This is an AI Transcription. It’s pretty good, but please forgive any errors.
[00:00:00] Jonathan: Welcome to the Difference Engine, the show for tech founders, investors, and innovators.
Hey Paul, what's coming up today on the Difference Engine? We'll be looking back at the year that's been,
[00:00:15] Paul: all things 2024.
[00:00:16] Jonathan: What can we learn from the performance of European startups in the last 12 months, and what needs to change in 2025?
[00:00:22] Paul: We will reflect on the Mike Lynch tragedy and the enduring legacy he leaves behind.
[00:00:27] Jonathan: But first, hitch up your horse, holster your revolver, and swagger into the saloon as we introduce you to The Magnificent Sevens of 2024 and 2025.
[00:00:53] Paul: Okay. So this episode is all about looking back at 2024, looking forward at 2025 and no review of this year would be appropriate without a list of the Magnificent Seven. And I don't mean. Apple, Microsoft, Amazon, Alphabet, Meta, NVIDIA, or Tesla.
[00:01:10] Jonathan: What
[00:01:10] Paul: are
[00:01:10] Jonathan: we talking about here? Well, what we're actually talking about is, is the broad trends that defined the direction of the IT industry in 2024 and where the category action actually happened, or didn't happen, as the case may be.
So number one on our magnificent seven, I guess will not be any surprise to the listeners, It was the continued growth of AI and machine learning. Both AI and ML remain dominant trends, potentially reshaping industries from manufacturing to healthcare. Um, and. The widespread apparent adoption or hopeful adoption of AI technologies drove investment, company creation, and we hope, innovation across sectors.
The problem was, it distorted both investment, both in infrastructure, and innovation. Well, there's another
[00:02:04] Paul: problem as well, wasn't there? You cannot now get into a taxi without the risk of the taxi driver saying what do you think about AI?
[00:02:12] Jonathan: Isn't that our benchmark for the top of a boom?
[00:02:14] Paul: That's when it jumps
[00:02:15] Jonathan: the shot.
Yeah, it jumps the shot. So, let's move on from AI. The next of our magnificent seven is probably something else which cabbies will be talking about by the end of next year. Blockchain expansion. In case anybody didn't notice, the blockchain market has experienced rapid growth and projections are saying it's going to be about top end of 80s to 90 percent CAGR from 2023 through to 2030.
Um, we know at last this technology is finding applications in financial tracts, actions, health care records, and even in some voting systems.
[00:02:51] Paul: Well, also amongst the criminal fraternity, I don't know if you spotted the, uh, The bus that was just made of the, uh, organized crime gangs and Russians or using, um, blockchain to spread money, illicit gains, uh, left and right across the planet.
So, um, laundering
[00:03:07] Jonathan: drug money, I think. There you go. That's what's
[00:03:09] Paul: happening. That's, there you go. Some people are, um, some people are ahead of the game on this one. And I think the, uh, 87. 7%, I think that's the, uh, growth rate that's being cited here. Yeah. That could, uh, actually be an underestimate if you think of blockchain as including crypto.
Given what's going to happen in the States. Number three is
[00:03:26] Jonathan: cloud computing dominance. Um, you know, we know cloud services have continued to be widely adopted, giving scalability, flexibility, cost efficiency, all the usual things. So that market just kept growing. But I wonder if we are now reaching peak of an enterprise software cycle.
[00:03:44] Paul: Certainly people are calling the top of the SAS boom. Uh, and there can't be many, um, like on prem applications that need to be cloudified. What you probably see, in my view, is a consolidation, uh, and some real fights between, uh, the various big tech cloud providers, uh, at the database level. And even at the level that we as users see it, we know ourselves.
You try and use zoom, you try and use teams, something that doesn't like each other and that people are making it increasingly difficult. I'm so frustrated with office 365 popping up every time you ask me to sign in. No, I do not want to sign into your stupid cloud community, Microsoft. But yeah, so I think there is an element that we've peaked on cloud.
