20VC: VCs are Spreadsheet Monkeys and are Commoditised | Why Fees and Carry Misalign GPs and LPs | Why Founders Will Realise Multi-Stage Funds Damage Seed Rounds | Why We Need European Sovereignty More Than Ever with Taavet Hinrikus

Do not be that asshole. There are plenty of stories out there of respectable VCs not picking up the phone when it's bad times. We are a commoditized product, Ari. VCs are a commodity. You can press them down. Fundamentally, the idea of collecting a 2-2.5% management fee does not really make sense. It does not align us with the outcomes. If we can't imagine 100x, we should not be entertaining the idea of this deal.

This is 20VC with me, Harry Stebbings. Now, I am a proud European. I grew up loving technology in London. With that in mind, there were few heroes for me to look up to. One of them is our guest today. He's built one of the most defining companies in Europe over the last decade, the first ever direct listing in Europe, now a $10 billion company. I'm thrilled to welcome Tavit Hinrikus, today a partner at Plural, the $500 million fund that backs the most ambitious founders in Europe to build what I call really hard shit. Before Plural, Tavit founded Wise and before that was the first employee at Skype. If that wasn't enough, he's also an angel in the likes of Bolt, who we had on the show before with Marcus, and Synthesia. But before we dive in today, turning your back-of-a-napkin idea into a billion-dollar startup requires countless hours of collaboration and teamwork. It can be really difficult to build a team that's aligned on everything from values to workflow, but that's exactly what Coda was made to do. Coda is an all-in-one collaborative workspace that started as a napkin sketch. Now, just In the 5 years since launching in beta, Coda has helped 50,000 teams all over the world get on the same page. Now, at 20VC, we've used Coda to bring structure to our content planning and episode prep, and it's made a huge difference. Instead of bouncing between different tools, we can keep everything from guest research to scheduling and notes all in one place, which saves us so much time. With Coda, you get the flexibility of docs, the structure of spreadsheets, and the power of applications, all built for enterprise And it's got the intelligence of AI, which makes it even more awesome. If you're a startup team looking to increase alignment and agility, Coda can help you move from planning to execution in record time. To try it for yourself, go to coda.io/20vc today and get 6 free months of the Team plan for startups. That's coda.io/20vc to get started for free and get 6 free months of the Team plan. And while Coda keeps the engine running smoothly, Shopify puts the pedal to the metal when it's time to sell. I spend my time looking into successful businesses of today and tomorrow, and often there's a business that's behind the business helping drive success. For millions, that is Shopify. Shopify is home to the number one checkout on the planet, boosting conversions by up to an astonishing 50%, meaning way less carts going abandoned and way more sales going into the business. Winner. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are. Go to shopify.com/20vec to start your $1 a per-month trial today. That's shopify.com/20VC in letters. And while Shopify helps you drive sales, don't forget what really keeps those customers coming back— trust. Trust isn't just earned though, it's demanded. That's why over 9,000 companies including Atlassian, Core, and Factory rely on Vanta to automate their security compliance. So Vanta helps businesses achieve certifications like SOC 2 and ISO 27001, turning months of tedious work into this beautifully fast and straightforward process. Now Vanta's platform automates compliance across over 35 frameworks, centralizes workflows, and proactively manages risk, all while saving you time with automation and AI. So whether you're just starting or scaling your security program, Vanta connects you with auditors and experts to get audit-ready quickly and build trust with your customers. Get $1,000 off your first year by visiting vanta.com/20vc. That's vanta.com/20vc.

You have now arrived at your destination.

Tava, dude, I'm so excited for this.

I've wanted to make this one happen for years.

So thank you so much for joining me.

Finally, I'm so glad to be here.

Well, dude, the pleasure is all mine.

Now I want to start before Plural. You were a prolific angel.

Can you just start on the investing career there, how it went, whether you liked it, and the transition to Plural?

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

What was the single best investment from that period?

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

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

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

You said before— I saw this and I was like, this is just too good not to start with it— you said VCs are spreadsheet monkeys who have no idea how to run a business. Can you unpack that for me, Tove?

