[ENG] #201 - George Robson (Sequoia Capital) - Sequoia’s growth in the European Tech forest

Welcome to finscale, a podcast created by Solene Niederkorn, shedding light on innovation in finance, banking and insurance.

Sequoia's growth in the European tech forest. George Robson, partner at Sequoia Capital.

It's an active community of people that exist outside of Sequoia but are out there in the world as founders, executives, operators in their own right, building relationships with potential founders and really just helping contribute to that company building journey. We don't disclose a huge amount about the individuals in the program here in Europe. Many of them are busy with their day jobs and we want to protect their time a little bit. But there are some exceptional scouts out there building portfolios in their own right. I'm sure you know Roxanne Vassar Neff, who's doing an incredible job in her day job, but also managing to work with early stage founders. I think the way we think about it is it's a good way to help us learn from them, you know, learn about what these future entrepreneurs care about. But likewise it's a goal to bring people together who have different backgrounds.

After extensive searching within Sequoia, I finally connected with George who generously shared his insights into many, many subjects. He joined me for an in depth discussion on Sequoia's growth in the European tech sector. We dive into a range of topics starting with the structure of Sequoia and exploring the reasons behind its decision to expand into Europe. The conversation then shifts to current and Future Trends in FinTech, highlighting their focus in this area. Particularly noteworthy are our discussion about two significant deals, Trade Republic and PennyLane. These examples provide a glimpse into Sequoia's investment strategies and successes in Europe. We also touch on the mafia phenomenon in Europe and the emergence of the companies originating from European scale up mafias. Finally, we cover the Sequoia Scouting program with a special focus on the R program. This initiative supports pre seed and seed stage funders who are in the early stages of developing their ideas, products and companies. Enjoy the show.

Hello everyone. Hi George.

Thank you for having me. It's so good to be here.

Yes, thank you very much. Listen, I just wanted to say a huge thank you to you because it's been a while that I've been discussing with several people from Sequoia Capital and it's such an iconic VC firm. So I'm really happy to have you on the podcast. It's a great honor for me. Yeah. So I'm eager to cover many, many different things with you. First, know more about Sequoia Capital from the Insights Have a few words about your scouting program, but of course concentrate also on the ARC program that you recently launched. Can you maybe start by introducing yourself and explain who you are, what you do, where you come from?

Absolutely. I mean for those who haven't spent time with us at Sequoia, just a little bit of background there. I mean Sequoia has been around for 51 years now working with early stage founders across the globe. A little bit more recently, you know, we set up an office here in Europe which is when I joined Sequoia about three and a half years ago. And we work with founders from pre seed, pre idea to IPO and beyond across sectors, geographies and stages. I joined from something a little bit different. Previously I was at a company called Revolut. I joined basically to launch and build the consumer subscription business, so something called Revolut Premium. A lot of the retail plans, the insurance business, the gifting business, things like that. So I'm very passionate about consumer product design, monetization problems and obviously scaling because Revolut is now a company that is in not just European markets but across the globe as well. And now at Sequoia I work with a whole mix of early stage companies, many of which are at seed and precede and yeah, I love bringing some of that energy and some of those, hopefully some of those learnings from my experience at Revolut to working with early stage founders.

Perfect. Thank you very, very brief overview, thank you very much. But we will dive again into Sequoia Capital. What is interesting for me is that you give us a brief overview of Sequoia's journey into the European market and what prompted that expansion that you were mentioning earlier.

