It initially stormed into the market with $125 million to invest in its first year, along with four permanent partners (Tom Hulme, Avid Larizadeh Duggan, Eze Vidra and Peter Read) and one temporarily seconded from Mountain View (MG Siegler). But then things began to shift both at the firm and outside it.
While observers highlighted the slow pace it was taking on investments — only six deals in a year and a half — the organization itself was in flux. The number of investing partners in London whittled down to two — Hulme and Larizadeh Duggan — and GV Europe’s separate fund was combined with that of GV’s in Mountain View. Adding in the Brexit referendum crashing the British pound, and then the management of GV changing, perhaps unsurprisingly things went quiet for a while over at GV Europe.
Fast-forward to today, however, and GV is still here and appears to be gearing up to be more visible and active in the future, according to an interview I had with Hulme earlier this week.
Part of GV’s mandate and investment activities will be to fill out the priorities that GV — along with the rest of the VC world — is focusing on right now, such as technologies around artificial intelligence and deep learning; virtual and augmented reality and the next generation of cars; along with more traditional areas like enterprise, consumer apps and platform and developer tools.
Notably, there have been almost no investments from GV in these areas in Europe or Israel yet, although there are plenty of interesting startups working across all of them. And GV is interested: Hulme said that they’ve met with “60 or 70” AI startups. So similar to a pent-up geyser, there may be something shooting out soon. If the price is right, that is: Hulme tells us that for now, the right cost-versus-value mix hasn’t been met.
And part of GV’s mandate in Europe will be to build on what’s already strong and looking especially bright here at the moment, such as fintech and life sciences. GV in Europe already has more investments proportionately in both areas than does GV globally. The most recent, in a vaccine “superglue” startup called SpyBiotech, was made earlier this week.
GV has been fairly quiet about its European business up to now, so if you’re interested in what it’s doing and where it might be going, you can read the interview with Hulme below, which has been edited for clarity and length.
TC: Okay let’s start with a basic question: Why has GV been pretty quiet about what it’s setting out to do in Europe?
TH: If I think about when we first set up the London office, we made a decision not to talk through the strategy too openly. We were very careful not to be arrogant and tell the market what we were doing. Instead, we wanted the investments to speak for themselves, to build the brand and franchise locally. I think we’ve started to do that. In the last few months we’ve made four investments [including Currencycloud and SpyBiotech]. They represent what we stand for pretty well. About half our investments here are life sciences, the rest are consumer stuff and some developer tools.
TC: Why did you start out as a separate fund and then decide to combine the operations?
TH: In many ways, it was about us still learning about the market. What struck me as an incredible vote of confidence was that some of the deals that I led, the U.S. team chose to co-invest in them. It meant that the U.S. team believed in the opportunities in Europe, and given that this was happening so often, we decided to merge the funds. It’s a case of just finding the fit and understanding. Given that we managed to keep the pace of investing through all of that, I would imagine it picking up again this year and next year.
TC: Picking up with just the two of you?
TH: Yes, with just the two of us. We might increase the team over time, but it feels about the right size at the moment. Plus, we bolster the team with all the operational support.
TC: The investing landscape is pretty competitive in Europe right now, with some much larger organizations, and some that are very Europe-first in their outlook. How does that impact your ability to get in on the good deals?
TH: We’ve done a pretty good job of getting into the deals that we’ve wanted to get into. The question I constantly ask myself is how we differentiate from the other providers of capital. In a low-interest environment, I’d expect the number of funds out there to increase, not decrease. It feels a bit competitive now, and I would expect from Series A and seed it will become even more competitive. But that’s good news. The question now is how do we differentiate.
I think there are three things. The first is probably the least interesting but Avid and I both built businesses so we’d hope that we would be empathetic to entrepreneurs and help them think through the challenges as they grow. The second is that we have a support team at GV to help with the portfolio, which certainly others don’t do in Europe, covering engineering, design, marketing and other facets. And the third is that we’ll help with access to Google.
One of the things that we are really careful about is that we are a separate organization, we are a standalone fund, but certainly we’re close enough to Google that if one of our companies has a question we can connect them to the right people. It has blown my mind how responsive they are.
TC: When you talk about the standalone fund, you’re still funded by Alphabet. Have you ever considered taking outside investment, other LPs?
TH: It’s not a plan at the moment, although I can see some arguments for why you might do that. I doubt we ever would. Alphabet has the capital and they are an amazing LP. The average VC spends so much time working with their LPs and securing the next fund. We do some of that but we enjoy having just one that adds value.
TC: Do you ever feel like you are competing against Google Capital?
TH: No. There’s certainly shades of grey and examples of deals that we’ve both done. We’re supportive of them when we can be but we’re absolutely out there on our own looking for opportunities. We work with them and are excited to do that and have examples of where we have both invested.
TC: How do you clarify what you and Google Capital do for startups?
TH: It’s all blurred lines but the way I answer the question is they tend to scale a proven model, and we take venture style risks. Ten years ago it would have been compartmentalized in the size of investments: venture is $2 million to $20 million and private equity is $50 million to $200 million. Those lines are blurred because increasingly the risks that VCs are taking are hugely capital-intensive.