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

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

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

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

It's about ability to assess the founders and think about what could this look like once we get to product-market fit. When you have product-market fit, when you have metrics to look at, I think everything becomes a lot easier. The challenge is really before that. A big part of it is also we're 5 partners at Plural. We've all built companies before. We've all raised money. We've either raised money or tried to raise money from pretty much everybody who was around 10 years ago. The best of the best and the worst of the worst. Every time we had the most insightful conversations with the people who had built their own companies. In the seed round, we got Max Levchin when we were raising money for TransferWise, as it was called before Minos, and we raised money from Ben Horowitz. And same for my partners. We had the most insightful conversations with people who had been on operating journeys. And that's why we were always looking for people who were a couple of years ahead of us. And we feel also now, like even now when we speak to founders, they really appreciate the fact that we've been in their shoes. Does it make us a better investor? Frankly, I don't know. Time will tell. It makes us better partners for the people we invest in.

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

Frankly, I think venture is a brand game. So if you are a new fund, so brand is a brand of GPs.

I would say that Plural have built a brand as being you do deep hard shit that most other people are like, well, I don't understand that. Would you say that's a fair representation of the brand that you want to build?

We are looking to back the most ambitious entrepreneurs, whatever they're building. So we're looking at Proxima Fusion. That's maybe what you would call deep hardship. Then we look on the other side, we have Teton, which is using CCTV cameras to monitor patients. It's not that complicated, maybe. It's a full spectrum. But I think it's the character of the entrepreneur which is maybe the most important. Approximately half of the founders we back are repeat entrepreneurs. We look at Torsten, who built the gaming company, then he went into building a defense company, and he started Helsing in 2020 or 2021. You need to have something which makes you tick differently to go building a defense company 4 or 5 years ago before this became a hot topic.

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

We love repeat founders. When we look at the people we've backed and the ones we haven't backed, what stands out to us is that repeat founders, they typically go for a much bigger goal. Torsten did a gaming company, then he went into defense. We can talk about Daniel Ek. His first company was e-commerce, and then he took on a massive challenge of building Spotify. So we love the fact that these people They go for a massively bigger goal next time. And again, I don't know if they have a bigger likelihood of success, but even if the likelihood of success is the same, the outcome is so much bigger. They've learned a fair few things on the journey. I don't think I would be that excited to back a founder who built fintech company 1 and then goes on to build fintech company 2.

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

For me personally, it's pretty hard to get excited about the good old SaaS company.

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

We are complementary, Harry.

I agree totally.

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

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

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

I don't think it is in general. Fundamentally, the idea of collecting a 2%, 2.5% management fee does not really make sense. It does not align us with the outcomes. At Plural, we charge about half the management fee, and we think we are much better aligned. And also what it enables us to do is make a few more investments per fund. So in Fund 1, we probably made make 2 more investments because of this. Fund 2, we think we'll make 4 more investments as a result. That's 4 more shots on goal. That is pretty damn important. And still, we have a fantastic team. We have 5 GPs. Everyone is being paid well, but not ridiculously.

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

Earn your right to do it. You know, when hiring people for a startup, you want to hire the people who are dying to work to build this company. You don't want to hire the people who are coming here for the biggest salary. Yes, you want to make sure they are compensated ridiculously well if things go well. I am very proud of the fact that when we built Wise, everybody had stock options, including every customer support agent. The customer support agents who joined in the beginning, they all made $1 million. When Wise went public. I'm super proud of this. Similarly, in venture, the team and GPs, once we have this magic DPI, they should make lots of money. But I don't think people in venture should make a lot of money just because they are deploying capital.

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

It's a game. Don't blame the player, blame the game. It goes both ways. As the industry evolves, maybe things will change. And, you know, we're hopefully doing our part to make this a better game for everyone.

Do you worry about the elongated window to DPI and liquidity, especially for some of the projects that you do?

These are such hard projects.

