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America’s AI action plan … “Winning the AI race” has just been announced. What is it all about? What are the implications? How will the rest of the world react? A deep dive into the announcement, approaches by EU and China, and overall implications of these action plans.

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Intro (01:34)
Context of the White House AI Summit
Pillar I – Accelerating AI Innovation
Pillar II – Building American AI Infrastructure
Pillar III – Leading in International AI Diplomacy & Security
Comparing Approaches – U.S. Action Plan vs. EU AI Act vs. China’s Strategy
Implications and Synthesis
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

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Nuno G. Pedro

Welcome to episode 68 of Tech Deciphered. This episode will focus on America’s AI action plan, winning the AI race, which has just been announced a couple of weeks in by President Trump in the White House. Today, we’ll be discussing the pillars of this plan, from pillar I, the acceleration of AI innovation, to pillar II, building of American AI infrastructure, to pillar III, leading in international AI diplomacy and security.

We’ll also further contextualise it, as well as compare the approaches between the US Action plan, and what we see from the EU and China strategy at this point in time. We’ll finalise with implications and synthesis. Bertrand, is this a watershed moment for the industry? Is this the moment we were all waiting for in terms of clarity for AI in the US?

Bertrand Schmitt

Yeah, that’s a great question. I must say I’m quite excited. I’m not sure I can remember anything like it since basically John F. Kennedy announcing the race to go to the moon in the early ’60s. It feels, as you say, a watershed moment because suddenly you can see that there is a grand vision, a grand plan, that AI is not just important, but critical to the future success of America. It looks like the White House is putting all the ducks in order in order to make it happen. There is, like in the ’60s with JFK, a realisation that there is an adversary, there is a competitor, and you want to beat them to that race. Except this time it’s not Russia, it’s China. A lot of similarities, I would say.

Nuno G. Pedro

Yeah. It seems relatively comprehensive. Obviously, we’ll deep dive into it today across a variety of elements like regulation, investments, view in relation to exports and imports and the rest of the world. So, relatively comprehensive from what we can see. Obviously, we don’t know all the details. We know from the announcement that the plan has identified 90 federal policy actions across the three pillars. Obviously, we’ll see how these come into practice over the next few months, few years.

To your point, it is a defining moment. It feels a little bit like the space race of ’60s, et cetera. It’s probably warranted. We know that, obviously, AI platforms, AI services and products are changing the world as we speak. It’s pretty important to figure out what is the US response to it.

Also interesting to know that we normally don’t talk about the US too much in terms of industrial policy. The US seems to have a private sector that, in and of itself, actually stands up to the game, and in particular in tech and high-tech, normally fulfils or fills the gaps that are introduced by big generational shifts in terms of technology. But in this case, there seems to be an industrial policy. This seems to set the stage for that industrial policy and how it moves forward, which, as you said, we haven’t seen in quite a long time.

Bertrand Schmitt

Yes. At the same time, on one side, yes, there is some level of industrial policy, but I feel quite a big part is getting the government out of the way so that private companies can truly innovate. Because America, like many other countries, have accumulated over decades regulations, you could call it over-regulations of many sectors and industries. I would say part of it is showing the way, but part of it is really a lot about just removing obstacles along the way that were posed by decades of government regulations and acknowledging that if these regulations are not removed, it could truly impede America’s chances to win the AI race.

Nuno G. Pedro

How did we get here? Obviously, there was an executive order in January this year, 2025, on removing barriers to American leadership in AI, the directive being the US to become the world capital of AI, so to speak. We had this announcement at the White House in late July 2025, the White House AI summit, which set the stage for this, winning the AI race, America’s AI action plan piece. That’s how we got here in the first place. Shall we jump into the pillars and get into the meat of this?

Bertrand Schmitt

Yes. Maybe to finish on setting the context, what was interesting with this announcement, it was not done the usual way. It was more done in the context and format of a podcast co-hosted by Olin Podcast. Some of our listeners may know that David Sachs, who used to be part of the Olin podcast, is now the AI and crypto Czar of the White House.

Nuno G. Pedro

Yes. It was done with much pomp and circumstance in the good old days of empire-making in some ways. Let’s jump into the first pillar, accelerating AI innovation. It feels like this pillar, there are a couple of interesting elements to it, but one of the key elements to it, I’d say the overarching element that we can see is removing onerous regulations that would hinder the development of AI. So, having a very light-touch regulatory approach and proactive support for AI development all across the board in terms of R&D, also across the elements of data that are put at the table. The plan apparently does call for the identification of rules to eliminate and even pre-empt state AI laws.

Where the federal government would, in some ways, try to make sure that the state AI laws don’t come in and destroy a lot of these elements. We’ve discussed some of the stuff in the past; if our listeners remember, we talked about this, several onerous laws that were put forward in particular in California. It feels that the federal government is, in this case, sort of saying, actually we have to go in and be top down about this, and we want to remove onerous regulations across the board and make sure that they’re not put in place then by states.

Bertrand Schmitt

I’m very excited by all of this. Removing red tape and onerous regulations, I think, is critical to move forward, especially at such an early stage where we don’t really know where it’s going to go. As you said, California was preparing some very onerous regulations. Luckily, they were not signed into law by the governor, Gavin Newsom. But I think that was a very clear signal that states might decide to go crazy. We need to do something about it.

Personally, I think it’s good to have the states being able to define some of their own regulation. But I would make an exception in the digital domain where things are pretty different across much more easily the borders. There is no border to the Internet in some ways. I think when it goes digital, it’s a much bigger issue, especially at such an early stage. If you look at startup companies, they cannot deal with a plethora of state regulations depending on which state the user is in. This would be a nightmare, to be frank. Not just regulations, but the multitude of regulations state by state. Personally, I’m pretty excited about that.

The other piece of the puzzle is, of course, repealing the previous administration’s AI regulations that are just way too far-fetched, unnecessary, just going to hinder innovation. I’m very excited that this was removed, and I also believe they were a threat to free speech.

Nuno G. Pedro

There are elements here just to be a little bit even-handed, that we need to see how they play in action. One of them is this notion that this should not be acting as a Ministry of AI Truth, and that basically, there shouldn’t be ideological bias, so to speak.

There’s been some mentions in general about preventing so-called woke AI, et cetera, et cetera, in federal use. It could go the other way as well. We know that a lot of the data out there has biases because of the way it was built. I think that part on the data side and the ideological bias side, interesting thoughts, put at the table in the plan. We’ll need to see how it pans out. I still have at least a couple of concerns on that. The second element that I feel we have to be moderately optimistic about, we’ll need to see how it pans out as well, is almost this notion of, if we eliminate almost all the key onerous regulations out there, that in some ways, self-regulation and market forces will compensate for us. We also know that that’s not been historically true in many cases. We’ll also need to see how that pans out.

Obviously, just overregulating upfront, we’ve discussed it also in past episodes, like for example, the EU has done in the past, regulating upfront technologies without even understanding what the use cases are, is also not fruitful. It’s also not good. The US has had a long history of being lighter on regulatory environment, which has served it well in terms of technology advancements.

In this case, we’ll need to see how the regulatory environment actually evolves. I’m also moderately optimistic on that topic, but we’ll see how it actually evolves. It could be a big issue if we start seeing some elements of exaggeration in terms of how data is collected, how it’s put through to users, et cetera, et cetera. That would, in principle, require, at some point in time, regulatory intervention.

Bertrand Schmitt

I think what’s interesting in terms of AI not acting as a Ministry of Truth, first, I agree with that. I don’t think it’s good. What’s interesting, they’re not forcing anyone; they’re just saying, “Hey, if us, the federal government, are going to buy some AI products, your AI product needs to be free of biases.” They are not forcing companies to change their ways, but they are saying, “Hey, if you want to sell us products, you have to sell us neutral products. As us, the federal government, you, as a client, you basically do what you want.”

Nuno G. Pedro

I see a lot of companies right now and a lot of entrepreneurs saying, “Hey, this is potentially an opportunity for me to start a startup because…” Good luck with that. Good luck with understanding if data and algorithms are biased or not. How do you prove that they’re neutral? In principle, the concept is absolutely sound. We’ll see how it gets executed. Worst case, as I said, maybe there will be a bunch of startups actually in that space. We’ll see how that pans out.

Bertrand Schmitt

I certainly prefer startups in that direction versus startups focus on censorship.

Nuno G. Pedro

That’s a good way to look at it. Obviously, there’s been support across the board. You’d expect people like Jensen Huang, the CEO of Nvidia, to be supportive of it. Many other CEOs have been supportive of that. No shock there. I feel preaching to the choir would be the right expression to categorise a lot of the excitement that we’ve seen from CEOs across the board.

There is, in my perspective, an element of openness about the regulatory environment that would, in principle, be helpful for startups. We’ve seen the past, a couple of elements. We’ve discussed them as well in previous episodes, for example, in Healthcare, where there’s been like heavy-duty regulatory capture that really only benefits one player or a couple of players on top. So, the fact that the regulatory environment is lighter should, in principle, be beneficial for the creation of innovation and startups in the space, obviously, the larger players have huge advantages of scale, as we’ll discuss later in particular in pillar II, this notion of building of infrastructure at scale, they will have huge advantages as well.

But from my perspective as an investor, as a VC, I would say that this would in principle be positive, that there is less regulatory capture by nature because we’re saying is going to be a lighter touch, regulatory intervention that would be beneficial for the creation of startups and innovation at scale. We’ll see how it actually pans out. But should, in principle, be a positive movement.

Bertrand Schmitt

I agree with you. I think economies of scale from larger players, that’s a game. We are not going to hinder them. But what I felt was I was pretty worried around a year ago because it was clear that some actors were trying to do regulatory capture. There was a lot of talk about OpenAI behind the scene, trying to push a lot of their agenda through regulatory capture and added regulation. There was even a talk that open source AI, open weight AI will be forbidden, “for safety.” I’m actually very encouraged to see the direction it’s going.

There is actually a very clear encouragement on open source and open weight AI in the AI action plan. That gets me very excited that there will be less regulatory capture. I see also there is a lot around very practical stuff in that action plan, around trying to enable and push for more AI adoption. Organise industries so that they are more focused on adopting at scale, simplifying standards of adoption. There is also stuff around training, workers that might be impacted by AI or that might be made redundant by AI.

There is, of course, manufacturing. There is even talk about AI-enabled science, where there is a focus on building new data sets at scale that might benefit science. First, to be clear, it’s not just about LLMs, it’s really AI at large. It’s already bigger plans than just controlling chatbot, and what they say, it’s really all about putting in place the right infrastructure, scale, environment to push for AI in one direction.

Nuno G. Pedro

Yes, this is maybe a good time to move to precisely pillar II, which is the building of American AI infrastructure. Very central to the whole discussion. If I’ve read the documentation correctly, and if I’ve thought through the announcements correctly, there seems to be this notion of, in some ways, data centres, compute, power, electricity, energy, are strategic national assets. Because there are strategic national assets, they need to be treated as such. Obviously, their strategic national assets would be highways, telecom networks, et cetera. But there seems to be an emphasis in public-private efforts to expand that capacity relatively quickly.

The plan calls a lot for expedited construction of data centres and semiconductor fabs. Modernising the permitting processes and really even proposing potentially having nationwide permits to bypass state-by-state approvals, which we know is a flex by the federal government, but at the same time could be useful depending on how they’re actually deployed and put at the table. A lot of discussions happen around power and power grids and all the other elements, but very central this notion of we need to build data centres and semiconductor fabs as quickly as we can, and that should be our focus.

Bertrand Schmitt

We need the energy infrastructure to support it. So, power transmission, power generation, I think it’s well-thought-out. We talk mostly, I would say, on the software side in that first section, but now it’s more hardware. I’m glad it’s not just about chips. It’s really building the data centres that manage supercomputers at scale. It’s providing them energy. Let’s not forget that in the US, like in many other countries except China or India, power generation has plateaued, grown very, very slowly. What we are talking about, all these new data centres that are power hungry, it’s a dramatic shift in the power generation and transmission landscape because suddenly we need way more. We don’t want it in 10, 20 years; we want it tomorrow.

We cannot just keep doing the old ways, where this stuff was moving on a snail’s pace. Can’t say everybody was okay with it, but it was not so dramatically negative to the national interest. But here things need to move fast. We need this approval to set up factories to set up infrastructure. I’m glad there is a lot of expedited permitting, streamlining, removing of regulations to move fast.

One thing to keep in mind, the federal government is the biggest owner of land in the US, so they have some abilities to actually use this land, sell this land, do different things with this land without any specific state approval, for instance, because it’s federal land. There are a lot of things that could be done and that they seem intent to do, actually.

Nuno G. Pedro

There has been some debate in the past, for example, about as we’re onshoring again, for example, semiconductor fabs, if the US workers could be competitive, et cetera. If it’s anything to go by, the early indications from the TSMC factory in Arizona and Phoenix, extremely positive. We know it’s not the ultimate cutting edge that’s there currently, but if we measure yield, and just for those who don’t know what yield is, production yield in semiconductors is the percentage of functional chips produced from a wafer compared to the total number of potential chips on that wafer. Basically it’s an efficiency metric that measures how efficient we are at getting the most chips out of a wafer. So it’s normally a good metric to analyse efficiency.

We had had some public details already, and I’ve also had some conversations in private that have told us that, actually, we’ve seen yields of the Arizona factory that are in many cases superior to Taiwan factories. It seems like there is no big issue in terms of how these things are being deployed in production in the US. Actually, quite the opposite seems to be working well.

Again, the case for onshoring and bringing a lot of semiconductor production back into the US, which now mostly resides around Asia, has been quite positive. A lot of these elements I feel are extremely positive towards this pillar, that just this push that we’re seeing is a push that will yield, pun intended, great results over time.

Bertrand Schmitt

That’s great news, Nuno, thanks for sharing. It’s quite exciting to see what is being put in place and the execution of some of these plans. From what I’ve heard, there is a very big push on all this new manufacturing put in place in the US to be as frontier as possible in terms of technology. Use AI everywhere you can, use the latest production approach, use the latest tools and technologies to make it happen.

That’s very exciting because you don’t want low-end manufacturing coming to the US. That doesn’t make much sense. But the more advanced technological, the more the US worker will be able to really be a positive element of the equation. Talking about workers, there is a lot of training that is talked about in this document, in the action plan. It’s pretty good to see that they think about it at every level. Training for electricians, for HVAC technicians. There is a willingness to make sure the workforce is properly trained to be able to deliver on these investments. That means that it will be a lot of really good, solid opportunities for American workers to work on all of this.

If you remember, a lot of the talk in the past about AI was how workers are going to be impacted negatively by AI and jobs will be replaced and stuff. But actually it’s pretty clear that there are a lot of jobs that are going to be created in the pace of moving America to new AI industries. That’s very exciting from that perspective.

Nuno G. Pedro

Indeed. Obviously, on the energy part, it would be a huge omission from us if we didn’t talk about renewable energies and their role. As we’ve seen the past, President Trump and the administration seems to be doubling down on fossil energy. I mean, there isn’t like a specific element of saying that we’re not doing renewable at all. There is a revitalization of nuclear plants, which we know has been pushed by some of the large tech players, and we’ve mentioned it in previous episodes as well. There’s a little bit of an element here of big oil comes back into the table. We’ve seen, obviously, a lot of praises from people like the Chevron CEO.

The level of energy that needs to be produced. The question is, can we do it just on renewable with the current infrastructure that we have, and it seems like the answer has been historically no, and therefore it’s probably not an either/or at this moment in time. It’s more of a, “We need to throw everything and the kitchen sink at it and see how we can build energy production at scale.” As you also mentioned earlier, energy distribution is also flawed in the US in many elements.

That needs to be put up to par. But definitely there’s a little bit of a tightening relationship or a renewed relationship of big oil and fossil fuels back into the fold, which was not necessarily true in the previous administration.

Bertrand Schmitt

I have not seen any direct reference to that in the document, but what I have seen is a prioritization of reliable energy sources as well as embracing new energy generation at the technological frontier. Talking about nuclear fission, nuclear fusion, some enhanced geothermal. I don’t think there is anything specific pro-fossil fuel, for instance, but contrary to previous administration, there is certainly nothing against. Personally it feels like the right balance. We want to move forward, and we want to pick whatever is needed in order to deliver this plan.

Nuno G. Pedro

Why does this matter? I mean, the building of infrastructure. It matters because it’s the underpinning of the overall innovation that we need to see in the market. If we are talking about, for example, on my side as a venture capitalist, the building of startups that will innovate, that will come into the space, that will occupy specific areas. If you have the best infrastructure in the world at your disposal, the likelihood that you will be able to innovate faster and at scale and develop real cutting edge algorithms, platforms, models, underlying infrastructure in and of itself as well is much higher.

It creates an ecosystem of building that is top-notch, that is cutting edge for the world. That matters is, from the perspective of public private partnerships at this moment in time, if they are properly deployed. I think this is the central piece in some ways of what I mentioned earlier of the potential industry policy that we’re seeing from the US on AI. It will really create the underpinning, it will really create the infrastructure and the sandbox for startups to build on at scale and quickly. This matters a lot. If this is well done, we will see an ecosystem of startups that will emerge from this faster rather than slower. It does matter at scale.

Bertrand Schmitt

I totally agree with you. I think that we want one success for the tech companies, the small and big operating in the US, and we want the US overall national interest moving in the right direction regarding AI because the US cannot afford to be left behind, not to go to the same pace as its peer competitors like China. It’s really clear that there is some level of competition. You absolutely cannot miss it.

AI would be the future of many industries, but also certainly the future of the defence industry and the future of war. You cannot be left behind that just too much risk. I’m pretty excited that I think all of this is moving us forward in the right direction and maybe one last point, there is a lot of talk that in the US if nothing is done, we are maybe just one year away from reaching max power capacity to deliver AI solution. Meaning that we might be out of electricity as soon as next year in order to add a new data centre. Doing something right now is absolutely so much mission-critical. We cannot be left behind.

Let’s not forget we talk about China as a peer competitor. China increase in energy generation is just totally insane by any metric. There is no country that compare to what China is doing in terms of adding energy generation year after year. Everyone is behind China in that regard. It’s absolutely critical the US and other countries who don’t want to be left behind do something about power generation for their own citizen needs, one, directly, of course, and two, in order to stay ahead in the AI race.

Nuno G. Pedro

That’s maybe a great segue for pillar III, which is leading in international AI diplomacy and security, which is code for… I’m going to be facetious here. Let’s not allow China to get cutting edge ships and other things. Let’s not allow China to get an edge on us in some ways. Rightfully so, there’s a significant thinking and rethinking of export controls and where those export controls apply to not just to chips, but also to AI platforms and systems.

There’s an element of discussion around diplomacy and how to coordinate with so-called allies on export controls. Netherlands, obviously very important. Japan and other countries that will be very, very important as that coalition in some ways of allies against China. That’s basically the element that is being put here.

Then talking a lot about trade tools like secondary tariffs and talking about AI security at home. How do we ensure security around our systems and our infrastructure in particular and so there’s an element here where for me the takeaway is that we want to in some ways write a global play book for how the US keeps its technology out of adversaries or enemies or people that are seen as enemies or countries that are seen as enemies along the way. Also, how do we build the right AI standards for us to ensure competitive advantages honestly over the rest of the world?

Bertrand Schmitt

I think there is in that document a very clear-cut view of one, America needs to lead and be extremely successful in all elements of the AI value chain. Two, America wants to work with its allies to make sure they have access to some of the latest American AI products from chips to models. Three, we want to make sure that there is a blockade around China and China AI in some ways and yes, China can buy some products from the US, but it will be limited. It’s not the latest, potentially not the latest model, certainly not the latest chips.

There is a willingness to block China in some international bodies and standards as China was trying to push its way in some of these bodies and try to push its own interest, unsurprisingly in some of these bodies. An acknowledgement that we need to do something about it and I believe that’s quite important. Let’s not forget that China, and we’ll talk more about it later. But China has some strong view of its own AI national policy. It’s certainly not aligned with America or its allies.

Nuno G. Pedro

Yes, and we’ve mentioned a couple of the countries already… Obviously, the UK, there’s Japan, Netherlands, for some of you, might be why Netherlands? We’ve also mentioned this incredible company in the past called ASML, which is a Dutch company, and they are the global leader in development and manufacturing of lithography systems, which is crucial for microchips. That’s why Netherlands matters, because of this company, ASML, which is a significant player in that market.

Obviously, there’s a little bit of a thin rope for these countries, like are we aligned with the US or do we want to edge? It feels like this. For me, the stance that’s manifested by this announcement by the White House is you’re either with us or against us kind of thing. I feel there’s some undertones here of alignments, like, “Oh, they are our allies”, which means either you’re our ally or you’re not. We’ll see how that pans out.

Obviously this comes after tariff negotiations and a bunch of other conversations that are happening more broadly around the relationships between these countries and the US, but definitely it feels a little bit like you’re either on our side or you’re on China’s side. It’s a little bit where we’re seeing some of these conversations lead to.

Bertrand Schmitt

To be frank, ally typically connects to some type of military alliance. Let’s not forget that huge underlying piece of the puzzle. I think it’s pretty fair to say that if you want a military alliance with the US in order to be able to defend yourself better against some other countries, be it China, Russia, then you are going into a military alliance with the US, and obviously we have NATO in Europe, but there are also military alliance with Korea, with Japan, with many countries around the world.

I think what the US is also doing is enforcing it. “Hey guys, if you want that military alliance, and usually we know you want it, there are some economic implications. There are some policy implications in that situation. AI policy implication.” I think it’s quite reasonable to align the different pieces of the puzzle. It’s not a pick and choose, whatever you want. It’s not that there is a need for some real alignment, else it doesn’t really work any more. If you suddenly play the game on both sides for some piece of the puzzle. But you still rely on us for the military part. How does it really work?

Nuno G. Pedro

Yeah, maybe bringing it to one or two further elements that are pretty vital to this discussion. We’ve already talked about security and this notion of enforcing security and security around systems, around infrastructure, et cetera. But as Bertrand mentioned earlier in our conversation, basically there is also a push towards open source and open innovation and some might see that there’s almost like an element of duality in this. How can we be more secure and more siloed and more in control with a group of allies and at the same time enforce or push for open source initiatives to scale?

I personally think many others would probably see it as such, see this as a geopolitical move in and of itself. In some ways what we see in the world is that China seems to be quasi-leading the way, if not leading the way on open source initiatives and there’s a little bit of a concern that if China leads the way on open source initiatives, that it will have embedded its own Trojan horses into some of these initiatives and that the US needs to take a much more proactive and aggressive perspective on it over time.

We know it’s not totally true, it’s not like totally true that China has been doing all itself, but there’s definitely a lot of push by China on open source that the US seemingly wants to counter with some of the actions around this plan.

Bertrand Schmitt

I think you make an excellent point, Nuno. I cannot agree more. China has been playing smart. Like in a lot of markets, when you are not leading with your product, you try to go open source. That has been China approach to the AI race. I think they have been very smart doing that, and I’m glad that finally the US came to the realization that the answer is not just for me, it’s not forbidding open source or just promoting closed source, but it’s also to promote open source because some companies will absolutely want and need open source solution, some companies and governments, open source solution that they can run by themselves, control by themselves. It’s a mandatory part of the landscape, I believe, and it was the right thing to do.

Nuno G. Pedro

We get to compare approaches. We get to look at the US action plan versus China’s strategy, which we already talked a couple of elements of China’s strategy, and then also around European Union and the EU AI Act. These three big geopolitical masses seem to be doing their own thing. How does the EU compare to this, the AI Act? We’ve talked about it in the past, but how does it compare to it, Bertrand?

Bertrand Schmitt

I think it’s very interesting comparison actually, because I’m not sure we have seen a situation where the differences are that stark between US policy, EU policy, China policy. It’s a very interesting reflection of the economic, social and policy environment of each region. I’m really worried for the EU, just to be clear, I will start with that.

The EU AI act seems all about regulating as much as you can. There is this saying, “The US innovates, China copy, and the EU regulate.” I’m not sure it can be closer to the truth than this situation in AI. It’s pretty bad. I think it’s going to be a real problem for startups emerging from Europe. All these regulations would be too burdensome. As usual, the bigger guys will have an advantage because they can deal more easily with complex regulations.

We have seen already that many models and many solutions from OpenAI, Apple, Google and others are not available in Europe. Even some open source models, you cannot run them in Europe. I think it’s a crazy situation. It’s making very difficult to run an AI business from Europe, especially the underlying infrastructure. There’s a lot of risk of fines and stuff.

Personally I’m very worried. I think they are really putting the cart before the horses in that situation. Let’s have horses first, let’s make sure they run fast and at some point let’s see what we can do. But here it’s totally the opposite. Personally I’m worried.

Nuno G. Pedro

In a moment where we talk a lot about European competitiveness and the ability to build startups that scale, and AI seems to be, or is this seminal moment of evolution for the world on top of it, you’re putting regulations in a lot of these markets and so if I’m a local player and if I’m a player based in any of these markets in Europe, I mean, it actually hampers me even more. It’s a dual whammy. There’s the regulatory piece where it takes away the innovation from being deployed in some cases in Europe.

I’m not saying everything that is under the EU AI Act is wrong. There’re some elements around consumer protection that I think are valid, but to Bertrand’s point, putting the cart in front of the horses, so to speak, does create this dimension where it also hampers the ability for startups in Europe to scale and scale fast. In terms of access to data, in terms of access to elements that are important, and guess what? The US is seemingly taking away some of these elements and putting them in a world that allows for that innovation to actually happen.

China, as we know, doesn’t have tremendous restrictions on data as long as there’s political alignment, let’s just call it that. And so if you’re a EU startup, you’re immediately at a disadvantage. Immediately at the disadvantage. To start, which is obviously not a good place to be in, knowing that you have other elements of disadvantage like ability to raise funds at scale, access to talent at scale as well, et cetera. All in all, it’s not just that the regulatory environment can have a negative effect, it also has a negative effect on fundamental innovation from the ground up.

Bertrand Schmitt

You are totally right and the other big piece of the puzzle, energy production, energy distribution. The EU is in a catastrophic situation, let’s not mince our words. Many countries in EU have seen degradation of the energy production, many industries have been impacted. Energy prices in general in the EU have skyrocketed, putting many industries at, let’s be frank, total catastrophic risk for their own survival in the coming years. Forget about having additional spare capacity for AI. That part is also very scary and a big part of the puzzle, as we have seen with the White House AI Action plan. It’s regulation on top of existing regulations, with on top of it a crippled energy market compared to China and now the US.

Nuno G. Pedro

Then there’s China. I mean, we can discuss at length what we know and what we don’t know. What we do know, it’s very clear that they want to be a world leader by 2030 with tremendous investments across the board on everything, research, education, startups, infrastructure, energy deployment and distribution, which by the way, on the energy side, they’ve been doing it for several decades. It’s not a new thing.

We have large players already in the market, state-owned and tech giants like the Baidus, Alibabas, Tencents of the world. That’s the other guys, and the other guys have industrial policy, and they’re putting money behind it. I mean there’s no doubt and a lot of it is state developed, state sponsored, state funded and so you better bet that they’re going to build infrastructure themselves, and they already are, to create the underpinnings of that ecosystem. As I was reflecting earlier that the US is now trying to create, China’s been working at it for a while. Very, very interesting to see how this plan in the US will now compare in terms of speed and deployment versus China’s plans in developments at this moment in time.

Bertrand Schmitt

Regarding China, I think they are trying to do what’s best for their country. There is nothing to criticize from this perspective. It’s a rational plan from their perspective. As we discussed before, I mean China energy power plants and distribution plants are not new. They come at a perfect time. China is building 150 nuclear reactors for the coming decade. It’s already in motion. These are very safe force generation nuclear reactors. That will be able to underpin either additional factories’ production in general, but also of course AI.

The other piece of the puzzle is that definitely China is pushing AI realize it’s critical for their leadership. It’s also very reasonable, as you say. For sure, they are not as encumbered by regulations at other places, especially like the EU. At the same time, there are sometimes regulations to protect people in China. I don’t want to be too misleading here, but of course there are some dark sides. China is clearly pushing their own agenda, their own political agenda. They want generative AI to reflect “core socialist value”. That’s certainly not flying with me. That’s not something we want to support, we want to enable, we want to even I would say accept.

I hope there would be some pushback on products coming from China if they try to push this agenda and that’s really proof for me in some ways that we need a real alternative, and I’m glad the US is pushing its own more free solution.

Nuno G. Pedro

Yes, obviously the free flow of information that is not aligned with what it sees as a positive influence on its citizens will not be allowed. That is obviously a handicap. There’s also a handicap that we know China currently still has in terms of the production of high-end chips. I think on the other side you would be foolish to bet against China in terms of technological catch up. They will catch up, it’s just a matter of when, not if.

On the data side, although there’s these elements of what we in the West would call censorship, there’s also these elements of… There’s probably a lot more easy appropriation of data in general-

Bertrand Schmitt

Oh, yes.

Nuno G. Pedro

-that can be done by private and public companies, so to serve, that’s a balance. Last but not the least on the China factor and how I think through China one very clearly on talent, a lot of the world’s talent on AI we keep saying is in the US is like sort of right. It probably was educated in the US but a lot of it is actually Chinese. The second element that we can’t forget, which obviously we won’t discuss at length today, we have talked a little bit briefly about it in previous episodes, is the geopolitical element of Taiwan, and how does China perceive Taiwan?

Perhaps scarily, I was having a conversation with someone that shall go unnamed. The comment from that person was it’s not a matter again of if, it’s a matter of when, which is scary in and of itself. Hopefully, someone that’s not well-informed. Hopefully, someone that is exaggerating. We’ll see what happens again as everything that relates to China, two very different sides of a scale that somehow magically seem to mostly work, but definitely a very powerful opponent.

Bertrand Schmitt

Yes, definitely. To your point to double down, Chinese companies in general don’t know how to manufacture GPU to the performance that you can get from a manufacturer like NVIDIA, who you could argue nearly invented the space in the first place. They are years behind, as you say. We can expect that at some point China can potentially catch up. I think it’s important to keep as long as possible an advantage.

In some ways, interestingly enough, you can see that China is playing to its strengths or trying to mitigate its weakness in very interesting ways. For instance, having in a way, a lot of access to energy, they might be able to run several generations late of GPUs because energy costs don’t matter as much in China.

Actually they can go to a different path that is less energy efficient than other countries. We have seen with DeepSeek that they found a lot of innovation in going around issues with older generation GPUs, finding new ways to architecture, their software, their training, their approach to AI. In a way, sometimes if you don’t have access to everything, it forces you to some new innovation.

I think that’s what we have seen in China because I mean, it’s full of smart people, talented people. Unsurprisingly, this is coming out. But in some ways it has also benefited the US and Europe because some of these new technologies and approach are things that can be applied as well here.

Maybe one last point, it’s anecdotal, but I was hearing that the researcher at DeepSeek have lost their passport. They cannot leave the country anymore. I’ve heard that they might have more limited freedom than observers. They are subject to checks and to constant surveillance. Welcome to 1984. That’s really what’s happening in China. If suddenly AI is part of your critical industries and people working in AI are going to be watched, might not be allowed to leave the country anymore. It’s a sad state of affairs, to be frank.

Nuno G. Pedro

Maybe to segue on a more positive note, obviously necessity is the mother of all innovation and China definitely has many needs and many necessities that it will fulfil over the next few decades. We’ll see how this pans out. As I said, a very significant powerful player on the other side of the ocean and on the other side of the fence that needs to be properly addressed.

Moving to bringing all of this together, the so what implications and synthesis of all of this discussion. I mean, the US is all in. I think it’s very clear it’s all in at all levels. From the private sector significantly deploying CapEx, already in acquisitive mode, to startups that are getting a ton of funding.

I feel what we’re hearing is the federal government is coming in saying we’re all in as well and the US is all in, and we’re going to make this work. Right? We’re going to address the key pillars, the regulatory pillar, how we interact with the rest of the world and finally, how do we think through infrastructure? Whether you agree or disagree with a lot of the elements of the plan that have been put forward, I personally feel there was no other option.

This is the way to go, right? We are at a very critical moment in terms of human innovation that, as we mentioned earlier, will have significant geopolitical effects beyond just technology. It’s not just whether consumers can use ChatGPT or not, right? It’s about fundamental geopolitical control of significant parts of the world. I feel whether we agree with all the plans or not, or whether we will agree with all the initiatives or not, whether there will be side effects or not, the federal government had to say something and they have now.

Bertrand Schmitt

I totally agree with you, Nuno. I think we are at a stage of global competition with China and some other countries and like during the space race or other moments in history of America, there is no choice but to compete. Not just to compete, but to out compete and win. You need to put everything on your side. I think it’s clear the past few years private competition companies in the US were all in AI. The missing inaction was the federal government. I’m glad that finally they are putting their docs in order as well. I hope that Europe will follow this new lead, new direction. I’m not so hopeful, but I don’t know where it will go.

But I hope they will take a hint on this. I’m very excited for startups because it means that there will be more opportunities, more ability to compete, more access to energy in order to build the right product. Obviously it means that for investors, hopefully there will be bigger winners, bigger rewards. The last thing we want is of course, not to build global leaders, but just national leaders. I think this plan is also going to help to build global leaders.

Nuno G. Pedro

Yes. On the European element, I would say if there is anyone from the European Commission or involved in specific country governments in Europe, et cetera, that’s listening to us. I mean, this is the time to be brave, right? This is the time to do things that are different and fundamentally shifting the rules of engagement. Just doing what Europe has always done, and the European Union has always done, the European Commission has always done, doesn’t cut it. I think, if anything, it’s going to be negative impacting Europe. At least that’s my perspective. I think, Bertrand, I would not like to say that it’s yours as well.

Bertrand Schmitt

To double down on this point. I mean, we can see that in some ways Europe has kind of lost the Internet race. The biggest Internet players are in China, are in the US not so much in Europe. I’m very worried that in AI it might get. I don’t know how it can get worse, but it’s in the direction of getting worse, because this time there are layers and layers of overregulation even before the race truly started.

Nuno G. Pedro

What does this mean for the different kind of stakeholders that we see at the table? We’ve talked a lot about countries and regions of the world and how they need to react. My 2 cents on investors is that the bubble is here to stay. This further propagates the bubble that we’ve already mentioned we’re in. There’s not normally anything necessarily wrong with bubbles if people… If buyer beware, right? If people know that we’re in a bubble and therefore a lot of this stuff might actually just implode overnight. But I think there’s a propagation and a continuation of this bubble certainly into next year and maybe beyond that. But there are positive elements of this. There’s the element of the underpinning of the ecosystem that’s being built, as we mentioned before, that all of this infrastructure will have tremendous use by startups to take it to the next level.

Therefore, if you’re an investor, this is a great time to come in and really back startups knowing that there is a fundamental shift in the nature of infrastructure and platforms that is there to stay where these startups are not going to run out of competition for the offerings they could have in terms of compute, storage, anything else that they might have a need for.

There’s also the notion that potential winners might have outsized rewards. There’s also the notion that I’ve mentioned earlier that there is seemingly very little regulatory capture in at least these early announcements that we’ve seen from the White House. It’s almost the opposite light regulation and therefore a lot more push for so-called open innovation. As we know, the big players always have a capital advantage.

Last but not least, the overall open source movement, which as we know also is a positive movement in terms of market competition over time. All in all, I think if you’re an investor, there’s all these elements and underpinnings that are very, very positive for the startups that you are backing, or you want to back going forward with this little or gigantic carrot at the end of the day that maybe you’ll hit the next trillion-dollar company along the way. We shall see.

Bertrand Schmitt

I don’t think we’re in a bubble in the bad sense of the term. Yes, we might be in a bubble in the sense of a lot of investment. It’s early on, we don’t truly know who would be the winners and the losers in 10, 20 years. But at the same time it doesn’t look like the past technology bubbles, like the Internet bubbles or the telecom bubbles. Because if you look at 25 years ago, the Internet bubble for instance, there was very little profits, very, very small players not delivering.

If you look at telecom, it was all about laying down dark fibre for data that might come at some point, but right now it’s not there. Here it’s totally different. I mean we see players like OpenAI Lycanthropic moving to billions, if not tens of billions of ARR in just a few short years, like faster than we have ever seen possible before in the history of the tech industry. On the other hand, if you look at players like Microsoft, I mean they’re accelerating revenue, they are accelerating return on equity. It’s not like a bubble in the sense of a lot of money is being wasted.

I’m sure money is wasted, but at the same time a lot of money is actually put to very, very good work. I’m pretty excited and positive personally about what we are going through. It’s not clear when it will slow down. It will slow down if we don’t have enough energy to train models, it will slow down if we stop innovation, and we don’t have better models, we don’t have better chips. But if we keep the spice running, in some ways, I don’t see a slowdown anytime soon, personally.

Nuno G. Pedro

Yeah, but it’s still a bubble. Maybe the aftermath will be different. Obviously you are right. These companies are making significant revenues, which was not the case in the ’99, ’98 to 2000 bubble. But at the same time, they’re also raising billions and billions of dollars, tens of billions of dollars, at ridiculous valuations that were unheard of back then. It’s maybe at a different scale as well. There’s a significant subsidization happening on some of these numbers. I mean, you look at the unit economics of companies like OpenAI, and it’s obvious that they won’t be making money anytime soon.

Yes, I feel there’s different things now that are a motive for optimism, but at the same time, I still feel we’re very much in the middle of a pretty significant bubble along the way.

Bertrand Schmitt

To conclude, we think that the White House AI Summit and action plan show a confident, maybe aggressive US Approach. Basically, the US is playing to win, doesn’t want to be left behind, and for sure AI will require speed and trust, and also requires significant policy shift in the US and everywhere where you want to compete and win. I would say, exciting times. We’re at a great, maybe unique time in history. Again, we might have to look back 50, 60 years ago, the start of the race to the moon, to see anything remotely comparable. Thank you, Nuno.

Nuno G. Pedro

Thank you, Bertrand.

View Details

Nintendo Switch, the Nokia 7110… what are the tech devices and gadgets that changed your life? How about you biggest disappointments?
In this episode of Tech Deciphered, we will share ours. We look forward to hearing yours. Share on LinkedIn or via email or X

Navigation:

Intro (01:34)
Tech That Changed Our Lives
Our Worst Tech Purchases
Reflection & Takeaways
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt
Welcome to Tech Deciphered, episode 67. This will be a lighter episode as summer is upon us. We will discuss and talk about tech that changed our lives, as well as tech that disappointed.

Some of you might know, some of you might not know, but both me and Nuno are tech nerds. We have played with tech most of our lives, always looking for the next available new piece of technology to use or collect. We are going to talk about that and maybe start on the positive side. The tech that changed our lives.

Nuno Goncalves Pedro
I’m sure everyone has their stories. Even if you’re not a nerd, there’s going to be that piece of equipment, that mobile phone, that gaming console, that whatever, that dramatically changed you, made you more productive, or allowed you to do something that you’d never done before, et cetera.

It’s always an interesting conversation to have, and it creates a lot of wonderful memories. It brings you back to places, it brings you back to that moment where you bought the device, that first time that you used it, the experiences you had, some of them maybe actually, not necessarily positive. We’ll come back to the worst tech purchases of all time. Shall I launch Austilities, Bertrand? Shall I tell my first one?

Bertrand Schmitt
Sure, Nuno, feel free.

Nuno Goncalves Pedro
Good stuff. I’ll start with maybe the one that I’ve had the longest memory on, which is the Philips Videopac. Now, many of you will have no clue what I’m talking about.

Bertrand Schmitt
No idea.

Nuno Goncalves Pedro
The Videopac. Even Bertrand, which is impressive. The Videopac was a video game console that worked with cartridges, launched obviously via Philips. I’m not sure if the one I had was actually from Philips, question mark. It was the same format and I remember it very fondly.

It was really a gaming console with a little joystick. Very basic thing. The Videopac was actually launched first thing in ’83. I’m not sure when I first started using it, but I suspect I was 7 or 8 years old, so that would have been a couple of years thereafter.

I remember it fondly. We got it from Andorra. If you guys know, I was born in Portugal. Andorra is this small-owned country between Spain and France, and they had no sales taxes back then, so you’d go there and buy stuff really cheaply. I think that’s what we bought when I went there with my parents.

I remember it very fondly. I remember playing games on it. Strangely enough, I don’t remember any of the games I played on it, but I remember it very fondly as one of my first computer experiences and stuff. That was pretty cool.

Bertrand Schmitt
Nice. I think in France. I’m not sure this one was available. At least it doesn’t ring a bell. I think we had some Atari consoles in France. Me, actually, I didn’t start with a console. I started with a regular computer. Not the PC kind. It was an Atari computer. Actually Atari 520ST, very popular in Europe.

There was also Amiga that had similar computers. It was Motorola CPU 68000 if I remember. It was my first computer. Also, could be used for gaming, of course, 3.5-inch disk, if I remember well, some colors, I would say 320 times 200 pixels. It was great.

It was a start for me of understanding computers, starting to program them. I might have started before actually to program computers, but it was not a computer I own. That was the first computer I owned. That was quite amazing at the time. I remember doing quite a bit with it.

Nuno Goncalves Pedro
My first computer was actually the Schneider Euro PC. I’d played before with the ZX Spectrum and with an Amstrad computer. Those did not belong to me. They were not my purchases. They were not for me. They belonged to my uncle.

Bertrand Schmitt
Not the same.

Nuno Goncalves Pedro
My first one that I owned was the Schneider Euro PC. It’s the first computer ever that I coded in. People probably don’t remember Schneider at all. It was a computer division.

Bertrand Schmitt
They do washing machines.

Nuno Goncalves Pedro
It was a little keyboard with the floppy drive, and then you had to connect a monitor. I had to get a monitor. Mine was color. It was really cool. It’s the first, as I said, first computer I ever coded on. I think that’s the first code I ever wrote was in basic. I played games on it.

There was this volleyball game, like beach volleyball game that I remember playing on it. It was really, really, really cool. Very fond memories of it. I still have that computer somewhere back in Portugal in storage. Probably the first defining computer experience for me.

Bertrand Schmitt
Does it still work?

Nuno Goncalves Pedro
That I do not know. I’m intrigued by it. I do not know. I suspect not, but because of wear and tear, but I’m not sure. It was last time I played with it. I don’t know. Maybe it still does.

Bertrand Schmitt
Maybe it does value as an antique, actually. You never know this kind of stuff.

Nuno Goncalves Pedro
Yes.

Bertrand Schmitt
My second big one was actually a handheld calculator, HP48X and then a later model, GX. The HP48 was really my entry, my start in the mobile computing world. It was amazing. For me, it Was my first computing device always in my pocket. It was in the mid-90s, I guess.

It was great to do basic science, maths, physics, that sort of stuff. I also use it extensively to program in assembly language, which was not supported by HP. There was a small community of crazy people like me having fun programming in assemblies or their small handheld calculator doing stuff that was supposedly impossible to do on the calculator. The funny part is that some in our group ended up working for HP, developing the next follow on calculators for HP.

Nuno Goncalves Pedro
That’s very, very cool. I have done HP48GX and I remember it fondly. I used it in college quite heavily. I did do some coding on it at some point in time. Very cumbersome device to do any coding on, but it was like the top of all the freaking calculators, graphical stuff, et cetera, et cetera. It’s like an unfair advantage back then when computers weren’t around.

Bertrand Schmitt
Maybe one more point was a great RPL, the Reverse Polish Lisp language, which was very special to this model of HP. You have to enter your calculation in a very different way compared to the calculators. I love this approach of RPL.

Nuno Goncalves Pedro
Definitely an amazing device. Following up maybe with a couple of PCs from my end. Two that come to mind, the Compact Deskpro 386S. It was a 386 from Intel. Super overengineered device. Expensive as hell. When Compaq was in their heyday, it was like a pretty chunky desktop. Did a lot of stuff on it. It’s where my coding evolved. A lot of desktop publishing, writing stuff, et cetera.

It was a significant device for me. The other one, probably immediately thereafter was my first custom-made Tower PC. I bought a Tower, and then I had my own motherboard that I bought and my own hard drive and whatever. Making just work together was in and of itself complex. I remember that fondly as well.

It’s probably the first PC where I did heavy-duty gaming, the Deskpro being more the first that I did a lot of desktop publishing in. I remember the Tower one more because of gaming actually, shockingly enough. It went with me, I think through college, if I’m not mistaken, the tower one.

Those two were my next PCs that I remember very, very, very fondly. Compaq went to hell at some point in time. They merged I think with someone. Was it Gateway or something more did they merge with?

Bertrand Schmitt
I think so. Long ago.

Nuno Goncalves Pedro
They did go to hell at some point.

Bertrand Schmitt
Yes. I think they got killed by the new approach pushed by Dell to make computers on demand. Actually, I was also a customer of Compaq. My first PC was a Compaq. It was a Compaq laptop, Compaq 286 SLT. It was a huge brick. I was just checking £14. That was my first IBM compatible PC. That was great. Technically it was my dad’s computer, but I was using it.

Then like you, at some point I made my own tower PC. Did some PC gaming from that point as well, and other stuff, of course. When you make your first Tower, that’s a special moment because you start to realize it’s all adding components that work well together. That’s a special stage in the journey.

Nuno Goncalves Pedro
Compaq was bought for $25 billion in 2002 by HP. They were Texas-based as well, so was Dell. I think Compaq was global PC maker for a while, and then Dell overtook it, and the rest, as you said, is history.

Maybe my next one was, I bought it, I think I was on vacation in England. I had saved some money and this was in the ’90s still. I’m going back in time for my Tower PC, which was the SEGA Game Gear. I never had a Game Boy, actually. I played with other people’s Game Boys, but I wanted like a graphics thing.

I know this is going to be pissing off a bunch of people. I always preferred Sonic to Super Mario, so who would have said that I would become a race car driver? I always actually preferred it. I remember it for Sonic, it was really a cool handheld console.

It was color-based, whereas the first game boys were black and white. Really, really, really very, very, very cool gaming console. The battery life wasn’t great, but it was like super cool. I used to play Sonic all the time on that thing.

Bertrand Schmitt
I might have an Atari handle at some point, but it was not a big game changer for me. I never had a Nintendo console until very recently. Me on my side, what was game changing was my first smartphone, WAP phone.

Nuno Goncalves Pedro
It’s not a smartphone.

Bertrand Schmitt
That’s why I’m saying the first WAP phone for me was a Nokia 7110. Ericsson also had another WAP phone at the time, just launched, but the 7110. What was special was it was a Matrix phone. You press a button, you have the stuff coming out. It was a very special.

That was the start of the… In Europe, what was the WAP revolution? Accessing Internet on your mobile through that WAP protocol, which was not popular in the US or in Asia, it was really especially something popular in Europe or somewhat popular, I should say. I’m not sure everyone was using that. For me that was a big step forward.

The second step was moving to the communicators through smartphone. The Nokia communicator, they are E90s and we got some Ericsson P800. These phones were for me, the first smartphones in the 2000s, up to the arrival of the iPhone, so for like 8, 9 years.

Nuno Goncalves Pedro
I Had a 7110 as well, obviously the Matrix phone. Everyone was like, oh my God. And they didn’t do anything. It just slid down. The plastic slid down, so you had access to the keys. My first phone that I recall very fondly was actually the Philips Diga. I don’t know why I have all these Philips things on my thing.

It was a very basic phone, candy bar, as they used to call it, just with a keyboard. It lasts a long time. Even the antenna broke at some point and I still kept using it. I still have it, I believe. As I may have mentioned it in the past, I actually have a collection of mobile phones. I have over 270 mobile phones.

If anyone has an idea of what I should do with that collection, for profit or non-profit, do tell me. Many things have been tried in the past, including the Computer History Museum and Mountain View, but we couldn’t come to an agreement on who would pay the valuation of the phones, which is like the most shocking thing ever. I was willing to just donate it.

The Diga was my first phone. I started collecting phones probably when I was a GSM association. That must have been around 2003, 2004. I have a lot of phones that I truly, truly love. The 7110, to your point, was a very iconic phone. The first little Ericsson one with color was also very iconic. Very, very small phones.

We had all these amazing feature phones. The Korean started really changing everything. Samsung and LG that I got as well, like very, very thin phones, slider phones, et cetera. I remember a lot of phones very fondly. My first one that I owned myself was the Philips Diga.

Bertrand Schmitt
I forgot which one was my first phone actually, because the Nokia 7110 was not my first mobile phone. I don’t remember. This one was very different for me because you had access to the Internet so that was the beginning of always on connection to the Internet.

Me I probably average two funds a year over the past 25 years, 27 years. I’m not at your 270 fund collection and I didn’t keep most of my funds I must say either gave them or resold them. Now they are good trading policies actually for mobile, Samsung and others. I’ve been doing that mostly.

For me the next big one was actually the Kindle. It was launched in the late 2000 which was around the time when I actually moved to China and getting access to foreign books was not an easy one when you were living in China. For me the E Ink device was a God given gift. It was game changing for me to be able to access all my books while I was living in China.

Nuno Goncalves Pedro
My next device was also first for me. It was my first proper watch that I bought. I’d bought some swatches and whatever, and I was always intrigued by my watches. Then when I was in my early 20s I bought the Bell & Ross. I think it’s vintage 126 130r a chronograph, very classic looking. Bell & Ross is then gone.

Bell & Ross is a French brand that manufactures in Switzerland. They’ve since gone with squared watches but back then it was classic rounded watches. I still have this watch. I just had it serviced recently. The service was like half the cost of the original watch or something.

For me, it was really cool to have it back. It was my first watch. I used it for several years. Funny story, at some point I stopped using watches and for at least 15 years. I’m probably not exaggerating, I didn’t wear a watch. My watch was my phone until quite recently where another watch changed my life. The MB&F M.A.D. editions 1s.

It’s one of these relatively nice watches. You have to apply for it, it’s a raffle, whatever, and then you pay of course. I got it, and I was like, “Oh, I’m going to go back to watches.” Now I’m going back to watches. Again, have a mini collection of watches, but it’s a very recent thing, maybe within the last year going back to watches, but I remember the Bell & Ross and I still have it.

It still looks beautiful very fondly because it was the first one. You could say, “Well, is that really tech?” It is tech. It is proper tech. It’s very mechanical automatic watch. I remember it very, very fondly.

Bertrand Schmitt
I can’t say watches changed my life.

Nuno Goncalves Pedro
Someone told me this the other day. I know this is going to look a bit weird because women also wear watches, but it’s sort of men’s jewellery kind of thing. It’s like the watch becomes one of the few jewellery pieces that you would wear in general.

Bertrand Schmitt
That and glasses. I agree with that. It didn’t have a life changing effect on me. I agree. I appreciate nice watches as well. At the same time now with digital watch, it’s a fight for your wrist. At some point I had two watches, a digital one and analogue one. Nowadays, it’s a more digital watch usually.

For me the next one was that amazing trifecta from Apple when they released the iPhone, then the iPad, then the new Apple TV and it really changed my digital life. I cannot say I was a big fan of the first iPhone because it was released without apps and without 3G, so I was not so interested.

I could see the change in UI that was impressive in mindset, in approach. Without apps, without 3G, for me, it was just a toy. When Apple released their second iPhone, I was definitely very, very excited. The first iPad also I was very excited. Apple TV, something simple that replace the control of your TV.

For me that was quite game changer in the sense that at that point I stopped watching linear TV. It was all about having access to on demand content on your TV and no more linear TV. I abandoned linear TV, cable, all of this a long, long time ago, 15 years ago.

Nuno Goncalves Pedro
The iPhone changed my life as well. By that time I was already collecting phones for quite a long time. More importantly, at that point in time I’d worked at the GSM association as the head of strategy, corporate and business development. I was at McKinsey and I had clients in the consumer electronics side, a large consumer electronics firm that she’ll go unnamed. When the iPhone hit, everything changed.

For me, it wasn’t just that I had a device that finally was relatively capable. I think the most impressive thing of the iPhone when it came out was the browsers for me. It worked really well on Wi-Fi. The cellular wasn’t great. For me, it was extra complex.

I was living in China back then. I had to get a phone. I had to figure out a way to jailbreak it because they’re selling it in the US with AT&T. I went through the whole, whole thing. That fund was definitely transformational professionally as well as I was working around a lot of topics that related to product management, product planning and the client that she’ll still go unnamed was like, “Guys, we need to now compete on smartphones and like this new thing, this new category.”

It’s really a shame because I think there was a lot of diversity prior to that with feature phones. They all look very differently, they had different functionalities, et cetera. In some ways early on, maybe the smartphones had some diversity as well, but over time they’ve all become the same mono blocky thing. Along the way I missed the good old days of different formats and the BlackBerry was there and all these things were there with different formats.

Bertrand Schmitt
There was much more experimentation.

Nuno Goncalves Pedro
Exactly. The reason why I used to buy so many phones and get so many phones and started collecting was they were great proxies to consumer experiences on the go. They were great proxies. Like if you have this phone, this is how you’d use it and this is how you would basically interact with different services and different apps, et cetera. Obviously that became less diverse as the world really inflected to go into Android and iOS, so Apple World and then the Android empowered world. Obviously it became less interesting in some ways.

Bertrand Schmitt
In some ways we are going to the end of the form factor. We’re at the end game of that specific form factor. At some point you add a screen and a start button, a central button and then no more button and just a screen and from there is nowhere else to go.

It was an interesting evolution. Obviously you could argue there is somewhere to go. We can see that, we talk about it, but you have foldable for instance, but going back me now I will talk on the audio side there was a big, again, some Apple launch was the Airpod. For me. What was amazing with the first Airpod is that having used so many different headsets over the years. I felt it was one of the very first one that just worked. I can take it from my pocket, put it in my ears, accept a call. I had the guarantee it will work.

Before I would not be able to do that. I have a call, I have a headset, I know it won’t work if I try to accept the call and put my headset at the same time. Having started with Bluetooth headsets from maybe 2000 when at some point in time early on when the first Bluetooth standout was released, so I tried them all, and I was shocked how good Apple managed to make the experience.

Another one on your side was, I forgot which model but my first Bose ENC headphone for travel definitely changed my life. When you are travelling by plane to be able to hear properly either music or movies with less outside sound. That made travelling by plane especially much more enjoyable experience.

Nuno Goncalves Pedro
On my end, I agree with the AirPods I think it’s just the fact that they worked was shocking. The really good audio quality for the size they had and the weight they had. I have around 270 phones. I don’t have around 270 headphones, but I probably have enough to do a museum as well of them. I have a lot of ones that I remember fondly.

One of the early Bang and Olufsen ones that was super chichi, super high end in ear but with a thing around your ear before the Beats thing started becoming very popular. I remember the Beats, one of the last Beats before they were acquired by Apple. The AirPods Max were great. I have for anything like I have OnePlus phones, so I have OnePlus AirPods things. They probably have a different name for OnePlus.

There’s all these different ones that I’ve had over the years that are great. I remember fondly the Master and Dynamic, one of the early ones that I got over ear ones. Beautiful looking. The Master and Dynamic are just gorgeous looking headphones shout out to the founder there.

AirPods I have a lot of memories with a lot of different ones, but maybe not as striking as the ones you mentioned with the Bose and with the AirPod. Going back to the TV thing, obviously Apple TV was transformational for me, and I’ve had all these different things like Amazon, Fire TV and all these different solutions out there.

But one that I was transformation for me was the Logitech review. Google TV. This was the first implementation of Google TV as an operating system thing to work on your TV and if you guys don’t remember it looked like a really wasn’t super large but a relatively mid-size setup box with a keyboard. That’s the funny thing, you had actually a keyboard, so you could write stuff on it and you could browse.

Now it’s important to mention that at that time I lived in China and because I lived in China I could go to Chinese websites and watch stuff. I won’t go into more details than that. I was living in China but to be very, very clear, in some ways I could already see the future of streaming TV. It was very, very obvious because of that experience that I had. This was circa 2008, 2009, I would suspect. It was relatively early on, maybe a little bit later, maybe 2010.

But anyway, but circa that time I could see that streaming was a much better experience than just linear TV because I could watch all these series whenever I wanted, all the stuff that I could watch whenever I wanted. In some ways I was seeing the future of TV back then on what we would have later on with the Hulu’s of the world, with the Netflixes, et cetera.

It was funny, it’s just a bit by accident. It was a device combination with the country. It’s China and Google TV and you can browse. If you can browse, what can you watch on TV? Well, you can watch sort of whatever is available. Obviously the bandwidth wasn’t great, but it was for me a revolutionary experience about this realization. TV is going to go this way rather than stay linear. It doesn’t make sense to stay linear except for things that are time-sensitive like sports and news.

Bertrand Schmitt
I’m not a big sports fan in terms of watching sports TV so for me, it didn’t really matter. But I agree with you, news and sports were probably the only thing that could still make somewhat sense on a linear TV. I was like you living in China, accessing Internet TV from my Apple TV. This was totally game changer.

I don’t think I look ever back since that time, and I was still surprised to see so many people still using linear TV for a while until maybe what 2020, you could argue with COVID. That was when most solution when streaming and when most providers went full streaming. I felt it took a while to get there. But yeah, I couldn’t go back, that’s for sure.

I remember my first Nintendo console actually was a Nintendo Switch and I remember getting it the first day of its release actually in Tokyo in Japan. I really love this device. I felt this was powerful enough for a console that was portable where before portable consoles were not so exciting for me. I was very impressed how you could use it portable connected to a TV the way you can detach Joy cons.

I felt was very amazing in terms of piece of hardware and of course great, great games from Nintendo especially and others from Zelda to Mario Kart. Very impressed by the Nintendo Switch. I just got a Switch 2 and even more impressed this time. Really powerful and amazing form factor, for me, quite a game changer, especially when you travel.

Nuno Goncalves Pedro
My first big high-end gaming console was the PlayStation 2 and that was awesome. I mean it launched in 2000. I didn’t get one of the early ones. It’s probably a couple of years after that I got it. But definitely that was the first console that I really cherished and played a bunch of games on. That’s when it came to bear. It’s very funny. Many years before, many, many years before I went racing cars, I was already excited by car games, Gran Turismo and a variety of other games.

Call of Duty and Gran Turismo are probably the two franchises which stood the test of time for me in game console. PlayStation 2 is responsible for it all. It was the first console that was like, oh this is really cool, you can do really, really cool things with this and high quality games, and it’s specialized and all that stuff. In some ways I never really went back to PC gaming, which is interesting.

I started in PC game, I never went back, and I still do a little bit of mobile gaming on my phone. Marvel Continent of Champions is still my game of choice, but on the console side is sort of where I experiment with the higher end kind of games. Now being an investor in some of the guys who actually develop those games is exciting. You get to see stuff before it comes out, et cetera. But the PlayStation 2 was the genesis of the higher high-end experience in gaming for me.

