Jan 20, 2025 · 1h 16m · news
Hussein Kanji, Founder @Hoxton Ventures: Why AI Means London Can Compete with the US | E1248 · 20VC with Harry Stebbings
0:00 / 0:00
▶ Watch on YouTube →
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this extensive interview, Hoxton Ventures founder Hussein Kanji joins Harry Stebbings to dissect the structural challenges of the European venture landscape, sharing tactical lessons on fundraising, portfolio concentration, active founder support, and the transformative impact of artificial intelligence.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 16.7% of the talking time here. How this is scored →
Harry as informed peer 4.5 Guest teaching 3.7 Guest disagreement 2.0 Harry pushing back 3.6
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 56:10 Hussein Dismisses Local Liquidity Markets
Hussein forcefully rejects Harry's concern about the London Stock Exchange, dismissively questioning why local liquidity markets even matter in a globalized venture environment.
Hardest push from Harry ▶ 56:11 Harry Refuses Dismissal of LSEHarry directly interrupts and rejects Hussein's assertion that local stock exchanges are irrelevant, firmly insisting that strong domestic liquidity markets are essential for European tech.
Biggest teaching moment ▶ 40:45 The Math of Seed Round CapitalizationHussein educates Harry with statistical correlation data proving that $10M seed rounds double the probability of outlier unicorn success compared to $5M rounds.
Harry holds his own ▶ 39:24 LP Budget and Allocation Math BreakdownHarry leverages institutional LP data to demonstrate why deploying $300M-$500M annual venture budgets into top-tier funds is mathematically nearly impossible for US endowments.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Reuniting After Nine Years | 4 | 3 | 1 | 2 | Harry opens by quoting Keith Raboy regarding a venture fund's 'right to exist' and asks why European VC shifted toward momentum investing. Hussein articulates the historical evolution of European VC and how career incentives inside larger firms drive momentum behavior. The dynamic is collaborative and reflective. | |
| LPs and the Pressure for Markups | 6 | 4 | 2 | 6 | Harry directly counters Hussein's thesis on momentum markups versus DPI, noting that showcasing high-tier follow-on markups is crucial when fundraising from LPs. Harry brings market facts from a recent vertical SaaS deal that generated 13 term sheets. Hussein re-frames the dynamic by explaining outlier power-law economics versus European PE downside-protection mindsets. | |
| Scenario Planning and Building Resilience | 3 | 2 | 1 | 3 | Harry probes Hussein on outcome scenario planning and presses whether an inability to identify potential acquirers upfront constitutes a red flag. Hussein explains their firm's operational playbook for preparing shopping lists if founders run into unforeseen trouble. | |
| Fundraise for Time, Not Size: Mike Maples' Advice | 2 | 4 | 1 | 3 | Hussein shares Mike Maples' advice about fundraising for time rather than fund size, admitting that Hoxton's initial 39-month raise was inefficient. Harry asks blunt probing questions about whether Hussein was terrible at fundraising. Hussein recounts how Index co-invested in Deliveroo's early round. | |
| The Challenge of Preserving Ownership and Pro-Rata Rights | 5 | 3 | 1 | 2 | Harry asks technical structural questions covering ownership retention, reserves, SAFEs, and common versus preferred stock. Hussein details legal document friction around pro-rata rights during Deliveroo's follow-on rounds. | |
| Managing Liquidity and the Hard Lessons of Darktrace | 3 | 4 | 1 | 2 | Hussein reflects on holding Darktrace public stock past its peak, which cost the fund significant gains. Harry listens attentively as Hussein outlines Hoxton's programmatic post-lockup distribution formula. | |
| DPI, TVPI, and the Costly Darktrace SPV Regret | 3 | 4 | 1 | 2 | Hussein shares a painful lesson where Hoxton failed to raise a $10M SPV for Darktrace's Series C despite a lucrative $400M valuation. Harry reacts in disbelief at the missed financial opportunity. | |
| Backing an AI Drug Discovery Winner | 3 | 3 | 1 | 1 | Hussein details early investments in an AI drug discovery winner and Hoxton's successful $40M SPV track record on Darktrace. Harry asks brief clarifying questions about entry valuations. | |