These are multi-decade journeys? Isn't it even longer for some of these projects?

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

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

I mean, 10 years is short. I mean, if I look at, you know, maybe looking back now, Wise now looks like a simple fintech company. Everyone is doing fintech companies. You know, it took us— we started working on it with Christo in 2010. We launched beginning of 2011. We went public in 2021. That was a 10-year journey. But also, to be honest, the last 3 years were probably pretty liquid. Even if we were private. Let's call it 7 years. And maybe for deep tech companies, it's 10 to 12. If you hit the bad patch in the markets, it becomes 15. I think we need to recognize this. But I think also maybe at some point, people just need to be more disciplined in returning some capital early. There are some investors out there who are very vocal. I think Fred Wilson has spoken a lot about taking some money off the table.

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

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

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

I don't think venture should be a rich people's area only. Going back to what we spoke about before, look at for someone to invest their own money, we are the biggest investor in the fund ourselves. And additionally, every deal we do, the lead partner of the deal writes a personal check. So we are really—

Well, hold on, Paul. So can I be blunt? How much of the fund are you?

Collectively, we are the biggest investor in the fund. I don't think we're not going to start talking about numbers, but you're in the business, you know how much the biggest LP in a fund could be as a percent. So you can mention that.

And so on top of that, the lead partner will also write another check?

Yeah.

That is unusual.

We don't like the idea of playing with house money, something that we're not so keen on. So it's a personal check, the size of it, Depends on the individual's position. So for some people it's smaller, for some it's bigger. But we want it to be something which is meaningful. So you think about, like, I'm investing my own money in addition to the fund where I'm already an investor. And I think there may be a ritual part as well of wiring from your own account the same time as we wire from the fund account. Maybe the other thing to mention, like, there are other weird things in venture. Like, where does the idea come from that You should pay your investors legal fees. Well, we pay our own legal fees. Vast majority of venture deals is in the term sheets that you pay your investors legal fees. What is this about? It comes from the money you give the company, the company pays their legal fees. Why does it make sense?

I think it's just the way it's been done.

And so we should continue.

And so you will pay the legal fees for the whole round?

No, we pay our own legal fees. Usually the company pays the investors legal fees. I'll show you where it is in the term sheet after the— discussion.

And so you pay your own legal fees and the company pays their own legal fees. Fine. Where do you pay your legal fees from? The management company of the fund?

Yes.

What do you think are the areas of founder-investor conflict that people don't often talk about?

Timeline misalignment. Investors wanting their money back before the founder, which is a kind of a hard one. Like, you know, in a way, if the founder is in it for the next two decades, It's a question of liquidity.

Has being an investor changed your mind in any major ways about operating? Now you see the other side of the table, are you like, ah, I actually get it now on this or on that?

I think maybe the biggest thing which strikes me is fund composition part. We really don't think we have much control over fund composition.

What do you mean, sorry, when you say fund composition?

Do you? How many SaaS companies? How many carbon companies? You don't want to have the same risk everywhere. Companies outside are like, "Fuck, we have too many deep tech companies. We need a SaaS company." We're kind of okay mostly with the fact that we follow the most ambitious entrepreneurs, whatever they're building. But I can start sympathizing with the people who are saying, "Hey, you have this great carbon capture company." I love you, but we have 3 already in the fund. We can't add a 4th one because it starts skewing the fund composition. Like, you start learning the ones like that, which, you know, on a deal-by-deal basis isn't relevant. But, you know, if the whole fund is subject to carbon markets, for example, somebody should think about it then.

Given the outlandish bets that you take bluntly in terms of outcomes and how ambitious they are, how do you think about portfolio construction in terms of how many you want on a per-fund?

On a per-fund basis, I think Fund 1, we probably had a model of 25 to 30. We ended up with 31. So we do pay attention to having diversity in the portfolio.

Yeah. Do you do reserves?

We do reserves as well.

What's the ratio there?

