- Sunday CET
- Posts
- insecurity
Hello - welcome to Sunday CET!
We’re doing interviews now over here, for taking the pulse of the market from people dealing with the startups business.
Today, we talk about reasons to be bullish on Europe in spite of its insecurities, why the Euro VC market will end up just like London’s stock exchange and how to compete against supermarket VCs - from an interview with Hussein Kanji of Hoxton Ventures (as a reminder, last week we did the same with Ophelia Brown of Blossom Capital).
And a whole lotta more content for this lovely weekend - why did Sana sell? Was Nik of Revolut worth staying for Britain? Why did Softbank buy a Swiss robotics company?
Hit me up with your thoughts and comments, and whoever else you want me to ask questions and feature here.
Enjoy,
Dragos
Market talk
We are doing an interview series for taking the pulse of the startup market through the eyes of the investors. This week - Hussein Kanji, founder of Hoxton Ventures, a conviction-driven early stage investor in Europe based in London.
What’s new with Hoxton? What are the highlights of this year?
Nvidia selected us as one of five venture firms they want to work with in Europe.
Cusp raised a $100 million oversubscribed round, just a little after a year after we led the pre-seed at the sheet of paper stage.
We funded two new exciting deep tech businesses – one with ties to Oxford that can synthetically replicate critical earth minerals, and an exciting robotics learning company out of Imperial. A bunch more companies raised a ton of money (or got acquired) – news to all unveil in the next couple of months.
We are also preparing for a possible fourth IPO, which will hopefully happen in the next 18-24 months, with Preply. They’ve grown into the largest language marketplace in the world.
And Time Magazine named ROLI’s Piano System “Best Invention of the Year” which is pretty cool if you’re a product design enthusiast like me.
You have moved from the US to start shop in Europe more than ten years ago. Are you still long on Europe - why or why not?
100%. It’s never been a better time to be bullish on Europe.
The flywheel is working. There’s more talent, more experience, and more money than ever to scale. There’s no ambiguity in my mind that we can produce $1-10B+ companies. The only question now is can we (repeatedly) create $100B+ companies.
The only drawback in Europe is it’s harder to be a VC. Investments are up tenfold from when we started and the level of competition is at an all-time high. More firms are interested in funding high quality European startups. Healthy markets should be competitive. But it means you need to bring your A-game to the arena.
The only good news (for us) is there’s a growing set of VCs who don’t believe trade makes you wealthy. It’s disguised under the rhetoric of European dynamism and is more of an insecurity about the scale of the American tech industry. Why does America have all the nice things? It isn’t fair.
The problem with this logic is it’s boneheaded. Trade isn’t zero sum. It makes both sides of the pond richer. The path to success in Europe lies through the US; build here, scale there. That is clear from all the data too. My partner Payton spelled it out here.
40% of European Series B rounds are led by US funds - is this a net positive or a structural risk for the European ecosystem? What’s still holding back local late-stage capital formation?
Neither positive nor negative. The world has changed. The Americans have woken up to the European tech opportunity.
My suspicion is that over the next decade, what happened in London’s capital markets, will happen to the European venture market. The industry will skew towards US firms – and almost certainly dominated by American firms at later stage rounds. Those funds are simply equipped with more capital and resources. Getting them involved in European businesses gives entrepreneurs the best possibility of achieving global scale. Our job as early stage VCs isn’t about making Europe great again; it’s about building the biggest companies in the world and generating the largest outcomes for our founders and LPs. That means we will encourage their participation.
If I was an incumbent European venture firm at the Series A/B/C stage, I’d be thinking long and hard about how to compete effectively in this shift.
Given the current market fragmentation between boutique and supermarket VCs - what operational changes (beyond just fund size) are key for a VC firm to build institutional durability and attract top tier LPs?
Operational changes? Deepen your bench.
This is an industry with one simple goal: generate outsized returns. We are all familiar with the power law economics of our industry. Only a handful of companies account for our industry’s overall returns.
That means do what it takes to pick the right long-term winners, make sure they get well capitalized, and build the durability to get them to $1B+ in revenue.
