Siddhartha Ahluwalia 01:04

Hi everyone, this is Siddhartha Ahluwalia, your host at Neon Show and co-founder of Neon Fund, a B2B SaaS fund focused on investing in the best of enterprise SaaS companies at the earliest stages. Today I have a very exciting guest with me, Matt Clifford, he’s the founder of Entrepreneur First. Matt, welcome to the Neon Show, so excited to have you today.

Matt Clifford 01:24

Thanks so much for having me, I’m excited to be here.

Siddhartha Ahluwalia 01:27

Yeah, so just a little background about you, you have invested in some of the best companies globally and you’ve invested at like minus one to zero stage, that’s right, a little lower than pre-seed stage. You help companies get founders, get together, build the companies together, right, and this is a very unique model, I think first time tried in the world?

Matt Clifford 01:45

I think so, yeah, we call it talent investing, so the idea is we’re funding individuals before they even have companies and helping them build companies from scratch, so when we make the initial bet, we’re really saying we back you, the individual, before we even know what you’re going to work on.

Siddhartha Ahluwalia 02:00

Yeah. And you are right now in London, North America, Paris and Bangalore, that’s right, the companies that you have backed are currently worth combined 10 billion dollars? So before, you know, I want to start on your journey, would like, because you have experienced entrepreneurship for a long period of time, what is entrepreneurship like in 2024?

Because we have seen, right, the mecca of startups, that is Y Combinator, just started in 2008, which is relatively new, just 16 years ago, and I’m super excited what the next 16 years will hold for entrepreneurship worldwide.

Matt Clifford 02:37

Yeah, you know, I think one of the funny things about entrepreneurship, and I hear this from founders all the time, and I’m sure you do as well, is I think the best founders are always paranoid about timing, you know, they’re like, oh, am I, is it too late?

And I remember, so we started Entrepreneur First, or at least we left our jobs, and we started working on the first version of the idea back in 2011. So a long time ago, and we were obsessed that we were too late.

You know, like, oh, you know, maybe the ecosystem is already played out, and it’s too late. And I look back now from 2024. And I think that was crazy that we thought that, you know, very clearly, it was not too late.

And I suspect, you know, if you fast forward another 10 years, and if we’re sitting here, we do a reunion episode in 10 years, I think we’ll say 2024 was also very early. Because I guess a big part of our thesis is that, although it feels like the last 10 years have seen an extraordinary explosion of growth of entrepreneurship, and they have, it still feels to me like it’s a relatively small part of the economy.

And, but yet, when I look to the future, when I think about like, what are the technologies that will define the future?

What are the activities that will define the future? It feels to me like there are activities and technologies where founders have a competitive advantage.

And so, you know, my bet would be that, although we’re starting to see more and more people choose not to go work in big tech or not go work in finance or big corporates, but be founders, my guess is 10 years from now, that will be an even, even more pronounced trend.

And we’ll see that actually founding a company is the obvious thing for ambitious people to do.

Siddhartha Ahluwalia 04:13

And what are the top global trends that you are seeing right now that you are so excited about?

Matt Clifford 04:19

Yeah, I mean, I was very lucky that at EF, we were very early to investing in AI companies. So really EF built its brand back in sort of 2013, 14 in London by investing in the first wave of deep learning companies that came out of that sort of breakthrough. And I remember again, a little bit like, are you too late?

Are you too early? I remember thinking like, oh, maybe we’re too late. And of course, right now in 2024, AI is the big theme.

But you know, having been investing in AI for 10 years, at least for me personally, I still think it’s the most exciting thing. And, you know, one of the things I think is really important to understand about where AI is today and why I think it’s, you know, some people say it’s overhyped. I actually think if anything, it’s still underhyped.

And the reason I think that is that when you look at the amount of progress that has been the last two years, most of that is still like, in a way, the legacy of the period before everyone got excited about it. So if you think about how much talent and how much capital has flowed into AI, since ChatGPT was released, we’re still just only on the cusp of seeing the impact of that.

And so, you know, my feeling is like, if you think about like, what has AI actually transformed so far?

The answer is not that much, you know, I mean, obviously, most of us use ChatGPT, and it’s an amazing product, or maybe you use Claude, or some of these other chat interfaces. And it’s useful as like a day to day assistant. But think about most people’s jobs, most people’s lives.

AI is actually yet to touch most things. But I think over the next five years, that’s the real thing we’re going to see is AI actually integrated into nearly everything we do. And that’s probably the thesis, the single thesis I’m most excited about.

Siddhartha Ahluwalia 06:04

And what has led to shaping up the current global trends, specifically to entrepreneurship in the last 16 years? Like, what has happened globally that has led to entrepreneurship becoming, let’s say, the number one career choice for the most ambitious people, whereas 10 years ago, it was banking, or consultancy?

Matt Clifford 06:23

I think it’s a few things. So I think one, it is the playing out of that software eating the world thesis that Andreessen Horowitz laid out a long time ago now, 2009.

And there’s a very deep insight in that thesis, which is that if you think about why something like banking was such a popular choice for ambitious people, you know, over the last decade, and before, it’s really because of the leverage that sitting in those seats gives you, you know, like, you know, if you if you work your way up the ranks and become a senior banker, the ability to direct capital gives you huge leverage.

And I think until the rise of, you know, the software enabled economy and the internet and mobile enabled economy, it was sort of hard to imagine what could give more leverage than being able to direct capital around the world from a seat in New York or in, you know, Mumbai or London or wherever.

I think today it’s very clear that actually, if you can write software that people want to use, and you can distribute that over the internet, like that gives you leverage like nothing else we’ve ever seen.

So on the one hand, you have this enormous increase in scale and in the sort of ability to reach scale. On the other hand, you have this radically dropping cost, you know, the fact that I remember like when we first started EF, we would get founders from the previous generation of internet companies to come in and talk to the entrepreneurs.

And they would tell you these stories about how on day zero, before they even started the company, they had to raise like a million dollars to physically buy the servers that the software was going to run on. Of course, no one does that today, right? You just use AWS or Google or Azure or whatever.