Reserve ratio, Fund 1, we had limited reserves, which was kind of less than a third. Fund 2, we kind of drew the line roughly in the middle. I think probably we end up with slightly less than half for reserves. And the reserves is still something that, you know, we are iterating and learning about the best ways of doing it. I haven't found anyone who says they've nailed it.

No, and I really also don't like the uniform reserves. There's some people that say, you know, if you get a good round, we'll always write a reserve check. I don't think that's right. I think you should actually be kind of all in or not.

Fundamentally, I agree with the idea that just doing a pro rata is a cop-out.

Yeah.

You either want to do nothing or triple down. However, I think the real world is slightly more complex. Round happens a year later. The company has done well. There is this weird signaling thing. Some days I think signaling risk is real. Some days I think it's not real. You want to make sure you have some kind of a more uniform way of doing it through the fund. And, you know, we're working on that.

We're going to get to decision-making. I do just have to ask you, I think the thing where you get in trouble with the reserves is like the communications. Where people think that it's coming and then it doesn't come and you surprise them last minute. Now I work with some of the biggest and best founders who I bring in to co-invest with us. And the thing that uniformly shocks me in communications is how much harder former founders are or founders are with founders than VCs are. VCs kind of tiptoe around founders.

We don't want to get a bad NPS and talk about, you're doing great, you're doing great.

But I'm not going to do the reserve check. And former founders or founders are just like, dude, you're not hitting bar. This is not impressive. And they're much more direct and less empathetic in some ways.

Do you think that— I think this is really hard. We try to be honest, but we're also there for the founders and we kind of promise we're not going to give up before you. But it doesn't mean we're going to write bad money after good money. We've told our founders, we're here to have GDP-level impact. If your company is not doing it, I'm sorry, we should not continue funding it. You may keep on working on it and we'll do our best to help you, but it doesn't guarantee the next checks.

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

It is super simple, and we have— it's very, actually very formulaic. There's a couple of things. Every investor can only do a limited number of deals per year. It looks at 2 to 3 deals per year is the right pacing. If you come saying, I'm doing deal number 6, we're going to be like, hey, Tabet, what's going on? Limited number of shots on goal. Skin in the game, so you're willing to commit your personal money. Third one, you write a memo about the deal. The memo starts with, Why is this company important to me? Every deal we do, we're testing like, would you be willing to be a co-founder of the company? All the 49 deals we've invested in so far, we feel about all of them that the partner who did the deal felt like, bloody hell, this is so important, so exciting. I would love to be a co-founder of this company. So the memo starts with why is this important to you? Let's talk about the founder. Why is it important for the founder? How can it be 100x 100x from here. If we can't see that, we should not be entertaining it.

100x?

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

Pause that. When's the memo sent?

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

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

Most likely, we've spoken about the company a few times before over the past weeks during our pipeline meeting, etc. There are a lot of companies where more than one partner meets with the team.

Does every partner need to meet the founder?

No, absolutely not. And I think there is probably no company where all the partners met the founders before the deal. It's typically one or few partners that meets a company. But we give a lot of trust to the individual GPs. The bar for being a GP is super high, so we give them a lot of trust. And we kind of felt that it doesn't make sense to hire someone brilliant and tell them, "You have to come on Mondays to ask permission to do a deal." Going back, we have the IC, And after the IC, the lead partner goes back and thinks about the feedback. We have many cases where after hearing the feedback, the lead partner is like, hey guys, you know, Ian, you raised great points. Karina, what you said about your experience in the market is very true, and I'm not gonna do the deal. Many cases where this happens.

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

It's probably more like 70-30. 70% gets done, 30% doesn't get done. But we're not really, we're not quite like, I'm not sure measuring this is the right thing and start setting maybe wrong incentives. And by the way, sometimes also there is a time factor. We look at a deal, doesn't make sense. The lead investor comes back like, hey, I'm not doing it now. 6 months goes by and like, hey guys, I'm going to have a new IC. The company has done what they promised or something has changed and I want to lean in now. So let's have a discussion again.

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

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

We do see different types of deals.