What does it take to do that? The right handful of talented, connected and well-trained investors.
These days it feels like more firms focus on world-class marketing and Linkedin posts. I’d like to believe the best LPs see through it all.
You’re quite active in helping European startups expand into the US market. Do you follow a playbook or approach each case differently? And what’s the single most common mistake you see European founders make when entering the US market?
If venture was a formula, I would outsource my work to an LLM.
There’s no prescriptive playbook. But we all know, even though history doesn’t repeat, it rhymes. There’s a lot of accumulated wisdom at Hoxton on what has worked in the past, and what might need to be tweaked in the future. And where pitfalls may lie. We’ve been told we’re good at giving useful advice in these moments.
The single biggest mistake is not taking the US market seriously early on and not willing to move a founder across the pond to tackle it.
We’re beyond the first-order AI wave. What’s the most significant second-order effect of the AI boom that you think European VCs are underestimating or mispricing right now?
The important businesses of the internet era were Alibaba, Amazon, Booking, Google and Salesforce.
There is no way anyone would have bet that these were the ones to bet on, and everything else was noise. Two of them didn’t even exist until the tail end of the boom.
Amazon was founded in July 1994. As context, NCSA Mosaic (the first browser) was released in November 1993. Netscape didn’t even issue its first press release until October, 1994. Booking was founded a bit later, in November 1996.
Google was founded in September 1998 and raised its first venture round in the summer of 1999. Alibaba was also late and started in April 1999. Salesforce started even later, in February 1999. The bubble burst in March 2000.
In that 1994-2000 period, a lot got funded. The smart money would have said eBay, Excite, Monster, Netscape, Priceline, Yahoo, etc were going to be the big winners of the internet. All underdelivered.
Then there were the duds. People remember Pets dot com and Webvan as big sinkholes of cash. They forget how much money went into C|Net, E*trade, Infospace, iVillage, Kozmo, Shockwave, Ventro, etc. Even then, if you were early and able to exit, you’d be surprised at how much money was made.
I’m convinced the same thing is going to play out in this new AI era. I’m also certain that none of us really know who the handful of truly big winners is going to be, and where the most value will be captured (and retained).
Bear in mind, back in 1995, Netscape was supposed to win as the browser of record. Then Microsoft sprinted and Internet Explorer in the summer of 1995. The browser market never came back. Meanwhile, Amazon was dismissed as a niche online retailer of books. No one would have ever guessed that it would have built Loudcloud, and created the cashcow that is now AWS.
That’s why we spend a lot of cycles thinking about where value is going to be created, and more importantly, retained. It’s not always pure software or infrastructure that might have its Internet Explorer moment. Sometimes it’s about what can be built (durably) with the $400 billion of annual spend on AI models. We’ve been early behind some of these spaces, from AI drug discovery (Peptone) to material science (Cusp) to services layers over AI (Avantia Law, Cogna, XYZ Reality).
What’s a market category you expect it to emerge in the next 12-18 months and what is one sector you see as oversaturated?
If I knew the answer to that, I’d be a lot wealthier. I can’t predict the future. I can only fund the companies who want to make a dent in it.
Oversaturation is easy. Find out where the dumb money is plowing in and creating tons of replica companies, e.g. scooter companies, Amazon roll-ups, quick commerce, etc. In AI, that’s harder because it sometimes takes a LOT of money which keeps out the dumb money.
What are some interesting companies or founders you’ve come across this week?
If they were interesting, we would have issued them a term sheet and they will appear in our newsletter six months from now when (or if) they announce.
What’s a surprising insight you’ve taken away from a conversation this week?
Palantir is heralded today as a great hiring machine. The truth is only 5% of its managers there could hire well. They centralized hiring into a small pool of hiring managers, who then referred the qualified candidates to teams.
Who else would you like us to interview here? Hit reply with your favorits!
Signals
Interesting deals
🇸🇪 Intuicell (software stack for robotics) - seed
🇳🇴 Starflow (energy optimiser device) - seed
🇬🇧 Kernel AI (revops enrichment platform) - series A
What would you invest in?