Bertrand Schmitt
That’s interesting because me, I’ve mostly stayed to PC gaming actually on mobile. Even if I was spending so much time analysing the mobile gaming market, I was not so interested myself on the mobile gaming market. I would play a bit of very basic stuff from Candy Crush to others, but not the more advanced games because I would just go for PC gaming for advanced game or Nintendo Switch when I wanted something more simple, portable, immediately working.

That’s the issue with PC gaming, it’s rarely immediately working. The last device that really impressed me from Apple was my MacBook Pro M1 when Apple released the first Apple Silicon. Very, very impressed because one it worked and that switch from intel to ARM where it’s simply working, you were not losing much in terms of power if you are emulating was just amazing. Smoothest architecture change I have ever experienced.

That’s one on the technical side very impressed, but two very impressed by the performance and more importantly by the lack of noise from the fan. I mean of course it has a fan, but you don’t hear it most of the time. For me, that was the one thing I was looking for in PC, which in a mobile computer, is to have no noise when I’m using it. I was very impressed by that change of architecture. Very smooth. We’ll talk more maybe about that. Microsoft never made a smooth change of architecture, but also the fact that they managed to do something on one side very powerful and at the same time very silent.

Nuno Goncalves Pedro
I had a lot of devices from Apple that were defining for me the MacBook Air, my first MacBook Pro back in the day with intel and those are the days with intel chips. The MacBook Pro with Silicon done by Apple was defining, redefining for me. I’ve had a couple of laptops that were really redefining to me and honestly, most of them were Apple.

I agree with you that that’s probably one of the last devices I’ve had, the iMac. I’ve had a bunch of iMacs from Apple. That’s my desktop experience. I honestly love all of them. There is a generation, I forget what generation it was that was a little bit funky on the quality of the screen, but they always look great. The new iMacs have been amazing. I don’t have the old ones, but like the new iMacs, that’s my main desktop experience, and it’s still a really cool experience.

Bertrand Schmitt
Maybe talking about quality, I had a lot of issues with my Apple laptops. Broken keyboard, broken screen, broken video card. They actually spent quite some time at the repair shop and not been a great part of my experience having Mac computers for 12, 13 years.

Nuno Goncalves Pedro
I think I had one issue with the storage on one of the MacBook airs where I had to change storage on it. It was a little bit complicated. Then I’ve had issues on the iMacs. As I said, one of them, the screen just stopped working properly and they couldn’t really fix it. It’s really a dud. It’s just a hard drive, basically. Then one of the more recent ones has a flaw in it. I thought was related to memory. I tried everything to save it and it jumps things.

Then I have my latest, one latest generation of the iMac which is doing fine thus far. Let’s see how it withstands the test of time. To your point, some issues, sometimes some of their devices and they really don’t withstand the test of time, they don’t work well over 4 or 5 years, which is, I guess they expect you to switch stuff.

Maybe my next device, being from Portugal, at some point I became a lover of coffee. Interestingly enough, I don’t think I was a lover of coffee while I lived in Portugal. At some point I wanted to have a machine at my place that would give me that experience. I had a nearly espresso, I think it was from Gaggia, was done by Gaggia. Gaggia is obviously, I believe, an Italian manufacturer.

That machine had a bunch of issues later on, talking about issues. At some point I just gave up on it. I gave up on just having espressos or double espressos. I was a purist back then. Then at some point I went to the Nespresso selling to the dark side route with Vertuo. It’s really a great experience, the Nespresso Vertuo experience. But I’ve sold now I have what people in Portugal would call barely coffee. It’s just shot in there.

For me, having the coffee is a moment of pause. It’s where my brain stops a little bit. Historically, I used to do it after lunch, at the end of my lunch, and now I sometimes do it in the morning as well, to be honest. But my reaction to caffeine is different than many other people. Caffeine is a bit of a downer for me. I think there’s a percentage of people in the world, maybe 2, 3%, for which caffeine is a little bit a downer rather than an upper.

I can have coffee at any point of the day, which is like a superpower, I guess. But, yeah, the machines are always a moment of pause for me. It’s a moment where I just collect my thoughts, slow down, and then I do enjoy the coffee. That’s the meaningful part of that tech for me.

Bertrand Schmitt
Yeah, I was a big fan of Nespresso for, I don’t know, at least easily 10 years. Also, again, especially useful when you were living in China. At some point, I just couldn’t stand it any more because the difference of quality, the coffee, the milk machine was just too big. I actually moved to a Breville coffee machine. Breville Barista Touch Impress.

Since then, oh, my God, I will not touch an espresso machine again. I don’t need to go to any coffee store. I might go once in a while, but not because it’s better coffee. I have excellent coffee at home, excellent latte at home, and I’m very happy. [inaudible 00:30:16]. I had one reason to go out, which was for better coffee, but not any more.

Nuno Goncalves Pedro
Yeah, I’m still looking through the startup that shows me a machine that can create that amazing coffee. I’ve seen a couple over the years that were very promising but nobody scaled. Most of them have gone under sadly, et cetera. I’m still waiting for that perfect machine.

Bertrand Schmitt
Drive by Villa. It’s amazing.

Nuno Goncalves Pedro
I will look into it. Maybe another kind of experience is related, maybe more to my cars. Also, late boomer, as I mentioned earlier in terms of car racing, but also late boomer in terms of becoming a car guy. I was a digital car guy, I guess before I was a physical car guy and paying attention to the car, taking care of the car. There’s a couple of elements that make that of some importance for me.

For some reason I have a couple of Porsches. For some reason Porsche still has this thing where you either have Apple CarPlay or Android Auto. For someone who has 270 phones, that’s kind of a problem because you are switching between both operating systems and both deployments of those on the car.

At some point I had to get a hack around it, and so I started toying around. There was an early one that I had that I hated. I’ll come back to that later. But then I came around and found Autocast, and now I use Autocast devices. To be clear, Autocast doesn’t pay me at all for me to do any advertising.

They mostly work. I have some quirks once in a while on some older cars with the Autocast deployment, but it allows me to just go into the car. Worst case if I’ve just switched phones, have to connect Bluetooth to it the first time and after that it just connects, and I have the experience I would have. It’s been a great life changer for me.

Bertrand Schmitt
Interesting. I had no idea such a device existed. Actually, I would talk about the Samsung Galaxy Z Fold. We talked before about how the defining hardware of smartphones didn’t change much. I was always very impressed by Samsung innovation and with the Z Fold that made me switch back. Actually at some point I was Apple, and then I was Apple and Android, and then I completely left the Apple ecosystem I don’t know, 18 months ago.

But my first step was moving to the Z Fold, and I was actually quite pleased at Apple. I was like where is our innovation? But Samsung actually innovated with the Foldable category. It’s now the Z Fold 7. I’m waiting for it tomorrow. But yeah, it was for me truly game changing as a device that is a tablet that is in your pocket.

I’ve been very excited and that’s been the start of the end for me of the Apple ecosystem because once I moved there I moved to a Samsung Tab Ultra. I actually even went back to the Windows world. I’ve been very impressed. My latest Windows PC is a Surface Pro 11 with intel inside, and it’s an amazing device. Finally, a combination of laptop and tablet all in one that works great.

I’ve been very impressed actually, and we’ll talk more. I’ve been muted. Disappointed multiple times by the Microsoft Windows environment, but I feel they’re starting to turn the corner and be more innovative.

Nuno Goncalves Pedro
From my end, I collect phones, so there’s always what are my favourite phones kind of discussion. On the fold side I do have, I think I have the Z Fold 5 if I’m not mistaken. That’s the latest one I had from Samsung on the foldable side. Flip I had a Red Magic Nubia. I’ll come back to that. I have obviously had the Razr, the RE edition of the Razr as a smartphone which is pretty cool. Motorola as a flip as well.

On the foldable side I’ve tried a lot and I end up going always back to the same one. I think it’s just the format ratio is my favourite one which is the OnePlus open. I think there’s now some discussion they might launch a new version. They haven’t launched one in a couple of years, but that phone is really, really good.

I’m a huge OnePlus fan. I love their phones. I think they’re really well done. They get the thin layer of adaptation well on those phones. For photos, I’m still a Samsung Galaxy Ultra guy. They have the best cameras if you want to take amazing photos. Normally that’s my go to and then for gaming because obviously I’m still play games on phones.

There’s my two go tos the Asus ROG, ROG series and then to be honest my most favourite one which is the newbie Red Magic the Pro editions which have the little fan on it with colors and then cooling and add-ons and stuff. Really it’s my go to for gaming it’s really… Unfortunately the cameras are not very good but for gaming it’s really a great experience.

Then last but not the least toy around a lot with phones. The nothing phones. I currently have a pre-launch edition. They just launched a proper edition for the three, but I have a pre-launch edition for the three, and I still love them. Very clean phones, very easy to use. [inaudible 00:34:56]. Great mid-tier. Probably one of the best mid-tier devices out there right now for Android. That’s my go tos on the mobile phone side.

Bertrand Schmitt
Interesting. Me beyond the phones, beyond the computers, one gadget I really used actually a lot is my Sony Alpha S73 that I’ve been using for maybe 5 years for video calls. When I am at my desk I use this camera. It’s a great 2470 lens. It has been amazing, and they kept upgrading the firmware, improving the quality of what you can do, improving the colors. I’ve been very pleased with that Sony Alpha S73 for doing video calls, which might be overkill to be frank, but really a great device.

Nuno Goncalves Pedro
On the tablet side obviously I’ve had a bunch of the iPads. The first iPad was interesting, maybe not as seminal as that was for you, Bertrand. The iPad Airs I particularly like. I still have one. I use the iPad Air. I’ve tried at some point in time taking them with me on my business trips. It just doesn’t work for me. I still need to bring my MacBook Pro with me because I might need to do some actual fundamental work on stuff.

I used to use it for shorter trips, and at some point I just became painful. I mostly use it to consume other content. Like a little bit like my second or third screen. It might be I’m watching TV second screen with iPad Air and then third screen on my phone. Honestly, my girlfriend doesn’t like that very much. I need to. I can’t even use my phone while I’m watching something with her. I’m like, okay, cool. Right now I’ve gone from three screens to one screen. Only one screen at a time and pay attention to my girlfriend. I’m more present than ever and.

Bertrand Schmitt
Continuing outside of phones, computers. One device I really like now to consume content on the go specifically, it’s the Xreal One Pro which is classified weirdly as an AR device. But I truly use it to basically consume content on the go typically, but also it could be in the bedroom. It’s just a great device to watch videos mostly, could be shows, could be movies. It projects in front of you a huge screen. It’s really a great quality OLED screen. It includes audio as well. It’s really an AR glass for me. It’s really impressive. It has replaced in many situations a tablet to simply watch content.

Nuno Goncalves Pedro
From my end, moving on, going back to cars, one thing that matters is taking care of your tires. Only point of contact with the road, just to remind people. Over the years I’ve tried a bunch of solutions to inflate and deflate my tires and particularly to inflate tires. In particular on the go and everything’s very clunky, very big whatever.

Finally, I got to more the portable side of the fence and the one I do use, again I have no payment from these guys whatsoever, but I like their solutions are the Airmoto tire inflators. I’ve used a couple of others by other brands that are similar form factors but the Airmoto is the one I keep coming back to. It doesn’t last forever, but it’s enough. I can guarantee you to inflate a tire quite significantly or to inflate all your four tires if they’re a little bit under as well.

Really pretty amazing solution to inflate your tires over when you need to inflate them. If you’re stuck between a rock and a hard place, at least inflate them and if it’s like for example a small leak or whatever then it will sort it out. Really, really good solution for that.

Bertrand Schmitt
Interesting device, and it looks quite small I must say.

Nuno Goncalves Pedro
It is pretty small.

Bertrand Schmitt
My last device or category of device I talk about the Kindle but since then a few years ago I moved on to BOOX. BOOX is a Chinese manufacturer of Android E Ink device. The nice thing is that it’s full Android experience. If you want to read books magazines or just read your Twitter feed or the Internet, you can use their device. You can even read Kindle on it because the Kindle app will work. As a lover of E Ink screens, books has been a great option for me, and they have color black and white from 6 inch to 13 inch, so you have the wide gamut depending on what you are looking for.

Nuno Goncalves Pedro
Let’s switch to the ones we did not like. Our worst tech purchases, the things we bought and there was all these incredible expectations and then, oh my God so broken. This is not great et cetera. Maybe let’s start with one that I’m pretty sure we will share which is the Apple Vision Pro. Oh my God. I had such huge expectations because of the whole marketing of Apple in over-gear. This is going to change your world. We had a full episode on it or almost a full episode on it. I won’t belate too much on it, but disappointing, right for the price point for what it is. It’s a super over-engineered device. It was over marketed as we mentioned back in the day.

Bertrand Schmitt
Completely overpriced.

Nuno Goncalves Pedro
Super, super overpriced. I mean if it had been cheaper maybe we would have been okay with it. If they’d called it a developer device, maybe it would have been okay with it. But Apple went into overview and that was it.

Bertrand Schmitt
No, it was completely wrong. What they did try to launch it as a regular consumer device while having a crazy price point. For me, I’m still impressed when I see people enjoying watching stuff on it. I stopped using it to watch content because it’s just so painful to wear for a long time. I don’t want to be watching some stuff on the Vision Pro and then have pain or, headache from wearing it for 45 minutes.

For me, that’s a crazy part. They don’t focus on any use case, they just add every piece of technology they could think about, and if the stuff is too heavy, uncomfortable, and too expensive, too bad. No, guys, you didn’t make any clear product decisions that make a device either for media consumption or to replace your computer screen, or to do other stuff.

For me, it was really a mistake. I would say real virtual reality in general has been disappointing because it’s either too complex to set up, you have to attach it to a PC, or it’s not powerful enough if you look at the meta options, or it goes too expensive, but then it requires a very powerful PC and optimized software.

I have a great headset from Varjo, for instance, XR-4, which is very powerful. But I must say I like it quite a lot because, at least compared to the Apple Vision Pro, it can do useful stuff, and it is comfortable to wear for a long time. But overall, this industry is probably at a crossroads. I think there are a lot of opportunities to improve to get the technology where it’s cheap and easy to use. But at the same time, it’s a tough situation where the use cases are quite limited and now limiting the appeal in general.

Nuno Goncalves Pedro
I had similar experiences, totally sort of second what you just said around some of these devices, the AR VR space has been like crowded with stuff that’s crappy anyway. I would say maybe one of the augmented reality spaces, I would say the Google Glass. I mean, what I did to get access to the Google Glass program, I cannot tell in public.

Bertrand Schmitt
Oh, I don’t want to know.

Nuno Goncalves Pedro
You don’t want to know. But in the end, when I got it, I played with it for 2 days, and I was like, is this it? Yes, I mean it was the precursor to everything we’re now getting, like the Ray Ban watches from Meta and all that stuff, and at some point it will get nailed, and for people like you and I, Bertrand, who wear glasses, it will be cool. But oh, what I did to just get access to Google Glass and then nothing. I was like so disappointing. It was very pricey. I mean, just to be clear. It’s a very difficult experience. I’m not sure I’d ever go again to do as much as I did back in the day for those kinds of devices.

Bertrand Schmitt
No, I understand, and that’s why, actually, for me, I’m very impressed by the Xreal One Pro AR glasses because they do one thing very well. Watching movies or TV shows in a very nice light experience. 90 grams. For me, that the first of all of this device that I can start to use regularly without creating a headache, having any pain, or requiring any crazy device to connect it to. So I’m hopeful.

I think this industry is going to deliver at some point, but it’s device by device, use case by use case that it’s getting solved. Maybe another category we have both experience it’s the Microsoft Surface RT device, the first device with an ARM CPU. And that’s more than 10 years ago.

Nuno Goncalves Pedro
The Surface RT is on my list of I hate this thing. I hate it. Yes, it’s like awful. What an awful device. It is literally like 2012. I mean, it’s an object that I can just keep there, but I never really used at scale. I mean, it’s awful. So much potential, so bad.

Bertrand Schmitt
Yes. What’s interesting is that it’s not perfect, but with Qualcomm and the launch of Windows on ARM and the relaunch of Windows on ARM in 2024, I think Microsoft finally managed to make it work. There is enough support, there is enough compatibility, there is enough of a good value proposition, long battery life, not too slow, and at a good price point that I think they finally managed to make it work in a business sense. But yes, 12 years is a long time.

Nuno Goncalves Pedro
Yes, it is. 12 years, I think to get something is bad. So that doesn’t work. Talking about stuff done with Windows. But anyway, the IBM ThinkPad, I think it was a 701C, 701C, which had the butterfly keyboard that came out seemingly amazing. I pined for that laptop, and then it was a really poor experience in terms of writing. The keyboard wasn’t great. Felt a bit clunky.

It wasn’t a great keyboard. Keyboards are a lot about feel. This one didn’t make, and that was the key peel of that whole laptop. I had had a couple of Toshibas before. At some point, people forget this, but Toshiba had some of the best laptops in the world, certainly on the Windows side. But the ThinkPad 701C was a tremendous one because of the butterfly keyboard.

Bertrand Schmitt
So how did it work? You could open the keyboard.

Nuno Goncalves Pedro
Yes, so you’d open. It was very. The width was shorter, and when you opened it, it slid open.

Bertrand Schmitt
It slid open. Oh, well.

Nuno Goncalves Pedro
Yes. So it was like… I think they call it butterfly. Yeah.

Bertrand Schmitt
Okay. Okay. I realized I didn’t know this device.

Nuno Goncalves Pedro
It was a really cool thing, but apparently it did not work very well, which led to it not really scaling as a solution to having a larger keyboard. So that was not good.

Bertrand Schmitt
Yes, interesting. That’s one thing I like about the Windows environment is a lot of trial and error, and as long as you’re okay with at least there is experimentation. Talking about experimentation, the Wintel Netbooks. Do you remember the netbooks? It was all the reg in some seven, eight, nine, maybe.

Nuno Goncalves Pedro
My God. Yes. Awful.

Bertrand Schmitt
I don’t know. But they launched so many of them. A smaller device. 8, 9, 10, 11-inch screen, Celeron CPUs from Intel. I bought so many of them each time, believing the next one would be the right one. It was always too slow, not enough battery life, screen was not big enough. It was just a horrible experience.

It was a time when PCs could be way, way, way too slow. If you don’t have the latest and fastest, you will be in trouble, and the definition of a netbook is that it was never the latest and fastest CPU. It was an honourable experience, and strangely enough, it got completely destroyed by the iPad. Because I think anyone like me would somewhat use a case like this. Ultimately, if you wanted something very light, seen with some battery life, portable, not a full computer, then you would go with the iPad with some sort of keyboard, and that was it. It got completely killed by the iPad.

Nuno Goncalves Pedro
Well, from my end, I already said this was one of my defining devices, positively, which was the Compaq Deskpro 386S, and it was also one of the most disappointing things because I think that’s where the device that led me to finally understand the Tech life cycle. If something’s way too expensive and honestly, in 2 years’ time, you have something much better in the market, you shouldn’t buy it, right?

The device that made me understand that very clearly, and I started working around then, actually, I think I started working even a little bit before then, sort of led me to not give it much value and at some point in time I was like, well, it’s just too expensive for what it was and for what I was using it. It was a little bit of a disappointment over the years.

Bertrand Schmitt
Yes, and also I had a lot of Microsoft phones over the years. One of their first Windows Pocket PC they call it, which was also called Windows Phone. It was maybe 2002. I kept buying some Windows phones once in a while, but I remember when Microsoft tried to do a relaunch around acquiring Nokia and facing the onslaught of iOS, I would have a few Microsoft Lumia phones.

I still remember using one at a show, and a Microsoft exec came to me and was very glad to see me using it, and he said, you know what? It’s the first time I’m seeing a non-Microsoft employee using a Microsoft phone in the wild. He used the word in the wild. Outside of a Microsoft campus, what I didn’t tell him is that I had an iPhone and an Android phone in my pockets. That was my third phone. That was not my main phone. But yes, that was a big mistake. Microsoft was completely losing it. The fun UI was kind of okay, but you had no apps.

Nuno Goncalves Pedro
It was nothing. Yes.

Bertrand Schmitt
It was just dead on arrival. We saw apps in 2011, 12 was not okay.

Nuno Goncalves Pedro
Talking about the tech that influenced us dramatically, and we focused this episode a lot on hardware right? Physical things. But I’d say Windows Mobile and Windows Phone in general were awful experiences. All the different HTCs that got launched, et cetera, et cetera. I mean, it’s just not great experiences. They were sort of onto something. The Palm was onto something as well, early on, of what would become the smartphone category. But they totally underdelivered on the experience.

Bertrand Schmitt
The experience was odd, but I must say I used some of them. I had the Nokia, the Ericsson on the side, but I must say I managed to make it work. I would not complain as much. They were not the stars of the show, but they were working for some of my use cases, I would say.

Nuno Goncalves Pedro
It was so clunky, though. It worked. It was clunky.

Bertrand Schmitt
It was clunky. You had to use a Stylus, for instance. That was our approach, and definitely that’s not the right option, but I still remember using them, and it was certainly more useful than Lumia, for instance. There were more apps, more use cases.

Nuno Goncalves Pedro
On the mobile phone side, two notables. One, everything that I ever bought on crowdfunding, I bought three phones between Kickstarter and Indiegogo. The three were crap. Obviously, massive delays, awful phones, really disappointing. I think I should have learned better than pre-order devices, mobile phones. I did recently a similar mistake with another one. I won’t say the name, but if you guys are paying attention, you’ll remember because I mentioned it in one of the last episodes.

Then on the mainstream side, I’d say the original Palm Pre. The webOS experience wasn’t good. They did rectify it, by the second one it was a great experience, but the webOS, I still think, was a great operating system. AVI still, in some ways, evolved from there, and LG has sort of carried a torch on that. But the first Palm Pre was a very disappointing device in terms of performance.

The form factor was really cool, like the Peblish kind of form factor that you sort of slid it. But it was very disappointing. I had way huge expectations on it, and it didn’t really deliver.

Bertrand Schmitt
Yeah, webOS was in a lot of trouble. Another category of device was Microsoft’s early tablet PCs. Some were built with HP, and I remember using that 23 years ago. I don’t know, and this stuff was so slow. I still have a painful memory of how slow it was.

That was before the netbooks, and that was these early iterations of the tablet PCs. Now it’s a great experience on Microsoft tablet PCs. I think they made huge improvements, but early on, it was just too slow, not enough battery life. I still have painful memories about that.

Nuno Goncalves Pedro
From my end, I don’t know if you remember these keyboard projectors. There was a projector that would project the keyboard, and you could write on it on your phone. Or even if you had a laptop, potentially on your laptop as well. What a disappointment all of those were. I tried a few, and at just some point I gave up. Maybe today there’s a good one, I don’t know. But what a category crappy experience in general. All the ones that I tried so again, the promise of AR VR, even in terms of input, has been very, very poor.

Bertrand Schmitt
Yes. Now, keyboard projection, the issue I had when I tried was that you end up having to type on your table and typing on the table. That’s not nice, that’s not enjoyable. You want to press stuff you don’t want to tap and hit an immovable object. The concept was flawed. Once I tried, I completely lost interest because I didn’t see how it could be changed.

Maybe for me, the last worst tech purchase, and this one is probably croning anything else, was when I bought an Aibo robot dog from Sony.

Nuno Goncalves Pedro
No, no.

Bertrand Schmitt
I bought the first generation, and that was probably 25 years ago. My God, that was very expensive. I forgot the exact price, but at the time it was very expensive and it was so totally, utterly useless. That one was bad. Totally useless, super expensive.

I mean a great tech demo for Sony if you just want to play with it an hour. But beyond that, totally useless. I keep watching that category, the robot dog category, for a while, and I see a lot of improvement going on there. But just go back to the core question of what it is useful for? We’ll see, I’m not confident there is really a market for this, but it will be interesting if, with enough improvements, it starts to provide some value.

Nuno Goncalves Pedro
What are the reflections and the takeaways of all of this? What did we all learn out of this? What are the key lessons learned? I already mentioned that some of these devices had a profound influence on myself. Did Bertrand mention it? Maybe a shout-out to all our listeners?

We normally don’t do the shout-outs, but this is a particularly good episode. If you guys want to comment on devices that were positively affecting you or negatively affecting you in some way, please send us a message on X or on LinkedIn, or you can use our email. When we send out the mailing list. For those who receive the mailing list, shoot out a message back to us. We’d love to hear from you. But Bertrand, what are the takeaways? What are the reflections?

Bertrand Schmitt
Yes, that’s a good point. One thing I realized, if you watch the long arc of tech history, how things have changed. I mean, when you look at the gadgets we were using when we were young and how technology has improved since then, it’s pretty amazing. I mean, from stuff that can barely have a screen, from stuff that have very little to no battery life, from stuff that is so slow that it’s barely usable, to now you have ultra powerful computers, cameras always on in your pocket with a day of battery life.

I’m always impressed to have been able to witness that arc of history. That’s point number one for me. Point number two is that some companies that drive innovation, like Apple in the 2010s seem to have stopped driving innovation or gone completely wrong. If we take the Apple Vision Pro, it’s an example of a device I would have expected Microsoft to launch, but not Apple.

I feel that some companies have an innovation issue. If you take Apple, for instance, there has been no innovation on the iPhone for years now. Also, Chinese manufacturers managed to innovate and provide an affordable or flippable form factor.

I think innovation has changed direction. Another category we talk about, virtual reality, virtual AR glasses. This is a category that has not found its stride, that has not matured yet enough, that has not reached economies of scale. That’s always a category to watch as a result.

But at the same time, you have to be prudent in that category because mistakes are easy, stuff is expensive, and marketing is still probably pushing too strongly stuff that is only ready for some specific use cases. I think everyone will be better off if we are clear and honest about which use cases benefit from such a form factor.

Nuno Goncalves Pedro
Well, my lessons learned, I think the first one, if it’s a category-defining device or if it’s a new category that’s trying to be created, it’s going to be hit-and-miss. Actually to be very honest, it’s going to be mostly miss. The device that’s being created is actually going to be clunky, the user experience is going to be a bit flawed.

There’s maybe one company in history that has had a relatively good track record, which is Apple with the iPhone, with the iPad, et cetera. But honestly, there was a gentleman called Steve Jobs who was still alive back then. We just saw with the Vision Pro that that doesn’t necessarily reflect post his death. If you’re looking for those kinds of devices, our advice is to wait. See how the iterations go, and all the ecosystems get built. In particular, I think the key issue is ecosystems, right?

A lot of these things get built on ecosystems of content and software. The app ecosystem, for example, for the iPhone was defined one year later was when the App Store launched, right? That’s what sort of shifted the whole smartphone arena.

In some ways I know people just want to get their latest gadget, but if you’re thinking through something that’s significant cost, and you think you’re going to use it with a very different kind of use case, and it’s category defining or new category, I would just advise you to wait because likely the odds that their first version will actually deliver are incredibly, incredibly slim.

The second lesson learned for me is that it’s all marketing, right? Some companies are better at marketing than others. We’ve seen that over the years. I mean, Google historically was always poor at explaining their products in general and even their hardware than Apple. Apple was always very good at it, or at least in recent memory, since Steve went back to Apple back in the day.

It’s really interesting to observe that. Like, just forget the marketing, right? I mean, wait for the device to go into the market, look at what reviews are out there, look at what people are saying about it, and then make your own decision if you want to buy the device again. In particular, if the device is relatively expensive, I’d say that’s probably the best way to go.

Then third, you’re always free to buy whatever you want, right? If you have the share of wallet to buy gadgets and to play around, and you’re a nerd like me and Bertrand, just go ahead, right? But just be ready for that level of disappointment, and be ready to, at some point, have enough devices to do a museum.

I’m looking forward to getting some advice from you guys out there, our listeners, on what I should do with my mobile phones. But that’s basically it. I mean, at the end of the day, just be ready to get disappointed a lot, and once in a while, you’ll find the gem, you’ll find that one device that will be like, wow, this changed my life. This changed how I use things. As we mentioned in the first part of our episode today.

Bertrand Schmitt
The gadget space is pretty hard because let’s say you are a small independent company or startup, and you start to make something truly innovative and useful and that works, you know you are going to get copied by Apple and Samsung very quickly when the value has been proven, and therefore how do you fight this giant? That’s a big question mark.

We have seen some Chinese manufacturers who manage to fight off by being very adaptable, having very short cycles to develop products and being close to hardware manufacturing to keep costs down. But that’s a tough space when you know that if you are not successful, you die.

If you are too successful, you get killed by Samsung or Apple. You have to be somewhat successful, but not too much so that you can create your own niche that will be considered too much of a niche by the big electronics giants.

Nuno Goncalves Pedro
It’s a little bit like if you’re a consumer and if it’s mainstream, it’s relatively safer to buy from a larger consumer electronics company. Well, a branded company than something you’ve never heard about or a niche one. If it’s a niche category, then you probably need to buy from a niche player. I wouldn’t risk spending a lot of money on a niche play on a mainstream category, like buying a mobile phone now from an unknown vendor wouldn’t strike my mind right now.

Bertrand Schmitt
I agree with that. If it’s very mainstream, you want the safety of that big brand. If it’s a quirky niche, and you have very specific needs and use case, and you feel these are truly resolved by this manufacturer, yes, I’m ready to give it a shot.

Nuno Goncalves Pedro
In this episode of Tech Deciphered, we went through the gadgets that made our hearts warmer and the gadgets that broke our hearts variety of consumer electronics across the board. We even talked about watches, gaming consoles, and a variety of other key elements that transformed our lives positively or that, in the end, were significant disappointments.

Thank you for paying attention to us, and as mentioned earlier, if you like this episode, please send us your loved objects, the ones that changed your life, the tech that changed your life. Please share with us as well all the big disappointments you’ve had. Please send it to us via X, email or LinkedIn. Thank you, Bertrand.

Bertrand Schmitt
Thank you, Nuno.

View Details

The reckoning is here. Once a safe harbor, Big Tech has finally also gone full out on layoffs. Is this a structural shift to employment in Tech? Will the subsequent talent spillover be great for start-ups and entrepreneurship? Will it positively affect other industries?

In this episode of Tech Deciphered, we will answer these and other questions in a deep discussion on the Global Tech Labor reset.

Navigation:

Intro (01:34)
Layoffs & Restructuring
Shifts in Compensation & Perks
Rise of Fractional, Freelance, and Solopreneur Work
Talent Spillover to Other Sectors
Geography & Culture Shifts
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 66 of Tech DECIPHERED. Today, we’ll talk about the global labour tech reset. Tech and big tech, which seemed immune to any lay-offs, seems now to be under fire. Massive lay-offs over the last 2.5 years, a lot of discussion around the importance of having a computer science, computer engineering background, and so what seemed to be a safe haven for any graduate is now under stress.

Today, we will discuss the structural perspective on what’s happening in the market, if this is a long-term trend or not, what has led us to this, and what is next. We’ll talk about the rise of fractional freelance and solopreneur work, as well as talk about talent spillovers, and some of the usual geographical dynamics around the space. Bertrand, a huge shift in tech.

Bertrand Schmitt

Yes, definitely. It’s pretty big. I think it started probably around 2022, once we got some changing interest rates that have a pretty massive impact in stock prices for a lot of companies. At that time, a lot of companies decided, and usually under some pressure, that it was time to be more efficient, to generate more cash. Yes, you want to grow, but not grow at all cost. You have to go efficiently.

That’s when we started to see some share price going down and step by step, quarter after quarter. Some change in attitude with a lot of big tech and that has created some impact in term of lay-off from different parts of the business, from the sales team to the DNA, to even engineering R&D.

What is also been happening since 2022, 2023 is a change of focus. A lot of focus is being put in AI. A lot of investment in CapEx is going to AI. At some point, if you want to keep doing all this investing, investments, you might have to get some other part of the business in order to create additional savings to do all the spend you can in AI. There has been more recently a switch. It’s not about just efficiency to push all the… But generating the ability to invest in AI.

Nuno Goncalves Pedro

It’s part of a broader movement. Before we step back a little bit and go back in history, even recently, we’ve heard that there’s talks between Meta and a bunch of private equity firms like KKR, Brookfield, Apollo, and others, to actually help in financing data centers. Meta is a gigantic company, so one would assume they have cash to do all these things. Maybe they don’t.

To your point, that level of efficiency that is now needed in the market where you need to throw actual money, CapEx, into the building of infrastructure, the building of the core underpins of what you’re doing is pretty vital. But let’s go back a little bit of a second, and we’ve talked about it maybe in our early episodes.

Companies like Meta, Facebook back in the day, Google, Alphabet now, and others had a tendency, in particular in the Bay Area, to hoard engineers. They would over-hire. There was a lot of discussion that some of these players had as much as 20%-50% the engineering resources they needed, and part of that is that they didn’t want their competitors to have them, and so in some ways, we went from hoarding too much capacity to the days of COVID that in some ways illustrated that there were a lot of people that maybe were not working very hard also on the engineering side, not just on the sales, et cetera side.

That right-sizing, I think, has been a long time coming. We discussed in a past episode that there was a little bit of an adaptation, or an adaptation, rather to the market by a lot of these public companies saying, “Now that I have a mandate where there’s lay-offs happening in other industries, I can do it myself.” But this time is different, and I think the message of probably today’s episode is going to be around that. This time is different.

There are some fundamentals that have changed. Bertrand has already alluded to AI as one fundamental shift in terms of the efficiency of engineers, in particular more junior engineers. There is more behind this. There is the notion that you need less to deliver more. In tech, I would start with a platitude. I think if anything, everyone talks about AI and how AI is going to disrupt financial services, and it’s disrupting functions like marketing, and displacing people around, for example, customer service, and all of this. But a lot of people forget to talk about the most obvious industry that’s being disrupted by AI, and that industry is tech.

Tech is disrupting itself with AI because you have all these tools available, you have all these platforms that you’re deploying, and they have value for your own purposes. They become the underpinning of a more efficient workforce, in particular if you’re a tech company. A lot of people don’t talk much about that, but I think a lot of what we will talk today around lay-offs and efficiencies and all of that actually do relate to the fundamental shifts we’re seeing where the emergence with a lot of these AI tools and platforms that we’re seeing, so tech is disrupting itself at the end of the day.

Bertrand Schmitt

I think AI has two effects. One is it’s so big, it’s so important, you cannot miss it as a business that you are going to reallocate resources. From your traditional product lines, your traditional development, expansion, creation of new features, and you will reallocate instead more money to AI. It can be one side, can be just CapEx, and the other side will be, of course, software that you want to develop connected to AI.

I think that was the first effects that started early on. What it means is that many companies ultimately decide to fire people who are not so AI knowledgeable and instead hire people who have more expertise in AI. I think what you are talking is a second effect of AI. Now we start to reap the rewards of the investment in AI. What we are seeing as a result is that we can do more with less.

Basically, if you’re a software company, or a tech company, you have a lot in software engineering. If you have a lot in software engineering, guess what? One of the best way to leverage AI is actually to use it to develop more efficiently, faster. The tools have gotten better and better, what we got 2 years ago was barely usable, 1 year ago start to be good. Now, I must say, it’s shockingly impressive what you get if you have tool like Visual Studio or if you use some other tools on the market that are even more focused on AI.

It’s quite shocking the quality of the code auto completions that you can get. It’s quite shocking what you can get from other tools directly like ChatGPT. It’s definitely like having a buddy that can support you, check your code, provide you some IDS, run code, help you go faster through documentation, testing. You are going to save time. The first effect might be, you know what? We can do so much more with the same workforce. Maybe we can reduce slightly the workforce, and we’ll still do more thanks to AI.

Of course, there might be a question of you might want to keep the same size of software engineering so that they deliver even way more than before and your pace of development is truly accelerating. Companies are facing multiple options here. It looks like many are choosing to be more efficient.

Nuno Goncalves Pedro

Yeah, there’s just… Let’s talk numbers, right? In terms of lay-offs, 2024 alone, it seems like the number was around 250K-260K, globally, people were laid off.

Bertrand Schmitt

In tech.

Nuno Goncalves Pedro

In tech, yeah. This is global tech lay-offs, right? In tech, 250K, 260K tech lay-offs in 2024. In the US, it varies. We have numbers that go from 95,000-150,000 tech jobs in the US alone that were laid off in 2024. We’ve had numbers that over a period of 2.5 years, 400,000 people in tech were laid off globally. These are massive numbers. This is an industry that by itself was already, in some ways, part of some efficiencies. It’s not the most inefficient industry in the world in some ways, so very significant numbers that we’re talking about.

Bertrand Schmitt

It’s not just lay-off, it’s also who you are not hiring anymore. I think we found an interesting stats and the quantity of entry-level tech jobs have dropped by 50% since 2019. Before the pandemic, new graduates made up 15%, of big tech hires. Today, it’s just 7%. We’re moving from 15% to 7%. It’s pretty shocking.

Where is it coming from? We talk about general cost-cutting measures post-COVID, but for sure, there is a lot around AI and automation, and especially since that AI is replacing a lot of more entry-level jobs. It can be QA, it can be IT support, it can be some software development. It’s definitely a big change. One thing not to forget is that computer science used to be a much smaller field 10, 20, 30 years ago. It has expanded a lot.

To be frank, I don’t think the quality of the graduates has stayed high. The more you expand the pool of people working in industries, the less you have the best of the best. As a result, you could argue there is a lot of people who are not either so good or so really interested in computer science, who still end up in computer science because that was the thing other people were doing. That was a safe way to get a job after your studies. But it was not because they are incredibly excited and knowledgeable about the space. It’s not because they are excellent developers.

My guess is that when everything is great, everything is easy, that’s good. But when there is tension in term of hiring, then it’s going to be trouble for a lot of people who don’t have the interest, appetite, and quite frankly, sometimes the level of what it takes to be a software engineer, for instance, in that new age. If you are not an expert with AI tools, if you don’t know AI deeply, why would a company hire you?

Nuno Goncalves Pedro

I think there are three important things to highlight here. The first one, and we’ve talked about it before, is, and this might be surprising to some people who are not computer engineers or computer scientists in background that might be listening to us, but there used to be the mythical figure of the 10X developer. Being a full-time equivalent can do the job of 10 good engineers.

Those developers do exist. Shockingly enough, they do exist. I’ve met a few in my career. I’ve been lucky to have a couple of them working with us at Chamaeleon. But amazing people that can do really the job of 10 people. I think what’s happening in the industry, to your point, Bertrand, is there’s a lot more variants in the quality. You have a lot of people that are not great. If you’re not a great developer, the problem is you’re actually probably having a negative impact in the projects that are involved in and slowing them down.

I think the second factor, which is really important to highlight, is some of these roles, and not to basically downgrade what the roles are, they’re very important roles, but some of the roles around DevOps and dev tools, around QA become specialists roles, but they’re roles that are a little bit less engineering-heavy, and they actually match some of the junior developer roles, which are what I’d call breaking stone issues.

You’re trying to do hardcore integrations, convert code, clean up code, et cetera. But at the end of the day, it’s not a fundamental engineering problem that you’re trying to solve for. AI, as we know, is extremely well-equipped to solve issues around that. It’s the issues that are very repeatable, that through testing can have relatively low impact in some ways at the end of the day in terms of the code base that you’re actually maintaining.

Then the third piece, I think, is some people might say, Well, but then is computer science that and computer engineering is that? What matters? No, it’s not. Actually, there are roles in computer science and computer engineering that are becoming even more and more vital. People that have very strong architectural view of code base, of what they’re developing, people that have full on, full stack knowledge of the world, people that have very deep knowledge around legacy systems, for example, embedded system, coding, et cetera. All of those right now don’t seem to be as under threat as other types of roles.

In some ways, we even have a more significant part of the haves and have nots, which you, Bertrand, very alluded to, which is people that have very deep domain knowledge around artificial intelligence. We’re now seeing an arms race for that talent, which the joke is going on that obviously Matt is trying to hire people and paying $100 million in our issues or whatever that is. I’m not sure how much of that is true.

Bertrand Schmitt

Just bonus.

Nuno Goncalves Pedro

Just bonus. I’m not sure how much of that is actually true or not and what the rules are for, but there’s this arms race for that talent. That talent is even more valuable because, again, back to the point, it’s probably seen as more scarce right now. It has a competency that, at least at the current time, AI cannot easily replace. Again, you have to put things, again, horses for courses. That’s why I mentioned these three little pieces of items, which is we have to serve, see it’s nuanced. This is not a one-size-fits-all lay-off, mass, you’re done, thing. It really depends on the role. It depends on the seniority of the person. Depends on the competency in the area that they’re involved in.

Bertrand Schmitt

In terms of AI, there are really two situations. Either your core knowledge and expertise lies in AI per se, you are a data scientist, an AI engineer. The other side is that you are really good at using AI to do your usual work. Suddenly, if you are a software developer and use all the latest AI tools, and as a result, you are 2X, 3X more efficient than before, that’s definitely a level of expertise that companies will also be interested in.

I remember reading an interesting stat that people who best benefit from all the latest AI tools to do software development were actually the most expert developers who made the switch to using these tools some time ago. They were much better leveraging AI than younger developer, for instance, with little expertise. They will benefit from AI tools, but not as much as a pro developer. In a way, the gap is getting wider between entry-level people might have started to use AI and true experts who are also experts at using AI tool. It’s a gap that has been increasing.

I wanted to share two stats I read from the latest COA 2-2025 deck. They shared during their conference. One, they were showing an interesting analysis about Microsoft employee count, where basically between in 2022-2023, the number of employees stabilized. At Microsoft, it went stable at around 230,000 people.

Then we had a peak, a strange peak around July 2024 at around 240K, 250K employees. Since then, so basically since the past 12 months, the number of employees has constantly been going down. One of the questions would be, as Microsoft, which pick employee? Microsoft, by the way, show a stat that 30% of all their code now is generated by AI, 30%. That’s pretty impressive.

Another company, a much smaller one, but quite successful one, AppLovin. Another interesting stat is that in the past 4 years, they have doubled their revenue per employee. Their revenue per employee started from 3.6 million per employee. It was not starting from a low base easy to increase. It was starting from an insane number, very high number. They managed to double that to 7.6 million revenue per employee. During that period, they actually decreased their number of employees. They went up to 1,000 people and went down as of today, to maybe 750 people.

It’s very impressive to see even smaller companies, less than a thousand employee, has managed to increase so much their revenue per employee and took the decision to decrease actively their number of employees because they could have said, “You know what?” We need to invest in more stuff, and we need to do more stuff. Let’s be careful. Let’s keep increase employee size. But no, they decided that they can do more and keep increasing the business while decreasing employees. Even a world-leading revenue per employee.

Nuno Goncalves Pedro

It’s a two-tale side at play. One is that there’s a lot more code being actually generated by AI and tools. Garry Tan, the CEO of YC, has said that at least a quarter of their companies, more than 95% their code was generated by AI, which is silly. More than 94% of the code was generated by AI.

Then the other side is then you have these rapid growth micro companies that have very few employees as startups and are scaling through the roof. We’ll come back to that a little bit later because that changes a lot of the dynamics around employment in engineering, R&D, development, et cetera. But we’re now seeing a lot of these companies that are growing super fast with very few employees. Maybe that’s an interesting segue. Then what happens to salaries? Our salary is going to go through the roof for everyone involved. Not really.

As you said, actually, there’s a lot of functions where salary growth has actually flattened. In many cases, there’s now some salary decreases around certain areas. It’s again going to be a have and have nots. If you have a certain capacity and skill set, you probably can make more and more money as an individual. But actually, across the board, what used to be the core rules, the rules that carry the organization, for example, in terms of development, it might be that there is a salary flattening over time.

Bertrand Schmitt

There is that question in Silicon Valley right now about when will we see the first one employee unicorn? What’s your take on this one? When will we see that?

Nuno Goncalves Pedro

I think sometime soon. I’m looking forward to when we’ll see a zero employee unicorn. An agent will create some…

Bertrand Schmitt

Zero employee, technically.

Nuno Goncalves Pedro

A zero employee. I’m an agent. I created my own self and I created a company. I’m not sharing it with anyone, and I’m a billionaire, and I don’t need VC money. That’s going to be cool. I don’t know. I think we’re probably going to reach it at some point.

There are some of these numbers, again, just to take this with a grain of salt, because a lot of these companies that seem to be growing at the speed of light, we’ve already talked about it in previous episodes, but a lot of these companies that are growing at the speed of light are getting subsidized to grow at the speed of light. They’re getting a lot of money, for example, to bolster their infrastructure. We already discussed it today.

The fact that you might be very lean in terms of your employee count might still mean that you have a lot of costs that you’re incurring in terms of your cloud processing, compute, storage, et cetera. It’s not like you don’t need capital. You might need capital, actually, you might need a lot more capital, but basically just your team is much smaller.

We have to look at some of these numbers with a grain of salt because there’s subsidization going into this. We’ve discussed it also in the past, there’s subsidization going into to go to market. There’s a lot of land grab playbooks out there where companies raise gigantic rounds. Then they might not have a ton of employees, but at a certain point in time, they are spending a ton of money to get to wherever they are in terms of, for example, annualized recurring revenue as a metric.

Again, I would be a little bit paused on… It will happen, I’m sure, the one employee unicorn, or the one-person unicorn, founder unicorn, single founder, only person on the team unicorn. But we’ll need to look at it with a little bit of a fresh lens at that point in time.

Bertrand Schmitt

As you say, if you have big needs in term of CapEx, for instance, because you are building your own training clusters, for instance, for sure, you might spend a lot on that side. As a result, yes, you might have less employees, but does it still mean you are profitable? Maybe not.

You are right that another part could be the go-to-market spend. It could be enormous, especially at times when everybody is going all in in the eye. How do you differentiate yourself? How do you make yourself visible in the middle of all this noise? It might be very hard. It might be very hard. What do you do? You go out and do some marketing spend to correct for this.

It’s not because you have smaller teams that it means that you are profitable. But my bet would be that at least if you are more focused on the software side of things, not investing too much in infrastructure, you probably are in a better spot than before in term of capacity to be profitable. But at the same time, you are right in the middle or in the beginning of a big race, so not investing enough could be a dangerous game.

Nuno Goncalves Pedro

Everything changes. We started talking about salaries. It changes with equity grants, bonuses in general. We had the parentheses around some of these AI roles that seem to be super overpaid at this point in time. Like a superstar rock star signing, a little bit like a football player thing. But in general, there’s a little bit of a stepping back on bonuses, a stepping back on equity grants.

The perks, there was a step back. I’m not sure that’s true anymore with the perks. There’s now a push to get people back into the office in many of the large companies. I think the concern there was a concern around culture, but also a concern around people hiding and not doing anything, of which we knew there were a mass amount of a significant percentage of people hiding and not doing much in terms of work, in particular around some of the engineering disciplines.

I think this perk thing is probably a tale of two cities kind of thing. There’s a reduction in perks in many companies, but at the same time, there’s maybe a comeback of perks in other companies so that people do go to the office. But in general, perks, I don’t know. My perspective is that tech will still be ahead of the game in terms of perks it gives to his employees, in particular if we’re talking about Silicon Valley and some of the big tech companies in the US, Silicon Valley, Seattle, et cetera. But what’s your read, Bertrand?

Bertrand Schmitt

My guess is that I’m not sure perks have been going back in a big way in general on average. But what is true is that the past 2 years, there have been a lot of forcing back on place to come back to the office. In some ways, that has been used as a way to get rid of people who are not willing to relocate back closer to headquarters, not willing to go back working at the office. In a way, it was a soft lay-off. In many situations, there was also no compensation. Basically, if you are not coming back to the office, you are resigning. It’s not that you are getting fired. That was also a way to do it on the cheap, even from bigger companies.

Personally, I understand that. It’s logical to say that if you’re not willing to come back, I mean, you are resigning, basically. But I would say my exception would be depending on what was the company policy, because if you got hired with a specific reason that, “Hey, you can work from remote, and you can work wherever you want.” I mean, it’s a change policy. If there is a policy change, I don’t know if it’s totally super fair to play that game in such a way. I think it really depends on a case-by-case basis.

Nuno Goncalves Pedro

We’ll see how that evolves if big tech will take away a lot of its perks, and they’ll go back to normal. If all of this is happening, what’s the positive end of the spectrum? Is there something emerging that is positive in terms of growth, in terms of different employment, and around big tech in general? We’ve already mentioned AI and some of the AI skills, people that have deep knowledge that have come, for example, from the research side, that have come from the applied maths side of the fence, which is pretty vital for AI at this point in time.

But there are other pieces that are really rising, and there’s a rise of different roles and a different working. Many would call it the fractional roles, freelance roles, solopreneur work. There, we already started seeing it a long time ago. Startups in particular needed fractional talent. Very early on, for example, the classic one is the CFO, a fractional CFO. “I’m a startup. I don’t need a full-time CFO for a long, long time. But I do need someone to keep up my books and my accounting and for me to bounce ideas of and have all the accounts in order, everything like that.”

Now we start seeing fractional CTOs and fractional Chief Marketing Officers and fractional chief revenue officers, et cetera, et cetera. All of this is emerging not only because of lay-offs, but because in particular, if you’re talking about a startup, the half life of some of these roles is pretty limited early on. You don’t need someone, first of all, to be full-time.

Secondly, you need very specific things and very specific help. You could say, “Consulting could be an obvious thing for this.” But consulting is not cheap in general because there’s overhead and there’s a bunch of other things that are being loaded into it. It’s easier to have either a fractional firm that’s a little bit like a body shopping entity or individuals that do this with part of their time.

In some ways, I think what’s cool right now with this emergence of significant lay-offs, which is obviously bad news, is a lot of this talent is in the market. They’re like, “You know what? I could actually make myself available to a variety of organisations at the same time instead of just working for one. Honestly, I could make more money working for five or six organisations.”

I have a very good friend of mine, and he started doing consulting after his last startup. At a certain point in time, he had tons of people working for him, and he built a firm, and he’s been doing it for 5 years. It’s a deep functional expertise that he had and that he built in his firm. Then at the same time, there was a very deep segment and audience that he was catering to in companies. So that can actually work for significant amounts of time. I call that a little bit the podification of work. It might start with an individual doing this as a one-off. But over time, that individual starts building a team and starts building infrastructure and starts building around a couple of things.

Again, similar to what we’ve seen, for example, with fractional CFOs, with outsourcing companies for IT and for development. We’re now seeing it across a variety of functions. I think that’s actually super exciting.

Bertrand Schmitt

Yeah, I think it’s a good thing. I think some individuals will find success in that. But given the increase in this function, of fractional CFO, CTO, CMO, I would say I’m mostly doubtful that it’s more than a temporary situation for a lot of people. I don’t see how the market can adjust to such an increase. I think the trend was up 70X on LinkedIn, so it doesn’t sound something that will still exist forever.

I think some will definitely adjust. As you say, I also know some people, some fractional CMOs who have built their own team, it’s half a dozen people. I think it’s definitely a good trend and something that can be helpful for a lot of startups because when you have to start building a new team, a new marketing team, a new financial team, that can take quite a while to have the right people in the team. In the meantime, outsourcing to people who have real expertise that should also help you build the right team internally step by step. Personally, I think it’s a great idea as a startup to leverage some of these resources.

Nuno Goncalves Pedro

Yeah, maybe new companies will emerge out of this. The question is really, is this a temporary piece or not I’m a little bit more on the other side. That’s why I think there are elements in terms of the stack of functional knowledge that are not temporary. Will most of these people make it? Of course not. I mean, most of the people will fail miserably. Out of this, some companies will emerge, some new companies that will be better at catering to the beginning of the life cycle of a company, so the startup phase. Others will just stay as podification. My friend’s company is a good example of that. They just stayed within a certain size, and they did very well. I’m not sure his objective is to be the next mini Accenture for whatever space he’s in.

I feel there’s a little bit of staying power and people want that, I think, freedom. They want freedom, they want autonomy, they want quality of work. They want to be able to select the projects and the teams that they want to work with and the ones that they don’t.

I think one other effect is people like you and me. We have day jobs, we do stuff. I run a VC firm, you’re in a VC firm. But then we have side things that we do. It’s natural that people have side things. Obviously, our friend, Elon Musk, is probably the one that has more side things than everyone else. He has several companies as side things. But in general, it also means that people like you and I, when we have domain knowledge on the side that we can apply to other domains that are not necessarily the domain we’re spending our time in.

For example, I don’t work extensively with corporations right now. I work with startups, and I have investors. I have limited partners that I need to cater to. But I have a bunch of knowledge around digital transformation, innovation, scale up of companies, et cetera, et cetera. How do I share that? Starting to have platforms in the market, for example, Intro is now making a bit of a splash in the market. Having some of these platforms in the market that allow you to actually be procured by other people that need your knowledge is very powerful. Some of these platforms have existed for a long time, the GLGs of the world and all of that.

But I feel there’s a new momentum here emerging around deep expertise, subject matter expertise, knowledge, and how you scale that knowledge and how you put it into the market. This is still the pre-AI phase, because once AI can create replicas of us and avatars of us, that’s going to be cool, right? I mean, it’s like…

Bertrand Schmitt

I mean, that means we rent our AI by the hour.

Nuno Goncalves Pedro

Let’s get a Nuno avatar to do things, and I can just go and chill on the beach.

Bertrand Schmitt

We can do, yes, 200, 300 hours a week, thanks to our virtual AI. So, that would be the right way to do it. That would be interesting. I start to see this happening, actually. People building chatbots based on what they have written, based on what they have been talking on podcast, building a chatbot based on that and providing access to this chatbot for a fee. It’s actually a very interesting development.

That’s also, for me, an interesting proof that it’s good that you put in writing or in audio what you are doing. Then you can build this type of AI tools. If you are just doing your job, but your sharing is not really public or in a form that is usable for a chatbot, you won’t be able to virtualise this knowledge. I think that’s for me an interesting development. You could argue writing a book is also something good from that perspective. Even if we know that writing a book is not in itself something that will bring you much money, indirectly, in addition to being a way to advertise yourself, it can be a way to start your virtual self from.

Nuno Goncalves Pedro

Maybe moving to other positive effects of this mass transition in terms of workforce that’s happening in technology, is how is this talent spilling over to other areas? I mean, is it that everyone’s getting laid off in tech, and they’re without a job, and they’re unemployed, or is it that they’re finding jobs elsewhere? Our perspective, at least from what it looks, is in the market, there are some interesting migrations happening. Some of them are the adjacencies. I mean, if you look at things like healthcare, biotech, you could say, “Well, that’s tech as well.” Well, probably most people would disagree. It’s a different tech at the very, very least.

There’s obviously a lot of interesting things happening in the deep and frontier tech side of this fence, but that’s still tech at the end of the day. But a lot of the talent is really spilling over to other areas. They’re going now potentially into companies in finance, financial services. There’s been always this tension movement between FSI, financial service industry, and tech, where FSI typically paid well, at least in certain kinds of roles. That transition can happen during these times. Manufacturing, logistics, government, in some cases, we won’t go. I won’t open the Pandora’s box on that one. We’ll just stay at that level.

But obviously, there’s a lot of talent that’s now migrating to industries, defence, for example, where it might have classically not gone to. There’s a lot of tech talent, for example, going into defence. They might end up in defence tech themselves, but defence in and of itself, in terms of the tech talent that was there, was a different animal, so to speak, as an industry. Now we’re seeing a lot of these spillovers, a lot of these movements of talent, which, in my opinion, are actually very positive. Let’s bring in the love, let’s bring in the expertise of technology to other domains that might actually benefit tremendously from it.

Bertrand Schmitt

Yeah, I totally agree with you. In some ways, it’s funny because it’s reminding me what I saw 10 years ago in mobile, where a lot of people were early in mobile apps. At the beginning, early on in the 2010-2015, mobile apps were really mostly about gaming. But step by step, many people were not so keen to stay in the gaming industry. I saw many moving and switching to different industries who were very keen to have people knowledgeable in app business, app development.

I remember seeing many people jumping to the financial industry, for instance, when banks were building their mobile apps and the like. It was for me very interesting to see that switch. These people were highly sought after by these industries because they were known to have dealt with stuff very early on that were not so easy and that were important and could apply to their own business.

Nuno Goncalves Pedro

I do predict there’s even a more interesting spillover effect that’s probably up and coming as well, which is even founders of startups and some of us investors that might say, “You know what? I just want to go and do something else in another industry.” We discussed it in the past, what areas are less impacted by AI. There’s many industries that need so much revamping that even the effects of AI will take years, even decades to be more heartfelt.

The level of core innovation that needs to happen and the underpinning of that innovation, again, some of this talent, founders, investors, they’re more than capable to bring it to other industries. We’re not saying that we’re white knights that are going to save industries. That’s not the point. It’s like the technology toolkit, the understanding that tech skills very, very quickly or quicker than humans is something that’s valuable, we believe, for a lot of industries.

Bertrand Schmitt

One thing, though, to keep in mind because sometimes I see some companies with things they can do as well as Meta or Google or others in terms of developing their own tools or product based on AI. Sometimes I’m just shocked. I’m like, “Guys, come on, let’s be realistic 2 minutes. You don’t have the capacity to pay some of the top talents like Silicon Valley can pay.” I’m talking about cash, signing bonus, salaries, stock options that we increase in value.

I would say I would just highlight that piece of the puzzle because I’ve seen again and again some industries that believe that, “Hey, I’ve hired a few guys relatively cheap from the tech industry, and now I don’t need to buy the products from the Google of the world. I can do it myself.” I mean, good luck with that. Good luck with that. You are not going to be able to compete. Find a way to use this talent in a way that is efficient and smart, but don’t think that give you the ability to compete with the big boys, because you won’t be able to compete.

Nuno Goncalves Pedro

The operating models, to your point, are fundamentally different. If you just hire a few people and say, “Well, now go and do it.” It’s like, well, you’re fitting into an organisation that has specific APIs in mind, a specific value system, how things are done, how the cycles are done, you need to cater not just to individuals, but really create organisations that really are able to scale technology and actually shift how the organisation would work.

If you want a more tech-enabled organisation, you need to create an operating model that is tech-enabled, not just come here and fit in. It’s like you can’t make much work. In some ways, fully agreed, just hiring people won’t solve the problem. Making big bets into pools of talent, into new operating models, into new processes, even into new spin-out organisations is going to make a much bigger impact.

Bertrand Schmitt

Yes. Again, at some point, it’s the very best. We stay in tech where they can get pretty insane salary compensation that no normal company will be able to afford. You won’t be able to fight meta who wants to hire the top AI engineer or top AI scientist and spending dozens of millions on some of the top talents. I mean, there’s no way you can compete there. You have to be realistic about the level of talent you can bring and, of course, making your organisation compatible with this talent. If you don’t change your ways, there is not much anyone can do. But even if you change your way, even if you do a lot of things positively, if you are not able to compete on the comp side, you have to have reasonable expectations as well.