I mean, I completely respect the fact that we need to communicate to the founders how long something is going to take. And if we tell them that, hey, 'You know, we're going to have an IC on Tuesday and we'll tell you on Wednesday,' it makes sense. We can get things done very quickly. We probably got them things done within a number of days. And if something is super competitive, we need to move, we need to decide soon. We believe that we tell the founder what our process looks like. We try to make it compatible. 2020, 2021, there was a lot of deals done, you know, under the gun basically. I did some myself personally. Made some big losses. We even may have done some together. But you know, it's—

They were great. Those were the winners. Definitely.

So I don't see the crazy companies moving so quickly. That's a momentum spreadsheet investing which starts moving way quicker.

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

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

Do you think you should? So we are the same as you. People say to me, it's very helpful to have a historical record so you can see how the partnership picks and thinks over time, and you can look back and go, Talbot historically has picked—

We keep notes directionally because I think it does help calibrate. And I think in an ideal world, we want to come back to it years later and say, hey, 'Let's recall that IC and what do we learn from it?' Is there anything that you think you should change about your decision-making process? Absolutely not. We're brilliant.

On the reserve side, how does the reserve's decision-making look?

So reserve, like follow-on checks, we flip it around. On the reserve decisions, like follow-on checks as we call it, the lead investor writes a memo, comes back with a proposal, but this needs a majority. Vote. It's the idea of marking up your own homework. Kind of the idea of the fund is we write whatever, 25, 30 first checks. Everyone does 4, 5, 6, 7, like doesn't matter who does more or less really. But when we talk about the reserves, that's a finite allocation, a finite asset we need to divide up. And you cannot do that unless you take collective feedback, collective input. We think these ones are are done best collectively. We're trying to balance, you know, how could we keep a bunch of reserves for the best companies, but you don't know the best companies the next round, you might not know it the round after next either. How do we do our share to help the companies forward in the next fundraise, which oftentimes means doing the pro rata, which I think is a cop-out, but doing that, and then, you know, balancing that with can we keep larger reserves for deploying checks in companies where we are actually, at that time, maybe not confident of 100x because we've seen 10x already. But if at that point you see the momentum and you feel maybe it's 50x left, 30x left, you want to deploy more capital.

On the deal structure itself, we spoke about misalignments earlier. LIC prefs, liquidation preferences, are often now more and more under scrutiny. Maybe it's, I'm seeing in the US, but people are now often doing deals with no LICPRF. How do you feel about LICPRFs as a former founder and now VC?

I don't think it makes that much sense. We are here for unlimited upside, 1x downside. The difference is purely marginal. We spoke about this when we were starting to play around with the idea for Plural and thinking like, what are the structural misalignments in the industry we want to fix? I think this is one of the next things we should work on. We haven't, like, ultimately haven't felt it important enough. And I also, to be honest, as a founder, it feels shit. But also as a founder, it doesn't matter. As a founder, you're also in here for the long-term upside. Let me rewind. What we need to think about in the industry is how much capital gets deployed for a size of an outcome. Founders too often think fundraising and large fundraisers is the ultimate measure of success, you know, which I think is BS. Something that hasn't been spoken widely, even though Wise supposedly raised a shit ton of money, we probably raised a billion or more. Wise only raised $160 million primary capital, and we only burned through about $100 million of primary capital. $100 million primary capital to build in excess of $10 billion of value. If you look at companies outside where you've raised $2.5 billion to create $10 billion of value, and then if you deploy, if you If your company raises $1 billion at $5 billion with the possibility of getting to $8, $9, $10, maybe the lick-preff is different. But early stage lick-preff, I don't know, it doesn't really make sense.

But another element of term sheets is also boards and involvements on boards. Do you need a board seat with every deal?

We do not love boards, I think is a fair starting point. The things that I don't like about boards, They oftentimes become way too big, way too quickly. Your C-round investor takes a board seat, your A-round investor takes a board seat, your B-round investor takes a board seat, your C and D. So you end up with 5 VCs on the board and 2 founders. I don't think these boardrooms are any good. The other thing—

Unpack that more. Why are they not good?