And, you know, like, they will pay you to do that, at least to begin with. And so if you think about those two factors, hugely increased scale, hugely reduced cost, the value equation of being a founder has just fundamentally changed. And that has then brought in a lot of capital.

It’s meant that people like you and me are sort of sitting here trying to find these people and give them money. And so like, this huge snowball effect of opportunity, meeting capital, meeting talent, just means that, you know, compared to 10 years ago, it really is a very different world.

Siddhartha Ahluwalia 08:33

And would you now like to dive into your own personal journey?

Matt Clifford 08:37

Sure. So I went to work at McKinsey. And McKinsey, in many ways, is a really great institution.

But it really was, it was very clear to me early on that I wasn’t meant to be a management consultant. And, you know, but you know, there are lots of good things about that. But the best thing was, I met my co-founder, Alice.

And I think we both very strongly believe that, you know, like, what would the, we just had this idea that we couldn’t shake, which was, what would the world look like if all these people were surrounded by all these smart, ambitious, competitive people, instead of making slides, they were learning all the PowerPoint shortcuts, they were instead building, building products. And so, you know, we stayed a little under two years there.

Siddhartha Ahluwalia 09:25

From which year to which year?

Matt Clifford 09:226

So that was 2009 to 11. And then at the end of the summer of 2011, we left to start Entrepreneur First. And we were wrong about a lot of things early on, like we, and I said this to founders all the time, like, the great thing about entrepreneurship is you can be wrong about a lot of things.

Siddhartha Ahluwalia 09:46

And you have to be right only about one thing.

Matt Clifford 09:47

Exactly. As long as you’re right about one big thing. And the thing I think we were right about was this idea that we started with this conversation with, which was betting on talent.

You know, then we were wrong about the business model, we were wrong about how we would do it. But the starting idea was the world’s missing out on some of its best founders. And we want to build the organization that finds those people and puts them on the path to building globally important companies.

And so that’s what we started doing. And you know, we start just in the UK, just focusing on universities. And, you know, we…

Siddhartha Ahluwalia 10:20

What are the first things that went wrong for you? What are the lessons from the failures?

Matt Clifford 10:26

I mean, we were wrong about so much. I mean, I think the things that, the hardest thing that we do at EF, I think, and the bit that everyone thought would fail, is this idea of helping people build co-founding relationships from scratch. You know, you talk to a lot of VCs, and they’ll say, oh, we really only want to invest in people who’ve known each other for 20 years or whatever.

And you know, we were trying to do the opposite. We were trying to help strangers.

Siddhartha Ahluwalia 10:50

And you were doing this right from 2011?

Matt Clifford 10:52

Right from the start, yeah. A different, slightly different model and like, you know, different business model, but basically the same idea. And it took us a long time to figure out how to do that.

You know, when I look back on the first cohort, we just didn’t really understand the core insight that we eventually developed, which is that the way you do this well, isn’t by having like a really good matching algorithm or doing really great matchmaking or doing a lot of like marriage counseling for co-founders.

The way you get really good at it is by letting people test and fail, test and fail very, very rapidly. But it took us a while to figure that out.

So early on, you know, if two people got together and they were working together and then, you know, a few weeks later, they were like, Oh, you know, we don’t think it’s working. We’d be like, no, you’re going to stay together. And we’d like try and, and of course what we now do is the opposite.

If we actually, the culture is the whole point of Entrepreneur First is to create a bubble where people can just try ideas and co-founders. And it doesn’t matter if they don’t work. You just rapidly move on, rapidly move on.

But it took us a while to get that insight. And so, you know, I’d say like, we only really start doing what we do today in 2014, after a few cycles of trying to figure it out.

Siddhartha Ahluwalia 12:14

And what happened in 2015? Like, how did you decide to start a fund, which is very different to the model earlier?

Matt Clifford 12:21

I think it just became clear that the, you know, the real reason we didn’t have a fund early on was that we weren’t sure whether it would work as a venture model. And like, we knew nothing. I mean, one of the things we encourage founders at EF today to do is to work on their edge.

And what we mean by that is like, you know, whatever your background, your skills, experience, that gives you a personal competitive advantage that should be the core of the company that you build. You know, I always like to say we didn’t really follow our own advice on that. You know, we didn’t have an edge in this to begin with.

And so, you know, we, when we went out to try and think about the business model back in 2011, you know, everyone we went to talk to, because nothing like EF had ever been done before, they were like, this won’t, this won’t support a fund. Like, it’s not going to work. So we believed them.

So, you know, to begin with, we were funded mainly through like corporate partnerships and things. What gave us the confidence to go out and raise the first real fund in 2015 was that we were just seeing the companies that came out were really starting to work and were getting seed rounds raised from top, you know, top VCs in London. So we’re like, okay, well, this, this looks like it’s working.

And so, you know, we, our first fund was very small, we raised 8 million pounds. But it’s got a lot of, a lot of winners. And we’ve been very lucky with that fund.

And I think for the people that took a chance on us back then, it’s going to end up having been a really, a really good investment.

Siddhartha Ahluwalia 13:52

Got it. And can you tell us about the subsequent funds that you raised?

Matt Clifford 13:55

Yes, we’ve been through a few iterations. So that fund was very small, and it was almost entirely individuals backing us, almost entirely in London.

And then things started to accelerate pretty quickly. So the next year after that, we had our first real exit. We had this company that was only a year old, called Magic Pony Technology.

It’s a very funny and memorable name. It was like a early computer vision company doing video compression using a technique called super resolution. And a year into their journey, Twitter bought them for $150 million.

And that suddenly put us on the map. And so that later that year, the end of that year, we raised a 40 million pound sort of follow on fund to do sort of seed, pre-seed and A into the companies. And then the next year, we went out and that’s when we really started to think about scaling EF.

And we spent 2017 sort of thinking about the right way to do that. We were very lucky that we met Reid Hoffman back then, who really fell in love with the idea. And in our first meeting with them, offered to invest in our management company to give us the capital to scale.

So he led like a series A into the management company. And we used that money to sort of start to open up internationally. And so then in 2019, we raised what we called Global Fund One, EF Global Fund One, which was I think $140 million to invest in this model all around the world.