Nuno Goncalves Pedro

Let’s talk maybe about some of the cultural and geographical shifts that we see happening. We’ve talked about many of them because of COVID and during COVID and post-COVID, the logic and what was happening.

A very obvious one is the remote versus return to work dynamic as two extremes: fully remote or full return to work. In some ways, big tech seems to be going back to the return to work, so the whole, you guys can be wherever you are, and you get paid. That has come crashing and burning, so to speak, very visibly and very publicly. A lot of the big tech companies saying, “You need to return to office, and you need to return to an office that you belong to. Otherwise, either we change your salary because you’re somewhere else. If you have an office for you to go into in the area that you’re in now, or you should leave.”

In some ways, there’s a momentum back. I think at least I have been a proponent that the world, maybe with everything that happened with COVID, would go more towards a hybrid model where you have hubs, where people work from the office, again, a lot more, but they get to work a bit from home.

In some cases, we’re seeing a really like, no, you return to the office, maybe you can work from a one day a week, and that’s it. There’s a little bit of a rebalancing, I think, of workforces. Obviously, smaller companies, startups still very much have very distributed teams, in some cases, almost fully liquid still and all remote. But if we’re talking about mid-size, high-growth companies, large big tech companies, it seems like we’re going full on back to the good old days. We’ll see how that pans out.

Bertrand Schmitt

Yeah, I will say on this topic, one thing I have seen and has not changed is that if you are some of the top talents around there on your topic, companies will let you do whatever you want. I know some people who are AI scientists, they are still working from home, and trust me, they are not going to get fired because the companies know that they have a good deal. The guy is there, and he can pick any job he wants if he’s out. I think it’s true of your average worker, but top talent can still impose their rules to most systems.

Nuno Goncalves Pedro

Let me just comment on that. I think it is true, but just for those listening, we’re talking about really top-tier talent. I was just privy to a transaction involving two parties, a larger party and a smaller startup, where the transaction didn’t go through because they were doing an acquisition of a company, the larger party, just for AI talent, and they recognised the smaller company had amazing AI talent, and still they were like, “No, you guys are going to have to come to these two hubs, and there’s no flexibility. We don’t give a shit.”

Again, we’re talking about really high top-tier talent, rock star talent. We’re not talking about the best performers. We’re talking about the the the best performers is what I would say. Then you’re allowed to do whatever you want. Then you’re prima donna, that’s fine.

Bertrand Schmitt

Yes, and I’m sure different companies they have different approach, but some people I have in mind are working for companies that are very well known to not have remote work policies, but they still have for some people. The other piece of the puzzle that some things I’ve heard is some companies that are mandating a return to the office, but they don’t have enough seats.

Nuno Goncalves Pedro

Yes, I’ve heard that.

Bertrand Schmitt

For me, it’s just so unbelievable that you’re mandating employees to come back to the office, but you don’t have the number of seats. People basically don’t have a desk when they arrive, don’t have a parking spot, practically cannot work from the office. You have 20, 30, 40% not enough capacity in the office. For me, just this stuff blows my mind because I have no way. I simply cannot understand how an HR team, how some execs have no clue to such a level that they mandate one thing on one side, but on the other hand, they don’t have the capacity. They do both at the same time. We mandate, and then we don’t have the capacity.

I’m not sure what to take about that. It really made so little sense to me that it’s shocking. I’m talking about really big companies that have the ability to have the visibility and to rent whatever needs to be rented. It’s shocking. For me, it’s interesting. You have what he said, what he talk about. When you see the practical reality, it’s quite shocking to see the, I would say quite frankly, incompetence of some in terms of how the organisers return to the office.

Nuno Goncalves Pedro

Definitely a lot of incompetence. Fundamental shift, maybe switching gears a little bit is, how is work being done? Obviously, we’ve talked a lot about demographics, and now Gen Zers are fundamentally different and looking for authenticity, mission-driven work, having side gigs. They have their work-life balance as a given, and all these elements that are being pushed onto. We’ve also discussed the social issues. Are they ready socially to manage and scale to be managers, et cetera. But I think there’s a more fundamental shift happening right now, in particular, if I look at tech, which is this notion of individual contributor versus manager.

I think we went through a time where there was a lot of more and more management layers. There’s now this discussion where the structure should be flatter. There should be still managers because there needs to be orchestration, but the structures need to be flatter because there’s a lot of individual contributors at the table.

Bertrand Schmitt

It’s more efficient. Too many layers destroy your capacity.

Nuno Goncalves Pedro

It’s always been more in computer engineering. This notion of small teams, highly empowered, highly capable to deliver with a thin layer of management is always, I think, what people have talked about in computer engineering as the best case scenario. I feel in some ways we’re going back to that a little bit. We are going back to the age of individual contribution, and particularly with this AI augmentation, the ability for me to do stuff myself.

I was talking to a founder the other day, and he’s an older founder, a little bit more experienced in the market. He was telling me, “I’m not sure I need a ton of junior developers. I can just go and look for stuff.” He’s the CTO, in this case, of the company. “There’s a lot of stuff I can do myself. I could just look for code, clean it up, debug it, compile it, run it. That’s fine. For basic stuff, I don’t need people.” In some ways, we’re like, this is the max manager, the CTO. In some cases, the CTO is saying, “I can be a contributor myself, and then I don’t need to be managing three or four people. I can do basic jobs myself.”

I feel there’s a little bit of flattening of engineering orgs going on. It might at some point go back to a lot of management layers, but that it feels, at least to me right now, that’s where we are in terms of the cycle.

Bertrand Schmitt

Yes. An interesting thing is that it goes in parallel with that new trend of AI as a manager. Not only you might have less manager for efficiency’s sake, a lot of companies realise they cannot have too many layers of management without losing their capacity to do stuff quickly, to turn around quickly. But on top of it, there is that new trend of management through AI. A lot of people say AI might be able to replace middle management. It’s also an interesting development. It might not just be about AI on the front lines of replacing the most junior jobs. There is a lot of talks about AI replacing managers.

Nuno Goncalves Pedro

Do you want to close down?

Bertrand Schmitt

Yeah, sure. Some takeaways on the topic. Definitely, there is a big shift in tech in hiring. If you want to be focused as a founder, you want to, of course, be cost-effective in hiring top talent, you should probably think about leveraging more fractional roles, talents that are not easy to hire, you cannot afford to hire full-time. You want to stay in. AI keeps improving, if not by the day, by the week, so be careful.

Stuff that you don’t believe could be done in 6 months might be doable with AI. If you are an operator, focus on a retention of your team, focus on best practices, remote, hybrid. I think that what some of the big companies are doing could be your benefit as a smaller company. Don’t think about applying the policies of the big guys because applying a different policies could be a way to get a specific advantage.

If you’re investors, I think that you probably want to think carefully about how this company is using AI, how this company is optimising resources. Are they still living like we used to do years ago? Are they full on in that brave new world, and I think it’s important to push for that.

Of course, some of this is painful when people are fired from their job, are laid off. But on the positive side, that’s usually a way to start again, to start new, to think about how you could do things differently, potentially start a new type of business as we discuss. I think everyone should think very carefully to upgrade their skills in order to better use AI, because that’s definitely the way things are going. Thank you, Nuno.

Nuno Goncalves Pedro

Thank you, Bertrand.

View Details

Robotics is a field that seemingly hasn’t really delivered on its promises. Sure, plenty of robot arms and other robotic solutions in logistics and industrial spaces, but what about the rest… including, Consumer?!

Navigation:

Intro (01:34)
B2B Robotics
Consumer Robotics
Looking Ahead
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 64 of Tech DECIPHERED. Today, we will discuss robotics. Our new overlords are coming. Robotics is a field that seemingly hasn’t really delivered on its promise. Sure, plenty of robot arms and other robotic solutions are out there. But somehow it feels like we should be actually already controlled and dominated by our robotic overlords.

Today, we will discuss B2B Robotics, their growth, adoption, industry use cases, the drivers of innovation in that space, players in that space, challenges. We will also talk about consumer robotics, talking about also robots that have gone mainstream, personal and social robots, emerging trends that are happening in the home, market dynamics.

Then we’ll look ahead to the future of B2B, the future of consumer, and the societal and workforce impact, which obviously is going to be the last but not the least topic that we will address today. Let’s start with B2B. B2B Robotics.

Bertrand Schmitt

Yes, thank you, Nuno. It’s certainly a growing space. As you say, it might not feel like it, but at the end of the day, we already have quite a few millions robots in B2B. It’s estimated that the stock of your operational robots, industrial robots, is around 4.28 million units in 2023, which was a 10% increase year-on-year.

If we look at China, and I think we talk about the fact that we are installing around 400,000 robots a year. China alone by itself has been installing 276,000 units in 2023. China is definitely a leader in that space and that might come as a surprise to some. That number, to put it into perspective, is five times higher than the second place, Japan.

Nuno Goncalves Pedro

I think China has recognized a long time ago that because of its population composition, that they’re going to have a lack of people to produce, to be in factories, et cetera, so they actually have been adopting robots now for many, many years. I think now, you were joking with me just before we recorded this, but now that we’re having trade tariffs and all that stuff, it might make sense to have a broad discussion around why robotics in an industrial environment are key.

Bertrand Schmitt

Definitely. I think that actually I was surprised to hear that, when we’re making this recording on April 15, I was surprised to hear in the Trump administration, quite a lot of very positive support regarding AI and robotics. It looks like part of the plan is already acknowledging this is not like the old-school jobs that we are going to bring back. It would be a different type of jobs. There will be way more robotics than before. Obviously, more robotics is possible thanks to the latest advanced in AI.

There is some consensus that, yeah, it’s not just bring back the old jobs as they were, but it would be a new type of jobs. It would be a new type of industrial revolution and acknowledgment that robotics are here to make all of this not just more efficient, but even possible. Because it’s clear that if you take the US, for instance, there is actually not so much unemployment in the US. For an industrial revolution to happen, we need to bring our new friends, the robots.

Nuno Goncalves Pedro

If we go through the use cases where we see robots coming in, obviously manufacturing, automotive and electronics will probably come to people’s mind. A lot of robot arms are being used there. More than serve your classic solutions, et cetera. But it’s a lot of robot arms using on specific pieces on the line, a lot of pieces of robotics that we don’t recognize necessarily as robotics, but are actually roboticized systems used, in particular on automotive, again, in consumer electronics.

Basically, it has to do with the fact that there’s a tremendous lack of… One, there’s going to be, at some point, the limitation on how fast you can produce, so that’s very obvious. Two, there’s actually even lack of people that can do some of these roles. Some of it is actually high precision work.

In most of these environments, there are environments where humans need to coexist with the robots that are on the line, and that has led to the creation of this movement of cobots. Robots that are able to basically interact with the environment that they’re in, obviously be very careful around safety procedures that they don’t kill a human being that is around them. There’s been a lot of innovation around that using computer vision, using sensors, and using a variety of other elements around that.

That cobot segment in particular is growing quite rapidly, estimated to be 14.7 billion market by 2031. But obviously, we all recognize manufacturing, there’s robots being used, so no shocks there. One of the largest markets by far.

Bertrand Schmitt

Definitely. Collaborative robots are a recent phenomenon made possible thanks to better activation of motors, electric motors possible thanks to new AI, vision AI. There is a lot of the latest technologies that makes this possible versus your big, bulky, robotic arms that used to be encaged. It’s not to kill anyone. Yeah, it’s a change from bigger to smaller. I mean, we can even say step by step, and we’ll talk more about it, but more humanlike in terms of how it looks.

Here we have around 113,000 professional services’ robot for transportation and logistics sold in 2023 alone. That was a big increase of 35% year-on-year. I think we have all seen how Amazon is doing with some robots in their warehouse, logistics systems. What some might not have seen is as impressive in China. If you look at the efficiency of some of these warehouse in China, it can be very impressive. I don’t think they’re holding anything back actually in China.

Nuno Goncalves Pedro

Yeah, definitely not. There’s a lot of amazing things happening on the logistics side. Obviously, Amazon bought one of the early granddaddies, which was Kiva Systems, which was bought by Amazon, and now it’s Amazon Robotics. There’s a lot of stuff happening on the lines, autonomous mobile robots for the transport of materials, robot extruders, mobile picking robots, automated forklifts, and a bunch of other things.

It’s also an environment where I know Amazon is obviously using a lot of co-robots, and there’s a lot of people around as well still. Very interesting environment. I’d say probably Amazon has been the company on the logistics side that innovated the most, the earliest, certainly in the US.

I still remember the Ocado ads where they use robots. In the UK, there’s always been a lot of this debate whether that was actually very useful, very impactful in Ocado’s operations or not. Also, retailer there. But definitely, I think we would recognize probably Amazon has been one of the players that has innovated the most in this space for a couple of decades now.

Bertrand Schmitt

Yes, it’s definitely I mean, that has been key for them to grow, to expand their network. As you know, I mean, Amazon has a lot of people working in their warehouse, but they were still able to manage to grow so fast while not growing proportionally the number of people working there. It’s thanks to advance in robotics.

Nuno Goncalves Pedro

Indeed. One other area, obviously, of use has been in the healthcare and medical space, and particularly in high precision need environments. Surgical robots like Intuitive Surgical, their Da Vinci system, does provide the precision that you need for procedures that require minimally invasive play with high precision. Basically, things that you can’t really… The human hand actually might not be precise enough for it, even if you’re an amazing surgeon.

Beyond that, medical robots have grown quite significantly. It’s grown to the thousands units, which might not seem a lot compared to the hundreds of thousands that Bertrand, you were just mentioning. But obviously this is a much more specialized space, less mainstream in some ways of robotics. A lot of these devices are incredibly expensive, and then we’ve seen a lot of innovation around that.

There’s obviously the old-school players that are on the market, Johnson & Johnson’s of the world, Medtronic, that have also entered that arena, the surgical robot arena. Then there’s a bunch of other applications for robots that I would highlight. Hospitality or hospital delivery robots, so robots in hospitals that do deliveries.

Rehabilitation exoskeletons, which is really, really cool. If you guys remember Aliens, the second exoskeleton that she has and stuff like that. Obviously this is for recovery for people that are rehabilitating. It supports them in their rehabilitation without having necessarily to have a human there all the time doing that. Then obviously diagnostic robots. A lot of players in this space, CMR surgical as well, Ethon, Exobionics, Cyberdine. There’s a bunch of things happening right now that are quite cool.

Bertrand Schmitt

Yeah. If you look at rehabilitation robots, the growth was pretty amazing at more than 128%. You can call it a surge. Some of these metrics are pretty amazing. As you said in rehabilitation, for sure, if you need a human by the side all the time, it will be way more expensive, and you might not have the staff to just do that. It seems like a very, very obvious option.

Going back to medical robots used for surgery, for instance, as you say, I mean, robots can do stuff that humans cannot. You can have a very small robot moving your own body in some ways, coming from places that would be impossible to operate. It also could end up being more safe. Ultimately, you decrease the need for specialized surgeons. You might need less of them, or you might simply do more with less.

Nuno Goncalves Pedro

Correct. Next, we go to agriculture and farming, AgTech. Actually, the name probably comes from use of robots in agriculture and drones, et cetera. We have some big numbers, basically according to our research, 20,000 units in 2023 that were used. There’s high precision agriculture that, again, requires things that are very, very precise. There’s also the base equipment that are used by humans that are being repurposed to become equipments for agricultural activities.

Autonomous tractors and sprayers would be a great example of that. Milking robots, the robots that do the milking of cows, et cetera, also makes a lot of sense. Again, replacing human in an activity that probably can be more easily replaced. Then you have, obviously, the drone space with a lot of things around field scouting, the surveillance, the pieces around how to create new ecosystems around the fields.

Last but not the least, obviously, we have picking robots, the robots that pick up stuff. Those robots are particularly complex. Obviously, some fruits, some vegetables, et cetera, need to be picked in a way that is more complex because they require either cutting or something like that. Its identification is pretty critical because you don’t go through the whole process of actually growing the stuff and then have the robots destroy it.

But yes, and there obviously there’s a lot of players, mostly the old guys, or the guys that have been around for a while, obviously DGI on the drone side, Yamaha, a motor, John Deere, then there’s a couple of startups as well. He’s emerging in this space, Farmwise and a few others that are doing a lot of activity. I’ve looked at this space quite a lot.

Just as a disclaimer, I spent a significant amount of years in a VC fund as a venture partner that was really very focused on Deep Tech, Frontier Tech, in particular, robotics. It was actually in the name of the firm. As part of that, ended up interacting with a lot of the B2B applications of it. AgTech seems like an obvious use for it because there’s searches of people. It’s been a huge debate around immigration and illegal immigration in particular.

The reality is agriculture has very, very thin margins in general. It’s maybe a broader point we can make at this point in the episode, but the problem with robotics is systematically, is this a big enough issue that you should solve it with a very complex solution. Because normally, robotics, even if it’s a verticalized solution, require complex elements, not just on the hardware side with sensors and a bunch of other things, but also on the software side.

I think AgTech is one of those areas where there’s been a couple of companies, there’s been one or two interesting exits with Blue River going to John Deere, et cetera. But still feels like it’s an area that we haven’t figured it out yet. Either we fully roboticized a facility or do something else, but we haven’t really figured it out yet. My theory is it’s just the margins are just too thin, and it’s too complex.

It’s also a space where the owners and the people that operate the fields are actually not necessarily people that have any technical knowledge of any kind. The solutions do need to be really, really simplified to that level.

Bertrand Schmitt

That’s a good point. I have also seen quite a lot of startups in that space. At Red River, we invested in a startup called Robovision in Belgium. Some of what they do is definitely to serve agriculture needs. It’s not easy, as you say. First, it’s not like the car market, for instance, where you make millions and millions of cars every year, where you have a clear market and buyers are ready to buy.

In agriculture, there is tractors and stuff, but the competition is very different. The volumes are not the same, and there are always, as you say, questions about how do you deal with a space that is not actually so human-friendly. It’s not a road. It has not been designed for it. It’s a field. Two, the people around are not experts, are not technical, so the smallest issue can be a problem.

It’s really a big question. At the same time, I must say I’m quite and optimistic that robotics have definitely the ability to transform agriculture. If you look back, the story of agriculture is just a question of improving the methods, the tools and you increase the yield. That’s how we managed to move from 95, 99% working in agriculture and the fields to 1% today.

I’m still a believer. As you say, there is a big question around immigration, especially legal immigration in the US, probably quite a lot is happening to serve agriculture needs. Given that push, that might create some new incentives in order to stay competitive.

Nuno Goncalves Pedro

Yeah. I mentioned Blue River before, which was a company acquired by John Deere, apparently for $284 million or so. The company raised in total $30 million, so it feels actually like a decent exit. But it’s one of the very few plays in this space that has really gone to a fruitful exit. Also, important to magnify that a lot of the AgTech stuff for example, that’s been happening in vertical farming, for example, is around robotics.

It’s around almost managing vertical farming a little bit like a manufacturing facility with its own complexities, but a bit like a manufacturing facility. There we really haven’t seen a runaway winner. I mean, plenty raise a ton of money. From my knowledge, they haven’t done necessarily great. I’m not sure how roboticized they were. There’s a bunch of other companies in the market that we know well, like 1.1, et cetera. There’s definitely a lot of plays going on that depend fully on robotics around the AgTech that we see today.

Bertrand Schmitt

Yes. You talk about a specific type of agriculture. I mean, the ones they try to do in some convert some old factory, for instance, do it even in the cities, urban farming. I think this stuff by definition, I’m not super optimistic that the yields can work. We’ll see, obviously, maybe if you control well water space, automation, but it looks like yields are definitely a big issue in this space. At some point, size and scale matter.

Nuno Goncalves Pedro

It becomes a unit economics issue at the end. I was very involved in one of the plays that I mentioned before, and it is clear to me that we will get there, but to your point, there is a need for scale that needs to happen. These guys need to get big contracts. They need to get really, really big contracts in terms of what they need to put in the market.

It’s also very clear to me, it’s a very difficult market for you to do stuff that goes one hop from consumer. Let me do a vertical farm and sell to supermarkets, and they’ll get fresh, produced from me and whatever. It’s very tough. There’s a lot of intermediaries in the middle, distributors, et cetera. A value chain that is much more complex than we think it is.

I think if you’re someone who’s not spent a lot of time around agriculture, you think, “Oh, there’s people in the fields that produce stuff. They sell it maybe to markets or someone in the middle, and that person in the middle somehow sells it to supermarkets and whatever and what we get.” No, there’s a lot more players in the middle that get involved for all of the stuff. There’s brokers and the wholesale players, and then there’s even in retail, there’s different types of players as well. It’s like, it’s my God.

Bertrand Schmitt

There’s a whole communities feature market.

Nuno Goncalves Pedro

Yes, it’s an ecosystem that’s extremely, extremely complex. Maybe moving to construction, I think it’s probably an industry that, as promised a lot, that we would have construction robots replacing people. It’s a particular hazardous role. In construction, there’s accidents, people get hurt, and they might even get killed. Obviously, it’s an area where it’s high risk, high rewards. Robots, you would assume, would be great for this.

Honestly, I personally have seen some interesting innovation around 3D printing, which I would argue is it robots or not? Drones for surveying and for looking at buildings and a variety of other things. We’ve had this huge promise, I think, in construction of prefab, of the ability to do prefab buildings and prefab homes and all that stuff. There’s a lot of interesting players out there, so I’m not disrespecting them necessarily, but it hasn’t really scaled. Again, we haven’t seen a player that has really won that market. We saw a player that failed miserably, which was Katerra, which wanted to use stuff like that. I’m not sure they ever got to that level.

Bertrand Schmitt

Yeah, I was going to say it’s been a decade we talk about prefab and stuff, and for some reason it has not taken off at all.

Nuno Goncalves Pedro

It’s not. I’ve seen amazing things, in particular around single-family homes and things like that. ADUs, right?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

In particular, California with a change in less installation, et cetera, and certain markets, in particular, like LA County being super aggressive on opening up the ADU market, et cetera. Nothing dramatic. In this space, we see autonomous construction machinery, which in some ways could be used for what we were just talking about, the prefab market, robotic bricklaying, 3D printing robots, site inspection drones.

I think we are seeing more and more site inspection stuff. I think we are seeing more and more stuff around 3D printing. I don’t see this industry being disrupted by construction in the next couple of years, by robots, rather, in the next couple of years. I think that will be very optimistic.

Bertrand Schmitt

Yes, it seems like it will take a while. Not saying it might not come, but it’s not as if we were at a tipping point at this stage. Going into retail, hospitality, we’ve seen a lot of robots that try to come to some sort of, I would say, awkward space, trying to welcome you SoftBank at some robots. Robots are acquired from a French company, actually, maybe at least a decade ago. It’s 54,000 units sold in 2023, so a pretty good increase, 30% plus. That also includes hotel delivery robots, restaurant food runners, concierge info robots. I think it’s a mix of everything, to be frank.

Nuno Goncalves Pedro

There’s a mix of things going on. Again, it’s a space that everyone’s like, “Obviously, this is going to be delivery robots and all sorts of things.” This is just going to scale very, very rapidly just if you think about the use cases. Inventory scanning, customer service, restaurant service robots, floor cleaning robots, delivery robots, all this stuff. It’s obvious.

Again, we haven’t had amazing winners in this space. There’s a bunch of players, question mark on when we’re going to get them. I think some of the problematics of this, I think in closed environments, I’m very surprised that we haven’t figured out closed environments. Why are robots not able to do inventory scanning at scale? Why are robots not able to deliver food to me in a restaurant?

That part seems like a problem that’s eminently solvable because floor plan is more controlled. I know there’s people, so that’s the cobot dimension to it. In some ways, the more the food delivery things, which seem to have taken off in some places, actually. Seemed like a more complex issue, but somehow I guess there’s more activity in that space. We’ll see.

Bertrand Schmitt

If you remember for hotels, you had these delivery robots bringing your food potentially and not much happened to be frank. I remember seeing some startups trying to do robots for universities, colleges, and the same thing. I don’t think much happened. I think in many situation, it’s an awkward space because you’re like, “Okay, so I’m delivering because people don’t want to just go downstairs and buy at the counter or just buy an automated machine that is just delivering food.”

We know the machine to get your bottle of drinks, your snacks, it’s pretty straightforward. The robots providing not the last mile, but the last few feet. It’s a tough value proposition and it has so many constraints. For robots in restaurant… There is one chain that you probably know where I go once in a while, where you have these delivery robots directly to your table. It’s Haidilao.

Nuno Goncalves Pedro

Of course.

Bertrand Schmitt

I’m always impressed that the only restaurants in the US where I go, where we get served by a robot is actually a Chinese chain.

Nuno Goncalves Pedro

Yes, the hot pot guys.

Bertrand Schmitt

It’s a hot pot guy. They have pretty good food, actually. I’m always shocked because it’s really working. You see the robots coming up, not hurting anyone, finding their way around. You have kids in this restaurant. It’s a very kid-friendly place. You can see it’s not a replacement for human. It’s really making humans more efficient and for sure decreasing the risk of breaking something, having a plate falling off, that stuff. I think it’s a very smart use. I’m surprised why not more restaurants do that, but I think there might be a cultural issue, especially in Europe and in the US.

Nuno Goncalves Pedro

I think there might be. In Asia, it’s probably where we’re seeing a lot of these advancements coming in. We’ll talk about some of the geopolitics around this in a bit. Moving maybe within still B2B robotics to what are the key innovations and technology movements we’re seeing. One very obvious one, which is the one is artificial intelligence and the use of machine learning, deep learning methodologies, computer vision, and a variety of other things to optimise lines, to optimise how things are done, but also to optimise in-process things and what’s happening.

That is very, very obvious. There’s a lot of things happening around that space. Robots are not very useful if they don’t have some brain, if they are not doing something that is defined within the realm of some degree of operational intelligence, as I would call it. AI is critical to that. That I think is the thing we’re all afraid of. It’s when robots are actually using proper AI then they’ll come to kill us. Sorry.

Bertrand Schmitt

Maybe we’ll talk later about the key players, but obviously NVIDIA has been pushing very hard in the robotic space and sees that as one of their big future markets.

Nuno Goncalves Pedro

Maybe moving along to something we already talked about, so co-bots, mobile and collaborative robotics in general. We’ve already talked about it. It uses a lot of the AI pieces that we were talking about, but it’s this notion that we will need to have things in this world that interact with us. There’s some cool things happening. Tesla with Optimus and Agility Robotics doing bipedal robots. We did have a bunch of… Boston Scientific was the dog ones, early on.

We’re having all of these things that are on the one hand, basically interacting with humans and on the other hand, looking more like animals and humans. Becoming a little bit more anthropomorphic on the human side as well. Interesting things that are happening in that space. As we discussed, those markets are real, they’re growing fast. Certainly in the manufacturing space, we know that’s the case. I think there will be a lot of crossover technology transfer to other use cases in the more consumer-related domain where there are people and little kids running around doing stupid things, et cetera.

Bertrand Schmitt

Maybe to keep going on the technology, another way to make robots happen at scale is all the work done in term of digital twins and simulation. When you can build virtual replicas of your factory for testing, for optimizing, that will help you decrease downtime, that will help you be more efficient with your deployment. That has been a key part of the game in order to bring robots to the factory.

Nuno Goncalves Pedro

Indeed. Last but not the least, the things that we would like to highlight, more business models that are changing robotics. A robot can be a very expensive, cost for a firm, for a company, and for a startup. There’s a lot of things happening around robotics as a service where companies can lease robots on subscription rather than just purchasing them.

I’d say that’s more of a financing play, to say the very least, but there’s deeper things going on in the space with really solutions that are optimised towards outcomes-driven revenue sharing. People could say, “It’s just a business model innovation.” But there’s a lot of cool things happening around that. I think we might have some of the big manufacturing companies of the future, et cetera, merging because of these business models with a fuller stack where I have my own robots and that’s what I’m bringing to table. Making them available to you.

Startups like Formic that have been quite heavily discussed about, and they are trying to really go on a usage-based fee play. It’s solely based on usage. The jury is still out if this is going to really scale, if it’s going to be at the level of mass market. But certainly, if we’re thinking about small-scale manufacturing, et cetera, I would say it’s a great business model and we’ll create a lot of innovation around it.

Bertrand Schmitt

I think business model innovation is quite critical. We have seen how software as a service, SaaS, has been able to transform the software industry and create basically a new dramatic wave of growth. For robotics as a service, could unleash a similar efficient model that will help scale to the next level robots, so it will be interesting to follow.

Nuno Goncalves Pedro

If we talk now maybe about leading companies and startups in the B2B robotics space and starting in industrial automation, industrial automation has the big boys, so ABB, FANUC, KUKA, Ishikawa, Kawasaki, Mitsubishi, Universal Robots, Teradyne. These guys are all super well-known. If we think about some of the big guys, they grew up with a lot of the solutions that we were talking about earlier, robot arms, but really expensive robot arms. That market is still dominated by these players, and they command significant premiums on their valuations, et cetera.

Bertrand Schmitt

Let’s not forget that KUKA was a German company that got acquired by a Chinese company some years ago in 2016. I think that was crazy because it was one of the Chrome J-well of the German manufacturing industry. To let it be acquired like this was probably a strategic mistake. Germany decided to make some change in how they are going to let M&A happen, depending on the country of origin of the acquirer. The acquirer was a media group, Chinese appliance manufacturer. I think that’s really a fair question because when you know that the acquisition of Chinese companies is not something so easy for Western companies, I’m not sure why we should let it work in the other way.

Nuno Goncalves Pedro

Very good. Logistics and warehouses. We’ve talked already about some of these examples, Amazon Robotics with the acquisition of Kiva Systems. That’s how itself got pulled in. 6 River Systems, which I believe was acquired by Ocado to make their deployments due. Locust Robotics, Grey Orange, Geek+, Boston Dynamics. A bunch of players that have been done. What’s for me interesting, it’s an area that has had a lot of acquisitions by the retailers themselves, which is not obvious.

Bertrand Schmitt

But not huge acquisitions usually as a result.

Nuno Goncalves Pedro

It’s not huge acquisitions, small acquisitions. Even Kiva, I remember was not a very big acquisition by Amazon. It was relatively important for them to go into that space. Anyway, I wrongfully, by the way, mentioned Scientific Boston Dynamics. Two different companies just to be clear. Boston Dynamics is the one with the anthropomorphic robots and also the dog-like robots. Boston Scientific, a total company altogether, but it is what it is. It’s a life science company.

Bertrand Schmitt

There are other types of AI startups, collaborative robots, universal robots, Techman, Doosan. I think for me also, the big guy we should talk about it’s really NVIDIA. NVIDIA is making the brains of many of these robots. I have a lot of platforms to develop robots. It’s just open source, a new model. Recently, it’s called Project GROOT. GROOT, G-R-O-O-T, the foundation model for humanoid robots. We will talk more about that later on, but NVIDIA is definitely pushing very, very hard in the robotic space. They want to be the brain of all the robots in your factory, in your field, the medical space.

Nuno Goncalves Pedro

NVIDIA platforms everywhere. Obviously, we don’t have… There’s dominating legacy operating systems for a robotics operation, but most of them are owned by the firms themselves, the ABBs of the world, et cetera. We haven’t seen a prevalent robotics operating system that would work across domains that has killed dramatically. There’s a lot of interesting things, and it wouldn’t be in the realm of impossibility for NVIDIA to go up stack, do more software platform ownership, and even into who knows operating systems. We’ll see what happens. Not out of the realm of possibility.

Talking a little bit about challenges, just to put a bit of a bookend on the current conversation on B2B. We’ve talked quite a bit about geopolitics of it, et cetera. One of the issues clearly around robots are people. You can frame it as the integration of people and the integration of their skills with the use of robots. It’s complex because you have to reskill staff, not only to maintain robots, et cetera, but to work alongside robots.

In some ways, we people are unpredictable. We do stupid things at times, we try to optimise because we know the shift is almost coming to an end, whatever. I don’t know. In some ways, that piece of just integrating people with robots, integrating their skills with the skills of robots, et cetera, is something that we know for a fact has been quite complex and have led to a lot of safety issues and a lot of concerns around the use of robots, even in the B2B environment.

Bertrand Schmitt

At the same time, it’s always easy not to say, “Okay, the robot is a danger.” Okay, sure, but we forget that many times robots are replacing work that is dangerous for human in the first place. Let’s be also careful about making sure we see the benefit of not having humans doing dangerous tasks or less dangerous tasks. A good example, actually, we don’t talk in that category, but if you think about robots for taking care of potential bombs, for instance.

Now you send your guided robot to try to basically make the bomb implode. No humans, neither. I can tell you that before that, it’s not a fun job for a real human. We know that there are robots as well for nuclear facilities, for instance, that can be used. I think that, yes, we have to be careful with human safety and at the same time, let’s not forget that a lot of these robots are decreasing risks for humans, ultimately.

Nuno Goncalves Pedro

Second big challenge is obvious. The high cost, the narrow eye. There’s a lot of things going on with robotics as a service, but the robotics as a service, someone’s paying for the robots. There’s still high costs in the space and there’s still a little bit of an argument on how do you think through return investment. It has to be a very top-down decision architecturally on what robots you go with versus not.

You can’t have a ton of trial and error in this space. I think that’s part of the issue. It’s not just that you have high cost and ROI, it’s just you can’t have a huge amount of trial and error. You have to get architectures right over time. If you made a significant mistake on your architecture, you’re going to pay for it, and it’s going to be very, very, very expensive.

Next, technical limitations. Very significant challenge. Robots can’t do everything under the sun. We know that. They have limitations in how they do things, the precision they have, what are they handling. There’s a lot of complexities around this. These machines. There’s a lot of complexity around it. There’s maintenance that needs to be done, make sure that it operates with the precision that people expect from it and all of that. That’s the third area of challenge in this space.

Bertrand Schmitt

What’s interesting is that some of these technical holders have been solved by some of the industries. If you take EVs, for instance, we have seen the rise of the electric motor and more and more high-performance electric motors. Some of this is going back to the robotic space. You could argue that a lot of the current stage innovation in robots is half. Yes, better AI, better vision, specifically, better understanding of the environment, but I believe it’s also around motors.

Motors are becoming much better at doing the job. If you want to have a smaller robot, if you want to have a human-size robot, if you want to have hands that can do something, then yes, electric motors, actuators have changed what’s possible.

Nuno Goncalves Pedro

That’s a little bit of the key issues that are more on the core technical business model side. Then, if we move to other areas, the robotic space we’ve already mentioned has a huge issue around interoperability and standards, with ROS, Robot Operating System being one of the most common used protocols/robot operating system thing.

But honestly, the reality is there’s very little integration between systems. There’s a lot of pervasive systems out there that are dominated by the suppliers themselves and the owners of the hardware. There hasn’t been a huge focus on creating a platform that truly works across the world and across different domains as I mentioned before. Interoperability and standards are still very much an issue.

Bertrand Schmitt

We just need robots that talk and listen and LLMs in the middle and problem solved.

Nuno Goncalves Pedro

We just need robots that do everything, yes and then it doesn’t matter.

Bertrand Schmitt

I think we are going there. The reality is that the more you can naturally command a robot and ask it to do a task and have it indeed do this task without too much detail or at least the similar level of details to a human trained at a specific level, I think the more things will change versus having a team of programmers to program the robots and any time the stuff change on the other side, you have to reprogram the robot. That was a big part of the cost of running a robot in a factory.

Nuno Goncalves Pedro

Two last but not the least topics. Maybe we’ll bundle them a little bit together. The regulatory and safety, regulations that occur from market to market and how this is done, the regulatory framework by which safety is managed, and public acceptance in general, and supply chain dependence. It’s very clear that you need advanced components from all over the world. Going through a world right now where there’s all this geopolitical instability, and there’s tariffs, and there’s all this stuff, how does that work? That is a bit of a creating also encumbrance on development of B2B robotics.

Bertrand Schmitt

As we said, China has seen a rapid adoption of robotics and that might surprise some because thinking about China, low-cost countries and stuff. But as you said, the reality is that China is a decreasing population, especially a population that can work, makes sense to automate. They also wanted to go more high-tech type of production. China is definitely big versus Japan, Europe, and US, where definitely there have been traditional struggles of automation. But as we just said, China is probably leading at this stage.

Nuno Goncalves Pedro

Just to be clear, the US is a big robotics market. If you’re listening to us, the US has to catch up. Maybe there’s potential to be growing, but the US from what we know, had 37,587 industrial robots installed in 2023. It’s a significant market, in particular around professional service robots. Some of the leading companies in the world. It remains hopefully a player in that space.

If some of the big brands we mentioned are not here, they’re in Asia, some of them are more in Europe, and now they’re owned by Chinese, as you were mentioning, Bertrandt. There’s still some stuff happening in Europe that’s significant, but I would say Asia has taken the lead in some ways across the board. China catching up now and going to the next level. Japan was one of the big, big first players a lot because of demographic pressure. South Korea has caught up as well. There’s a lot of interesting things happening in Asia in particular.

Bertrand Schmitt

I still remember years ago, there was really a question that your… Cheap people working in factories was a better deal in many, many situations than having robots. I remember stories about highly automated South Korean companies having trouble to compete versus actually cheap labour from China, but I think all of this has changed.

Nuno Goncalves Pedro

Indeed. Shall we move to consumer robotics, which is probably what a lot of people, “When will we have this robot serving me at home?” It’s like, “Well, probably not anytime soon.” There’s good news and bad news, but probably not anytime soon. It’s growing fast. To be very honest, a lot of the home robots that we’ve had, one’s I think have been misclassified, which is the whole use of things in the kitchen, et cetera. Those things are not robots, just let’s be clear. Those things are very basic mechanical elements compared to what a robot needs to do.

In the household, the big dominant player that came into the market was Rumba. They reached a ridiculous amount of smart vacuum shipments as they say in the low tens of millions around 20 million units and all that stuff and then nothing. I don’t know if there’s anything public or not, so I’m not even sure if I’m talking out of place, but I heard that they’re not so much in great shape.

Bertrand Schmitt

There’s how many rumours in the market that they are doing very bad?

Nuno Goncalves Pedro

I used it at the beginning and I really disliked it. It’s just like the experience wasn’t great. I think it’s a great experience if it’s a very contained environment, but if it’s, for example, if you have pets, it’s a mess. I just gave up on it. I tried twice and I just gave up. With the iRobot, just to be clear, a lot of people know the Rumba, but iRobot is the name of the company.

Bertrand Schmitt

Same for me. I tried it very early on, maybe the first-gen. It didn’t work that much, to be frank. I think that’s what has been the issue. It’s very sad because it was definitely… I think the best-selling robot in the world by unit’s shipment of any robot. I don’t think there was any robot, autonomous, shipping at similar volume than iRobot. I can say that personally, not inside the house, but outside. I just bought two robots from Navimo to do my lawn, front yard, backyard. It has been working quite well, actually.

I must say I’ve been pretty happy with that because instead of having a gardener coming every two weeks to do the job, you have the garden clean every two days or every day, if you want. That has been a quite interesting solution, but obviously, you always have the question, how much is a robot? How much are you paying your gardener? How long is it taking? How long will the robot keep working? You have location issues. Usually, that’s the biggest issue with robots. You need to know where they are to know how to keep doing their job. It’s not totally problem solved, but it’s getting better.

Nuno Goncalves Pedro

It is getting better, but we just wish we had a vacuum cleaner for our house and a lawn mower for them whatever and it’s still not there. It’s like, surely these are the easier use cases. Then we move to the other use case, which we all want, the personal assistant, social robots, like the toy that plays with me, that interacts me, embodies Moxie. We had this… Was it Jibo? Jibo, the social robot thingy, whatever. Obviously, aibo, Sony’s aibo robotic dog, which we’ve seen a couple of iterations on. We all want that stuff.

Bertrand Schmitt

I bought the first one 25 years ago now.

Nuno Goncalves Pedro

I want that stuff. Some of us grew up watching Battlestar Galactica, the previous one, not the dark one that came after, but the original one. We all wanted those little dogs, the little dogs that were in Battlestar Galactica. I wanted the dog since I was little. I wanted that dog. I wanted the dog that does stuff for me that I don’t need to train.

Bertrand Schmitt

I can just tell you that my aibo was for a very long time my worst spend in tech gadgets I have ever had for at least a decade or two. I don’t know.

Nuno Goncalves Pedro

How much did it cost, do you remember?

Bertrand Schmitt

It was very expensive. It was very expensive for the time. A few thousand euros, which 25 years ago was a pretty insane amount. For something that was, ultimately at the time, truly useless. I remember playing a few weeks with it. I think that’s a big issue. How do you make it useful while keeping cost reasonable? How do you make it so that it’s not just a fad where everyone got excited because that’s a gift for Christmas everyone gets to have, but next year no one cares?

Nuno Goncalves Pedro

I think there are two key issues around personal assistance and social robots. I’ve seen some really beautiful solutions. Things that look like it’s a toy. You know it’s a toy, but they’re really engaging with you. The ones that look the best and are the best are obviously, as I mentioned before, in the case of B2B robotics, over-engineered. They have a bunch of sensors, there are a bunch of things going on, and that makes them expensive. It means their bill of materials, what makes up for the cost of the hardware, is actually very expensive. Therefore, you can’t sell it at a very low cost.

I haven’t seen anyone at scale try to play around with robotics as a service for a consumer, where you have something, and you’re renting it out thing. That might be a play around that, but it feels to me that there has to be something around that. Because I’ve seen some solutions that are really endearing. You want to interact with a robot, et cetera.

That’s problem number one. Problem number two is to your point, I think maybe, Bertrand, I’m putting words in your mouth, is the level of engagement you get from it. It’s a novelty, you interact a little bit, and then what else does this thing do for me? If it doesn’t do anything else for me, then I’m like, okay, cool. I move on. There’s no interest. It has to have one, ability to be updated, to go to the next level, to become a better solution, and two, to actually do something with me that is of tremendous value to me systematically. If not, then why would I do it? Why would I buy and consume something that’s likely to be relatively expensive for me to have in the home?

Bertrand Schmitt

There is always the question, you are fighting against all the stuff you can buy. You are fighting against buying a computer, buying a tablet, buying a phone, a TV. In some ways, you have the question, if the hardware side of the robot is actually not working that well, what are you left with? You are left with an Alexa where you can talk to that has some eyes. What will it do based on its eye? What action will it take that benefit from being equipped with two cameras, for instance? It can navigate your home, but what will it do by navigating your home?

Next question, can it hold something? If it’s small, it won’t be able. It will have to be bigger. It will have to be heavier and balanced. Then it’s a whole different ball game. Then we go back to cost. We will talk maybe more about it.

But if you look at Tesla and the robots they are working on for consumers, we are talking about the price of a car. They are talking about 20 to 30K. That might be the price so that you have a robot that indeed, practically can do things in your home. As what it takes to open something, close something, go up the stairs, go down the stairs, move some books, move some food, take a kid. It’s not an easy one. What do you do with a small size robot, like the size of a stuffy so that it’s cheap, but ultimately it’s useful? It’s not clear.

Nuno Goncalves Pedro

Innovation will come, I believe, but it’s not clear. I’m not sure we’re going to have Jeeves anytime soon as an anthropomorphic robot.

Bertrand Schmitt

Of course. I’m not saying it won’t come. I was mostly in a mindset of the next 5 years.

Nuno Goncalves Pedro

It’s a little bit of a segue. We’ve been talking about personal assistance and social robots, entertainment and educational robots are in the same logic, SoftBank’s NAO robot. Things that have been used for education. We had Sphero. Everyone probably remembers Sphero. Unfortunately, the toy space needs to be even cheaper. If it’s a social thing to be doing stuff with your children, then that’s one thing. If it’s something that’s been there just as a toy or as an entertainment to play, it needs to be even cheaper. I don’t know.

It’s a space, again, I think the comments you just made, Bertrand, I’d make them my own. Very, very difficult to justify the cost unless there’s a clear beachhead in terms of the actions that the robot can do for the child or for the person that it’s interacting with.

Bertrand Schmitt

I think what we see in the meantime, if you take Sphero, for instance, many of them are moving to the education market. Luckily, there is a big push for STEM in schools. As a result, my impression is that they realize that, hey, most parents have no clue. It’s not as if they are going to teach robotics to their kids. If we want to do stuff that is relatively cheap while interesting, let’s make them educational. Let’s have schools buy them. Let’s have labs with our robots. My impression is that a lot of what could have been from a robot actually end up being education for a STEM education type of robot that basically belongs to the classroom or the lab.

Nuno Goncalves Pedro

It feels to me, it’s a little bit like, let’s move business model. Let’s not sell to consumers because they’re price sensitive, and let’s sell to educational entities, academic entities, et cetera, who are not price sensitive. I’m like, you’re moving from price sensitive to price sensitive. You’re just saying, well, but the other guys have more money because they’re an institution. I’m like, yes, they do. But you have to share these across different people, et cetera. Different wear and tear as well.

Bertrand Schmitt

But that’s the thing. You can share one robot for 30 kids versus 2.

Nuno Goncalves Pedro

I understand, but still, it is a very, very, very price-sensitive market as well. It’s very difficult to break into. If you look at the US, for example, unless you’re going to higher education, it’s going to be very difficult to crack into a lot of these schools. Very difficult. Even if you’re going to private schools, super price sensitive. I don’t know. I feel it’s an interesting pivot on business model that I have a lot of doubts will scale.

Maybe last but not the least, another demographic that obviously matters tremendously is the senior demographic, elder care, and assistive robots. When we know so many people don’t have someone that can take care of them and look over them. Even in assisted living, there’s lack and shortage of employees. Even if you are living in a home or assisted living facility, having these kinds of robots is particularly critical.

I know for a fact that the Japanese have tried a lot of things out there. I’m not sure if anything has scaled that we could talk about, but definitely for obvious reasons, again, around demographics, they’ve had to do it. The world is moving this way. We’re having more and more ageing population at scale. So having some elder care or assistance robots seems like a must. Again, if you have vertical solutions, in particular around assisted living, homes, et cetera. Now, one would say if you have personal assistance, personal social assistance, et cetera, that work across the board, that should take care of everyone. But as we’ve seen vertical solutions are the ones that emerge first. That’s probably where we are in the market at this stage.

Bertrand Schmitt

Yes. I think that’s the right way to go. First you start with very specialized robots in terms of hardware and software. That’s your only option because the cost of everything, from the chips to the mechanics, is just very expensive. You have to pick something that you can solve where people find an ROI. But I think step by step, there will be a convergence somewhere to more standard models.

That’s why some are very bullish on humanoid robots, because the idea with a humanoid robot is that it can work anywhere a human can. It can do any task, at least physically, as that a human can, because it will have the same size, it will have similar hands, it has a similar balancing and walking mechanism. If a human can do some tasks there, physically, a humanoid robot can. I think there is some very strong logic.

Obviously, the negative is that it’s big, it’s heavy, so it will get expensive. But at the same time, if you move from, I can do just one task for cheap, or I can do 100 tasks way more expensive, maybe that would be the right combo.

Nuno Goncalves Pedro

Exactly. Really finding that sweet spot then leads to great unit economics and scalability. Talking, maybe moving a little bit into the key trends that we’ve seen in the consumer robots or robotic space. Really, the advancements are trying to make these more capable, affordable, user-friendly, as we discussed. First one, again, very obvious AI and the integration within put and output mechanisms like voice and others.

Bertrand Schmitt

And cameras, and vision.

Nuno Goncalves Pedro

Cameras, vision, and all these things. These elements are particularly critical to what we’re seeing. Obviously, ability to recognize owners versus strangers, ability to generate speech back to people, to interact. I think the big part of engagement in all of that is also related to that. No surprises there. Obviously, one of the key trends that we’re seeing is all of the advancements that we’re seeing in AI and input and output.

Bertrand Schmitt

Yeah, 100%. I’m a big fan of the input/output problem. That’s the problem we need to solve. If we cannot communicate easily with a robot, forget it. Forget it at home. Maybe we have seen in industries, factories, it’s okay, you might pay developers. But even then, I think the big scale will come when all of this become easier to communicate with and robots able to act on this.

Nuno Goncalves Pedro

Indeed. The second area is obviously around sensors and mobility, which enables a lot of these things. The ability for some of these robots to move around and the ability for them to have sensors that detect the environment around them and to have actuators to actually interact with that environment. It could be something that leads to a hand moving, to something moving, to something touching someone. Good luck on that.

Obviously, there are a lot of things happening in that space that are quite interesting and have led to tremendous innovations that are still being implemented in the market. In my perspective, it’s an area where we’ll need to deliver, deliver, deliver, deliver until we can have solutions to your point that are at scale, much cheaper, and then can be propelled into consumer robotics. It’s one of those things. It will ripple down the value chain to finally get to consumer robotics.

Bertrand Schmitt

I agree with you. The same way that not everyone could get a car at first started with trains, actually, and then we went smaller and smaller. Definitely, I think some of this. Not just that, let’s not forget a lot of the robots we see today in demonstration of how agile they are and what they can do, actually are remotely operated.

People have to know that in many cases, this stuff is not real in the sense of a robot being somewhat autonomous. It’s just remotely operated. I was quite shocked how many companies, Boston Dynamics, for instance, are real pro of remote operating their robot and making you believe that… They won’t lie. They would just imply that this stuff is autonomous. No, it’s not in many situations, so nothing. We are not getting there because if you don’t have the hardware that is agile and has a power to do what it’s supposed to do, of course, you are dead in the water. But I think we’re not yet fully there in the autonomy of this robot, but it’s coming.

Nuno Goncalves Pedro

Maybe to highlight three more trends that we see in the space. Obviously, there’s the notion of emotional AI and AI interacting with people, reading their emotions, reading their things. It’s another field of AI that we’ve already mentioned. The aesthetics and form factors of robots are essential. In some ways, if you look more anthropomorphic, or if you look more like either pets or humans, et cetera, it’s easier to interact with them. Software designing versus more hardcore designing, friendlier design. It’s probably one of the key things that will lead to that attachment.

Last but not the least, obviously, the realm of connectivity and integration with smart home facilities. Maybe as a proxy to avoid precisely the problem we were just talking about, because some of these sensors are very expensive to have in the robot itself, but could the robot use other stuff that’s already in the house? Do you have cameras in the house? Do you have a TV in the house? Do you have whatever? I can interact with that.

Again, on that stuff, the more multimodal stuff beyond just connectivity, beyond me just connecting to Wi-Fi, the multi-modal stuff, I think, is probably the one that I’m the most sceptical about. If we think it’s going to take decades for us to have some of the stuff in our home working at scale, the multimodality of it is going to be even more difficult because it assumes interoperability, it assumes that the systems talk to each other, which we know doesn’t happen today. They don’t talk to each other. They’re all specific to the manufacturers, to the owners, in many cases of the hardware, as we mentioned before.

Bertrand Schmitt

I’m somewhat hopeful for the integration because even today, we can see you have apps to integrate, and you build up step by step, pieces by pieces, your smart home. There are standards, so there are ways. It may take time. Of course, there’s no real unifying effort. That’s true that the humanoid size robot at home is not there in 5 years, probably not 10. But at the same time, I can see that it’s coming. Maybe it’s 15 or 20 years that it’s really practical. But the tech is slowly… I would say slowly, but now it’s getting there faster, is my personal perspective.

Yes, it will take time to really do useful stuff, to be cheaper so that people can afford. But at the same time, I think it’s important to share my belief that it’s getting there. Yes, we are complaining because it’s not yet there, but it’s moving in that direction.

Nuno Goncalves Pedro

Maybe switching for a rapid fire on preferences and cultural factors that we see around the world. Obviously, the US, not very shockingly, has a strong preference for utility-based robots, so things that do stuff for me, like vacuum lawn mowers. Obviously, the US, we also have more space, so we have homes and fields. It’s very different than living, for example, in Tokyo.

Bertrand Schmitt

Less focused on emotional AI, maybe.

Nuno Goncalves Pedro

I think we should have more emotional AI in the US. Maybe the vacuum cleaner can also talk to me.

Bertrand Schmitt

Maybe I can pet the vacuum cleaner.

Nuno Goncalves Pedro

The vacuum cleaner, yeah, come here. United States is, as you would imagine, probably one of the most utilitarian in that sense. We want robots to do stuff for us so that we can then just chill by the TV and ask the robot to pick us a beer and do stuff for us. That’s probably the best way to look at it. The opposite is a little bit, I think, Japan. Japan is more, in some ways, even embracing robots, maybe too much. We know that some funky dynamics in Japan where some robots are treated like pets and characters and whatever. By the way, if any of our AI overlords are listening to me, I love robots. I love robots, please don’t kill me.

But obviously, there are a lot of things happening in Japan that have to do with ageing society, a society where human connectivity has had some challenges because of demographics, because of how cities have been built, because of cultural aspects of Japanese. In those environments, robots are really more tailored towards personal societal links, pets, characters, all that stuff. That’s maybe the most extreme opposite. Then coming a little bit to the middle, we have South Korea, which is both a mix of utility, and we also have some social interaction.

Bertrand Schmitt

Yes. Of course, Europe will focus on data privacy and safety and will regulate its way out of robots.

Nuno Goncalves Pedro

No robots for us.

Bertrand Schmitt

No robots for Europeans. As we discussed, I think China is definitely very technologically optimist, both on the industrial side and the personal side. I remember there was in China at some point, I forgot the brand, a brand of robots for kids, educational, that was doing very, very, very well. I was very surprised, and that was years ago.

Nuno Goncalves Pedro

Yeah. Maybe moving to forward-looking and what’s happening in the market. A mix of what’s happening in the market that is structural and what’s happening in the market as we look forward. We’ve already looked at a lot of these partnerships, already mentioned them, not just acquisitions, but also what happened with Amazon and iRobot. The deal got scrapped in the end. As we know now, iRobot, who are the makers of Roomba, may actually falter now. We’ll see, but Amazon was very active early on, in particular in the B2B space. A couple of things also on the consumer side.

We’ve seen other things happening a lot in the B2B space in terms of acquisitions. We’ve already mentioned several of these examples. Alphabet has come back into the market to do things around particularly the operating system, the stack. Obviously, they acquired a bunch of things like Open Robotics, which maintained ROS, the robot operating system, and Vicarious. They’ve done a lot of movements that are a little bit more connected to the software platform side with operating systems.

NVIDIA has done a bunch of things that we’ve talked about. I know you are a big believer that NVIDIA will become one of our overlords. Bertrand, do you want to talk through some of those?

Bertrand Schmitt

Yeah, I don’t know if I would put it this way, but of course, I welcome our new overlord if he listens to us in the future. But look, I think NVIDIA is realistic that they need to keep looking for new paths for growth, and the robotics is a perfect match for what they do. You have vision issues, you have audio issues, you have communication issues, you have mobility issues. It’s a perfect match for the NVIDIA stack.

I think for them to propose solution on hardware, on software, on chips makes a lot of sense because it’s going to be a big market. Maybe we don’t talk much about that, but it’s clear if you are thinking 10, 20, 30 years from now, it’s one of these big markets that’s going to change the world.

Nuno Goncalves Pedro

Don’t let the fact that we didn’t start at that point… That robotics is going to be huge. Robotics is a next era of AI in some ways. I don’t think we’re there yet. I don’t think we’re at the level of rapid disruption that we faced in AI more on the software layer. But robotics, we will get there. There’s no doubt we will get there. It will be, again, a major seismic shift. It’s going to be one of the next big industrial revolutions or technology revolutions, if we want to call it as such.

To maybe go actually as a segue into that, obviously, we could talk about partnerships, we could talk about all the money from government that’s going into a lot of these activities. But maybe looking a little bit ahead in the next 5 years, maybe even beyond that, what do we see as happening?

The first piece that everyone’s particularly excited about is this convergence of AI software, so to speak, in robotics. It’s when AI comes into robots that can do things with that, that they can do manipulation of pieces, interaction with people, interaction with other objects, et cetera, in a very meaningful way. There the world just takes over. In particular in a world where the robots can then do things that they haven’t trained for, that they haven’t done any piece of supervised learning or unsupervised learning, that they can go to the next level in really framing how they interact with their environments and with the world. That’s a big deal.

Once we start having that conversion, it’s accelerated. It’s also the part that concerns us. Just to be clear, this is the part that if we get to a convergence of AI and robotics super quickly, we should become a little bit more concerned about what they do because then they have physicality. They do have sort of a brain. At that point in time, we should worry a little bit more than we do today.

Bertrand Schmitt

Definitely. That’s why AI progress has been fast in the pure software side now. AI hardware, robots basically, are downstream of this trend. As you say, that’s true, that it’s a different story when suddenly you have a body, you are more or less independent because I guess that most robots would be designed to be really some edge computing. I would be surprised if robots are designed in a different way.

Not saying they won’t be upgradable through the internet, not saying they won’t be able to look up for something on the internet for some reason, either looking for information or looking to increase capacity on the spot. But I would be shocked if anything is not designed to be fully working locally. You need to work around a network disruption, you need to work around internet disruption. I think that’s a good example.

Nuno Goncalves Pedro

That’s a very good point. I mean, if we’re looking at humanoid and general purpose robots, they definitely need to have most of their sensorial, their senses’ interaction with the world—be it the sensors or the actuators—controlled by the edge. I don’t see at scale how they can just be communicating and all of a sudden there’s no network. What happens, right? What state do they go to?

Bertrand Schmitt

It’s like smart cars. If you remember in the past, there was the idea that self-driving cars would be remote controlled. I mean, no way. It has to be fully automated. Maybe it has to go back to the human owner in some ways for some needs, but ultimately there is a need for real local autonomy.

Nuno Goncalves Pedro

I think it’s funny that you mentioned that because we didn’t talk about self-driving cars. But for me, self-driving cars are a robot. I mean, they fall under the definition of a robot. Machine capable of carrying out a complex series of actions automatically, especially one programmable by a computer. They’re our transporters in some ways. I do think that’s going to be one of the big ones that will be available to us maybe within a decade.

Bertrand Schmitt

I didn’t talk about self-driving cars as robots because they have another name, cars. But you’re right, they are 100% robots. Again as we said, you could argue actually they are at the forefront of everything. They have been at the forefront of electric motors that we need for any other type of robot. They are at the forefront of AI. The self-driving part has been the forefront of AI for 10 years, easily, way before LLM. Of course, people are willing to spend 30, 40, 50, 60K to buy their car, you have financing mechanism available for that.

