

Tom Hulme 25:49 Not, not the IP, I understand, yeah.

Stan Boland 25:49 ... on expensive energy costs, because that, that would be-

Tom Hulme 25:52 I agree.

Stan Boland 25:52 ... nuts, uh, right now, obviously. Um, but I was more thinking about the, the chip design layer. So not even chip fabrication but, you know, chip design, which is where 75% of the value in the semiconductor space is, is. What NVIDIA is, what Qualcomm is, what Broadcom is, they're all basically semiconductor design companies that basically sell chips, but they get them fabbed by TSMC or whoever. Um, so tha- that's the model that, you know, we, we ought to be playing in. We have something like 2% of that global market in Europe. It's insane, honestly. Um, so, yeah, so in the fabless space. So, so, we, we, we must be building successful fabless companies, I think. And, uh, Europe has got the des-... In fact, the UK, um, in, in, in Bristol, as it turns out, happens to have this full custom microprocessor design capability that stems 20, 30 years ago from the creation of Inmos, which is kind of unique, actually. There's, there's only probably two places in Europe you can do that, and Bristol happens to be one of them. Um, so, so I think it's, I think it's plausible to build companies in this space that are global winners. And yeah, you're right, um, uh, that we do need to put much larger cheques into those companies. But that's the reason why we need more venture money here, uh, is to be able to write those cheques.

Harry Stebbings 27:03 It's interesting, you said about the co- the cost of energy. I was t- speaking to the CEO of one of the largest data providers in the world, or data center providers in the world, and he said, "Harry, in the US, my energy costs 4%. In UK, if I set it up today, it's gonna be 17% of total." And I was like, "I get it. That I did not know." You know, I was pushing, pushing, pushing, and he said that. I'm like, "All right, fine. You do you." Um, my question to you, then, is like, when we look at that, and we look at the money that's needed to fund that, where does that money come from? I, I understand your argument around the scale and the scale of cash needing to change. How do we fund the 450 million that BBB does invest to whatever we wanna call it, 2 billion, 3 billion, 4 billion?

Stan Boland 27:40 4 billion, yeah.

Harry Stebbings 27:41 Yeah.

Stan Boland 27:41 Um, yeah, I, I... Well, firstly, I think, I think the money i-... Europe has a lot of money, actually, um, so that's the first thing to say. So Europe's got a lot of money in... obviously in pensions. We talked a lot about pensions. It's also got a lot of money in family, uh, family offices, um, that are sort of locked up all over the place, actually. So Europe actually is not capital short, it's just not investing in this particular asset class. Um, um, so the job, uh, I think, of BBB is to create that asset class at speed and, and to play an enabling role in doing that, essentially. So, so my... you know, my suggestion would be that we get the government to increase the amount that British Business Bank, and we may need to uprate the quality and talent in BBB to be able to do this. But yeah, BBB puts like 4 billion a year in, um, and, and would, um, would require like a 50/50 funding ratio. So the GPs have to raise matching money, um, otherwise, you know, BBB doesn't participate. But it can be 50%. Um, so, so if I want to create a billion-dollar fund, I know I'm gonna get half a billion from BBB and I've got to raise the other half a billion, essentially. Um, so raising the funding ratio to 50/50 would be a good start. And, and then I think we've got to be creative, um, uh, which, you know, which I guess is another call to action for BBB, about how we, we split the fees and split the carry between the different LPs in the fund. So, so at the moment there's a lot of hand-wringing and anguish about the fact pension funds won't pay a 2% fee. Um, and, uh, uh, and I would say, "Fine, yeah, let's do it on a half percent fee then, um, but, but if... but instead, you know, the, the carry that the partners have is higher, um, and quid pro quo is that BBB might pay a 3% fee and the carry for the partners is lower. Um, but net-net we're still at two plus 20." So, so let's be creative about how we do it and let's flex to... You know, the job is to bring the capital in and make it mesh with public money to mint these large funds that can write these big cheques, that allow us to play seriously in some of these sectors that are basically capital-intensive and winner-takes-all. And, and that's, that's kind of what we need to do, I think, to sort of pull ourselves out of the, out of the, the s- the nosedive that the country's currently in, I think.

Harry Stebbings 29:55 Where would we get that money from?

Stan Boland 29:56 Oh, we... Well, we, w-... The, the government has created its own fiscal freedom to do this, actually, um, so the g- the government, uh, is able to treat any investment in BBB money as being not borrowing, not public spending, um, so it forms part of public sector net worth and it doesn't count as current-year spending. Because, because the argument is, and I think this is correct, that, you know, what we're doing is building up a financial asset on the government's balance sheet. So, so if you did this consistently over like 10 years, you'd have 40 billion on the government's balance sheet of, uh, fund-of-fund investments in venture. Um, the, uh... You know, the, the worst performing fund of funds generate maybe 6% IRR. The best performing generate mid-20s. So always higher than gilt yields, um, and, and I would say you could go even further. You could say like, "In 10 years' time, we've got 40 billion on the public balance sheet. Why don't we make an offer to the public? Um, why don't we offer it to individual pension plans to invest in this stock?" Um, so yeah, so we could, we could create like a Thatcher moment really, where you privatize, but, but in... You know, people in their 20s and 30s should be owning assets in the future of the country, actually. They should be owning those assets, and it should be, should be recycled into making the country more successful competitively. A- and technology is the place to put it, obviously. Um, so, uh, so that's kind of what we ought to be doing.

Tom Hulme 31:22 I do see it as investing. We're talking about infrastructure projects. We look at Germany's trillion dollars. I think it's incredibly important. Uh, I like the idea that we have a kind of intellectual infrastructure investment that you're describing. The big thing to design around, and it sounds like you've started to think that through, is the adverse selection bias. My biggest fear, because there's such a power law of returns, what you don't want to do is just end up with the worst investors making the worst investments. And so, you know, placing an emphasis on those maybe first, you know, supporting perhaps first-time funds, solo GPs initially to get going could make sense. But it's incredibly important for the UK taxpayer to get into the best funds.

Stan Boland 32:03 Yeah.