And then in 2021, we raised $160 million onto our balance sheet to become like an evergreen permanent capital vehicle. And we raised that from a mix of very well known entrepreneurs, people like Reid Hoffman, but also John and Patrick Collison, Nat Friedman, Taavet Hinrikus, the founder of WISE, etc. And then some like blue chip institutions, pension funds and foundations.

So we’re still investing from that right now. That’s the pool of capital we’re investing from.

Siddhartha Ahluwalia 16:01

And how many companies would EF have invested in since the beginning?

Matt Clifford 16:05

I think we must have done about 400, 450, something like that. It’s each cohort. One thing we decided that we think is quite important is that we didn’t want each batch to become too big.

So, you know, we operate each batch is sort of usually like 30 to 50 people. So we’re not trying to do like, you know, I mean, like one thing YC.

Siddhartha Ahluwalia 16:27

30 to 50 people globally?

Matt Clifford 16:29

No, no, in each site. So, you know, when we, you know, our office here in Bangalore, the next cohort will be in that size. And, you know, I think there’s two ways you can scale a model like this.

You can do what YC has done, and they’ve done it really well, which is where you just make, you have one location and the batches get bigger and bigger. And I can’t remember how big it is now, but it’s hundreds of companies right at YC per batch. I think that works really well for them.

You know, because our model is all about talent, we decided that actually the most important thing, and we’ve really doubled down on this over the last year, particularly in India actually, was actually if anything, keep the numbers really small, but have the bar be really high.

And so, you know, we might end up funding 10 companies per city, per cycle. So, you know, let’s say we’re doing that two cycles, two cycles per city a year.

So, you know, it might end up being sort of 80 companies a year, a hundred companies a year, globally.

Yeah. So it’s, and part of the reason for that, and, you know, founders who have been part of EF and then also, you know, being part of other programs, one of the things that they often say about EF is that the amount of attention that you get, particularly towards the end of the program, is just very, very high compared to like some of some bigger programs, in that we’re just, we’re all about quality over quantity.

And that means that we’re really trying to invest a huge amount of time in each company to help them be the best version of themselves.

Siddhartha Ahluwalia 17:58

Let’s say, for example, every city, every batch would be 40 companies.

Matt Clifford 18:04

40 people, yeah. 40 people or? 40 people, and that might end up with, yeah, 10 to 12 companies coming out of that.

Siddhartha Ahluwalia 18:09

Okay. And how many people would have started in that batch?

Matt Clifford 18:11

Yeah. So the funnel goes something like, you know, we might speak to a thousand people to get to the batch of 40 individuals.

And then, you know, what we found historically is that, you know, if you go through that first three months of co-founder exploration, typically about 70 to 80% of people find a co-founder that they want to work with and, you know, want to commit to. So, you know, like of those 40 people, you know, we might end up with 12 to 16 teams form of, of, of, of two people each.

And then we go through a process of deciding which of those teams, you know, we think have the potential to be venture scale companies. And so we invest in those. So we might make 10 investments out of.

Siddhartha Ahluwalia 18:58

That’s almost 50% of the teams that get formed that you invest in.

Matt Clifford 19:01

Yeah, exactly. So, yeah, let’s say, let’s say if we had 40 individuals. I guess we’d typically expect to fund 10 companies.

And then, you know, of those 10 companies, we then work with those companies for a further three months.

Now, you know, as I mentioned earlier, they have the option to do that in San Francisco, you know, we, we help them move there, help them do demo day there. And, you know, we’d expect of those 10 companies, probably, you know, seven or eight of them will raise a, you know, a seed round.

Siddhartha Ahluwalia 19:30

Well, that’s quite a large ratio.

Matt Clifford 19:32

Yeah. Well, this is the thing is like, I think you can decide where you’re going to, you can almost decide like where you’re going to take the risk. And, you know, our view is that quality is the most important thing.

People want to be a part of really high quality communities. And so, you know, we, we really, we also believe that there’s almost like a, it’s like an ethical responsibility to founders.

Like, you know, when we fund someone, we’re basically telling them, we think you’ve got what it takes for this idea to be worth spending the next decade of your life on.

So we take that responsibility very seriously. Now, also we take our responsibility to our investors seriously, but the way we think about it is, you know, we’ve given people this sort of risk-free three month period in which, you know, we’re paying, paying living costs and giving them a chance to explore teams and ideas.

At the end of that, you know, when we make an investment, you know, these days we’re investing $250K US.

So, you know, we, the way it works is for the first three months, we pay a living stipend to each individual, which would be like thousand dollars per month. Yeah. I think it’s like, I think in India, it’s like in that region somewhere, I think it’s like $1,400 a month, something like that.

And then if we choose to invest, we’re investing 125K for 8% plus 125K on cap safe. So like, it’s a, it’s like, it’s not a huge investment, but it’s enough that it’s like things get serious, you know?

And so, you know, we really only want to invest if we think that we’re doing the right thing by the founder and actually they should be willing to spend the next 10 years of their life on this.

And so, you know, I think this idea of, um, I think often first-time founders underrate that aspect of it, that, you know, once you’re, once you’re in the game, these, these things take over your lives and you want to make sure you’re doing something that you’re really willing to, you know, if you told me when we started EF, I’d still be here, you know, 13 years later doing it, I’d have been very surprised.

Now, as it happens for me, I think it has been, I mean, it’s just been the most amazing experience.

I’m so lucky, but you know, I always say like, I never feel that bad for founders that, you know, kind of do EF and, you know, we don’t fund them because, you know, they’ve, they’ve figured out something and they, you know, they either we decided or they decided it wasn’t the right time.

The people I feel, you know, like bad about, and it’s not usually EF founders to be honest, but sometimes you see founders do something for five, six, seven years, and it’s never quite taken off.

And actually as a founder, your most valuable asset by far is your time. And so, you know, I think one of the things, obviously we all want companies to get big and be huge, but if a company is not going to be huge, then I think actually people should be honest about that and say, look, you can keep going.