It isn't going anywhere. But it's not growing like it
[00:04:32] Jonathan: used to. A little bit of a shakeout due there, we think. Um, one thing which would be patently obvious if you were to come to categorical towers here in West London and peer out across the London skyline is increased investment in digital infrastructure.
Um, essentially, you know, demand for, for, for more computing capacity. Particularly, um, uh, a I capacity is just driving investment in, in, uh, data centers. And we can see these being built across the London skyline. Um, the number of deals in full involving data centers has just shown steady growth throughout the year as companies find it harder and harder.
To find the sites and the power feeds to build efficient data center. Well,
[00:05:16] Paul: and a word of caution here for our legislators. Let's not throw the baby out with the cooling water and try and make it very difficult for people to set up data centers because guess what? Uh, they'll set it up somewhere else.
And I've seen specifically in Ireland where they've, um, started knocking back data centers. That country's made a lot of money, uh, create a lot of jobs and a lot of economic value. From being, uh, open for business, let's be careful that we don't let net zero or whatever the excuses stop us from welcoming with open arms these wealth creators,
[00:05:48] Jonathan: but on that subject, um, you know, have a look at the countries that do have abundant solar and wind power and other renewable resources, because that's where the data centers will be going number five, not quite so obvious, but the rise of autonomous agents, you know, we have started to see Um, tech companies building out categories as they move from proof of concept to enterprise wide implementations of autonomous agents.
And, you know, why is this important? Because, you know, this is the continuation of the industrial revolution that started hundreds of years ago and it's agents capable of handling basic administrative skills. So we start to automate white collar jobs. This
[00:06:30] Paul: is really. What people thought AI was going to be about.
And they found it was more like a card trick in that they could, and I've certainly done this, um, taking a Led Zeppelin song and put it into Welsh. Um, which is great, right? Why, why did I do that? I wanted to impress some, uh, some Welsh guys I knew, uh, and see if their Welsh was up to muster, which it turned out it wasn't.
These are the sorts of things that people do with AI, but it's not really the useful stuff. You try and get AI to book you a holiday. You know, you try and, um, get some useful AI, and there's lots of AI assisted HR tech out there, I know it very well, uh, to really sift through candidates, um, in more than a, a dumb way.
And I think the, the other phrase we'll see a lot of Uh, coming forward is agentic AI. When you start to, to string this stuff together, that's when the promise becomes real. And I think it is. I think you're right. Very, very soon.
[00:07:17] Jonathan: I think the next thing we have definitely seen, and very much towards the back end of this year, is that Shift in our working models.
Um, you know, we've seen many of those tech companies strict return to office policies moving away from remote work. Um, you know, they're saying to improve collaboration and maximize outputs, which I think is code for don't be lazy and work at home. Um, that, of course, has had significant impact on the valuations of work.
A whole series of companies that prospered post COVID on the basis that work from home was a forever trend. It's clearly not.
[00:07:58] Paul: Well, look, nothing wrong with working from home when it makes sense and if one needs to. Um, certainly in the business I run, it's four days a week now. Uh, we've noticed that other large companies like BT and Amazon, where we know people who work, they're struggling to get people to do things.
Three days a week, um, but it's coming and the reason it's coming is all the obvious stuff, collaboration, sense of camaraderie, loyalty to the, to the team, et cetera, et cetera. Just a little anecdote, I was speaking to, to the, one of our accountants this week who mentioned that, um, somebody had negotiated for a reasonable paying job, uh, you know, just under the six figure salary for the UK, which is doing okay, certainly several times above the average wage.
Yep. Down to the last, uh, piece about to, to sign on the line and, and then the candidate said, Oh, by the way, I want to work fully remote all the time. Like that's not the time to bring that up. And I think that person will not be getting the role that they want to, but it's just a complete waste of time.