Tom Hulme 32:03 And so I do believe there are... there's got to be incentives that UK PLC can provide, so that the best funds that Harry describes actually are excited to take money from that BBB fund of funds.

Stan Boland 32:15 But Tom, do you think, do you think, um, if we put such a system in place and we made it plausible, feasible for GPs to go raise like half a billion or a billion-dollar fund here, um, do you think we'd get partners in-... US firms with a strong track record to consider coming to London to basically raise a fund here, 'cause it can be done here, um, and, you know, they could build it. And, and you could also imagine that, you know, there'd have to be some conditions on those funds if, if BBB's going to fund them, like, half of the monies or whatever's got to be invested in the UK. Uh, but, but, y- y- you could imagine somebody trying to set up a startup in, say, Stuttgart or something, the call could be, "Well, we'll fund it, but you've got to move to London-"

Tom Hulme 32:58 Yeah.

Stan Boland 32:58 ... um, "and we'll fund it." Um, so-

Tom Hulme 32:59 So, I think the answer is yes, but again, it sort of speaks to a specialization. And sort of, I guess, um, the question for me would be, in what areas would you get the best people saying, "It's worth me doing that"? And it's not going to be in, you know, it wouldn't be necessarily in digital health-

Stan Boland 33:17 Yeah.

Tom Hulme 33:17 ... where the UK has one major customer and none else. It would be in places like fintech, where we have a good track record, uh, because we're in a great position, sort of globally at this point. That's why we've done a disproportionate number of fintech investments. Defense, I think, is an interesting area at the moment, where, you know, we're gonna have to look more to 3% of GDP spend in defense. So, there'll be areas where I think, actually, very smart, rational people would make that call. But there's others where it would be a harder stretch, like consumer, where it doesn't really make sense to, like, be outside one of the biggest markets.

Harry Stebbings 33:53 Why do you think defense is different to health? I think in defense, you still have one primary buyer here, really, which is obviously the MOD, and then you have very splintered and fractured buyers, which is the rest of Europe, and each wants to have their own dominant, uh, domestic provider.

Tom Hulme 34:07 So, I, I, disclaimer, I'm a reservist, as you know, so this is something I'm really passionate about. And I'd say there's three things happening at the moment, uh, that make it significantly more interesting than it has been in the past. The first is, very smart people are interested in doing it because they think it's right. There are people, like our peers, that are interested in doing defense companies because for the first time, they actually think there's existential threat. Second thing is, actually while you do say, uh, you're right, there's maybe a single buyer, it's, it's more complicated that in the UK. We have multiple services. We have multiple regiments within each. Each is a potential customer, and they're being forced to innovate at the moment, uh, for the final reason, which is, to some extent, we are on the, you know, we are on geo- politically, we are close to a war zone at the moment, and we have a point of view in that war. We occasionally have some of our armed, uh, servicemen at risk. I think those three things together mean that actually, when you look at Anduril in the US, and they had a recent round, $8 billion oversubscribed, it shows you there's an appetite of people and capital to go in there. I think the UK has interesting talent. Uh, the UK is playing its part in Ukraine at the moment. It's an amazing place to test new technologies, and I think it's an opportunity to build next-generation primes here. So, as a category, I think defense, uh, in Europe is an important one at the moment.

Stan Boland 35:39 And, uh, there's probably, what, two to 3 trillion gonna be spent over the next five to eight years in Europe in, in defense, actually. And at all layers, not just final product, but like components and, it, there's, there's a lot of layers here, I think.

Tom Hulme 35:51 Agreed.

Stan Boland 35:52 Yeah.

Tom Hulme 35:52 And then I do think it's, that will forge some dual-use technologies. Like if you look out there at the sort of biggest defense companies, you could argue that DJI is one of them-

Stan Boland 36:01 Sure.

Tom Hulme 36:01 ... at the moment. Uh, and actually, I think you'll see the same thing in reverse. Some of the technologies, whether it be cyber or maybe it will be, uh, UAVs, drones, uh, I think you'll start to see they'll have other applications outside military.

Harry Stebbings 36:14 To what extent is it, when we think about kind of amazing companies, you mentioned Anduril there, you've mentioned some other amazing ones, in the US, there is a market for them to go public. There is a l- liquidity market that is much more vibrant. In the UK, we have the London Stock Exchange, where a lot of people throw a lot of criticism, and people choose to not list on the London Stock Exchange. To what extent do we need local domestic liquidity markets, or are we in a global world where you can just go to NASDAQ?

Stan Boland 36:44 Um, yeah, I've thought about this a bit, actually. I, I, I think it's a supply problem again. Um, so, so I, I think, uh, the lack of, like, tech companies in London, there, there's only one London-listed tech company worth more than 10 billion, and that is Sage. And Sage is like a 30-year-old ERP company. So, so, which is, I mean, it's a, it's a very nice company, but it, it is a, is an output of the 20 billion a year that we pump into tech in the UK, to have one company worth $10 billion on the stock exchange is not a great outturn, really. Um, so, um, so once the US has minted 20.5 trillion of value in its tech companies, we've minted about 100 billion over that period of time, so, in tech. So, yeah, so, it, yeah, firstly, let's accept it's not good. Um, but I think the problem is supply, actually, is that companies grow to a certain size, they're stunted for all sorts of reasons. You know, could be quite early on, the cap table's broken, they hired the wrong people with the wrong product-market focus. But it could also be lack of, uh, swing over the fences, lack of money to swing over the fences, actually. And net result being companies just have to be sold, uh, to typically US buyers. So, they never get to the point where they're into growth and they're capable of being IPO. So, there's not a big pipeline of companies coming through that could be IPO, um, you know, there's a handful in fintech maybe. Uh, but apart from that, not, not very many. So, so I think it's a, it's a supply problem, actually, and I think that's, that's why it's really important, I think, that we grow the amount of capital here and it's UK capital that is patient and will put the money in, and we can fund the companies all the way through to eventually going public. And then I think, I think it'll be natural to list them, y- you know, where there's a market for them, and, and I think that could be London, it could be NASDAQ, could be wherever's suitable for the company.