| Combating Investment Bias and Evaluating Numbers | 5 | 4 | 2 | 3 | Harry challenges the valuation metrics of historical deals, expressing surprise at Darktrace's revenue-to-valuation multiples. Hussein outlines how Hoxton mitigates partner bias using independent growth team members to audit deal metrics objectively. | |
| The Evolution of Venture Capital & Hussein's Hands-on Approach | 3 | 5 | 1 | 2 | Hussein educates Harry on the historical roots of venture capital, citing oral history archives from the Computer History Museum regarding Dave Marquardt and Microsoft. Hussein contrasts hands-on 1980s VC models with modern multi-stage firms that view seed checks as passive call options. | |
| "Call Option" Investing vs. Active Founder Support | 5 | 4 | 3 | 5 | Harry challenges Hussein by citing Keith Raboy's premise that the best founders never need investor help. Hussein firmly refutes Raboy's view, giving counterexamples of historical non-linear company trajectories like Facebook. | |
| Feedback to Founders and the Impact of Public Controversies | 4 | 3 | 2 | 4 | Harry cites Jason Lemkin regarding passing on deals without feedback and playfully confronts Hussein about his outspoken Twitter reputation and public frying pan dispute. Hussein explains how external macro shocks like Brexit impacted Fund 2 fundraising. | |
| The Role and Risks of Government and Pension Fund Funding in Venture | 6 | 4 | 3 | 5 | Harry forcefully pushes back on European LP dynamics, calling UK pension funds' inaction a disgrace and arguing that Europe already suffers from excessive capital. Hussein responds with specific pension allocation statistics and highlights the deficit in qualified European LP talent. | |
| The LP Deployment Dilemma & Under-capitalization in Europe | 6 | 4 | 2 | 3 | Harry demonstrates deep domain knowledge by detailing the practical impossibilities facing US endowment LPs attempting to deploy $300M-$500M budgets annually. Hussein backs this up with data demonstrating how larger seed rounds statistically double outlier probabilities. | |
| Pricing, Contrarian Partnerships, and the "Rope" Principle | 4 | 3 | 2 | 3 | Harry asks how partnerships avoid finding fatal flaws in every startup cohort. Hussein outlines Hoxton's internal 'rope' principle, which grants partners autonomy on gray-zone decisions when clear red lines are absent. | |
| The Rise of Jumbo Seeds & Optimal Fund Sizing | 5 | 3 | 1 | 2 | Harry agrees with Hussein's optimal seed fund target ($150M-$250M), revealing 20VC's new $125M seed fund size. Hussein explains writing a $10M check into a foundational AI model deal. | |
| Portfolio Math, First-Time Founders, and the Optimal Founder Age | 7 | 4 | 3 | 6 | Harry pushes back on Hussein's list of European Tier 1 VCs, narrowing the dominant list to just Index, Accel, and Sequoia, while asserting Europe lacks high-quality founder supply. Harry also cites Revolut's quantitative data regarding 25-35 as the optimal founder age window. | |
| European AI Talents & The Historical Context of Europe's Success | 5 | 4 | 2 | 3 | Harry asks whether criticism of European tech is fair and cites Paul Graham's 'founder mode' essay. Hussein points to DeepMind in London and Meta's AI hub in Paris to demonstrate horizontal AI talent parity between Europe and the US. | |
| Macro Stagnation vs. The "US Bridge" Scaling Thesis | 7 | 5 | 5 | 7 | Harry strongly rejects Hussein's assertion that local stock exchanges like the LSE do not matter, insisting that domestic liquidity markets are vital. Hussein aggressively holds his ground, arguing that tech companies can seamlessly list on foreign US exchanges like NASDAQ. | |
| The London Discount & The "Europe Inc" Fallacy | 5 | 4 | 3 | 4 | Harry questions Hussein on UK economic policy and non-dom tax changes, agreeing passionately that removing non-dom status was bad policy. Hussein warns against constant government tax tinkering. | |
| Extended Private Window & Late-Stage Liquidity | 4 | 4 | 3 | 5 | Harry introduces the charity game and directly confronts Hussein about a controversial public post regarding hiring women in VC. Hussein shares an LP's perspective that established firms carry a moral obligation to train emerging female talent. | |