So I think it has to come back on the table and people need to think flexibly. And if you did move to your rural idyll miles away from the office, that's sort of on
[00:09:02] Jonathan: you. Yeah. And of course it, this does create a whole Uh, range of innovation opportunities for companies that can make the now overstretched transportation systems work more efficiently.
Please God. So lastly, um, in terms of change, um, private equity activity this year, been very noticeable. Um, we see more. Tech companies taken private by PE firms, uh, as they sought to raise capital and address organizational issues, should we say, away from public scrutiny, um, and of course, you know, PE has been hard at it, searching for bargains and roll up plays, and I think that is going to continue.
And I
[00:09:39] Paul: notice, with interest, the UK, uh, New incoming government, um, actually, I wouldn't say bottled it, but let's just say diluted their, uh, what was going to be some quite a harsh regime on PE. One can only impute given that there's going to be a lot of public private partnerships, which needs to happen to fund the services everyone thinks they deserve around here, um, that they've decided it's probably There's a role for PE, uh, and so it is a great time to be in PE.
I agree.
[00:10:07] Jonathan: It is indeed. And I think there are also some great examples around the world about how public private partnerships are working in tech. Um, probably not in Europe, probably in other parts of the world. Um, so what do we think is the magnificent seven that's going to define 2025?
[00:10:24] Paul: Oh, wow. Okay. Well, Gen AI and it's, you know, it's.
Successes. Yeah, we talked about agenda and I think absolutely that's, um, that's going to continue on the role.
[00:10:34] Jonathan: There's more money going to be spent on it. You know, whatever the doubts about its efficiency at the moment. And, you know, we're looking at a market for Gen AI to reach. over a hundred billion dollars by the end of 2025.
And companies, apparently, according to latest research, they're still looking to increase spending on gen AI software by over 50 percent year on year. We are yet to see the transformation in many of the much touted areas of the economy that we thought we would see transformed by AI quickly in advertising, entertainment, scientific research.
I hope. That this isn't the year when enthusiasm wanes, but that could be a good thing because if general enthusiasm around Gen AI wanes there may become a focus on other areas of AI where AI is actually making a really Unnoticed difference by the general public as it's become indistinguishable from other applications of AI In the mainstream, you know, software just becomes AI, which leads you on to software and integration, which we think is the second bit of our magnificent seven, you know, enterprise software, where global spending on software is still forecast to reach 1.
24 trillion in 2025, which is a 14 percent increase in growth. This growth Of course, it's being driven partly by AI related projects and services.
[00:12:09] Paul: You've got to get into the detail on this. Um, there's a lot of claims that coding is best done by AI. Even if that's partially true, that makes the much vaunted software engineers of, uh, of old.
A little bit less valuable, perhaps, than they were previously. So, that could have some interesting feedback. We may see software becoming just more productive, which is great for us all, right?
[00:12:34] Jonathan: Yeah, but of course the AI action doesn't end with software and AI integration. It's driving the infrastructure as well.
Data center systems. Number three, cloud computing and data centers. Highest growth rate in IT spending with a 15. 5 percent increase to reach, reach, 3, 6, 7 billion again, but at the end of 2025, again, largely driven by demand for generative AI infrastructure.
[00:13:00] Paul: These numbers look very conservative to me. You think about the trillion dollar valuations of some of these companies.
Um, Not least of which NVIDIA, et cetera. The big question is, is this a one time spend? Is this like when they sunk dark cable into the streets of London and Colt telecom became a big thing and then blew up, et cetera, et cetera. Is this one and done, or is it something that needs to be refreshed a lot?
Obviously, if you're heavily invested in AI, you want it to continue, but, uh, you know, there's, there's only so many data centers. There are thoughts out there that all the data on the internet that can be scraped has been scraped by AI. So it'll be really interesting to see if this continues like a train or
[00:13:43] Jonathan: halts.