And if you want to keep going, we’ll, we’ll support you as long as you want to go, but you don’t owe us anything.

Like if you think there’s a better use of your time, you should go for that. Because like, you know, we’re talking about, we want to work with people that have the capacity to build world-changing companies.

So if they’re, if they start in a company that, you know, like looked like it was going to be really exciting, but then it’s not going to be, we’d actually rather that person say, draw a line and, and, you know, come back and do something bigger. It’s all about ambition for us.

Siddhartha Ahluwalia 22:49

Got it. And how much success ratio do you see at the end of, let’s say every batch? How many companies fail?

How many companies end up, you know, being real companies?

Matt Clifford 22:58

I mean, it’s sort of hard to say because obviously it takes a long time to find out, but, you know, as I said, we’d expect sort of 70%, 80% to raise the seed round.

And then, you know, of those, I think historically something like 60% of seed from the companies at EF have gone on to raise the series A. You know, I think in terms of like what a success is, it really depends, right?

Depends what the founders are trying to do. I mean, we’ve, we’ve had a lot of companies sell, um, you know, relatively early on to say big tech acquirers for amounts of money that were life-changing for the founders.

It wasn’t necessarily what the founders were setting out to do, but, you know, I mean, clearly that’s a success for them.

And we, you know, we, you know, one of the things that I love about building the community we’ve built is, you know, those people then often come back and then become angel investors in EF companies, advisors to EF companies.

And there is this like beautiful, like network effect that comes from really curating the community over time. Um, but you know, I, I suspect that in the long run it will be like most seed funds that, you know, a small, a small number of companies end up being responsible for, you know, kind of most of the outcome size, but hopefully along the way, many, many founders will have had life-changing experiences, uh, one way or another.

Siddhartha Ahluwalia 24:21

And how many unicorns or how many hundred mil revenue companies would have EF produced till now?

Matt Clifford 24:25

Uh, so I think, um, we have two unicorns so far, uh, and we have probably another dozen that I would expect to become unicorns over the next couple of years, you know, that are sort of valued in the mid hundreds of millions. Um, uh, you know, and, and, and we have a lot of companies that are very serious revenue companies.

Uh, we were talking before we started about, you know, one of my favorite EF companies, Clio, which they tweet out their metrics so I can talk about them.

Uh, they’re not secret, you know, Clio is an incredible company that, that company we funded, I think in 2016, so before the large language model revolution, but they had a vision about the future of, um, AI and conversation within finance.

So, you know, their view was like, you know, if you’re a wealthy person, you can go pick up the phone to your wealth advisor and they’ll give you advice. But, you know, if you’re a younger person, you don’t have a lot of money, you can’t do that.

So they wanted to build a sort of conversational financial advice application for, for everyone. And, you know, they, they start building Clio and, um, uh, they, they were sort of focused on a younger audience. And today that company does over a hundred million dollars of ARR.

It’s growing like over 2x every year. It’s profitable. You know, it’s like, it’s a, it’s a beautiful company and it’s going to be one of the big EF wins.

But one of the things I love about that company, and it sort of touches on a theme that I’m thinking about a lot in AI is when they started in 2016, there were no large language models, so they built everything themselves.

Like all the chat interface was, um, was stuff they built in-house and it would have been very easy for them as language models progressed to sort of say, no, we’ve built our own stuff, it’s great. You know, like we’re going to ignore that stuff.

Instead, I think the founder Barney, who is one of my favorite founders, you know, he did a thing that I think was very, um, very brave, which is like, cool. Well, we’ll, we’ll just throw away all the tech, you know, all the, all the tech we built in-house for the conversation. We’re just going to use GPT 3.5. We’re going to use GPT 4 and it’s been amazing.

Like it’s like really, uh, had a hugely positive impact on their business. And I think like very often one of the things that I’ve observed in some of our best companies is the thing that the founders think is going to be the competitive advantage at the start actually turns out to be the competitive advantage only for a short period of time, but that allows them to bootstrap into something else being the competitive advantage.

So today, you know, Clio has millions of customers and it’s the relationship with the customers, really, that that’s the advantage.

Um, and the fact that they’re able to ride on this wave of ever better models to do, to power the chat has actually just been a supercharged to their core business. So that’s one of my favorite examples of a, an EF company that, that I think is going to be, I think a very big outcome.

Siddhartha Ahluwalia 27:17

Do you have any geography that has dictated EF outcomes? Is it London? Is it Paris or is it the US?

Matt Clifford 27:23

Well, we we’ve, um, most of our expansion has been relatively recent. So if you look at the, you know, you referenced earlier that the, you know, the portfolio is worth, you know, kind of just over 10 billion today, most of that is still UK businesses. Cause we’ve just been going so much longer there.

Um, you know, we, we opened up in India in, in 2019, we had to pause a bit during the pandemic for obvious reasons. So we’re still relatively, relatively new here. Um, but what we’re seeing, I think, and the thing that makes me excited about the next 10 years to go back to your first question, it’s just like talent is everywhere.

Um, you know, the talent is everywhere. The thing that, um, in many places has been lacking has, is just the density of ecosystem. But one, India really has that density and it’s building really fast.

But also, as you said, it’s increasingly a borderless world of like, if you’re a great founder in India, you can absolutely sell, uh, into the US you can raise in the US you know, we do in our US office, we do these like weekly dinner series where we get, you know, amazing founders to come in and, and talk to the cohort and give them advice.

And I was just there a couple of weeks ago and, you know, we had Nat Friedman do one. We had Adam D’Angelo do one.

We had Alex Wang from scale do one and seeing people who grew up in France or in India and like, we’re all reading the same things online, but you know, like were founders in their home geography, but are now, you know, kind of in our San Francisco office raising, they’re talking to some of these world leaders in, you know, in this case, AI, it’s pretty inspiring to me.

It’s like a vision of this like frictionless world or less, less lower friction world where wherever you are you can express your ambition on a global stage.

Siddhartha Ahluwalia 29:09

And what was the data that you decided to open in India in 2019? That was pretty early, right? YC still doesn’t have an India office.