I have picked three early stage, seed level startups from Europe with intriguing odds for growing. You're the VC - who gets your term sheet?
Last week’s results:
🟨⬜️⬜️⬜️⬜️⬜️ 🇩🇪 Assemblio - fully automatic assistance systems for assembly line production (18%)
🟩🟩🟩🟩🟩🟩 🇫🇮 Root Signals - framework for monitoring behavior of LLM automations in production. (41%)
🟩🟩🟩🟩🟩🟩 🇬🇧 Stanhope AI - agentic AI used for power and computational efficiency (41%)
Let’s see your say this week - click on the link of your choice below - we’ll add the result next week.
What startup would you invest in? |
Observations
Fintech
Coinbase and Mastercard have each held separate advanced talks to acquire BVNK, valuing it at $1.5-$2.5B - fwiw, BVNK raised $50M series B in the winter, and has Coinbase and Visa as shareholders.
Both Robinhood and JP Morgan are taking a stab at the combined 65%+ market share of Hargreaves Lansdown, Interactive Investor, and AJ Bell in the UK. JP Morgan even replaced its European CEO, an Italian who was doing the job from New York.
Robots
Softbank paid $5.4B for ABB’s Swiss robotics division this week. Numbers worth noting:
- 7000 employees
- $2.3B in sales - roughly 7% of ABB's total turnover
- 12.1% EBITAthat’d be the third Euro unit in Softbank’s portfolio - they also have stakes in Agile Robots in Germany and 1X in Norway - and the whole thing has actually an interesting rationale as Softbank has already built a standalone AI robotics hub consolidating 13 companies.
on one hand, the entity re-marks valuations internally helping it clean up SVF2’s books (some Vision Fund assets are underwater) and, on the other, said hub is one entity than can raise more money or IPO later on.
AI + robotics is a current hyper-growth theme i.e. a $30k humanoid robot operating 6,600 hours per year (330 days × 20 hours/day) translates into work at $14/hour - and that’s today, as tech evolves so do the unit economics.
related - the robotics form factor won’t be a humanoid and within 15 years makers will abandon the human form.
Current situation
OpenAI complained to the EU about its American competition behaving in a monopolistic way i.e. lock-in of customers in large platforms. So there’s more beyond the European anti-American complex, right?
meanwhile, Apple and Meta are on the verge of settling antitrust cases with EU regulators - it’s seemingly part of a sovereign plan that’s a gift to Trump.
JPMorgan says debt tied to AI companies has surged to $1.2 trillion, overtaking US banks as the largest segment of the investment-grade market.
VCs are sponsoring the new economy - most of OpenAI’s top 30 customers who've used 1T+ tokens are VC-funded startups.
State of the AI report of Nathan & Air Street is a good read to get the pulse of the market.
Prediction markets
I am long on prediction markets, wrote a bit about it in our intel notes earlier this year - tl;dr they communicate unique information that reflects reality, rather than just a dressed-up version of gambling that mostly reflects how people feel.
that was a few months ago, since then both Kalshi and Polymarket have raised from the likes of Peter Thiel, Sequoia, a16z and Donald Trump Jr. at $5B, and $8B, respectively.
btw, Polymarket’s CEO is 27 and has now become the world's youngest self-made billionaire - born and raised on the Upper West Side, NYC.
New cycle, new media brands
Mike Butcher of Techcrunch fame has unveiled his new media gig this week - do we need more media distribution channels for showcasing investors work? Of course we do, or else we’re going to sink in the Linkedin slop aggregators and AI content will take over the narrative. 😀 Jokes aside, we’re in a new cycle that needs fresh voices, investors crave free attention and media is a business of meeting the demand for it.
however, selling attention is more difficult for making a decent buck, because the said investors hardly be paying for content, no matter how good that is. Unless you do events, which is a very different type of beast.
food for thought: good output produced by humans will become increasingly valuable, as AI slop competes with the current human slop, which is preponderant and given away for free - i.e. one in four press releases are now AI-generated.