Let's just not forget just how energy intensive every single query on AI is. So I suspect it's going to grow, grow, grow, grow, grow. Um, a pretty safe bet. Number four, uh, cyber security. And this is, this is an area where we've done, uh, quite a bit of category creation this year, um, simply because this part of the economy is, is still growing, growing and growing and growing because as every piece of it and every interaction develops, there's a security risk.
So. Over 50 percent of companies are planning to spend more on security solutions in 2025. Um, again, AI is a threat here, potentially playing a pivotal role in enhancing security measures, just as it is in the attack mode.
[00:14:33] Paul: Yeah. And I think cybersecurity is an interesting one, depending who you listen to.
Some people regard this as the largest software category because the risk is just out of control. What's interesting is it was quite a healthy category Before everybody was openly, and we've certainly worked with clients that didn't want to name names and talk about nation states. Now the gloves are off, right?
So it's, it's clear who the, you know, whether it's North Korea, China, Russia, or others, it's clear that everybody's in the cybersecurity game. Uh, and that I think will, uh, to your point, just mean more money spent on cybersecurity.
[00:15:06] Jonathan: And this is also going to bleed out into our fifth area, which is IT services and automation, which is going to remain, we think, the largest tech market.
Businesses are expected to spend over 1. 7 trillion in 2025, um, because in a post COVID world, an ever more connected world, an ever more dangerous world, automation is considered the best investment for money. Uh, by over three quarters of organizations recently, uh, surveyed by Spiceworks and Aberdeen Strategy and Research.
[00:15:38] Paul: The ironic thing here, I think, is that, um, and you saw this with the rise of the Indian SI companies, these mega corporations, is that the more automation you wanted to get, the more software you wanted to acquire, the more people You know, with a wage arbitrage, um, largely, uh, you know, from countries outside of Europe, the more people you needed to make that vision a reality.
That though, I think has stopped. People are done with large contracts for large it services company. They actually want us. Show me the money on automation. So this is going to be really interesting to that point too.
[00:16:10] Jonathan: One of the things that isn't a magnificent seven is the ongoing skill shortage. I mean, you know, that has been in every single roundup since the it industry began.
So hardly worth talking about, but blockchain is worth talking about because that has, In many ways come of age this year. Um, and we think next year it's going to continue, uh, to enter the public imagination as being much more than synonymous with crypto currencies like Bitcoin and Ethereum. Gartner has gone out on a bit of a limb on this one predicting that in 2025 blockchain will be the foundational technology for 30 percent of global digital infrastructure.
On that basis, blockchain will finally have arrived.
[00:16:51] Paul: Well, I just think it's a really Just to give you an example of some of the issues you've got here. If, if blockchain does become ubiquitous, there's no guarantee that one company will own the category over another. It's just all a bit of a, um, not so much a black hole, but it's hard to capture the imagination of buyers.
And I just heard the CEO of Tezos, who was on the radio, on BBC radio the other day. She was asked to explain simply what, uh, their company did. And, uh, you know. I guess she gave it a good shot, but we're a transfer of value by decentralized databases. Just going to glaze most people's eyes over. I
[00:17:23] Jonathan: think we can help.
[00:17:25] Paul: Maybe also help tease us. But it's not just those guys that they've all got a bit of an issue here. Blockchain risks becoming part of the plumbing in the same way that, you know, you know, secure socket layers and other bits of really important tech did. It needs a rethink as to how it's framed
[00:17:40] Jonathan: up. I think it does.
The last thing in our magnificent seven. Uh, you will not be surprised to know it's going to be sustainability and green technology. Yeah, we can't end the year without more than a nod to sustainability because it's becoming a critical focus across industries, um, and technology has a vital role in that.
In achieving sustainability goals, uh, not least it needs to look to its own house and make sure that it itself is as sustainable as possible. This isn't just about wanting to do the right thing. This is about heavy legislation coming in that will force companies to deliver on sustainability targets.