Because you have 5 people with a relatively similar mindset, similar view of the world. You know, they will be looking at maybe the guy with the biggest fund, or then the guy who wants to be the smartest guy in the room, they will dominate too much of the discussion. So right boards are slightly more balanced. I'm very much in favor of the idea that founders who are building companies, at some point it might be good for them to be on one board of another person building a business. You know, I think it's good for both.

We're seeing an increased dilution sensitivity from founders where, especially at the early stage, they don't want to dilute more than, say, 10% on the first round or the first proper seed round. Are you seeing this increased sensitivity around dilution from founders?

We are a commoditized product, Harry. VCs are a commodity. You can press them down. Someone told me early on, the only person to fight for your ownership is yourself. No VC will ever fight for the founder's ownership. You need to fight for it. So there's a lot of truth in it. You know, the founders, they need to fight for their ownership. Absolutely. The other side of it is, and still is, if you're a good fundraiser, you're building something which is deemed to be hot, you're building an AI SaaS company, it's easy to put a party round together, dilute 10%, and nobody gives a shit about the business. So I think you need to think about, do you have people involved who will help you through the good times and the bad times? In the good times, you don't care about their advice, you don't need their help, but you want someone to pick up the phone when it's bad times. There are plenty of stories out there of respectable VCs not picking up the phone when it's bad times. Do not be that asshole. But I think it also goes back to founders of like actually creating a round where people have enough skin in the game to feel interested, to feel the company is important.

There's so many things I just want to pick up on. The best founders do not need the help of the VC. Keith Rabois said it on the show, to the point of like, we're there for founders, we're here to help you found a value add. How do you reflect on the best founders don't need you?

Fundamentally, I agree with this, but I think, you know, we have the ability to be very deeply involved if you need us and get out of the way rest of the time.

On the early stage being art, not a science, what worries me is like the multi-stage funds have so much money now. You're $8 billion, $10 billion, Andreessen raising $20 billion. Pre-seed and seed is literally just the massively high velocity option game. 5 on 50, fine, doesn't matter. It's $5 million. We just want to have a chance to write $25 million at the A and $100 million at the B. And all that matters is it could be the next Databricks. And actually seed is being destroyed by this high volume game.

I don't think this game will last. I think the best founders will realise that getting a check on good terms from a multi-stage firm is by no means a guarantee of raising money from them in the future. I think they will— I think the game will change. The industry will change, the game will change over time. More capital coming in. The question is, are we going to have more founders? Like, how do you keep it in balance? If you have more capital, then founders are getting better terms. If you have more founders, then it flips.

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

Yes, in certain sectors which are deemed hot. You know, 2021, if you were an X-wise employee, everybody would write a check to you without even meeting you. Does that make any sense? No. Same happened to Google employees maybe 5 years before. I do think that you need to separate kind of the early pre-product market investing from the later stage. But I guess I think also at the same time, it's safe to believe that the returns will be coming down over time as the asset class matures, becomes bigger.

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

The best investors will continue generating best returns, but I think the median is probably going to come down. Over time.

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

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

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

Even zooming out, when we were starting to think about Plural in 2021, So we raised our first one in 2022. So thinking of creating Plural, we had two things which were really important: European sovereignty and GDP-level impact. That was true 4 years ago, and it's even more true now. Two things which have happened in between: one is the Ukraine war, which, you know, before that, investing in defense felt strange. After the Ukraine war, it feels like we need to do this in Europe. And I think the other thing, second thing which has changed is I think really what happened in the White House in February, where Zelensky was taken for a grilling, and the way that the US cannot be trusted anymore to be the protector of Europe, this kind of results in a world where we need to rebuild a lot of things on our own. We need to build our defence sector, we need to build our space sector, we need an independent energy sector. We need security, intelligence, a lot of sectors where I think we're going to be living in a tripolar world. So there's going to be an American version, let's call it Anduril. There is a European version, Helsinki, a Chinese version, defense, space, energy, security, intelligence, everything, all of the critical services. And these critical services, they make up a vast portion of GDP.