The whole economy is designed to help you buy and finance a car in the first place. It’s definitely the reference. It’s good we end on this in some ways, because it’s a critical piece of the puzzle. You can argue that not all, but many robots are downstream actually of the car innovation.

Nuno Goncalves Pedro

I feel that might become actually the first real full-on consumer robot that consumers buy and use.

Bertrand Schmitt

It has a specific use case. It’s not trying to do groceries or take care of the kids, or this, or this, or that. No, it’s driving people. It might be driving stuff as well, but it’s driving on the road, going from point A to point B. So it helps.

Nuno Goncalves Pedro

If I was an automotive OEM, original equipment manufacturer, I would be thinking through the car and how the car becomes actually the next centre of innovation because the car itself becomes its own spot. If I have that amount of intelligence so to speak, AI so to speak, linked to the car moving around, which is the most complex activity, think about all the stuff I could do inside the car.

Honestly, the rocket science part is the part of the car actually moving around and doing all its things. I don’t know. I feel sometimes I have conversations with some automotive executives and people that are consultants to automotive executives, et cetera. I feel the industry is still very limited in how it thinks about self-driving cars and how that changes the world, et cetera. It really becomes key element of mobility interactions. If you don’t need to drive it, there’s a lot more space to do a bunch of other things, really.

Bertrand Schmitt

I think that’s the reason why Tesla has been moving so fast, so hard on Optimus, their humanoid robot. A lot of things are very similar. Yes, the use case are less clear. It’s definitely not… We already have a robot, it’s a better robot, like cars. Where it’s a car. We have better car. The use case is less obvious for humanoid robots, but at the same time it’s clear that there will be a huge innovation from the car manufacturing, the self-driving cars at least, that are going to provide downstream innovation to especially humanoid robots, but not just. You can imagine other type of robots. Xiaomi, who recently launched cars, is also into robotics. So I would expect to see more and more of this actually going forward.

Nuno Goncalves Pedro

Maybe, obviously, just to name a couple of things that we do know will happen over the next few years. Obviously, B2B robotics will have a lot more applications across sectors, will go into the small and medium business arena. It goes without saying as well that we believe that the scaling in economics of robotics is going to be critical, that unit economics can only work at scale once you have materials sensors, actuators, et cetera, that are much, much, much cheaper coming into the market.

The effect of robots in society and in public discourse, technology, philosophy, are looking very deeply into it. How do we interact with robots? How do they interact with society? What’s their role? What rights do they have, et cetera. Regulation and standards, evolution, so all of that. Overall, I feel there’s a lot of topics that we didn’t go in detail on, but that you guys can probably get a little bit of a feel on where we stand on them just because of the description we had earlier.

Last but not the least, obviously we always talk about robots as something that is separate from us, but there’s a piece of robotics that is very focused on us and them which is obviously human augmentation. There’s obviously the discussions we already had around co-bots, collaborative robots, exoskeletons, and all is related to that. Which I think it does lead us to a brand-new world when we have the ability to complement ourselves with elements that are extraordinary to us, but then make us much more either productive or have skills that we wouldn’t otherwise have, et cetera. A lot of cool things, I think, will happen around augmentation. I think that’s more science fiction, to be very honest.

The reason why I think that’s more science fiction is because these elements need to interact with us. The moment you start interacting with humans, with the humans themselves, there’s a level of complexity that you need to deal with. Not just in terms of technology, but also in terms of regulation, standards, et cetera.

Bertrand Schmitt

I don’t know if exoskeletons are a real robot in themselves, but at the same time I can see how it can become a huge, as we say, co-bot complement to a human. Either because you need a rehabilitation or because your work or your labour is very hard, or because simply you are too old, and that’s a big change. With an exoskeleton, suddenly you’re able to walk. Or normally, you don’t need a stick, you don’t need something else. That might help in many ways.

Nuno Goncalves Pedro

Let’s talk about societal impact. I mean, we’ll adapt unless the robots start killing us. I think that’s societal impact. That’s my sentence. It would be great. We will all be great unless they start killing us, then we won.

Bertrand Schmitt

You have seen too much of Westworld or Terminator, I guess.

Nuno Goncalves Pedro

Yes.

Bertrand Schmitt

Or the movie iRobot, actually.

Nuno Goncalves Pedro

On a serious note, I think there’s a lot of complex implications of it because as robots became more and more humanoid, they become more and more… Look like us. For example, material innovation will lead us to have robots that might actually look just like us, not anytime soon, but in decades. What happens? What’s our interaction with these beings, these elements, et cetera? I do think that produces a very interesting dynamic societly. We’re already starting seeing things like that. If you want to see at complexities of society, look at Japan to see what’s happening already.

But can you get married to an avatar? Can you get married to a robot? How does that work? Do they have rights? Do robots have rights? What are the rights of robots? Will we have a constitution for robots? At some point we say, actually, the robot can become citizens. How do they become citizens? All of that stuff is like a minefield. I don’t know. I feel we still have much to go, and it will really depend on the implementations that we have of robots that scale.

In all honesty, in particular on the consumer side, once we have robotics on the consumer side that scale and start becoming more and more anthropomorphic. More and more like us, we will have to deal with, based on those use cases, what are the regulations we need to think about? What are the issues we’re having now with these machines as they are scaling in the market. That’s my two sense on that.

Bertrand Schmitt

I was wondering, we cannot do an episode on robotics without talking about the three laws of robotics from Isaac Asimov.

Nuno Goncalves Pedro

Yes, we have to talk about Isaac Asimov.

Bertrand Schmitt

Isaac Asimov, a famous science fiction writer, has written extensively about robots. I actually think he’s the inventor of the term robotics more than now, 80 years ago. He built some laws for robots, that robots are supposed to follow. First law is a robot must not harm a human or allow a human to be harmed through inaction. Second law, a robot must obey human orders unless his orders conflict with the first law. Third law, a robot must protect its own existence unless that protection conflicts with the first or second law. From these three laws, Asimov managed to write a lot of sci-fi explaining ultimately what it means in real-world application to follow these laws.

Nuno Goncalves Pedro

I think we sometimes forget that. We always say, “The science and technology of people are changing the world.” I mean, in some ways that’s true. In other ways, actually, there’s other things.

It’s like writers change the world, people that do movies change the world. A lot of the things we’re seeing implemented today in our tech realm in the future, both in terms of AI and in terms of robotics, for example, just to quote two very big visible spaces, we are imagined by people decades ago. 80 years ago, 70 years ago, 60 years ago. So the imagination was already there. And in some ways, we’re now implementing them, which is interesting.

Bertrand Schmitt

I feel sad for some people like Isaac Asimov who didn’t live long enough to see the conclusion and the execution on some of his dreams. To conclude, B2B Robotics is scaling rapidly, fuelled by labour needs, AI breakthrough, cost declines, but also geopolitics. Consumer robotics is more fragmented, but has had a breakout success in cleaning robots, with social robots on some cusp of border acceptance. I think we should keep an open mind on how robot can transform the workplace and the everyday life. It’s an exciting moment. Robots are shifting from the realm of sci-fi to practical reality, and we reshape industries and how we live. Thank you, Nuno.

Nuno Goncalves Pedro

Thank you, Bertrand.

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The current landscape of fundraising for start-ups, companies and VC funds, as well as best practices and hacks… and how to get those investors to giving you the money.

Navigation:

Intro (01:34)
What is the current evolution and landscape for fundraising for start-ups?
What is the current evolution and landscape for fundraising for VC firms?
What are the best practices – strategies, processes, tactics and hacks – for fundraising overall … for start-ups?
What are the best practices – strategies, processes, tactics and hacks – for fundraising overall … for VC firms?
How to get investors (VCs and LPs) to commit to giving you money?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand

Hello and welcome to Tech Deciphered episode 63. In this episode, we are going to talk about the evolution and the current landscape of startups and VCs fundraising. We will talk about this evolution and landscape for fundraising, both from a startup and VC sides. We are going to talk about the best practices, strategies, process, tactics, and hacks for fundraising on both sides when you are a startup or when you are a VC firm. And ultimately, we will finish on how to get investors to commit to give you money. Hi, Nuno. How are you?

Nuno

Hey, Bertrand. We’ll start with the evolution and current landscape of startup fundraising. It’s been a couple of exciting years. We got to the height of it all, the bull of all bull markets, actually in 2021, post-COVID. Then we had 2022 and 2023. Very sharp correction, dramatic reduction in venture investments. ’24 was a good year. It’s a year that scaled back again, seems stabilizing. I think we’ll see what ’25 has on hold. My prediction is that it’s going to be a great year.

Bertrand

Yeah, 2021 was pretty shockingly good post the start of COVID. After a sharp wait and see by end of 2020, things were going back not just to normal, but to overdrive. It’s really by the end of 2021 that the music stopped. We had to worry about inflation with interest rates going up. 2022 was definitely bad for startups and VCs alike. But as you said, 2024, we are back to a better place. I would have the same bet for 2025, as you have, Nuno.

Nuno

One interesting piece is there’s something that I think changed everything in 2024, which is AI. If we didn’t have AI in 2024, I don’t think we would have had this landscape. Important to note, and we’ll talk about it later on when we talk about the landscape for actual VC fundraising, that the way that VCs work in their cycles and how they raise money, there’s always a little bit of a lag around the table. It means there’s still a lot of what we call dry powder with VC firms.

This means that VC firms have raised quite a lot of money from limited partners for 10-year funds with, for example, four-year investment periods. Therefore, they still need to deploy capital in whatever market they’re in. The fact that there were a lot of AI opportunities means that they’ve been deploying a lot towards, for example, AI place. That’s going to change as well. We’ll talk later about, again, the VC fundraising landscape, but there’s going to be a little bit of an adaptation on those two time lags around the table.

But for me, the big effect of 2024 was without a doubt, AI.

Bertrand

Yeah, and it’s very interesting because when you think about it, the new AI revolution started with LLMs, with OpenAI launching ChatGPT. And this is an event that actually started end of 2022. So that AI revolution, financing, fundraising, actually started in 2023. But at that time, it was still so bad from an overall macro perspective that it was not enough to change the big trends. But at the same time, for sure in 2024, I think it had time to turn around. We’ll talk more precisely about the numbers, but it’s pretty clear that, as you say, AI has taken over.

Nuno

The height of it from the numbers we have in mind shows that on a global basis, 2021 was the all-time high in terms of startup investing at 750 billion. We’ve now had a significant reduction, basically around 349 billion, if the number is around correct, but certainly as deep as that in 2023, returning basically to levels that we saw back in 2018-2020. 2024, we went back up to around 370 billion. I think this year is going to be higher as we discussed before.

One clarification I would say, a lot of people would say, Is that true across the board? Is everything being equally dispersed? Not really. We’ve seen that early stage has suffered more. Mid to late stage, in particular in 2024, had another peak. Not peak year, but had a significant amount of capital was really deployed in mid to late stage investing. Last year, backing projects that either were already on their way or projects that are around what we would consider structurally AI, and therefore that are much more capital-intensive even if they’re earlier stage.

Bertrand

It’s also more going to the bigger firms, if I’m not wrong here. It’s more to the bigger firms. In terms of investment, I guess it was also more to the bigger startups, if you pick an operator AI, for instance. I guess it has been actually pretty tough. If you are not one of the top 20 VC firm, if you are not one of the top 20-50 AI startups, what we’re going to talk about might not feel the same. You can argue that the bar got much higher for VC firms as well as for startups. It’s definitely a different world versus 2021, where things were good for mostly anyone.

Nuno

Basically, if we look a little bit at funding sources to startups, obviously, traditional VCs have reduced dramatically, which is not surprising as we were talking about before. Angel investors and seed funds also had a reduction. Obviously, as you could imagine, if people, very high net worth individuals are normally angel investors and microfunds normally are smaller, they obviously had the tension of reducing their pace of investment, maybe in their own new fundraising cycles themselves for new funds.

Large corporations had reached very aggressive activity back in the day in 2021, but now there’s a little bit more moderation happening to it. Then obviously, we’ve seen family offices coming more into the market in the last few years and being more aggressive around directs. How does that landscape look to you, Bertrand?

Bertrand

I think it’s definitely right. Maybe another piece of the puzzle is that if you look at some US investors going to Europe, for instance, expanding internationally or to China, it went back. Many firms, if you take in China, separated from their Chinese office. If you think about investment in Europe, so many reduced, actually, their investment in Europe. So quite typical that when things are good, you try to go pretty global, you try to expand, and when things are tough, you go back to your core. I guess China is a bit different story. It’s more for geostrategic reason. But you could argue the landscape also has changed dramatically locally there.

Nuno

It’s also true, obviously, of what we’ve seen in terms of the sectors. We’ve just talked about AI and deep tech in general, where it’s been booming, and it’s basically stood up. Some of the numbers would be that AI deals are 35.7% of all global VC deal value. By value, it’s incredible, which is record. But it’s not true of everything else. If we look at other sectors, for example, crypto, there was a bust and there’s no recalibration, and it’s not true across the board in terms of sectors.

Bertrand

Crypto, for sure, went through a huge burst. This one, you could argue, was mostly caused, at least in the US, by the action of the regulators from the SEC and others casting a cloud on the industry. I wonder how much it will go back to a boom, actually. Right now, now that we have someone who might be the first pro-crypto president in the US. What do you think?

Nuno

Well, I won’t comment on the present being pro-crypto or not. I think we might see a re-acceleration of crypto this year, in particular because there’s a lot of uncertainty geopolitically around the world, et cetera. Normally, I’d say that’s a clear tailwind for it. The regulatory environment, at least in the US, seems like it’s going to get further clarified. If it does, I think we’ll see a great year for crypto in the US.

Bertrand

We have climate tech and clean energies. I guess this one, we have seen the number since the funding fell, actually, pretty significantly in 2023, 30-40% before the year before. My guess is that this is going to change very significantly for very different reasons in US and Europe. If you take the US, all this ESG stuff is going to decrease significantly for investment related to it, because definitely this is not something that’s supported by the new administration.

We can remember the drill, baby drill mantra. It’s not totally pro-climate tech or clean energy. I would expect much less investment there and actually a reallocation to more traditional energy source. But in Europe, it might be changing for very different reasons, simply because there is no money and there is a lot more actually investment that might go to defence spending. There have been a lot of talks in that direction the past few weeks. The last I was hearing actually is a willingness to dramatically change the meaning of ESG or potentially drop it all together in Europe.

Most people might know this movement started and has been extremely strong in Europe. I started hearing that, yes, there was a discovery that accelerating defence funding while keeping ESG mandate might not work.

Nuno

Indeed. If we look at biotech and health tech, obviously, we know the cycles on biotech and health tech for start-ups are very different. There’s always a capital intensity, or in general, there’s a capital intensity to some of these more structural plays very early on. It’s either a binary, either this works or it doesn’t work. You get FDA approval, you don’t, or you get this, or you don’t, et cetera.

But the biotech market, which seemed to have been super hot in 2021, then really had a significant correction as far as 2023. I do anticipate that there were a little bit of signals of revival in ’24, 28.1 billion in biotech versus 21.2 billion in 2023, so there was a little bit more optimism, definitely significant growth there.

I suspect in particular, biotech, we will see a significant revival of 2025 and 2026 in terms of investments, and probably in health tech as well, if I make an educated guess out of it for reasons that have to do with the cycles that we’re currently on, and the fact that some of the deregulation movement that we saw around COVID is here to stay, and therefore, that would be, again, a great tailwind for health tech innovation.

Bertrand

Let’s not forget the new movement launched by Brian Johnson, “Don’t Die”. I think it’s trailblazing a new path in that direction. Actually, I’m interested to see what all of this is going to go versus the more traditional biotech, health tech industry.

Nuno

That’s almost not a health or longevity trend. It’s like someone trying to create a sect. “Don’t Die.” he defined it as a religion. I’m like, Are you kidding, man? Really?

Bertrand

He totally defined it a few weeks ago as launching a new religion.

Nuno

Oh, man. Okay. Cool stuff. Yeah. Great.

Bertrand

In some ways, it’s not so different from many religions trying to find path beyond death, we will see.

Nuno

I would frame its religion versus sect. But yes, okay. Fair enough. For those of you listening that have been reading all these articles on why Silicon Valley is becoming Christian and all these stupid dimensions around the opportunism of some people that all of a sudden have become Christian. You guys will recognize that I’ve been Christian Catholic for a while. I’ve been talking about it for a while.

But maybe switching to non-religious topics and staying with the fundraising topic. Fundraising for VC firms. It’s been an interesting world. Just to frame a little bit, VC firms need to raise money from what we call limited partners, LPs. Over time, the cycles of fundraising for VC firms are different. Funds normally are 10 years with potential extensions. Investment periods, which is the time period, again, to recall you guys that haven’t heard some of our previous episodes, investment period is the time period under which a VC firm can invest in new portfolio company. It’s where they do their basic portfolio construction.

And then investment periods can be three years, four years, five years. After that time period, the only investments that the VC firm can do is in follow-ons, so putting more capital into existing portfolio companies they already have.

Normally for VC firms, the cycles of raising are around the investment periods. If my investment period is three years, I’ll probably go back to market to raise my next fund two years into my fund because I’ll have 1–2 years to raise the fund. Yes, guys, it takes around 1-2 years to raise a fund in many cases. The landscape that we’re currently on is we hit the height of the market in ’21 and ’22.

In terms of banner years, ’22 alone, the numbers I have is for US venture firms, they raised $172 billion in that year alone. ’23 and ’24 have been really, really tough years. In 2025, the start of the year, I’d say, is quite similar. And so all the numbers that we’ve had, I have that basically for 2023, the US funds raised around 67 billion, again, versus 172, 173 billion in 2022. The money is getting more and more concentrated to the point that Bertrand made earlier.

It’s been really concentrated on the bigger firms. There’s more and more multibillion dollar funds. I can come back to that later. I feel that’s a trend that I don’t fully understand why LPs are putting capital into larger funds when we know that’s very difficult for very large funds in venture capital to return great. You have to have smaller funds, like 500 million, 600 million, seems to be the number that for a long time we’ve discussed, seems to work for venture capital, and we now have multibillion dollar VC funds, which I find a bit intriguing. But that’s what’s happening to the market. The market’s definitely tougher.

The cycles for fundraising for VC firms are definitely more linked to macroeconomic situations and portfolio allocations from big investors. We typically raise money from either institutional investor, funds of funds, multifamily offices, or we raise from single family offices or very high net-worth individuals, or we raise from corporations that are willing to be limited partners in us, or even more up stream, the classic pension plans, endowments, university endowments, et cetera, which are even more regulated. All of these players seem to have their own portfolio considerations when looking at venture capital as an asset class.

Bertrand

I think to your point, Nuno, I have the impression that the VC industry has changed quite dramatically between the smaller players, early stage players, Series A, B, and the ones that, okay, we call them VC, but practically, it’s a very different animal when you are investing billions in a new run from OpenAI or XAI or SpaceX. 10, 20 years ago, when we’re talking about investing billions at 10 plus billion dollar valuation, it would only have been possible in the public markets.

In some ways, I feel that our definition of VCs, and we keep saying the industry gets bigger, but in some ways it’s probably because firms early on are not going to get their financing from the market anymore. They prefer to stay private longer, get more money from private investors, and delay their entrance to the public market. Technically, there are VCs, it’s still private companies. Could call them startups if you still want. I feel it’s just a very different animal, and some have decided to just go all the way in that new direction, versus staying in their previous lanes.

Nuno

You’re objectively right, but the point I’m making is more nuanced, which is if you have a firm raising 2 billion, saying it’s a VC fund, and then they deploy 80%-90% of their fund in growth rounds that are later stage. The way they raise their money, if it’s a VC fund, is for earlier stage investments. But effectively, what the fund has become is a growth fund. If I’m an LP, I give you money for a VC fund, I’m expecting VC fund returns, which is like 2X, 2.5X, if you’ve done well. But if it became a growth fund, it might not be that.

Bertrand

Oh, yeah.

Nuno

There’s an added issue to this. You mentioned the case of OpenAI and the Anthropics of the world et cetera, which is in some cases, some of these later stage investments are a little bit more risk adjusted, but others are not. If you come into OpenAI at 150 billion, good luck with that. How do you 2X on that. If you come now at the next round, which we’re now discussing, maybe they’ll raise at 300 billion, 2X is 600 billion, assuming there’s no more dilution along the way.

At some point, you’re like, How does that work? Again, it’s horses for courses. But if I gave you capital, Mr. VC, and I’m an LP, the part I don’t understand, if it’s for a VC fund, I have assumptions on the VC returns, which there’s no way in hell you can get to if you have a $2 billion fund. You just can’t. It’s impossible.

I agree with you. I think there’s going to be haves and haves nots. Some firms that are going to raise more and more money. Some firms that will have more difficulty in raising money. I think it will be a case of also DPI, carry, the old benchmark model versus management fees and TVPI, so on your books numbers versus cash on cash or partners that are making their money on management fees rather than making their money on carried interest on profits. I think at some point the music is also going to stop for that.

Some LPs are going to be like, “You know what? I feel I’ve been fooled around on this.” Then the third piece is, I do think you’re going to have more and more the firms that stick to thesis, the Benchmarks of the world. I’d like to put ourselves as chameleon into that world as well, where we stick to our thesis, smaller funds, and really focusing on VC returns, and the firms that go after other asset classes that either magically do really, really well or at some point need to retrench to having different asset classes that they represent.

A little bit like Sequoia did back in the day where they said, “Look, we have an early-stage fund, and we have a growth fund.” The growth fund is for the asset class of growth funds, and the early stage fund is for early stage investing. Then, if I’m an LP, I decide whether I think these guys are really good at all these different asset classes, and I’ll give money to the funds that I want to give to and not give to the funds where I think maybe the performance won’t be as great because there’s no unfair advantage by the specific fund manager.

Bertrand

But you know the game. I’m sure that some are going to say, if you want to get access to the early stage fund.

Nuno

Sequoia will actually do that.

Bertrand

I don’t know, but…

Nuno

No, they do. They change their structure to having one fund to have one structure on top. It’s not a fund even anymore. It’s a structure on top.

Bertrand

Yes.

Nuno

They have all these different things, but then they created this structure a couple of years ago, which effectively looks a bit like a hedge fund on top that you put money capital into.

Bertrand

Yeah. I think that would be the game for many too. If you want access to the best returner funds, you also have to invest in the other gross fund of the family or else you might lose your access to the other early stage funds that are giving potentially better return. I think there will be a gameplay to make sure you can still finance the gross fund. But I agree with you. I have trouble to think it can go to the same returns and not to pick on OpenAI because I think they still have some of the best in class product. I think their bigger issue is the cost. They are way more expensive than competitors. And their edge, their edge is decreasing.

They used to have, I don’t know, one year in advance versus everybody else, and it became six months, and it’s becoming three months, and now you are like, “Is it one month?” That’s for me the biggest question mark for a company like OpenAI. How true is the mode? And there is this fight between private source versus open source AI. That will be a discussion for another day.

Nuno

At some point, LPs also have to figure out… There’s a huge premium that needs to be put in the fact that these investments are liquid. I’m giving money to a fund, and I’m seeing that money back over years. Should I just put it into public equities or just put it into some index fund, Nasdaq or New York Stock Exchange?

If you do the math, at some point, you just need to step back. I think the good news for Venture Capital is that there are still great funds out there having outsized returns and really focusing on the core mission of Venture Capital investing. It’s also great news that there’s a lot of capital to follow through companies, to your point, on the trend of staying private longer without going public, but the markets need to open.

I think the good news is the M&A market seems be opening as we speak, and there’s a lot more and more activity. Just in last couple of weeks, we’ve had incredible deals, the largest deal ever that Google has ever done, which is pretty incredible around cybersecurity. The IPO market still haven’t opened. There’s a huge line of companies waiting to go public, and we keep hearing different views that maybe some of them are waiting, but they don’t have the fundamentals yet right.

The market is so backlogged that you really have to have an amazing story to go public right now otherwise, you’re going to get killed as a stock, so we’ll see. At some point, something’s got to give. Secondary markets are also much more active, but with discounts. There’s all these different dynamics that I think are affecting the fundraising environment for Venture Capital firms.

Bertrand

If you’re a VC firm, you depend on LPs. LPs depend on returns from their investment in VC funds to reinvest in VC funds. If they don’t get the returns, or they don’t get the liquidity, they are not going to be able to put back the money to a new fund because they haven’t got their money back yet.

With that delay over time of exit, the lack of IPO and during the Biden administration, we had also a lack of M&A because there was a lot of restrictions put on M&A from big tech. You just talk about this Google acquisition of a cybersecurity company. What’s the biggest ever for Google? It’s more than 30 billion. It’s not sure that it could be done 6 months ago by Google.

It should be very interesting to see if there is way more acquisitions from big tech happening. This is a huge pipeline for VCs. If you stop selling to big tech, it’s big trouble, just to be clear. It would be a dramatic change, will provide more liquidity.

For IPO, it’s clear the markets are right now very uncertain. I don’t know who would be crazy enough to plan an IPO in the coming three months, to be frank. If you dare to do that, I wish you luck, but I think the next three, potentially six months, are going to be pretty uncertain. It’s definitely not a great time for IPO. I don’t know if you saw the news today, this morning, there was a discussion concerning M&A from the new administration, and they were hinting that they are not going to let any company big on DEI to do easily acquisitions.

Nuno

There’s a lot of uncertainty in the market.

Bertrand

The pipeline that we thought was just reopening might not be so open after all.

Nuno

We’ll see. I think on M&A, I think the floodgates have opened. I think we’ll see more and more. The IPO market, I agree with you. I don’t think we see anything anytime soon, but maybe we’re wrong. Maybe we’re being just pessimistic on that side. Obviously, that influences everything around the table.

The name of the game definitely is distributions. As we’re talking to limited partners, our limited partners, and you, potential limited partners for upcoming funds, the feedback is, “Do you guys have distributions on paid-in? Have you given money back to your LPs or not? What’s the vintage of your fund? How soon did you give distributions, et cetera?”

For example, for one of our funds, for the 2021 fund, we had distributions last year, 2024, and that’s magical. You see even the most institutional LPs, their eyes open up. It’s like, “You’re given distributions already? You’ve given cashback?” That’s great. To your point, cash will ultimately be king.

Bertrand

Yes, now it makes sense, and congrats on doing that. For me, what’s shocking is that for LPs, it’s unexpected. At some point, it’s a real trouble if after 2, 3 years, you don’t start to some distribution. We all know it takes time, especially if you’re more early stage, but at some point, the proof is in the pudding.

Nuno

Shall we talk about best practices for fundraising for startups?

Bertrand

Sure. Best practices for fundraising from a startup founder perspective. I think it’s clear founders need to be strategic on how they fundraise. Let’s start with some thoughts. I would say first thing first, I’ve been surprised and troubled to see founders who sometimes truly believe in their own dreams believe that they have what it takes to do a successful fundraise.

I think in the past, it might be because they remember the old days, they remember 2021, and they don’t realize it has changed. They refuse to acknowledge it has changed. Definitely things have changed. You better be prepared.

It starts with a solid preparation, solid strategy. You want to make sure your docs are in order, your business plan, your revenue model. You have potentially a path to profitability depending on your business model. You want to be very compelling very quickly in your deck.

I think it’s always very important to start very prepared because at the end of the day, you would want to be very efficient in your fundraising. You don’t want to be running that for 9 months or 12 months. As a startup founder, you want to refocus to your business very quickly.

Another piece, obviously, is around crafting a compelling story. It’s a lot about storytelling everywhere, but especially when you are fundraising from VCs, you have to have a big vision, you have to make your employees dream. You have to make your customers dream, and you have to make your investor a dream.

That part is key. It’s not just about the numbers, but you have to have a compelling story. You have to have a unique value proposition. How are you different from others? If you are not in AI, I can tell you better have to have a good story about the why? Why now? Why your stuff is important? Why you are not doing anything related to AI?

Another piece of the puzzle is that you need to be very focused on tailoring your approach to different types of investors. You don’t talk the same way to a Seed Fund, a larger VC, a corporate VC. You really need to know your audience, tailor your pitch to your audience. Again, if you previously fundraise 2 or 3 years ago, you are probably going to talk to different types of investors who have different expectations.

Hopefully, you have help from your previous investor, from your last round to help you understand that. Again, I have seen some who take the decision not to listen. Please be careful. Listen, especially to your close investors who last invested because they should know about what it takes to get to the next level. After all, they have a dozen, two dozen of portfolio companies who are facing the same stuff as you, so they should have a pretty good view about what’s happening in the market right now for companies at your stage.

Nuno

Just to highlight there, I think you’re spot on. If you’re talking to an institutional Venture Capital firm like Chameleon, my own, Red River West with Bertrands, everyone’s looking for returns. It’s all about the big vision. How is this going to become significant? What are the risks and derisks, right? That’s basically it.

If you’re talking to a corporate VC, they might be less interested in the return. They might be much more interested in the strategic value to the mothership. If you’re talking to a Toyota Ventures, they might have more value in terms of what value can we bring back to Toyota out of this. Then family offices are very driven by impact and themes and value system, and it’s probably people that have made some money.

Although they might be thinking about returns, in some cases, they might not be thinking as much about returns, more about, “I want to do something around sustainability because we came from oil.” We want to go now more towards sustainability and sustainable energies and stuff like that. Again, match the speech to the expectations in terms of returns and to the expectations of who you’re talking to. Even different VC firms have different focuses, so be prepared for that.

Bertrand

Totally true. Different firms have some are very generalist. I guess at Red River West, some much less generalist and are very focused. It could be SaaS, it could be AI, it could be Space Tech, it could be hardware. You want to have a speech that’s tailored to their interest. Another piece of the puzzle, obviously, try to get warm intro, try to do some networking. At some point, you might have to do cold outreach, but warm intro goes a long way. That’s one reason it’s never a bad idea to reach out first before you need a fund.

Typically, for instance, if you are doing seed, maybe you talk to some Series A companies. That’s the time when you are ready for Series A, they already seen you, they have talked to you before, they have seen your business plan, and now you are ready for them. That’s something I’ve seen myself as an entrepreneur. Talking to a Series B investor when it’s a bit early, and ultimately, they end up with, “Hey, you know what? It’s too early for us, but let’s talk at the next round.”

It has been a great source of intro for the next round because when it’s time for the next round, they are actually ready. They know your business. They have seen you growing. There is a level of trust you have built showing not just your business plan, but a business plan 2 years ago or 18 months ago and hopefully, you have delivered on that plan. If you have delivered on that plan, it’s creating a lot of trust.

I’ve seen always doing, and we are doing typically at Red River West is comparing with what did people told us at the last round, and maybe they have been early talking to us, and how have they delivered? If they are delivered, the level of trust is incomparable versus coming cold. That for me is sometimes underrated by funders, but reaching out early and obviously delivering on your plan has a lot of impact.

Nuno

Indeed. Showing systematically how you’re evolving. Leveraging the connectivity, keeping the relationship going, and then really highlighting why are you different in the market. Not just vanity metrics, really being able to go under the hood, show fundamental shifts, show that the numbers are really hitting it.

To your point, Bertrand, the most impressive thing is when someone said, “Remember when I talked to you a year and a half ago, and you told me to bug her off and raise my round? Here I am again. I’m raising again, but now I’ve done everything that I said I was going to do, and I’m actually better.” That is just incredible. In particular, if you’re a B2B company, it’s just if you’re annual recurring revenue, all of that stuff has just gone better than you said it’s going to be. That’s like magic.

Bertrand

Yes, 100%. I think entrepreneurs to get that. That one, they need ambitious plan, but they need ambitious plan that they can deliver or even overdeliver. Another piece of the puzzle for me is trying to understand as an entrepreneur, what is best in class? What is top tier? What is first quartile? Because you want to understand in your industry, I don’t know if it’s B2B, SaaS or AI or this or that, you need to understand your competition in some ways.

In competition, in the sense of fundraising. Because if you are an investor, you are going to sell this company. You are going to have this matrix, and you are going to judge companies based on how they are achieving. Is this a top-quartile startup? What are their metrics? How do their metrics compare to not their direct competitors, but their peers?

Sometimes I’ve seen entrepreneurs who have trouble to get their head around. They are just focused on their own business, how hard it is to deliver. They believe that magically they can explain that, “Yes, the numbers are good, but not great, but it’s okay, we can still find financing.” No. If your number are not top quartile, it’s going to be hard. If it’s hard, it means that either you don’t get that financing or you get that financing from tier 2 or even tier 3 investors.

It’s not going to be fun. The valuation are not going to be great. There will be a lot of terms that are not great, and sometimes the run might not even close. I think you have to be very careful, very humble, and understand that it’s a marketplace where VCs are willing to fund some entrepreneurs, but they are going to pick the crop of the crop, the best of the best.

One more tip for entrepreneurs is manage the fundraising process efficiently. You want to have a well-oiled process, and you want to be quick. Target to close in three months, at least to close that term sheet. It might take you 30 days, 45 days more post-term sheet to fully close around. Don’t give yourself six months to find your lead investor and sign the deal. It’s way too long. It’s a lot of distraction, disruption in the business. Step by step, your number are going to suffer.

That would be the last piece, don’t let your numbers slip. It will be big trouble if you spend more time fundraising and step by step. The numbers you have to show degrade. Even if you manage to quickly close, it will not be good for you if your numbers are slipping because for months, you didn’t focus on running the business well.

Nuno

You should listen to Bertrand because he’s probably one of the best, I think, at managing cycles. You always got it right. I invested early in App Annie, and every time he went back to market, he said, I’m going to raise this in whatever X amount of months and he delivered. Which was always shocking to me. We’ll talk about that maybe a little bit in a second on some hacks and some of the best practices to create this fear of missing out that you need to create in fundraising for sure.

Bertrand

Yes. Weeks, not months.

Nuno

You did it in weeks, yes, I know. I remember. I always bet against you, and I was always wrong on the subsequent rounds, so listen to him. In terms of best practices for VC fundraising, if you’re a VC fund or a Micro-Fund, and you’re thinking through, how am I going to best fundraise? Also, if you’re a startup entrepreneur, understanding a little bit how fundraising for Venture Capital firms and virtual capital funds is so different from your own fundraising.

The first thing to take into account is unlike fundraising for startups, actually getting information on the LPs you want to reach out to is not that easy. A lot of these LPs are quite hidden and healthy. Most LPs are not as outspoken as VC funds, so getting information on LPs is very complex.

There’s very few podcasts now where limited partners share around their views. As I mentioned earlier, LPs come under different forms and flavours. The more institutional ones on the top end, the endowments, the pension plans, et cetera. Below that, the multifamily offices, the Fund of Funds. Fund of Funds are funds that focus solely on investing in other funds.

Then below that, you have the single-family offices. I mean, below in terms of the degree of institutional acumen in general. There are single-family offices that operate in a full-on institutional way with very complex portfolio management, et cetera. Then you have very high net-worth individuals and so on and so forth.

The first thing that normally you would do if you’re a startup raising from a VC fund, doesn’t quite apply as well to a VC fund. The information that we would need to gather on LPs is more complex to obtain. Just creating that initial list is actually quite complex. Just creating the list of outreach and who we’re going to talk to is much more complex than it would be for a startup.

The first thing you actually need to first articulate is really what is your fund thesis? What’s compelling about you? What’s the moat? What is unique about what you’re doing?

Again, most VC funds, the complexity is that we are people-driven. We don’t have huge advantages beyond being people-driven. We at Chameleon are again, a bit unique in that because we have a platform that we develop in-house called Mantis, and that tech and AI platform does allow us to differentiate from that standpoint. Most VC firms don’t have tech, they don’t have a product. Their product is them being great at selecting deals and managing those deals and then exiting at the right time.

If you’re a VC fundraising, you have to really have that very nail down, what’s unique about you? Is it some network that you have access and unfair advantage? Is it some operating model advantage in terms of tech, if you do have any tech data? Is it some other advantage that you have in terms of the areas of focus where you have very specialized general partners, very specialized partners that are people that have 20 years of experience in that area, et cetera? That’s the first piece. What’s the moat? What’s the thesis?

The second piece is track record. This is all about the numbers. People are going to be like, “What’s your track record? What stage have you invested in these companies? What are your returns across the funds you’ve done before? If you’re a first-time fund manager, did you do any angel investing? Do you work at another fund? Do you have track record that you can show for it? Do you have some credibility where I can really understand that’s some unfair advantage in how you select deals?”

Deal selection becomes the most important piece of that discussion. Again, if you can’t show the track record, it’s tough. I know there’s been a lot of micro-funds that have been raised in the last few years. If you don’t have great numbers, good luck to you. If you’re a first-time fund manager, and you don’t have anything to bring to the table, either you’ve been a very successful entrepreneur or you have a great gamut of angel investing that you’ve done that has been really good, it’s going to be very difficult to raise at this point in time.

Thirdly, you need to tailor your approach. As I said, there’s different types of LPs. A multifamily office thinks about portfolio construction in a very different way than a single-family office. A fund of funds thinks very differently about portfolio construction than an endowment. The risk that they’re bringing to table is very different.

Try to figure out if the LPs that you’re standing in front of are adequate for you. If you’re an emerging manager, you’re doing a first or a second, or even in some cases, a third fund, understand if that LP is willing to give money to emerging managers. It might be they are not. It might be that they only give capital to fund 3s and fund 4s onwards. They were not going to give money to emerging managers. It might be that their emerging manager program is actually much smaller.

Ask questions is always my advice. Because from those questions, you’re going to get, what’s your typical capital commitment to emerging managers? Do you think through this track record over time? How do you think through that? What value do you bring to me as a VC fund in terms of standing with me through time?

If you’re trying to build a franchise play in venture capital, fund 2, fund 3, fund 4, are these the kinds of LPs that will stay with you through time and also invest in fund 2 and fund 3 if you have great returns? In some cases, they’re not. For example, corporate LPs, corporations that invest in funds, are well known for their strategies change if the CEO changes. If you have a CEO change every 3 years, they might not be in for the next fund with you.

It sounds like great money upfront. It might have a lot of strings attached, as we discussed earlier. Corporate LPs are very focused on strategic value back to their mothership. At some point, there’s a change in CEO, the stock price goes down, and you’re shit out of luck, basically. They no longer can be with you even if you have great returns. You have to think through those things.

Then maybe the things that are maybe a little bit less exciting, but just the process management, consistent updates, keep in touch, the cycles of fundraising are 1–2 years, as I said before, unlike startups, which should be like 3–6 months max. Therefore, being and updating and reporting, addressing things, being in touch, keeping those relationships over 3, 4, 5 years, sometimes is pretty essential.

Streamlining the due diligence process. If someone is really excited about you, having a data room that’s ready to go, figuring out what is in that data room, what is not. Being transparent, but not overly transparent, because honestly, you might be oversharing. There’s also compliance rules around the information you can share and not share with people that are not yet your limited partners. You have to be thoughtful and careful about that.

Then at the end, really figure out how do you get to a close. It’s a funky world because the leads, the so-called anchor LPs, the equivalent of lead investors in LP speak and VC fundraising speak is anchors, are not really a lead. It’s more of an anchor, and you might have several, not just one. Really framing and creating a timeline by which you push them to the table is much more complex than for a startup to get that lead to give them the term sheet. Doing that really well is in and of itself its own hard form.

Then over time, how do I build all these relationships long term and get them nailed so that I make sure that even though this fund of funds that I really want to have on board as an investor in my fund is not willing to come in right now, that I have a good relationship, maybe they’ll come in 2 years or 3 years or the next fund or maybe for a final close.

That’s the other thing that’s unique about VC fundraising, is our funds, we get money, we get investors in, but actually the capital calls are done over several years, but the commitments are also done over a period of time. You do what is classically called a first close with your anchor limited partners, but then you have typically around at least 12 months to do more closes or at least one more close where you get other limited partners on board. The whole notion of cash management, et cetera, is very different than that of startups.

Bertrand

Definitely, it’s on this fundraising from LPs versus fundraising from VCs. It’s a very different game. Maybe another piece that, if you come from the technology side, LPs don’t always talk the language of technology. They might not understand. It’s a really big gap. It’s very different type of people and professionals.

Nuno

Indeed. In some cases, they’re more involved because of portfolio management, portfolio construction. In some other ways, there’s maybe even more distance to what is the role of a VC versus what is the role of an LP. In some cases, LPs are very fundamentally allocators, and the VC is very deeply… in particular for an early stage VC, very deeply, to your point, entrenched in technology. That’s where we make our decisions, the technology, the people, et cetera.

Sometimes there’s this huge gap in terms of communication, where they’re interested in returns and risk-adjusted stuff, and we’re talking to them about why we’re amazing at due diligence, and we figure out the tech really well, and we are great at assessing entrepreneurs, and they’re like, “Cool.”

Bertrand

Yes, it’s a different game. Cool and show me some numbers.

Nuno

Show me some numbers, yeah, whatever.

Bertrand

It makes sense. It’s really a big gap. It’s a different game.

Nuno

Maybe going to closing the deal, how do we get investors to commit and close the round, Bertrand?

Bertrand

At least from what I have experienced on the startup side, it’s definitely key to identify and secure a lead investor and term sheet. Because once you got this first lead investor and term sheet, then you might start to have some real competition with other investors interested to also move immediately, or they know they will lose the deal. Once you have picked one investor as a lead investor, then it’s time to go quickly over potentially allocating, of course, to your existing investors. That would have typically already been discussed, but potentially look for follow-on investors.

Again, you want to keep going quickly. You don’t want to start throwing things down. Typically, you will have talked to some potential investors who are follow-on while you are fundraising. So it should be easy to reach out, explain you have a term sheet from a lead investor and are they ready to get in. Typically, you don’t give them too long to make a decision.

That’s also where it goes back to creating some urgency, fear of missing out. I think it’s really key to move quickly because first, one thing I have experienced is that you never know what might happen next. You might have a business issue, you might have some overall industry issues, you might have some macro issues happening, and sometimes everything can freeze as a result.

You really want to move fast, not take a chance at any step of the process because you never know what might happen tomorrow. I have experienced that type of situation where sometimes in a matter of days, you see the market changing dramatically, investor expectation changing. I mean, this stuff can change fast.

Nuno

An analogous for us in the venture capital world is, get that anchor LP in for that first close or those anchor LPs in for that first close. But maybe even before that—and I think the bar is similar for startups, but maybe even higher for funds—is the first question that’s going to happen is, are the previous investors, the previous LPs to your fund, coming into this fund as well?

So showing great repeatability, where you have a bunch of LPs that were in that previous fund of yours, coming now for the next fund as well is very important, the same as it would be for a startup saying, “Oh, well, I have all these investors, and they’re coming into this round as well.” But I think maybe for funds, the bar is even higher, right? Because in the case of VC firms, you know that sometimes at some point they can’t put more capital in. In LPs, there’s this expectation, if they put money in the previous fund, they should put money in this fund as well.

Bertrand

Yeah, totally. I think for startups, as you say, it can be explained probably more easily. But that’s true. It’s a better sign if you can explain that your existing investors are willing to do their pro rata or even are fighting to do more than their pro rata. That’s always a good sign.

At the same time, you as a CEO, it’s good if you are able to also manage your existing investors because sometimes you might need to make space for a new one, and that new one might not leave enough space for the existing investors. You might have some tension here. Of course, you want to treat well your existing investors who believed in you when it was earlier. At the same time, you don’t want to miss that new investor. So it’s very important to, on one side, make sure your existing investors are going to follow, and at the same time, make sure that potentially they are ready to do a bit less if that could help the new financing.

Nuno

Going back to tactics, the best people at fundraising across the board, I think startups and for VC funds, create this notion of fear of missing out. I’m going to use, hopefully, not too much of a politically incorrect analogy, but you’re the most beautiful girl at the dance. You’re the most beautiful girl at the dance. Everyone wants to dance with you. Creating that fear of missing out, creating that notion that I really want to do the business. I’m a limited partner. I really want to put money in this fund. Otherwise, I won’t have a chance to put in.

I think for us in the VC world, as VC funds raising, it’s more difficult than for startups. I think the world of being the nicest, most beautiful girl at the dance, being a painkiller versus a vitamin are a little bit gone. There are now a lot of offerings in the market, unless you’re maybe an LP from other regions of the world, and you have more difficulty in accessing the best funds. But still, having that notion of creating FOMO is pretty essential. For startups, it’s critical. People have to find the notion of, I should put money to these guys so that they can go to the next level and make it go forward.

Bertrand

Another piece that’s important is that it’s not just FOMO for FOMO’s sake. You create FOMO in order to accelerate a round, close a round, go on with your life as a business. But also you need to be honest because if you start to be dishonest by saying you already have a term sheet when you don’t, that sort of stuff, it’s a very dangerous game. It’s, I think, bad ethics, bad practice.

Step by step, people might hear, might know, or they might even be able to read between the line because you are talking about having opportunities, but you might not have them. Sometimes, VCs are good. They will read between the lines that actually it might be bullshit. Be careful because the minute it moves from FOMO to these guys are bullshit, you lose.

Nuno

Then the next step is getting it in writing. Either get the term sheet, which, as we know, is not binding except for normally confidentiality and/or exclusivity for that term sheet, for the case of startups. For VC firms and VC funds, obviously getting the agreements at the table, getting them closed so that you can then run to a first close at some point or to that next close after that time. But getting something in writing at some point is pretty critical.

Before that, obviously getting the gentleman’s or gentle lady’s agreement that someone says, “I’m in.” That’s the first way to get to that position where people are putting their reputation at the table, and that is true for both cases. Then keeping that momentum going and going and leveraging and going around for other investors, in the case if you’re a startup, or for other LPs, if you’re a VC fund, and making sure that they want to come on board and keeping that momentum going for that close that you’re trying to get to, in the case of a VC fund, for that round to be pulled together if you’re a startup.

Bertrand

I think you make a good point about written commitment, because in some ways, for me, my experience has been obvious. That’s how it works and that’s how life works. Actually, a few times this was forced on us. Basically, we got the term sheet, and you’ve got 24 hours to sign it or 48 hours to sign it. That’s very clear. Of course, you can ask a bit of extension of this and that, depending on how you want to play the game and is it your favourite option or not.

But at the same time, I’ve been surprised that some entrepreneurs have been led to believe stuff, not receiving anything in writing, not having the term sheet, having people talking to them and explain to them why they can’t have the document in the coming days, weeks, but they really love the business and the company, and see the entrepreneurs believing on the dream, basically, eating the bullshit.

No, that’s not how it works. If you have spent 2, 3 weeks with an investor explaining your business, opening your data room and stuff, if they are serious about it, they should be able to move. Obviously, some markets things go slower if you pick your up, for instance. But in the US, things are going to move. If it’s not moving, it’s already a bad sign. It’s a really bad sign.

Nuno

Indeed. What other hacks shall we recommend, Bertrand? I have found you have to figure out, again, the individual. There’s a lot of advice that is given sometimes around the entity. I think your VC fund, again, fundraising, it’s very easy to look at an LP as an entity. Probably the same as a startup. You’re looking at, “I’m talking to Sequoia, I’m talking whatever.” Actually, you’re talking to a lead partner somewhere or a lead originator, someone that’s really the person that’s pushing forward your case, and so figuring out the motivations of that person.

What makes that person successful? What makes that person go to the next level in their own environment, in the organization that they’re in? What motivates that person, and what style of person that is. I’ve had some archetypes of LPs shared with me. I won’t share them today because I put that person on the line for it, but there are archetypes of people.

There might be people that are a little bit more number-focused, a lot of people that may be a little bit more nerdy. There might be some people that are a little bit more relationship-focused, that they want to build really that relationship first before really even moving forward, so figuring out who the individual is, what makes this person tick, what makes this person successful or not is pretty critical in getting the deal done.

Bertrand

Yeah, and making sure you are talking to the right person with the right level of authority. Sometimes if you just talk to junior people, and you don’t see the partners or senior partners, it’s a bad sign. Your stuff is not going to work. It’s important to have the junior people in the loop. But at the same time, you need to talk to the decision maker. You need to make sure they can move things forward. That’s absolutely critical.

But I would say at the end of the day, you need to really focus on the goal. The goal is to have a great business. If you have a great business, if you are good at running your process, you have a data room ready, you have picked your list of investors, you go through them, you spend the time to move quickly, you push enough of time constraints on everyone, explaining by when you want to get to your first term sheet. I think it’s quite reasonable to say it’s a matter of a few weeks, four weeks, for instance. I had a first-time sheet at one round in nine days.

Nuno

Just to be clear, that doesn’t happen. If you guys are listening to this… How often does that happen? It doesn’t. As I said, Bertrand is very good at this. He was very good at this.

Bertrand

Maybe, but another time, it was three weeks.

Nuno

Also very fast.

Bertrand

I’m not sure I did more than six weeks to close a round at App Annie. My point is, you have to have great metrics, you have to have a great team, you have to have a plan, you have to deliver on that. It’s like a project to do that fundraising. We didn’t talk about bankers, by the way. I’ve very rarely used bankers. It’s more used in Europe, but here in the US, it’s not very typical.

I think that you have to play the game well. But again, try to move fast because ultimately, that means you can go back fast to business. For me, that was always something really critical. I took a lot of great pride to make sure that it’s not because I’m running around the fundraising that I’m going to slow down the business. From that perspective, I was helped for sure by my CFO, who was really doing a great job preparing that fundraising, preparing it, managing it, and making sure as a result that the team could really focus on running the business, not just doing the fundraising.

Nuno

Indeed. From our side, our analogy is banks, potentially, but normally it’s private placement agents as we call them. Normally, you need to have a broker deal, a licence, all of that. If you’re trying to raise a relatively small fund, and to be very honest, a relatively small fund in venture capital, from a perspective of private placement agent, it could be as high as 100 or 150 million, which would be already a significant fund for a venture capitalist.

I would say most of the significant large private placement agents won’t work with you. There might be some smaller boutique players that will work with you. Maybe some broker dealers are a little bit smaller that will work with you. But in our experience, it’s been very difficult to work with private placement agents and broker dealers unless you’re a very large player. Because again, these guys, if they’re raising 50 million for a private equity fund, a 50 million allocation for a private equity fund, it’s easier for them to do that than to raise 5-10 million for $100 million fund in venture capital. It’s the same work.

It’s like, if I’m going to do it, I might as well raise 50 because they’re going to be compensated, if they’re broker dealers, by a percentage of the money they raise. They’re obviously interested in raising more, not less. It’s easier for them to work with private equity funds or larger VC funds than to work with smaller VC funds or more right-sized VC funds, I may call it.

Bertrand

Makes sense.

Nuno

Wonderful. In conclusion, today, we went through all the key things you need to know if you’re fundraising. First, what is the current evolution of the landscape for fundraising for startups? The same for VC firms, if you’re doing a VC fund or if you want to understand how the landscape for VC funds. What are the best practices, the strategy, the processes, the tactics, everything for fundraising overall for startups.

Same thing for VC funds and VC firms. What are the best practices that VC funds need to take into account when raising their own money from limited partners? Finally, how do you get investors, both if you’re a VC and if you are a startup, to commit to giving you money? How do you close on these investors? Hope you enjoyed it. Thank you, Bertrand.

Bertrand

Thank you, Nuno.

View Details

Our analysis of the Space & Aeronautics, Defense and Homeland Security industries from key trends to investment landscape… to perhaps, more importantly, evil vs no evil? Where are we now?

Navigation:

Intro (01:34)
Why now?
Geopolitics
Aerospace and Aeronautics
Defense and Homeland Security
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno G. Pedro

Welcome to Tech DECIPHERED. In today’s episode, Episode 62, we’re going to discuss space and aeronautics, defense and online security. We are going to talk about key trends, why now is such a wonderful time to be looking at this space not only from a startup perspective but also from an investment landscape perspective. We’ll also go into the whole evil versus no evil topic. Specifically, we will discuss why now, and the geopolitics of the industries, aerospace and aeronautics, defense and homeland security, and then we will conclude. Bertrand, why now?

Bertrand Schmitt

Why now? I think this industry, this sector, space, defense, homeland security has seen not just a lot of growth and quite a few very successful companies coming out, but it’s an interesting complete turnaround, if you look at that from an entrepreneur or from a VC investor perspective. Why now? I think there has been, I would say, historically, there was a lot of scepticism, a lot of concerns by entrepreneurs, investors alike, centred around the military industrial complex.

Bertrand Schmitt

We probably all remember the famous Eisenhower’s farewell address where he was sharing his distrust of that military industrial complex. And venture capital shunned these sectors also due to long sales cycle, in some cases only one client, the Department of defense for many startups, as well as ethical debates.

Bertrand Schmitt

At the same time, it’s an evolving landscape. Startup came with disrupting legacy models. It’s not just a cost-plus approach. It’s a product approach. It’s agile. It’s innovation. The debate around, is it evil to is it something we must do in order to address global threats, basically coming to the forefront for investors and entrepreneurs alike.

Nuno G. Pedro

It’s a supply and demand issue. It’s not just that startups are not necessarily interested in it because it always creates this issue around, is it evil? Is it good? Are we doing something good or not? I think there’s a lot of that. There’s a lot of supply issue because of that angle. But it’s also a demand issue. Contracts historically with military take a long time to be hashed out. They depend on doing trials and proofs of concept.

Nuno G. Pedro

I think on the other hand, it’s an industry that historically was very resilient and dominated by services. Particularly the US military want to own everything, and so, therefore, there was this notion that whoever was the provider provided it to provide it as a service for them. There are services that still need to be done today, but the industry has been largely productized, and there are a lot of products. I buy planes, I buy weaponry, I buy a bunch of different software systems that will allow me to operate, but they’re productized. I think that’s one of the big shifts that we’ve seen and why now is a good time to look at it.

Nuno G. Pedro

If I’m a startup, I don’t need to go through 3, 4, 5-year cycles until I sell anything of scale. Then on the plus side, once I sell, it is at scale. There’s a lot of money in the military. We’ll talk a lot about the numbers later on, but there’s definitely a lot of money in the military complex that warrants the focus of startups.

Nuno G. Pedro

The other part is venture capital firms. Venture capital firms, historically, maybe because of the whole evil versus no evil and perceived ethical issues have stayed away from it. But we have more and more active large firms in the space from Founders Fund, Andreessen Horowitz. We ourselves have invested in companies that are around both the Homeland Security and the military complex space. So as a venture capital investor, because then the cycles to sales are better, because then startups scale faster, the economic piece of it has been solved.

Nuno G. Pedro

Then, on the other side, the whole ethical issue has been really put into perspective. There’s clearly a lot of geopolitical tension right now. Defense as an industry. It’s an industry that needs to scale properly where there are geopolitical interests at scale, but you need to put money where your mouth is.

Bertrand Schmitt

We will talk more about it, but I believe also we had one big example of an extremely successful company that really broke the dam in how you see these investments from an entrepreneur or investor perspective and how you can really win against these traditional companies, very entrenched companies. This is SpaceX. SpaceX really shown to everyone that, yes, you can build actually rockets. You can build better rockets. You can build cheaper rockets than everybody’s.

Bertrand Schmitt

That was the poster child of, yes, there is a brand-new market opportunity that until now we thought was impossible to crack for young, talented tech entrepreneurs. Suddenly, everyone could see in some ways that the emperor was naked and that these big defense contractors were actually extremely weak.

Bertrand Schmitt

From my perspective, they became weak. It was a two-way street. Also, the government makes them weak. You have only one supplier. You have only one buyer. At some point, it’s about wining and dining clients. It’s not about solving problem. At some point, it’s garnering political support, not delivering great products.

Bertrand Schmitt

I think there has been a slow path to extreme mediocrity, and mediocrity might be generous term, actually. I think there is, as a reaction to that, again, SpaceX example, shows that you cannot just make things 10% better, but you might make 10x or 100x cheaper and change the whole industry.

Nuno G. Pedro

I do think the example you put forward is a great example on aeronautics and aerospace. On military and online security, Palantir was at that first breakthrough. You could argue it’s still a relatively services-heavy company rather than a product, but it is a startup, it IPO-ed, etc. It’s obviously a company that has done really, really well in the industry. We now have obviously the example of Anduril in the drone space and how that’s scaling.

Nuno G. Pedro

I think we have now a bunch of good examples to your point, Bertrand, as there has been an unbundling of pieces that were typically government-owned or only government pushed like NASA. With aerospace, you have this opportunity like SpaceX that just dramatically changes how things are done, where it eliminates all these inconsistencies and these inefficiencies. I think that’s been true also of the defense and military complex side and how that has scaled.

Nuno G. Pedro

Maybe moving to geopolitics, it’s very clear that the US is the big player, spending a significant amount of its yearly budget on military by any admissions. Probably around 900 billion a year spent on defense in the US, which is incredible. The US GDP is 27.7 trillion as of 2023. This is a significant part of it, so obviously, the budget’s much lower. The use of military in the US and defense is a huge percentage of its not only GDP, but also its yearly budget. US is clearly leading the way, obviously. We’ll discuss other countries and where they’re at.

Nuno G. Pedro

Europe doesn’t seem to have gotten the memo. I think the recent discussions happening around Ukraine and what’s happening there show a little bit that not only it’s lost the plot, but it’s lost the power as well because it lost the plot.

Bertrand Schmitt

I’m French. You’re Portuguese from origin. For me, it’s totally shocking why is Europe… It’s been 35 years since the fall of the Berlin Wall, and it feels like the Europeans rushed to stop investing in their defense. There are some metrics in terms of German investments in defense spending, for instance, where we move from huge quantity of tanks to barely any tanks as Germany can bring into any battle. This is one example of how it moved from being a military superpower, same for France or the UK, to basically the shadows of their former self. It’s quite unbelievable.

Bertrand Schmitt

For me, what’s unbelievable is that even after 3 years of Ukraine war, some Eastern European countries have changed their defense spending. But the Western European countries have not changed much their spending. All these promises about increasing military productions, being able to provide military supplies to Ukraine.

Bertrand Schmitt

Yes, we sold them or gave them “some weapons”, some typically older weapons, but at the end of the day, we are not even able to provide enough artillery shells, which is the bread and butter right now on the battlefield. Same with drones. Most of the parts are coming from China, on both sides of the conflict, by the way. It’s a very, very scary situation.

Bertrand Schmitt

I guess we are recording that one week after JD Vance spending some time in Europe and talking at a Munich conference about European security. It’s very clear that the US is fed up from this perspective. As a result, I would expect actually a change in spending and priorities by Europeans. I guess they will buy some weapons from Europe, but also from the US. There have been some European initiatives like the JEDI initiative to stimulate faster tech adoptions. There are some efforts to change also the way stuff is procured, stuff is manufactured, and we will see what are going to buy going forward.