[00:18:17] Paul: You know, if you think about the, um, top players in, or the coming players, let's say in e commerce, that would be Timu and Sheen, uh, from China, uh, similarly Chinese affiliated. Yeah, it's all very well for us to try and you keep our own data centers in order We should obviously do that and make them as sustainable as possible But when things are being processed out of country, what is that legislation going to do?
to stop us using non sustainable IT services. It's really interesting.
[00:18:48] Jonathan: I think some of these globalized models will have to change because they are at their root unsustainable. And you can see around the world various governments making investments in their own technologies and introducing legislation which will cut down the amount of carbon that's emitted.
By companies like team. Yeah.
[00:19:07] Paul: So you'd basically need to stop those services from being available unless they got their act together. So that's, that'd be
[00:19:14] Jonathan: fascinating. But also, you know, you've got to introduce renewable energy technologies, AI driven management systems, uh, and so on to stay ahead of the legislation, uh, in nevermind actually saving the planet we all live on.
[00:19:26] Paul: So seven, seven things we've noticed, seven things we hope to look at, what is the category take on All of this change.
[00:19:33] Jonathan: I think despite all the hoo ha about AI, it's, it's difficult to see anyone focusing this year on clearly defined category. You know, we think 2025 could be the year in which pioneering AI categories emerge.
And I think the ever expanding world of cyber, um, has room for new categorization too. I mean, will we see new categories emerging at the human cyber interface?
[00:19:56] Paul: We think so. Absolutely. So yeah, lots to look forward to. I can't wait to, to get. Get started on next year. And until then, uh, hopefully this has been useful.
[00:20:11] Jonathan: You know what?
[00:20:13] Paul: This really grinds my gears.
Okay. It's been a year of gear grinding. So let me ask you what your top moment The thing that ground your gears the most in 2024
[00:20:26] Jonathan: was Jonathan. It ground my gears at the time and it's continued to grind my gears ever since. And it's the strange case of Mike Lynch and, uh, six months on what has been Lynch's legacy.
So for those of you, uh, not familiar with our gear grinding, uh, on the difference engine, um, the tragic death, uh, back in June, um, by, uh, drowning in an upturned boat of one of our category heroes, uh, it entrepreneur, Mike Lynch, um, has really left a mark on us. And one of the reasons it's left such a mark on us is that this was a real category creator, um, particularly with autonomy and dark trace and his demise has not stopped the ongoing legal battles surrounding autonomy and its acquisition by Hewlett Packard, which of course suddenly split.
Um, the technology developed by autonomy remains part of HPE, that's Hewlett Packard enterprise portfolio. Following its sale to Microsoft in 2016. But with no regard to good taste, it's still being fought over.
[00:21:40] Paul: Yeah, let's just let me step back here a little bit. I've met Mike a couple of times in my life.
Uh, once before on his way up, uh, you know, year 2000, Hilton Park Lane on stage, uh, youngish entrepreneur talking about his Aspirations and hopes and many years later, um, at something both of our kids were at the height of his success, but also having lived many, many years under the shadow of this very nasty legal battle.
Um, so, so the contrast, you know, that this was a real journey, but as you say, as regards are interesting category. The thing that I think Mike should rightly be called out for was this guy was the Bill Gates of the UK and is sadly missed. And, um, tragically this thing winds on into 2025. It does.
[00:22:29] Jonathan: And HPA has announced its intention to pursue its 4 billion claim against Lynch's estate.
His remaining family, as if they haven't endured enough tragedy. There was a damages hearing in a UK civil case back in February of this year, when Lynch was still alive. But the judge's decision on the amount due to HPE is still pending. HPE, as we said, sought 4 billion, you know, not a small sum. The good news at the time was the judge indicated that the final amount would be significantly lower.
But, you know, that decision followed a 2022 UK civil trial that found in favour of HPE's claim that Lynch and his former CFO Shushavan Hossain Had inflated autonomy's value during the acquisition. Kassanian received a five year prison sentence and was ordered to pay around ten million dollars in fines.
You know, was he the forego?