I mean, I think simply put, the level of ambition for founders in Europe has just never been higher. I think for a long time market leading companies were founded and built in the US I think what you've seen over the last 15 years in particular is Europe has taken a leading charge starting in sectors like Fintech and increasingly because of the quality of the research universities here, the size of the talent pool, the level of harmonization of things like regulation and funding coming from governments as well as private companies has really started to spur this ecosystem. On the other that is, is that the level of ambition, as I said, has never been higher, but also the ability to found companies across a whole mix of, of different sectors, not just in Fintech but beyond Fintech as well, has really meant that it's a fantastic time to be building companies here. So obviously at Sequoia, I Mean, we made our first investment in Europe, I think back in 2007, 2008, of course, in Klarna. And since then we have a bunch of investments like companies like Unity and uipath and the like. But since we opened the office here, we've been able to find companies much earlier in that journey and hopefully share some of the learnings from the last 50 plus years of working with these founders to make sure we help the next generation of companies to be successful. So it's early days, but we're very excited about that. We've been able to double our level of seed investments in Europe from 2021 to 2022. We announced a new seed fund, I think it was late last year, earlier this year, and really being able to think about the long term relationships you want to have with these different founders. Starting from Europe, but building with global ambition.

Great. So Sequoia Capital has a wide presence, worldwide presence. You have a lot of operating partners, people that are supporting portfolio companies. How do you leverage this global presence and all that support functions to support the European ecosystem?

Very precisely, I think in many ways companies have millions of decisions made in a certain order that lead to a certain outcome. Right. If you think about it, what is often unique about companies is the sequencing of those decisions. But actually if you look at those individual decisions part by part, generally there are people out there that have made those high conviction calls previously. So a big bit of what we're doing is leaning on obviously the expertise inside of our partnership, but also founders that exist in our portfolio across different geographies, but also different levels of scale to really help the next generation of companies coming through. So in practice, what that means is, you know, we work with these different founders very much as a team across US and Europe, translating learnings from what we've seen in some of these markets and business models in the United States, but making sure we can bring that to European founders, but also trying to build a sense of community not just with, you know, more established founders that exist in our portfolio, but also through programs like Ark that you mentioned, you know, helping you come up as a founding cohort along a group of other founders at a similar precede seed stage, to make sure you have a sense of community around you to help you get these big high conviction decisions. Right. So really I think it's that investment in the community piece, but also this very long term focus on company building, thinking about the decisions that will set you up for success, not just in the next six or 12 months, but ideally over the next phases of the company and really working with founders to tell that story of how they will build their business. Not just to launch an initial product targeting a customer, but actually to be able to expand from there and really start to be able to build not just an act one but an act two and hopefully even in act three for the business.

And how do you approach fintech companies? If we now focus more on fintech because you know this is my passion. Did you adapt the investments thesis and do you see major differences between Europe and the us? And I believe also from a regulatory perspective there is also an impact in the way you approach the market. What is your opinion on this?

I mean Europe has had not just one, but really up to kind of three waves of fintech success over the last 15 plus years. I think a lot of that was spurred by the fact that, you know, with a region with multiple currencies, many people living multi currency lifestyles, a huge amount of fragmentation in terms of countries. Obviously that introduces a lot of pain on the base level, but also therefore a lot of opportunity if you can create really strong regulatory frameworks and really impressive solutions that help to orchestrate these different sets of services. I think what's been very impressive is after the introduction of early regulation in kind of 2016 onwards, these wave of consumer fintech companies, obviously the Revolut, the Monzos, Yen 26 to the world and Klarna's were able to go out and be successful. But since then what has been very interesting is seeing that DNA coming out of these companies and founding the next generation of businesses. Many of those businesses are now focused on B2B. You know, we see this rise of the SMB theme across Europe. 26 million SMBs here in Europe of which about only 20% have really any software in their operations. That's a huge opportunity for building the next generation of these companies. But also regulation around things like account to account payments, e invoicing which will start to introduce a lot more tokenization in B2B payments and make them much more fluid and much more efficient. But we see B2B payments as an opportunity that is three to five times depending on your market size and consumer payments, but much less digitized. All of these trends are just really starting to play out. So I think that regulatory backdrop is a really important piece because it creates a very stable foundation for companies to go out and be ambitious and who knows what will come next, whether it will be in crypto defi. Many of these different waves are just starting to begin that will carry fintech forwards in Europe over the next decade.