Paying for comfort
one of this week’s headlines was how Revolut co-founder Nik Storonsky has relocated from the UK to the UAE for tax purposes.
this is just the tip of the iceberg - Nik’s a high profile ($7.9B net worth) and sells clicks, there’s many more such cases, and this exodus has been happening for a while already, and not only UK, but also in other (Nordic) countries, w/ net contributors to the local economy migrating off to tax heavens, HNWIs who btw had already optimised their money management with various vehicles prior to moving domicile.
on the opposite European corner, there’s Italy trying to attract some of those guys, particularly from London, with a combo of top-in-class lifestyle, good weather and low taxes - on €10M of foreign income, Italy takes €200k compared to UK’s €4M+ take - which makes for a compelling proposition.
in contrast, UAE takes zero, like any other tax-optimised jurisdiction who have no other competitive advantage of course - personally, I am of the opinion that that happiness, convenience and good life come at a cost, and I’d rather pay some money and be in Milano than in exile in the middle of the desert in Dubai, or in Singapore. While undoubtedly civilized, they’re a different world many time zones away from where the action is.
food for thought: is it really worth it for Britain to have gotten Nik to stay? It’s not, actually.
Presented by
Crash Expert: “This Looks Like 1929” → 70,000 Hedging Here
Mark Spitznagel, who made $1B in a single day during the 2015 flash crash, warns markets are mimicking 1929. Yeah, just another oracle spouting gloom and doom, right?
Vanguard and Goldman Sachs forecast just 5% and 3% annual S&P returns respectively for the next decade (2024-2034).
Bonds? Not much better.
Enough warning signals—what’s something investors can actually do to diversify this week?
Almost no one knows this, but postwar and contemporary art appreciated 11.2% annually with near-zero correlation to equities from 1995–2024, according to Masterworks Data.
And sure… billionaires like Bezos and Gates can make headlines at auction, but what about the rest of us?
Masterworks makes it possible to invest in legendary artworks by Banksy, Basquiat, Picasso, and more – without spending millions.
23 exits. Net annualized returns like 17.6%, 17.8%, and 21.5%. $1.2 billion invested.
Shares in new offerings can sell quickly but…
*Past performance is not indicative of future returns. Important Reg A disclosures: masterworks.com/cd.
Other notes
got a reader email with an interesting question regarding Sana of Sweden selling off for 1.1B, think it deserves a wider audience:
Why so early, and is it really a good fit ?
Sure, investors got their bag, but what are the optics of a hot AI startup with a vision, getting bought by a soul-sucking enterprise HR SaaS ?
Maybe the vision was all smoke and mirrors after all?
A short answer is that the sale happened because the price on the table was right - for both founders and investors. That’s how deals get closed.
A longer answer is that beyond the public narrative there may be a multitude of factors that can play into it - it can be personal i.e. running a startup for nine years is super hard and takes its toll, or the founders dynamics is not like it was in the beginning, just like managing a scaleup is very different than operating a startup, or could be a vanity thing for the status you get in Sweden for doing a $1B sales (outside image is very important in the local society). Or it may be simply business-related, as the long term in a bigger org can provide different development opportunities, for both the company and the founders/managers. Or may as well be a pragmatic financial play for investors short term cashing out at very nice multiples, and generational wealth for founders.
Doubt it is an either/or case and I have no clue why those guys sold, but I do know that what’s being put out in the media and public channels is usually a narrow side of a (pretty or ugly) picture that hardly reflects the reality.
Russia used Kremlin-backed stablecoin to move $6B since August in spite of US sanctions - out of $75B in crypto tied to illicit activity, which may be recoverable.
how Rockefeller and his partners built Standard Oil.
being a VC used to mean something, now it’s all about cheap engagement on the social media.
Europe is a terrible place to build a business, the Danish edition.
is Lovable dying? Not really, but traffic is down 50%.
Daniel Ek’s convo is a must listen, if you haven’t already + all John’s work.
Peter Thiel says Greta Thunberg is servant of the Antichrist.
the history behind some of the most interesting car logos
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