TC: Shifting to some of your bigger investments in Europe, one of your biggest has been collectively putting a lot into areas like biotech. How are you making sure that as investors with a more traditionally tech background, you’re doing the right kind of vetting here?
TH: There are two sides to this: Do I worry we’re doing it right, and do I worry about it happening in the market enough? We try and be really cognizant of that. Life sciences are a good example. We have a set of venture partners and advisors who are incredible. We have the head of data for the Broad Institute, who is an expert in genomics. I trust his judgment more than my own. Secondly, when we do make an investment we want to see the scientific experts at those businesses around the table with a voice. We do due diligence on both of those things when we make investments.
Then it’s a market question. I do worry that the inflated valuations of businesses that might not be quite there, ahead of the evidence, are damaging to all of us. So while they are interesting stories for people to observe, I suspect that they will scare away some of the later sources of capital who historically have assumed that more due diligence has been done earlier on in the process. The upside is that perhaps people will take more responsibility at later stage in those types of businesses.
TC: So in your opinion, will we see more investments in this area?
TH: If I look at the leading indicator of whether great life sciences businesses will be born here in Europe or anywhere else, it’s academia and I am incredibly bullish about life science academics in the U.K. and Europe. So I spend time every month in Cambridge and Oxford, and in London we have Imperial, UCL and the Crick Institute. These people are absolutely at the cutting edge in the field. For me, that is the best indicator; you need that building block.
TC: How important is it to align with Google or Alphabet in less traditionally tech areas like these?
TH: GV was already focused on investing about one-third of our investments into life sciences. Early GV employees like Krishna Yeshwant, who leads the life sciences team, did phenomenally well in articulating why it’s important. So the emphasis has grown over time. We’ve invested in businesses like Foundation Medicine [now publicly listed], which will really make a difference in oncology. Even if you’re not from a life science background and your focus is on broader tech, you’re excited to have exposure to that for the returns, but almost more importantly, for the impact. And so everyone around the table at GV is excited about that side of our business. I’m absolutely certain that enthusiasm flows upwards to the Alphabet level. They are as equally excited.
TC: Aside from life sciences, what other opportunities do you see here in Europe?
One area is dev tools. These are businesses than can be global on day one and you can build a huge business through word of mouth. You can sell to developers early, whereas in the past you would have gone to a CTO. Businesses along that thesis would be Stripe and Currencycloud. Also Google can act as a platform to help accelerate those types of businesses. They add value.
Another would be fintech. London has a lot of advantages in fintech, including access to the City and the talent therein; a supportive regulatory environment; it’s great for time zones; and if you look back to the question about exits, you have double-digit numbers of businesses that can buy a fintech company for over $1 billion. I haven’t seen that play out in the numbers yet, but I would be long on fintech in London just because of all of the local acquirers.
TC: Have you done any investments in AR/VR?
TH: Yes, we invested in seed stage in a business called Resolution Games in Sweden, great guys who were at King and they are doing VR casual games.
TC: What about AI?
TH: We haven’t, not for want of looking. We’ve looked at 60 or 70 companies in Europe and Tel Aviv and we have not made an investment yet. I’m close to Demis and Mustafa at DeepMind (the deep learning and AI company that Google acquired in the U.K. in 2014). They help me understand where the market is going.
The answer for why we have not yet made any investments here is that the value-to-price ratio hasn’t worked for us. The businesses that we’ve looked at have felt like the wrong stage or the wrong price or something. But we will do it. Overvalued is subjective, and as with all these things you are making trade-offs. We haven’t gotten comfortable enough to do the deal.
TC: How important is it for you to be making strategic versus financial investments?
TH: We’re investing purely for financial return, and we’d celebrate selling businesses to Facebook just as much as selling them to Alphabet, to be honest.
TC: Can you tell me anything about your fund, the size or budget?
TH: We have $2.4 billion under management. [Note: this is the same figure GV has been giving out for more than a year now]. One of the things I’ve observed is that each year the fund gets bigger and there is an increasing commitment, but we don’t want those numbers to define us.
TC: Are you mainly leading on the deals or are you fine with just being a participant?
TH: We are relaxed as to whether we are in a syndicate or leading. Many investors will have a hard line on this: We need a specific ownership percentage or we need to have a directorship. That process works for some. I wouldn’t want to limit our ability to get into great deals. And so the way we keep it as big as possible is to invest across Europe and across stages.
TC: GV has gone through some leadership changes. What is the impact on you in Europe and how has it played out?
TH: I like [former CEO] Bill [Maris] a lot and think he’s a great guy and I enjoyed working with him, and [new CEO] David [Krane]’s phenomenal. They have very different styles, but I love working with them both. David’s incredibly supportive, so actually on a day-to-day basis, there is no material change.
Technology is never good enough to keep the social capital with human relationships in the bank. And so you need face to face. David supports that completely. I’m in Mountain View multiple times per year; the U.S. teams are here. My biggest worry is that I can text David at 6am his time and the guy responds. He’s working really hard at the moment, and that’s almost the bigger concern that I have.
TC: Do you plan to add anyone in Asia to extend out further?
TH: There is no plan to, no. It’s a supply-and-demand question. We think there is enough demand for capital in Europe and the U.S., so that is our focus.