Matt Clifford 29:19

Yeah, well, I think because our thesis is a talent thesis, in some ways, India was a quite an obvious bet, you know

Siddhartha Ahluwalia 29:27

But India wasn’t the third largest startup ecosystem that it is right now, back in 2019.

Matt Clifford 29:32

No, no. I mean, I guess for us, it was like, what do we, what we really look for is like, where is the great technical talent? I mean, we’re, we’re nearly everyone who joins us has a technical background.

And, you know, we just looked at the strength of, for example, the you know, the IIT network, the, the, the BITS network.

And just seeing the caliber of technical talent coming out of institutions like that, seeing like, the Unicorn and Decacorn companies in India start to have people leaving those companies to start companies, you know, as I mentioned, like Reid Hoffman has been one of the really crucial people in EF’s journey.

And, obviously he was part of the PayPal mafia and he really, you know, like one thing I’ve learned from him is the power of, of network effects.

And so like, it just felt to us that like, when you take a world-class university ecosystem with a focus on engineering, then you’ve got like the first wave of companies starting to see their mafias develop, that’s a great time to be, to be investing.

But the other thing I would add, and I always say this to the team whenever I come here is one thing I love about Indian talent is there’s just so much optimism here, you know, like I’ll be really honest, although I’m a big Patriot and I love the UK, sometimes I find it quite dispiriting how if you were to not the average founder, but if you were to pick someone at random off the street in the UK and say, do you think you’ll be better off in 10 years than you are today?

You know, you’re going to get a lot of like, oh, I don’t know, maybe, but this, but that you do that in India. Everyone’s like, of course I will.

And I do think that like when you’re riding a wave of growth, when you’re optimistic about the future, when you see all around you opportunity, that is just an incredible foundation on which to build an ecosystem.

And so I’m so optimistic about what’s going to happen in India. I think you’ve got one of the best education systems in the world for identifying technical talent. And in a world where that technical talent is graduating into an economy where people see opportunity, special things are going to happen.

Siddhartha Ahluwalia 31:40

And I would earlier see that people from India moved to US or UK for their masters. Are you seeing more folks staying back and building companies now?

Matt Clifford 31:50

I think we’ve seen two things. One is that.

So I think it’s definitely the case that we speak to a lot of people, the team on the ground here speak to a lot of people who I think 10 years ago would have gone to do that, but they see an opportunity here and they want to build the future of this country and the future looks very bright.

The other thing we’re seeing is people who are going to the US or the UK and 10 years ago they would have stayed actually saying, I’m going to come back.

And one thing that’s very striking is obviously like Indian talent has been very successful in Silicon Valley. I mean, you go around the biggest tech companies and they’re all run by exceptional Indian talent.

But I do think we’re seeing, and I talked to the team about this, we’re seeing people who’ve been successful wanting to move back here and becoming angel investors, becoming advisors here.

And I think that trend’s only going to strengthen in the decade ahead.

Siddhartha Ahluwalia 32:48

And right now, one thing that I’m really excited about is India is yet to see its first 100 billion dollar company. It will happen. It will happen. It’s just a period of time, right?

Matt Clifford 32:59

And its first trillion dollar company, yeah, it will happen.

Siddhartha Ahluwalia 33:02

Yeah. It will happen. So we are in the midst of a wave where these few milestones will happen and it will create a lot of value for the folks that are involved, founders, investors, employees, everybody.

Matt Clifford 33:17

Employees, yeah. And that bit is really important, right, is I think everyone knows this now, but it’s still, I think, underrated how important for Silicon Valley’s growth the idea that employees can get rich is.

I think historically it used to be that one big difference between Silicon Valley and everywhere else was that there was less use of equity and options to incentivize the team. I think that’s changing very fast and certainly EF companies always have a significant option pool for employees.

The reason that’s so important is that those people often become the founders of the next generation of unicorns, or they take what they’ve learned and the money they’ve made and become just like really valuable parts of the ecosystem and helping the next generation.

And so you get this flywheel effect that I do think is already turning in India, but I expect it will turn faster and faster in the next decade.

Siddhartha Ahluwalia 34:10

Like nobody could believe that India could produce Decacorn, then we have several publicly listed unicorns like Zomato and many others.

Matt Clifford 34:18

Yeah, it’s happening and it’s going to keep happening.

Siddhartha Ahluwalia 34:21

And as you mentioned, Indian optimism is backed by data, whereas the developed world, which is, for example, Europe, they’re getting bogged down by all the AI regulations and other regulations.

Matt Clifford 34:35

Yeah. Yeah, I think it’s a real risk for Europe that it becomes a place where we regulate technology we didn’t build. And I think that’s a huge mistake.

You know, I’ve been very engaged in public policy in the UK and continue to be. And I’d like to think that the UK is treading the right side of the line on that. We’ve chosen not to regulate AI like the Europeans have, and we generally have had a more permissive regulatory system than in Europe.

But I do think, you know, I think it’s really important to build communities of like-minded people where, you know, in some ways, one of my observations is, you know, I was actually, as I was getting on the plane yesterday to fly here, I was chatting to one of our team in Paris, and he pointed out that in many ways, you know, you could sit in Paris and say, oh, you know, we have all this regulation and the EU regulates this. But of course it means that people who want to build, they also need a home.

And so actually one of the things that I think EF provides is a little bubble of like-minded people who say, we actually think the way to build the future is to build it, not to regulate it.

And so I think wherever you go in the world, even if the environment is suboptimal from a government or regulatory perspective, ultimately the energy of the builders is what counts. And I’d like to think that’s one of the things that we do and why EF is valuable is that we aggregate that energy and that optimism wherever people are.

Siddhartha Ahluwalia 36:20

So if you have to, let’s say, rate the energy of the builders in the four locations that you are in, how would you rate them today? It’s a tough question, but yeah.

Matt Clifford 36:29

Well, you know, the way I’ve often thought about that, because whenever we’ve opened a new site, people always say like, oh, how are the entrepreneurs that are different from the entrepreneurs in London or wherever?

I’m always saying, you know, the funny thing is entrepreneurs are so different from the rest of the population everywhere that I actually think that the entrepreneurs across the four sites, even though they’re such different countries, they have more in common with each other than they do with their compatriots who are not entrepreneurs.