Tom Hulme 38:37 Agree. Definitely supply problem doesn't help. If we had much m- many more much bigger companies, we wouldn't see it. I'd give two other reasons. So, the first is a sentiment problem. Like, I, I have not spoken to anyone for months that is positive about LSE or listing. And i- whether it be valuation or it be perceptions about, um, the...

Harry Stebbings 38:59 ... for example, the product itself because of the stamp duty driving down liquidity. And I'm afraid these stories are kind of like SEO for our minds. We hear the story, we remember them, and there's just a negative sentiment about it. So most good companies are getting, are, are more kind of open to the US and they're getting courted very effectively. They have the red carpet rolled out for them. So that's the first one. Sentiment problem needs to be turned around. I mean, you interviewed Julia Hoggett, uh, don't know your point of view but, uh, you know, the sentiment isn't great. The other one I'd just point out is I think it's an easy thing to measure, that doesn't mean it's the best thing to measure. Actually, if I'm completely honest, given the choice between, uh, picking where a company's HQ is or where the bulk of the employees are or where the IP is generated or where it's listed, I'm taking the first three. They're way more valuable. I know that they're kind of interlinked, uh, but the most important thing is where is the sort of economic driver and where are the employees and that value creation? And so, you know, if we do have a period where the very best UK and European companies end up listing, uh, in the US, I think that's okay, as long as we have a great kind of platform of big value

Harry Stebbings 40:18 generation here.

Stan Boland 40:18 A- and I think it'd be, it'd be okay if the ownership of those companies when they go public is predominantly here in the UK, um, 'cause, 'cause I, I really think we've got to set a national goal here for wealth creation. I mean, the, the UK really, it, it, it, i- i- it's clear, you just look around and the country's getting poorer really, so... And we can't afford all the services that we want. So-

Harry Stebbings 40:41 What do you mean a national goal for wealth creation?

Stan Boland 40:43 Like, like, like if you, if you take the, yeah... Firstly, I think tech and innovation is really the engine of economic growth here. There's no other engine that we can rely on. So, the, i- it's that. Um, and, and if you look at the US has created this 20 trillion of value over the last, you know, 20, 30 years, in new tech companies. UK, 0.1 trillion. So, um, so we're, we're, yeah, pro rata, we should be about 4 trillion we should have created. And we've created 0.1 trillion. So we're about 4 trillion short of where we should be. So I think we could set a goal to say, "Look, what if in 20 years we set a national goal of creating four trillion of wealth in tech?" Um, so, you know, so, um, uh, and, uh, so yeah. So then obviously that's, that's a sort of escalating growth of value. So the, you know, so let's say year 10 the goal is half a trillion, um, and, and th- and thereafter, you know, the, you know, we grow from that point. So growing half a trillion, i- i- is already quite a big goal for us, y- given that we've only created 100 billion right now. Um, and that, uh, but it also sets the mindset by saying, "Well, what are we gonna have to invest to do that? What, what will these companies look like? How much capital are they gonna need?" They're gonna need about 100 billion of capital to do that, really, realistically. Um, and you think, okay, well that 100 billion, where's it gonna come from? Um, well, you know, it's gotta be something like 10 billion a year is what we've got to put in a- additional to what we're currently doing. And that's roughly the gap in our venture. Um, so, so, so I think, I think if you can find a way of putting more capital to work, we can end up growing that half a trillion in 10 years, and four trillion over 20, and fill the, fill the hole.

Harry Stebbings 42:25 In terms of putting more capital to work and encouraging that, uh, y- the SEIS/EIS has been very effective in terms of encouraging more direct investing from individuals. When I look at my cap table today or, you know, LP list today, 85% of dollars, maybe 90% of dollars are from the US for me. And I'm, I'm so thrilled and honored to have them, but it is slightly, not alarming, but I think about it that, you know, I think we will do very well and I think our funds will make a lot of money, and all of that will go straight to the US.

Stan Boland 42:56 Mm.

Harry Stebbings 42:57 And that doesn't thrill me for my grandparents who have pensions and my mother who's got pensions and everything around us in the UK. Is there anything that could be done to unlock the huge amount of family office, corporate pension fund money to invest directly into funds? Whether it's an SEIS for funds, an EIS for funds, 'cause otherwise they're not fricking moving.

Stan Boland 43:17 Well, I thi- I think the, the BBB role I spoke about earlier I think is critical to this actually is, you know, you, you... If you look at where the money came from in the US, you look at the distribution of where that money came from, it's pretty evenly spread across endowments and family offices and pension funds, insurance companies and so on. Uh, so it's not just pension funds actually, there are other sources of capital that we need to energize and create. But, uh, but, uh, yeah, we can't just-

Harry Stebbings 43:40 We don't have, we don't have the endowment fund pool, which is a big gaping hole.

Stan Boland 43:43 We don't have the endowment fund pool, that's true, but we do have more family offices I think. There's a lot of old-"

Harry Stebbings 43:46 More, yeah, yeah.

Stan Boland 43:46 ... there's a lot of old money here. Um-

Harry Stebbings 43:48 There's 1100 family offices in London.

Stan Boland 43:50 Blimey.

Harry Stebbings 43:50 Yeah.

Stan Boland 43:51 Yeah, it's a lot. Yeah, so-

Harry Stebbings 43:52 I met every one of them. (laughs)

Stan Boland 43:53 (laughs) Um, so, uh, which is why I think we need an energized BBB actually, uh, which is creative about the structuring of deals to bring those people into, to structure them in a way that makes it easier for them to participate in this illiquid, 15-year asset class really, um, where the fee structure and the carrier structure works for them and works for BBB. So you'd end up with LPs that are 50%, you know, the national balance sheet, and 50% UK-based, uh, pension, endowments, uh, uh, family offices, and, and insurance companies. So I think, I think that is the job actually of BBB is to do that.

Harry Stebbings 44:34 Do you worry... Listen, I, I, uh, I'm spending more and more time with politicians now, um, and they're all just terrified of getting fired. And they're all just terrified of headline risk. And when I listen to you, I'm like, "Great, great, I see all this," but then I see the Daily Mail headline which is about how your taxpayer dollars are going to fund Tom or Sarah's venture fund where they have a Porsche and a nice house in Hampstead. And the, the concentration of wealth on your taxpayer dollars. Do you think we're actually being reasonable by thinking we can do that?

