# Saul Klein: Europe Is Quietly Building the New Silicon Valley NEW ECONOMIES · 2026-08-19 Saul Klein, Phoenix Court co-founder, argues that Europe—London especially—is quietly becoming the world's next Silicon Valley, calling the UK the third-biggest innovation economy after the US and China. He recounts building LoveFilm from Netflix-like DVD rental into a £100M+ revenue business via partnerships with Tesco, ITV, and Odeon, and joining Skype as it grew 400,000 users a day through network effects. Klein says founders should not blindly go to the US, capital is a commodity, and most of the world's 20,000 VCs add little beyond money; only 28 have backed 11+ companies to $100M revenue at seed. He details Phoenix Court's structure: a company, carry for every employee, and a foundation as 30% shareholder; he names London, Paris, Berlin, Stockholm, and Amsterdam as leading hubs. ## Questions this episode answers ### Is Europe still a great place to build a unicorn? Saul Klein argues yes: after the US and China, the UK is the third biggest innovation economy, and on a per capita basis Britain has the gold medal for global innovation. He jokes he would rather keep this quiet, adding that Silicon Valley defining the global innovation economy is not over, but we've hit peak Silicon Valley. [20:04](https://neweconomies.podhood.com/382eeec4-55df-4b25-9995-876c69391a29?t=1204000) ### What made Skype scale so quickly? Saul Klein says Skype had massive network effects and product-led growth: it was adding about 400,000 new users a day. He explains that paid marketing was pointless, so he focused on optimizing the product, upselling Skype Out, and using PR and partnerships in countries around the world. [17:46](https://neweconomies.podhood.com/382eeec4-55df-4b25-9995-876c69391a29?t=1066000) ### What should founders look for when choosing an investor? Saul Klein says 20,000 VCs can all say 'we have money,' so standing out is incredibly hard and most investors are value-destroying. He says capital is not value add; the most valuable thing an investor can offer is a contract or access to a contract, i.e., a customer, plus talent and capital formation. Phoenix Court calls this venture plus. [35:59](https://neweconomies.podhood.com/382eeec4-55df-4b25-9995-876c69391a29?t=2159000) ## Key moments - **[0:00] Intro** - [0:00] Silicon Valley defining the global innovation economy is not over, but we've hit peak Silicon Valley. - [0:55] The truth of innovation is that great innovation now can happen everywhere. - **[2:35] LoveFilm** - [3:52] Saul Klein returned to the U.K. in 2002 with no job and started Video Island, a Netflix-for-the-U.K. business, to create one. - [5:20] LoveFilm's wish-list queues predicted demand and let it tell studios exactly what people wanted to watch. - [7:43] LoveFilm's inventory sat in customers' living rooms on a return cycle, making it hard for Amazon to copy. - **[8:35] Route to Market** - [8:59] Video Island powered DVD-by-post for Tesco, ITV, Odeon and MSN to create the category in the U.K. - [10:34] When Amazon bought LoveFilm, the company was doing over $100 million in revenue, $10–20 million in profits, and growing 30–40% a year. - **[11:10] Skype** - [11:20] Mosaic Communications changed its name to Netscape on the day Saul Klein visited its Palo Alto office — his first internet moment. - [14:35] I would have joined Skype to sort of stick stamps on envelopes because I just felt like this is a rocket ship to the moon. - [16:51] Skype grew from 20–30 people to 500 and from zero revenue to $200 million in Skype Out revenue in 12 months. - **[17:30] Viral Growth** - [17:46] Skype added 400,000 users a day, so Saul Klein couldn't justify paid marketing — product and PR drove growth. - **[19:29] Europe's Edge** - [19:56] Q: Is Europe still a great place to build a unicorn? A: After the U.S. and China, the U.K. is the third biggest innovation economy. - [21:33] The U.K. has four of the world's top 10 universities and a third of quantum spin-outs come from Bristol, says Saul Klein. - [22:41] On a per capita basis, Britain has the gold medal for global innovation, with 2,000 venture-backed companies doing over $25 million in revenue. - **[24:10] Best Regions** - [24:26] London and Tel Aviv are the only EMEA cities with more than 100 unicorns; Paris, Berlin, Stockholm and Amsterdam follow. - [27:05] Saul Klein calls the five-hour King's Cross rail cluster 'New Palo Alto' — the second biggest innovation cluster in the world after the Bay Area. - [27:55] Revolut is a U.K. company that started at Seedcamp, says Saul Klein, correcting the idea it was founded outside the U.K. - [28:36] London's critics vs the data: Saul Klein says Coinbase's 'rats in the streets' and 'Dickensian Britain' talk-downs are nakedly self-serving. - [29:08] King's Cross is 'the most dense AI square mile on the planet,' with DeepMind, Anthropic, Google and Meta nearby, says Saul Klein. - **[31:10] Scaling Hurdles** - [31:29] Scaling is not easier or harder in any geography: the U.S. is not a single market because businesses face state-by-state legislation. - [33:15] Going west blindly to the U.S. is 'a catastrophic error' for most founders, says Saul Klein. - [34:26] Europe is not one homogeneous market for digital services, but France, Germany, Italy, Spain and Poland are each great markets. - **[35:26] Investor Value** - [35:59] Capital is not value add, that's just capital. What's the value add? - [37:17] Only 28 of 20,000 VCs — 0.14% — have backed 11 or more 'thoroughbreds' (companies reaching $100 million revenue at seed). - [37:54] If you're starting a fund and your value proposition is 'we have money,' you're in a line of 20,000 people who say 'we have money.' - [39:21] The most valuable thing an investor can offer a founder is access to a contract — a customer or purchase order that is non-dilutive. - [42:34] Harry Stebbings turned his media platform and structured network into one of the great innovations in venture over the last decade. - **[43:49] Shared Ownership** - [47:10] Phoenix Court distributes profits quarterly to every employee from front of house to senior, plus 10% of profits to its foundation. - [49:17] Phoenix Court's foundation will become its largest shareholder at around 30%, with the team as the second largest shareholder block. - [49:57] When YouTube sold to Google, the receptionist became a millionaire. When Facebook went public, the mural artist became a multi-millionaire. - [50:48] The best founders we've backed are missionaries, not mercenaries. - **[52:36] Future Bets** - [52:49] Phoenix Court's foundation is its largest shareholder and 80% of its