[00:23:32] Paul: I mean, yeah, I, you know, caveat emptor comes to mind and it's been mentioned many times in this case. Um, it's all very well. I don't know if you've heard it, um, but I've heard a lot, and I've heard it a lot. And it's funny because I've heard it before, you know, I've heard it before when I was working at Falcon.
And it's funny because all the success stories And then the fact that it's funny is it's like it's funny, but it's a game, because it's like, you're gonna look at a stock, and you're gonna talk to a competitor, and you're gonna have to look at The hit and were they thinking that they're going to come back and get Mike?
Well, uh, you know, circumstances dictate that's not going to happen, but it does sort of make you wonder whether that five years is something that people look back on and say that that too, maybe it was a little bit harsh.
[00:24:15] Jonathan: The controversy at a wider level surrounding that acquisition, you know, continues to be a cautionary tale to those working in the tech industry about the risks of high value M& A.
Um, and as you say. But wasn't caveat emptor always the basis of any deal? Um, you know, and for the conspiracy theorists out there, which you sort of referred to just there, there are circumstances surrounding Lynch's death that continue to intrigue. You know, the Sicilian authorities are widening their investigation into the yacht sinking, particularly as the marine experts are shrugging their shoulders, remaining puzzled about how such a modern Best of the real state of the art ship, um,
[00:25:02] Paul: well, as usual, I think, you know, cock up and conspiracy when they meet, it's seldom resolves to a satisfactory answer.
I'm much more interested in where we go in terms of taking. Mike's legacy forward, um, you know, letting his, his family grieve and learning the lessons maybe of, as you say, high value M& A, the risks involved and whether or not that is always the right move for European tech, at
[00:25:30] Jonathan: least, you know, Mike's legacy.
Continues in the success of his VC for absolutely invoke capital, um, which sold its portfolio company dark trace to Toma Bravo for 5. 3 billion and who's CEO at the time, Poppy Gustafson, um, has recently been appointed to advise the UK government on tech.
[00:25:52] Paul: And I think also, you know, there's, there are other great companies in invoke capital, which are yet to flower.
Yeah. So, um, without too much of a pun on. Poppy's name. Let's see what other flowers Mike's legacy will allow to bloom. Yeah,
[00:26:04] Jonathan: and I think to maybe allow Micah up in the clouds a bit of schadenfreude. We know that HP has just limped in with a similar revenue number to last year, up just 3 percent at 30. 1 billion.
Why? Aren't the board focusing on that is surely they have better things to better things to do, right? All of this is not the best advert for an industry that's supposed to be propelling mankind into the future, um, and needs to move forward itself to do so. You know, as I say, let's hope 2025 will bring some closure as our friends across the pond would say.
[00:26:46] Paul: One of the things that we predicted or hoped for more than predicted, I guess in 2024 was a flowering of EMEA, uh, and an ability for us to mint more category kings and queens, category leaders, but I'm not sure the stats actually prove that actually. Now I think
[00:27:02] Jonathan: we are still lagging the US in minting categories at the moment.
[00:27:06] Paul: Yeah, so here's some data from CB Insights, um, very reputable source of research and they quote the EU president, whoever that is these days, um, we are roughly as good as the US. at creating startups, they say. But when it comes to scale ups, we are doing much worse than our competitors. We have to close that gap.
Wishful thinking. You
[00:27:25] Jonathan: gotta love the delusion of the first part of that statement. Plenty of research has been pointed to this, this scaling divide, and particularly when it comes to AI.
[00:27:34] Paul: And we do start fewer companies over here, fewer tech companies. We self fund Fewer companies, and we certainly see fewer companies and fewer exits, even than the U.
S. and in its down year, too. So how on earth are we going to build the next generation of startups if we don't get the diaspora from those who have exited successfully once? And have the balls to come back for more in this environment. How are we going to do that?
[00:27:59] Jonathan: The latest figures now for, uh, existed founders in VC funds in Europe is way less than 10%.
Whereas in the States it's approaching 60. That gives us some clue about how that ecosystem is not building.