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

I think it has.

Does that worry you?

We probably were living in a naive world before this. We thought human nature has changed and, you know, we're now post-Cold War in a different world. And maybe history could have worked out differently. But I think now the world is pretty similar. And the idea that we overly rely on the US probably was already wrong back then. I think we all need to punch our weight. I believe we are better collectively. Estonia is better part of Europe. UK is better being part of Europe. Europe is better together with the US. But I think we all need to collectively put in the effort. And maybe we were relying slightly too much on the US before. Today—

When you look at NATO contributions and 75% coming from the US, we massively overrelied on the US.

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

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

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

But at what stage do you draw the line? Then you are living in a completely compartmentalized, deglobalized world where you could say that for everything. You have to. I think I'm hopeful that Germany are buying $1 billion of energy a day in some circumstances from other countries because they are so woefully inadequately supplied by energy.

We are going into a world of decoupling for a while. I'm kind of hopeful that Western world will come closer together after going through a rough patch. These are complex topics.

Why do we need national sovereignty or like continent sovereignty? Around your Helsings for Europe and Androids for the US.

Why is that important?

Androids sell in Europe.

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

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

Do you remember how much capital Germany allocated to this the last couple of weeks of February? I think it was between 1.5 and 2 trillion that Germany allocated just after the Zelensky White House meetings. These discussions are happening everywhere in Europe today. And the reality is we probably cannot use 2 trillion today. We need a trillion this year, 2 next year over time. So I'm feeling—

Is that the right approach?

Germany saying, here's a trillion, what does that mean?

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

Estonia, Finland, Baltic countries have been ahead for a while. To what extent is it a very real concern for you about Putin wanting to expand beyond where he is now?

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

Are we too far behind already? When you look at China, And when you look at the supply of talent that they have, the depth of talent that they have, the control that the CCP has, the funding that they have, and America and what America have shown in the last few years, have we already faded into irrelevance?

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

I don't think the political structures allow them to come up with the right answers in a way that's best for us in the long term. They are focused on a 4-year re-election cycle, and a lot of the projects that we're talking about are 10, 15 years out, and actually the capital requirements and prioritisation strategies needed don't favour re-election. That's what worries me.

I think it's, it's a correct thing to worry about, but I think also we need to be more entrepreneurial and find ways to build things quicker. And I think it's doable.

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

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

More deep tech cash earlier in Europe. We're not ambitious enough. We often get told, hey, we don't work hard enough. The other is, oh, you're happy with a $50 million sale or another.

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

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

No entrepreneur ever has not started a company because of regulation. The best entrepreneurs, they go through walls made out of titanium to make it happen. It's an excuse. But on the other hand, we need even more to make Europe a more unified market. Labor, capital. Why do we need to have a stock exchange in Amsterdam? Great companies listed there. London, Estonia. I would love her to be—

There's an Estonian stock exchange?

Unfortunately, yes. I would love her to be a single global stock exchange. Maybe we could build it on the Synchro blockchain.

I asked Julia Hoggett, the CEO of the London Stock Exchange, whether we should have a European stock exchange. When you look at the stock exchanges across Europe, they're all subpar and they're all subscale. I was met with a frosty reaction. Do you regret going public in London?

I don't regret going public in London. I think Wise is an example of a company that is well known amongst the investor universe that can go public anywhere. Adyen went public in Amsterdam. Whoever knew they have a stock exchange? They've done very well. Wise has done very well in the UK. It's been a passive up and down, but that's something which I think would have happened similarly in the US.

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

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

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

I don't know what duty Nick feels, so I can't answer on this. Here's what I would tell Nick. If he wants to build a big business in the US, then he should go public in the US.

Can I ask, you're a very wise, thoughtful, premeditated person in a nice way. When you go public also, after lockups, you have liquidity. How did making money change your mindset, approach to life, approach to relationships? How did it change who you are?