grants go within a mile of its King's Cross office. - [54:40] 17-year-old James Dacon got Phoenix Court backing for CoMind and now runs a second photonics business, OLX, at 25. - [55:51] Phoenix Court-backed Spore Bio from the Pasteur Institute uses light as the consumable and now performs as well as a Petri dish. ## Speakers - **Ollie Forsyth** (host) - **Saul Klein** (guest) ## Topics Venture Capital, Consumer & Community ## Mentioned Anthropic (company), CoMind (company), DeepMind (company), LocalGlobe (company), LoveFilm (company), Netflix (company), OLX (company), Phoenix Court (company), Revolut (company), Seedcamp (company), Skype (company), Spore Bio (company), Video Island (company), Zoopla (company) ## Transcript ### Intro **Saul Klein** [0:00] It is. It's just a catastrophic error for most founders to sort of blindly go west. Every single piece of evidence demonstrates that after the U.S. and China, the U.K. is the third biggest innovation economy in the world. Silicon Valley defining the global innovation economy is not over, but we've hit peak Silicon Valley. And we prefer everyone to think that the whole world is about America. I'm going to say this quietly because I don't want many people to know. **Ollie Forsyth** [0:38] This is Saul Klein, a veteran tech founder and investor behind some of Europe's biggest success stories. He has scaled multiple companies from zero to hundreds of millions in revenue, and today he's revealing why capital is no longer a moat and what it actually takes to build a $100 million company from anywhere. **Saul Klein** [0:55] The truth of innovation is that great innovation now can happen everywhere. Unfortunately, most investors are sheep, and if you're starting a fund and your value proposition is "we have money," you're in a line of 20,000 people who say "we have money." So standing out is incredibly hard, and the reality is that most investors give no value add; in fact, they're value destroying. And so capital is just a commodity. When we think about what do we deliver beyond capital, and I mean this is something obviously you've been thinking about for 20 years now, the most valuable thing you can offer a founder is. **Ollie Forsyth** [1:44] Welcome to NEW ECONOMIES. Saul, welcome to NEW ECONOMIES. **Saul Klein** [2:02] Thank you. Really excited to be here. **Ollie Forsyth** [2:05] I have been a massive fan of some of the companies you have founded, but also helped found. The likes of LoveFilm, back in the day, we were just saying before we came on, like, 24 years now, which is insane. And obviously the likes of Skype, which was growing like 400,000 new users a day. You know, I remember LoveFilm,right? Twenty-four years ago, the DVD rental company, I was like 6 or 7 years old, and I remember, you know, using and looking at the catalog,right, on a Sunday night. ### LoveFilm **Ollie Forsyth** [2:35] I think you could have up to 2 or 3 DVDs at the time, if I remember correctly. What was the idea for starting LoveFilm, and what was that moment for you knowing this was actually going to work? **Saul Klein** [2:48] I mean, to be honest, the idea for starting LoveFilm, or, you know, the first iteration of this, which was Video Island, because LoveFilm was sort of a Frankenstein's monster of a number of different companies that sort of we merged together, was Netflix, obviously. And, you know, I'd lived in the U.S. in, I guess, from '94 to 2001. I came back to the U.K. in 2002 to get married. You know, my wife was living in Johannesburg, I was living in New York post-9/11, and I came back and, you know, everyone was dancing on the grave of the internet. The idea that you could build a consumer internet company was a joke. Everyone was like, "Oh, you know, those stupid kids who told us, you know, traditional businesses were dinosaurs, they're all gone now. The bubbles burst. Silly them." And I didn't really know what to do, is the honest truth. I didn't have a job, so I thought, you know, the best thing to do is to create a job, i.e., start a company. And I'd seen Netflix in the U.S., you know, it was a listed company at the time, so it was actually relatively easy to explain to investors what it was. And, you know, on its most simple level, you know, we just were doing Netflix in the U.K. And, you know, we had a playbook. What I learned very quickly, and it's kind of been a life lesson, is that, you know, the way that a business works in one geography versus another geography is not cut and paste. But, you know, I mean, generally, I mean, honestly, the insight was Netflix is working, it's listed, nothing like this exists in the U.K. or in Europe. And I loved movies. So it was kind of that. **Ollie Forsyth** [4:55] When you guys were first launching, I was thinking, how is that actually work? Do you just have a massive warehouse filled with millions of these DVDs? **Saul Klein** [5:01] Well, I mean, what was, like, really interesting about that business, and I was explaining it to someone the other day, is, you know, what we did was, and this was sort of part of the genius of Netflix, is you would get people to create a wish list or a queue. You know, and people would put a queue of like 20, 30, 50 titles on, and then, you know, you would send them two or three titles depending on what package. And they didn't know what they were going to get, so it was like, "Whoa, it's really surprising. Something's coming through my letterbox that I'm looking forward to. It's not a bill. You know, it's the movie that I wanted." And there were 30 movies I would watch and hear of two or three that arrived, and I can keep them for as long as I like, and I don't have to pay late fees. It's like the value proposition compared to blockbuster was brilliant and obvious. But what it was doing on the back end was creating a demand signal for what you would then go to the studios or suppliers and say, "I know exactly what people want to watch." And, you know, what was smart about it was that, you know, you were using that wish list, that playlist, that queue to basically create insight into demand that allowed you to go into a supplier conversation and say, "I know what people want." And the only way that became a hard conversation is when new releases came out, because obviously, you know, people were delighted to watch this sort of long tail of, like, all of a sudden I can watch art house, documentaries, you know, like more choice than anyone had ever seen in a video store, DVD store. But you still want to see Spider-Man, you still want to see Star Wars, you still want to see Mission: Impossible, and that's where one ran into the challenge