Stan Boland 45:10 Um.

Tom Hulme 45:10 ... and you share my concern around that headline risk.

Stan Boland 45:12 Uh, uh, i- it is definitely a challenge, I think, uh, so I, I definitely see the, the challenge. Um, but I, I, I actually think we've got to make the case, really, for why the UK needs to change, really. I mean, yeah, the, the, I mean, clearly we're not really fulfilling our potential right now. Clearly, we've got a lot more to achieve, actually. And, yeah, and it's about raising everybody's sights to build this country to be the best it can be, really. Uh, is, is, is build this value that is kind of missing in tech, um, yeah, 'cause it, it, it's not in any way coordinated right now. You know, this 20, 30 billion a year that we pump in at the front end per annum in tech, so like 150 billion over a parliament in university funding for science and tech, in SEIS, in EIS, in VCTs, in R&D tax credits, in patent box, and, uh, and, and so on. All those things, you add them up, um, and what's coming out the pipeline is, what? Nothing, really. Um, so, uh, yeah-

Tom Hulme 46:19 (laughs)

Stan Boland 46:19 ... so there's some b- people are making some wealth along the way, but that's not what we want. We're not achieving a national goal, really, um, so I think it, I think if we say, "Let's, let's do this together as a country, let's build this value, and let's, y- energize people," then the, yeah, it's clear to me that active money is, is the way to go. Passive money is not the way to go, um, so... And active money means, uh, when things are going well, investors double down. When things are not going well, they kill it, um, and so, yeah. And we've got to be courageous enough to do that, really, and that does require, I mean, VCs require OpEx cover, don't they? So, you, you've got to basically fund them, really. Um-

Tom Hulme 46:58 I think two, two ideas that Stan's thoughts remind me of. Uh, so the first is, I, one of the things I admire about Sequoia is that their meeting rooms, I think, are named after their LPs. I think that's a really interesting thing to remind everyone who they're in the service of, and I think one of the challenges we have in the UK is we perhaps don't celebrate entrepreneurs as much as we might. If we were able to say to those entrepreneurs, they can tell the story about the wealth they've given back, whether it be through BBB or another vehicle, I actually think the public would see more of the value they're creating. The second story I think about is the Norwegian Sovereign Wealth Fund. Extraordinary business. Uh, if you look at their sort of ownership at the moment, it's mind-blowing. But the other thing they do is they effectively have a stock ticker so that everyone can see in real time what that sort of national wealth is-

Stan Boland 47:50 They have a literal stock ticker. I, I interviewed him-

Tom Hulme 47:53 I know.

Stan Boland 47:53 ... and he's literally like, "The, you know, the happiness of the country does go up and down dependent on the ticker."

Tom Hulme 47:57 Exactly. So, this is all about just reminding society that actually some of these great entrepreneurs are building business in society's service. I think that's what we've lost sight of.

Stan Boland 48:07 That's a great idea, actually. We, e- if we, if we have this like $4 trillion goal, it'd be a great idea to have a national ticker as we climb our way towards it, wouldn't it?

Tom Hulme 48:16 And I think it would glue, uh, culture and society a bit more than perhaps you have at the moment, where it's perceived to be haves or have-nots.

Stan Boland 48:23 Yeah, I, I think you're right. It's a communal goal to reach together. Um, you mentioned Norway there. Norway innovated in their tax, uh, system, uh, and they seem to misunderstand that kind of models are variable, and that when you change a certain tax rate, uh, you will see, you know, people leave. Um, we've seen the removal of non-doms. I'm really worried about this. Every single day, I have friends saying, "Hey, I'm leaving, I'm leaving. Why are you staying?" To what extent is the removal of non-doms a massive problem impacting the future of the UK?

Tom Hulme 48:58 I, so, the, I, um, I think this is one of those classic cases of whether you want a sort of principled approach or a pragmatic approach. I'm a pragmatist. If I, uh, I do, say, see the brain drain, I recognize it, and I do see that many of the people I know well that have chosen to leave have left. They were also incredible angel investors. They, uh, employed a bunch of people. And so do I think everyone should pay equal tax? Yes, in principle. But practically speaking, I would rather that talent was in the UK. I mean, I am seeing some exceptions to that. I heard about a billionaire VC who you know I think has moved to the UK recently. You do get some movement back in the other direction. But I would take seriously, again, leading and ladding- lagging indicators, I would take seriously the leading indicator of some of the non-doms leaving.

Stan Boland 49:50 Yeah, and I th- I, it looks honestly like the, you know, one of the challenges for the UK is this, this tug of war between principles on the one side and practicality on the other. You know, the, the, the principles have been remove non-dom status, change inheritance tax rules, you know, change capital gains tax, put fees on private schools, and, and then assume that everybody's going to be happy to stay, really. I mean, y- you know, the, the, I just think that's too much, actually, and, and the, the impulse on the system is too much, and, and that we are shooting ourselves in the foot, really. So, you know, uh, so I agree with Tom that i- in principle, as a sort of UK taxpayer, I'd like everybody to pay the same taxes. But, um, but, uh, I recognize not everybody's in the same starting point. And people do come to the country with existing wealth, really, and it, it, it can't be fully right to then seek to tax that and to, uh, so, so therefore, there has to be some provision for that, I think, that makes it possible for people to stay here and so on. So, um, uh, and I think it's also part of this thing, look, if we're serious about building the country to be a country that clearly wants to win, then we better fix this as well, actually. Well, this is where, like, for me, like pandering Trump, Trump's pragmatism, which is like the Labour government's desire to pander to traditional left-wing policies is destroying a pragmatic approach to wealth creation and wealth sustenance. Because all of the things that you said, inheritance tax, cap gains, schools, is bluntly going pandering to traditional left-wing policy. And, and probably don't even make economic sense for the Treasury. It makes absolutely zero economic sense. Yeah. I mean, listen, I, I, in, I interviewed, uh, I can't say it live on air, but I'll tell you afterwards, um, great, uh, one of the most famous politicians in the country the other day, um, and they said, "We have to get rid of the Treasury, because they do not have variable models." And so they literally have static models which say, "If you increase the tax rate to X, you will get Y." Oh, wow. They do not have any variability to what happens- Oh, come on. ... with import and export of anything.... God. (laughs)

Harry Stebbings 51:51 And, and that is why their numbers say we should do this.