So actually, I think if you think about what are we selecting for, and we’re in the very fortunate position that we can be very selective, you know, as I said, you know, we might speak to a thousand people to get to a 40 person cohort.

One of the things we’re selecting for is that energy. So like, I think maybe in the medium member of our application pool, that might differ across sites. But by the time we’re selecting the cohort, they’re actually pretty similar.

And in fact, one of the pieces of evidence for this, one of the things I really love about EF is although we encourage people to find a co-founder from within their site, one thing we’re seeing as we’ve become more borderless is actually people are starting companies with EF people in other sites.

So we had demo day in San Francisco a couple of weeks ago, and at least two of the teams that pitched were teams where people had met up across sites, including I think one of the Indian founders who was co-founding with someone from London, I think. So I do think of EF very much as a global community.

And one of the things I want is that, you know, if you’re an EF India founder and you visit London and you go into the office, I want you to walk into the building and be like, ah, these are my people. And the same if you’re in the US and you come to India, I want you to have the same feeling. And I really believe that that sort of almost sense of like, you know, like building your tribe, like finding your people who like share, share your optimism, share your energy.

It’s one of the most valuable things you can have as a founder is the right peer group. And I like to think that’s what we’re curating all over the world.

Siddhartha Ahluwalia 38:31

But let’s talk more about AI for the common man, right? We touched upon that theme earlier. What does the role India play in developing new AI systems for the world?

Matt Clifford 38:41

I think it’s a great question. You know, over the last 18 months, I’ve spent quite a lot of time thinking about public policy and AI. So one of the things I do outside Entrepreneur First is I’m the non-exec chair of a UK organization called ARIA, which is sort of like the UK DARPA. It’s a billion dollars of public money to fund breakthrough R&D.

And through that, I got involved in a lot of public policy questions in the UK about AI. And I helped last summer set up the AI task force in UK government that was thinking about these sorts of questions. And then I got really pulled down the rabbit hole.

And I actually took a three-month sabbatical from EF last year to go and lead the preparations for the UK’s AI Safety Summit, which the UK Prime Minister hosted last year. And so I’ve ended up spending a lot of time thinking about these questions.

I think my view is that we’re going to want all of us globally to integrate AI into almost every aspect of the economy.

That’s the most, I can’t think of very many positive futures for the world that don’t involve us using AI across everything we do. And obviously it’s important that we take care of the fairness issues and the safety issues.

But I think one really interesting thing that started over the last year is this idea that each country is going to want some sort of technological sovereignty in AI.

They’re not going to want to be dependent on a small number of US companies to provide everything even though all of those US companies are building amazing products.

But there’s lots of questions about what the right way to do that is. One thing I think is particularly interesting in the India context is, of course, all the big American AI companies are primarily focused on English as the language that they train the models in.

And obviously they have some impressive multilingual capabilities, but I am very excited about the specific opportunity in India to think about what does multilingual AI for India look like?

And personally, I believe the private sector is going to be the right place to build that. But I think one thing that India has done maybe uniquely well is this sort of public private collaboration on core infrastructure.

In fact, as we were driving over to see you here, we were just chatting to the team about this.

And I don’t think anyone in the West has done anything like as ambitious as UPI. I think it’s like an incredible triumph of public private collaboration.

And I do think AI presents similar opportunity, but arguably of even bigger scale. And so I think clearly at a simplistic level, we can think of the AI stack being this compute. There’s data, there’s models, and there’s applications.

And I do think clearly just the sheer scale of India creates an enormous opportunity of the data layer. And I do think in a world where we’re seeing convergence in performance of all the big models primarily because they’re all trained on the same data, the fact that India has in the public sector, but presumably also in the private sector, a ton of data that won’t be in the training sets of any of these American models, there’s a massive opportunity there.

And I do think thinking about how can government support the private sector to innovate by making that available in different ways.

And I understand that’s already happening, but my view has been that each country should think about sovereign compute, how do you make sure either as a public asset or by encouraging the private sector to invest that you have access to compute that the little guy can access to, right?

Because there’s a lot of challenges, both of the upfront cost of capital for building a big H100 cluster today is not trivial, but also even just the cost is high. And in general, I’m a big fan of let the market figure it out, but I do see a case for governments creating national resources for research and for startups to access compute.

But I think largely the application layer is where the private sector is going to operate well. I think it’s very interesting at the model layer to think about what that looks like in India. I mean, I think my guess is that there will be a big foundation model company coming out of India.

As far as I know, there isn’t yet a foundation model unicorn in India. I’d love to help some people build one. So if anyone’s listening that thinks that’s a great opportunity, applications to EF are open.

I do think one of the things that I think was really good for me last year about my experience kind of suddenly becoming an AI diplomat, albeit briefly, was I did just get to build quite deep relationships with a lot of the people who were out there building the biggest companies.

So, you know, spent a lot of time with people like Demis Hassabis from DeepMind, Sam Altman, Dario Amodei. And, you know, these are like hugely impressive entrepreneurs.

But again, I go back to that very first theme that we had at the start. It’s not too late. It’s very easy to think it’s too late. I think there will be AI decacorns built in India. And I think now’s the time to start.

Siddhartha Ahluwalia 44:26

And I think the timing is right to think of cloud for AI, like what AWS and GCP did to compute. Like what you mentioned, it was so hard for a founde, to get a storage processing power.

Everything went on the cloud. I think same moment might happen sooner with AI. So making a model it might not be so expensive.

Matt Clifford 44:49

I.. I., Absolutely. And, you know, I think, you know, I do think, you know, arguably, India may be the best place in the world to build a foundation model company today because of the multilingual aspect.

You know, so I do think, I’m not sure that I would encourage many people to start foundation model companies in the US today.

Super competitive. The market for talent is just insane in that space in the US. And you know, with meta open sourcing, Lama three, you’re basically competing on with people that have effectively decided to write off the cost of training as a, you know, as a, as a sort of broader strategic expense, but you’re competing on, you know, an English model that you’re going to have to beat.