of, you know, lacking negotiating leverage, even though, you know, you kind of knew exactly what people wanted. And then the other thing is, which is a kind of a very subtle point, is that unlike retail, where you are stocking things and not really knowing what the demand is, not only were we, you know, only buying things we knew that there was demand for, our inventory was all sitting in people's living rooms. So, you know, it was a very interesting kind of reverse logistics. So actually when people like Amazon tried to compete with us, they knew how to send stuff out of a warehouse, they knew how to buy in bulk. What they didn't know how to do was to effectively, you know, have their inventory sitting in people's rooms, living rooms that were kind of on a return cycle. **Ollie Forsyth** [8:10] And it was so easy for the customer,right? I mean, and to prove I was a customer, the LoveFilm packaging would be branding would actually be on the envelope, and you're making it so easy,right, for the user to send back, where actually you include a return and delivery, you know, return post. **Saul Klein** [8:26] Free post, yeah. **Ollie Forsyth** [8:27] Free post, so easy. And was that just how you grew? Because it kind of felt like it grew very, very quickly, organically. **Saul Klein** [8:35] I mean, look, I think there'll, you know, there'll a lot of hard yards in those businesses, and the different businesses that ended up being the merchant entity took slightly different routes to market. I mean, one of the routes we took to market was to effectively be a powered-by solution to people who had very big distribution channels. ### Route to Market **Saul Klein** [8:59] So we powered Tesco's DVD rental, we powered ITV's DVD rental, we powered Odeon's DVD rental, we powered MSN's DVD rental. And, you know, that allowed us to kind of help do, for want of a better word, category creation, because everyone's like, "What the hell is DVD by post?" It's like, that's crazy. Like, what are you talking about? And so actually the approach that we were taking in Video Island, which was the business that I had started, was, yes, let's have a direct-to-consumer brand, but let's actually achieve scale and category definition by working with people who have massive distribution channels. And, you know, in Tesco's case, they would send out an email to 2 million people and it'd be like a denial-of-service attack. You know, if MSN put us on their homepage, it's like, shit, the site went down. If, you know, ITV put a sort of a TV add-on or Odeon a film trailer, you know, that's what drove demand. And then you had, you know, Screen Select that was building a direct brand, you had LoveFilm that was building a direct brand, and all of this ended up coming together. And we kept the name LoveFilm because what a great name. We kept, you know, most of the Screen Select technology. And, you know, we kept a lot of the Video Island investors. So, you know, when I say it ended up being a bit of a Frankenstein's monster, it was. And by that point, the company that was acquired by Amazon, you know, it was doing over $100 million in revenue, you know, about $10, $15, $20 million in profits. And, you know, was still growing 30, 40 percent a year. And after Skype was probably the largest consumer subscription service in the U.K. So, you know, Amazon got it for a steal because, you know, what Netflix ended up being worth was a lot, should we just put it that way. ### Skype **Ollie Forsyth** [11:10] Then this amazing technology comes along, and this amazing app comes along, Skype. How did Skype come around, and what was that story all about? **Saul Klein** [11:20] I think there are a couple of things that made me recognize Skype, for want of a better word, because, you know, I was very lucky to be an early person on the internet in sort of '93, '94. And, you know, my first real experience with the internet was, at least professionally, was going to visit the offices on University Avenue in Palo Alto of a company called Mosaic Communications. And the day I went there, they changed their name to Netscape, and they shipped the first internet browser. And it was like a mind-blowing moment for me because it just sort of felt like, oh my God, like there's a way to kind of navigate this incredible interactive information space. And that was my entry, if you like, to the world of technology and innovation. And I say this because when I first heard about Skype from, you know, someone I'd worked with during the Netscape days, again, I mentioned him before, Danny, Danny Reimer. He was a friend, you know, in Boston at the time. I was in Boston, he was in San Francisco, and he was an analyst at Netscape, and I was at a spin-out from MIT, which was a kind of an autonomous agent spin-out, AI, and we sold the company to Microsoft. But, you know, Danny, in 2002, 2003, he led the investment in what was Video Island, became LoveFilm, when he started the index office in London. And then, you know, a year or so later, he said to me, "Hey, you know, I'm thinking of investing in this company called Skype. You know, will you meet the founders?" I'm like, "Yeah, of course." I mean, obviously, I know Danny has a good, good nose. And I met the, I met Nicholas and Yanis, actually, kind of like to walk them around our offices because they were looking for a place to start their London operation. And I ended up meeting with Nicholas maybe every two to four weeks, you know, talking to him about marketing, et cetera, et cetera. And, you know, eventually he kind of said to me, "Why don't you come and join us?" And I'm like, "You know, I'm running this company that I'm the founder and the CEO of." But, you know, I mean, the honest truth is that I, what I saw at Skype when I first downloaded it was the most exciting piece of software I'd seen since downloading the Netscape browser. And I said to Danny in the end, and to Nicholas, "Obviously, if I can replace myself at LoveFilm," which I did, and there was a brilliant team in place anyway, and I was probably had outgrown, in all honesty, my ability to lead the business. You know, I joined Skype to really help Nicholas and the team, you know, build the business. But, you know, the honest truth is I had never seen a piece of software this interesting since Netscape. And, you know, I would have joined Skype to sort of stick stamps on envelopes because I just felt like this is a rocket ship to the moon. And, you know, this is kind of a, kind of an unprecedented opportunity to grow something with global scale outside of Seattle or Boston or the Bay Area. **Ollie Forsyth** [15:09] And you