| Charity Question 2: Splitting with Co-Founder Rob | 4 | 3 | 2 | 5 | Harry presses Hussein on his co-founder split with Rob Kniaz and asks him to name overhyped European VCs. Hussein opts to donate $2,000 to charity rather than naming underperforming peer firms publicly. | |
| Creating Monopolies & The Impending AI Bubble | 5 | 4 | 2 | 4 | In a rapid-fire round, Hussein warns that commoditized AI tools resemble the 1995 dot-com bubble. Harry quickly calls out Hussein's potential contradiction between condemning hype and continuing to invest on the field. | |
| Evaluating NVIDIA, OpenAI, and Anthropic | 5 | 4 | 2 | 4 | Harry demands definitive choices from Hussein between frontier AI labs (OpenAI, Anthropic, xAI) and evaluates NVIDIA's margins. Hussein picks OpenAI due to revenue scale and closes by describing his succession goals for Hoxton. |
Statements from this episode (70)
Kanji: Capital injected directly correlates with startup probability of success
“There is a correlation between how much money goes in to a company and what the probability of success is.”
Kanji: Reaching unicorn status requires an average of $300M in funding
“The average is about like three hundred million to get to a unicorn status”
Kanji: America is the best path for scaling a startup financially
“Your best path to scale from a financing perspective is America. The rounds are bigger.”
Kanji: Venture managers should fundraise for fixed time, not fund size
“Do not do a fundraise for a size of the fund. Do a fundraise for time of the fund. Give yourself 90 days. Whatever you get, go start investing.”
Kanji: Early European Seed Funds Eden and Pond Mismanaged Capital
“In fact, the seed funds of record here, you won't even remember the names. They were Eden and Pond. They're like a bygone, right? The people raised money in the dot-com boom, mismanaged their capital all the way through the collapse, and kind of left.”
Kanji: Most European VCs Are Momentum Investors Seeking Quick Markups
“I think most of us become momentum investors in this industry. We write the check largely to get the next markup, not to build the long-term, durable, big company of tomorrow. And I don't think there are that many people in Europe who do those kinds of things.”
Kanji: VC Employees Optimize for Fast Markups Over Real Returns
“If you're the general employee, you optimize for getting to the next career ladder, and how do you show that you can get to the next career ladder? You do a deal, and then General Catalyst, or Index, or Kleiner, or Sequoia, or Andreessen, I mean, there are so …”
Kanji: Winning VC requires contrarian bets validated by consensus within two years
“You kind of have to do things that are a little bit off-piste. You kind of have to build for the big outcome, and you have to be a little bit contrarian, and then very quickly, about a year or two later, you have, the world has to recognize that you're right i…”
Stebbings: 20VC recently backed a vertical SaaS company with 13 term sheets
“We just did a bluntly very boring vertical SaaS company, had 13 term sheets.”
Kanji: European VCs are trained in private equity and focus on downside protection
“And I don't think people in Europe think in that kind of way. I think people in Europe are largely trained in private equity. They think about how do I minimize my downside.”
Hoxton maintains quarterly acquisition buyer lists for portfolio companies in crisis
“And so every, every quarter we have like an immediate shopping list, which is if this company falls into trouble, I'm picking up the phone, I'm calling this person At this buyer in this level of the organization who wants this kind of product technology, techn…”
Kanji: Hoxton Ventures spent 39 months raising its debut fund
“Fun one was 39 months for us to get going. Like three nine, like over three years.”
Kanji: Hoxton Ventures deploys capital into only 4 to 6 deals annually
“The only time we probably maybe sped up was like, 20, 21, but I think the whole industry was speeding up at that point, and then we slowed down intentionally in 22. So we do, we used to do about four to six a year.”
Kanji: Hoxton Ventures achieved a 34x realized return on Deliveroo
“The best investment on paper was, I mean, not paper, like, realized was Deliveroo. It was about 34 X on the first check.”