But you know, if you think about what’s not in the training set for Lama three or GPT four or whatever’s coming down the line from open AI, you know, like there’s tons of vernacular data that if you wanted to build a really great foundation model for India, you’d have to find a way to incorporate that.

I just don’t think it’s going to be a priority for meta or open AI or Google. So you know, in that sense, there could be a big opportunity here that doesn’t exist if you’re an American, just so in the American market.

Siddhartha Ahluwalia 46:07

And what changes have you seen in your home market in UK once Rishi Sunak, you’re the first Indian prime minister that UK has took over.

Matt Clifford 46:15

So obviously I spent a lot of last year working with the prime minister and you know, it was, which was a really, it was a really unusual and unique experience.

I think what’s interesting about Rishi Sunak is that he has also got this very strong affinity for the tech sector, you know, when he talks about his personal story, he emphasizes his time in California a lot. And you know, I think that created a really amazing opportunity for the UK to lead in AI.

You know, this was an area that he felt very passionate about. He saw a really exciting opportunity for the UK to sort of simultaneously create awareness about some of the risks and try and coordinate globally on the risks, while also I think taking a pro-innovation approach to regulations. We actually don’t have AI regulation in the UK, we’re just using existing regulation.

And so, you know, I do think if you look at, you know, today, what are the global capitals of AI, you know, at least in the West, I really do think it’s San Francisco and London.

And you know, I think we were very lucky that DeepMind was started in London, you know, that Demis Hassabis was in London and chose to build it there. But also once it was acquired by Google, it stayed in London.

And so, as you probably know, over the last year, Google put all of their AI efforts under DeepMind. So, you know, the fact that we have Google’s AI efforts headquartered in London, I think has been a really big positive and, you know, we’re very lucky at EF that Demis was one of our earliest investors.

And, you know, he’s someone we’ve got to know really well, as well as, you know, many other luminaries of AI, you know, people like Nat Friedman, Mustafa Suleyman, and others.

So, you know, I think we think that every country, every ecosystem has big opportunities to build in AI. Clearly in Paris, they’re going through a huge boom around open source AI, you know, kind of inspired by Mistral, and we did a fantastic event with Arthur Mensch from Mistral in Paris just a few weeks ago. So I think every country is seeing a boom.

And I think the interesting question is almost like, what is the local flavor? And I say, you know, I think, you know, in the UK, we’re largely encouraging founders to think about the application layer. And I think that’s probably right if you’re in London today.

But as I said, I think, you know, maybe the opportunity here is different because of the sheer scale, but also this, the fact that, you know, not everything will be in English. And that’s a real technical challenge, but also a really huge commercial opportunity.

Siddhartha Ahluwalia 49:05

So if somebody is in London, or in Paris, would you ask them to understand the sheer scale to come to SF or to come to India, or to build from SF or to build from India?

Matt Clifford 49:18

If they start in the UK, most of the time, we recommend that if you start from the UK, then you see SF as like the hub to scale. Now, that doesn’t necessarily mean that they relocate there permanently. I mean, they can.

Siddhartha Ahluwalia 49:35

But spend majority of their time building their technical or the business network.

Matt Clifford 49:39

Yeah, I mean, our view is that the thing that SF has still that nowhere else has is just the density of capital and expertise. And, you know, I don’t think every company should relocate there. But, you know, I go back to your point about like an increasingly borderless world.

I kind of feel like you, wherever you’re starting your company, you need to think of it as being headquartered in your home country and in the US. Like, if you’re ignoring the US market, I think that’s crazy. Like, I think every company should either have a US strategy or should have consciously decided not to have one.

And so, you know, my view is, you know, like many of the best companies globally over the next decade will be headquartered in the founder’s home country. They might have the technical team there, the engineering team there, but they’re going to be doing go-to-market through the US. I strongly believe that.

And, you know, I think one of the big parts of the EF value proposition is access to capital and to customers in the US.

And so, you know, part of the reason that we decided to stop doing local demo days in each of the sites and just do one big demo day in SF was that the reach to investors is huge, but it also exposes companies to customers that they might otherwise not reach. And, you know, I do feel that every company selling software is going to want to sell into the US software market at some point.

Siddhartha Ahluwalia 51:09

Do you think any other market will compete in terms of capital as well as expertise with the US in the near future?

Matt Clifford 51:17

I think over time, for sure. I mean, I think one way to think about the expertise point is that in a way it matters less at early stage, because I think, you know, even London is obviously the place I know best. And, you know, if you’re going from like two co-founders to 10 or 50 employees, there are a lot of people in London who really know that journey and can help you.

The bit where Silicon Valley starts to have a pretty overwhelming advantage is if you’re going from a thousand to 10,000, there are just not that many people outside Silicon Valley who have run thousand person engineering teams.

But there are actually lots of people in Silicon Valley who have done that. There’s not that many people who’ve scaled a SaaS company from a hundred million revenue to a billion revenue, but there are in Silicon Valley.

Now again, I don’t think that means that you need to like locate there, you know, like have your entire company there. But I kind of feel if you’re not trying to at least get exposure to that market, you’re missing out on one of the accelerants to scale that’s at your disposal.

And so that’s why we do encourage at EF, wherever you start, you know, like at least make sure you’re kind of intentionally thinking about your US strategy.

And I think we can provide that as part of what we offer to founders. I would say increasingly, it’s a big part of why people come to Entrepreneur First is they want to access that US ecosystem.

And, you know, we were very lucky when we did this demo day in SF a couple of weeks ago, you know, we co-hosted it with Reid Huffman and he did the opening.

And this is sort of the story he was telling is like, we live in a world where wherever you start, you can sell everywhere. And EF wants to be the organization that enables that for as many people as possible.

Siddhartha Ahluwalia 52:58

And what about UK and Europe? How big is that of a market and how easy or hard is for a founder to sell in that market?

Matt Clifford 53:07

I mean, my view is that if you’re almost everywhere in the world, if you’re a startup founder selling software, you should try to think global from day one. I think it is very tough if you get constrained by your home market. You know, like one reason I think that Israel has been a disproportionately successful startup ecosystem is because Israel is such a small market.