[00:28:11] Paul: Without the virtuous circle of second time founders or even funders who've done so well, uh, that they're back. Uh, prepared to risk it all again, you know, we are not going to get to where we need to get to on this.
[00:28:22] Jonathan: I don't think the current chaos in France and Germany is going to help either, is it?
[00:28:25] Paul: Yeah, so France and Germany, um, change of governments, uh, talk about a lack of stability. We think we're doing, uh, not so well over here, but, um, at least you can say, at least we know what we've got for the next, you know, Four and a half, five years, France and Germany, who knows?
Yeah, ignore the politicians and crack on, I think. Uh, and especially so given the speed at which AI is changing the game. People need to think about categories when they're founding companies at the start.
[00:28:47] Jonathan: Yeah, right at the start.
[00:28:48] Paul: There's no doubt the, uh, products that you offer, the team that you, you hire, and the competition is going to look very different, very quickly, far more quickly than before.
So unless you start knowing what your category is going to be, there's no amount of miraculous product market fit or much worse. Uh, spending all your time fundraising, that's going to get you back in the game. You are fundraising against people with seemingly unlimited resources in U. S. big tech. And here's what CB Insights said once again, so far in 2024, uh, 80 percent of deals to Europe based AI startups have been early stage.
Versus just 70 percent
[00:29:25] Jonathan: in the U. S. Only this week we spoke to a European AI firm. Frankly, rather sadly, they were really conceding the LLM space.
[00:29:34] Paul: Yeah, because like a year ago, uh, you know, they were putting themselves up with some of these big LLM, um, competitors out of the States. That's gone away. As it has a larger proportion of vertical AI space.
Right. So vertical AI was all to play for at that time. Part of our advice. Yeah. Didn't take it. Um. Let's hope it works out for them. Uh, because, uh, we, we do know that what they have been doing is burning cash faster than NVIDIA has been minting it, minting it. Ouch. So, um, you're not having a clear definition of your category in an AI world where it is a recipe for.
Let's just say pain.
[00:30:09] Jonathan: Let's be positive. Yes, let's be positive. There are some signs of life in European categories. That's mostly in Fintech. Um, where until recently they, the U. S. set up of regional banks, tight regulations on savings, mortgages, accredited investment, of course, the stranglehold of the, Pretty much red card payments game has really put on a disadvantage on the startups.
[00:30:33] Paul: And hence we have an advantage. So this lumbering us finance sector has given the Europeans a window and we have got payments leaders, no doubt about it. Stripe from Ireland, Agin from Holland. One could argue go cardless from the UK and check out wherever they're from, you know, and on the banking side, we've got.
Uh, here, here at home in the UK, Monzo, Revolut, Starling, all contenders. Now, some of these May. Well, IPO. They're certainly talking a good game. Albeit their IPOs probably won't be in their quote, quote birth countries and others will be bought by established, uh, players. Possibly once the IPO makes it clear who the category leader is.
And then they become the, uh, The wallflowers at the side of the dance floor, um, but they'll be bought mostly by local players to bolster their floundering foundations and to change from the aging banking client base that they've got to everybody who's banking on the phones with apps. I
[00:31:31] Jonathan: think within this, you know, some of those fintechs are going to run out of the road.
I mean, some of them will get acquired, but quite a few of them. Will not
[00:31:39] Paul: and that's actually okay. That's creative destruction. Yeah, speaking of creative value destruction Can I raise the the? Ugly somewhat ugly head of crypto crypto and it's apparent resurgence parent resurgence. It'll cause a lot of destruction
[00:31:53] Jonathan: We think it could I mean 2025 could be the year when it really really starts to impact
[00:31:58] Paul: It's the second coming the sounds from the US and and even the government in the US for good or ill Yeah Is it?