Kanji: Hoxton invested approximately £1M in Deliveroo's initial round
“We put in just around a million of that first round.”
Kanji: Deliveroo grew 5-7% week-on-week prior to Hoxton's seed check
“And the, and he was growing five, seven percent, week on week.”
Kanji: Deliveroo altered legal docs to strip Hoxton's pro-rata rights
“And then we had a weird scenario in that particular company where our pro rata rights got taken away from us, and in the legal documents, they changed the definition of who would get the pro rata, To basically, I mean, basically singling us out.”
Kanji: Hoxton Ventures targets 15% to 20% ownership in top portfolio companies
“So if we see early traction in any one of our companies, we will figure out a way to put more capital in, and these days for our best companies, and our best companies are much higher concentrations than our average company. We're getting closer to like 15, 20…”
Kanji: Preferred stock liquidation preferences matter even in large outcomes
“Like we think that the preference matters even in these large outcomes because there could be volatility downstream.”
Kanji: Hoxton Would Have Been a 10X Net Fund on Darktrace at Peak
“We, that would have been, we would have been a 10 X net fund on, on, on, on Darktrace at the, at its peak.”
Kanji: VCs Should Sell Post-IPO Stock via a Three-Tranche Formula
“And so I think the formula that we now have is at the time of the IPO, as soon as you're out of lockup, A third of it you sell, a third of it you sell six months later, and then a third of it you sell another six to 12 months after that. Just make it a formula…”
Kanji: Hoxton Sold Out of Deliveroo Fully at IPO
“We sold out a delivery at the IPO. We thought it was a, we thought it was like very Fairly valued at the time.”
Kanji: Hoxton concentrates over 60% of Fund III into top third
“In the second fund, that's now shifted to a little bit over 50% of our capital is in the top third of the fund. And in the third fund, it's getting closer to about 60, 65% of the top, like, The money's going into the best companies.”
Kanji: Hoxton's Darktrace SPVs achieved 66% to 154% realized net IRR
“So in the run-up to the Darktrace IPO, we did a bunch of SPVs with our investors. We put more money to work in Darktrace than the fund size of Fund One. And we think the lowest performing IRR for us was net 66%. This is all realized, by the way. Net 66%. And t…”
Kanji: Hoxton Uses Unbiased Team Members to Evaluate Follow-On Deals
“So we have a fairly trained growth investor on our team who is not in these companies, who can look at the data just on pure databases and give a view. So we basically assemble a different team other than the person leading the investment, saying take a look a…”
Kanji: KKR Invested in Darktrace at a $400M Post-Money Valuation
“And, but you know, going back to that Darktrace round that KKR did, four million a month, so forty-eight million annualized, four hundred million dollar post, not pre-post.”
Kanji: Darktrace Monthly Revenue Grew From $1M to $4M Before KKR Round
“By the way, the Delta was, they'd gone from about a million a month at that point to about four million a month. So it was like super exponential growth in those early days.”
Kanji: Darktrace Reached $732M Revenue at Take-Private From $10K at Seed
“The company, when it got privatized, did seven hundred thirty two million of revenue. I mean, we, but when we invested, it was doing like 10 K.”
Kanji: Multi-Stage VC Funds Treat Early Checks as Simple Call Options
“But these days, with the growth of those guys, it's all call options for them, right? They will invest into something and see how it plays out, so they can write the 30, fifty million dollar check, where it starts to get meaningful.”
Kanji: Seed Funds Cannot Rescue Startups Without Heavy Capital Reserves
“The lesson for us is like, this hard work stuff, you need to be well capitalized to be able to do, and some, sometimes it's not our place. Like, even if we could do the work, we don't have the capital base to be able to do these things.”
Kanji: Public SaaS companies outside top decile are growing and profitable
“If you look at the public markets today, and you go look at all the SaaS companies, between the first decile all the way up to the 10th decile, if you break it up, everything other than the first decile is both growing and profitable.”
Kanji: VCs get no upside arguing with non-portfolio founders
“Yeah, I'm kind of in the same camp. There's no upside from, like, arguing with people. I mean, argue with your founders who are, like, in your, like, they're in your family, right? You're an investor, you're a long, but, like, there's the outside world.”