Interesting. And amongst the different trends that you mentioned, there is one that you didn't mention and I would like to also have your opinion on this. With the rise of generative AI and all the different, I mean, startups that I see in the ecosystem, particularly focusing on risk management, compliance, but also on asset management, do you believe that also that might reshape the future of the industry and bringing to different players, incubant players, many, many different tools to help them scale their business?

I think if you look at the way that many financial services companies have been built and the amount of headcount that is required to get them to scale and the composition of that headcount across different functions looks a little bit different from other for some of the reasons that you mentioned that obviously in financial services you have things like transaction monitoring, you have compliance, you have risk, you have a lot of operational processes required not just to deliver a great customer experience, but also expected by the regulator to make sure that you get that right as the company begins to scale. In practice, what that means is for many of these large scale fintechs, as they start to get to kind of series B, series C onwards scale, you can have kind of 40 to 70% even of headcount tied up in customer success, transaction monitoring, compliance, as we said, I think the reality is for lots of those jobs, if you think about it, what you're doing is building dynamic risk models to generate alerts based on certain user actions, to then propose a workflow or a set of validations and steps that are required to be followed to really get that right and to resolve it in a way that is consistent with the regulation. The interesting thing about that is a lot of that back and forth can go through levels of automation to allow these compliance agents and the like to be much more productive and focus on kind of business critical problems that will really manage risk, but also ultimately drive levels of cost savings. Yes, but also hopefully a much better customer experience and retention and revenue for your end user, I think that is very much just starting, as I said, in the compliance angle, I think around actually asset management, as you said, there are huge opportunities there. And I think if we look at, you know, we are going through this relatively generational transition of wealth over the course of the Next, let's say five to 20 years. As we do that, we will have much larger balances of money moving across generations to a consumer who expects a very different level of experience with, you know, with their provider. I think MiFID and the like has really exposed fees and provide much more transparency around the fees that are being charged as part of that service. But user experience and NPS will come next. And I think what we expect to see is that, you know, we expect for larger balances, there's still to be Financial Advisors IFAs as part of those interactions. But what will happen is generative AI using AI for things like personalizing portfolio construction and using generative AI to automate. A lot of the back and forth conversations you have between an IFA and the end customer will become much more personalized and much more nuanced. And I think that will ultimately add much more high value interactions, hopefully more personalization for investments and a much better value exchange between these different parties.

And this is why you invested in Trade Republic?

Yeah, very start of that journey. They've obviously come out of, out of Germany itself. They've now gone across Europe, but they started very much through that focus on everyday savings and building core financial infrastructure. Really trying to become a regulated service securities bank, really internalizing a lot of the pieces that are required to own that customer experience.

Can you share other standout success stories such as Trade Republic in the European ecosystem where Sequoia has backed the company and why you believe it makes a successful investment?

Yeah, I think, I mean a business, you know, well, I think the community here knows well, is Penny Lane, I mean, just for a second on, on that business. The remarkable thing there is this theme of the rise, the SMB. If you think about the reality of being a small business owner needing to understand how much cash you have available to make investment decisions, make hiring decisions in the old world, you're effectively going to your accountant and delivering a shoebox full of receipts and hoping, you know, within like, you know, two or three weeks, you would get an answer of how was last month's sales? How much cash do we have available? How ambitious can we be going forward as we think about building our company? I think the insight of a company like that to allow the entrepreneur and the accountant to look at the same data, but to answer different questions. The entrepreneur being, how's my business doing? How are sales going? The accountant being, you know, what data do we need to file our accounts to build a financial profile of the company? I think that very strong insight of using collaboration and ultimately delivering a solution that is cloud based and, you know, much easier to use is incredibly smart. And I think a business like that is set a pretty good precedent that you can go into these industries where it's relatively lowly digitigitized. And over time, if you build the right product, you listen to your different sets of customers and stakeholders, you can start to get these things right. And I think that's a very important case study. As we start to think about the role of financial services in health care, we think about it in the role, as we mentioned earlier, in wealth investing, you know, compliance, all these sectors will have some initial pushback. But actually if you think about listening to stakeholders and building the product, you can win.