know, Skype was probably one of the first tools,right, at a time where you can actually call basically anyone around the world. I remember kind of that first experience, you know, you had to buy credits, get your, like, username, which was so exciting. And then, oh my God, you could actually call your friend, like, in America for, like, maybe one or two dollars. **Saul Klein** [15:28] Yeah. No, look, when I joined Skype, the tagline, because I was running marketing and e-commerce at Skype, the tagline was "Peter P telephony that works." And with my friend Jason Goodman, who was running a really great agency, Albion at the time, and they worked with Wise, and they worked with Innocents, and they, you know, they kind of were an embedded marketing team at Skype, you know, prior to me joining, is, you know, one of his creative directors came up with the line, "The whole world can talk for free." And, you know, that kind of nailed it because it was just crazy. Like, you could talk to someone for free that was using the software. And then, you know, the product you're talking about, Skype Out, was you could pay a very small amount of money, you could create a credit, an account, and then, you know, you could Skype out to a phone. So all of a sudden, you know, the long-distance calls that cost an absolute fortune, you know, you could call anyone anywhere in the world, either for virtually nothing, Skype Out, or for free if you persuaded them to download the software. So, yeah, it was a really remarkable product and business. And even within the year that I, 18 months that I joined, we probably went from 20, 30 people to 500 in 12 months. I'd never experienced growth like that before. And we went from about, well, zero revenue to $200 million in Skype Out revenue, also in 12 months. So, you know, people talk about lovable, et cetera. I mean, this was like sprinting up a mountain. I mean, it was, it was just an incredible experience. **Ollie Forsyth** [17:30] Obviously, back then it was very different versus what we have today, what that kind of, you know, the place Scaling looks today. What were some of those characteristics, do you think, that made Skype scale so quickly? Was there a viral network effect that we're just working? ### Viral Growth **Saul Klein** [17:46] Definitely. I mean, massive network effects. I mean, you know, one of the either interesting or frustrating things I experienced running marketing is that, you know, Nicholas would say to me, "Listen, you know, we've raised this money. You know, how big do you want your budget to be?" And I'm like, "I literally can't spend any money beyond PR and partnerships because there was no point in doing paid marketing because we were just, as you said, you know, we would grow like 400,000 users a day." And I'm like, "Well, that's crazy." And so, you know, it was like product was driving the growth. So we would kind of optimize product to drive growth because we knew if we got seven people on a contact list, then that was sticky. And then we would kind of try to upsell Skype Out. And then, you know, we would use PR. I think I had about 17 agencies in countries across the world and partnerships. We had a great business development team. And, you know, wherever it was, you know, like Taiwan or Poland or Brazil or wherever, you know, we'd just build out the three P's. And the product was just kind of self-fulfilling. And so, you know, the product, which is as it should be, drove growth and drove the brand. And then, you know, the PR and the partnerships were just really about, you know, kind of shaping the trajectory. ### Europe's Edge **Ollie Forsyth** [19:29] When we look at these companies scaling today in comparison, it's obviously very different times. And there probably are some, like, you know, characteristics. As I mentioned before we got onto the call, you know, I left the UK, Europe, five, six years ago now. So I have a few friends and a couple of expats. And the consensus question, which keeps coming up, is Europe still a great place to build a unicorn? And I know you probably get asked this a lot. So we'll, you know, reverse the card. Do you think Europe is still a great place to build a unicorn? And why is there so much negativity around the ecosystem? **Saul Klein** [20:04] I'm going to say this quietly because I don't want many people to know. After the UK, after the US and China, the UK is the third best innovation economy in the world. But if you tell too many people, you know, it'll mean that our advantage backing these now 700 thoroughbreds companies that have gone from seed to $100 million in revenue in a year, other people would be paying attention. So we prefer everyone to think that the whole world is about America. And if they don't think it's about America, they think it's about China. So we'd like to keep Europe quite quiet, if that's okay. **Ollie Forsyth** [20:58] There's obviously much more attention now on Europe, which is a good thing,right? But it's got to be more. **Saul Klein** [21:05] Well, I mean, look, every single piece of evidence, and I know people don't like evidence very much, demonstrates that after the US and China, the UK is the third biggest innovation economy in the world. Venture capital, mythical horses, unicorns, real horses, thoroughbreds, $100 million in revenue, or more. And the UK alone has four of the world's top 10 universities, not Europe's, the world's. Everyone thinks everything is coming out of Oxford, Cambridge, Imperial and UCL. You know, Manchester won a Nobel Prize for graphene. A third of the quantum spin-outs come from Bristol. One of the world's best computational chemists is in Glasgow. Southampton is the center for UK photonics. Surrey is the center for UK space. So, I mean, the capability, and it's not even the capability, the amount of capital, the outcomes, or the, you know, is third only to the US and China. You know, if one was looking on a per capita basis, and we really don't like to say this out loud because, you know, I mean, I'm South African originally, so I can be a little bit more blunt. But, you know, on a per capita basis, Britain has the gold medal for global innovation. So, you know, we've got 2,000 venture-backed companies in the UK doing over $25 million in revenue. So, listen, I know people don't like to hear the bad news that in the UK and in, you know, increasingly in Europe as well, we're really good at innovation. But, you know, the reality is we've been really good at innovation for about a thousand years. So, you know, whether that's the Industrial Revolution or the Scientific Revolution or the Enlightenment or IKEA, you