Nuno G. Pedro

If you look at the US and you think through the numbers, 27.7 trillion GDP, we’re talking over 3% is the expenditure yearly of the GDP. If you then talk about budgets, the budget for the US is around 6 trillion. It could be high or below 6 trillion, at least the numbers I have for 2022 and 2023. That’s like 14%. Nine hundred billion is 14% of 6 point something trillion depending on how you count it.

Nuno G. Pedro

It’s incredible, and that’s before you start talking about the other guys in the rest of the world like Russia and China. China is close to 300 billion in an expenditure from what we know. I’m not sure if those numbers are correct or not. It’s one of those only probably the Chinese know kind of numbers.

Bertrand Schmitt

Only a very well-placed Chinese would know.

Nuno G. Pedro

Only a very well-placed Chinese person would know or Chinese official. It’s second only to the US, China. They’ve been going through 29 years of consecutive growth in spending. They’re very clearly trying to catch up. Then Europe stands in the middle. Again, we have to talk about Russia where we still, again, who the hell knows their numbers? But it’s significant. Europe is between a rock and a hard place. It’s like everyone’s spending except Europe. If we looked at it as a conjoint, as a unified superpower, it’s the only superpower that really is not doing much.

Bertrand Schmitt

Actually, I had similar metrics for Russia where 16% of its government spending in 2023 went to the military. Similar to the US, 16%, maybe slightly higher. But yes, the big problem is countries in Europe like Germany where we are talking about 1% of GDP. So it’s a real problem. For me, what’s really shocking is the disconnect between the talk and what they actually do.

Bertrand Schmitt

When you see the Germans, or French, the UK talking strongly, condemning, attacking Russia, willing to do this and that, but then they don’t invest. They don’t follow the words with dollars on the battleground, with spending, with new lines of productions. It’s totally crazy. I don’t know in which parallel world they live. It’s very shocking, this level of disconnect between talk and reality. I don’t know how to explain at this stage, honestly. Yes, I stopped trying.

Nuno G. Pedro

It’s definitely the king has gone naked. I was just watching a movie. I think it’s called Rumours. I didn’t particularly like it. I think it’s barely funny. It’s supposed to be very funny. But the way they did it, it’s not a punchline. But it’s really a G7 meeting gone wrong with the leaders of several countries and the only thing they’re focused on is writing that perfect announcement at the end. That’s the whole thing that matters during the movie. It’s like end of the world kind of movie but the only thing that matters to them is writing that thing.

Nuno G. Pedro

It feels like that’s what Europe is about. It’s all about posturing. It’s about politics and politicking. It’s like, “Well, you guys…” Again, you and I are European. No power. It’s like you’re talking about stuff. You have no power. It’s like you can’t do much in the Ukraine, and then when push comes to shove, you come and say, “Well, we’re not going to do anything.” Really? It’s next to you guys. It’s a European country.

Bertrand Schmitt

What’s even more shocking to me is that 35 years ago, it was clearly different. There were strong militaries on the continent beyond the US army, but not any more. Basically, all that money, they decided instead of keep investing, protecting peace, basically, said that, “You know what? Let’s stop spending there. Let’s spend this somewhere else.” You can guess, if it’s somewhere else, it was probably into retirement, into healthcare, into all of this “softer” spending. But the reality is that you cannot do that if you live on the European continent. You have to be prepared to defend your country.

Bertrand Schmitt

Now all these politicians decided, “Let’s take that money. Let’s take it away, and let’s invest it into our favourite programs that are going to help us get elected.” I guess that’s really what it is all about. Politicians are staying in power and promising free lunch to their constituents in order to get elected.

Nuno G. Pedro

For those right now listening who’s like, “Oh, are you guys defending war and military and whatever?” No, we’re not. We’re not defending that there should be war in the world. I’m Catholic. In my mind, the world should be at peace. The sad thing is we are human beings and therefore people will go into wars, and we have several ongoing right now. If you are a superpower, let’s say European Union, whatever you want to frame it as, if you are a country within that complex, you have to defend yourselves. It’s at your borders.

Nuno G. Pedro

We are in a geopolitical state right now where, for example, with President Trump in power, it’s not clear the US will come over and do anything, all the recent comments on the war in Ukraine and Russia. So you have to control your own destiny. The point we’re making today is you have to control your own destiny. If Europe cannot control its own destiny—we’ve discussed in a previous episode, defense is one of the biggest Achilles heels of Europe—what happens next?

Bertrand Schmitt

I couldn’t agree more with you. We are absolutely not for war, but we definitely believe that if you don’t want war, you need to be prepared for it. You need to show that you are strong enough to fight off a war. You don’t want to show that through weakness, you are an easy target. Because if you become an easy target, the odds of war increase dramatically. That’s probably the big point we are talking about. You can call it peace through strength potentially.

Bertrand Schmitt

In a way, I think JD Vance, Trump, in some ways, doing Europe a favour by being extremely clear-cut about what they expect from the allies. First, in terms of values, and two, in terms of spending because that’s what you want. You want clarity. You want some equal partnership. Because to be frank, is it fair that the American taxpayer is paying more in order to protect Europe? Because he’s paying more, he’s spending more, he’s getting less free healthcare, less free retirement so that Europeans spend less and can afford more on the other side.

Bertrand Schmitt

People always talk about this topic, “Oh, we have this great stuff in Europe, free healthcare, great retirement, all of these. Americans are crap.” Yeah, but sorry, guys, we’re paying for your security instead. For me, as an American taxpayer, I’m especially angry about this situation, to be frank.

Nuno G. Pedro

I agree with everything you said. Let’s see if he does go after the military defense complex because we haven’t seen any signals that he is going after it. He is saying this and everything he’s saying is fair. Why are we paying for wars elsewhere? We’re not the policemen of the world as Americans. But at the same time, it is the biggest bucket of cuts that he can go into, and I’m not sure we’ve seen anything from him yet.

Nuno G. Pedro

I think until then, I reserve that this is not just a comment on whatever. His recent comments on Ukraine and the war, etc. to be honest are not cool. We’re questioning that the Ukraine started the war and not Russia. Is that what happened?

Bertrand Schmitt

I think at this stage, you have to separate a battle from war. Does a war start with the first bullet, or does a war start when you start to topple a government?

Nuno G. Pedro

Man, I feel on that one, I don’t think we’re going to agree, because I feel there’s a lot of posturing right now from Elon and from President Trump, and I’m like, “Guys, let’s not try and reinvent history now and try to…” Anyway. But again, if he goes after the military complex, I agree. If he goes after the military complex and if there are significant cuts made there… Because that’s the big chunk that you need to go after. It’s that and healthcare. Otherwise, for me, it’s just posturing.

Bertrand Schmitt

But to be clear, I’m not sure he wants to decrease significantly the budget. There has been a new directive a few days ago to reduce the budget of the Department of defense, 8% a year for the next 5 years, but it was not clear to me if it was to make space for new initiatives instead. I’m not 100% clear on that. I think their point was more, “We have a fixed budget. We have to project more power in the Pacific, in Asia. Europeans need to take your part of the budget because we cannot do both at the same time properly.” To your point, I don’t know if it’s more about Americans spending less versus Europeans spending more in order to bear more of the load in Europe.

Nuno G. Pedro

I think there’s, definitely. I’d be shocked if there are no opportunities for improvements in defense spending by the US. I’m not defending that it needs to go to zero, or it needs to go to 1% of GDP, but it definitely, really, really very inefficient as well. Again, we hope with this innovation, and we hope with these startups supplying products, and we hope with these companies scaling supplying products that those efficiencies are captured. But my belief is there are a lot of inefficiencies still there, huge amounts, more than any other industry probably in the US.

Bertrand Schmitt

I think no one questions that. That’s why, again, they launched this order to decrease the budget by 8% for the current budget going forward in order to squeeze efficiency. We are talking about 35% over 5 years, to be clear. It’s not small. The question is more, do you save in order to just cut the fat? Or do you save in order to cut the fat so that you can invest more at ease of budget in order to have more power, more military power? That’s the question.

Bertrand Schmitt

I think no one question at this stage the fact that you should squeeze more of the existing military. But the question is, is it in order to absolutely reduce the budget, or is it in order to give space so that we invest in new stuff, more valuable stuff than today?

Nuno G. Pedro

I think it should be both. That’s my view. It should be both. There should be a reduction in budget, and there should be a renewed focus in terms of activities and projects. That’s my view.

Bertrand Schmitt

Yeah, that’s the question. I don’t have an opinion on this. But I agree with you. We should spend less for sure on some existing initiatives. I’m sure, like everyone in government, there is plenty of fat.

Nuno G. Pedro

Now that we’ve sold off geopolitics, so Europe has to catch up. US, China leading the way. Russia is still doing their thing. We’ll see.

Bertrand Schmitt

I’m hearing US has a lot of F-35 to sell, by the way.

Nuno G. Pedro

Yes. Our GDP also depends on that. Maybe let’s move to something a little bit less arguable, less of a topic where I think we’re going to have major disagreements, which is aerospace and aeronautics. We’ll come back to defense and online security specifically later.

Nuno G. Pedro

On aerospace and aeronautics, obviously, we’ve already talked about SpaceX, a company that really has effectively disrupted how certainly space exploration and space access has been done. We already mentioned it in previous episodes. The company is doing really well. Do you want to talk a little bit about the last fundraising exercise that they did?

Bertrand Schmitt

Yeah. Maybe to talk about SpaceX, let’s remember people what SpaceX is doing now. SpaceX has been building rockets, especially the latest, Falcon 9. Then, SpaceX is building an even bigger rocket with a space vehicle called Starship. In terms of products, they have launched some very innovative products like Starlink, which gives you Internet access anywhere on the globe, on the sea, but also in the air, in space.

Bertrand Schmitt

This is an amazing revolution. If you have tried Starlink, it’s just plenty amazing. Their latest innovation, actually, there was an ad for it during the Super Bowl a few days ago that was announced in partnership with T-Mobile. It’s a new direct to sell initiatives. You don’t even need a Starlink dish in order to receive Starlink.

Bertrand Schmitt

You can use your regular cell phone, and that’s plenty amazing. It’s starting with text, but, of course, it’s going to evolve with full data access, high speed data. It’s going to bring video, and it will work with some of the latest generation of fonts. Not every font, but most of the most recent modern fonts. The big change, it means that suddenly everywhere on earth, you are going to be able to get signal. No more dead zone. No more you’re in the middle of the ocean, too bad.

Bertrand Schmitt

It’s really game changer. If you talk to people who work on cruise ships, for instance, their life was miserable. There was no Internet access when you’re at sea. You pray for Wi-Fi at the port. It’s a big game changer for a lot of people. I don’t think we fully realise the impact. Some of those stuff, for instance, if you think about where you can live now, there are so many new places that open up. Between solar energy plus Starlink, suddenly you have really new opportunities. Personally, I think they have developed an absolutely amazing product there.

Bertrand Schmitt

SpaceX, in terms of fundraising, I think the last fundraise was discussed around 300 billion plus in terms of private valuation. For me, SpaceX is clearly the next trillion-dollar company. There is no question about it.

Nuno G. Pedro

They’ve revolutionised SpaceX and exploration. They have all these other products here on Earth with Starlink one being one of the key ones. Obviously, they are exploring many other opportunities and projects, and we will discuss some of the opportunities I think are about to arise like Moon and Mars exploration, space stations. It’s funny as we mentioned in a previous episode that they had to bail out the Boeing vehicle, and they had to go there, or they’re about to go there. They haven’t gone yet, but they are going to have to bail out to get the astronauts back on earth.

Nuno G. Pedro

In effect, a company that’s doing great. There’s obviously other companies, Blue Origin, with Jeff Bezos going after their own opportunities and really scaling. What’s been going on?

Bertrand Schmitt

They just did a launch with New Glenn, the first successful launch with New Glenn just a few days ago. It’s moving in the right direction. But let’s not forget, they totally destroyed Boeing space program. As you said, the astronauts from the Boeing program were stranded, but that program is destroyed. I think, from what I’ve heard, Boeing is seriously considering cutting everything.

Bertrand Schmitt

To be clear, overall, Boeing is in a fight for its survival just on the regular plane manufacturing. They completely messed up. It makes sense for them to consider abandoning this program, given how much harder it is for them in the space program. It’s quite an amazing reversal of fortune in 15 years to see Boeing from the big guy to basically disappearing.

Nuno G. Pedro

Indeed. This is SpaceX that you’re saying has destroyed Boeing, et cetera. Right?

Bertrand Schmitt

Yes. SpaceX. Sorry.

Nuno G. Pedro

Not Blue Origin, yeah.

Bertrand Schmitt

To be frank, it’s good to see a competitor, but so far, they’re so far away from SpaceX that we should talk about them as a competitor, but they are very, very far behind. What saves them is obviously the Jeff Bezos company. There’s some backing from Amazon. Amazon is actually investing and buying some capacity from Blue Origin. The European Union is also interested to buy some capacity from Blue Origin.

Bertrand Schmitt

Basically, everyone who doesn’t like too much Elon Musk is trying to buy from Blue Origin, but that’s a bit sad if that’s the only saving grace. I’m not sure it would be enough.

Nuno G. Pedro

On a couple of other space topics, the private space station movement, ISS, the International Space Station, is about to retire in 2030. There is obviously a lot of movement in creating a private space station. There is work being done. I think Axiom has a NASA contract to work on it.

Nuno G. Pedro

They say they are going to be free flying orbital platform as early as 2028. We’ll see. Fingers crossed. There are startups going after mini stations like Vast Space. There’s a lot of work being done on that. That’s one area that is definitely exciting.

Bertrand Schmitt

At the same time, I guess you missed the latest twist from Elon Musk, but he just said yesterday that he was going to push the president to retire the Space Station much sooner than expected, so in the next 2 years.

Nuno G. Pedro

He’s going to build one.

Bertrand Schmitt

No, he’s just saying it’s a complete waste of time. It’s useless. He’s saying, “Why are we wasting time there and money? Let’s just go to Mars.”

Nuno G. Pedro

It sounds like a philosophical disagreement, basically. He doesn’t think we should have space stations at all.

Bertrand Schmitt

Around Earth, I think he’s raising a lot of questions. A waste of time, energy. I think that’s a fair question. I can see personally value to learn how to live in space, to learn how to build a base on the Moon before going first to Mars. But I guess he’s thinking otherwise.

Bertrand Schmitt

That’s one to keep in mind. The other piece is that Axiom, considered one of the biggest project for a private space station, is not doing great financially, apparently. It’s not clear where it’s really going, to be frank. If you have Elon Musk positioning so clear about what should be next, maybe it will remove a lot of investing capacity into private space stations.

Nuno G. Pedro

Moving to Moon and Mars because that’s the segue. There is the Artemis program from NASA to go back to the Moon, and this is obviously done with private consortiums. The first one, the uncrewed test flight around the Moon was done in 2022. The next one is set for 2026. The SpaceX Starship has been selected as the lunar lander for Artemis 3, which is planned for 2027. Obviously, we definitely want to go back to the Moon. Obviously, our friend Elon wants to go to Mars as well. We’ll see.

Bertrand Schmitt

Not as well. He doesn’t want to go to the Moon. He doesn’t care about the Moon.

Nuno G. Pedro

He doesn’t care about the Moon, just Starship will be used potentially for the Moon as the lunar lander. Yes.

Bertrand Schmitt

Exactly. He’s happy to sell service to whoever wants to buy service, but for his direction as a business, as a person, he doesn’t care.

Nuno G. Pedro

He doesn’t care. Wonderful.

Bertrand Schmitt

Maybe another piece on the Artemis mission. Obviously, they use some very old, very bad rocket technology to launch their space vehicles. The big question is, we just stop doing this stupid decision and instead replace that with SpaceX rocket. That’s a big question. That’s not clear right now what will happen. But I will bet that they are going to buy from SpaceX instead, their following rockets.

Nuno G. Pedro

Maybe moving to the closer to us kind of space, the on Earth kind of thing. Talk a little bit about drones and uncrewed aircraft. Obviously, a lot of movements around it, only commercial, but also around military, around homeland security, around a variety of other areas. Obviously, historically, there’s been the use of large drones, the Predators and Reapers by the US military for decades, but now there’s a lot of smaller things.

Nuno G. Pedro

The Ukraine war in some ways has been a lot played around commercial drones being repurposed for military purposes. There’s obviously a lot of activity around it. We have an investment in a company that has been trying to work around that space, not for effectively attack purposes, but really for reconnaissance purposes. China is also trying to capitalise on this, so there’s a lot of movement on that. What’s your take on this? Bertrand, it feels that this is going to be the golden age of drones for good and bad.

Bertrand Schmitt

I would say first, I’m very, very angry at the Western regulators like the FAA in the US. I don’t think in Europe they have been so much better because thanks to the unnecessary and overly complex and overly restrictive regulations, they have basically impacted the market very negatively big time. By impacting this market, basically, they have destroyed the ability of local manufacturers to be really successful.

Bertrand Schmitt

As a result, they have opened the gates for Chinese make drones like DJI to become super successful because they were not blocked in their home market by all these regulations. They were able to build a stronger base of revenues at home.

Bertrand Schmitt

I’m looking forward for big change, and I’m expecting that very quickly, to be frank, that the FAA is going to dramatically change the rule around that. I see a lot of opportunities. I hope it doesn’t just all go to Chinese companies, obviously, in the US. I hope that will also stimulate a renaissance of manufacturing and drone manufacturers space in the US or Europe. Because I don’t think there is any of them of notice, except in the military, as you said, with the Predator, Reaper, and all those military drones. But on the civilian market, it has been catastrophic for Western manufacturers.

Nuno G. Pedro

The other movement we’re seeing is, as we mentioned, around more commercial things. One thing is obviously flying taxis. We still don’t have self-driving cars yet, but we’re going to have flying taxis. The technology, one of the key technologies around vertical takeoff and landing, electric vertical takeoff and landing being one of the core technologies that might make sense to deliver it on. There’s been a lot of attempts at it. Lilium in Germany was one of the players around it. I think that they have ran out of cash and went insolvent late last year. Cool.

Bertrand Schmitt

Unfortunately, yeah.

Nuno G. Pedro

There’s Joby, which has received a lot of money. Archer Aviation and a bunch of other companies around the world. China again could have an edge because of battery production we’ll see, but there’s a lot of movements, and we all want really flying taxis and then flying cars. We don’t want cars anymore. At least for me now a guy who loves the sound of an engine, driving an electric car, I might as well get an electric plane.

Bertrand Schmitt

I feel horrible because this is another example of Western regulations that have made it near impossible to develop efficiently, quickly and cheaply an eVTOL. The Chinese, actually, aviation authority was the first to certify an eVTOL. It’s so ridiculous, the situation we’re in. We have regulators who are destroying our industries. That has been happening with eVTOL as well, not just withdrawn.

Bertrand Schmitt

At the same time, to be frank, I’m not so sure about the eVTOL market. We will see. I’m not so sure that electric is the best approach for aviation. It has a lot of constraint in terms of weight. For instance, you cannot go away with a lot of weight when you are flying.

Bertrand Schmitt

If you take eVTOL, it’s not as efficient as a plane. You don’t have wings. It’s not an easy formula. I don’t think people should expect this stuff to take away passenger planes, for instance. But it’s really a much shorter distance type of vehicle that could be interesting, ultimately, if we manage to make the economics work and if we don’t have regulators, I’m assuming these innovators.

Nuno G. Pedro

The other topic is supersonic planes because obviously we all miss the Concorde. Boom supersonic was one of the big attempts at it. It’s not looking great. I think we now have to go back and figure out, how do we get faster transfers with flights here on Earth? Not sure, but definitely the solutions we’ve had thus far are not great.

Nuno G. Pedro

Again, it might be an issue of regulation because of the whole sonic booming thing and how that affects communities, et cetera. But at the end of the day, it feels like it’s an area that has quite a bit of investment that really seems to have not dramatically scaled. We all want to go faster from one continent to the other. It is something that I do feel would have huge implications for consumers and for people, if we dramatically changed how fast we can go from one place to another globally.

Bertrand Schmitt

Let’s not forget that the “issue” on some issues made by supersonic planes. A lot of this was put in place by the US in order to destroy the commercial capability of the Concorde. Basically, they tried to, sadly so, destroy the Concorde program. For some reason, didn’t want that to compete against US alternative.

Bertrand Schmitt

I mean, there was no US alternative up to recently. My point is that some of these regulations were artificially manufactured. If we go forward, one of the big points of the Boom supersonic plane is that actually it generates less noise. They’re actually pushing hard to change regulations that were totally unreasonable. Again, from the FAA and others, it looks like they have the support from Elon Musk because that was a few days ago. Promising to look into some of these FAA regulations, unnecessary ones.

Bertrand Schmitt

I start to be a bit hopeful there that there is indeed an opportunity to build a supersonic passenger plane. It’s also much cheaper to run the boom plane versus the Concorde. They made quite a few significant changes. The cost per passenger is much, much cheaper. Lower noise in supersonic. When you go supersonic, much cheaper. We might have an economic equation that start to make sense if regulators don’t add artificial barriers.

Nuno G. Pedro

Much for that. We’ll see what happens going forward. But we’re still looking for that dramatic innovation that really gets us from point A to point B around the globe faster than the current planes that we have.

Bertrand Schmitt

That’s super exciting. Dividing by two the time it takes to fly somewhere else, it’s amazing.

Nuno G. Pedro

It would be super exciting. It would be ridiculous. A killer of a flight, like 17 hours to Singapore, gets manageable. It’s like 8 hours or 9 hours. A flight from here to Europe in 10 hours, I live on the West Coast and so do you. Bertrand gets 5 hours, which is like, that’s an easy flight. It changes stuff dramatically. It changes everything dramatically. That’s a big deal.

Bertrand Schmitt

You know what will be the next steps? The next step would be to use Starship for airborne transportation. Here, we are talking about 30, 45 minutes. Basically, it’s as fast as an intercontinental ballistic missile, so it will get much faster.

Nuno G. Pedro

We just want to be “Beam me up, Scotty.” That’s what we want to say. We want to go from point A to point A immediately.

Bertrand Schmitt

Yes. That’s the next level.

Nuno G. Pedro

Moving to defense and homeland security. Obviously, there’s a stronger and stronger crossover between homeland security and defense. I’m not sure it’s totally warranted. I’m not sure, again, that our police forces should have tanks and stuff like that. I don’t think so. But there’s definitely a lot of technology that’s cross fitting and cross-cutting across both worlds for all intents and purposes. Some of it, I think, is warranted. Some of the drone usage, I think, makes sense. Some of the elements around software.

Bertrand Schmitt

Cybersecurity.

Nuno G. Pedro

Exactly. Cybersecurity and other elements. We haven’t talked about software much. We’ve been talking about physical things for a bit. But obviously, on the software side, there’s obviously a lot of crossovers that should be manifested. We have an investment in the homeland security space, but it’s really more around police forces and the use of their body cams, in particular for the purpose of training.

Nuno G. Pedro

We feel there’s huge amounts of things that still need to be done around that. There’s a lot of things that you wouldn’t think about that need to be done. For police forces to be better, they need to be able to use what they already have. They have body cams. Why can’t they use it for that?

Nuno G. Pedro

Definitely a lot of interesting things happening, but there’s a huge crossover between international defense and homeland security, so to speak, at this stage.

Bertrand Schmitt

I think there are a lot of opportunities to serve both markets with similar technologies. I think a lot of startups are focused on that. What’s also interesting is some of the big name investors who are investing in that space. In-Q-Tel (IQT) has been one of the most active investors in defense and national security startups. That’s the name that we always see, backed by the US intelligence community. But there is a lot of more traditional VCs like founder funds that are investing in the space.

Nuno G. Pedro

Andreessen Horowitz, we mentioned already Founders Fund, obviously Marc, Peter. We invest a little bit as well. We have some ground rules around what do we consider to be evil, no evil and create some borderlines around our investment thesis. We do have a sort of evil versus no evil piece of analysis when we’re looking at an investment.

Nuno G. Pedro

The investments that I mentioned in this episode before went through very complex analysis internally for us to really be sure that we felt that we were not breaking that rule that we have as a partnership. But obviously a lot more activity in the space in terms of investment framed as we discussed earlier by players like Anduril, like Palantir, like SpaceX.

Nuno G. Pedro

I mean, SpaceX more on the aeronautics and aerospace space. But obviously, this unbundling of what government controls and dominates and does, going into a direction where the private sector can take some of those responsibilities and really innovate much faster than government and these complexes would by themselves. I think that’s the piece of the puzzle that we’ve seen.

Nuno G. Pedro

We also have had some movements with the NATO Innovation Fund. We’ll see what happens with the NATO Innovation Fund. A lot of activity around it, in particular in Europe, and really deploying capital at scale into other funds, into startups, and actually even working on the accelerator side with establishing DIANA, the defense Innovation Accelerator, to connect startups with defense problems. To create this venture building, venture studio element and this open innovation construct with defense departments, et cetera, we’ll see if it bears any fruits.

Nuno G. Pedro

That’s super, super exciting. Even if we don’t have huge massive shifts, but if we create this environment where startups really can engage with the defense ecosystem much more easily.

Bertrand Schmitt

I mean, there has been also this partnership between SpaceX, Anduril, Palantir. Partnerships/alliance in order to better provide a new edge solution to defense and overall homeland security market. I think there is a lot of initiatives, new player working better together, as well as new funds in Europe and US. We cannot talk about defense or homeland security. We start talking about AI.

Bertrand Schmitt

It’s quite clear that AI can bring a lot on the table. It might be about automated image analysis. It might help you pilot automatically your drone. It might help you automatically acquire targets. It might help you go through a lot of quantity of data all at once. I think AI can also, not just can, but is playing and should be playing an even bigger role in the US and European military and defense industry.

Nuno G. Pedro

It’s definitely shifting everything. For good and bad. With AI, we will need to figure out what will happen out of it. It’s not just the physical space, the autonomous vehicle piece, the drones that self-manage. There’s a lot of stuff happening also in the sea, so underwater as well.

Nuno G. Pedro

Not just the physical stuff, but also the software stuff. The software stuff is dramatic. Like planning tools, thinking through intelligence analysis, imaging, and really identifying things much faster. I think that’s a game changer. I’m still to see whether all of it will be positive or not, but it’s definitely a game changer.

Nuno G. Pedro

I think it links well to this notion and this trend that we see in defense and military where a lot of the things that are now addressing military and defense needs and even homeland security to a certain extent are coming from companies that are really deploying them with dual use. Dual use strategies. These are companies that have, so to speak, a commercial side of their business and then a military side of their business. All the companies we invested in have dual use.

Nuno G. Pedro

They have a commercial side where they have commercial uses for the technologies they’re developing, the things that they’re doing, et cetera, but then there are also a use for it that defense could use in effect. Really interesting how we’ve gone from companies that, again, this was a taboo area to companies now that do both commercial and defense alongside. I think that’s going to be a huge driver of tremendous innovation for overall the industry.

Bertrand Schmitt

To be clear, I’m certainly not advocating some of these technologies for civilian use. Some of them are incredibly scary when you think about what could be done once you automate more, once you put more AI into it. I will say for some of this technology, I’m certainly a believer in the defense space. When you think about autonomous target acquisition, for instance, this is such a game changer. Because if you can recognise by imagery alone, video alone, a target and go there all by yourself, this is changing so much how war has been working for the past 70 years.

Bertrand Schmitt

You can see something from far away, decide it’s a fair target and automatically go there with risk of detection being decreased, but also risk of manipulation. Your GPS positioning could be jammed, but if you still see your target, you still go there. Compared to laser that was usually combined with human beings in the loop, it’s also game changer. There is no human beings in the loop. You can totally imagine a swarm of military weapons that are just going in one direction and picking target after target without any human in the loop.

Bertrand Schmitt

I can imagine how war is going to change at scale. That’s, to your point, around defense spending and other stuff, is certainly raising a lot of questions. Do some of the existing programs still make sense in a new type of war?

Nuno G. Pedro

Just to be clear, there’s things that should absolutely not be used in commercial. One example I was thinking about is if you’re developing, for example, a highly-advanced AI methodology that deals really well with edge case scenarios, for example, loss of connectivity or dramatic weather conditions, et cetera. They have great commercial applications for sure. For self-driving cars, for many other things that are being done in the commercial world. But guess what? They also have great applications for, for example, dealing with drones in war environments.

Nuno G. Pedro

I think it’s more around that logic that I’m talking about that the dual use obviously should be used thoughtfully, but in many cases, it makes a lot of sense. That you are developing very advanced technologies that should be used across both worlds.

Bertrand Schmitt

It helps reduce the cost, the spend, leverage R&D. It makes a lot of sense as long as we’re careful about what we are doing at home and still protect freedom and personal privacy.

Bertrand Schmitt

As you have seen, there has been a lot of change in the past 15 years in aerospace, defense, and homeland security industry. There is a convergence in technology, commercial viability, and national security. There are opportunities in dual use tech, in AI, in deep tech manufacturings, and I think startups are already at a tipping point where they start to reshape how national security is achieved, making this, I believe, in a pivotal time for investor.

Bertrand Schmitt

At the end of the day, it’s not all about SaaS anymore. It’s also about what can be done through hardware and software in support of new space programs and defense programs. Thank you, Nuno.

Nuno G. Pedro

Thank you, Bertrand.

View Details

Our review of 2024 and what 2025 holds for the world and the Tech industry. From geopolitical dynamics to M&A and IPOs, regulation, crypto winters and summers, to inflation and DOGE and many other things.

Navigation:

Intro (01:34)
Review of 2024
What’s next, 2025?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Welcome to Tech DECIPHERED Episode 61. It’s at this time of the year where we look back what happened in the past year in 2024 in tech, as well as trying to put some thoughts into what 2025 might look like, what might be the next big things happening in global tech industry. Let’s start with our review of 2024.

Nuno Goncalves Pedro

It’s been an interesting year. A year of elections around the world, so maybe we start at that level. The landscape geopolitically has become very interesting. I’d seen some chart that shows the most gain on the right ever globally across elections. I think there’s some message going on that people are really not happy about, status quo. Obviously, in the US, Donald Trump got elected, so he will again be the President of the United States next year or starting next year.

Nuno Goncalves Pedro

In Europe, we’ve had a lot of countries that went to the right. Austria, I believe the right wing party won. A lot of interesting and somehow shocking results in some cases with very populist views, for example, countries like my own Portugal, and all around that. Very significant geopolitical transition where it seems like populism is here to stay.

Nuno Goncalves Pedro

There are significant concerns around the world around immigration. There are significant concerns around the world around security. There are significant concerns around the world around economic growth. I think the elections that we saw this year, for the most, are reflecting upon the discontent of citizens across the world, of which the US is just but an example.

Bertrand Schmitt

Yes. Actually, I’m not sure anymore about that when we call populism, one side or the other, what it really means at some point, it doesn’t sit right to me anymore. I think 10 years ago, maybe I had some concept about what it means. But today, I’m not really clear, to be frank, because when you see Trump and his alliance with people like Elon Musk or JFK, it’s not clear they are populist at all. The same in Europe. I’m not really clear, what is true is for sure more right wing, moving away from left or centre.

Bertrand Schmitt

Yeah, this will have a significant impact on a lot of topics, and we’ll go through that. France also went more right wing, at least in term of parliament. Germany, we will see next year, actually. They’re preparing for election, the government in Germany. I think it was the day or the next day after the result of the US election, the government imploded. There are new elections scheduled for early next year. It looks like it will also go more right wing. It will make certainly for an interesting change of policies and politics.

Nuno Goncalves Pedro

Indeed, all of all, I think a lot of renewed discussion around what is the role of countries, governments, different counties, provinces, states in the case of the US, local government, is the system fully broken or not? A lot of debate around precisely the incentives that people have to vote for a party versus another and what are the key issues that are on their mind. But as I mentioned, I feel it’s clear that it’s the economy, stupid back through the day, and security have been effectively the key considerations for this year.

Nuno Goncalves Pedro

In terms of the overall year, it was a year that was supposed to somehow be really awful. It wasn’t. It wasn’t a year that was awful. Stock markets have gone up, in particular in the US, driven mostly by technology, The Fed rates started to go down, so it seems like inflation now is more and more under control. We see a lot of movement around, in particular, the technology stack of the fence that has taken us to the next level. There’s a lot of bright spots. I think we had anticipated maybe a very bleak 2024. It certainly was not in terms of equities, both on the public markets, but also on the private market side of the fence, including venture capital.

Nuno Goncalves Pedro

We’ll come back to that later. I think there is somehow certainly on the private markets a huge impact of AI. AI is distorting the numbers. The markets are still a bit shaky, but AI and AI investment has changed how the markets look certainly for venture capital. We’ll come back to that later. But basically, a year that was bad, and well, it wasn’t. It wasn’t bad.

Bertrand Schmitt

I would mostly agree with you, Nuno. Maybe I would qualify that it’s certainly true in the US. China also in terms of stock market, it did well thanks to a big stimulus. It’s not clear how long it stays that way, but it looks like they plan to keep doing more stimulus. The European markets were pretty bad, or at least it was like zero or slightly negative. US, for sure, doing very well. Maybe also the European startups, at least with the ones in AI, are also doing well like in the US.

Nuno Goncalves Pedro

Indeed. In terms of other pieces of the market, the M&A market have been very strained. There has obviously been some acquihires on the low end of the spectrum in terms of lower cap acquisitions in place. There’s now a few large acquihires, as we mentioned in one of our last episodes, happening on the AI space. But a bunch of M&A activity that was basically blocked for big tech companies, and some of them silly blocks, I think in my mind.

Nuno Goncalves Pedro

It’s been a tale of two outcomes. One, acquihires somehow seem to be working and getting around the system. Then on the larger M&A side, in particular, the beginning of the year, the first half of the year or so, a lot of blocks and a lot of things that didn’t go through, even when… Some of them actually I don’t understand why they didn’t go through. A little bit surprising and shocking.

Bertrand Schmitt

As you say, some of the big tech companies tried to go around M&A getting blocked by doing some very surprising, very large acquihires, never done before, at least at this scale. One interesting one is actually OpenAI, because if you look at what Elon Musk is arguing that it has de facto become acquired by Microsoft, except it is not. That would be another one where will OpenAI have been acquired in a parallel universe by Microsoft, if there was not all these regulations already in place blocking a lot of acquisitions for big tech?

Nuno Goncalves Pedro

There might be acquisitions that maybe already happened that we just don’t know yet. But we’ll soon find out about them. Because the entrenched Trojan horse of participation in the company rights that the companies have while putting money to the company, et cetera, give them effectively right at some point to have ownership of IP and ownership of a bunch of things. Anyway, we won’t know until we know is going to be the scenario for some of these plays.

Nuno Goncalves Pedro

Maybe moving to AI. AI is the gift that keeps on giving if you’re trying to fundraise. It’s like it reminds me of crypto and blockchain in Web3 in the heyday where you just had to put something in there, and you would raise money.

Nuno Goncalves Pedro

I would say we are starting to see already this year in 2024, even before we go to 2025. I would call it actually the end of the beginning. It’s the end of the beginning of this big AI leap forward that we’ve had. We’re watching the last chapters of this, if this first chapter where there’s been a ton of money, thrown on foundational models, large language model building platforms, as we discussed before in that episode that we dedicated to not starting a company around AI platforms at this stage. I think that cycle is coming to an end. Things are going to scale and continue scaling. There’s going to be, I think, a lot of investment on the AI app side, on the applications that are AI-first.

Nuno Goncalves Pedro

But definitely 2024 has been a year where we’re starting to see the end of that beginning, the end of that leap forward that we’ve watched over the last year and a half or so of the big AI momentum coming to bear.

Nuno Goncalves Pedro

Really interesting. Really exciting. We’re seeing all these acquihires in the space. I think we’ll see more hardcore M&A, in particular in the US with President Trump being in office, I would say that’s probably going to open even more the floodgates around M&A, like hardcore M&A, not just these funky deals on Trojan horse investment or acquihires that we were just mentioning before.

Bertrand Schmitt

Yeah, it’s tough to say at this stage. I don’t think they have been super, super clear on what they plan to do regarding M&A, especially if you look at JD Vance’s positions, who are actually quite supportive of Lina Khan actions. Let’s see until we see who they have named as head of FTC to get a sense of where it’s going.

Bertrand Schmitt

In term of AI, I agree with you. I mean, it’s the end of the beginning. The big AI platforms have consolidated their power, and they have consolidated also because there was such an arm race in term of getting the financing to build bigger, larger, better models that basically no one could keep going on if you don’t have billions on the side to keep running. I mean, in a way, Elon Musk with xAI might have been the last entrant in the race, but it’s not clear that anyone can come after that. He certainly came with a bang, building the biggest cluster of NVIDIA GPUs at a break-neck speed.

Bertrand Schmitt

We’re at a stage where the biggest players are relatively clear, identified, and there is probably little to no space for anybody else in the foundation models, infrastructure play. From there, I agree with you. I think there is more and more focus on applications, player OPS, verticals where AI will be more practically and focused and aligned with specific needs of enterprises versus the current approach of very generic products.

Bertrand Schmitt

Maybe one point around AI regulations, of course, Europe decided to regulate AI in 2024. It’s probably not a good idea, just to be clear. US came close to that but didn’t, at least certainly not as much. Europe might be in a very tight spot with a lot of limitations. We have seen already some players that are planning not to release their AI products in Europe, at least for a bit.

Nuno Goncalves Pedro

As always, Europe regulating ahead of time. We’ll see how this pans out. Obviously, push back on the AI regulation in California that didn’t really go through the proposed regulation, which I think is good news for California. Then overall in tech, if we look across the stack, obviously, tech companies really leading the way in terms of market cap around the world and NVIDIA being the big chip supplier of the world, being the number 1 most valid company in the world with US $3.43 trillion market cap as of literally right now.

Nuno Goncalves Pedro

If you thought you’re in different planet, if we said something about this 2 or 3 years ago, people will be like, “Huh?” But yes, this is the world we are in this year, and it’s in the last 2 years in particular. Exciting times, but also the chipset war is about to come upon us with the chipset, et cetera. Do you want to talk a little bit more about that, Bertrand?

Bertrand Schmitt

Yeah. Even more crazy is to see that change of fortune, in a way. You have NVIDIA, 3.4 trillion market cap, and that’s exactly at the same time that Intel, I’m not going to say it’s going bankrupt, it’s not yet there, but is in a very shape and is at its lowest in term of market cap at only $100 billion market cap. I mean, Intel used to be one of the biggest company by market cap in the world in the late ’90s, early 2000s. For me, it’s incredibly sad to see what has become of Intel.

Bertrand Schmitt

I don’t know your perspective on Intel, but for me, I keep looking at Intel having made the worst decision possible over the past 20 years. If you remember, they did not even manage to do a proper transition to 64-bit. When they did it initially, no one wanted to use their new chips. AMD came up with a better 64 bit instruction set, took over the space, Intel had to license AMD 64-bit instruction set. Since then, Intel lost its moat around x86. Basically, for me, that was the beginning of the end. That was in the early 2000s. From there, they made mistake after mistake about not investing in mobile, even getting rid of their mobile division and then buying back one again, ultimately building modems.

Nuno Goncalves Pedro

Trying to push Y Max, trying to push Y Max on us. Then they tried to change mobile, and it’s like, “No, we’re okay.” That was a huge mistake, a very costly mistake, very costly mistake at all levels.

Bertrand Schmitt

Forgot about Y Max. Y Max, then they tried to do modems. Ultimately, they sold their modem division to Apple, who got it on the chip. Now, here we are. They have no control of the x86 instruction set anymore for the 64-bit version, the licence from AMD. If they were sold, they would lose their licence from AMD. Intel getting acquired is not given just to be 100% clear. Or maybe we’ll go into one of this funky acquisition. We will see if Intel become acquired. I’m joking. But yeah, it’s really in a bad spot.

Bertrand Schmitt

It’s all the most staggering that at the same time you have NVIDIA doing so well. Of course, Intel completely missed AI. I mean, not saying they didn’t have AI initiatives. Of course, they had, but nothing really changed the game for them. To be frank, I think some of their latest CPUs are great. Their integrated GPUs are getting pretty good. Even their NPUs are doing okay integrated with the CPU. They have made some decent moves, but it’s at the where Qualcomm is coming to the PC space. It’s at the time where there are rumours of NVIDIA going to the PC space, not just with GPUs, but with CPUs. Really a weird spot.

Bertrand Schmitt

You talk about the CHIPS Act. Apparently, no one is getting the money from the CHIPS Act from what I’m reading. They keep promising money. Companies have to show a lot of proof points in order to get the money. But apparently, no one has got the money from that programme. In the case of Intel, they apparently desperately need the money.

Nuno Goncalves Pedro

Yeah, they desperately need the money. There’s arms race on chipset manufacturing, which obviously the US acted upon in 2022 with the act, but it’s been going on for a very long time. China, obviously doing a lot of things already to develop its own ingrown markets around chipsets. I know Bertrand and I disagree on how fast China will catch up, but definitely there’s things going on. Taiwan is standing in there somehow in the middle as if it’s minding its own business, but at some point, we’ll see if geopolitics will change that. Overall, a landscape where everything seems to be fought at chipset level, which is a little bit interesting and funny to me.

Nuno Goncalves Pedro

Now living in Silicon Valley, the whole name of this region, everyone had given up on the importance of chips probably a couple of decades ago, and now it seems they’re more important than ever, and they are the building pillars of everything that we’re doing. Again, the silver lining is we, consumers, and we, enterprises, are getting a lot of innovation done at scale.

Nuno Goncalves Pedro

Also interesting to me, just to finalise something before we move to other interesting areas of what happened in 2024, like space, for example. Interesting that… I believe Microsoft is the number 2 in the world in terms of most valid company right now. It seems like either you’re doing chipsets for AI or you’re the guys who seem to be leading the way on AI. At the platform, operating system, whatever layer that… It’s interesting because you look, there’s a huge discount on Alphabet and Meta right now in the market. I mean, it’s significant discount, like half market cap of the big guys of the two that we just mentioned. Amazon is somewhere in between, but very interesting, very, very interesting. The world we’re in is definitely exciting.

Bertrand Schmitt

I think if you take Google, there is clearly that question about potential breakup. That’s like a shadow over the business and the stock. But also there is a question concerning Google, are they leading in AI or are they also run or are they losing in AI? Obviously, what’s the impact on their search business of AI? A lot of questions which makes the stocks, just Google stock, more risky than before.

Nuno Goncalves Pedro

AI, for one, obviously, I’m using more and more the complexities, ChatGPTs of the world. I do think back in the day, Google has nailed it with this page that would present multi views of it, which we had the answer, Gemini-ish answer, and then you’d have the rest of the answers. I think Google needs to be maybe more aggressive on their Gemini plans, definitely in terms of delivery to end consumers, and we’ll see what comes out of that.

Nuno Goncalves Pedro

AI ruling the world, clearly, that’s the story of 2024. Space. It’s been an exciting year for space, and I know you’re a nerd around everything that’s been going on with SpaceX and the space ecosystem. Really exciting year for space tech, and in particular, very visible achievements going on at the most public level, so to speak.

Bertrand Schmitt

It’s impossible to talk about space without talking about with SpaceX, in a way, I’m not sure there will be a new space industry without SpaceX, and SpaceX might be 90% plus of this new space industry. I mean, it’s obviously amazing what they have achieved. I mean, how many launches they are doing a week. For Falcon 9, and now you have Starship that have proven extremely successful in its testing phases. The last two tests were run quasi-perfectly. I think everyone was amazed to see that mechanical arm taking over the Starship booster at its return and how impressive it was. A fit that nobody else has achieved by very far. I mean, they are 5–10 years in front of anyone.

Bertrand Schmitt

Their capacity to launch satellites at cheap cost that has one implication is a success of their separate Starlink business. Starlink has been a continued success. They keep launching satellites. I forgot how many thousands of Starlink satellites we have right now, but they represent probably more than two-third of all satellites in activity today.

Bertrand Schmitt

They have certainly changed the way you can communicate if you are not under a cellular coverage. If you are at sea, if you are in the mountains, if you are in a more remote area, if you are in a plane, or if you are in a starship, as we have seen. The videos from Starships were streamed live through Starlink. We might not think about it as anything special, but it’s special. We never had the view from the shuttle, live, that stuff, never happened before. It’s very special to see that in action.

Nuno Goncalves Pedro

Another win for SpaceX and for Mr Musk, the situation with the Boeing Starliner, propulsion issues that basically means that the Starliner is back on Earth, but it doesn’t have the astronauts that it was supposed to bring back from the International Space Station. The astronauts are up there, and they will come back, hopefully safe and sound, next February on a SpaceX Crew Dragon capsule. Another win there, just to rub it in, right? It’s like, hopefully everything will go well next February. Fingers crossed on that. But still, I mean, it’s incredible how we went from SpaceX is an interesting thing to now SpaceX is ruling the space world.

Bertrand Schmitt

Yeah. If you take the US, okay, Boeing has lost basically the space race, but it has lost it to another US player, to an American, SpaceX. If you take Europe, Ariane is basically gone, and there is no one yet to replace that from Europe. Basically, SpaceX is taking over most of the business from Europe. It’s a very big change in that industry. It’s a very, very significant change. Maybe one last point, there was some news about the SpaceX latest valuation, with a run of financing valuing the business at US $350 billion, making SpaceX the biggest startup.

Nuno Goncalves Pedro

Wow.

Bertrand Schmitt

If you can still call it a startup.

Nuno Goncalves Pedro

I’m not sure it counts as a start-up. But still, I mean, ridiculous. Tesla is 1.1 trillion, right? Mr. Musk is doing definitely well across his different plays and everything that he’s doing on that.

Nuno Goncalves Pedro

Yeah, space is exciting. Talking maybe a little bit about things that were not so positive this year, a year where we started having a lot of cybersecurity and related kinds of issues, incidents that left us, some places, without actual internet, that deflected flights, logistics, et cetera, like the cloud strike outage related to an update that obviously went totally awry. Things still being played in court on that one.

Nuno Goncalves Pedro

We’ve seen a lot of breaks into critical information. By now, if you’re in the US and your social security number hasn’t been taken yet, you must be living under a rock kind of thing, because it seems like everything’s been hacked.

Nuno Goncalves Pedro

For those of you listening to us, if you haven’t changed your core passwords, bank accounts, whatever in the last… You should. Just please, please do that. Everything has just gone nuts. I have all these services that track dark web and things that are being exchanged. I now have the updates almost every week that there’s something else that popped up information on me somewhere.

Nuno Goncalves Pedro

This is becoming serious, and it’s becoming clear. By the way, we’re not even talking about quantum computing and all this stuff. We’re talking just today’s world, cybersecurity incidents, information being leaked, issues with upgrades and updates on software that cause major issues. I mean, welcome to the new world. This is where we are. Software has eaten the world. Unfortunately, software is not always secure.

Bertrand Schmitt

Yes. Maybe crypto. When you look back, it was absolutely a horrible 4 years for crypto under the Biden administration. Basically, they tried to kill it. But then, surprising change of fortune. I mean, not just surprising. The crypto industry work all together to support and finance candidates that are pro-crypto. Ultimately, the pro-crypto candidates won the day. You can expect, and we’ll talk more for 2025, but basically, is that crypto winter suddenly is not a winter anymore. We might be going to the biggest crypto snow ever.

Nuno Goncalves Pedro

I stopped checking on my ownership of Bitcoin and Ether, et cetera. It’s just like there is no point. Today we’re below 100K. We’ll see what happens in the next few months. But definitely, if you’re a holder of crypto, you’re a significant holder of crypto, you’ve had a really great end of the year. Well, congratulations to you, because you, sir, have done well. You, sir, or you, ma’am. We know there are crypto billionaires everywhere, so this is a relatively, hopefully equitable market in that sense.

Nuno Goncalves Pedro

2024 is upon us. Hopefully, we’ll end the year. We didn’t talk about a number of other things like wars. There’s still wars in Ukraine and the Middle East. Hopefully, some betterment of that Syria re-engagement now. There’s unfortunately a year that ends on a tone of more and more wars and some instability around the world. As we mentioned before, in general, a pretty good year of 2024, much better than we expected. Certainly if we’re looking at the world that we, Bertrand and I, live in, tech, venture capital, start-ups, definitely a positive year overall.

Nuno Goncalves Pedro

What’s next? What’s going to go into 2025? What’s going to happen? Is it going to be as good as this year? Is it going to be better, finally? We’re going to go back to a full-on bull market across the board, buy industries, et cetera. Or is it going to be worse?

Bertrand Schmitt

I would say, personally, at this stage, I’m extremely bullish, at least the US economy. There would be, I would say the cloud. You can see potentially at the horizon is the inflation risk. Cool inflation, flare back, that will have an impact because that could mean less cuts as an expected or even no cuts. Or even potentially, if it goes really bad, it could mean an increase of interest rate. That’s probably at this stage the only cloud potentially at the horizon, but we don’t know. We will see.

Bertrand Schmitt

What’s big, again, in the US is probably that whole movement around less regulation, and nothing to better exemplify that than the new DOGE Department of Government Efficiency, supposed to work for the next 18 months to try to decrease regulations and the bureaucratic state at scale in the US. That might have a very significant impact for us in technology.

Nuno Goncalves Pedro

Yeah, and let’s see what our friends that are leading DOGE will do, including our friend Musk. Elon, if you’re listening, just please do this right. But I suspect there’s going to be tremendous amount of efficiencies extracted by this department, as it is called. I also suspect there will be a lot of court cases emerging out of the, I am very sure, many lay-offs and firings that will go across the board, and the elimination of jobs, the elimination of agencies, et cetera. But in some ways, hoping for the best, that we will end up with definitely a more efficient form of government at its core.

Nuno Goncalves Pedro

Obviously, the implications on regulations we are still to see, as you mentioned earlier. We don’t know quite well how many new appointments will be made and how these appointments will change the regulatory environment that we currently live on, which has been a little bit more aggressive and a little bit more anti-consolidation, certainly for the tech companies. We think it’s going to be crypto-friendly. That’s what we are led to believe.

Nuno Goncalves Pedro

The broad space around fintech, question marks. If we take crypto out of that part of that equation, unsure what was going to happen there. The energy space, there needs to be a movement forward. But obviously, with a new administration, I suspect that the energy moving forward is not going to be a Green New Deal kind of solution, whereas renewables, et cetera.

Bertrand Schmitt

Drill, baby, drill.

Nuno Goncalves Pedro

Drill, baby, drill, right? I suspect renewables will take a back seat, certainly in the US and other parts of the world, as we saw and discussed in our last episode around European competitiveness. That seems to be the only potential source of European competitiveness, if there is an angle around renewable energies and green energies. We’ll see.

Nuno Goncalves Pedro

Space, I suspect there’s going to be a lot of exciting things happening there in terms of regulatory environment. In AI, huge question mark, so much regulation we’ll see in AI with this new government. I think if I had to bet, the AI regulation that we will see will be probably more to start creating silos of IP and silos of inability to export things. Around AI, chips, we’ve already seen it around chips. I think the regulatory environment will be more around trade rather than the classic regulatory environment around, for example, consumer protection, et cetera. That’s my bet if I had to make a bet.

Bertrand Schmitt

I mean, me, as a libertarian by heart, I’m so excited. It could be the start of a new golden age in American businesses and technologies, thanks to less regulation. Regulations have constantly crept up the past 20 years in the US and everywhere. But I will say after Argentina, the US seems to be the second country in the world that is serious to really significantly decrease the bureaucratic state and negative impact of regulations, because people never think about the second order consequence of regulations, but the consequence of more regulations has always been to reduce innovation, reduce GDP growth at the expense of basically mostly everyone. I’m super excited about what could happen.

Bertrand Schmitt

In AI, it’s very clear that there was a big push of some players to try to basically build an oligarchy around a few top AI companies supported by the government in exchange of control and regulation. I’m so glad we are not going in that direction. It will have been totally dystopian from my perspective. Very excited we are not getting there. There might be some regulations regarding export control, and that sort of stuff, but it seems very clear that there will be very little regulation around AI, at least in the US. I think it will unleash a lot of energies.

Nuno Goncalves Pedro

The other floodgates that I think will open is M&A. I mentioned this story in a past episode, a friend of mine was saying before the elections that he was going to vote for Vice President Harris. But if then former President Trump would have been elected, it would be much better for him in terms of M&A activity, et cetera. I think we’re going to have the floodgates of M&A opening, and therefore, if all goes well, there’s no massive crash as the public markets were open as well, so we’ll have a much healthier IPO market next year.

Nuno Goncalves Pedro

This year was okay. I’m saying okay because it was better than I certainly expected, but next year might even scale to the next level. The floodgates of IPO is also open, which is absolutely great.

Bertrand Schmitt

That would be exciting because the way the venture industry works is it needs to generate exits. Without M&A and IPOs, that’s trouble. How do you raise new financing? How do you convince LPs it was worth it to stock all these funds to illiquid private companies and without an exit in sight? It could dramatically impact in a positive way the tech industry and the venture start-up industry.

Nuno Goncalves Pedro

Indeed. AI next year, I predict there will be more acquihires. I predict the acquihires won’t be at the levels that we’re talking about yesterday. I predict we will see a big, big player getting taken out of the market somehow, either acquired or something else. I wouldn’t say OpenAI, I don’t know, Anthropic. But I feel there’s going to be some big M&A activity next year that we’re going to see that will look great on paper, but maybe not great for some of the latter investors in those companies.

Nuno Goncalves Pedro

We have a lot of exciting things that we personally have been working on, and so we think that we’re going to start seeing some of those results beyond the world that we’re in, so beyond the world of chain of thought and just GPT in general. As I’ve mentioned before, evolutionary competition excites us and there are a variety of things happening around that. A lot of movements that we will see next year that are more around the future of AI and also the future of the infrastructure that needs to serve AI. A lot of excitement.

Nuno Goncalves Pedro

We’ve also discussed in the past, there’s going to be a lot of challenges like energy, consumption, even real estate to a certain extent. There’s going to be a lot of limitations that will need to be dealt with. But overall, for me, a market that will be a little bit more subdued than this year on the fundraising side, definitely exciting on the M&A side, is how I would position it going forward. Fundraising, I think it will be a little bit more thoughtful. The apps space, the AI space, I think will have some interesting developments, but maybe a little bit more subdued that we’ve seen.

Bertrand Schmitt

One interesting change in 2024 coming from AI was some nuclear renaissance with so many deals being made to restart nuclear reactors that were shut down, because the needs of energy for AI, I don’t want to say unlimited, but definitely represent way more need for capacities and utilities that might be able to provide with the current plans. It would be interesting to see if we indeed witness a true nuclear renaissance pushed in part by AI and also in part by the recognition that’s the most efficient source of energy and the cleanest source of energy.

Bertrand Schmitt

One big question for AI is, have we touched the limit? We kept talking about LLM improving significantly, model after model, but is it still true? A lot of rumours right now in the industry that Gemini, OpenAI have reached a limit, and that basically more data and more computing power does not translate anymore into a so much better LLM, at least if you keep having that transformer-based approach. That’s a big question mark that will have a lot of impact on the industry.

Bertrand Schmitt

But at the same time, there’s still a lot of path for growth. I mean, multimodal approach combining not just text, but image, audio, video, the new chain of thoughts type of approach. Agents, multiagents might take the relay for growth.

Nuno Goncalves Pedro

Our belief is that at some point, there will be an increase in commoditisation of the methodologies that we’re in, in particular, GPT. The competition will happen on UX, it will happen around the edges on price, but the future is upon us as well. Seeing that transition happen and how the big players are going to deal with that transition, I think we’ve already started seeing OpenAI reacting to it. This is not a religious war. It’s not about GPT. I don’t think they need to win just with GPT. They’re going to win with other methodologies as well that they will apply and use it the best effort.

Nuno Goncalves Pedro

Definitely, I think it’s going to be an interesting year next year. As I said, I think fundraising and more, I think it’s going to be more subdued. Heavy-duty M&A, as I said, maybe even one or two big deals on the M&A side to consolidate that perspective and that pressure that is now, for example, exerted upon companies like Google, or Alphabet in that case, the holding and Meta and others. Even Apple, to be honest. Definitely very interesting to see how that pans out.

Bertrand Schmitt

Beyond the LLMs, it will be interesting to see what Tesla does with their full self-driving. The new version is just coming out in beta. Full self-driving version 13. A lot of rumours that it’s doing way better. There is also an acceleration in that direction as well.

Nuno Goncalves Pedro

Indeed. We may have said earlier in this episode that NVIDIA is the top stock in the world in terms of market value, but it is not. Apple is actually still number 1 with 3.67 trillion just for those asking. Maybe talking about big tech in general and going into Apple and other players, the pressures of adoption of AI are there. Obviously, Apple has its own world that it lives in because of its ecosystem that it creates and that it fully owns.

Nuno Goncalves Pedro

But Alphabet, I think, will need to react definitely next year and do something major. Meta as well. Obviously, there are announcements around VR, et cetera. It’s been interesting and exciting, but what’s next for Meta? Is it just a social network? Microsoft will also be interesting, I think, to see how will they react. If we include in that group NVIDIA, is it one of those only there to lose? Can they continue growing in market cap and just hitting numbers, et cetera? I do not know.

Nuno Goncalves Pedro

But if I had to make a prediction for next year, it’s at some point, gravity will have to hit. At some point, people will be like, yeah, maybe this is a little bit too much. We shall see, but definitely probably a good year for big tech, definitely an exciting year for big tech next year as we see the smaller market cap guys in this gang having to react and do major movements.

Bertrand Schmitt

For NVIDIA, it’s very interesting because they are in a position to, if you think about the old Wintel approach, Windows combined with Intel, or even the Apple integrated approach. NVIDIA is in a similar position on the server side, on the data centre side with not only hardware, not only GPUs, NPUs, but the full infrastructure, the cabinets, the networking, and also the software side with CUDA. And not just CUDA, but all the software that are built on top of CUDA to help accelerate the development of AI in different industries.

Bertrand Schmitt

They had a very, very integrated system approach. I think that’s what will make them very special for a while, having a moat that is much wider than many have thought. For instance, AMD, there was a lot of discussion. Can AMD sell more, take some business from NVIDIA? Now it’s very clear they have not been able to do that at all. It will be interesting to see how it keeps developing.

Bertrand Schmitt

Personally, I’ve been very impressed by Meta, their released of the Llama models, their newfound commitment to open source. They have definitely been a disruptor in the AI space.

Nuno Goncalves Pedro

Moving maybe to defence, homeland security in general, but defence seems to be going through its own renaissance. It used to be defence probably led the way in many epics of our lives, around the wars, post-wars. In terms of development, in some ways, we owe Silicon Valley to all the public-private partnerships that happened afterwards, all these technology transferring from the military back into civil society.