Stan Boland 51:54 Oh, God.

Harry Stebbings 51:55 Fascinating, huh?

Stan Boland 51:56 Yeah. That's not good.

Harry Stebbings 51:57 It's terrifying. Um, but it worries me greatly. Do you believe in the multiplier effect? 'Cause I always get the pushback. Whenever I'm on social, I'm like, "Listen, it is great having non-doms. They spend in restaurants, they hire people, they buy homes, they spend in shops." Do you buy it, or do you think that actually trickle-down economics is a lie that we continuously...

Stan Boland 52:18 I, I, I... There's benefits in trickle-down economics, but, but there is also this need for fairness as well. And, and I think it is just a balance that we gotta strike between the two. Um, so, yeah, so, you know, people that, um, don't enjoy a privileged tax status and pay full taxes, uh, sitting in the same restaurant as people that do enjoy privileged status, I mean, that's also not right. Um, so, yeah, so we gotta find a balance between the two, is, is how to, how to sort of, yeah, make it feasible for people to stay here and not be penalized, um, but at the same time, uh, try to be as fair as possible as a country as a whole. 'Cause we need to... We kinda need to hold hands together on this actually, as a nation. So, so we need, you know, both people that have come from outside the UK and people inside the UK to feel we're on a shared mission together, really. And, uh, so that it's gotta be somewhat fair at the same time. And, uh, I just think the balance right now is p- probably swung too far in the opposite direction, and that we're, we're actually making it much harder to do that.

Tom Hulme 53:17 I'm a strong believer in a sort of Keynesian, uh, multiplier effect. And just in our small world of tech, the only bit, only sort of part of the economy I know much about, I see it on a daily basis. Like, angel investing in GoCardless. If I look at some of the other angel investors in that business, they were non-doms. They were actually European, some Americans. The founders of that business built an important company for London, employing hundreds of people. One of the founders left and built Monzo. Um, another founder has left and is a VC at another firm in London. If you look at the number of senior talent in GoCardless that has gone on to create other business-

Harry Stebbings 53:56 Amazing alumni there.

Tom Hulme 53:58 ... it's an inc- an incredible multiplier effect. And so, that's what we're saying, actually. You've gotta have those initial sort of pockets of innovation and growth, and then I do think you get this real multiplier. And the good news is businesses are growing faster than they ever have before, so I think those cycles will happen quickler- quicker. Previously it might be five or 10 years that you start to see the best, uh, senior operators come out and build a company. Now it might be 18 months,

Tom Hulme 54:22 24 months.

Harry Stebbings 54:23 Is there anything you'd change with SEIS and EIS?

Stan Boland 54:26 Yeah. I, I think a lot of these EIS funds are not very effective. Um, and VCT funds are not very effective.

Harry Stebbings 54:32 Why is that? I agree with you, but I don't know why.

Stan Boland 54:33 Because, uh, the quality of investment managers is quite low, um, and because they feel they've done a good job if they get anywhere close to just returning capital. Um, so instead of saying, you know, "Here's, here's, here's an investment and, you know, go swing for the fences," it's, you know, "For God's sake, don't lose it," you know, you know? So, you know, take the low-risk return and, and, you know, flip the company as quickly as you can, and g- if I get 80 cents on the dollar back, I'm happy. Uh, and, and in fact, all the returns are somewhere between 80 cents and $1.20 on the dollar. I mean, it's ridiculous. So, so I think those funds are a fricking disaster really, um-

Harry Stebbings 55:12 Would you get rid of them?

Stan Boland 55:13 I'd get rid of them, yeah. And I think there's a, there's a lot wrong, actually, with the UK tax system that is maintaining too many zombies, I think, in the UK.

Harry Stebbings 55:23 Like what what?

Stan Boland 55:24 Well, the most obvious is R&D tax credits, which, um, is deeply unpopular for me to say-

Harry Stebbings 55:29 Go on. Well, I, I, I... Educate me.

Stan Boland 55:30 Um, but as... So as a f- as a founder and a CEO, I'd never say this, by the way. Um, but as, as somebody who's not currently a VC and who's not currently running a company, I'm free to say what I think is true, um, which is that, um, you know, we're, we're currently investing about seven and a half billion dollars a year in R&D tax credits for SMEs in 55,000 companies per annum in the UK. Um, so, and, you know, there is no quality check, if you like, on the value that's being created there. All you have to do is prove that you spent the money on something you can loosely classify as R&D, and you get a cheque from the government. Um, so, you know, so this is classic helicopter money, um, you know. So, passive money goes to good and bad. And I think if you're gonna be brutal, it's either... Either goes to companies that don't need it, or it goes to companies who shouldn't have it. Um, uh, but, um, but i- i- in my view, it would be much, much, much better to take that same amount of money and put it into funder funds and put it into active venture. Um, and that way, you know, when things are going well, you double down. If things are not going well, you kill it, really. And, you know, so we, we do end up tying up national talent and national treasure in companies that are never gonna be successful globally that limp on from year to year living on R&D tax credits. And, uh, and, you know... So, so I'd much, uh, much rather see it in venture. I'd much rather see valuations go up, actually, um, um, which I, I know, as a VC, you're probably not very keen on hearing.

Harry Stebbings 57:04 (laughs)

Stan Boland 57:05 Um, but, but I'd much rather see that because, you know, you know, we end up with the same dilutive effect, uh, as, as we get this, like, free money from the government every year. So, um, but, but I think, you know, by being actively managed, we get to recycle our limited amount of talent and our limited amount of capital into companies that are really gonna make a difference, really. And, uh, that is one thing we can do.

Tom Hulme 57:26 I, I'd say, unsurprisingly, I think, uh, tax credits are pretty important. What I hadn't thought about, because I have a sort of biased view of just higher growth companies at the early stage of their life where you're investing in the future, I like... In the same way as I like your point about EIS and the SEIS, because I just think about angel investors when I think of those terms.