Perfect. So now I would like to say a few words about the mafia effect because Sequoia has a notable history with companies mafias where you have alumni of successful startups that go on and create their own ventures. We have the of course PayPal mafia that is quite known. But in Europe there are, I mean, growing phenomenon like this. How do you think that it has and that it might also reshape the European tech ecosystem?

I mean, to state the obvious, we are incredibly excited about it. I think this idea of having an alumni flywheel inside of these companies is incredibly powerful because there are precedents, there are learnings, there are best practices that come out of these businesses. But it's also about the culture of entrepreneurship. I think many of these first generation of much larger pre IPO fintechs have built their cultures around this idea of a bias to ownership, a bias to action. So even if you weren't a founder of that company, you've still gone through an incredible growth journey. You made very tough hiring decisions, important trade offs around product. You've obviously seen what best in class infrastructure looks like. But you understand crucially how to build a high performing culture. And we've seen that early evidence of, you know, founders coming out of Klarna Revolut was produced, you know, a large amount of the other day, you know, raised hundreds of millions of dollars from the alumni at an early stage for these next generation of companies. But the really important thing of that is they're not just going into building fintechs. I think if you think about building financial services, what you're really doing is, is you're operating in a regulated market, you understand how to build a high volume, low margin business, how to really push right in, manning vendors, building infrastructure, doing these things and doing it at scale across different geographies. All of that DNA sets you up beautifully to go into some of the next generation of questions and causes really that matter today. Things around climate change, we're seeing a lot of founders coming from fintech into climate tech. We're seeing lots of people going into health care, actually, because health care has a lot of those same properties, navigating the regulation, navigating these stakeholders. And that makes us very optimistic because when we think about generational problems, financial services is a big enabler for digitization. But actually there are lots of other industries that also need that as well. So we should feel very optimistic about the state of the world.

Perfect. So, as you know, when I got in contact with Sequoia, my objective was also to say a few words about the Scouting program. So it's interesting because we know and we hear that people are scouts. And I believe that people, I mean, listening to us, are very keen on understanding a bit more in details what the Scouting program look like and maybe just to say a few words about this to explain to the audience what the Scouting program is and. Yes. And what are the objectives, the main objective of Sequoia Capital, when you hire new Scouts?

Yeah, absolutely. I mean, so Sequoia Scouts, simply put, helping the next generation of founders to build the companies of tomorrow. It's a program that we've run since 2009 and many of our peers have followed suits in having their own programs. I think we think about it as an active community of people that exist outside of Sequoia but are out there in the world as founders, executives, operators in their own right, building relationships with potential founders and really just helping contribute to that company building journey. We don't disclose a huge amount about the individuals in the program. Here in Europe, many of them are busy with their day jobs. We want to protect their time a little bit. But there are some exceptional scouts out there building portfolios in their own right. I'm sure, you know, Roxanne Vassar, you know, at Stashioneff, who's doing an incredible job in her day job, but also managing to work with early stage founders. I think the way we think about it is it's a good way to help us learn from them, you know, learn about what these future entrepreneurs care about. But likewise, it's a goal to bring people together who have different backgrounds. And we see Scouts, you know, actively collaborating on evaluating companies, one of which might be from a go to market background, one of which might be technical, to really help get to the right decision and so about helping these founders to be successful, while also helping our Scouts to build their own investment judgment with a view to maybe doing more angel investing in the future, some of them becoming investors in their own. Right.

Perfect. Thank you for clarifying this point. Excellent. Okay, so when we prepared this episode we were wondering what would be the important topic to discuss and one of them that appeared was the ARC program. We heard about this a few months ago, so that would be great if you could provide us with a comprehensive overview of that program and. Yes. And particularly its objectives and what are the needs that it aims to solve. The pinpoint that it aims to solve the needs it addresses within this startup ecosystem.