Nuno Goncalves Pedro

I think we’re going through a similar stage. I mean, defence is leading the way around many uses of AI, uses of robotics, the application of things that are really, really out there. The beauty about defence, whether you like it or not, is there’s a lot of capital in it. It’s like no questions asked kind of thing.

Nuno Goncalves Pedro

In particular, if it’s under the US military complex, I suspect it’s the same for a couple of other complexes around the world, but the US military complex leading the way on this, on innovation. And aggressiveness of trying new things, doing proofs of concept, from anything that you can imagine, it’s happening right now. There’s obviously a lot of money and there’s a lot of interest in expanding capabilities. We’re in the middle of a very tense geopolitical arena around the world with wars ongoing that are significant.

Nuno Goncalves Pedro

We’re seeing a lot of this innovation already being deployed. In the Ukraine war in particular, obviously. We’ve seen some of the scary things that happened with Israel and Palestine. It comes to mind, the whole pager exploding stuff. There’s a lot of stuff happening right now that is cutting-edge tech happening in defence, and that makes it particularly exciting to play in if you are a start-up that is thinking about going after that space, et cetera.

Bertrand Schmitt

Yeah, the exploding pager, I don’t know if it’s amazing tech, but it was definitely an amazing intelligence operation. But yeah, in term of new companies, you cannot talk defence, I guess, without talking about Anduril. Anduril, that new company start-up that’s been around for a bit now and that has had a focus to try to employ Silicon Valley technologies, approach business model to the defence industry, and that has been doing extremely well. I’m very excited with what they have done and what they have achieved and where it’s going.

Bertrand Schmitt

Maybe one thing to note is that change since the start of the Ukraine war, actually, where 5 years ago, if you look at Google and Microsoft, in many situation, employees didn’t want to do any business related to the defence industries, were blocking initiatives, and now it’s a complete turnaround. If there is no more qualms around doing defence business, it’s actually expected for many of the big techs. It’s a big change of mindset as well, and there as well in the financing. I think that some VCs might have restrictions in terms of financing the defence industries, but I think step by step, especially in the US, the mindset has changed, and I guess LP’s constraints have evolved.

Nuno Goncalves Pedro

Indeed. I feel if you will look in particular at the Middle East and geopolitical situation, there’s a lot of appetite, by certain players to really reunite it and be really into a stage of peace once and for all for a long period of time. But obviously, there’s different actors that have different views on what that looks like. We’ll have to wait and see.

Nuno Goncalves Pedro

Meanwhile, defence as a market to sell to and to innovate in, thumbs up, definitely a market that is on the up and up. The cool thing is I think we’re going to see a lot of technology transfer, again, from these markets back into civil society and other markets, et cetera, which is probably generational for us. Certainly, my generation, I think we’ve seen some technology transfer back, but definitely probably not at the scale that we’ll see over the next decade or so from defence back into civil life.

Nuno Goncalves Pedro

Space tech, same usual suspects, SpaceX, Starlink, and all the usual suspects are lying around that wonderful ecosystem. Many countries putting significant amounts of capital into competing at space level. It feels like it is truly the next frontier, not to overquote Star Trek, but definitely it seems like it is the next frontier. Exciting moments. Is it evolution, revolution? I don’t think we’re seeing any revolutions in 2025, but probably more of the classic evolution. We’re going to see those astronauts finally coming down, hopefully, to Earth with a Dragon capsule. That’s cool.

Bertrand Schmitt

In term of innovation, Starlink should start its direct to cellular approach, which is exciting because it means that suddenly when you are out of reach of cell towers, your phone might use cell towers in space as a relay. I think that would change quite dramatically, actually, how you think about what is a phone and where does it work. Suddenly, no more zones where you don’t have signal anywhere in the world. That would be quite, I think, game changer for a lot of activities.

Bertrand Schmitt

Obviously, Starship’s getting out of edge. The impact of Starship is dramatic in term of cost of launching satellites in space. With Starship going into production at scale, soon we will be in a position again to see that decrease of the price of kilograms to space and as a result, the rise of brand new business models. The same way we got the Starlink coming up, maybe we’ll have something totally new we’re not really thinking about yet. It might take very exciting times once we have Starship at scale in production. Will that happen by end of 2025? Possibly.

Nuno Goncalves Pedro

Yeah. Maybe we will have something dramatically exciting. Maybe no. Maybe it will be more evolution rather than revolution. Biotech, the new frontier. Obviously, a lot of things happening with computational evolution in the use of AI. It is a space that I am personally not an expert on, but it’s for me, feeling like it’s the next big wave. If you’re listening to us, and you’re a big biotech fan, and you understand a bunch about the space, do reach out to me. Would love to talk.

Nuno Goncalves Pedro

There’s definitely some special momentum around it that makes it now become obviously mainstream, funds that are just solely focused on it, and obviously a lot of expertise going into it. In some ways, still subject to the issues around life sciences and health tech, where a lot of capital sometimes needs to go into it, but a lot of the layers we’re seeing around software are much lighter and less capital-intensive. I think a brave new world overall on the biotech side.

Nuno Goncalves Pedro

I don’t know if we’re going to have any big breakthroughs next year or not, but it’s definitely a space that I’ll definitely be spending a lot more time in and paying a lot more attention to. That’s one of the gifts that COVID also gave us, the belief that we had during COVID that the evolution of biotech needs to be much faster than we’ve had until now. Obviously, a lot of capital being poured into it, which will no doubt lead us to that next stage of development.

Bertrand Schmitt

Yeah, and that’s probably a space where the decrease in regulations can help improve the pace of change. On another topic, going back a bit more macro, definitely free speech. It has been a battleground for a lot of things, and I think we are going to get more of it versus less of it, at least in the US. While in comparison, it’s pretty clear that at least in the US, DEI is going down, is definitely losing momentum. We have seen more and more companies in 2024 abandoning the DEI initiatives, by themselves or by pressure from shareholders or pressure from customers, and then changing into how it’s seen by the population.

Bertrand Schmitt

ESG as well is certainly going down, at least in the US again. That’s a pretty dramatic shift because when you think about it, the past 4 years have been big on DEI and ESG, have been small on free speech. It’s a complete reversal on these topics, at least in the US. But my expectation is what’s happening here in the US will have a significant impact in every other market because the US is leading the way in many topics, including these topics, so that when there is such a change of reversal, many will be forced to follow up.

Nuno Goncalves Pedro

I think there’s been some good movement, but obviously, that’s the problem with a lot of these acronyms and the way they were positioned to the big companies and that way they were used or misused in some cases by the big companies and really showing impact that they really didn’t have. There’s a lot of work still to be done. I won’t go into the philosophical discussion of whether this is worthwhile in devo or not, but there’s been certainly a lot of, sadly, lipstick on a pig attached to the DEI initiatives and ESG initiatives that don’t really show any fundamental change or any impact in the world, so to speak.

Nuno Goncalves Pedro

Maybe that’s the right momentum, but definitely there still needs to be a lot of change in the world for some of these things to be more actable. We’ll see. We’ll see how things move. Not sure it’s all good news, but there’s definitely a lot of, as I said, lipstick on a pig that we can do well without.

Nuno Goncalves Pedro

We’ll talk about more the geography of the world, and maybe we start with our close neighbours to the US, Canada and Mexico. Tariffs impact on both of those countries, obviously with new President Trump in power is expected. We’ll see how that works, if our Mexican friends will be made to pay for a wall again or not.

Nuno Goncalves Pedro

Definitely some geographical tension, even with our close neighbours. We’ll see regarding Canada and Mexico. Do you have any perspective, Bertrand, if there’s anything dramatic that’s going to… I don’t think so. It’s going to be this back and forth of tariffs. I mean, Mexico is the number 1. The number 1 importer into the US is Mexico now. I think they are ahead of China from the latest numbers I’ve seen. There needs to be some balance here at some point.

Bertrand Schmitt

It’s pretty clear that at the end of the day, it’s more a threat of tariff than tariffs themselves. That’s the plan. That’s what has been announced by Trump on just a few days ago, a threat of tariff if there is no more control of illegal immigration coming from Mexico, from Canada. If there is not a better control of the import of some drugs. It’s a threat at this stage, and it seems like both of these countries seems to react positively. To be clear, they have a lot lose if Trump is going to follow up on the tariffs.

Bertrand Schmitt

They don’t have options. They can say they can put some tariff back, but it’s like nine to one in term of tariff impact. My guess is that the minute you are serious about it, the minute you are serious about your threat, and you are ready to go on your threat, then the other side has no other choice but then to basically take action.

Nuno Goncalves Pedro

If we’re talking about goods imports, Mexico, I think, is now number 1 ahead of China. Canada must be number 3, if I’m not mistaken, and well ahead of everyone else. This is like number 1, number 3 on goods imports to the US. The dependencies they have on the economy of the US is significant. To your point, I think everyone has an interest to make this work. Even the US, I think, has a deep interest to make this work. There will be tariffs, there will be aggression on certain points, but at some point in time, there needs to be a little bit of a balancing act. It is about getting something in return. It’s more of a quid pro quo dynamic of negotiation and bargaining that I think we’re facing right now than anything else, in particular with Canada and Mexico. I think with China, it’s more of a strategic long-term discussion, but with Canada and Mexico, it’s more of a tactical, let’s get stuff sorted and implemented and move from there.

Bertrand Schmitt

I think it would be relatively quick. I would expect mostly painless, but we will see. I mean, Europe, there is also question of potential tariffs. It’s not clear the position yet. What is clear is that there is an expectation by politicians in Europe that will be some price to pay, expectation to spend more in energy from the US, expectation to buy more defence equipment from the US. There is already some expectation that there might be tariff coming and the way to not have tariff coming might be to buy even more from the US. I’m not sure it’s a great deal, it’s reasonable. But again, that would be one side has more power than the other side in these discussions.

Nuno Goncalves Pedro

We’ll see what happens with Europe. We’ll see what happens in these relations. Things are also expanding. I mean, even looking at my country, there’s so much immigration coming from the US into Portugal, but definitely Europe is a little bit more being pushed around, very different sides of the world in what comes to anything that relates to free speech, very different views of the world and what comes to bear on energy as we discussed earlier. There’s obviously still not natural resources in the US and a lot of dependency on such. That with the new president, I believe, will be even further emphasised rather than de-emphasised, as in the current government.

Bertrand Schmitt

Yeah, on the topic of free speech, there was a tweet from JD Vance, pretty strong one highlighting that their NATO allies better behave well in term of free speech, else they might not be NATO allies anymore. I think it’s not just about tariffs and import-export, but it looks like the US will have a stronger point of view on some topics that it expects its allies to follow through under some level of direct threats.

Nuno Goncalves Pedro

Defence is going to be a concern for Europe. They still have huge dependencies on the US in terms of capital because of NATO. Obviously, there are local players in Europe that are significant and at scale. We’ll see how the dependencies get generated in terms of buying of equipment from the US, and if that’s an increasing trend or not, but definitely there needs to be more and more spend by Europe on defence, given what we’re seeing, particularly in the Ukraine and all this geopolitical instability that we see around the world.

Bertrand Schmitt

Or we might have a quick resolution to Ukraine, given that Europe doesn’t want to spend the money.

Nuno Goncalves Pedro

Maybe. I don’t know, the détente in Ukraine. I mean, I would wish that we do. We’ll see. But I do think that the spend in military and defence going forward, someone was telling me about Poland and very significant increase in military spend over the last several years. I feel it’s a trend. Countries need to be prepared, and therefore, certainly, the European Union needs to make sure that its countries are getting more and more prepared for the instability that we’re having.

Bertrand Schmitt

My take is that if you look at France and Germany, they have not been doing much. They have been talking, but it’s not clear at all. It’s going anywhere in term of serious increase of defence spending. When you see the French government that is going down right now, the German government that imploded a few weeks ago, it’s not clear at all there will be additional spent by these two countries. We saw these two countries leading the way. I’m really not so clear about what’s going to happen, quite frankly, because if you don’t have an increase of spend from them, an increase of support from them to Ukraine and the US move in a similar way, I think some things will have to conclude.

Nuno Goncalves Pedro

Yes. Some spend more than others. We know that, right? We know that in Europe, there’s been countries that are with significant percentage of their GDP applied to military and to defence expenditure. I feel there needs to be more, and it’s going to grow even faster. If I’m looking at 2025, I don’t see how this steps back in terms of defence spend, in particular with Trump in power, where all things are up for negotiation, right? I don’t see how Europe can get away with not really having to increase significantly defence spend.

Nuno Goncalves Pedro

Asia, I mean, China is the obvious one. Definitely significant tariffs coming their way, export controls all the round. Trump in power, I think it’s going to be more rather than less. As we said in our episode, talking about the candidates and the implications of each of them being elected. We feel their policies on China were both already quite aggressive, but I feel with President Trump back in power, it will be even more. Now, gone from a very, very tense non-ideal partnership maybe a decade plus ago to basically this is the enemy. This is, I think, where we’re going to end up.

Nuno Goncalves Pedro

I think we’re going to end up in more and more aggression, regulation, tariffs, and everything that goes alongside it, certainly in what relates the US to China, and then we’ll see what China does and how China reacts and what’s the development of the economy of China in the next year as well.

Bertrand Schmitt

I think it’s going to keep a similar trajectory. I don’t know if it will get much worse, to be frank. Of course, there will be threats of tariff and stuff, but practically, will it get much worse than the current trajectory? I don’t know. Let’s not forget for China, the big issue is that their internal market is certainly not ready to basically compensate for the loss of the US market. You can imagine that in that game of tariff, Europe will be forced to pick a camp, and I don’t think they will be able to pick the China camp.

Bertrand Schmitt

It’s not just the US, China might lose in term of market, but also Europe. It’s really significant for China in term of financial risk, especially if the country is not doing so well. If you look at unemployment statistics, if you look at overall this state of the tech economy after the big clamp down of the past few years. I would expect that there would be a lot of noise and stuff, but ultimately I would expect that China is going to adjust to what the US wants. I don’t know if it would take 6 months, 18 months, but I would expect some significant level of change, whether China likes it or not.

Nuno Goncalves Pedro

Rest of Asia will need to align. I feel that’s going to be the big challenge for, in particular, Southeast Asia. If I’m thinking through Singapore as that hub that has conquered a lot of the financial services tailwinds of Asia Pacific, so to speak, who are they aligning with? Maybe we’ll just stay in this classic, we play both games, we have good relationships with China, we have good relationships with the US, and everything will happen. Then obviously, there’s the geopolitical piece happening around China’s neighbours, Korea and Japan, where Korea seems to be in a bit of a mess right now, and that’s tremendously shocking. We are talking about South Korea, not North Korea, just to be clear. That’s a problem. Obviously, Taiwan, which is always our geopolitical nightmare. Hopefully, nothing dramatic will happen in Taiwan next year. We’ll see.

Bertrand Schmitt

Yeah, I must say that was a surprise today, this morning, that martial law in application in South Korea. We’ll see how it goes. It seems it has been lifted already. It was certainly not in my bingo card for end of 2024. We’ll see how it goes. And Taiwan, yes, definitely always the flashpoint. So hopefully, nothing bad goes there.

Nuno Goncalves Pedro

Yes. On that wonderful note, we will conclude our episode on revising what happened in 2024, going back in time and really reminding us of the great stuff and the not so great stuff that happened in 2024. And looking forward to 2025. What’s next, and how do we see it pan out? In general, I believe we’re all very hopeful. It was a great year, as I said, in particular around tech and around the worlds that we play in. Certainly looking forward to 2025. And yeah, exciting times ahead.

Bertrand Schmitt

Exciting times.

Nuno Goncalves Pedro

Thank you, Bertrand.

Bertrand Schmitt

Thank you, Nuno.

View Details

In a few decades, will Europe be good for anything beyond food and tourist experiences? With Europe lagging on innovation, productivity and with extremely costly decisions on the Energy side, and needing to defend itself, what is next?

Navigation:

Intro (01:34)
New report out from Mario Draghi
Profound mistakes in Energy initiatives increasing costs and competitiveness
Dalio and Lee Kuan Yew comments
Lack of growth in Europe, lack of creation of new European champions
Too much protection for employees?
Too Complex regulations around companies and innovation initiatives are too bureaucratic
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 60 of Tech DECIPHERED. Today, we will discuss European competitiveness. The competitiveness of all of Europe, not just the European Union, but the whole of Europe. It’s been in the news recently. There’s been a new report out from Mario Draghi a couple of months ago that really mentions what is happening in Europe, what are the things that need to be done for Europe to increase its competitiveness going forward.

Nuno Goncalves Pedro

There have been a lot of discussions around the world on Asia, in particular, and American dominance of the world economy. Europe is lagging behind. What do we make out of all of this? Maybe let’s start with the report out from Mario Draghi and the conclusions of that report.

Bertrand Schmitt

Yes, I think it was for once, a pretty interesting and pretty lucid report from a commission by the European Commission and written by Mario Draghi with a lot of support from many CEOs and also entrepreneurs to provide feedback to try to explain what’s happening, what’s going on. I would agree with everything in terms of analysis or conclusion, but I must say it’s a good read.

Bertrand Schmitt

Maybe a few points that he’s making is first acknowledging that there is an issue in European competitiveness and growth since the past 20, 25 years. This lack of competitiveness and growth has increased with a great financial crisis from 2008-2012. In 2012, there was a crisis around the euro. I think it is indeed time to try to look back at what happened and try to get some sense about what could be done differently going forward.

Nuno Goncalves Pedro

A couple of really astute observations. Obviously, the GDP growth of Europe has lag behind that of the US and China. The period of time from 2002-2023, the US has grown 2% and both on constant prices and constant PPP prices. China, 8.3% and the EU, 27 at 1.4%. Obviously this report is on the EU. Clearly lagging, and the lag is significant.

Nuno Goncalves Pedro

If we look at GDP at constant prices, there was a 17% delta in 2002 between US and Europe, and now there’s a 30% delta between US and Europe. It’s lagging you further behind. Even more seriously, China has outpaced it on constant prices. If we look at constant PPP prices, the EU was actually 4% above the US back in 2002, and it is now below 12% of the US.

Nuno Goncalves Pedro

China has outpaced both of them at constant PPP prices. This is worrisome. I think Mario Draghi makes, or the report makes a bunch of very significant and strong statements, which basically are saying, “We cannot, as the European Union, continue like this and have the social welfare that we put in place in all these countries.” something’s got to give.

Nuno Goncalves Pedro

He goes on to make a couple of proposals and what he thinks needs to be done in Europe. But very significantly, what he’s saying is this is a crisis. We need to address it. This is not just a nice report, please read it. It’s like we cannot afford the lifestyle that we’re having.

Nuno Goncalves Pedro

If Europe or European Union was a household, it would be going bankrupt, I think is what he’s saying. We can’t keep doing what we’re doing. Something’s got to break at some point. Either the social welfare construct that we have will not work any more, or we, as Europe, will need to really reassess how we behave, et cetera. Very interesting report. A lot of fear at the beginning of the report immediately. Then three areas that he recommends action on for Europe in order to reignite growth.

Bertrand Schmitt

Yes. First, I would like to say that, yes, some are doing analysis based on PPP, but there is a risk when you do that. Because PPP is cute when you try to estimate cost of food, if you go locally your food, for instance, or pay locally your services. But for anything you buy from outside your region, PPP doesn’t work as well. That’s a big issue for Europe, given that it’s manufacturing less and less of what it’s bringing. PPP can be providing some comfort in terms of things are bad, but maybe not as bad. I would be careful in terms of analysis where they push PPP so much.

Nuno Goncalves Pedro

But it’s on both, Bertrand. They are showing it at constant prices.

Bertrand Schmitt

It’s on both. It is just that the impact is way bigger when you did not choose PPP.

Nuno Goncalves Pedro

Just to tell those that don’t know what PPP is, is power purchasing parity. It’s something to your point that aligns the power purchasing parity across different markets. It’s an adjustment made to the numbers, basically.

Bertrand Schmitt

Yes, because what we see, for instance, is on a per capita basis, real disposable income has grown twice as much in the US since 2000. It’s an absolutely huge difference.

Nuno Goncalves Pedro

I always switch it, so I apologize. It’s purchasing power parity. Purchasing power parity.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Apologies again.

Bertrand Schmitt

I think one point that I believe is really important is the lack of innovation in Europe. That is, of course, very scary. They made a good point, it’s the lack of tech companies in Europe. One number shared in the report, only four of the world’s top 50 tech companies are European. Only four. How can you be one of the top three regions in the world and the future is not well represented in Europe?

Bertrand Schmitt

For sure, it’s a big issue. It has big issue in terms of R&D. The three biggest spenders of R&D in Europe are actually automotive companies. Guess what? None of them is Tesla. I’m not sure where is this R&D going, but I will guess it didn’t go in the right direction on top of it. But it’s not just a question of how much you spend, but how well you use it. That part is something to be fixed.

Bertrand Schmitt

Another data point maybe around tech companies, but there is no EU company with a market cap over 100 billion that has been set up from scratch in the past 50 years. While all six US companies with a valuation above one trillion have been created in the past 50 years. That for me is just incredible because it’s proof of a total lack of dynamism that is step by step self-fulfilling. I’m not saying individuals in Europe lack dynamism. I guess it’s not the overall European system that is creating so much ball and chains behind your back. You cannot run. At best, you walk. At worst, you crawl. If you have your operations in Europe. That’s really probably the main issue.

Bertrand Schmitt

One could argue, has it been designed or proposed this way to help the incumbent? I don’t know. But for sure, the result is that all of these regulations, all of this lack of competitiveness, or all of these constraints and cost are creating issues. The end result, whatever you agree or not, the end result is that you don’t create with such a system highly successful companies. That’s it. They were created a number of years ago.

Nuno Goncalves Pedro

It’s even more significant than that. Obviously, if you look at startups, more recent startups, 2008-2021, close to 30% of the unicorns that were founded in Europe, so startups that went on to be valued over a billion dollars, relocated abroad, mostly to the US. It’s even worse. When there is innovation in Europe, these guys want to raise money from the US They want to raise money from US venture capital. They want to expand into the US markets in many cases.

Nuno Goncalves Pedro

In a significant amount, we just saw 30% of unicorns, from 2008-2021, relocated their headquarters to the US, or most of them to the US It’s incredible. It’s like even the innovation doesn’t stay in Europe. It’s not just that the industrial complex is totally stale. To your point earlier, in the last 50 years, it’s more than that. The new companies that are emerging are also not staying in Europe, or at least a significant part of them are not.

Bertrand Schmitt

Yes, that’s a very good point. That one is really scary because even if you say, “Oh, you know what? We have some good programs to help create startups.” At some point, the rational ones might discover that actually they better leave Europe because it would be more efficient for them to gain scale from the US. They will probably realize that most of their markets in the US in the first place, they will see that most of the exit opportunities, be it in terms of M&A or in terms of IPO, will probably be in the US if they are highly successful.

Bertrand Schmitt

There has not been a lot of successful acquisition of big tech companies in Europe or IPO of tech companies in Europe. There has been a few, of course, but certainly not to the level we’ve seen in the US. The US is still seen as the best path for exit for a lot of startups, especially the ones that have global appeal in terms of products and customer base and shareholder interest.

Nuno Goncalves Pedro

This is the first big thing, the first big area of change that the report proposes is innovation. We need to fundamentally shift innovation, R&D, the creation of European winners that stay in Europe. Then there’s a lot of conversation around articulation of policies, capital, diffusion, all of that thing.

Nuno Goncalves Pedro

The second piece is around energy. I think it mentioned it specifically as decarbonization and competitiveness. But it’s really the fact that the energy prices in the US are much, much lower than in Europe. Just to be clear, EU companies have electricity prices that are 2–3 times those in the US Natural gas prices are 4–5 times higher than those in the US. The price cap is because Europe doesn’t have many natural resources when it comes to energy.

Nuno Goncalves Pedro

I think the thesis here is, since we don’t have those natural resources, we can’t just pump oil, gas, whatever. We need to go somewhere else. Where we need to go is decarbonization and really shift power generation towards secure, low cost, clean energy sources. We need to figure out as well what we do with fossil fuels. Anyway, really complex issue for Europe because the price of energy is so uncompetitive.

Nuno Goncalves Pedro

Because of lack of resources, how do you sort it out? I know this is a pet peeve that you have. You’ve mentioned that in many episodes, the whole decision-making around energy in Europe and how it was flawed and messed up.

Bertrand Schmitt

To this point, to share some metrics, if we look at the average electricity price for industrial users in dollar per megawatt in 2023, the worst four countries for energy price are European companies. The worst is the UK at 400 bucks. The second is Germany at 270, maybe. Third is Italy, 250. Then France at 235, and then we have Japan. Everyone knows that Japan is not in a great place to get access to cheap energy. It’s a small island, it’s far, there is not a lot of oil and gas around. That one does make some sense.

Bertrand Schmitt

But I’m sorry, it doesn’t make sense in Europe. We say we don’t have source of energy. Of course, we have. It’s just that we banned them. We banned fracking in Europe. Why is US so cheap on oil and gas energy? Because of fracking. I don’t know if it is a US. invention, but definitely it has been used with huge success in the US It has created that high volume, low cost energy source that Europe has banned.

Bertrand Schmitt

No, we could use fracking and get a lot of cheap gas and oil in Europe. We just decided not to do it. Let’s not forget, and it’s the same with coal. We have coal in Europe. We just are not competitive bringing coal. It’s not as if I’m pushing big on coal, for instance, but oil and gas we need that. This is very efficient source of energy. The last piece for me, which is crazy, is, of course, nuclear.

Bertrand Schmitt

Germany used to have nuclear reactors. They closed all of them. The UK still have a few and was in the process of closing some. France, which has been the world leader for nuclear energy, has started closing some reactors. Countries are coming back on some of these mistakes and reinvesting. But the crazy part is that the price of energy in France, which is very high, close to Germany, makes absolutely no sense.

Bertrand Schmitt

What’s happening is that there is a crazy European scheme around electricity price that has been set up to serve German interest and has basically tried to make uncompetitive prices of energy based on nuclear. We have a situation where Germany depends on French nuclear energy. They don’t have enough energy, but they manage to make the French pay as much for electricity as the Germans for some reason, while, of course, French generation of electricity is much, much lower cost.

Bertrand Schmitt

But for some reason, the French government agreed to this scheme. That makes no sense. Some European countries actually left this scheme, like Spain, and decreased their energy cost as a result. We are in a very, very weird situation. Obviously, we can’t talk about energy prices in Europe; we are still talking about Russian gas. Again, thanks to Germany, Europe has become very dependent on cheap Russian gas imports. This is another piece of the puzzle.

Bertrand Schmitt

Europe wants to buy less gas, less oil from Russia. It is still buying some directly. But through all the sanctions and all the programs that have been put in place against Russia, in some situations we end up buying Russian gas through other countries because we do not want to buy directly any more.

Bertrand Schmitt

Some of it is from Russia, so we are buying, from India, for instance, Russian oil from India at crazy expensive price instead of buying directly from Russia. On the cover of not funding Russian war against Ukraine, we end up spending way more cost for energy price when actually we are still buying from Russia, not as directly. Some people feel better about that, I guess. But particularly, it makes no business sense, whatsoever.

Nuno Goncalves Pedro

Energy is number two, so innovation number one. Energy number two. Number three, not shockingly, security. The huge dependency on NATO, on the US, and the fact that there are only 10 countries in the EU that spend over 2% of their GDP on defence-related issues is of much concern. Here, I feel very vindicated. I was actually 18. It was 18 years ago, so it was before 2000.

Nuno Goncalves Pedro

I remember I was asking a former Prime Minister of Portugal, who later become a President, a question at an event. One of the questions I asked him is, is there a future for Europe that is not a federal Europe, in particular if we think about security and dependency on US and NATO and whatever?

Nuno Goncalves Pedro

I won’t tell you what the response was from the person, but I will tell you that it was obvious to me, 18-year-old, many moons ago, that this old dream of a unified Europe would depend also on unification of defence. Now Europe is not lagging behind. It’s like hugely behind. It’s not that Europe doesn’t spend money on defence. It does spend, if you put it all together, quite a lot. It just has very inarticulate policies among state members, duplicative expenditure, and no uniform optimization of what needs to be done and how.

Nuno Goncalves Pedro

A little bit the comment on the report is, before we even think about execution, we need to unify planning. There’s no unified planning in defence in Europe that I know of. There’s been some interesting efforts, but there isn’t really.

Bertrand Schmitt

Yeah, defence is also one of my pet peeves in Europe, but it’s so crazy when you look at it with a cold eye that for me, it’s unbelievable. You say they are spending quite well. Actually, I’m not sure there is a single European country that is spending 2% of their GDP, their NATO agreement on defence. First it’s below what it should be spending and below what the US is spending as a percentage of GDP.

Bertrand Schmitt

But at the same time, European GDP keeps growing slower than everybody else, slower than the Americans, slower than Russia, I guess, actually, for sure, way slower than China. These numbers are bad in terms of absolute number, percentage number. But if we go further, a lot of decisions are wrong.

Bertrand Schmitt

First, let’s remember, nuclear dissuasion in Europe, it’s coming mostly from the US. UK has some nuclear dissuasion, but they cannot press the button without American agreement. When we talk about nuclear weapon in the UK, it’s, yeah, sure, it’s in British soil, but it’s actually technically controlled by the US.

Bertrand Schmitt

Only France has a source of nuclear weapon that is truly basically there to support Europe if this was needed. Of course, France doesn’t have the level, the quantity of nuclear weapons that its enemies have, if you take Russia or China. That is the first thing that you could argue that, all the European nuclear defences today are assumed by France if the US is not supportive of their use. That’s one piece.

Bertrand Schmitt

But then everything else goes in a similar way. France has only one nuclear aircraft carrier. The British might have one as well. This is to compare to at least 10 in the US. This is a pretty poor position from that perspective. Let’s just take some metrics, for instance, to see how much of a joke have become the defence in Europe. Germany used to have 7,000 tanks to defend itself during the Cold War. Then it went to 3,000. Do you want to know how many they have to defend their territory?

Nuno Goncalves Pedro

I don’t know. Maybe 500?

Bertrand Schmitt

Three hundred.

Nuno Goncalves Pedro

Close, but no cigar. Wow. Shocking. One-tenth of what was already pretty poor; 3,000.

Bertrand Schmitt

One hundred twenty. This is bad. We have to be realistic that this is very bad. I remember a report just at the start of the Ukraine war in France. Suddenly people realized that it was a pretty high-intensity war, what was happening in Ukraine. A lot of munitions were used, and that is why there is actually a lack of munitions to fight properly, especially artillery shells, but mostly of everything; ballistic missiles and bombs.

Bertrand Schmitt

In France, they were on a report. They said, “You know what? We never predicted there would be such a hot war possible that we would be spending ammunition; we could be spending munitions so quickly.” basically, the analysis was if France was to fight on its own a similar high-intensity war, they will have one week of ammunition. One week. It reminds me the masks with COVID. We have a few days of masks.

Nuno Goncalves Pedro

We’re not prepared. We’re not prepared. We’re prepared for a week of war.

Bertrand Schmitt

All the masks in storage were actually not usable any more. They were gone or they cancel buying new ones. There was a scandal at the time. Here, you see the same. We have planes, we have stuff, but yeah, by the way, we have what it takes to fight modern war for one week.

Nuno Goncalves Pedro

It’s mind-boggling. It doesn’t make any sense, really. Lagging behind, huge dependence on the US.

Bertrand Schmitt

For me, it’s very surprising because you just pick step by step. You look at the metrics, you look at the numbers, and it’s public information. The picture you make out of this is truly scary, to be frank. Imagine that, for instance, if you look at what’s happening in Ukraine, at some point, I remember reading that the US was asking South Korea to transfer some of their ammunition to Ukraine because Europe was not producing fast enough, US was not producing fast enough. Actually, only South Korea was producing fast enough ammunition.

Nuno Goncalves Pedro

I’m pretty sure China is as well, but you’re not going to ask China.

Bertrand Schmitt

Yes. Fair point. On the contrary, if you look at how Russia adapted to the war, they moved after 6, 5 months to a more war economy in the way, and they started prioritizing manufacturing ammunitions, weapons, and particularly they are taking this strategy, while in Europe it’s like, “What? Increasing productions of ammunitions when we need them? Why? Should we plan for what’s next? Why?” I don’t know. I read stuff about like it would take years to increase manufacturing production. This is a joke. There is no word for it. It’s a lot, and that is my worry, reading this report.

Bertrand Schmitt

There is some analysis, there might be some conclusion that doesn’t make sense, but my expectation looking at the past 20 years of European restriction is that it will probably do nothing. Or maybe it will generate some additional spend, but will it be wisely spent? That I’m not sure.

Nuno Goncalves Pedro

Again, read the Mario Draghi report. There are a couple of different reports out there with different levels of details, the executive summary, backups on all of these things, and his actual speech to the European Commission. Very, very interesting.

Nuno Goncalves Pedro

I will mention something. I think I’ve mentioned this in the past in one of the prior episodes. Recently, I watched Ray Dalio at a conference in Singapore, and he was avoiding the whole topic around talking about Europe. He was talking about US, Southeast Asia, Middle East, US. But he didn’t really talk about Europe. The person who was leading the fireside chat with him did end up asking him that question. “What about Europe?” He gave an answer that was, shockingly enough, very similar to an answer that Lee Kuan Yew, who was the Prime Minister of Singapore and has now passed away, gave at a conference many years ago that I was in as well, of senior leaders. Very similar answer.

Nuno Goncalves Pedro

His point is saying, “I love Europe, history, all these amazing places, tourism, food, incredible,” whatever. “But there has to be something dramatic happening in Europe or Europe is lost. It’s really not going to be the engine of economy that it needs to be for even itself.” The point, again, Lee Kuan Yew went a little bit further back in the day where you said, “I love Europe for tourism and food, but that’s about it. I don’t see it becoming a global power to the length of what we’re seeing with China developing and with the US developing, etc.”

Nuno Goncalves Pedro

Not great from two people that one can have some respect for because they do have a macro geopolitical view of the world at very different moments in time.

Bertrand Schmitt

Yes, to this point, we are both Europeans, born and raised in Europe, so we say that from a position of love for Europe. We love Europe, we like Europe, we have roots in Europe. At the same time, when we probably left is that we spent time in China. We are now both living on the US West Coast, and it seems that Europe is stuck in its models that are not really working. We are glad when some try to do analysis, make some proposition.

Bertrand Schmitt

At the same time, it’s not the first time we hear about analysis. EU looking into it. It’s not the EU, it’s France, it’s Germany, it’s the UK. At the end of the day, it is not words but facts that matter on the ground. It is metrics that you see coming out of it, and it is not there. It’s not there.

Bertrand Schmitt

I think that, when I was reading this report, they are trying to do the quadrature of the circle. It is like they tried to make that circle square. You cannot have everything. You cannot have on one side, you want a protective system; on one side, you want to manage retirement in a specific way; on one side, you want independence from the US for your defence, but you do not want to do the work. You want to do stuff to get elected, and to do that, you support the green movement demands that are destroying energy manufacturing.

Bertrand Schmitt

You have to make a choice at some point. If you don’t make these hard, tough choices, you can talk as much as you want. You are not going to deliver the goods.

Nuno Goncalves Pedro

If you don’t make those hard choices, someone else would make it for you. In this case, the US will make it for you, China will make it for you, et cetera. They’ll become more competitive, and they’ll become more aggressive, and they’ll build the next wave of amazing companies, and they’ll have the more liquid labour markets. Maybe a great segue to start with another pet peeve that we have; labour laws in Europe.

Nuno Goncalves Pedro

The protection for employees in Europe is silly. It’s incredibly difficult to fire people after they’ve gone through their initial contracts with you. There’s all these real rules around it. People try to fudge it and go around it, but it’s silly stuff. There are countries where you can take literally up to two years of sick leave, like the Netherlands or Switzerland. If you go and Google it and look for it, it will show, “Oh, it is maybe up to 70% of salary.” There are some extenuating circumstances by which you could actually get 2 years of fully paid sick leave, 100% of your salary.

Nuno Goncalves Pedro

It’s like, “Are you kidding? How does that work?” You have difficulties firing, the regulatory environments of most countries. It’s difficult to fire in Germany. It’s extremely difficult to fire in France, extremely difficult to fire in Portugal, Spain. You would have to do lay-offs, which is the removal of the position that the person was hired for, for you to let the person go. Then you can’t rehire for that position for a significant amount of time.

Nuno Goncalves Pedro

It’s incredible. People in the US listening to US right now is like, “What are you talking about? Two-week notice, you go, right? What 2 weeks notice, right?”

Bertrand Schmitt

We did not even go to the 35-hour work week in France, so it feels like that is such a visible measure that… It became an insult anywhere else in the world about, “What? Are you working 35 hours a week, like the French?” I feel so sad when I saw this measure being put in place in the late ’90s, early 2000s, people’s mindsets changing in real-time in front of me.

Bertrand Schmitt

Then it was not about doing your work, doing stuff. It was how to organize your three-day weekend. That was it. People lost interest in doing their job, doing their work, and productivity went to a cliff. It has been very, very surprising. Of course, there are also additional rules. If you are above 55, and suddenly, you are very difficult to fire, or you will cost way more to fire.

Bertrand Schmitt

There are other things. Employees might think, “Oh, I’m not so well paid. This is my gross salary, and this is my net salary.” They think, “Oh, it’s very little.” But what people don’t see in Europe is that there is an insane cost on top of their gross salary that the company has to pay. Actually, the company is typically spending way more, way more than people see in their bank account. I’m not even talking about taxation on top of it.

Bertrand Schmitt

But to give you an example, in France, for a take-home after-tax of €75,000, and €75,000 in France is already a pretty big salary, to be clear, companies have to spend €175,000 to enable the employee to get that amount of money back home, €75,000. That gap is pretty insane.

Bertrand Schmitt

I know, when you do financial modelling from the US, you do this quickly. It’s not a big multiple to have the total cost a company has to pay for an employee. Then they look at Europe, and they look at France, and they’re like, “What the hell? I thought it was cheap.” No, it’s not so cheap. Yes, when you include everything, it’s not so cheap any more.

Nuno Goncalves Pedro

Just to be clear, just to reflect on your numbers, Bertrand, you were talking about someone taking net home, €75,000, the gross salary for that person would be €120,000, and the cost to the employer is €173,000 at the top. There’s a €53,000 cost to the employer on top of the gross salary just to be able to cover that. It’s €53,000 on top of the €120,000 gross for you to take home €75,000. That’s ridiculous. It’s just silly.

Nuno Goncalves Pedro

It’s not just taxes. It’s not the net after taxes. It’s not the 120K gross to the 75K net. There’s the cost to the employer, which are 52K on top or 53K or something, it’s ridiculous. On top of all of that, social securities and all this stuff, it’s incredible. It’s totally mind-boggling. It doesn’t work. It can’t work like this.

Bertrand Schmitt

Yes, it doesn’t work. That’s one of the big problem. It is a very bad spot because employees are not happy getting paid loans, and at the same time, they do not understand what is really going on and how much is being spent by the company on top of it. The company is not happy because it believes it pays employees too much. Employees believe they are paid too little because they do not see the whole cost, or they do not care about the whole cost. I don’t know. But that’s an impossible situation to be.

Bertrand Schmitt

Of course, there is such a big gap because all of these nice government programs around universal health care, pensions, and other services have to be paid for from somewhere. That’s what’s happening is that this stuff is paid from your salary.

Nuno Goncalves Pedro

Social welfare costs money.

Bertrand Schmitt

Yes, unemployment insurance. All of these nice programs that you feel are so important have a totally insane cost. Guess what? From my perspective, a lot of this is actually abused. The system is being abused. But when you build in place such a system, you generate incentives for bad actors, people who are going to try to abuse the system.

Nuno Goncalves Pedro

There’s a side effect of this, which is in some ways why the far right is taking such ridiculous positions in elections, where they’re number one in Austria, they’re third in Portugal, and whatever, coming out of nowhere in many cases, for example, in Portugal, because people are significantly unhappy, and they’re like, “There’s all these abuses. There’s all this immigration. We’re covering this immigration with costs, et cetera.”

Nuno Goncalves Pedro

We know actually immigration is net positive in many of these markets. But there is this impression, this impression that is created in citizens that, “Oh, my God, we are becoming insolvent because we are taking care of all these people that are coming in.” “No, no, no, guys, it is not because of that. You are becoming insolvent by yourselves.” Because there is no increase in productivity that is dramatic at the level of what the US has seen over the last two decades because effectively, these markets are becoming uncompetitive.

Nuno Goncalves Pedro

What we are seeing is all of this taxation, to your point, the abuses where there are people who are staying at home and not working. In many cases, the people that are staying at home are not the immigrants. They’re the locals. They’re the citizens. They’re the people like, “You know what? I’m not going to work. I’ll get paid minimum wage, or I’ll get paid some unemployment fee, or I’ll pay minimum guaranteed payment, or whatever it is that exists in my country, and I don’t need to do it.” Yeah, guess what? That doesn’t work. We can’t cover the citizens of those countries and the immigrants can’t cover for everyone else.

Bertrand Schmitt

I’m not sure about what you say. I would actually disagree. There are a lot of metrics analysis now that shows that if immigration is coming from Europe, then yes, it might be a net positive. Even then, you have to really look at from a long period until retirement. But it’s actually not true from countries outside Europe. If you exclude the US and maybe a bit of East Asia, all the rest from Africa and the Middle East is actually a net negative for the few countries in Europe that have shared the matrix. I think it’s more of a legend that immigrants are a net positive financially because it looks like it’s not if you exclude the ones from the Western world.

Nuno Goncalves Pedro

That would be because of welfare in general, just taking over the system? Because in the US, it is true. That is net positive, the immigration in US.

Bertrand Schmitt

I don’t know. Again, I think you might want in the US to split between countries of origin, which are bringing positive net result to the country or not. It’s a mix of they are not earning enough and early retirement and a lot of welfare. But the numbers, just to be clear, are very bad. If you exclude the Western world countries, the numbers are extremely bad. It’s very clear net negative. But unfortunately, there are too many, too few resources and analysis because most countries try to hide this fact. It is more convenient for them to just provide some high-level metrics that, “Hey, immigrants are net positive.”

Nuno Goncalves Pedro

Then the whole social welfare thing in Europe is, I do not know how they solve it without solving that, just having to eliminate it massively.

Bertrand Schmitt

It’s pretty clear.

Nuno Goncalves Pedro

Shall we move to regulations? We love regulations. US invent, China manufactures, Europe regulates.

Bertrand Schmitt

I’m very sad to see that, to hear that, but at this stage, it’s probably true in some ways. When you see how proud are some European regulators to invent out of nowhere some new regulations on AI, or it’s a digital market act, or it’s GDPR regulations. This stuff, just to be clear, I’ve done nothing of what they claimed they would have shift. Does it have improved a bit of privacy and stuff? Yeah, maybe, but so what? However, they have certainly improved the situation of the incumbent, typically the US incumbent, by the way.

Bertrand Schmitt

Instead of creating competitions, instead of creating more levelling competitive ground, instead of improving opportunities for European companies, it’s pretty clear it has done anything but that. It has probably also make it worse for European consumers because all these regulations have a cost. The cost is borne by European consumers. You can’t use the data, you can’t share the data. Guess what? Then it’s one less source of revenues, one less source way you can optimize advertising, for instance. Guess what?

Bertrand Schmitt

As a result, companies will have to increase costs, and that’s what they are doing. They are increasing cost, stopping some operations in Europe, not selling some products in Europe, not bothering.

Bertrand Schmitt

Take AI, for instance. The latest is that the most advanced models from Meta are not available in Europe now. You cannot use them in Europe. Good luck with that. A trade-free product is not available. Apple is not launching Apple Intelligence in Europe for now. This is crazy. This makes absolutely no sense. Guess what? No one is copying US. There’s no equivalent in the US.

Bertrand Schmitt

Actually, you could argue in the US with the new Trump presidency with others from Vivek to Elon Musk, I would expect a big decrease in regulations. Actually, during the first Trump presidency, that was one of the first time there was a significant decrease in regulation in the US, that would make the US even more competitive than it is today versus Europe because there would be an active mindset to reduce unnecessary and costly regulations. People will say, “Oh, yeah, but it’s good to have regulations and stuff. Yeah, sure, a bit.” But the problem is that we have way too many, way too much.

Nuno Goncalves Pedro

Way too early. Way too early. That is what I think we are the most to share.

Bertrand Schmitt

On top of it, way too early. It has a direct cost. People don’t want to think about it. They just see the first-order effect. But the indirect cost is you destroy competition, you destroy your own economy, you limit your own economic competitiveness. At the end of the day, you don’t grow as fast. A big reason, from my perspective, why the European economy is growing so slowly is regulations. Regulations are the ball and chains you are dragging constantly, trying to run a sprint, a marathon, when others, the Chinese, the Americans, don’t have that. They can run. They are free to run. They are free to move fast, while in Europe, you are not free to do any of this.

Bertrand Schmitt

That has a real cost. I think that at some point, Europe will have to realize that. I don’t know when it will happen. To be frank, I guess we thought a much bigger crisis. It will not be taken seriously. We will see a new report in 20 years from now analysing why we do not grow as much.

Nuno Goncalves Pedro

In 20 years from now, this is insolvent. I don’t see how if we believe the report we discussed earlier from Draghi, et cetera, countries will be insolvent and things will not be working. This is like a situation. If this again was a household or let’s say a company, maybe the analogy is easier. This is like the most hardcore of turnarounds, maybe even almost, “Let’s go into chapter 11 to protect ourselves from creditors and try and see if we can turn around this thing.”, this mess. I still see all this demagogy at the European Commission level, local countries doing whatever they’re doing and fighting their own in-house fights because they need to politically. I don’t know how you solve this.

Nuno Goncalves Pedro

Let me ask this in a more aggressive way. Do you see something that would look more like, again, this federal Europe that it seems that the report is alluding to because it had more unified planning of defence, more unified policies for innovation, more unified views on energy, and our energy gets deployed and all that stuff? More federal Europe, do you see it happening over the next 5 to 10 years?

Bertrand Schmitt

I think it has raised a question. A lot of people are saying, usually, the conclusion of this report is, “Let’s do more Europe. It didn’t work, but let’s do more.” It feels a bit like communism. “It didn’t work, but let’s do more communism. Maybe it will work better.”

Bertrand Schmitt

I’m actually worried. I used to be pro-EU, pro-Euro 20 years ago, looked like a nice common dream. At the time, we also had the UK in the EU. Now the UK left. I think the UK was actually a good source of energy for Europe and liberalism and capitalism. We don’t have that any more in EU. We are just happily all together, European continental countries. I’m actually worried. I will actually ask a question given you could argue everything got worse with the increased power of the EU with the start of the Euro.

Bertrand Schmitt

I might have to think that we might actually be better off without the Euro. The Euro has brought a very, very big lack of competitiveness for Southern European countries, from Spain to Greece and even France. I’m not sure Euro has been a good thing. It has helped German exports, but for other countries, I am not sure it has been so good.

Bertrand Schmitt

In terms of EU, I think it should go back to something way smaller where, yes, there are some practical benefits to unify some stuff, bring some ease of movement, but at the same time, I think it went way too far at this stage. I don’t think more is the answer. I don’t know your take on this.

Nuno Goncalves Pedro

I am at the opposite end. I believe Europe was always half-baked. It was half-pregnant, or “Let’s do the Euro thing, but let’s not unify on decision-making Brussels, and let’s not think through how you unify tax regimes, and let’s not think through how we unify defence and all that stuff.” I think this only works if Europe fully unifies. I don’t see countries like Portugal or Spain, whatever doing better because there’s no Euro or because now we have our own currency again back, and we can do stuff with it. I don’t see it getting better.

Nuno Goncalves Pedro

I feel either we embrace a fully European project, et cetera, or we just say, “Look, Europe has failed miserably. Let’s forget about it. Let’s go back to our own countries and figure out what’s our competitive advantages.” For a country like Portugal, to be very honest with you, tourism, nomad living, digital people, we have the great advantage of sun and weather, I don’t know, I do not see how Portugal is going to thrive dramatically by going away from all these things.

Nuno Goncalves Pedro

My view is the opposite of yours. I feel we just went half-baked into this. We never really evolved into a system that we believe that we could have representatives at European level that took care of US. I believe the solution for Europe, if it wants to be competitive, is to be fully federalized. To my point that I was asking before, I don’t see it happening politically in any chance in hell in the next 5 to 10 years for sure. If we’re serious about a competitive Europe, that’s what would need to be done.

Bertrand Schmitt

Yeah. My worry at this stage is that so many things done by Europe have been wrong, that I don’t see how More Europe will bring it right. I can see the point around More Europe. I’m just extremely worried it will just get worse.

Bertrand Schmitt

Maybe one ray of sunshine. Company structure. There is a new initiative called EU Inc trying to push for a pan-European tech company-type of structure to simplify how you build companies, to simplify stock options programs, to improve them. You have to take that with the mind that actually in Europe, it’s complete madness. From one country to the other. the regulations are very different, and I’m talking more about company type of regulations, of company structure.

Bertrand Schmitt

For instance, in some markets, you cannot have individual shareholders without them putting tens of thousands of euros. It’s not easy to sell or change your ownership. It can take months, years, There are absolutely horrible stock options program in most European countries. France is just getting better. UK was not too bad. Germany, Austria were totally horrible. It’s complete madness, and all of them are worse than in the US.

Bertrand Schmitt

Guess what? When you are in competition for global talent, global talent is going to want to be compensated the best possible way, and that include in high-tech, high-growth companies, stock options. So if you’re stock option program is not competitive, then they are going to customers who are more competitive like in the US. The difference are huge.

Bertrand Schmitt

I think Europe is coming from a position of inherent weakness, because small countries, language barrier. It’s not easy. In a way, they should be working overdrive to be better than the competition. Not just to match it, to be better because you have to face that competition and you have inherent issues. You cannot soar. We are not all going to speak German or French in Europe anytime soon.

Bertrand Schmitt

For me, it’s always very surprising to see that because, to be frank, these are problems that have been discovered by multiple reports and committees the past 5, 10, 20 years, 30 years. Why has it not been solved by today? I don’t know. But it’s good to see that there is a push, and maybe next year, this is something that the new EU Inc might come to fruition.

Nuno Goncalves Pedro

Just to be clear, part of the issue with stock options in Europe, and actually treating of shares like investors having an investment in a company, is there’s this tendency of the tax authorities to tax, and so tax authorities are going to tax you even on unrealized gains. They’re going to tax you on your options, and options haven’t been even exercised yet. That’s the problem with options. Now it is being treated… It’s this trigger-happy… Which, by the way, Vice President Harris was trying to come to through the program that, obviously, President Biden had for the election back in time, which was then semi-thrown away.

Nuno Goncalves Pedro

But this whole notion of you can’t tax stuff preemptively because this has huge impact on ecosystems. Otherwise, I can’t take stock options in the company. I can’t take shares that I have not exercised yet, and you are going to be taxing me on them? How does that work? I don’t have the money to give you for the taxation because I need to sell the shares to give you the tax money. I haven’t done it. It’s not liquid.

Bertrand Schmitt

It makes no sense. When you know the level of risk of startups, of being in a startup, of startup not making it, you are actually making people poor, potentially by pushing for this. People who took a risk. And guess what? The next time, they won’t take a risk.

Nuno Goncalves Pedro

They won’t take a risk, yeah.

Bertrand Schmitt

They will go join that bigger, slower, corporate giant and won’t try to change the world.

Nuno Goncalves Pedro

Or they’ll move to the US and do the company in the US.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Which is what many Europeans do. Yes.

Bertrand Schmitt

Yes, that’s totally true. The UK, I mean, a European country, certainly not part of EU anymore. They added some pretty bad… I don’t know if they added new laws or if they started to implement them more recently, but anti-free speech laws under their latest new Prime Minister, a Labour Prime Minister. It’s very sad to see that some people complaining on X or some other social media platform can face a risk of jail, a real jail time, over some comments that might be inappropriate. But some of them, when you look at it, look more like clueless or maybe inappropriate, but not like hate crimes.

Bertrand Schmitt

But that’s the thing with regulations. It’s pretty easy to transform what they started with, probably starting with a good intent. Then they are manipulated and used, and surprise, surprise, what was considered a hate crime 5 years ago is the lower standard or whatever. It is becoming very, very shocking, actually.

Bertrand Schmitt

They managed to add a huge new taxes. Basically, in the UK, if you are qualified as a non-dom, non-domiciated, you could pay very, very little taxes. It has brought a lot of millionaires, billionaires to the UK, because if their earnings were coming from outside the UK, it would not be taxed or taxed very little. So it created a safe haven for wealthy people, which, of course, these wealthy people are going to start more businesses in the UK, to move headquarters to the UK. They will spend their money in the UK. There was a lot of inherent benefit, and that was a rational trade-off. Come here, we don’t tax you too much, and as a result, you will spend your money, you will create jobs here. That’s what happened.

Bertrand Schmitt

The problem is that the new labour government, and it started changing with the previous government, decided to go all in to remove this. It will be impacting UK, non-dom regime in the UK in the coming few years. I’m starting hearing about some people considering leaving.

Nuno Goncalves Pedro

It’s the end of the UK then if that happens, of expat UK filled with foreigners, etc, in high-paying positions. At some point in time, I don’t know. But it certainly will have a huge impact on the very wealthy bracket. The non-dom thing is always having a huge impact on the totally wealthy bracket, where the famous, even famous, Brits would go around the world and for a year, they’d be doing something somewhere else, somewhere in the world, so they could move income into the country and all that stuff or money into the country. It is a big deal. It’s something that’s very deeply entrenched in how not only foreigners, but also Brits see their relationship with the country in terms of, again, the very wealthy bracket.

Bertrand Schmitt

Yeah. You know, this rule was like 100 years old now. It’s not like something new that wasn’t experimented with for a few years. No, it was very deeply entrenched into how the UK was working, how the UK was seen, and how the UK was seen as a destination, so it will have an impact. It’s clear. I think that, of course, this lack of growth, this lack of success for different European countries, many are going to take that direction, especially the leftist government, socialist government, labour government. They will think that their way is to try to take their way out of their problem. But history has proven it never works. You don’t take your way out of trouble. You enable entrepreneurs, you unleash capitalist spirit. That’s the way China moved itself out of poverty. That’s the way US has been forever. At least from my opinion, that’s really the right way to solve the problem.

Bertrand Schmitt

The other piece of the puzzle is to reduce regulation, reduce that state full of bureaucrats. I mean, if you take France, 57% of GDP is spent by the state, 57% of GDP. Basically, you have a minority of private business that are generating the wealth for everybody else. Because the government is not a wealth creation machine, just to be clear. Can spend GDP, but this is not GDP that compounds. This is GDP that is just spent, not invested. So yeah, it’s a scary place on my tech unless they really change all the way to less spend, more cuts in the bureaucrats-run system, decreasing regulations. It’s not going to work. It will be actually a doom loop. You tax more people, the best minds are leaving, the more wealthy are leaving, and it is not going to help your country.

Nuno Goncalves Pedro

What percentage of the US, the contribution to the GDP is done by private sector? What percentage?

Bertrand Schmitt

Private sector is much higher. Yes, it’s much higher than 50%.

Nuno Goncalves Pedro

Eighty-eight percent.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Eighty-eight.

Bertrand Schmitt

To be clear, it got worse under Biden government or the Obama government. It’s pretty recent. It used to be not that bad.

Nuno Goncalves Pedro

Eighty-eight percent private sector. Eighty-eight percent private sector contribution in the US. It’s incredible.

Bertrand Schmitt

It’s tough to comprehend. No other country in the world actually is like this, I forgot to say, except that France. Sorry, maybe North Korea is different.

Nuno Goncalves Pedro

That’s a great comparison.

Bertrand Schmitt

You might have North Korea number one, maybe 95%, 99%, and then you have France. That’s pretty nuts. For sure, in term of OCD countries, it’s the worst.

Nuno Goncalves Pedro

Well, a couple of rays of sunshine. At least there is a good report from Mario Draghi, which, by the way, Ray Dalio mentioned as well at that event that I saw him in a few months ago. At least we know what the problems are, so hopefully we can start working on them. A lot of work to do. A lot of work to do in Europe, and a lot of work to do in figuring out if this is going to be a more unified Europe or a less and less unified Europe. A lot of work, Bertrand.

Bertrand Schmitt

Yes, Europeans are great at writing reports. I hope it move from writing reports to really generating action and generating the right action. I think the Europe is still biased in its understanding in the sense that it’s still making some assumptions about the right model. It’s full of if Europe wants to support the Green Initiative, if Europe wants to keep its protection system, this and this and that, which at some point I take offence. I think, no, you guys have to change this as well.

Bertrand Schmitt

But overall, there are a lot of good points, a lot of good analysis, some good ideas. Hopefully, some of this gets implemented. I am not personally super optimistic, having seen previous reports, commissions, and similar efforts in Europe or in France. But I really hope this time the crisis is too big. The lack of competitiveness is so big. It might become a time for action.

Bertrand Schmitt

Anecdotally, in France, there is a lot of factories and industries that are announcing some closures, maybe tire manufacturers like Michelin. In Germany, Volkswagen is going to close its first factory ever on German soil. I think anecdotally, I’m pretty worried we are going to see more and more something pretty bad happening to at least European more heavy industries where energy cost and cost of labour are starting to be such a weight that it’s totally uncompetitive.

Bertrand Schmitt

Interestingly, many of these businesses are actually moving factories to the US. Regulation, cheaper prices of energy, make it more attractive as an alternative. So hopeful, praying for the best, but at the same time, fasten your seatbelt.

Nuno Goncalves Pedro

Thank you, Bertrand.

View Details

Do we need yet another new AI platform? Would new foundation models stand a chance in today’s market? Will OpenAI, Anthropic, etc be the new Tech winners … or will they just get acquired, at some point?

Navigation:

Intro (01:34)
Landscape
Recent gigantic acqui-hires
The Big Players
How will the hardware change?
Will there be a next wave beyond GPT?
Is it too late to come in and disrupt the big players?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand

Welcome to Tech Deciphered episode 59. Again, this will be an episode on AI. This time we make the case for not starting yet a new AI platform and not investing in one either. What’s happening in AI? I guess all of you have heard about all the massive investment made by some of the leading players, OpenAI, Microsoft, Google, Meta, XAI, Oracle, as well as even some smaller startups from Anthropic to Mistral.

Bertrand

Of course, Amazon has built its own frontier model as well as is providing infrastructure to a lot of players. But isn’t there already too much capital going into AI platforms and isn’t it going too fast?