Stan Boland 57:46 Yeah, angel investors, I think it makes sense, yeah.

Tom Hulme 57:47 Uh, but, like, to your point, actually, just on the R&D tax credit, what I don't see is these kind of zombie companies that have been claiming it for a decade and actually aren't necessarily building for the future. So, maybe, uh, we should start to take into account time, like they do in the US with capital gains tax-

Stan Boland 58:05 Yeah.

Tom Hulme 58:05 ... and start to actually maybe taper off R&D tax credits to avoid what you're describing.

Stan Boland 58:10 Yeah. We're, we're running at roughly two X the rate of the US. Um, so, so I think if... I think if you look at...... four big differences between the US and the UK. One is, uh, the attention to talent and the need to, sort of, keep people in the country. Um, the second is the quality of mentoring very early stage needs to be ratcheted up a lot higher here. And it can be, I think, uh, it just needs more coordination. Um, the third is the excess of props in the UK for companies that are not making it that limp on forever. Um, and the fourth is the massive shortfall which, uh, again I don't feel I've got (laughs) quite the agreement expected, the massive shortfall in capital that I think we just need here actually. We need to really, we need to flood the UK with venture capital is what we need to do. Um-

Harry Stebbings 58:58 Uh, my, my takeaway from this show is that we just need to put Stan in for the BBB lead and just let him run it.

Stan Boland 59:04 (laughs)

Harry Stebbings 59:04 I mean, uh, that's, that's the-

Stan Boland 59:05 I'm not sure I'm a banker, to be honest.

Harry Stebbings 59:07 Uh, I think you'd do a brilliant job.

Tom Hulme 59:09 That's why you're qualified. You're hired. (laughs)

Harry Stebbings 59:10 Yeah. (laughs) Potentially. ............................ You mentioned mentoring there, and you said there are ways that we could do it. How do you think we could do it and increase that level of mentoring? I, I agree with you.

Tom Hulme 59:19 One of the things we do is just whenever, I think, we're making an investment, we will bring in often other founders from our network, people that we've worked with before. And the value-add from those people, partly because they've got experience, partly because they're paying it forward, is unbelievable. So-

Harry Stebbings 59:34 I, I, I totally agree. I always say to founders, like, "Never have a minimum check size for amazing angels." There's some who can only do 5K or, I mean, there's some that are 1K, and you can do that with angel syndicates. Like, that is just as valuable. And often they'll give more because it means more to them. And so, I, I really always push on that. Uh, obviously, we have Project Europe now, and I spend a lot of time with Kitty, the CEO.

Stan Boland 59:55 Congrats.

Tom Hulme 59:55 Thank you.

Stan Boland 59:56 Yeah.

Harry Stebbings 59:56 Um-

Stan Boland 59:56 We love it.

Harry Stebbings 59:57 That is very kind. Um, I'm so pleased that you're in it, Stan. You're not allowed. Uh- (laughs)

Stan Boland 1:00:02 (laughs) Tom's, Tom can't be in it.

Tom Hulme 1:00:04 It, no, he's not-

Stan Boland 1:00:04 I mean, it's, it's not stopped him asking me about it for a year.

Harry Stebbings 1:00:08 He's a venture investor. Yeah, yeah, Tom's heard it all. Um, my question to you is Kitty always tells me that the biggest enemy of talent in the UK is quant funds. And I was like, "I'm sorry?" And she goes, "Yep, quant funds." They go to the universities. Maybe, uh, maybe this is a private conversation and Kitty's gonna kill me, but let's roll with it. Quant funds go to universities, they source the best talent, and they throw 250K at them straight away. Uh, so the best engineering talent is just going straight to quant funds, and quant funds are much better recruiters than anyone else.

Stan Boland 1:00:40 How many people work in quant funds though? Is it, is it a big number? I mean, uh, I, I, I, I, I, a member of our family works at a quant fund actually and he was, he was paid a lot of money, I think, to do something very similar. So, but there can't be that many people, so it can't be the biggest drain on talent.

Harry Stebbings 1:00:56 Maybe not, but probably 1,000.

Stan Boland 1:00:58 Yeah.

Harry Stebbings 1:00:58 Which is two years of full computer science and robotics graduates, which is quite a lot. I mean, 1,000 more in the ecosystem would probably be a pretty significant needle mover.

Stan Boland 1:01:08 Yeah.

Tom Hulme 1:01:09 I would, uh, say there's definitely competition from that for the s- from the smartest quants. I think one of our jobs is to make startups even more appealing, celebrate the successes, actually show the alternative. I think Ei- uh, like the, sort of, Entrepreneur Relief is a wonderful example of something that can maybe tip that balance because often the economics from a quant funder income tax. So, I think things can be done.

Harry Stebbings 1:01:33 What would you do with Entrepreneur Relief to make championing entrepreneurship better?

Tom Hulme 1:01:36 I'd, I'd expand it. Um, I would increase-

Stan Boland 1:01:39 It's, it's, what, it's limited to, like, a million quid or something now, isn't it?

Tom Hulme 1:01:41 Yeah, from, it was taken-

Stan Boland 1:01:42 It was 10.

Tom Hulme 1:01:43 ... down, exactly.

Stan Boland 1:01:44 Yeah.

Tom Hulme 1:01:44 Uh, which to me, given the amount of time and effort that people are spending, I understand that the-

Harry Stebbings 1:01:49 For those that don't know, Entrepreneur Relief is what, and what does it mean?

Tom Hulme 1:01:52 En- Entrepreneur Relief is the, uh, ability for you to get preferable tra- tax treatment if you've grown a company. And I actually think the idea of making, for entrepreneurs, so maybe capital gains exempt, uh, would maybe tip that balance when you're comparing against quant funds, if that's the competition.

Harry Stebbings 1:02:10 I do just wanna touch on the wider world around us, uh, in two ways. One is the US, and the other is China. Again, this wonderful politician that I interviewed the other day said, "Ah, you know what? We were an afterthought, uh, for the US, and now we're not even that." And I guess my question is, in a wider world perspective, what does not even being an afterthought mean for us and what we need to do?