Kanji: Founders avoid working with overly controversial VCs
“I think who wants to work with people who are too controversial or too unpopular? I mean, you want, like, especially when things are going up, right? You want people who are going to be cheerleading as much as possible.”
Kanji: Optimal seed fund size today is $150M to $250M
“We now think the closer number is like a 150 to two 50, but back then it was about a hundred. And if you're going to play this game well, that's about the size that you need to be.”
Kanji: Brexit's Article 50 wiped out EIF commitments to UK venture funds
“Article 50 got invoked, and everyone who had a check or a commitment from EIF at that point felt it. Seedcamp got one of the first calls, they tore up the document, and all of us lost the EIF commitment because they were no longer able to invest in the UK.”
Kanji: European Investment Fund is too dominant and should be split into five
“I think if you have someone like the EIF where there's 30% of the aggregate capital of the LP commits, it's too big. What you should really have is what happened with AT&T in the US where they broke it down into the bells. You had five different bells kind of …”
Kanji: UK pension funds hold 10% US tech, 5% UK equities
“So the pension funds in the UK, so the defined contribution scheme, about 10% of the capital in the pension funds is invested in the top tech names in America. 10%. And about five percent of the pension funds is invested in UK equities.”
Stebbings: European venture capital already has far too much cash
“That is bad. Like, we already have a fucking way too much cash in Europe.”
Kanji: European startup conversion rates match US, but funding amounts lag
“And the biggest structural problem that we have in the UK and Europe, the conversion rate between series, between seed and series A to series B to series C, is basically these days on par with the US. But the capitalization of our companies from seed to series…”
Kanji: A $10M seed round doubles outlier odds versus $5M
“And there is a statistical, like, correlation between if a seed round raises, like, a hundred K, the probability of it becoming an outlier is very, very, very, very small. Kind of makes sense. If that seed round goes up to, like, ten million, the odds between …”
Kanji: Hoxton is price-sensitive on ownership target, not check size
“Yes, because we care about ownership, but no when it comes to the check.”
Kanji: VC partnerships outperform solo GPs due to error-correction mechanisms
“I think partnerships are way better Than solo GPs, because you get this error correction mechanism from other smart people.”
Kanji: Seed rounds of $5M+ now account for 20% of seed market
“The jumbo seeds, like, up six to seven times in volume than they were a couple of years ago, and the seed rounds that are five million plus are a fifth of the industry right now.”
Kanji: Hoxton led $10M check into AI foundational model startup
“We put in 10. It was an AI company, a foundational model, didn't necessarily need all the money on compute, so 10 in a foundational model, and 10 is a really large number, but 10 in foundational model land is still a small number. We took it off the table, and…”
Kanji: Seed startup unicorn probability is 3%
“The probability at seed of picking something that becomes a unicorn is three percent.”
Kanji: European VC market grew from $1B to $30B
“When we first started, there was about a billion that went into European venture. These days, about thirty billion that goes into European venture.”
Kanji: Europe needs dominant superstar VC funds, not micro funds
“I don't know if the world right now needs yet another emerging manager, yet another micro cap fund. I think what we need is like five to 10 dominant Superstar venture funds in Europe, kind of the way in the Bay Area, they're like, 10 or 15 of those.”
Kanji: Europe is on par with the US in AI for the first time
“When you look at what's happening in AI, you got DeepMind down the road in London, you got Meta running its AI stuff in Paris, like we are for the first time ever in European history on par from the company creation or technology creation as the US in not a ni…”
Kanji: Chinese EVs will wipe out the German car industry
“Yes, I'm really terrified that the German car industry is going to get wiped out by China. Like, by the EVs in China. I think they're asleep at the wheel.”
Kanji: Darktrace generated more early revenue and staff in US than UK
“Darktrace made more money in America than it did in the U.K. From the very early days. It had more staff in America than it did in the U.K.”
Kanji: US IPO revenue threshold is now $200M to $300M
“The bar for an IPO today in the US is north of 200 to three hundred million.”