Nuno

Well, we think probably yes. That’s going to be the thesis of our discussion today. Some of the startups you mentioned, by the way, they’ve raised a ton of money. I mean, Anthropic is well above 8 billion. Mistral is at a couple of billions as well, right, at this stage?

Bertrand

I think we are closer to a billion.

Nuno

It’s around a billion. Yeah, around a billion, several billion for Anthropic. Then there’s a couple of companies we will talk about later that raised a few billion that are no longer independent. It feels like too much. It feels like there’s a gold rush of sorts. It is probably a good analogy. A lot of investors putting capital into it.

Nuno

But at the same time, it’s being matched by the big players, Microsoft, Google, Meta by pushing LLM, XAI, OpenAI, we could argue, is it a big player already or not? But they just raised a ton of money as well. At 150 billion valuation, right? I mean, it’s like…

Bertrand

Yes, 150 billion valuation.

Nuno

It’s like, okay. They’ve already said, well, we are going to continue raising money. We’re going to continue spending a lot of money as well. It feels like a gold rush. It feels like there’s too much capital deployed into it. Something’s got to give, someone’s going to fail. Maybe that’s a good segue to the fact that we already start seeing some moments that are quite interesting.

Bertrand

Maybe to OpenAI, to jump back, to be fair, they’ve reached more than 3 billion of annualized revenues, and that was based on numbers from June. This is very high valuation for sure. But it’s also coming with one of the fastest growing business ever in terms of revenues.

Nuno

Yes. We will see if it’s sustainable, the business that they’re building, because there’s no competition. People are using other services out there in tandem. I see a lot of people, for example, using perplexity rather than ChatGPT. We’ll see if Gemini catches up at some point or not. I would argue they have grown very fast, but they have not faced as much competition as they’re probably starting to face right now. At least that would be my thesis.

Nuno

In any case, we start seeing signals of companies that go to the market and get bought out, and they get bought out for amazing amounts. If we look at Google and there, I would argue, acquihire of Character.ai. It seems to 2.5 billion to get the team and I guess the tech as well. But it feels a bit like acquihire. They’re trying to get the CEO back into the fold at Google. So interesting, I feel.

Nuno

The Inflection one was at least in the highest hundreds of millions. We heard 650 million for the IP licensing deal from Microsoft to get the founder and CEO to join Microsoft to head AI. Let’s say it’s around a billion and let’s call it even, but that’s like another gigantic acquihire.

Nuno

What gives? And it’s a little bit like it feels a little bit like free money. I’ve had a bit of a chance to think about this. It’s not just that it feels a little bit like free money. It’s some of these acquirers, like the Microsoft of the world, et cetera, might still be overvalued themselves, question mark, and therefore they’re basically putting capital because they have the capital to deploy at this stage.

Nuno

But it feels a little bit abusive. It raises all these concerns. If I’m an investor, and I’m backing a company in the AI space that is doing yet another foundational model, or that it’s playing at the limit between infrastructure and platform, and I know it’s going to be capital-intensive, but I’m one of the early investors and I hope that they’ll raise a bunch of money, well, there’s no guarantee that at some point they won’t just get bought out.

Nuno

Maybe the early investors will make a pretty decent return or a pretty good return, certainly a very fast return. But maybe those who are coming later won’t make a ton of money out of it because the company end up being just acquihired.

Nuno

It may also uncover a hidden secret, which is for you to scale, this is so capital-intensive in terms of consumption of compute, storage, other parts of infrastructure, etc, that at the end of the day, only a big, big guy can win. Therefore, either you raise tens of billions of dollars or you have no chance even to compete. What do you think, [inaudible 00:04:49] ?

Bertrand

Yeah, I think it’s a mix of things that are happening right now. One is, as we know, the FCC has been blocking acquisitions from the big players. What we are seeing is companies that might have been properly acquired in the past, but suddenly the bigger companies cannot really acquire any more. So they have to find ways around current regulations or at least how the regulators is seeing the regulations and is using its power to block acquisitions and therefore are going around by doing this type of very weird acquihires with separate licensing deals.

Bertrand

We’re in a pretty strange position. And it’s not just AI. In general, there has been much less acquisitions from the, can call them the Fabulous 7, if you want, because their ability to acquire has been very restricted. I don’t think, of course, it’s a good thing for startups. So it’s raising a lot of questions of how as a startup, can you keep ultimately providing liquidity to your business, especially when, as we know, there’s also very little IPO these days.

Bertrand

So it’s a very weird combination of you cannot really do an exit through the bigger guys, and only the bigger guys can afford to spend billions and billions in an acquisition, by the way.

Bertrand

If you don’t provide the IPO opportunity, then what do you do? Maybe that’s what we are seeing as well is what you end up doing is doing these weird acquihires, at least for the businesses that are not worthy of keep going at the rate they started.

Nuno

Yeah. Obviously, there’s two sides to this There’s the investment side of the play where if I’m an investor, I want to return, and therefore, I want the company to get acquired at some point, or for the company to IPO, that’s the ideal scenario. But obviously, I wanted it to be acquired at a valuation that is beneficial to me.

Nuno

If I came into a round where the company was valued last, I don’t know, 2 billion and the company gets bought for 2 billion, that’s not much of a gain, right? There’s that element of the piece of the puzzle. Then there’s the element you’re mentioning, which is really the M&A perspective of the big guys. Can I really acquire? Will I be allowed to acquire this asset and this team and this company?

Nuno

But in some ways, they’re doing really under the disguise of acquihire. I’m getting the talent, the core talent in. For example, the deal with inflection was that, they got the talent, and then they did a licensing agreement with the company, though. I don’t think formally they acquire the company. There’s obviously other natural activity going on. AMD bought a startup, Silo AI for 665 million.

Nuno

There’s activity going on not just on the platform foundational model side, but also around the chip capability side, infrastructure side. It’s a little bit truly like a gold rush. If you remember in the gold rush, there was the whole pics and shovels. Our friends from Levi Strauss, the jeans makers were attached to that because people needed more comfortable trousers to do work on or in, rather. That’s how Levi Strauss became a big name.

Nuno

In some ways, there’s a lot of things happening around the ecosystem, not just in the core platform foundational models side, but also around infrastructure that needs to change. Some would say it’s justified. There needs to be a ton of investment. My thesis is there’s too much money being poured into it, and there’s going to be a lot of people crying at some point, particularly on the investor side, because something does have to give.

Nuno

It’s impossible that we will have at scale, assuming very high capital intensity, 10, 15 players fighting for the same broad foundational models. I don’t see that happening.

Bertrand

I think there are different perspectives here. One is as consumers, all this investment in AI or businesses that are going to benefit from AI is going to be great because I see the performance of all these models keep improving. I see their capacities keep improving. I see their abilities. I mean, the way now it’s multimodal models. It’s not just text, it’s image, it’s not just image, it’s audio, it’s not just image and audio, it’s video.

Bertrand

So the ability of this model keep improving. I mean, let’s not forget the huge gap between ChatGPT 3 versus 4.0, and now we are even at 0.1. So there is a significant improvement in what you can do with AI, thanks to a totally unprecedented investment, investment in building out infrastructure. So GPU farms in order to build these foundational models.

Bertrand

Yes, to your point, will we get so many companies succeeding? I don’t know. My impression at this stage, we have an NVIDIA with some arms dealer of the AI world. It might be your third party. You talk about Levi in the old days selling tools to everyone. Nvidia might be that, selling tools or maybe even more aptly an arms dealer.

Bertrand

When you see about all these companies, these are massive companies that are generating billions and billions of quarterly positive cash flows. Who can afford to invest? You could argue, isn’t it a good investment from their perspective? Because when you generate so much cash, either you make acquisition, but right now you cannot, or you give money back to your shareholder, but then is it going to go to your competitor at the end of the day?

Bertrand

And instead, you might think, you know what? I have to preemptively build the best models out there. Because if you don’t, somebody else is going to do it, you might depend on your competitor to supply you key technology. I think if you take Apple, for instance, they are fine with that. They are fine to use Google for their search. Google pays them a lot of money. They are fine to use OpenAI. They don’t give them money, but at least they can outsource to OpenAI the more complex AI queries.

Bertrand

But other players like Google, like Meta, like X, like Oracle, might not want to outsource to anybody else. They want to control. Even Microsoft is controlling in some ways, thanks to their OpenAI partnership.

Bertrand

They have a lot of control about the infrastructure, about the models. I think these companies in some ways have no choice. They don’t want to depend on one of the other magnificent 7 for a core key part of technology that will cause them potentially to be competitive disadvantage if they don’t have the technology. Do we rationally need alpha dozen or so spending billions of CapEx? I don’t know.

Bertrand

But I can see how for some of these players, there is simply no other alternative. You cannot depend on core technology on your big competitors.

Nuno

Yeah, but indeed, that’s maybe the perfect segue to talk about the fact that the big guys are investing themselves, and they’re investing in all sorts of ways. We see Microsoft being the largest investor, to my knowledge, in OpenAI, but at the same time doing their own things in-house, from custom chipsets to their own large language models.

Nuno

Google obviously is trying to play a number of roles as well, to our knowledge, Amazon as well. We have Facebook with obviously Meta doing the LLM play, which seems to be more the open play. We’ve discussed it in previous episodes. So it’s not just that you have well-funded or very well-funded startups raising bunches of money at some amazing and ludicrous valuations like OpenAI, but you have the big guys also putting a ton of money into it.

Nuno

As we also mentioned in a previous episode, analysts kicking them a little bit only for them to then go back up their stock. But it feels really like an arms race. And in this arms race, the legacy guys, the guys who own these markets, who own these channels, the Microsoft, the Facebooks, the Googles of the world, are putting money directly themselves in their own product lines and their own platform development.

Nuno

So it’s not just they’re putting it into startups, they’re also putting it into their own. If all of that wasn’t enough, as we just mentioned, they’re also doing M&A whenever they feel they need more talent, or they need more.

Bertrand

Oh, acquihires.

Nuno

Correct. It’s acquihires that are, as we said, gigantic. So it feels like a market where in the end, the big guys win because they have a bunch of capital. There’s multiple companies that are over a trillion in valuation. They have a ton of resources and they win. Who wins besides them, I guess, is the core question at this stage.

Nuno

But it’s very difficult for me to see a world where we have three, four new pure players instead of that layer of AI platforms or platform as a service that will emerge and will compete head-on with the Googles of the world, et cetera.

Bertrand

Is it so surprising? I mean, if you take mobile industry, for instance, who ended up winning mobile, not Microsoft for sure, but it was Apple and Google. They were some of the big guys. I mean, Apple a bit relatively smaller, but my point is that no new players emerge, at least at the operating software layer. We had some, of course, on the hardware side, especially from China.

Bertrand

But Samsung was another winner. I’m not so surprised that you don’t have a lot of third-party winners. I mean, OpenAI seems to be Very successful coming, I can’t say out of nowhere, but definitely growing suddenly very fast. But yes, is there space for others? Maybe not.

Nuno

For me, the surprise is not that. The surprise is that there’s so much capital being thrown at companies that are likely going to be, as we just I mentioned, acquihired.

Bertrand

You talk about the smaller guys.

Nuno

Yeah. Well, it’s not just the smaller guys. I don’t know if Anthropic will have a future. I’m not even sure OpenAI will have a future. OpenAI has a ton of money from Microsoft in there. At some point, someone might say, we’ll see if they’re an independent company or not.

Nuno

Even OpenAI, who is, just to be clear, at the 157 billion valuation as of the last round, I’m not sure. For me, the surprising thing is not that the big guys are to win. The surprise is that a lot of people are betting that the big guys are not winning. If we’re seeing currently, Acquihires at 2.5 billion, 650 million licensing deals for Acquihires, etc, it’s not going to stay forever, these kinds of acquihires.

Nuno

At some point, it’s not going to be a couple of billion for the acquihire. At some point, it’s like, you’re going to die, I’m going to get you for tens of cents on the dollar, or cents on the dollar, or even less than that. I will get you at whatever because you’re going to die.

Bertrand

It’s interesting because look at OpenAI. They have had a lot of executives leaving the business the past few months since Sam Altman is back in power. And guess what? Everyone wants to finance these guys to start a new business. I mean, the co-founder, Ilia, of OpenAI just started a new business, very well financed. Money seems to be there for sure at the SECHECH.

Nuno

Yeah, but it’s there right now, Bertrand. We’ve seen these bubbles before, right? I mean, this is just a gigantic bubble at the speed of light.

Bertrand

Yeah, what’s interesting is that if you take OpenAI, I’m not sure we have had many businesses that went up going so fast, so quickly, get such a high valuation without being default alive. Because if you take Google when they went IPO at similar scale, I mean, they weren’t default alive. They had no problem running the business. Yes, they were investing in faster growth, but they were definitely default alive. Nobody could touch them at this stage.

Bertrand

Here it’s a very different story. OpenAI is not default alive. They need additional financing and there’s insane competition at their heels. It’s a different story. You’re right. Can OpenAI keep their lead? I don’t know. For the smaller one, at this stage, I’m more a believer that you have to have a very, very different value proposition as a smaller player on building AI platform.

Bertrand

If you take Mistral, for instance, the positioning is we are doing It’s a European AI platform. It’s made in Europe. We are following, we try to be an AI champion. We try to make sure that European governments and others give special funding, buy the product. They are playing the game that way. Might work for a bit. I don’t know how long it might work given the investments needed.

Nuno

At the end of the day, is OpenAI going to be the next alternative? Maybe, I don’t know. Maybe I’m just being overly negative on it. They have huge revenues, which is amazing. They have huge costs as well, which is also amazing.

Bertrand

Bigger cost.

Nuno

Profitable business it is not yet. I’m like, I don’t know. Is it the pass-through to our friends at NVIDIA and other areas of the infrastructure layer? I don’t know. What we know is NVIDIA is still making money. That we do.

Bertrand

Yes, but I must say I’m a big fan of NVIDIA because these guys have been behind so many revolutions from GPUs, I mean, for graphics to now, super computing, accelerated computing, as they like to call it. Now, big scale AI computing. I mean, they have built some of the core foundations that everyone is using in AI. I mean, we thought NVIDIA, I’m not sure we would be where we are. I’m certain we will not be where we are. We will have lost, I don’t know, five years plus.

Bertrand

So these guys have been very helpful behind the scene. So personally, I’m a big fan of NVIDIA, but you have also to admit that it took OpenAI with ChatGPT to really change to change the game in terms of LLM and beyond generative AI at scale.

Bertrand

Maybe another point to share some of how big all of this has become. I mean, we are right now in the past few weeks facing potentially a renewal of nuclear energy in the US. I mean, I’m very amazed because being myself a big fan of nuclear since I care about it, so maybe since the past 25 years, I’ve always been shocked at what the German did with their nuclear energy, what California did as well, and some other states.

Bertrand

To see that finally, nuclear is back on the table because the big guys who care and are making billions of investments suddenly realize that, you know what? There is no better way to power a data center because you don’t want your data center to depend on solar or wind. It’s amazing. It’s a very, very big positive, but it also shows the scale of the investment. I mean, these guys are restarting a closed nuclear reactor, are working on building new reactors.

Bertrand

I mean, we’re talking about Amazon just a few days ago, Google, Microsoft, restarting the Three Mile Island, Power Plant, Sam Altman pitching deals for dozens of nuclear reactors dedicated to AI. This is a huge, huge turnaround. Also, it’s showing the scale of the AI investment. You could argue this investment in energy will also benefit any way computing in general.

Bertrand

Even if the AI opportunity doesn’t scale as much as some will hope or expect, this will be used by data centers at large, not just in an AI context.

Nuno

You mentioned earlier before we switched to the infrastructure and hardware side, but you mentioned earlier, rest of the world, right? Obviously, mistral, playing the European angle, etc. We can’t forget, obviously, our friends in China, Baidu, having launched Ernie, Alibaba with Tongi Qiangwen, which is [inaudible 00:20:21], I think is how they say it over there. Tencent with Hun Yuan, ByteDance with Dobao, and Huawei with Pango.

Nuno

The world that we’re talking about is more the Western market US world. We’ll see if Europe somehow ends up in a different position, which is a little bit, I guess, the mistral angle in some ways. China is definitely going to end up in a different way. But in all of these scenarios, I have difficulty in seeing how new players will emerge that will take over the previous players, the incumbents in that.

Bertrand

China is an interesting question regarding Nvidia chips. As you know, US government put restrictions in term of selling the latest chips to Chinese companies. That one is also always in question. I mean, can China keep growing its AI industry? I would guess so somewhat, but can it be truly competitive to the West, that I’m less sure.

Nuno

Well, yeah, Huawei would want you to believe that they’re competitive, but they have some vested interest in saying that with their Ascent chips.

Bertrand

No, I mean, today, they’re absolutely not competitive without Nvidia chips. There would be no AI industry in China without Nvidia chips. If it keeps going worse at some point, it might truly delayed by years, if not a decade at some point, if Nvidia chips stop going to China.

Nuno

A bit more optimistic about the capacity of, let’s call it benchmarking that China has and being able to, at some point, emulate performance. But we’ll see. I’m sure there’s plenty of money being thrown at China as well to making it work.

Bertrand

I don’t think it has any chance without Nvidia chips. For me, the only question is, will Nvidia chips keep flowing to China? Will the spice keep flowing to China? I don’t know.

Nuno

We’ll see. To go into precisely hardware and infrastructure and how it will change. There’s a lot of discussion around the fact that what got us here is probably not what’s going to get us to the next level. That’s very heavy-duty training, the building of large language models, etc, will be now really much more focused on inference learning, and therefore, the type of compute we’ll need will obviously be different for inference learning. Do you have any thoughts, Bertrand?

Bertrand

Yeah, I mean, for me, what’s fascinating is a change from training, retraining that we have been seeing as a key of building LLMs and somewhat much thinner layer of inference that is very, I don’t want to say dumb, but quasi dumb and just outputting as fast as it can what looks like the best token.

Bertrand

To a new model where actually inference is going to do way more than a simple prediction. Some call that level one versus level two, level one being very instinctive answer that humans have, actually, you have very quick instinctive answer to some issues, either from looking at the road and seeing a truck coming at you or answering very, very basic questions like how much is 5 plus 5. You know that you don’t have to think about it.

Bertrand

It’s a level 2 type of approach to thinking where there is way more inference put to work. This has been best exemplified today by OpenAI 01, called before that internally, strawberries or Q-Star. This one, OpenAI 01, is showing that if you put more efforts in inference time, then there is a dramatic improvement in the quality of the answers because the system is truly thinking about answering the best way.

Bertrand

This requires a dramatic change in infrastructure because suddenly you might actually put more efforts in inference infrastructure versus training. So it might open the industry. So of course, NVIDIA is not holding still. They keep improving their inference capacity. Their latest chip have improved inference capacity dramatically. And you have seen a lot of new players like Grok that are being focused on inference only that might benefit from this shift. Some other players like AMD.

Bertrand

I think there is quite a lot of change coming in term of where we are investing in term of infrastructure with more potentially going to inference. Inference, interestingly enough, is pure Cox, because this is the stuff you need to run the service. So this one would be pure Cox.

Nuno

On the infrastructure side, we’ve historically not invested a lot in that space, but we recently have made two investments. One we can’t announce yet, but it’s in the networking part of the stack. Obviously, as you can imagine, networking has to change going forward for a variety of important reasons.

Nuno

The other one in a company called Vivum.ai, which sits at the intersection of platforms and systems on chip and a variety of other interesting trends that we see in the space, but really more around the next wave of what we believe are the methodologies of the future for artificial intelligence, in particular the use of evolutionary computation, dynamic neural networks, and a variety of other methodologies that we think are the future rather than the current present of where we sit.

Nuno

Definitely, we feel there’s the big gorillas at the table, the Broadcom of the world, the NVIDIA’s of the world, et cetera, are there. They’re still the incumbents very much in their respective spaces. But there’s obviously opportunities to go after really significant slivers of the market that might warrant some development, some innovation.

Bertrand

For me, I remember being very impressed by NVIDIA move when they acquired the Melanox. It was in 2019, and Melanox was close to 7 billion. Mélanox was a big player in Superfast, Ethernet, and InfiniBand. I think NVIDIA really had a lot of foresight in term of how to keep investing in the chain. And for me, what’s interesting with NVIDIA is that they keep investing in the big picture. They are not just focused on the chip itself, but they are focused on the fabric between the chips. They are focused on building the full scale rack from A to Z.

Bertrand

So they are really focused more on selling new systems. It’s a software side as well with CUDA. From my perspective, very smart at playing that game of expanding the scope and making sure customers get a really good ROI and in a way a simpler, very well-integrated infrastructure. Of course, there will always be players investing in more point solution and actors who are interested in some best of point type of solution.

Bertrand

But in some ways, NVIDIA is becoming the apple of the AI space, providing you a very well-integrated hardware, software, different layers of the stack. If you an NVIDIA product, you know you have an unmatched level of integration.

Nuno

Until now, we’ve basically framed it as very unlikely that these broad foundational models, platforms, so to speak, platform as a service place will be fundamentally disrupted. The big guys are likely to win across the world, even in parts of the world, where we will have definitely some silos of offerings. If that’s the case, is there some hope? Is there a next wave?

Nuno

Is there a next wave of AI that we haven’t seen yet that will be best represented by other methodologies where the current winners might not be the winners in the future? We, certainly at Chameleon, we believe that there is a next wave, that there is a next piece of the puzzle that needs to be built.

Nuno

As I mentioned before, we have made investments around the infrastructure side and platform side. We believe there is a new order coming, evolutionary competition, which has been with us for several decades. It’s not a new thing. Just to describe a little bit what evolutionary competition actually is, it’s a little bit like thinking through algorithms like biological evolution. You have algorithms that spawn and hopefully become better than their predecessors, and there’s what would be effectively a natural selection process.

Nuno

The best algorithms will survive, and then we’ll spawn the next generation. We’ll have generations of algorithms coming out, etc. Some people mentioned that it’s more dynamic neural networks, and that’s a little bit where we’re at and where we would go to the next level. Neural networks are improving through time.

Nuno

So expect that there is a dynamic aspect to what we have in the world today. We believe there’s opportunities still in that space. Obviously, there’s tremendous question marks on capital intensity and whether this is finally the time for a revolutionary competition. We’ve had decades of saying it is, and it really hasn’t happened at scale.

Nuno

But we believe that’s one area that certainly is still a little bit ready for the picking and where we will see, and I have been seeing, at least in the last year or so, quite a lot of investment.

Bertrand

Yeah, no, that makes sense that there might be alternative approach to transformers system. I would say at this stage, me, where I’m more focused is innovations beyond the basics of how GPTs are trained. For me, the approach that is more focused is on inference time or agent-based system to compensate for the lack of thinking from GPTs is quite critical and transformational.

Bertrand

I think, truly ChatGPT01 is transformational, and we will see more in the coming three, six months. We will see more AI platforms moving with our own chain of thoughts. It looks like as well there has been some very good improvement in an agent-based solution that have been put in place in order to compensate for hallucinations, for issues with answers coming from regular GPTs.

Bertrand

I can see some layers above, either strictly inference or agentic, that are providing a next level of quality that is badly needed because let’s still remember ChatGPT 3, it was very poor. Hallucinations were everywhere. It was fun to try to use it, but practically for a lot of business answers it was just too limited. With for all, we saw really big improvement, but still and pretty easy to trick it.

Bertrand

So me, I’m quite excited with that next wave of inference layer, research through a chain of thoughts like a one or Atlantic-based solution. There might be startups going in that space and standing a chance. I think personally for startups, the opportunity is not in the AI platforms per se. I think we are reaching a stage where it’s a bit like databases. You will have a few big major database. You have a few major database.

Bertrand

Some have non-open code base, or he calls SQL Server. Some have open code base and business model from MySQL to Postgres and others. Some in between as a business, you rely on a multitude of database vendors, and having multiple in front of you give you the insurance that you can build a business on top of database and adjust your business and not be dependent on any one vendor.

Bertrand

I think we are reaching that stage with LLMs, with foundation models, where as a business, you can build with the insurance that you can pick with different models based on your needs. You can switch them out as well based on your needs, but also based on their evolution, the same way you could with databases.

Bertrand

It can be painful, don’t get me wrong, to change database or to change LLM, but you can do it which increase your ability to invest because you don’t want to be dependent on one vendor. You want to know that there is some level of competition going forward, that you won’t be held hostage by your LLM vendors.

Bertrand

As a result, I believe that that plurality of solutions from some big vendors, that plurality of options from free private to open, gives finally opportunity for businesses to invest way more in AI, as well as startups to invest more on the middle layers, on the application layers. I think that startups, successful startups, are actually going to be a layer above the foundation layers.

Bertrand

Startups will be focused, from my perspective, on vertical opportunities. They will be focused on being that layer between your very generic foundation layers that can work with anything to fine-tuning that layer to very verticalize opportunities, very verticalized industries, business models. I think that’s where we see opportunities for startups, because the open AI of the world, the Google of the world, they don’t want to focus on one specific industry, one niche.

Bertrand

They want to focus on solutions available at scale, sell API access, sell tokens. But I truly believe that for this AI technologies to be truly successful in a consumer environment or in a business environment, we need more specializations. I think that’s where startups will flourish because they won’t need to invest this billions in infrastructures, in GPU trainings. It will be millions, thousands of millions of investments for sure. But I that they will be able to find their spot industry by industry.

Nuno

It brings us back to something that I think I referred in previous recordings and previous podcasts, which is effectively, then that looks a little bit like an app-based economy. You develop apps that have very specific usefulness for a specific audience, be it consumer, B2B enterprise. You use AI. It’s AI first, but it’s not like you’re developing your own foundational models.

Nuno

It’s basically you’re riding on top of existing infrastructure I mean, we certainly internally in our firm use different models for different things already. It’s not just one size fits all thing, but we see that there is an emergence already of what would be considered really an app economy that has very specific point solutions for specific audiences.

Bertrand

Yes, totally. I truly believe it’s going to be like an app-based economy. In a way, OpenAI has been an exception to this rule by having a very direct to consumer offer with ChatGPT. For focusing on that background layer. So there might be a bit of an exception providing horizontal enterprise-scale type of APIs and services, as well as a very direct to consumer type of offering.

Bertrand

But again, as we see, even their offering, it’s very generic. They don’t try to adjust to different needs or anything. They have a very smart approach to keep adding key core feature to the platform, like multimodal approach, of course, better model over time. But again, it’s very generic each time. It’s not vertical oriented, it’s not focused on your specific needs as a business.

Bertrand

So I think, again, there will be plenty of opportunities for startups to go vertical. To your questions around investor, I think the best investments will actually be at this level for investors because fighting the Microsoft of the world is not an easy one. They have near infinite cash they can put to this. While at the same time, I think there would be smart opportunities that might be too niche for some of these guys, actually, at least early on.

Nuno

So is it too late to come in to disrupt for the big guys? The answer is “sort of”, right? In broad foundational models, platforms, in very big pieces on infrastructure, probably it is too late. But in things like the app economy that we were just mentioning, it’s just the beginning.

Bertrand

It is.

Nuno

In areas like middleware, pieces of the next wave of development around platforms and AI, maybe there’s still some opportunities. The same is still true also at the infrastructure and hardware level, where there might be some slivers of opportunities still which are natural for a disruptor to come in rather than an incumbent to fulfil time. The answer is a bit nuanced. Yet another platform, probably not. Not for the broad aspect, but then there’s a couple of other opportunities that emerge out of it, which honestly are also less capital-intensive, which is wonderful.

Bertrand

Yes, indeed. I believe it’s very exciting times for the tech industry at large. It’s a really brand-new wave and opportunities for the big guys, for sure. But I think even the smaller guys, but you have to be smart about your value and positioning in that space.

Nuno

In conclusion, this is the end of episode 59 of Tech Decipher, the case for not starting yet another AI platform and not investing in one. We discuss the landscape, everything that’s been happening on the acquihire side, what the big players have actually been up to because they have not been sleeping for sure, what’s happening in the infrastructure hardware side, what will take us to the next level in the next wave. Finally, the conclusion around whether it’s too late to disrupt the big guys or not. As you guys just listened, the answer is nuanced. Thank you, Bertrand.

Bertrand

Thank you.

View Details

Another election year and it’s already a dramatic one. Biden vs Trump turned into Harris vs Trump. An attempt on Trump’s life. What’s next? This episode will focus on the implication of the elections for Tech and its ecosystem in the US and globally.

Navigation:

Intro (01:34)
Harris vs. Trump
Silicon Valley / Tech business at large views
Implications for Rest of the World
Our take
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 58 of Tech DECIPHERED. Today, we will discuss the US election and what it means for tech. How will the upcoming US election affect tech and the entire ecosystem in the US and globally? To be clear, and just to put a disclaimer, this episode will not focus on policies by the candidates that do not relate to what we perceive to be implications to tech. For example, we will not be discussing topics like pro-choice versus pro-life, and other things that are obviously very central to the decisions that many of you will make in how you will vote for the next presidential elections in the US.

Nuno Goncalves Pedro

At the same time, we will also share with you what we know to the best of our knowledge. Obviously, policies change with time, and proposed policies definitely change a lot with time, as you know, with politicians. There might be things that we will share with you today that might be different when you listen to our episode. We are not responsible for that. People and candidates change their minds all the time, even after they’ve been elected. That’s not our fault. Just with those disclaimers, that’s what we’re going to share today.

Nuno Goncalves Pedro

The third and final disclaimer, obviously, there will be tonality on how we discuss and evaluate some of the policies, and if they’re good or bad or whatever. But from this, you cannot also take a conclusion on, “Oh, I should vote for Trump,” or, “I should vote for Harris,” because no, this is just a view around tech and tech ecosystem. We will share how we perceive the policies and the proposed policies, and that’s literally it. We’re not giving you advice on who to vote for.

Bertrand Schmitt

First, this is a recording made August 28. We’ll try to be as precise and as relevant as of this date. This is before the first debate between Donald Trump and Kamala Harris. As a reminder, a French politician once said that promises by candidates only engage those who listen to them. With that as a reminder, let’s start the topic. Maybe first, we can talk about the official platform. As of today, there is an official platform if we go to the page of the candidate, Donald J. Trump, there is a 20-point page, and there is a more detailed PDF as well on the Trump Republican platform. Some of our points will try to leverage what is on this official platform page, and we will also, of course, try to leverage what was done when Donald Trump was president, because sometimes actions speak louder than words. We also pick what we have heard from the candidates on the trail, if it diverts or if it adds to that platform.

Bertrand Schmitt

On the other side, VP Harris’ platform is not there. As of August 28, there is no official platform on her website, which, to be frank, it’s scary because if you cannot hold a candidate to their promise after they are elected, that’s a tough place to be. Obviously, she’s part of the Biden-Harris administration, so we will leverage for discussion what was done by her administration, what was also planned by her administration, and we will highlight whatever has been shared by her, since she’s running as a candidate.

Nuno Goncalves Pedro

Well, okay. That’s a great start. But based on speeches—obviously, Vice President Harris is in office right now, so she’s been part of a platform—based on what analysts’ say, we’ve looked at a bunch of comparisons across the board for where they stand on a variety of issues. Maybe we start with economic policy overall, and talk a little bit about how we see the Biden-Harris administration, and obviously what things have happened around there. We will later discuss other topics like taxes, labour, perspectives, for example, on gig working, immigration, antitrust, and a variety of other topics. The economic policy overall piece that we will share at the beginning is very high-level, as you will see, then we will go in details into a couple of other areas. Maybe starting on that, Bertrand.

Bertrand Schmitt

Actually, we have two, and when I say candidates, of course, we should think about the ticket, per se. If we take on Trump’s side, what’s interesting with both Trump and JD Vance is that they have both extensive experience in the private sector. Trump, obviously, as a businessman, who built a business empire. JD Vance, as an ex-VC, venture capitalist. Both have been in the trench of what it means to run a business, to be on the board of businesses, to be on the private side of things.

Bertrand Schmitt

On the other end, we have a stark contrast, because both Harris and Walz have actually never been on the private side of things. Harris has been on the legal side as a prosecutor, as attorney general. We have Walz, who had a long experience in the military, followed by running for different position at state level before becoming governor.

Nuno Goncalves Pedro

I would say one parenthesis on JD Vance. He was in venture capital for a short period of time, three years and a half or four years, which is not very long, for venture capital funds are normally 10 years, et cetera. But he does obviously have private sector business experience before that as well. He did write the book, and the book was made into a movie. There’s definitely a lot of private sector stuff in there.

Bertrand Schmitt

That’s true. Actually, I forgot to say that JD Vance also has a military experience.

Nuno Goncalves Pedro

Yeah, he was also in the military.

Bertrand Schmitt

The economic policy, if we look at what has happened under the Biden-Harris administration, I mean, obviously it has been hugely inflationary. The numbers have been terrible. I mean, if you have a basket of stuff to buy at the groceries, you have seen big price increase. Go to McDonald’s or any other restaurant, you will have seen a huge difference in the past four years. Whatever the Inflation Reduction Act was supposed to do, I guess it did the opposite of the name of the act. It was a more inflationary act instead of a reduction one.

Bertrand Schmitt

The latest has been Kamala Harris has shared, or some of her spokesperson have shared that she wants to put in place some level of price controls, which is pretty scary, to be frank. In some ways, it’s typical to first create inflation, and then to claim it’s the fault of the capitalists. If prices are increasing, therefore we need to put in place price controls. I think the last time that there were some level of price controls in the US was a long time ago, in the ’70s. It was not a good outcome, just to be very clear. It has rarely, if ever, be a good outcome if you go to price controls.

Nuno Goncalves Pedro

Yeah, I mean, price controls, I don’t think would be a great idea anywhere in the world. On economic policy, I would bring another element to the table, which is maybe stepping one step above. As you guys probably know, both Bertrand and myself are not American originally. I have since become an American citizen, so this will actually be the first presidential elections that I will have the pleasure and honor of voting in.

Nuno Goncalves Pedro

Bertrand is not an American citizen, but he does live in the US and has lived in the US for a very long time. Coming from different countries, Bertrand’s from France, I come from Portugal, with national health systems. We both lived in China, which is a bit funky in terms of health system. Again, different education systems, et cetera. I’d say the only point I would make is, at least from my perspective, coming out of Europe and having lived in Asia, there’s very little structural support on things that I do think are critical. For me, the three things that are critical, I always mentioned these three things, are health, education, justice. The health, education, justice system in the US is, let’s just say, very private sector-owned. It’s very private sector-led, and it’s uncommon for that in many countries in the world.

Nuno Goncalves Pedro

It has its pluses and minuses. But if I were to look at the minuses, the fact is, if I’m an American citizen, the level of protection I have in terms of, for example, having a health scare or whatever is not really comparable to, for example, I’m a Portuguese citizen, I live in Portugal. I do think there are a lot of factors that are put into economic policy to make some of these elements work in the economy, which, to be honest, the Democrats have had probably a better track record than the Republicans have had.

Nuno Goncalves Pedro

The whole notion of you take care of yourself, and if you have health issues, take care of yourself, and if you have diabetes, you take care of yourself, is very much a Republican speech motto thing. On the Democrats side, there’s more of this level of protection for at least certain elements. Now, we can have, as Bertrand was saying, also an argument that there’s been too much spend. The government is overspending dramatically. We have money that we don’t have the right to spend. We’re borrowing.

Nuno Goncalves Pedro

What happens at some point? Does the country default? What happens? There has to be somehow more of a moderate view on what is important and what is essential to citizens or not in the country. I do agree with the point that you were making that there has been extreme spend in US under this administration, too much spend under this administration. But at the same time, there are things that need to be taken care of in the US by the states, by the government, and particularly by the federal government in this case, because we’re discussing a federal election, that honestly do require spend. Sometimes I think the Republican piece of discussion is a little bit like, “Oh, no, we’re a capitalist country. Everyone takes care of themselves.” That’s not how a country should work. Why do we pay taxes? I think there should be something a little bit more in the middle.

Bertrand Schmitt

My take at this stage is that a lot of people talk about where is the money coming from, do we increase taxes? There is very little discussion on how well the money is spent, when at the end of the day, that’s all that matters. How well is it spent? My worry, and we’ll talk a bit on more specific points, but there are very clear specific points on, for instance, high-speed broadband or electrification of the US, where billions have been invested by this administration, Biden-Harris administration, and there is absolutely nothing to show for.

Bertrand Schmitt

That’s for me what’s totally scary, because when stuff is clearly identified, four years after, you see zero in terms of returns after spending billions. That, for me, is for sure the scary part, and a big question. I think there is some level of, from my perspective, a clear dysfunction overall, not just this administration, by the way, but there is, overall, a clear dysfunction. I think there should be way more discussion about how well is the money spent, and how well invested it is. I think, unfortunately, it’s not discussed. It’s more how much money do we tax, where should it go, and not, has it been well spent? My personal worry is that the majority of the money is actually not well spent.

Nuno Goncalves Pedro

I think that’s a good segue to the tax discussion. Let’s start exactly with the point you’re making, which is, I think of the countries that I’ve lived in, probably this is the country where I’ve seen the most delta between taxation and what’s deployed into stuff that you can actually see as impact. There’s a lot of leakage in deployment. Just to be clear, I lived in China, for example, like you did. There are other types of leakage in China, but the leakage here on tax credits, I mean, I live in California, you used to live here, Bertrand. It is absolutely incomprehensible where some of the taxes are going, because infrastructure needs a tonne of maintenance. Everything that gets done takes a tonne of time to be done. It’s super costly.

Nuno Goncalves Pedro

I mean, there’s all these incredible cases of the million dollar… Was it the million-dollar toilet in San Francisco or something? The way it gets deployed or something, it’s mind-boggling, and it is significant. I know people that left this country because of that, that left this country because they’re like, “I’m paying taxes. I don’t mind going somewhere else and pay even more taxes, but I know it’s being deployed. I know I have a national health service that takes care of me and takes care of other people. That mostly works. I know there’s education, guaranteed K-12, which is pretty decent. The variability is not huge across the board. I know where my taxes are going.” I think the accountability of taxation than in deployment is something that’s very interesting and very important to me. This country is definitely messing it up.

Bertrand Schmitt

It’s very surprising. I cannot say I’m a big fan of the French’s quasi-socialist economy, for instance. But if you pay more taxes in France, I personally feel you also get way more in return. You have functioning roads, you have high-speed rails, you have a great aerospace industry. Look at if you compare Airbus to Boeing, obviously, SpaceX is in the US. Yeah, that’s really a big question. Especially, I would say that one thing that personally surprised me was Kamala Harris’ support for the equality of outcome, not equality of chance, but equality of outcome. Because if you start with that mindset, and that started with a presidential election in 2020, that’s pretty scary. Because if that’s your mindset, if you want an equality of outcome, you are going to tax even more. Obviously, I don’t believe equality of outcome will work. That’s a scary part.

Bertrand Schmitt

If we go more precisely, it seemed to have been endorsed by Kamala Harris, it’s the last Biden-Harris administration proposal to increase corporate tax, to increase income tax. The worst of the worst is to dare to do a tax on unrealised capital gain. That one is like, from my perspective, I mean, batshit crazy. I will not use any other word.

Bertrand Schmitt

I’m coming from France, where we used to have a wealth tax, which had so many negative effects. The first negative effect was a tax that costs more to the state than it gained. Because people left France because of this tax. Wealthy people left France, and ultimately, France got less tax as a result of imposing a wealth tax. This is not only very bad in principle, but realistically it never works, but it certainly serves to damage the country. For me, that’s the most scary proposal of all. This is, as of today, seem to be endorsed.

Nuno Goncalves Pedro

This is to the best of our knowledge, right? I wouldn’t be shocked if she steps back a bit on that, but we will see, particularly in realised capital gains. A lot of people is like, “How does that work?” I have this stuff in stock—like Elon Musk has all this stock—and it’s worth something. Probably he’s getting loans from banks to do things, et cetera. Correct, he is. But think about, for example, the startup world, the world that we occupy for the most because we’re in venture capital. If I’m a founder of a company, I start the company, and sometimes I get paid literally zero when I start a company. At some point, I might get a meagre salary, and then that salary gets a little bit better and better, but it’s never a great salary. My compensation is I started the company, therefore, I have a big portion of the company in equity.

Nuno Goncalves Pedro

As I go through time, that portion of the company decreases because I’m raising money from third parties, and therefore, I have less and less ownership of that company. But let’s say I have, I don’t know, 20% of the company at a certain point in time. The company, as it goes through rounds of financing, is valued at different amounts. There are two types of valuation. There’s the valuation that’s done by investors that come in to get preferred chairs, and there’s the so-called 409A valuation, which is a valuation that’s applied because you have to give options to employees and other things to stimulate and give them as benefits.

Nuno Goncalves Pedro

If that valuation at some point, the valuation is always going higher. If the valuation at some point is higher, you’re being taxed on that increase in valuation on equity that you have done nothing with. You have equity in the company, but you have not done anything with that equity. That destroys that market. What’s my incentive? I’m a founder, and I’m getting taxed on stuff with cash I don’t have, because I haven’t sold the equity. In some case, I’m going to keep that equity for the next seven, eight, nine, 10 years. That part is what Bertrand is saying is idiotic. I think a similar thing is being done in the UK right now, which is creating a huge amount of noise and complaints and whatever. I looked at something recently, because people are, “Why does this matter?” Well, it matters for a variety of reasons. It matters because it has huge implications on the ecosystem and startup VC. I mean, it’s huge. I mean, Silicon Valley, this would be huge in Silicon Valley.

Nuno Goncalves Pedro

It has huge implications because the US has a tonne of millionaires. To this day, I just saw a chart from, I think, 2023. It’s net positive, the US. There’s more millionaires coming to the US than leaving the US. Last year, according to that chart I saw, the US was second in the world, only beaten by the UAE. I think UAE had a net positive of 7,000 millionaires. US had a net positive of 4,000 millionaires. For example, China’s last. China’s net negative, the most net negative. It’s in the top 10 of net negative. Portugal is in the top nine of net positive. It’s in ninth place. Of the top 10 of net positive, it’s in ninth place. What do you think would happen as well to millionaires? Because a lot of these people have participation equities in companies, the thing, whatever, your tax on unrealised gains.

Nuno Goncalves Pedro

I think that would be a massive destruction of value, and it would have a huge impact in tech ecosystem for sure. Extremely negative. I don’t know how we would go around that. How would we figure this out? I’m sure there are lawyers already thinking through that, but how would you work around these kinds of things? Going forward, it’ll have implications on VC funds, and how we hold the stock at because we would have to pay taxes ourselves, but we haven’t exited the company. We have the equity in our books, but we can’t do anything with that equity, either. We only do when there’s an exit, but then we have to pay taxes on it? This is dramatic. This is absolutely dramatic, and it’s absolutely idiotic in my perspective.

Bertrand Schmitt

Of course. The other piece, as you said, one of the biggest issue in private equity in venture capital as an entrepreneur is that the stock is not liquid. If you have to pay taxes, you cannot sell your stock because there is still not yet a market for it. Because by definition, it’s a private stock. It’s absolutely huge trouble. Are you forced to borrow to pay your taxes because you cannot sell your stock? Is everyone selling their stock at the same time every year to pay taxes? It’s destroying the valuation. It’s very shocking for me that there is even a discussion about this.

Bertrand Schmitt

As you say, for sure, there would be fewer millionaires or billionaires coming to the US. I mean, they will not come any more. I’m sure they were bringing not only cash, but their smartness and knowledge to the US. That would be a big issue. I certainly hope there will be a dramatic change ASAP on Kamala Harris on this part of our platform. But right now, that’s there, and that’s a big issue for anyone involved in entrepreneurship, from any side of the puzzle.

Bertrand Schmitt

On the other end, we have Trump proposing personal tax cuts at federal level. There were also some deductions that were set to automatically expire that would be probably extended. That actually is on Trump platform. These tax cuts would not be extended under Kamala Harris’ administration. I was surprised to hear that experts estimated this to be a 20% tailwind for the market, this personal tax cut. This simple one, once it’s expired, would have a very dramatic, immediate impact on the market. Trump is also planning to cut even more corporate taxes. I think the agenda could not be more stark in terms of their opposition on taxes.

Nuno Goncalves Pedro

It’s opposite in many ways, yes. It’s historically been one of the big things between Republicans and Democrats ever, always.

Bertrand Schmitt

True.

Nuno Goncalves Pedro

But in this case, to your point, it’s even starker, right?

Bertrand Schmitt

I would say, one piece I have not heard any candidate talking about that for me has some importance is the IRS Section 174 part of the code that has started to impact small businesses since 2023, if I’m not mistaken. This one is creating huge trouble for entrepreneurs because they have to, instead of deducting, amortise research R&D expenditures. That has a huge impact for a lot of business that are not yet profitable from a cash perspective, but are considered profitable from a tax perspective, and therefore end up having to pay taxes when they are not generating cash.

Bertrand Schmitt

I know a lot of businesses have been very significantly impacted. That’s also causing a lot of issues in terms of competitivity of smaller tech businesses in the US versus basically anywhere else in the world. I certainly hope candidates are going to work on it and change that. But so far, I’m not sure I’ve heard anything about it.

Nuno Goncalves Pedro

Maybe moving to labour, and that includes gig working. Vice President Harris does seem to be, obviously, more on the side that gig workers need to be treated more and more as actual workers.

Bertrand Schmitt

Employees.

Nuno Goncalves Pedro

As employees, effectively, with broader protections, and around what worker classification means, and how all of this works. Obviously, as always, the Democratic Party is much more on the side of unions, in principle. This has significant implications. I mean, both of us are VCs, just to be very clear. Hopefully, we don’t have too many biases, but I’m certainly investing in companies that have a significant part of their deployment is based on the fact that they can do 1099s, people that are seen as contractors, and sometimes they can do W-2s.

Nuno Goncalves Pedro

In this case, this company does both. The company has just got into someone’s pressuring them, in San Francisco County, whatever. It’s all sorts of things going on around this gig economy piece. Now, are there elements of the gig economy that need to be a little bit more thought-through? Yes. I do believe a lot of the elements of gig economy that need to be more thought-through should be thought-through for any person that is a citizen. In some ways, we’re trying to go after the gig piece because employers are easier to go after. Going after a corporation is probably easier to go after.

Nuno Goncalves Pedro

Obviously, former President Trump had adopted rules that made it easier for businesses to classify workers as independent contractors. He’s not a big fan of unions, as you can imagine.

Bertrand Schmitt

Actually, on this point, Trump was for the first time, there was a very visible union, Teamster Union, speaking at the Republican National Convention.

Nuno Goncalves Pedro

Interesting.

Bertrand Schmitt

I would say, for a Republican candidate, Trump is probably the most friendly to union workers of any Republican candidate ever. I think there is actually quite a significant change that is not widely acknowledged that union workers in industries, not in government—in government, I’m pretty sure they favour Kamala Harris—but in industries, I think there has been a very significant change where union workers are actually more massively voting for Trump than Kamala Harris, and there is more and more official support.

Nuno Goncalves Pedro

Are you saying overall, they would vote more for Trump than for Kamala more than before the delta would have increased towards Republicans?

Bertrand Schmitt

I think union representing industries—not government—employees are probably going to vote way more for Trump than Kamala Harris.

Nuno Goncalves Pedro

Okay, I’m not sure. It’s interesting to see where we end up once election day comes. But I do feel that part of this is, again, historical. The US historically has had very low unemployment based on a lot of sub-employments or under employment. People that have three, four jobs at the same time, they’re getting shifts here, shifts there. They’re not really employees of any company. They don’t get benefits through anyone.

Nuno Goncalves Pedro

I understand that, obviously, the Democratic Party and NDPRs believe that the situation should change, and that people should have employment and should have a protective net in terms of how that employment is done. Obviously, on the broader side, things have always been a little bit more around.

Nuno Goncalves Pedro

It’s the country. It’s a capitalistic system. This is how the country has had such low unemployment. This is how the country has had such low unemployment rates. Unemployment is part of the equation. If we had all these things in place, employers can’t employ people, and therefore, unemployment has to go up. It’s a fundamental religious fight almost on this. There’s a very different view on what’s at stake here.

Nuno Goncalves Pedro

I think in Europe, if we look at Europe, the right side and the right-wing parties versus the left-wing parties, certainly in the middle are the Social Democrats and the Socialists. They’re okay-ish in the middle. They do believe in protections for employees and all that stuff, et cetera.

Nuno Goncalves Pedro

The battle is quite a little bit in the middle. Here, we have a little bit more of an extreme battle. I think it does come from the notion that the US is in a very different place in terms of worker compensation, how people are treated as contractors, what rights are they entitled to, et cetera. There is a philosophical issue here.

Bertrand Schmitt

Totally. To be clear, I think flexibility in the US is flexibility of work is a feature, not a bug of the system. Ultimately, my guess is that the Biden-Harris administration or Kamala Harris-Walz and possible future administration wants more to follow the European path. Coming from Europe, I’m certainly not excited by this direction, because I personally think some of these choices and decision have a real cost to the economy.

Bertrand Schmitt

If you look at how Europe has grown, actually experienced lack, of course, compared to the US for the past 10 to 20 years. It’s very stark. It’s absolutely very stark. You can see that the efficiency in Europe has gone lower and lower. Productivity of workers has gone lower and lower. I would be really scared, personally, to go in the direction because I think it has been tried, and it has been shown it’s not working. You can say that, “Yeah, it’s harder here in the US.” Sure, but at least there is more wealth to go around. But at some point, it will come to each personal opinion.

Nuno Goncalves Pedro

It’s sad that we can’t get to a more moderate view, I think, would be my comment. It’s actually around most of the points we’re going to discuss today. Because honestly, I do think workers should have more protections in many cases. But at the same time, I agree with you, Bertrand, there are situations in Europe, in many countries in Europe, where you can’t fire people. You just can’t.

Bertrand Schmitt

Yeah. I can tell you very clearly from an entrepreneurial perspective, as a result of that, a lot of companies are making the decision not to grow as fast because they cannot take the risk to try to go too fast, and if stuff don’t work, you have to scale down, but then scaling down costs you so much money. You cannot afford it any more. You actually go bankrupt scaling down the business, where in the US, you can scale down the business in a matter of two weeks, save the business and turn it around, and basically manage the up and downs results of the global economy, which you cannot control on your own business and readjust.

Bertrand Schmitt

I have seen again and again that, at least in Europe for the growth economy, it’s simply not working. You cannot grow as fast in Europe because of these regulations than in the US. Another side effect is that it’s very slow to hire people because everyone has to wait for two, three months to give their resignation, leave the business. When you hire people, it takes a lot of time to hire people. This is again connected to the protection afforded, and you cannot fire too fast. But as a result, even if you wanted to hire, and you would take the disproportionate higher risk to hire fast, like in the US, you cannot because people cannot join you so fast. You will be limited practically on how fast you grow.

Bertrand Schmitt

Ultimately, if you have a business A in the US, and B in Europe, that is targeting the same market, has the same access to capital and stuff, you might deliver a much better result in the US simply because of the environment. I’m not even talking about also places like China, where you could also grow very fast. It’s a very tough place to be. At some point, you have to think about being globally competitive, and I think that that would be a mistake not to think about it.

Nuno Goncalves Pedro

Correct. I mean, it’s anecdotal. I do ask some gig workers, obviously Uber drivers, Lyft drivers, people that do any type of Taskrabbit, whatever. The feedback I systematically get is if the trade-off is there are fewer jobs available or whatever, honestly, I’m fine. Now, is there minimum benefits and minimum things that you need to put in place for these workers, even though they are independent contractors? Absolutely. You should. But I don’t think it’s going to be, honestly… Between you and me, Bertrand, I don’t think it’s going to be government regulation that’s going to make that much better or not. It’s going to be just natural competition if there are players in the market.

Bertrand Schmitt

I see so much flexibility in gig working, if we go on this specific topic. I mean, you have the ability to work whenever you want. If you’re an Uber driver, you can buy your own car. Not so long ago, you wanted to drive a taxi, you had to pay a medallion. You had to spend enormous amount of money. You have to get a loan, to be a shark loan, typically. You will be forced first to work for a taxi companies that will pay you very little. Basically, I don’t think all of this protection and so much were so great if you are really on the worker side.

Bertrand Schmitt

I think now, everyone has an opportunity to start quickly. It’s not a few taxi company bosses who are going to basically take advantage of you. I think the current system with Uber or Lyft is much more competitive, and give an opportunity to anyone. Personally, I’m very much in favour of this system. One thing I want to say, I think the overall functioning of the system in the US is not very efficient because a lot of it is dependent on the company paying for health insurance for different things.

Bertrand Schmitt

Instead, where I come from, Europe and other places, you have a system that is much more independent of the companies. If you’re a freelancer, and you want to work on your own, it’s very easy to get access to all the protection you want. You just pay a bit more on top of it, and you will get access to any protection. It’s very different. It has to go from the company that hires a worker.

Bertrand Schmitt

This is actually a weird distortion of the market coming from World War II, when employers were mandated in the US to not increase salaries to limit inflation. As a result, employers came up with some ideas to compete against each other by providing stuff on the side, from health insurance to other things. This is a very weird distortion of the market that happened, guess what, again, by government intervention. Where now, we have this system in the US where many things depend on the employer, making things more difficult in some ways for independent contractors.

Nuno Goncalves Pedro

A lot of the discussions we have today, it’s a country that has, at moments, at some point, historically, a very top-down industrial policy thinking, but then very large time periods of a couple of decades of bottom-up thinking. Because of the system in the US, with states, federal government, cities, counties, all of that. There’s all these flaws in it. It’s a very bottom-up thought. It has unintended effects that nobody ever thought about. People obviously take advantage of it, because the things are there to be taken advantage of. In some ways, I think part of how the country has evolved over time.

Bertrand Schmitt

On this point, it’s something we have not talked before, but the incredible complexity of the tax system in the US, for instance, is insane compared to most other countries. We are talking about a complexity of the system that is 2 or 3x more than most other countries, just to be clear. Most Americans don’t realise how complex is a system versus other countries.

Nuno Goncalves Pedro

Moving to immigration. Here, maybe we should focus around immigration that has an impact in tech. We’re talking about more specialised immigration.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

I’ll throw the first stone. I mean, Trump was not cool when he was in power. Now he’s showing more openness around the H-1B visas, which are the specialised visas that are capped, for those who don’t know, which has been a huge engine of growth in Silicon Valley. There were some stats posted, I think it was probably around 2014, ’15, that for each H-1B person, there were 10 jobs created. I mean, that’s silly.

Nuno Goncalves Pedro

I think the cap back then was 60,000 H-1Bs. It’s silly. He wasn’t very kind, and he was tough on all immigration. In that sense, everything was slowed down. Green cards were slowed down, specialised visas were slowed down. Obviously, green cards are very important as well for specialised workers, because people want to be permanent residents.

Nuno Goncalves Pedro

Citizenships, I’m not sure if they were slowed down or not when Trump was in power, but I’d be shocked if they weren’t. He wasn’t very friendly to us here in Silicon Valley for sure, and had obviously a huge impact in that sense. Now, he’s speaking to a different tune, with JD Vance as the VP. Maybe they’re speaking to a different tune, but I’m not sure he has an amazing track record to show for on that side of the fence.

Bertrand Schmitt

That’s clear that it was not good in terms of legal immigration. It was also very strong in terms of illegal immigration, but this one has less direct impact on tech. It’s very sad for me that usually, those two go together. Either you’re open for legal immigration, and you’re also open for illegal immigration, or you are close to illegal immigration, and you are close for legal immigration.

Bertrand Schmitt

It’s very frustrating the two, illegal and illegal immigration, have to be linked somewhat by candidates. It’s either everything is open or everything is closed. I think it’s a dumb burst of [inaudible 00:32:53]. I’m personally quite happy to see and hear that Trump seemed to have a change of mind in terms of illegal immigration. He was extremely clear in an interview on the All-In podcast that he was open to legal H-1B immigration. I think it was before he picked JD Vance as his VP, so I’m definitely hopeful.

Nuno Goncalves Pedro

They need to believe him, but yes.

Bertrand Schmitt

Yes, of course.

Nuno Goncalves Pedro

We need the politicians, both sides. This is not a slap on Trump. I mean, to be honest, we need to then believe them. Everything we’re discussing today is we have to believe that they’re saying what they’re going to do, as I at the beginning of the episode.

Bertrand Schmitt

I would say, so far, my impression is that he tried to do what he said he would do in his first administration. I have some hope that if he claims to have a change in mind on this specific topic, it’s real. I think there must be some admission that if you want some support in Silicon Valley, you have to be more flexible on this. I think he’s trying to get that support, and he has more people around him coming from Silicon Valley. It might have helped change his mind, not just political calculations.

Nuno Goncalves Pedro

Yeah, this is definitely a big deal that matters. I’d say, probably, Vice President Harris would be a clearer view on this, as in what it affects tech, which is legal immigration, specialised workers, et cetera. Probably, she would have a stronger stance. We’re not going to discuss safety and security at the border, illegal immigration, and all that stuff, because as we talked about before, it doesn’t have a direct impact in technology for sure.

Nuno Goncalves Pedro

Shall we move to antitrust? Maybe just to frame my antitrust, this is obviously the ability for companies to be split because they’re too big, and they have monopolistic control of a specific market. But it also affects, for example, approvals on mergers and acquisitions. It has huge impact in tech in that sense as well. The ability for big tech companies to buy small companies, or other big companies, or do big acquisitions, and all of that.

Nuno Goncalves Pedro

I think on this, it’s pretty clear that with former President Trump being elected, it would be easier to get a more lenient antitrust rulings on a lot of things, and a lot more M&A would be approved. I had a conversation with a founder that I will not name, and he was telling me… Back then, President Biden was still a candidate, and he said, “I will vote for Biden, I won’t vote for Trump. But honestly, if Trump is elected, it will be much better for my company because I’m in the eye line of a top tech company to be acquired. The probability that it will get approved under President Biden is very low, and the probability it will get approved under President Trump, and that DOJ and stuff, it’s probably very high.” He’s like, “I’m going to vote for one, but I hope the other one win.” I was like, “That’s tough.”

Bertrand Schmitt

It has been a virtual ban on big tech acquisitions. If you are an entrepreneur or a VC in tech, that’s practically the end of the world. Because it’s either IPO, in a minority of case, or selling the business typically to someone with a lot of money if you want a big exit, so it will be to big tech companies. If suddenly, big tech companies cannot make acquisition, you cannot exit companies. If you cannot exit companies, you cannot provide a return, nobody can get rich, and nobody can reinvest. It’s a total nightmare right now. Again, as you said, it’s managed by the FTC, the DOJ. If we take the FTC, the chair, Lina Khan, named by President Biden, this administration has been totally following this policy. Interestingly enough, JD Vance was one of the rare Republican to support her. This is adding a level of intrigue to what will happen in a Trump-JD Vance administration.