know, we're pretty good at this stuff. So, you know, I think if I were to have an unpopular take, I'd say the era of narrative domination, and that's what it is, of Silicon Valley in the last 60 years, defining the global innovation economy is not over. But, you know, we've hit peak Silicon Valley. And I've kind of felt this for 10 or 15 years, is that while an empire doesn't die overnight, it might take decades. You know, you don't have to go very far to see Nero fiddling while Rome is burning. ### Best Regions **Ollie Forsyth** [24:10] You know, maybe 12 months ago, 18 months ago, I was still pretty bullish on London. Sweden, I think there's obviously some pretty interesting stuff happening there. Paris. Are those, would you say, those three regions, are they still probably the best to go and launch a company? **Saul Klein** [24:26] Well, I think if you look at just the numbers again, you know, I think try to stick to the facts. There are only the two cities in EMEA that have more than 100 unicorns, London and Tel Aviv. So you start there. Then if you want to go to a city that has 30, not 50, you go to Paris, you go to Berlin, you know, you go to Stockholm, you go to Amsterdam. But, you know, London plus Tel Aviv, London plus Paris, that's kind of the mother load. And then, yeah, I mean, there are great companies in Amsterdam. There are great companies in Stockholm. There are great companies in Barcelona. I mean, there are great companies in, you know, as UiPath, you know, approved in Eastern Europe. You know, look, the truth of innovation is that great innovation now can happen everywhere. You know, the Silicon Valley playbook of innovation has been, you know, promoted, studied, et cetera. And what's happening, and this goes back to sort of my, you know, Netflix to LoveFilm point, is that every ecosystem, every geography requires a different approach to innovation. And again, you know, my unpopular take would be if you look at where we are in terms of Silicon Valley innovation, obviously, I mean, eight out of the 10 biggest companies in the world are venture-backed and didn't exist 50 years ago. And combined are probably worth, I don't know, $20, $30 trillion. I mean, from an economic outcome, that is extraordinary. From a founder and investor outcome, that is extraordinary. From a social outcome, it is toxic. So was it worth it? Maybe, but probably not. So if you want sustainable innovation, and that's clearly not sustainable innovation, you know, you have to think about innovation in different ways. And that's why, you know, we've talked about the five-hour train ride from where we're based in King's Cross as New Palo Alto, not just to be annoying because, you know, after the Bay Area, it's the second biggest innovation cluster in the world. But it's because new means not the next. It just means a different one. And our thesis is that innovation without values, or to swear, inclusive innovation is, you know, sustainable innovation, not just economically, but socially. And, you know, you say that in Silicon Valley and you would be called woke. And you know what? I am. **Ollie Forsyth** [27:38] You know what? What I think it's interesting to see is maybe it's just in the last six months, Anthropic, OpenAI, Revolut obviously, I think Legora, all of these leading AI companies, if they've been founded outside the UK or not, are opening massive offices. **Saul Klein** [27:55] Revolut's a UK company and, you know, it started in the UK. It was a seed camp company. **Ollie Forsyth** [28:01] Yeah. It's incredible to see the companies outside of London coming to London,right? Startup companies. I know a lot of people love to give London the flag, but it's on the positive side, you know. **Saul Klein** [28:14] Who does? **Ollie Forsyth** [28:15] What does London need to do? **Saul Klein** [28:16] Who likes to give London flag other than people who it is in literally their economic interest to talk it down? You know, why is Coinbase saying that there are rats in the streets? It's Dickensian Britain, you know, to sort of try to change crypto policy. It is so nakedly self-serving. It's ridiculous. You know, I'm seeing a Wave car drive past me in the neighborhood, you know, Wave around the corner from this. XTX, DeepMind, Isomorphic, Anthropic, Google, Meta, the list goes on. So I mean, there is, again, just from an evidence base, the talent density on AI here is higher than anywhere. It's the most dense AI square mile on the planet. And it's applied to, you know, genomics. I've got the quick outside, you know, it's applied to advanced materials, CASPs, both in London and in Cambridge and in Japan. You know, it's obviously applied to fintech. It's applied to fashion. So I think there's obviously, it really helps to drive prices down by talking London down. And I'm not a conspiracy theorist or a cynic, but, you know, anyone who actually looks at the data is, you know, can see that, again, after probably, well, certainly the Bay Area and probably New York, London is the third biggest city for innovation globally. And if you add London and Paris and Oxford and Cambridge, you know, like this New Palo Alto cluster, it's second only to the Bay Area. So again, you know, what I would say is that don't tell too many people how good it is because then you're going to make our job harder. Every single American fund is already here. You know, nowadays a founder doesn't have to go to the Bay Area to raise money from Lightspeed, General Catalyst, Sequoia, Iconic, you know, obviously Axxell's been here for 25 years. Index has been here for 25 years. So smart money is here at all stages, not just venture money, you know, PE money, obviously KKR, Silver Lake, I mean, everyone. I mean, the fact of the facts, you know, if people want to pretend that something else is going on here, that's, you know, up to them. ### Scaling Hurdles **Saul Klein** [31:10] They're welcome not to visit. **Ollie Forsyth** [31:13] You know, when you're coaching a lot of these founders and as they think about scaling either in a local market or internationally, what are some of the hardest challenges still, do you think, in scaling in Europe that should and hopefully will change in the next couple of years? **Saul Klein** [31:29] I honestly don't think scaling a company is any, you know, easier or harder in any particular geography. I mean, last time I checked, the US was not a single market. I mean, a lot of businesses in the US, you have to do state-by-state legislation, you know, in fintechs, in retail, et cetera. So I mean, the idea that the US is a common market is just rubbish. And, you know, the