Absolutely. So we've been doing a version of ARC inside the building from 2018, 2019, basically working with early stage founders across our portfolio, helping them build a community of other Sequoia founders at a similar stage again to that earlier point, just helping them to navigate some of these crucible moments and important decisions they need to make at an early stage. And then two was to level set a little bit on some of the ideas around company building that we think are important at such an early stage in the company's journey. So really ARK is giving that, if you like, a name and a website, but really doubling down on that commitment to working with SEED and pre seed founders. So ARK today is a seven week seed stage program helping to catalyze these early stage businesses. We run the programs across Europe and the us. We run one a year in Europe, two a year in the us. Most of these companies are true precede businesses, many of them are pre product. Some of them have a strong hypothesis on the market in which they want to build, but they are still searching and refining the exact insight to unlock that market opportunity in a program like Ark. And the curriculum is very much focused on finding that validation and telling that very early story. The way to think about it is it's really a window into Sequoia. So over those seven weeks, it's very intense in terms of the programming. You work with a pretty small class, often 10 to 15 companies as part of these cohorts, quite intensely, you meet a bunch of our partners, you meet a bunch of us ACCOI founders. And the idea is to allow you to get a high level of clarity on who your customer is, the right way to unlock that early product market fit and a strategy for the next 12, 18 months of the business to really help you get to prepare for series A as quickly as possible. And I think the really nice thing about it, you know, we have a mix of founders who are leaving as operators, having never founded a company before, going out on that journey for the first time to experienced execs like we had the former CEO of Tinder in our last ARC cohort in the US really finding this mix of People to help each other learn and how.

I mean, is it in competition with other incubator programs such as Y Combinator?

Not really. I mean, it definitely complements. I mean, we have ARC founders who've come through other accelerator programs. We have founders that are starting out with ARC at the first time. The way to think about it is, you know, we are taking these teams where we believe they're exceptional people, where they're targeting these large markets and it's very much focused on helping them get that level of clarity around how to get the product market fit. The advantage of a program like ARC is because you're raising generally your pre seed or seed round at the start of the program. Fundraising is not the goal because you have an amount of capital now that you know you'll be able to have Runway for the next period of the business. So it's very much focused on how do we maximize the value of that. So it allows us to be pretty long term focused in how we think about the programming, but also in terms of how we think about the advice we need to give these founders. Because it doesn't end in, for example, a demo day, it ends in you graduating from arc, continuing to work and be supported by Sequoia to be successful into the future.

And what qualities or criteria do you prioritize when you select startups to follow the program?

I think so. The format is by design pretty intense. I think we really want to work with founders in general, but we see it in the context of Arkansas who are able to update their assumptions around the world very quickly. The idea is that we're going through the content obviously as part of the sessions and also outside of that, we're working with Sequoia partners, Sequoia founders, to really answer questions about the company. Our goal is really, over the course of the seven weeks, we want to see that you've been able to really challenge a lot of the assumptions you have around who your customer is, the right way to distribute to that partner, what kind of people you need to bring and expertise you need to bring into the business to be able to unlock that. Lots of work, high velocity work around product development, refining the product value proposition for that particular customer profile. And we want to do that week on week on week and see that level of compounding as we work with these founders. That's the same bar we apply to any seed or pre seed company. The goal here is just to have a much more intense format through something like arc, to really work on this program together.

And do you, I Mean, as an employee of Sequoia Capital, do you follow the program also? I mean, do you have a sort of acceleration program?

I have the privilege of working with a bunch of the companies in each of the cohorts. Actually had the privilege to emcee the first program we ran in Europe, which was also the first program that we ran of ark. But it's something now where as this community grows, it takes a life of its own. Because again, for an early stage founder, the most important thing is to have other people around you who are slightly ahead of you, who can help mentor you, slightly behind you, that you can sort of share advice and learnings and tribal wisdom back to and to see that we can build that community over time. So increasing the goal is of course to get the next cohorts right for arc, but it's also to make sure that we share some of those learnings and we help to build the community.

Perfect. And can you mention some companies that have been through the program and that are now, I mean, booming and starting to raise funds and to expand in Europe already?