So the founders there know that if they, you know, if they think of Israel as their home market, they’re going to cap out very quickly. So they have to think global from day one. I actually think it’s very, I think people in the UK should think similarly.

Like there are very few sectors where the UK is a big enough market to be a publicly listed company if that’s your only market. Same for Europe. I mean, like sure, like the European union is big, but the truth is even with the amount of economic integration there, it’s not one market, you know, language gets in the way, you know, culture gets in the way.

And so I think, you know, if you’re in Paris today, of course you shouldn’t ignore France, but if you’re not thinking about the global market, I think you’re making a mistake. No, it’s possible. I mean, clearly there are already decacorns in India that only serve the Indian market.

And I think that’s, that makes sense. And, you know, over time as the Indian economy grows and grows, I suspect that will be a, there’ll be a bigger and bigger group of companies. But I still sort of think that for a lot of founders in India, thinking of the US as like, if not the primary market, then at least like a close second just makes sense.

Like so many of the software opportunities that exist today are genuinely global. Yeah. You want to have local tailoring, you know, from time to time, but you know, the amazing thing about something like AI is that, you know, the value propositions it creates for people, you know, really can span culture and locality.

Siddhartha Ahluwalia 55:03

And a lot of folks are saying that, you know, for every use case in software, there are almost a hundred tools out there. Yeah. So how hard does it become for a founder to scale and differentiate today?

When you started EF, probably that was the right time to enter into software because it was an open market.

Matt Clifford 55:24

Yeah. I mean, there’s a flip side of that though, which is that the markets are just much bigger than anyone could have imagined 10 years ago. You know, like the, if you look at how many US companies, publicly listed companies, you know, that were started in the last 10 years, if you look at like how many of them are serving markets that are probably an order of magnitude bigger than when the company was started.

I think that’s kind of a very inspiring way of thinking about the thing. It’s just that software markets are very large, very, very large today and are growing all the time. So yeah.

I mean, competition is obviously like a key part of the entrepreneurship journey for any founder, but I think this is why, and you know, it’s a thing we spend a lot of time on with founders at EF is like thinking about what are going to be the network effects or what are going to be the barriers to entry if you really succeed.

And, you know, I do think that there are some markets obviously that end up so fragmented that there’s no venture scale winner, but I do think that like it’s still very hard to build truly great products.

And there are not that many sectors where there are so many truly great products that, you know, like the market ends up really, really fragmented.

And so again, I go back to like, is it, is it too late? I think it’s almost never too late. You know, my guess is that software is still small as a proportion of the economy compared to where it will be in 10 or 20 years.

And yeah, obviously those markets aren’t going to be taken by, you know, like a small, by just one company, but, but I do think that, you know, if you’re totally obsessive about your customer and, you know, you build a team that can produce truly great products, you know, I don’t think there’s any iron law that says that you’re going to end up, you know, just like, in such a niche that you can’t build a big business.

Siddhartha Ahluwalia 57:23

And, my last question is, right, what has been your learning from some of your biggest winners on company building? How did they build their companies? Because you saw them from day zero.

Matt Clifford 57:33

I think one of the hardest, uh, things is that if you, every, every big winner we’ve had, you realize that the founder needs to balance constantly stubbornness with flexibility. This is a really difficult trade off. Like if you take every bit of feedback the world gives you, you’re going to end up blown off course, you know, but equally, if you take none of the feedback the world gives you, you’re going to end up trapped on it in a dead end.

And, you know, I think one of the things that I’ve come to really, um, value in founders is deliberate judgment.

So thinking very hard about what, when they get feedback and I mean either, I mean, both explicit feedback when someone says this will work or won’t work because, but also implicit feedback, like customer behavior, like, et cetera. I think the best founders are very intentional about how they process that.

You know, like a failure mode is to be like, I don’t want to hear that. So I’m going to disbelieve it. Another failure mode on the other side is just to be so self-critical that you, you know, but I think like, I do think that when I look at, you know, the Clios and the tractables and, you know, there are other big EF companies like, you know, someone called Accurx that serves 99% of the UK, primary healthcare health system, you know, like in each one of those companies, there’s been a moment where they had to make a bold decision and, you know, there’s a bit of survivorship bias that they got the, they got the balance right.

But I do think the thing that all those CEOs had in common was that they thought very, very hard about what they were going to be stubborn about and what they were going to be flexible about.

And I just think in general, although there is for sure a lot of luck in startups, it’s amazing how intentional the best founders are once, you know, like I, um, you know, I still try to spend a good chunk of my time interviewing people who apply to EF, um, you know, applications are open more or less all the time. Some of they’re open right now in India and around the world.

You know, I try and make sure I do at least a random sample of them. One of the things that I really like looking for is how thoughtful is this person about what they’re doing and what’s happened to them? How much do they just sort of let things happen versus like really think carefully.

And I think I’m definitely very strongly biased towards founders that, that, that sort of really interrogate the data that they get before they make a big decision.

Siddhartha Ahluwalia 1:00:14

Lovely speaking to you, Matt. I enjoyed our conversation so much. We had a variety of topics, right?

From what is happening right now in India, in the U S what is happening in AI, what is required to build a large company, your journey at EF. And so lovely to see that you have built it very first principled and took you 13 years to reach where you are today.

Matt Clifford 1:00:35

Yeah. Well, hopefully we’ll, uh, in 13 years, we’ll look back and say we were just getting started.

Siddhartha Ahluwalia 1:00:39

And I believe you’re just 38 yet, right?

Matt Clifford 1:00:42

I, uh, Yeah. That’s right.

Siddhartha Ahluwalia 1:00:44

Still youngish, youngish.

Matt Clifford 1:00:47

I started starting to feel old. My kids think I’m very old. So, um, but no, it’s been great speaking to you.

And as I say, I’m so, so excited about what’s happening here in India and, uh, yeah, excited to work with lots more Indian founders over the years ahead. So get applying to Entrepreneur First.

Siddhartha Ahluwalia 1:01:03

Yeah, thank you so much. Thank you. Lovely speaking to you.