thing that a lot of people, I think, underestimate, and we've seen this with some of our investing, is how big domestic economies are. So you can be the second biggest player in the UK, like Zoopla were, and we were seed investors in Zoopla, and you can still have a multi-billion dollar outcome. And by the way, this is in a market that most people like the TAM is too small for one company. Like classified properties,£400 million. Why would you ever want to be number two toright move? Well, you know, because it's like a big market and you can be crazy profitable. So, you know, I think most people underestimate how big domestic markets are. And then the second thing they do is they don't think strategically enough about what their second or third market should be. I think, you know, people follow their investors or the water cooler blindly to the US. And I would say in most cases, or in many cases, the US is a terrible second market to go to because typically it's a red ocean. The competition is really strong. And unless you've got a product that is, you know, pulling you to the US and you see demand there, I think it's a, you know, just a catastrophic error for most founders to sort of just blindly go west. You know, in a lot of home markets, even, you know, I've seen this, we have an Italian portfolio company that is just, you know, super dominant in Italy. And, you know, guess what? It's a G10 economy. And, you know, you can do really well selling to some of the biggest, most strategic companies in Italy. And, you know, if you do that, many of them have international operations and they'll say, "Oh, can you do this in my German operation or, you know, my Asian operation or my LATAM operation?" So I just think, unfortunately, most investors are sheep. And, you know, when you have sheep leading founders, you can often lead founders astray. **Ollie Forsyth** [34:26] It's true. And, you know, we've seen this in quite a few multiple cases over the years. Europe is still a great market. **Saul Klein** [34:33] Well, I would just double-click on that and I would say Europe is not a great single market for digital services. But European economies, you know, France is a great market. Germany is a great market. Italy is a great market. Spain is a great market. Poland is a great market. You know, Sweden and Denmark for certain businesses are great markets. But I think if you think about Europe as a homogeneous whole, then again, you will make a mistake just like thinking of the US as homogeneous or Asia as homogeneous because, you know, Japan is completely different from Korea and Vietnam is different from Thailand and, you know, the greater Bay Area is different from Beijing and India is definitely different from all of them. **Ollie Forsyth** [35:26] When investors are thinking about backing founders and founders are thinking about which investors to choose from, you mentioned this kind of, you know, analogy here. All the investors are like sheep, which is, I guess, you know, somewhat accurate. ### Investor Value **Ollie Forsyth** [35:38] But now for founders,right, founders have unlimited capital anywhere and they can decide exactly who to choose from. It feels like pretty much all the investors are kind of providing the same value add that they've always been, you know, pitching to founders. How difficult capital provides net worth? **Saul Klein** [35:59] Capital is not value add, that's just capital. What's the value add? **Ollie Forsyth** [36:01] Capital, you know, maybe provide some connections, provide some talent. Has much happened there, much changed? Is it difficult to stand out? **Saul Klein** [36:10] Look, whenever someone talks to me about this and, you know, in Phoenix Court, you know, we manage four different fund strategies. The one that most people know us for is Local Globe, which is our pre-seed and seed fund. And then we have an early growth fund, Latitude, and a scale-up fund, Solo. But we also have a, we're an angel LP in probably around 80 Solo GPs, emerging managers, micro VCs across the world, 45% US, 45% EMEA, 10% APAC. And, you know, we've been doing this for 15 years, I mean, being an angel LP. And, you know, a lot of emerging managers, angels will sort of say to me, like, "Okay, I'm going to start a fund." And, you know, the first thing I would say, because obviously it's something we think about a lot, is there are 20,000 VCs in the world. 20,000. As far as I can remember, 28 out of the 20,000, 0.14% have picked more than 11 thoroughbreds, companies that got to 100 million at seed. So I mean, like, that's the 99th percentile. We're one of them. So, you know, that's a reason to stand out is like we picked $100 million revenue companies at seed and we're in the 99th percentile globally at doing that. But, you know, if you're starting a fund and your value proposition is, "We have money," you're in a line of 20,000 people who say, "We have money." So I kind of, as a marketer, I would say to any manager, any GP, it's like, "How do you stand out when just imagine a sort of 20,000 barber shops in a line all saying, 'We cut hair.'" No, no, no, no, no. "I cut hair." No, no, no. "I cut hair." No, "I cut hair, but I give a head massage." No, no, "I cut hair and I give you a free coffee." So, you know, standing out in a market where the product capital, as you say, is just incredibly cheap and the barrier to entry is incredibly low, is incredibly hard. And the reality of value add is that, you know, most investors either give no value add, in fact, they're value destroying, or, you know, if they do, they do it in a very unsystematic way. So, you know, when we think about what do we deliver beyond capital? And I mean, this is something obviously I've been thinking about for probably 20 years now. You know, Seedcamp was, you know, one iteration of that. Zinc, which we co-founded with the London School of Economics, was another iteration of that. Platoon in the music industry was an iteration of that for musicians rather than founders. And I think, you know, the real value add, which unfortunately investors really are just not very good at doing, the most valuable thing you can offer a founder is a contract or access to a contract, i.e., a customer, a purchase order, something that is non-dilutive. And I'm not talking about access to grants, which you should be able to do, or access to, you know, credits or working capital or contract financing or all of the things that people would be like, "What are you talking about? Is that just not equity?" I've heard of primary, I've heard of secondary. So, you know, the range of capital formation options that