Kanji: Hoxton portfolio company with $150M+ revenue is hiring bankers for IPO
“We have a company in our portfolio, It's about two years away from IPO. It's appointing bankers right now. One hundred fifty million net, one hundred sixty million net revenue right now on a run rate basis.”
Kanji: I tried to talk Wise co-founder Taavet Hinrikus out of LSE listing
“And then right after that, Tavit went public with Wise on the LSE, and I tried to talk him out of it. I said, go, go in America.”
Kanji: Darktrace suffered severe LSE discount before $5B privatization
“I think it was trading at huge, a huge multiple discount. Seven hundred thirty-two million of revenue, like I said, trailing, trailing, got privatized at five billion.”
Kanji: Unified European entity initiative 'Europe Inc' is unnecessary
“It's like people want to solve Europe Inc. They want to make it really easy to incorporate a company in Europe. Like, why? Incorporate in Delaware or the UK? Like, problem solved.”
Kanji: UK housing shortage driven by 30-year lack of water reservoir construction
“One of the biggest impediments to housing in the United Kingdom, and housing is a big deal in the United Kingdom, we don't have enough houses, is we did not build reservoirs 30 years ago.”
Kanji: Carried interest should be taxed as income, not capital gains
“I have no problems paying income tax on carried interest. Like, I think it's income, right? I mean, it's not my capital work doing it. It's because I'm doing my job.”
Kanji: Mega private tech companies must maintain public-level SEC compliance
“Once you get to that kind of size, you end up having to comply with all the SEC stuff. So you may not be publicly traded, but you're complying and doing, you have all the infrastructure to actually go public at any time that you want because you've had to buil…”
Kanji: Seed investors should sell early if offered a 50x return
“If someone offers you like, 50 X on your first investment, maybe there's actually a reason to take some money off the table. But, you know, normally you would have said, do that, you get your 50 X's at the IPO stage, or at the very late stages, and then the sa…”
Kanji: Female VC partners are hard to poach due to high retention pay
“There are some great women who are very capable. It is hard for me to poach them because they're very well taken care of in their existing funds for very good reasons, because there's a shortage of them.”
Kanji: Author of viral LinkedIn post refused repeated requests to meet
“I reached out to the person who wrote the LinkedIn post multiple times to grab coffee. Before that went out, the day that it went out, after it went out, and I've chased afterwards, and she's never met me.”
Kanji: Hoxton invested reserves in AI startup CUSP for 11% stake
“And then CUSP walked in the door, which is this foundational model for material science, and we wrote down a double check. Like, we took our reserves and did one big investment, own 11%, decent sized investment”
Kanji: AI euphoria is driving venture investors to skip due diligence
“And I think we're seeing some of that same stuff in AI. Like, there's so much euphoria for AI that people feel they have to have some of these companies in their portfolio.”
Kanji: Venture VCs aim to build scale monopolies despite regulatory resistance
“We as a venture industry have to think about how to create monopolies. Like, the regulator doesn't want monopolies, but we want monopolies. We want companies with increasing returns to scale, with deep defensible moats. You build this thing, it has this huge m…”
Kanji: Trump administration will reopen tech M&A and IPO markets
“Yes, because I think JD Vance has made that very clear, that sub-five hundred million dollar deals, the FTC has no business trying to block transactions.”
Kanji: I plan to hand over Hoxton Ventures leadership within a decade
“I would love for us to have built a partnership, and I'm thinking actively about this, and I can hand the reins over where I'm just one of a few, and someone else is running the firm. If I can do that successfully over the next decade, I know I have a durable …”
Shorts cut from this episode
▶ How a VC firm plans for a Founder ☠️🪦 · 20VC with Harry Ste (@6:08)
▶ Can the UK fix the housing crisis? 🏚️ · 20VC with Harry Ste (@1:00:22)
▶ The exit formula 🧮 · 20VC with Harry Stebbings (@17:34)
▶ Can the UK beat the US in AI? 🇬🇧 · 20VC with Harry Stebbin (@53:44)
▶ How much £££ does a startup need to boost its success rate? (@0:00)
▶ How to find generational companies 🔎 · 20VC with Harry Steb (@0:14)