Frankly, I think it has not changed. I have generated liquidity through the years from Wise. I mean, not until we were valued at billions. I didn't sell a single share of secondary, but after that, I've done it in a, I would say, systematic way. I was also lucky to make money from being the first employee at Skype from stock options. So in that sense, I've been financially independent since 2002, 2003.

Does it change your mindset though?

I'm all interested in the upside, and I'm interested in what are the good things I can do with the returns. I don't need to go to work for the monthly paycheck. I think that is an incredibly powerful moment for everyone.

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

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

Listen, I want to move into a quickfire because otherwise I could talk to you all day. So I say a short statement, you give me your immediate thoughts. Sound okay?

Yeah, let's try.

What do you believe that most around you disbelieve?

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

Why do you think that is? What is in the waters of Estonia?

We had great education during Soviet times. We had an early start thanks to Skype. So ecosystem acceleration from an early success story is humongous.

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

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

Spotify has been pretty good. What buy in the public markets would you make for a 10-year period? What's your like buy and hold?

I have never bought a public stock. That's really hard. For 10 years?

Yeah.

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

I love that you haven't bought a public stock.

Lots of private stocks.

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

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

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

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

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

Trillion-dollar European companies.

In 10 years?

We will see.

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

Me too. Thank you, Harry.

I mean, the breadth of that show is incredible, from global conflict to the future of European tech to the misalignment alignments in venture capital. Tarvet was incredible. If you want to watch that episode, you can find it on YouTube by searching for 20VC. But before we leave you today, turning your back-of-a-napkin idea into a billion-dollar startup requires countless hours of collaboration and teamwork. It can be really difficult to build a team that's aligned on everything from values to workflow, but that's exactly what Coda was made to do. Coda is an all-in-one collaborative workspace that started as a napkin sketch. Now, just 5 years since launching in beta, Coda has helped 50 thousand teams all over the world get on the same page. Now, at 20VC, we've used Coda to bring structure to our content planning and episode prep, and it's made a huge difference. Instead of bouncing between different tools, we can keep everything from guest research to scheduling and notes all in one place, which saves us so much time. With Coda, you get the flexibility of docs, the structure of spreadsheets, and the power of applications, all built for enterprise and it's got the intelligence of AI, which makes it even more awesome. If you're a startup team looking to increase alignment and agility, Coda can help you move from planning to execution in record time. To try it for yourself, go to coda.io/20vc today and get 6 free months of the team plan for startups. That's coda.io/20vc to get started for free and get 6 free months of the team plan. And while Coda keeps the engine running smoothly, Shopify puts the pedal to the metal when it's time to sell. I spend time looking into successful businesses of today and tomorrow, and often there's a business that's behind the business helping drive success. For millions, that is Shopify. Shopify is home to the number one checkout on the planet, boosting conversions by up to an astonishing 50%, meaning way less carts going abandoned and way more sales going into the business. Winner. So if you're into growing your business, your commerce platform better be ready to sell wherever your customers are. Go to shopify.com/20vec to start your $1 a $20 per month trial today. That's shopify.com/20VC in letters. And while Shopify helps you drive sales, don't forget what really keeps those customers coming back— trust. Trust isn't just earned though, it's demanded. That's why over 9,000 companies including Atlassian, Core, and Factory rely on Vanta to automate their security compliance. So Vanta helps businesses achieve certifications like SOC 2 and ISO 27001 one, turning months of tedious work into this beautifully fast and straightforward process. Their platform automates compliance across over 35 frameworks, it centralizes workflows, and it proactively manages risk, all while saving you time with automation and AI. So whether you're just starting or scaling your security program, Vanta connects you with auditors and experts to get audit-ready quickly and build trust with your customers. Get $1,000 off your first year by visiting vanta.com/20VC That's vanta.com/20vc. Now, as always, I so appreciate all your support for the show. If you want to watch an incredible episode, stay tuned for our show on Thursday with Jason Lemkin, Rory O'Driscoll, and Fabrice Grinda.

A special one to come there.