people offer, you know, most people, both on the investor side and quite frankly, unfortunately, on the founder side, just don't know most of these options exist. But the most valuable thing you can offer in our view is access to a contract. The second thing you can offer, as you said, is sort of access to talent. And not just talent, but theright talent. And then finally, I think there's this capital formation piece. And then, you know, there are all of the things that, you know, that are maybe less hard: contracts, talent, capital formation, and soft, like, you know, just peer learning, a physical environment, you know, where founders can meet and get together. So, you know, we try to do these things and we try to do them very systematically. And, you know, we call this venture plus, but, you know, we recognize that capital is just a commodity. **Ollie Forsyth** [41:44] And like you said,right, it's becoming so cheap. There are so many options out there for founders now. They have, you know, if you're raising a pre-seed seed, you can partner with creators who are now investing in creators, who are investing in founders, angel investors, early stage VCs. You know, there's actually something we've been thinking a little bit about. We invest in a tiny amount in, you know, a few startups off our balance sheet. And we don't do massive checks, but we say, "Look, we've got a million and a half, two million followers across all of our distribution channels." Hopefully, that is somewhat of a value add that other VCs, you know, can't provide yet. **Saul Klein** [42:20] Yeah, well, look, I think this is obviously, you know, Harry Stebbings has done an amazing job of turning his audience, his media platform, you know, the network of people that he's interviewed into this incredible asset. And I think, you know, it's one of the great innovations in venture over the last decade or so. And I think most people didn't see it coming. I mean, Fred Wilson had obviously used ADOT VC as a source of, I guess, unfiltered, unstructured deal flow and had done that brilliantly. And then Andreessen, you know, really created a kind of a media operation. But I think, you know, Harry's, the way Harry has sort of translated not just the content and the audience, but the structured network of relationships into, you know, kind of, for no point of a better word, venture plus is really, really creative. And by the way, where's he based? **Ollie Forsyth** [43:29] Exactlyright. London. We'll put the volume up on the episode. **Saul Klein** [43:36] London. Where was EF created? **Ollie Forsyth** [43:39] There you go. London. **Saul Klein** [43:41] Yeah. So, you know, we're not that bad at innovating in the innovation economy. **Ollie Forsyth** [43:49] You know, I think one trend we're going to start to see also is how do these VCs continue to stay relevant, but also how do they think about encouraging their current and future employees to become long-term shareholders and get some form of, you know, carry in all the funds,right? ### Shared Ownership **Ollie Forsyth** [44:07] This is something Phoenix Court has been doing for a while. And I know you have some updates here. We'd love for you to, you know, just explain how you're thinking about this. And why is now a great time to be doing this? **Saul Klein** [44:20] Well, I don't know if now is a great time to be doing this or not because we did this 11 years ago when we started. So, you know, we made a very, I think, contrarian decision when we started to be a company, a limited company, not an LLP. And, you know, for people listening, you know, the choice is very significant because, you know, a company obviously, you know, generates income in the case of venture capital through management fees. You have costs, you know, your facilities, your staff, your systems, et cetera. And, you know, if you hit a certain scale of income, you generate profits. Now, literally out of the 20,000 venture funds in the world, there are maybe less than one or two hands that are companies, not LLPs. And, you know, this is not unique to venture. You know, most private equity firms are LLPs, most hedge funds are LLPs, most law firms, accounting firms. It's a limited liability partnership. And the purpose, literally, of a limited liability partnership is that any profits in some of these companies or partnerships become incredibly profitable. In an LLP, the structure rewards full distribution on an annual basis and no retention. That's what the tax structure is designed for. So if you are fortunate enough to be a partner in an LLP and you have a share of annual distributions, boy, do you get rich. However, in most partnerships, you know, that profit share doesn't cascade down to everyone. In fact, it's normally with an extremely small and elite group. Anyone who works in a services business, who'll know this, whether they're a partner or not. And so, you know, what we did by choosing to be a company rather than an LLP is when we made profits, which was about year four, we started to distribute profits on a quarterly basis to every employee from front of house to senior, everyone, to our foundation, 10% of our profits. And then we did the same thing with Carry. So every fund, regardless of strategy, regardless of you're working on this fund, you're working on that fund, we just don't think like that. You know, we work together. Everyone gets carried, regardless of seniority. Again, front of house to senior person. And then the foundation gets 2% of Carry in every fund. So from day one, we have, you know, had beneficial distributions to everyone in the company, every FTE, and the foundation. And then obviously, if you want to see our P&L, if you want to see our balance sheets, just go to Companies House, Phoenix Court Group Limited. And by the way, you know, if you want to see other people's P&Ls, at least the ones that have a UK LLP, you can go see that as well. But most of the ones that have a UK LLP also have many other LLPs. So whatever you see in the UK LLP times by three or five. So, you know, that was a very big decision. And then the sort of the thing that we decided to do this year, which is really about baking in long-term stewardship and long-term thinking into the business, is that up until this year, the two shareholders in the limited company were myself and my dad. We co-founded Phoenix Court together. And what we decided to do was to share ownership with, you know, not just all of the team, but, you know, the foundation will become our largest shareholder at around 30%. The team will be our second largest shareholder block, and then the two of us after