They're going to make holding and trading at least some stable coins. Very acceptable. Now that doesn't mean the crypto kids will be foisting their mad language of, uh, to the moon and diamond hands, uh, on savers throughout the land, but it would not be a surprise to me, at least to see Bitcoin becoming a eenie weenie small portion, no more than 10 percent of some people's pension pots.
And it puts the spotlight on what are we going to do about that in reaction? If the U S becomes. The economy that is the first outside of Venezuela, let's say, to really, um, you know, adopt, uh, the alternative blockchain currencies.
[00:32:43] Jonathan: Well, I mean, looking forward, how much that will boost our ability to envision and build that categories remains to be seen.
Um, but sort of what is noticeable, though, is the amount of secondary has been offered by European scale ups to provide some liquidity to their team. Yeah. And I just think to keep themselves going.
[00:33:00] Paul: Yeah. Let's explain a secondary. Because, um, everything's been shut down for a while, uh, when a startup, which is of course private.
Yeah. Allows its workforce to sell some of the, um, notional shares that they've got to interested investors. So, uh, I'm an engineer, I've been granted stock options, uh, and somebody who, who isn't, who hasn't got stock options, a potential investor comes along and offers me a, makes me a deal I can't say no to.
Then I maybe get enough money to. Pay off my mortgage or buy a car not enough to liquidate the shares fully because then I wouldn't have any Skin in the game, as they say, but just enough to make it worthwhile for me to take all the risk of being in that startup. It's sort of like a nice bonus, uh, and a payback for all that risk.
[00:33:43] Jonathan: It's sort of a salve to, to, to those who, you know, maybe super smart, have been working relentlessly for years. Maybe a decade. Maybe a decade. Really with no prospect of an exit or IPO other than the faith in doing that have turned down offers from Meta, Google, DeepMind, et cetera, and are probably feeling a bit sore.
[00:34:07] Paul: Yeah, that's a double edged sword, right? You get this, uh, wrong and the talent says, thanks for the bonus. I've had enough of the risk. I will go and get that job at Meta. Yeah. But we sort of like this as a move because it keeps our potential category winners. In the game with the talent that they need. So the loss of, of, of these scale ups, um, if people do move, uh, could be good actually.
So if you take the money and run, so you say, thank you for my secondary payment. Uh, it's not all of my shares, but it's enough. And I disappear and then start up again. Then I get to that diaspora. Then we get. The second generation of founders, and that actually could be really, really good.
[00:34:47] Jonathan: But we really need to move on this in Europe because there is increased competition from outside of the U.
S. Couple
[00:34:54] Paul: of examples. So, um, we've worked this year with a Brazilian e commerce challenger, uh, and also a Ukrainian founder. Founded database company. Shout out to Victoria Metrics. That's now a truly, they're both truly global companies and ultimately they may end up being quoted or acquired in the U. S.,
probably
[00:35:15] Jonathan: not Europe. As we've said before, the European lawmakers in particular need to focus not just on punishing U. S. Big Tech, but keeping this region a hotbed for talent.
[00:35:24] Paul: You know, let's, let's stop bitching about the people and focus on ourselves
[00:35:27] Jonathan: a little bit. We think there's at least. One beacon of light in all of this, you know, and that's the self help offered by the folks like BoardWave.
BoardWave, for those of you not familiar with it, who haven't listened to our interview with Phil Robinson, its co founder, um, is that BoardWave's a not for profit, it's an assembly of the best and brightest in software, In Europe, those people have built firms, have taken American firms and, you know, increased their size many, many, many fold and, you know, actually have done the work.
[00:35:59] Paul: And often come back, coming back for the second or third time to do it all again, exactly like. What you see in Silicon Valley and having traveled the world and actually done it in Silicon Valley. So we think for the next year, this really could be a guiding light for how we build categories in Europe and how we compete in, in what is a global competition for categories.
More exciting news for this in the new year.
[00:36:23] Jonathan: Thank you for listening. If you want to learn more about category design, head to becategorical. com. If you need help designing and dominating your category, then get in touch. Contact details are in the show notes.