Absolutely. I mean a fantastic company based in Paris is Gladia. You may know founders called Jean Louis, amazing technologist, came out of ovmh, built a lot of infrastructure there and is now building a speech to text API. With a single API can translate into 99 languages at near real time at a fraction of the cost of many of the incumbent solutions. As an example of the kind of deep tech infrastructure first, technical entrepreneurs who previously had not been a founder but has taken that leap of faith into founding a company and ARC has hopefully been an important part of that decision for him. I think that's one example. We've seen companies like Elyon, who's building a try now, pay later solution based in France, managing returns, management. We've seen infrastructure businesses coming through the platform, data, you know, data analytics companies coming through the platform. It's a very diverse set of, as I said, first time and more experienced entrepreneurs who are joining the program.

Perfect. And if we, we think of. So you're based currently in the uk. Do you have other offices or rep offices?

So we have an office in Europe, we have an office here in London.

Okay.

We're now six investors. We travel frequently to be on the ground in these different ecosystems. When you say interesting to us is the level of diversity of sectors, but also geographies that are producing really high potential companies. So what it means is even though we're based in London, we spend a lot of time on the road in the Nordics, Eastern Europe, of course, across the dark region and of course in France, meeting with fans and how do

you nurture relationships with all those ecosystem and really put your footprint in Europe and the uk?

I think that you do that by being a good steward. What I mean by that is building a successful company, an enduring company, takes an incredibly long time. It's a 10 to 15 year journey and you need to believe as a founder that your job is to help you put the best team on the field to help you succeed. And that's a combination, of course, on the people you hire inside of the business, the early stage investors, angels you take on board and the partners that you choose as part of this company building journey. So a lot of our work actually is just trying to be a net contributor, working with local funds, with angels, of course with our scouts, but also hoping that our founders are going to be the ultimate advocates for the work we do at Sequoia, which is helping them not just in the tough times, so in the good times, but also in the tough times, going really deep into their businesses to help them hopefully understand the set of options that are available to them and then helping them get the 10 to 15 decisions each year right, that really matter, irreversible and hopefully have some strategic or crucible impact on the business.

Perfect. If we think about the next steps in Europe, concentrating on Europe, do you have the idea of raising other kind of funds, categories of funds such as growth funds or developing Web3 or crypto funds? Can you give us a bit of flavor of the next steps?

Of course. So we will continue to invest as one team, one fund family, one partnership across the US and Europe. In practice, what that means is everything from pre seed to pre IPO investing across all sectors. I think the things we really need to get right as a team, one is supporting the next generation of founders. So continuing to spend time on the ground across Europe, really meeting with these companies as they're starting out and trying to share some of that Sequoia tribal wisdom as part of that journey. I think Ark will continue to be an important piece of that. You know, really making sure we support companies as they go through that early company building phase and then doing that alongside our partners and founders and existing community. So it's more of the same. But I think the important thing is Sequoia is open for business. We're as optimistic about building out of Europe as ever and believing that you can build global, you know, global dominant companies, emerging market leaders out of this part of the world.

Perfect. So George, I told you I love reading. So I would like you to recommend me a book. But also for the audience, of course.

I think we all at Sequoia, we want to be part of these generational companies. I think there's a lot of humility that comes from looking at previous businesses that have been built that reach that level of scale and not just the amount of work, but the amount of time, the sort of highs and lows, these different companies stories and some of the individual people they're involved as part of that. Remember a book that my mom gave me actually a long time ago that I read again more recently is a book called Dynasties. The author is a guy called David Landis. And it looks at some of these enduring companies, but these enduring families that sit behind them. And again, how you think about just that level of compounding in some of these sectors and making some of these long term investments over time. So that's on the book side, I think maybe just one podcast I would recommend as well, which is similar, is something called Business Breakdowns that looks at the same kind of stories, but focused on this kind of longer form content for some of these enduring businesses. So learning about the time and effort it takes I think is important.

Thank you very much, George. See you.

Thank you so much. Salut.

Thank you all for listening and sharing

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See you soon, Sam.