Stan Boland 1:02:34 We do actually have, um, a- as Tom was saying, universities that are global-grade universities. I mean, Cambridge is not that different to Stanford. Um, you know, you know, it may be a little bit smaller, maybe a bit less funded, but the quality of research that we're doing here is as good. So, we, uh, so there is, uh, raw talent here. I do think, I do think London is a, a really great city, actually, a great place to live and work actually. I mean, it's probably, probably the best city this side of the, of the Atlantic and arguably the best city in the world actually to do this. So, so, so I think it's a great place to live and work.

Harry Stebbings 1:03:09 Do you not think London's got worse? Everyone says the crime, the lack of public services, or the poor quality of public services. Uh, you know, I think London will revert back to London in the '70s, which is grim, it's gloomy, it's no growth.

Stan Boland 1:03:22 Well, it could if we let it. But, um, you know, I, I think it's, it, it's possibly not as shiny and smart as it was, but I, I actually still think it's a pretty good city actually and there's lots of good things to like about London. Um-

Harry Stebbings 1:03:34 Are you concerned that Labour will let it get to that deplorable state in the next four years?

Stan Boland 1:03:39 I don't think they will, but I would like to see them move more quickly on policy changes and action than they're currently doing. That's certainly true. Um, but I think they, you know, I think they will listen and change actually. Um, so I'm optimistic about our ability to get change.

Tom Hulme 1:04:00 I think London's a special place. And I feel lucky if I compare, uh, living here to other places, just it's the, sort of, multiculturalism, the diversity, but actually just it's an interesting place to live. The fact that I can jump on a Lime bike, come over to do this in the afternoon. I could have a meeting at number 10. Uh, shortly thereafter, I could go to the European headquarters of a big brand. I could do that all on a Lime bike. It would take five-hour flights to do it between those stakeholders in the US. So, actually that proximity effect, I think, adds a real richness to life. So, does it have its challenges? Yes. Uh, but there's an incredible pool of talent so I think the, kind of, Petri dish for continued growth is there.

Stan Boland 1:04:41 Mm.

Harry Stebbings 1:04:42 My word, if that's a standard afternoon, you're a very important person. (laughs)

Tom Hulme 1:04:45 (laughs) Jesus Christ.

Harry Stebbings 1:04:47 I just pop down to Number 10, I pop down to, like, a global CEO.

Tom Hulme 1:04:51 Only sightseeing.

Harry Stebbings 1:04:52 Yeah. I'm like, "Wow, that's a-"

Tom Hulme 1:04:53 I was mainly sightseeing.

Harry Stebbings 1:04:54 God, I just ma- barely managed to get through the emails. (laughs)

Tom Hulme 1:04:56 Well, well, LimeBike is, LimeBikes is actually a portfolio company, so I'm just driving up the revenue.

Harry Stebbings 1:05:01 Ah, yeah, yeah, yeah.

Tom Hulme 1:05:02 Just constantly cycling around on it.

Harry Stebbings 1:05:03 I, I had them on the-

Stan Boland 1:05:04 It's an advert.

Tom Hulme 1:05:04 Yeah, exactly. I'm gonna expense it to your show.

Harry Stebbings 1:05:07 Thank you so much.

Stan Boland 1:05:08 You're welcome.

Harry Stebbings 1:05:08 I'm gonna get Brad to sponsor it. Uh, (laughs) that's amazing. Uh, final one before our quick-fire. China is changing faster than ever. Tom, you said before when we were walking around the block that China is the thing that you've changed your mind on.

Tom Hulme 1:05:21 Yeah, I've changed my mind on China a lot. So, uh, I think strategically they're in an amazing position, for the obvious reason, which I think actually, uh, more countries are more open-minded to working with them given what's happening in the world. But I think there's a less obvious reason, and that is, uh, partly as a result of DeepSeek, but more broadly, we've learned a lesson in the last 12 months and that is that actually foundation models can be distilled relatively quickly. When I was on your sh- uh, show last time, I talked about how foundation models were sort of gonna be the fastest depreciating assets in human history, like weeks. It's almost days now. And so if you live in a world where the foundation models are commoditizing really quickly, then you say, "Where does the value accrue?" And I think the value accrues at the application layer, so we're invested in companies like Synthesia in London or Harvey in the US at the application layer. And then I actually think it, um, accrues to, in hardware as well. And if I look at hardware, China is so much better than the rest of the world at manufacturing and hardware and value add. And I think those devices are actually gonna be the conduit for commoditized AI. So in that world, I've probably gone from thinking, you know, been excited about the US dominance on foundation models, uh, to some extent to thinking actually maybe the value is gonna accrue also in the hardware layer. And that's somewhere that I think we're playing catch up.

Stan Boland 1:06:50 Yeah. And I think I, I, I, I completely agree with it actually. I, I think actually it's, it's the hardware layer is just sitting just above the semiconductor layer. Um, and, and actually I think the one that we can play in is the semiconductor layer. But I, I, I do agree with you. I think China is in a really good position, partly 'cause it has done this, like, very significant, uh, continuous investment in startups and in venture over the last, like, 20 years. And as a result, if, if you look at a, if you look at a, a blob chart, if you like, of, uh, of what investment's going into AI and you color code it for US, you color code it for China, you color code it for Europe, it, it's basically US and China and these tiny little dots of Europe actually. Um, so I mean, Europe is really missing. So, so it, it is kinda US with China sort of chasing, uh, its tail actually. And, um, and, and, uh ... But I also think the sort of geopolitics of America trying to dislocate itself from the rest of the world, um, will put China in a much better position actually as well geographically. So I think Europeans are gonna be much more open to, uh, to, to working with Chinese companies and doing business in China than they were even a year ago actually. Um, so, so I do think, uh, I do think things are changing. And it's probably not good for the US actually, but that's, that's what I think is happening.

Harry Stebbings 1:08:03 Do you think we should be open to doing business with them?

Stan Boland 1:08:06 I do actually, yeah. I mean, I've, I've sold a company to Huawei actually. So I spent about-

Harry Stebbings 1:08:10 (laughs)

Stan Boland 1:08:10 I only spent about a month working for them, I have to say, 'cause they didn't give me au- authority to buy a box of pencils after they bought the company.