that. And I think, you know, what we feel is that by having a foundation as your largest shareholder, which by the way, is not that weird, you know, in Europe or in Asia, and then having your team as shareholders is also not that weird because, you know, if any of us were told by a portfolio company, we're only going to give options, RSUs, or equity to VP level or above, we'd say, "Hang on, when YouTube sold to Google, the receptionist became a millionaire. When Facebook went public, the mural artist became a multi-millionaire. So why would VCs, PE firms, say, 'It's good enough for you, but I'm going to just do it differently'?" I mean, that just doesn't feel consistent to me. **Ollie Forsyth** [50:24] And is this something you now bring up when you're pitching to founders? **Saul Klein** [50:28] Not really. I mean, I think founders have always, I think, recognized that, you know, we have a purpose and, you know, we are really not compromising on performance. And, you know, I think the best founders think like that. You know, the best founders I've worked with over 30 plus years, the best founders we've backed are missionaries, not mercenaries. And of course, they want to do well. And of course, they want to have incredible economic outcomes. But more than anything, they want to really solve a problem. And they want to solve a problem that matters, not just a problem that is going to help them make money. So I think, you know, it's very aligned with our founders. We're also very aligned, hopefully, with our LPs because the LPs that we like to work with are super long-term, are very value-aligned. And they understand that, you know, this is an asset class that pays out over decades, not just over quarters. **Ollie Forsyth** [51:39] I mean, it's been around for a while,right? But not many VCs do this. **Saul Klein** [51:42] I don't know if anyone does this. I mean, you know, when I was interviewed by PitchBook recently, they didn't know of anyone who did this. I know that, you know, there are hedge, there's a hedge fund or two that does this, like Children's Investment Fund, British. There is, you know, sort of growth equity slash crossover vehicles like Generation that do this where they have, you know, I know a percentage of their management company, you know, goes to philanthropic ventures and to their foundation. I mean, obviously, I mean, the people who inspire us are people like Novo, Wellcome, you know, Mersk, Lego, you know, people who are building for sort of centuries, not just for decades. ### Future Bets **Ollie Forsyth** [52:38] You know, there are so many opportunities out there now. If you were to go back to building, like you did with LoveFilm and all those, you know, various earlier ventures, what company would you go build tomorrow? **Saul Klein** [52:49] You know, firstly, we are building. You know, we're building a business. And, you know, that's why it deliberately is a business. And we're in the business of, you know, allocating capital, creating value, driving returns for our LPs. And then, you know, now that the foundation is our largest shareholder and 80% of the grants go within a mile of our office, which is one of the poorest neighborhoods in London, you know, we're not just working for ourselves and driving returns to the LPs. We're working for the neighborhood. So, you know, we're building something here. I mean, there are definitely other businesses, you know, I have in me. But again, you know, the Phoenix Court platform, you know, in 2015 with Platoon, in 2017 with Zinc, you know, with the Newton Venture Program, you know, has the Black Venture Network that my partner Remus, you know, operates. You know, we're constantly building. And, you know, that's what's exciting. But, you know, the incredibly exciting thing is, you know, like the literally not even tens, you know, a hundred or more founders that we work with in AI, in science, in, you know, the 59 cults and thoroughbreds in our portfolio. I mean, it's just incredible to work with these founders and their teams as they try and grow value. And then it's extraordinary when I see just like how innovative and ambitious founders are these days, you know, including 17-year-olds. And, you know, one of the most exciting founders we've backed in London, we first backed as a 17-year-old, James Dacon, when he started CoMind. You know, James started a second business about 18, 24 months ago, OLX. He's running both businesses. You know, these are two extraordinary companies, you know, both based on photonics that are literally world-changing businesses run by a 25-year-old who's around the corner from us in King's Cross. So, you know, what's not to like about that? **Ollie Forsyth** [55:17] So much opportunity, London all the way. **Saul Klein** [55:20] Well, you know. **Ollie Forsyth** [55:20] Even if people disagree. **Saul Klein** [55:22] Yes, but, you know, I'm also just to stick on photonics. You know, we backed a spin-out from the Pasteur Institute in Paris, which is, you know, two and a half hours away, that, you know, this week, you know, was recognized scientifically that their technology, you know, performs as well in sort of microbiology as a Petri dish. So a Petri dish is a 120-year-old technology that kind of came out of the Pasteur Institute. And, you know, what these guys have done is they've taken photonics light as the consumable. And rather than a Petri dish, which is sampling or, you know, a lateral flow test, which we all got to know during COVID, which is also sampling, the consumable in this business is light. And instead of sampling, they look at everything. And they use AI and machine learning to understand patterns and anomalies to understand, you know, microbes. And this is now scientifically at the level of a Petri dish. Why would you use a Petri dish when you can use Spore Bio? **Ollie Forsyth** [56:41] Insane. **Saul Klein** [56:41] Insane. **Ollie Forsyth** [56:42] I think that demonstrates the opportunity for Europe and London,right? **Saul Klein** [56:46] Oh, just the Ensemble Court of Yale. I can go on to Aachen. I can go on to Zurich. I can go on to Stockholm, Barcelona. You know, I'm just talking about London and Paris so far. **Ollie Forsyth** [56:59] London all the way. This has been Awesome Soul. Thank you so much for coming on the show and welcome to another episode. We'll have to do another episode next time and we'll do a lot more. **Saul Klein** [57:08] Next time we can talk about the unpopular idea about Asia. **Ollie Forsyth** [57:14] Let's do it. --- This library is powered by PodHood (https://podhood.com), the podcast website platform.