Harry Stebbings 1:08:16 (laughs)

Stan Boland 1:08:17 So it was, uh, so, uh, uh, it was, uh, it was an interesting experience.

Harry Stebbings 1:08:19 But, but this is a country that doesn't allow our companies in there. They put their companies in ours. They acquire data on all of our consumers. We don't know where it goes. Every single piece of data that a Chinese company has, the Chinese government has authority to acquire at will.

Stan Boland 1:08:35 Yeah. I think, uh, all that's probably true. But, but also they are commercial as well. So you can do business in China. So, you know, when I ran this chip company, Nicira, actually our biggest customers were in China. So our, our biggest customers were Huawei and ZTE. Uh, and yeah, and it was ea- easier to get them to do a deal with you, to sell product to them than it was a kinda US company or a European company, 'cause you know, they, they, they, you know, you had to negotiate pretty hard on price and stuff. But, but nevertheless they were willing to engage. And we built some really good relationships with them. And, and at a personal level, I think people are actually pretty decent people and, you know, I, I think that you can do business with them. The Chinese state is something different, uh, you've got to obviously be wary of. But, but I think, I think there's a lot of scope actually for us to, to do a lot more business with China than we're currently doing.

Harry Stebbings 1:09:28 Do you agree?

Tom Hulme 1:09:30 If I look at the talent and the areas that they have decided to focus on, they're all important. Uh, battery technology, BYD is a force to be reckoned with, DJI is a force to be reckoned with. If I look at DeepSeek and the emergence of that-

Harry Stebbings 1:09:46 But do, do you know, sorry, you mentioned BYD. Do you not worry about the Chinese subsidization of their car industry and what it's doing to the European car markets? I mean, the German car market is being destroyed by BYD and Chinese cars and it's because the Chinese government is subsidizing between 20 and 30% of their car production. Well, it feels a little bit unfair.

Stan Boland 1:10:03 Is, is it, is it subsidizing BYD? Is it? BYD itself?

Harry Stebbings 1:10:07 I mean, there's variable different ranges, but it's anywhere between kind of 8% and 25%.

Stan Boland 1:10:11 Yeah. It, it, it's certainly cornered the market in some of the rare materials necessary for batteries inside of it. And I think it's got scale and it's got ability to compete really, so, so in that sense. But I mean, the German car industry's got other challenges. Uh, so one of the other businesses I sold was to, to Bosch actually, and so I'm sort of vaguely aware of what it's like working in a large German company. Um, and yeah, they, they have their own challenges. And they're not-

Tom Hulme 1:10:34 Can you buy your own pencils though?

Stan Boland 1:10:36 Uh, not really.

Tom Hulme 1:10:38 (laughs)

Stan Boland 1:10:38 No, uh, I've not bought pencils for a while.

Harry Stebbings 1:10:39 (laughs) He's just waiting for the fourth acquirer so he can buy a rubber.

Stan Boland 1:10:43 Uh, I love, (laughs) I love stationery. Yeah. (laughs)

Harry Stebbings 1:10:46 (laughs) I absolutely

Harry Stebbings 1:10:47 love that. Uh, listen, guys, I wanna move into a quick fire. So, I say a short statement, you give me your immediate thoughts. That sound okay?

Stan Boland 1:10:53 Yeah.

Tom Hulme 1:10:53 Yep.

Harry Stebbings 1:10:53 Okay. So, uh, Stam, what do you believe that most around you disbelieve?

Stan Boland 1:10:57 Um, I think the things like R&D tax credits ought to be curtailed, and we should put the money into a lot more venture is the, yeah, is a really unpopular thought actually, um, but, uh, still think it's right.

Tom Hulme 1:11:09 Uh, mine would be, I think I keep hearing people talking about the first one-person billion-dollar business is already created. I think that's absolutely ridiculous. On the one hand, companies are growing faster and more efficiently than ever, like, Bolt.new, $40 million revenue run rate in three months. They're gonna grow incredibly quickly, but I think we've seen distillation of foundation models. We're gonna start to see distillation of business models, businesses. And so I would expect these really successful businesses to get copied ridiculously quickly, so I think this idea that you're gonna have a sort of moat that enables one person to deliver a billion dollars of revenue a year is a myth.

Harry Stebbings 1:11:49 What is the distribution of value in the foundational model landscape in five years?

Tom Hulme 1:11:55 So, my big one here is that I've changed my mind. I thought, uh, OpenAI was a foundation model company, I now think it's a consumer company. It's at a $12 billion run rate or something. So, my thought here would be, uh, it's gonna aggregate to the application layer, and brand is really important. They signed up a million ChatGPT users in an hour last week, it was announced. Brand is incredibly important. Uh, the application layer is important. And then I think hardware, as I mentioned, is important. This is one of the things, reasons we invested in Nothing. We believe they've got seven million, uh, devices out there that are potentially conduits for their AI.

Stan Boland 1:12:35 Yeah. I, I, I think that might be right, Tom, that the value is, is gonna be balanced up at the application layer, but I also think the hardware and semiconductor layer below, 'cause I think it's, it's all plausible, 'cause LLMs are not the end of the story here in AI. You know, so there, there are some, obviously some big limitations on what LLMs are gonna be able to do. So, there's more innovation to come, and that's gonna change models ... change the math that we've got to do and so on, um, and that, um ... But some of the things that are gonna be concept, we're still gonna be doing very large matrix vector multiplies at high speed in silicon, and I think, yeah, that's the sort of thing that I think we can build a competitive long-term advantage in here. So, I think there will be value accruing, even more value accruing to competitors, as I say, NVIDIA I think will be big. And I think at the application layer, e-exactly as you say, I think, yeah, there'll be value accruing there in consumer, consumer brand-

Tom Hulme 1:13:26 And how about inference at the edge as well? I mean, that's something you understand better than me, but-

Stan Boland 1:13:31 Yeah.

Tom Hulme 1:13:31 ... they're lighter, these models. More and more could happen on device.

Stan Boland 1:13:35 Yeah, that's true. I mean, yeah, but with that is coming