Bertrand Schmitt

My guess is that JD Vance will fall in line with Trump policy, but we will have to see. We could also imagine that a more favourable acquisition policy could be connected, as it come out to other behaviour expected from big tech companies. I’m not sure it will be a free pass, but I would expect definitely a much easier situation and better outcome for entrepreneurs and VCs if the policies were changed.

Nuno Goncalves Pedro

Here, just to be thoughtful around the discussion, antitrust is obviously related a lot to the regulatory environment and regulation as we discussed in the past. It’s pretty structural part of regulatory environment. It’s who is controlling a specific market or who are the players that are controlling a specific market. Just to be a little bit more nuanced on the point, regulation is needed and things need to be regulated. There are things that are absolutely unacceptable. But I think what we’ve seen in this country in terms of antitrust policy is aggressive antitrust policy tends to not do much on actual regulatory constraints to the big guys. What it ends up actually doing is creating regulatory capture, which we’ve talked to in a previous episode. It creates the ability for the guys who are dominating a specific space to win in that space. It’s almost like a barrier than to entry. You’re like, “How does that work?”

Nuno Goncalves Pedro

If Google or Facebook cannot buy a smaller company, they cannot. It’s fine. They’ll live on. They won’t die. The small company might die as well. That space might implode in of itself. There are a lot of implications here that are pretty systemic in thinking through the system in a more complex way. These are very complex systems that are interrelated.

Nuno Goncalves Pedro

Startups with bigger tech companies, with investors, both private equity, venture capital, hedge funds, the public equity markets, all these things are related to each other. There are very systemic ripple effects once, for example, stuff like this is happening where antitrust is being more aggressively applied to the market. Again, I don’t want to be a sceptic, but I think in this country, you’ve seen it. If antitrust is very aggressively applied, the big guys win and there’s more regulatory capture in those industries. That’s it.

Bertrand Schmitt

I think that you’re totally right. That’s my big worry, when they care to wake up in terms of looking at what’s happening in an industry, usually it’s too late. It’s like you attack Google on a monopoly on search in 2024.

Nuno Goncalves Pedro

Well done.

Bertrand Schmitt

Well done. Just 15 years after the fact, maybe, and I’m generous. It’s like what’s going on? It’s like 15 years too late. Is it even relevant as of today? There is, of course, the question of what will you do about it? Do you want to split the company? How are you going to split the company? Even if you split it, is it better or worse? If we look at in the past when there has been the split of some monopolies, if you take some or all, or even the predecessor to AT&T and most telecom companies in the US, the resulting split entities became bigger than the original parent company in terms of revenues, in terms of market cap, and their founders and owners became actually wealthier. It’s not clear that competition was so much improved. It’s definitely raising question about what is ultimate outcome, but what is clear in our industry, keeping as it is today, we’ll start to have a very significant impact.

Bertrand Schmitt

Because if you don’t get exits, if you don’t get cashback from the investment, you cannot reinvest it in new investment. You cannot take risk, thinking that there could not be an outcome in terms of selling the business. 90% of the outcome is selling the business versus IPO. And by the way, IPO have been more rare, because it’s too taxing to go public. It’s too risky and not enough of rewards because of the regulatory environment of the past 15 years. What do you do? Do you stop the whole innovation pipeline that has been the core of the success of the US this past 30, 40 years? When you think about it, this is actually very dramatic. I think we have not seen a dramatic impact yet, because this is quite recent, what happened. But if we got one more administration playing this game, I’m actually extremely worried about where the tech economy is going. As you say, the big ones, the Apple and Google of the world, they would be good. But the rest of the ecosystem changing them? Good luck.

Nuno Goncalves Pedro

I think that’s the key issue that we have, and that has happened when antitrust has been very forcibly enforced. Moving to privacy and the digital divide, I don’t know if there’s a very strong view on what happens on that, but you want to share the SpaceX story?

Bertrand Schmitt

I think here, especially on the digital divide, there was a special program from the Biden-Harris administration to provide high-speed broadband to rural areas. I think there is real value to provide last-minute connectivity, high-speed to places that cannot get it easily. However, what’s very scary is actually this program has disqualified SpaceX to provide a high-speed broadband access and be part of that program.

Nuno Goncalves Pedro

This was the Internet for All, the 65 billion thing?

Bertrand Schmitt

It was a very big program spend, that’s for sure. And to be clear, this program has delivered, I believe, near zero in terms of connectivity after three years plus in activity. We talk about government waste. I mean, that’s one of the best example you can get in terms of government waste. But to think that not only such a total waste, but it actively excluded the best place private companies to deliver on this program is really insane. On top of it, when you think about it, it’s a program that was not needed because actually, private forces were at work to solve this problem, and the way to solve it was not to lay down miles and miles of fibre to nowhere, but to use space as a communication backbone if you want to go into more rural or areas with more limited access. Because fibre is workable in dense urban areas, but it’s not workable in extremely rural areas. You had to add another approach.

Bertrand Schmitt

For me, what’s interesting is that private market forces through SpaceX, I mean, saw that and saw that opportunity and worked on it. Instead of saying, “You know what? We are going to use the best provider for this, if we want to add an additional layer of subsidies.” No, they didn’t use the best provider, and as a result, they have nothing to show for, except paying some companies to lay fibre to nowhere. It’s very shocking because when you have a microscope to go into some programs, you see how bad it can be.

Nuno Goncalves Pedro

Yeah, I think on the digital divide, obviously, President Trump, when he was in power, did a few things, but not significant. I think he was trying to definitely reduce the regulatory oversight capabilities of the FCC. He didn’t invest much, from what I know. The only number I know for sure is 86 million to expand rural broadband through the Department of Agriculture. To your point, I think he was like, “Let’s let the market figure it out and just go after each other and get it.” I have to confess that the telecom market in US baffles me. That I pay the bill that I do, living so close to San Francisco, is mind-boggling to me. It has to do exactly with the fact of what you were saying. There’s no incentive to competition, and effectively, there are de facto oligopolies in certain areas, suburban and rural areas in particular. There’s de facto oligopolies. Maybe there’s a little bit of fight in urban areas, certainly on fixed internet access. But then I can only get high speed from Comcast Xfinity where I live. I can’t get it from anyone else. I could try DSL, some variant of DSL from AT&T.

Nuno Goncalves Pedro

I could try SpaceX as well as a back play, but it’s still not ideal. I love to have options, but I don’t have amazing options. I’m not part of the digital divide issue. We can afford internet and pay for it, and it is what it is. It’s just too pricey, it’s stupid, and it’s not competitive. We’re not here complaining. It is a first-world problem in that sense, but the market is messed up. It’s messed up. It’s too expensive in general, et cetera.

Bertrand Schmitt

I think you’re right. Coming from Asia or Europe, when you see the prices for fixed internet broadband or for mobile wireless, the prices in the US are insane. I’m not even going to compare it to India prices, where it’s probably the lowest.

Nuno Goncalves Pedro

Telecom is a classic example of a regulatory capture. You were mentioning they split into all of this, and then it all came together, and it’s bigger. It’s like the Terminator, right?

Bertrand Schmitt

Yeah, that’s an interesting comparison.

Nuno Goncalves Pedro

Just quickly on data privacy, just a couple of notes. Vice President Harris has supported the President’s call to action to pass federal data privacy laws, and it was linked to an executive order on artificial intelligence that their administration also put forward. We’ll talk about AI later on. On privacy, former President Trump repealed, when he was in power in 2017, an FCC rule that instilled online privacy protections for consumers from Internet service providers. That said, his administration was working on a consumer protection privacy policy in 2018 that never came to fruition. I think on privacy, it’s very unclear if any of the candidates has very aggressive thinking. Obviously, a lot more needs to be done around data privacy, but we don’t probably believe that there is a huge difference between the candidates. Maybe vice president Harris will be more protective and former President Trump will be less, but it doesn’t seem to be a huge area of a fight in terms of policy between both candidates.

Bertrand Schmitt

Yeah. To be clear, I’m absolutely not a fan of what happened in Europe with GDPR. As expected, it went way too far, and it benefited the bigger guys, the Apple of the world, the Meta of the world. I mean, it helped them to reinforce their market position compared to the smaller guys who had fewer data and therefore could not leverage as much in order to deliver advertising. They couldn’t even work together to try to compete against the bigger guys. The end result is a total opposite of what was claimed by Europe at the time. It didn’t create more competition. It didn’t push back the bigger guys. It actually helped entrench the bigger guys who, as usual, could afford thousands of lawyers on the payroll and could go around whatever regulation is put in place and could leverage the fact that there are bigger guys in the space. They have, by definition, more data to play with. They have access. Personally, I’m not a big fan. I don’t think it has helped. I don’t think it has helped in many ways. I know Europeans are more sensitive to that, especially the Germans, for some obvious reasons in their past.

Bertrand Schmitt

But I don’t think it’s a good reason to not be realistic about the true impact of such regulation. For me, I’m glad that both Biden-Harris administration, and Trump, potential Trump administration, will not try to go the European way.

Nuno Goncalves Pedro

California has done some stuff, we’ll see, but it’s a place where we shouldn’t do dramatic things. GDPR is one step too far, very, very clearly. Free speech. I know this is a pet one for you, so I’ll let you go first.

Bertrand Schmitt

No, I think we already did actually an episode on news. Which episode was it? And the lack of truth in our news. Was it episode 54? I forgot.

Nuno Goncalves Pedro

It was 54. Can you handle the truth? The future of news. 54. Yeah.

Bertrand Schmitt

Yes. You can go back to our episode if you want more perspective on what we think about truth and free speech. Yeah, personally, I feel very strongly about free speech. I think what’s key is to be able to seek the truth, to discover the truth. For that, you need free speech, free experimentation. For me, it’s very critical. Obviously, the Republicans have been way more pro-free speech. If we take a big backer, and we’ll talk later more about the backers of each side, but Elon Musk has been now officially on the Trump side, he is one of the biggest person to push for free speech, and as a result, was a target for the Biden-Harris administration of a lot of lawfare. For me, it’s very sad to see that the Biden-Harris hasn’t signed. Harris-Walz ticket are definitely way more on the censorship side, and we have seen how much the White House have pushed for control, censorship from most major news networks, social network platforms. I think quite recently, Walz have been a very public in his support of a limiting free speech. I think it was before he was a VP candidate, but that was a very scary speech he did on this topic.

Nuno Goncalves Pedro

Actually, I think the case has been heard by the Supreme Court, and I think they ruled in their favour, around the fact that the federal government had actively participated in influencing social media platforms in how they showed certain content above others or certain content wasn’t shown much at all, et cetera, around feedback and commentary, in particular during COVID, that was not favourable to them. It was not favourable to the position that they were manifesting to the market in terms of how the market should behave. We’re talking like this is one of these situations where I feel we need to put a little bit more of a moderate perspective.

Nuno Goncalves Pedro

I think free speech should be given. It is part of this country’s view, and it is part of the First Amendment, and it’s there to be enforced. At the same time, what happens if free speech promotes violence and it promotes bad attitudes? It’s whatever… What then do you do? Obviously, if it promotes falsities and untruths, there are other systems as well. People can take each other to court and all that stuff, but what’s the boundary conditions around it? I think it is a valuable discussion to have. All free speech, and we can say whatever we want is cool as an ideology, but then who has checks and balances?

Nuno Goncalves Pedro

If someone’s saying that’s something that’s fundamentally false, and it affects people’s lives, or it creates an incentive to violence, et cetera. I think somewhere in the middle, as you guys can imagine, I’m a moderate, I’ve said that before, would be how you need to go. You still have to accept that there are people that are going to have views that you’re not going to support. That’s life. But they do have the right to manifest it. Why wouldn’t they not have the right to manifest it?

Bertrand Schmitt

I think that’s important to be able to have frank, open, and honest discussion. Each time a government has tried to limit that, I think we have seen the consequences pretty quickly. On this topic, you could argue that a recent example has been the UK. It feels like since a few weeks, we are closer to 1984. Happening in the UK, if you remember this book, now you get put to jail for two or three years for a comment on social media, while at the same time, bring real dangerous perpetrators of some pretty bad things in order to make space for the grandmother who express a comment on social media who has to go to jail for that for two or three years. For me, this is exactly the logical conclusion of what you describe. Once you start to put a limit on free speech, it becomes pretty bad and pretty hard, and it hits you. That’s why I’m much more on the side of being absolutely for free speech, because the other side is just too scary.

Nuno Goncalves Pedro

Just to be clear, for those of us who haven’t read the First Amendment recently, two threats of violence are outside the bounds of the First Amendment protection. There’s some complexity then around that. What is a true threat of violence? But it is outside the First Amendment, and there have been cases on this, and it’s gone to Supreme Court, et cetera.

Bertrand Schmitt

It has been described very clearly. The Supreme Court has a lot of position on this topic for a long time, so it’s pretty established about what’s okay or not okay. But my take is that what’s okay or not okay as described in the US, in the US system, is where it should be, at least from my perspective. Any change to that is scary. Again, the example of even a country as close to us as the UK, it’s a scary reminder of what happens if you decide to change that. I’m not even going far. It’s very obvious what happens in some truly totalitarian countries. But the things at a place like the UK, this can happen to this level where, to be clear, people were not talking about violence. That’s where it’s scary. You realise very quickly if the law is not clear, if the law is new, it could be taken advantage by some courts.

Nuno Goncalves Pedro

Moving to maybe less complex issues or more impactful, maybe, but less complex, I’m not sure. Who knows? AI. There have been executive orders, actually, former President Trump, when he was in power, did have an executive order on, I think it was called maintaining American leadership in artificial intelligence.

Bertrand Schmitt

It was a very positive order when you read it. It’s not trying to push it back, but it’s more to push it up and push for American leadership and investment in that direction.

Nuno Goncalves Pedro

Yeah. Then there’s the executive order for the safe, secure, and trustworthy development and use of artificial intelligence, which is done under the current administration, Biden and Vice President Harris. I think there’s a lot of discussion around protection of AI, protection of American dominance or American competitive advantage around artificial intelligence. I don’t think this is an area of extreme disagreement between both parties.

Bertrand Schmitt

Yeah. From my perspective, there is quite a stark difference. It feels like the White House has limited capacity, luckily, to push too much legislation. I mean, its legislation is still up to Congress. But I feel that the White House executive order from the Biden-Harris administration has been actually trying to move more in the direction of what Europe has been doing, which is pretty bad around AI. I’m more worried that the mindset of Kamala Harris and our administration would be to keep going further in controlling AI, and I think for all the wrong reasons, just to be clear, I think AI is absolutely not where some doomsayers are saying it is, and it’s not close to be there. The last thing you want at this stage is to push regulation. You want the field to develop, to expand, to grow, to be successful. For that, I believe you need as little regulation as possible. On top of it, I believe there are a lot of existing regulations that if you do AI, you will have to abide with already. Let’s not add regulation until it’s proven it’s really needed, versus just listening to the doomsayers who usually have no clue about what’s happening.

Nuno Goncalves Pedro

On that, probably a former President Trump would be more on the side of not too much regulation, and probably Vice President Harris would be more on the other side.

Bertrand Schmitt

Totally.

Nuno Goncalves Pedro

Yeah, but on the trade side, to my point earlier, they’re probably relatively aligned, trade controls, export controls.

Bertrand Schmitt

I think we might talk a bit more in the China section, but yes. Maybe one other point is that JD Vance has been very pro-open-source AI, which also I believe is a good thing. I think it’s great to have an alternative open-source AI versus only proprietary model, because proprietary models, from my perspective, will only benefit the bigger corporations that can afford billions of dollars of investment. I’m glad he’s on the ticket, at least from this perspective. Maybe on AI to finish, there is a very scary California AI bill that’s also insane. This one is really bad. It’s very dangerous. It’s artificially limiting what AI can do. They want to create crazy commissions and programs as if we are dealing with nuclear weapons. This makes no sense. This is packed by doomsayers. I’m worried, because obviously Kamala is from California, is from the California Democrat establishment. Hopefully she won’t be influenced by this mindset, and hopeful California AI bill will be vetoed by giving you some, potentially it might land on the governor’s desk, and hopefully will listen to reasons. There will be enough influential voters who will push against it, so we’ll see.

Bertrand Schmitt

But that’s a scary development because this one might be even more crazy than the European AI bill, and that’s to say something. To be clear, this could have dramatic negative impact on California competitiveness in the US if this California AI bill is put in place. I mean, many companies might decide to California if they are involved in the act because the risk will be too high for them to stay and be regulated by this bill.

Nuno Goncalves Pedro

Yes. Maybe you can go a little bit faster through some of these, but crypto, it seems like Trump now is pro-crypto. The Biden administration wasn’t very pro-crypto, anti, if anything. But just to be clear, we’re investors. I have investments in blockchain companies, and we hold crypto assets and stuff as well. Just a disclaimer, so people know where this is coming from. But yeah, I think crypto is going to happen no matter what, so you might as well figure out how to create boundary conditions around it, et cetera. Obviously, the use of crypto for avoidance of KYC and all of these other things is negative. There’s a lot of money being laundered and moved around using some facilities for sure as well. There is need for regulation, there’s need for rules to be put in place, there’s need for a variety of things to be done. But on this one, I’m sitting a little bit more on the pro side that maybe things should be a little bit more positive towards crypto. At some point, have very clear boundary conditions as well. I think part of the issue with crypto over the last five, six years, also including former President’s Trump tenure, is there was very little clarity on many areas.

Nuno Goncalves Pedro

Is this taxable? Is this not taxable initially? Is this okay? Is this not okay?

Nuno Goncalves Pedro

Now we’re getting all this slew of cases being judged back and saying, Well, that this is wrong. You shouldn’t have done that. I think clarity as well probably matters most, even beyond being pro or anti. Let’s be clear, I think, on boundary conditions. The whole crypto situation, it feels to me like, obviously, we have the more positive side on one side and then the less positive side on the other. I think what we’re missing is clarity. It’s an area where being more pro-crypto, anti-crypto, question mark, maybe more pro-crypto is better for investors and the crypto people, those who are involved in blockchain. But I feel for many years, what we’ve lacked is clarity. The lack of clarity goes back to former President’s Trump own tenure in the White House and continue through the last administration or through this current administration, rather. Clarity, I think, would be a good way forward on the crypto side.

Bertrand Schmitt

It’s clear that the current administration has been doing everything they can to destroy crypto. I guess lack of clarity is better than trying to actively destroy crypto. But I agree with you, we need both. We need to stop trying to destroy crypto without any good reason. We need more clarity so that people need to know what are the rules. I think that has been the complaints by a lot of players like Coinbase’s Brian Armstrong, saying, “Hey, just give me the rules and I will play by the rules. But if I don’t know the rules, and you try to hit me left and right without sharing any of the rules, then it’s impossible to do my business.” It wasn’t that, it’s extremely risky to do this business. That’s why many companies left the US because of that risk of being an actor in the crypto space.

Nuno Goncalves Pedro

There’s been a lot of post hoc decisions and rulings, and things that have happened where some of them were blatantly fraud and stuff like that, but others were like, rules were not specified. Now, I’m going after you because I think you broke rules that didn’t exist back then, which is interesting. Maybe we switch topics to the energy, electric vehicle space? Maybe starting with energy, maybe the higher level topic in terms of where they’re headed? Obviously, from a President Trump, not a renewable energy kind of guy.

Bertrand Schmitt

Drill, baby. Drill.

Nuno Goncalves Pedro

Drill, baby, drill. Good. So clear on that. On the other side, we’ve had anything from the Green New Deal, and how do we scale renewable energies. Obviously, from my end, I come from a country that… Portugal, originally, that is, they surpassed 51% in the use of renewable energies within the country by consumers, so what was actually by consumers. In 2017, we had six straight days last year where all the consumption was coming from renewable energies in Portugal, 100%.

Nuno Goncalves Pedro

I feel in Portugal, to be honest, there wasn’t a tremendous amount of government involvement. The original company that runs energy in the country still has a gold share from the state, but it was really motivated by market dynamics, the situation in Portugal, and the use of several other types of renewable energy. Question mark on whether the polls on renewable energies is enough. It’s very clear. For example, in Portugal, we had a very large coal plant that got shut down finally in 2021, 10 years late. We sometimes get things a bit late as well. But that accounted for Portugal for 12% of all the carbon emissions of the country, that plant.

Nuno Goncalves Pedro

Obviously, there are big gains here. There are big wins to be had. But it’s clear that we still have dependency on petroleum and oil-based products. That’s not going to go away. From a cost perspective, it’s still pretty essential. But there needs to be a move, at least in my opinion, towards more renewable energies in this country, even more. I’m not saying that necessarily means I’m siding on current Vice President Harris’s side, but probably, again, in the middle lies the right way to go on the energy side.

Bertrand Schmitt

It’s clear that there is a big gap on the other side. You have the Trump administration that was friendly on oil and gas, that was definitely not supportive of electric vehicle mandate and subsidies on that plan to actually keep it that way. But surprisingly enough, Elon is fine with that. From his perspective, actually, it will provide a more clean competition without any disruption in the real price of gas. I think it’s pretty stark. On one side, you have pro-green, anti-oil and gas, pro-electric cars, as long as they are made by unions. On the other end, you have a more pro-oil and gas position on the Trump side, even support for nuclear energy, actually, and fewer incentives for electric vehicles.

Nuno Goncalves Pedro

Yeah, and nuclear, I know you’re a huge fan of it.

Bertrand Schmitt

I am.

Nuno Goncalves Pedro

France, a huge fan of it as well. Certainly from a startup and venture capital perspective, it seems to have a renaissance of sorts in the last six years in the US. If I go back five to six years. Basically, Y Combinator, all the cohorts had several companies doing nuclear reactors, et cetera. The MARVEL Project, which I think was initially sponsored by the Department of Energy, has rippled a lot of startups out of it. There has been a spawning of startups out of it. There’s funding in it. I’m now starting to see companies that are coming up for Series Seed or Series A rounds at scale. We have a lot to go, but definitely, it seems to be a bit of renaissance of nuclear in the US, which I’m sure you will welcome.

Bertrand Schmitt

I’m French, and I think that one of the best example of a good governmental policy was a French investment going all in on nuclear in the ’70s, ’80s, which resulted in independence from an energy perspective. Mostly independent, with nuclear providing up to 70% of all electricity in France. France has been, from that point on, the most green country on Earth, probably, at least of a reasonable size country. I don’t think we have found any other source of energy as of today that is as a safe, as cheap in terms of resource, and as cheap in terms of overall cost of electricity, as long as we don’t have a long list of unnecessary regulations on top of it. These so-called regulations were just added and pushed by the green movement in order to make nuclear less competitive. What’s interesting, in terms of safety, is that with the latest generation of nuclear reactors—like the ones that are being deployed right now in China at scale, we’re talking about hundreds plus reactors—we can have reactors that are now extremely safe. Meaning, that if there is a breakdown in the reactor itself, now you have reactors that are going to safely shut down by themselves.

Bertrand Schmitt

In the past, they used to necessitate some external source of energy to provide a safe shutdown of the reactor. It’s not the case any more. It’s actually changing dramatically the nuclear energy business model, because you have completely decreased the risk level to zero. That changes everything, because let’s not forget, nuclear is a source of energy that is non-stop. It doesn’t stop when there is no wind, it doesn’t stop when there is no light. It’s always on. It takes very, very little space. You need very little resources. Ultimately, you can even use what’s left from a nuclear reactor to be used in some other types of nuclear reactor. It can be a very, very efficient process.

Nuno Goncalves Pedro

Maybe switching gears to China. Now, this is actually one area where probably Vice President Harris, and former President Trump will have fewer disagreements. We have to give credit where credit is due. I think it was under former President Trump’s administration that he went after China with tariffs, and a bunch of sanctions and things that were really put in place. I think the Democratic Party, President Biden, and Vice President Harris have followed suit on it. I don’t see dramatic differences between both sides in that sense. It feels both of them are going to be basically a relatively tight point of view on how China plays in the global economy. There will be pretty aggressive trade controls on China, not only on exports from the US to China, but also from importing stuff from China into the US. It doesn’t seem super mega dramatic, in terms of policies on both sides. This is probably one of the few areas where there’s relative agreement. As we know, Donald Trump is a pragmatist, so we don’t know where this will end up. Things might change, but it seems like this is an area where they’re definitely in agreement.

Bertrand Schmitt

Yeah, there seems to be an agreement. I would say, what’s more extreme is actually the stance of the two VPs. If you look at Walz, he apparently has a history of deep China ties, spending quite a lot of time organizing “exchange programs” in the late ’80s, early ’90s. We are talking post-China, Tiananmen Square incident. It’s surprising how long, how much time he has spent. On the other end, JD Vance has been pretty much very against China as a dominant power, so we will see. As you said, Trump started changing the view of the establishment against China in the US, and at the same time, he’s seen as a pragmatist. But it seems that he’s planning to put more tariff on goods from China that we currently have.

Nuno Goncalves Pedro

And TikTok.

Bertrand Schmitt

What about TikTok?

Nuno Goncalves Pedro

This is what we all want to know. TikTok. Can we keep TikTok, please? We want TikTok.

Bertrand Schmitt

I’m lost at this stage. Who wants to stop it, keep it going? It looks like they’re both happy to keep it running for the elections?

Nuno Goncalves Pedro

Yes.

Bertrand Schmitt

Both elections, I have no clue. I think it’s definitely a clear question for both candidates, but I don’t think anyone is committing at this stage.

Nuno Goncalves Pedro

We will keep our TikTok. That’s great. Let’s move maybe to DEI and ESG. DEI, for those who don’t know what it stands for, it’s Diversity, Equity, and Inclusion. ESG is Environmental, Social, and Governance. These are measures that have been adopted throughout the world, not just in the US, both around DEI and ESG, to enforce more equity or diversity on the one hand, on the other hand, more around either socioeconomic benefits or environmental benefits, et cetera.

Nuno Goncalves Pedro

Some examples of this might mean some enforcement, like we see in companies that are in a couple of stock exchanges. You have to have a minimum number of board members that are female. But there are countries that have obviously put in place a variety of rules around this. Very opposed views on DEI and ESG by former President Trump. I think Vice President Harris and President Biden have been all-in on this DEI, ESG trend, and former President Trump has been all-out on it. It’s a good way of saying it.

Bertrand Schmitt

Yeah, this is quite representative of the woke movement at large, DEI and ESG. Some of these policies have been proven in the US to be illegal. To be clear, you cannot discriminate when you hire people, when you promote people, when you fire people in the US. You cannot discriminate based on multiple categories: from sex to race to different things. That’s why some universities lost their appeal at the Supreme Court and had to change their hiring policies for new students.

Nuno Goncalves Pedro

For our listeners, because they may get confused, you can’t discriminate both ways. You can’t discriminate because the person is African-American negatively, but you can also not discriminate positively. Positive discrimination being also illegal is basically what was [inaudible 01:09:44] on. You can’t give a benefit because someone is African-American, Latinx, or whatever.

Bertrand Schmitt

Yeah, because by definition, positive discrimination is going to discriminate negatively on everybody else. Let’s not forget that piece of the puzzle, and that’s what Supreme Court in the US judged upon. So yeah, very clear opposite. Of course, this has an impact on businesses. At the same time, let’s not forget, especially in the US, most of the DEI, ESG regulations were not really low, per se. It was more what some investors have been pushing, what some NGOs have been pushing, some shareholders. But there is no legislation coming from Congress on this topic.

Nuno Goncalves Pedro

This is an area where I think both candidates are wrong, and let me explain why. I feel the piece of the puzzle that need to fit in is in the middle. There are some guardrails you need to put in place, both on the DEI and ESG, and behaviours that absolutely are unacceptable on both ends. But at the same time, I think having too much positive leaning in or too much negative leaning out is not advantageous. In some ways, the notion that by having some of these metrics, and big corporations are saying, “Oh, I’m doing this on DEI, I’m doing this on the ESG,” I apologise in advance for the terminology, but this is like putting lipstick on a pig. Not many structural things are being done, really, by some of these corporations. They’re filling checklists, they’re BS-ing some of their numbers, they’re massaging something else. They’re using it for marketing purposes. A lot of this has come out when people are using this specifically for marketing purposes. It’s very hypocritical, because maybe they were the guys who created the problem in the first place. In certain areas, that’s certainly the case, for example, in environmental stuff.

Bertrand Schmitt

Totally.

Nuno Goncalves Pedro

The core remains undone. Certainly at our firm, we’re very thoughtful, for example, around diversity. That’s a topic that matters a lot to us. But it doesn’t matter to us just because we want more gender diversity, or we want more racial diversity or background diversity. It matters a lot to us because the points of view that come from very diverse team members are very valuable for us in our job. We get angles that we might otherwise lose in the analysis of a company, the analysis of a market, et cetera. In all honesty, it’s a bit of a mixed thing. We don’t have any mandates. Our investors have not forced any mandates on us in terms of DEI and ESG, in terms not only of our own firm, but also in who we invest in. On the positive side, out of the gate, our fund, currently, first three investments, founder CEO is a woman. Our first three portfolio companies that we invested in, the founder CEOs are all women. On the other hand, we’ve tried to hire—for example, for our deal team—female associates, female analysts, even female principals were looked into, and it’s extremely difficult.

Nuno Goncalves Pedro

It has to do with the industry. It has to do with how many people are in the market. It has to do with maybe venture capital, still needs to go through its own moment of increased diversity in talent, which we all know it’s probably true. But how can one do more than that? If we had a mandate on number of people we had that are, for example, female in our team, how would that work? There isn’t enough talent out there for us to have the pool that we need to hire from, to have full equality in terms of 50/50 between women and men, for example, on that specific field. Again, it’s difficult. It’s a difficult conversation. It has a lot of nuances to it. I think creating the awareness of it and having very aggressive guardrails whenever there are issues of discrimination, for me, is pretty fundamental.

Bertrand Schmitt

I think we want to preclude the team to discriminate against special categories of people. However, I think you certainly want to hire, promote, and fire based on merit, and that should be the key criteria. Personally, at companies, the business I built over 10 years, it was key for me to, on one side, hire a very diverse set of people in terms of where they come from, their mindset, their approach, their nationality; at the same time, make sure everyone is properly motivated, and everyone sees we are hiring the best, we are promoting the best, and it’s a natural competition for talent. If we talk about some other topic like pay gap analysis, I still remember our new head of HR, when running an analysis, comparing male versus female, she was surprised to see a non-existent gap. I think it was less than 1%. I think that’s what ultimately happens if you are really focused on the merit. If you focus on merit, you end up, again, hiring, promoting, and paying people the same way as long as they deliver the goods. I think that’s what ultimately you will probably end up, but personally, I’m against some of these mandates.

Bertrand Schmitt

They are not natural. You don’t want to force them.

Nuno Goncalves Pedro

Maybe we move to how Silicon Valley and some of the larger tech business leaders are coming in and inputting onto this election. I think very different from previous elections, certainly in Silicon Valley, a lot of polarisation. I think Silicon Valley is historically extremely pro-democratic. Whenever there were manifestations, people were, “I’m for that Democratic candidate.” On this one, not true. I mean, we definitely have, obviously, JD Vance, who’s putting money where his mouth is, I guess, because he is the vice president candidate. Elon Musk, Marc Andreessen, and Ben Horowitz are very publicly saying why they are supporting former President Donald Trump. Peter Thiel, obviously a huge backer of Trump in this first election, and has continued in this one. David Sacks and Chamath at all-in, and a variety of other people.

Bertrand Schmitt

Yeah, Peter Thiel, and many other partners at Founder Funds. The whole team is pretty clear on this at that fund. I think we have Sequoia, Delian, and Shaun McGuire, who have been pretty pro-Trump.

Nuno Goncalves Pedro

I’m not sure, for example, that Marc Andreessen and Ben Horowitz represent Andreessen-Horowitz. I’ve seen Andreessen-Horowitz, general partners, signing up for VCs for Kamala website. I suspect it’s not a firm-wide view, but it’s certainly the two-names-on-the-door view, so that should matter, I guess.

Bertrand Schmitt

To be clear, I don’t think you can do a firm-wide view.

Nuno Goncalves Pedro

This is the Andreessen and the Horowitz.

Bertrand Schmitt

Sure.

Nuno Goncalves Pedro

As big as it gets, I guess.

Bertrand Schmitt

But I don’t think it would be fair to force anyone to vote in your team.

Nuno Goncalves Pedro

Of course not. Everyone should have their own individual perspective.

Bertrand Schmitt

Exactly, to vote or to contribute. We have to be careful as well.

Nuno Goncalves Pedro

But this is very uncommon. I don’t think I ever remember, certainly, since the time I’ve been here. Just in a nutshell, having become American a couple of years ago, first election I’m voting on, et cetera, I have followed previous elections, and I’ve never noticed so much on, “What camp are you?” kind of thing. People are like, “If you don’t talk about it, it’s because you don’t want to talk about it.” It doesn’t mean necessarily that you’re voting Republican, but right now, there are people very specifically saying, “I’m going Trump,” right? That’s the way I’m going. That’s sort of unheard of, certainly since I’ve lived here for more than 12 years, and since I’ve been following politics in Silicon Valley for some time and tech. Very unique. But there’s also people that are pro-Vice President Kamala Harris, some notable ones as well.

Bertrand Schmitt

Yeah, we have Rudolf Mann of LinkedIn Fame. We have Mark Cuban, now technically in Silicon Valley, Vinod Khosla of Khosla Ventures, Aaron Levie, from Box, Chris Sacca, Mark Suster, Ron Conway, even Steve Wozniak, co-founder of Apple, who have signed up a VCs for Kamala List. But honestly, it’s not so much clearly pro-Kamala in terms of big name VCs. It feels relatively balanced on the Trump side. We have also quite a few people from the crypto space like Winklevoss Brothers, Ryan Selkis. It feels pretty even. As you say, in the past, I think if you were a Republican, you would hide it, more or less, given how pro-Democrat was California and Silicon Valley at large. But yeah, I think it’s a very different trend. If we remember, in 2016, probably only Peter Thiel from Silicon Valley was pro-Trump, and I think he had to leave. He decided to move to LA first. I’m not sure if he had to leave, but he was definitely an outcast at that point. But it’s a very different game now. I mean, at the end of the day, you have the most talented entrepreneur of our time, Elon Musk, who very clearly show his weight behind Trump.

Nuno Goncalves Pedro

Again, to your point, which is, I don’t want to force it too much, but it is quite important. It’s not this love fest for Vice President Harris as a candidate in Silicon Valley as everyone probably would have expected it to be. If I had to hypothesise on the factors, one is the whole tax situation, in particular, the unrealised capital gains situation. I think that’s a super big deal for VCs and for startups here. It matters, right? It matters tremendously.

Bertrand Schmitt

That’s the key.

Nuno Goncalves Pedro

All the other taxation effect: How are you charging the things and capital gains? How are you taking them into account? Et cetera. Then, maybe second order, maybe the whole antitrust situation, and where the current administration has been, how aggressive they’ve been, et cetera. I do think that those are probably two of the largest levers at the table right now that are tilting things more towards former President Trump than one would assume in Silicon Valley. In Silicon Valley, you assume most people are going to go the other way, and… There are some shocking things. As I said, the Marc Andreessen and Ben Horowitz thing, we knew some of their leanings, but publicly? This is a huge deal. It’s very big deal.

Bertrand Schmitt

To be frank, I feel it’s time that people are not afraid to share their perspective on backing one candidate, one side or the other. I mean, 50% of the country, more or less, is for Trump, 50% is pro-Kamala, at least from the voters. I don’t think it’s okay that you have to hide yourself, that you are a pro one side or the other. Of course, it’s better if you have arguments to defend your position as usual, or to explain it. But at the same time, why one side should have to hide itself, especially at a time when, to be clear, as you just said, this tax unrealised capital gain has the ability to destroy this tech industry. I guess every side has some issues to deal with in the sense that I don’t think anyone is perfect.

Nuno Goncalves Pedro

The implications for the rest of the world, we discussed China already a little bit. Obviously, there will be more of an antagonistic perspective on China going forward. Yeah, maybe not a huge escalation, but maybe the same line that we’ve been in before. Obviously, it depends on who gets elected. If former President Trump is elected on certain aspects of, for example, taxation, it might be more beneficial for people that are quite wealthy, millionaires and above. Although the US has a lot of millionaires, someone was telling me this the other day, some pretty ridiculous numbers. Someone was telling me, I don’t know if this number is true or not, so I would fact-check, but that there’s one million Americans that have an asset and net worth above 10 million, and that’s mind-boggling to me. Anyway, if, for example, in that case, on the taxes side, there might be a little bit of an exodus of millionaires or very wealthy people outside of the US if there’s aggressive taxation. If there’s taxation on unrealised capital gains, I do think over the medium to long term, it will affect Silicon Valley, and it will affect how Silicon Valley can become and be still the centre of gravity of tech of the world.

Nuno Goncalves Pedro

There are some implications around that as well. We talked about immigration policies. And on that, obviously, Vice President Harris, if she’s elected, probably will be a bit linear or more pro-immigration than former President Trump. That’s probably a little bit more advantageous to Silicon Valley. But the rest of the world will have the effects of that. Everything that affects negatively Silicon Valley or the US in tech affects the rest of the world positively and vice versa. In some ways, the discussion you can have right now, you can take your own conclusion conclusions on who do you prefer to be elected. If you live in France, or if you live in Portugal, or if you live in Japan, or in Korea, or whatever. It’s a little bit of an à la carte decision in some ways.

Bertrand Schmitt

In terms of our take, I think we just wanted to make this episode to try to clarify the points of difference between the two candidates in terms of what impact they might have for the tech ecosystem. As you started the episode with, I certainly agree that all the points, when you vote for a candidate, are not just about the economics and your industry you work with. But we felt it was important to try to highlight these points, given the importance of the presidential election for the US, and by extension, the rest of the world. This is it for today. Thank you so much. Thank you, Nuno.

Nuno Goncalves Pedro

Thank you, Bertrand.

View Details

Did we go from a broad bubble to a gen AI bubble? What is the current state of AI and generative AI? What has been commoditized and what is still distinctive? What does the future hold?

Navigation:

Intro (01:34)
The State of AI / gen AI
On the negative side
On the positive side
Our take
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Welcome to Tech Deciphered, episode 57. This episode will be about generative AI, and we will be asking the question, “Are we in a generative AI bubble?”

Bertrand Schmitt

In our last episode, we talked about AI, what was the latest happening in terms of endpoints, PCs, Macs, iPhones, and is it a risk? Is it a benefit? Today, we’ll talk about what’s happening with GenAI. Is it overhyped? Is it too much investment? On the plus side, we’ll be wondering, okay, maybe it’s not a bubble after all, or even if it’s one, is it such an issue because basically is it laying the foundation for a new stage, a new scale of AI for an act two of generative AI. Good to talk to you today, Nuno.

Nuno Goncalves Pedro

Nice to talk to you as well, Bertrand. I’ll start with my answer. It is a bubble and it isn’t. I’ll come back to that. I’ll leave you guys on that cliffhanger. Let’s start maybe a little bit with where we are in the state of AI and GenAI. Are we at commodity level or not? Adoption levels that we’re seeing in the market. Interesting report from McKinsey. Some around the state of AI, they did over 1,300 interviews. It was really a survey format around AI and GenAI adoption.

Nuno Goncalves Pedro

Some, like the conclusions, increased adoption of AI in at least one business function. Over the last year, this dramatic increase. I’m not really sure. Everyone that said, yes, we’re using it is actually using it. I take that with a grain of salt. This is self-reported, again, and so everyone has to be using GenAI, but everyone’s aware of it. I’m sure there’s an increase in adoption for sure.

Nuno Goncalves Pedro

The second piece that I feel is a little bit more exciting is what are the functional areas of companies that are using AI and generative AI more actively? Maybe not super mega surprising marketing and sales, which is core to some companies, but relatively support function. A little bit surprising to me that people are seeing product in our service development as number two. Surprising to me that software engineering is so low. Again, maybe no software engineer has actually filled in anything around that. That’s why it’s so low or middle of the board, or they don’t know what their engineers are doing, really, which is also interesting.

Nuno Goncalves Pedro

Then very low on strategy and corporate finance were business analysis, triangulation of data, or using ChatGPT, et cetera, I would have taken a little bit for granted that people would be using it. A bit surprising on that. Just feel it’s an interesting… Again, self-reported, it’s a survey. Some interesting conclusions on both sides in terms of the functions, et cetera. Some the conclusions as well on the rapid ascendancy of generative AI.

Bertrand Schmitt

Yeah, for me, what I’m quite impressed, I must say, is how fast generative AI has picked up. I don’t think I remember any new technologies that move so fast in terms of adoption, because here we are already talking about adoption metrics. I mean, it moved from nowhere in 2022, 33% in 2023, 65% in 2024. Basically, as high as the adoption of AI, the general AI adoption took seven years to get there.

Bertrand Schmitt

Here it’s two years. I’m not sure I remember any technologies that move so fast in terms of adoption. It took years and years for smartphone to get there. It took 5, 10 years for cloud computing to get there. It’s really fast, I must say for me, is my first reaction.

Bertrand Schmitt

In terms of function, marketing, I’m not surprised. That’s where you can use generative AI to generate content relatively easily. It’s not mission-critical content, it’s content you can review. At the same time, it can give you some clear benefits in terms of moving pretty fast and needing less resources. I guess for some other function like software engineering, I think right now, I guess the biggest issue is that you cannot trust it. It’s not something that you are ready to deploy in production so quickly, very different from content for marketing.

Nuno Goncalves Pedro

Maybe perhaps a little bit more interesting is the article from Tomasz Tunguz from Redpoint. I hope he’s still at Redpoint, and I didn’t say anything wrong.

Bertrand Schmitt

I’m not sure, actually.

Nuno Goncalves Pedro

Around the evolution. He was at Redpoint.

Bertrand Schmitt

He was.

Nuno Goncalves Pedro

Around the evolution of AI and this notion that it might be following the sigmoid logic, so log scale sometimes. Then sometimes exponential in terms of curves, so the exponential improvement and then log curve, which is flattening out for those who are not familiar with log curves. I would even say maybe it then looks a little bit linear, because if it’s exponential and then log, then it’s basically it looks a little bit linear. A little bit of argumentation around, are we going for the next S-curve? Are we going for the next log curve? Where are we on development? I think our intuition is probably telling us that there’s more stuff to come still on this technology stack.

Nuno Goncalves Pedro

Although this technology stack, as we know, the whole use of transformers to get us to where we got to buy OpenAI and all the other players is definitely, according to everyone that I talk to, not what’s going to take us to AGI. It’s definitely not what is going to take us to the big innovations, the big next themes and the next levels.

Bertrand Schmitt

I really like the way OpenAI has categorized the different level of AI similar to self-driving cars. As a reminder, level one was a chatbot layer, robots that can chat with you. You could argue, interestingly enough, this level one is what used to be actually considered something very hard and the proof we have made AGI, I guess everyone now realize that Turing test is absolutely not enough.

Bertrand Schmitt

Level two: reasoners, robots that use logic to solve problems. Level three: agents, robots that act independently of humans. Level four: innovators, robots that create new ideas independently. Level five: organizations, robots that replicate the work of AI.

Bertrand Schmitt

At this stage, where are we? OpenAI say it’s close to move from level one to level two. We will see. As you say, I tend to agree that at this stage, I feel that we are getting some plateau. Just to be clear, things keep improving. Don’t get me wrong, there are very clear metrics that we improve stuff, but it feels more an improvement through brute force. Let’s move from that many terabytes of data to 10X that terabytes of data. As a source, let’s move from 1,000 GPUs to 10,000 GPUs.

Bertrand Schmitt

Yes, of course, you are improving stuff and the magic things with the current foundational models is that they scale very well with more data as long as quality stays good, and they scale very well with more GPUs. I guess the only issue at this stage is that it doesn’t feel that there will be quantum leaps with this technology in terms of moving to level two, level three, without any separate breakthrough.

Nuno Goncalves Pedro

Yes. We know OpenAI is using other methods and other technology pieces into their technology stack beyond transformers, et cetera. It’s already very apparent that they are. But still, the analogy of this with the self-driving car levels, which if you remember, is also level one through level five. Magically enough, it’s very similar.

Nuno Goncalves Pedro

For those who are unaware, probably today, the best case scenarios that we see out there is like a level three. Some cars don’t even have beyond level two. It’s like they’re telling you, there’s a car on your lane or whatever, that’s nothing. A little bit like the Tesla experience today is on the level three thing.

Nuno Goncalves Pedro

We’re very far from level five. I’m sure, Bertrand, you’ve had similar stories. We’ve been promised self-driving cars for a long. I remember from my perspective, the penny dropped when I looked very heavily into the space, spent over a year looking at companies that were deeply embedded in the architecture of self-driving. Then at some point in time, I ended up spending time in this specific space with just simulation. The area where you simulate behaviour of cars to get those driving miles, but there are actually no cars on roads. It’s actually a simulation.

Nuno Goncalves Pedro

The first thing is, 80% of the players I said was just BS. It looked like gaming simulations using Unreal, and there was no factoids to it. There was no physics to it. There was nothing that they were really testing. Then you got to the other 20%, and you realized these guys are a little bit more legit. Then you realize, well, there’s things that they’re not simulating, for example, like rain and snow, and what happens if there’s ice on the road? At some point you’re like, “But that’s pretty critical, right?’

Nuno Goncalves Pedro

That’s when you realize I spent probably a lot of time around this, 2016, 2017, when you were like, “Oh, my God, this is going to happen.” You’re like, “No, not anytime soon.” Again, this promise that we’re going to achieve AGI with a stack right now, I feel is totally overblown.

Bertrand Schmitt

Yeah, I must admit that one of the rare times where I felt duped by a Silicon Valley bubble was about self-driving around 2015. At some point, I genuinely believe we are one or two years away from self-driving cars. Pretty quickly, I realized I was being lied to. I don’t know if it was really a lie or wishful thinking. For sure, it was a very strong reality distortion field in place. We are in 2024. Today, what we have is level three.

Nuno Goncalves Pedro

At best, it’s not pervasive, right?

Bertrand Schmitt

The latest version of self-driving for Tesla is not too bad, I must say. As long as one is there, I’m fine. I would say that we have one that managed to find out the way to do it. We are still not at level five for driving automation. As a reminder, the Tesla robotaxi has been delayed. We’ll see how many times it gets delayed. But to the point, 10 years. In 10 years, we are still not there.

Bertrand Schmitt

Here with generative AI, let’s not forget that these are the people who told us maybe a year ago that we were very close to AGI and you have to be very careful because these models can become very dangerous pretty quickly. I think it’s totally the same BS. Sorry, but this is not going to happen in one or two years. If it’s 10 years, I guess we’re lucky.

Bertrand Schmitt

I’m certainly not saying it will not happen. What I’m just saying is that there are ways to scale current models, bring in more data, bring in more GPUs, but we are still not at the stage where we can really provide some leaps that bring us to significantly higher level of autonomy and going to a full level five AGI, if you want to call it that way. I think that it’s a similar parallel. It’s a good parallel in a way, self-driving versus the current craze of GenAI.

Nuno Goncalves Pedro

We now have a name for this thing. I remember In previous episodes, I referred to this as the strategist dilemma. There’s a name called Amara’s Law, so a guy called Roy Amara, a futurist. Basically what he said is we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run. I’ve mentioned to this a bunch of times as a strategist dilemma. Apparently, there is a name for it. It’s Amara’s Law, and it’s absolutely spot on.

Nuno Goncalves Pedro

We tend to overestimate the effect of technology in the short run. We underestimate the effects in the long run. We don’t really know what’s going to happen in the long run. But right now, what we’re seeing is we’re grossly overestimating the impact of generative AI in this short run.

Bertrand Schmitt

I want to highlight that we just talk about AGI, how far we are, self-driving, perfect example of how bullshit it can be early on. Another recent example for me was Klarna. They put a press release not too long ago claiming that now they can handle two-thirds of customer service chats in the first month releasing their AI. I was like, “Seriously?” I have not heard any company being able to achieve that. They are the only one. I realized now that people keep talking about them, “Oh, look at how much they did.”

Bertrand Schmitt

Some people claim if the only reason they got great results were how bad was their automation previously. That any bank, any insurance, any other company that is a bit more advanced on any of this stuff, just by using the regular tools of the trade from the 2010s even, you will, of course, have improved a lot your autonomy in supporting customers, in providing some level of autonomy, self-service.

Bertrand Schmitt

Basically, these guys only got great numbers because their base were so bad. That for me is very interesting because most people just copy and paste to press release, it’s great, and don’t try to look deeply into, “Okay, how does it work? Where were they, really?” Of course, if you come close to zero in terms of how you manage stuff, you may make great improvement. But most industries, most companies are not in that spot.

Nuno Goncalves Pedro

Maybe just close the cycle on the BS around it, right? I think it’s a natural segue to what we’re talking about right now. It just takes a really long time. At the end of the day, product market takes a long time. Things to get nailed down takes a long time. There’s been a lot of risks taken in certain things, but honestly, this is the beginning. There’s going to be a lot of these BS stories. “I’m using AI, I’m using whatever,” and you’re like, “Are you really using any AI algorithms?”

Nuno Goncalves Pedro

Then in retrospect, also the other way around, there have been things are using what we now call AI for several years that we never called AI because they were just there. Someone was running algorithms on their data sets, and they weren’t calling it AI. But random force regression, for example, which is part of statistics, actually qualifies as deep learning. There’s all this nomenclature that will make all this bullshit emerge of BS stories around the table.

Nuno Goncalves Pedro

Moving to the structural issue of, are we on the commodity side right now or not of foundational models? Do we think foundational models are a commodity or not? Bertrand?

Bertrand Schmitt

I think that’s a big question because a lot of the craze started with foundation models. The first one to really be visible was ChatGPT. Probably ChatGPT V3 was really a breakthrough for sure. At this stage, my belief is that, yes, they have become a commodity. We have a few of them from OpenAI, to Claude, to Mistral to Llama, that are able to perform at similar level. If we take models of similar size, some of them being actually open weight and free, like Llama, like Mistral, some being closed source.

Bertrand Schmitt

It feels at this stage that if there is some regular improvements, like multimodality, for instance, using tools, controlling tools, in a matter of six months, the competition has reach similar levels of features and performance. It feels like the recipe now is well known. You build used data centres, you operate used data centres, you put in place thousands of Nvidia GPUs, you have a few hundreds, if not thousands of AI engineers, and you bring at scale a lot of data that you scraped from the internet. Sometimes it was authorized, sometimes it was less authorized. Basically, you run that for a few months. If you apply what is relatively state of the art, you end up at similar places.

Bertrand Schmitt

It’s not an indictment. I think it’s great what they are all doing. It’s not saying it’s easy. It’s not saying it’s cheap. It’s not cheap. But it’s saying that it looks like no one seems to have been able to really separate itself from the pack by more than a few months. As a result for me, it’s raising the question, is it a commodity? Probably an answer being yes.

Nuno Goncalves Pedro

I tend to agree with you. There’s anecdotal evidence. I was proposing an episode to Bertrand. I’m eventually going to convince him to do this episode, which is we, for a couple of weeks, run everything in parallel. With Claude, with ChatGPT, with Gemini, we see the answers across a variety of topics, and we start figuring out what are the ones we like the most, who’s performing the best in different topics, et cetera.

Nuno Goncalves Pedro

I started the inklings of that, running a couple of questions across the three, and honestly, it’s shocking how many of the answers are very, very, very, very similar. Obviously, same prompt, but very, very, very similar. These are very open questions.

Nuno Goncalves Pedro

I asked one question, which is, “What should we do in Tech Deciphered in our next episode as ideas?” They all came up with really great ideas. Magically enough, they were all very similar. It’s grand that they knew what Tech Deciphered was, so that was cool. It’s surprising to me in that sense. That’s the anecdotal piece of the puzzle. I don’t know. I just still think from a data set perspective, there’s still private data sets out there, et cetera. I’m not sure that extrapolation of it’s all commoditised, it’s truly there. There will be vertical AI applications with private data sets that people won’t have access to.

Nuno Goncalves Pedro

Today, we have copyright infringements on public data sets or relatively public data sets once people get access to them, which they shouldn’t. But certainly on private data sets, I don’t know. I’m mostly there with you, Bertrand, that maybe we are closer to commodity than we think we should be. But I can’t believe that all the data sets in the world have been encapsulated by these guys, so we’ll see.

Bertrand Schmitt

Yeah, we will see. Also, another piece of the puzzle is that we have seen a new wave of computing device that are natively AI-enabled, so new APUs, new CPUs with NPUs, neural processing units for the latest Windows PCs, for the latest Macs, the latest iPhone, iPads. They are all AI-enabled in hardware, at least the most recent devices. The software is also becoming there with the latest version of Windows, of macOS, iPadOS. But it’s not really obvious in terms of end user features that there are breakthroughs, to be frank.

Bertrand Schmitt

Of course, we have some improvements in how the camera is working, how noise-canceling is working, that stuff. But in a way, it’s more of a natural progression. Of course, there are some new tools to write documents, to generate some graphics. But it’s not clear-cut that we have seen some killer apps at this stage that justify this level of investment and new hardware deployment.

Nuno Goncalves Pedro

Yeah, and it might be that it’s just on a different curve, right? In some ways that this generative AI thing, which for us seems like it happened overnight, is now on the mass adoption curve, so it went very quickly through all these different hoops of getting with early adopters, then early majority, and now the mass majority.

Nuno Goncalves Pedro

In some ways, a lot of these tools, both on the software and on the hardware side, are going through similar cycles, but maybe they’re going at a slower pace. People are not then willing to take risks on those products that are out there. I, as a developer, am then not willing to use them because there is an intrinsic risk. It’s not an early majority play yet, and so I’m like, “I’m just going to wait and see what’s going to take off.” Because then you start having noise, right? Maybe that was the advantage that ChatGPT had. It didn’t have noise early on. It took a while for others to catch up. Maybe they just not jumped, but they went very quickly through the initial stages of adoption, whereas now it will be increasingly difficult.

Nuno Goncalves Pedro

Maybe for the huge elephant in the room, is there overinvestment in AI startups in public markets? Obviously, Coatue, for those who don’t know Coatue, they’re a significant hedge fund. They also have a growth equity practice that’s well known, and they, I believe, still have a Coatue Ventures, which is more focused on the venture capital side of the things. Philippe Laffont, the founder, and I don’t remember his title, but he has a funky title. He’s Portfolio Manager. I think that’s what he says in the interview. I’m a Portfolio Manager. I want to be a Portfolio Manager when I grow up then as well, like Philippe.

Nuno Goncalves Pedro

For you guys who haven’t watched it, there was an interview with him and David Rubinstein, who’s obviously super well known, mammoth of the investment industry as well. It’s worthwhile watching. It’s a really interesting interview. There’s a lot of little titbits that come through on how someone behaves, how someone takes it and scales it to the next level, et cetera. But his point is that we’re close to this notion of we’ll now have several companies at 2-3 trillion market cap when a trillion was the big number back in the day.

Nuno Goncalves Pedro

Then there’s all these market caps out there, like S&P 500 is at 50 trillion, and global market cap at the 110 trillion. Is this a, “Something’s got to give”? He talks a lot about this notion of the winner tends to win, the big tend to get bigger.

Nuno Goncalves Pedro

We used to have this rule of three, which is in a specific industry, depending on the industry, it might be on a specific geo as well, or geography as well. The number one wins clearly, the number two does super, super well, the number three barely lives, and then all the others over time get killed. Obviously, there has to be some market definition into this. What is a market? Is it just the geography? Is it very specific sub-sector, et cetera? But I feel that still applies.

Nuno Goncalves Pedro

The question is, “Is now everyone rising to the top because it’s unclear who the winner is?” But once the winner wins, then we have this notion, again, of number one, number two, number three, and therefore a lot of these valuations will need to get rebalanced? That’s one thing. If there’s that, then there may be some significant overinvestment. A lot of these players are getting kicked in the ass, pardon me for my French, kicked in the ass on their valuations immediately with their latest earning reporting.

Bertrand Schmitt

Yes. One point he was making is that AI was clearly the dominant driver for stock market return in H1 2024. That’s a very important useful metric to keep in mind. At the same time, it’s stock market return, so this can change. At the same time, what was true is that some of these big companies were increasing their earnings significantly as well. Of course, Nvidia is a clear leader, but in that quote-unquote AI space, a lot of other companies were included there, like Microsoft, like Google. It’s clear it has had a huge impact in H1, and not just H1, but also 2023. The question is, can it keep running that way? I think on the street, it feels less like this, to be frank. There are big questions. Can it really sustain itself?

Bertrand Schmitt

Another question he was raising was, is it too hot right now in terms of VC in AI funding? It’s clear that there are some significant questions you can ask yourself. Some metrics are pretty impressive, because if you take AI startups right now, it’s 3% of total deals, but it’s 15% of total capital. It’s 5x the valuation of other deals, and it’s 6x the round size. I mean, this is difficult to sustain, especially if you don’t generate the metrics that go with this level of expectations.

Nuno Goncalves Pedro

I think there’s definitely a bubble in AI VC funding. I mean, it’s silly. I mean, the numbers you quote are silly. Just to be clear on the valuation, the 5x, it’s for Series B and Series C equivalents. There is a capital intensity to it. But then there’s areas that are actually underfunded. I mean, semiconductor has received very little funding, because everyone believes semiconductor is very difficult to scale.

Nuno Goncalves Pedro

But there’s pieces of the architecture of delivery of AI that are just totally broken. Switching, et cetera. It’s like, shouldn’t semis also be funded and stuff? We just funded a company in the space, not on the switching side, but on another side. There’s a little bit of a parochial speaking to myself here in some ways, but definitely there’s underfunding. The rest of the VC market funding is stabilising, and then AI is nuts.

Nuno Goncalves Pedro

Part of it, I believe, is what I call intrinsic noise. People just want to get into the latest big thing and put a ton of money in the area. Shockingly enough, that’s been the best funded is the models area, according to the COA2 analysis, at 14 billion. That’s silly. If we believe that models are actually getting more and more commoditised, then it’s like, “Really?” Is this an arms race and someone’s going to buy these guys out, and are they going to buy them at the premium?

Nuno Goncalves Pedro

Again, it just feels like a tremendous bubble where in a very classic lemming mentality, because public equities have gone through the roof. We VCs are now jumping into this boat and just saying, “I’m going to put money in this, then money in that, money in that, and whatever.” Maybe. I think it is, honestly.

Bertrand Schmitt

I think the models space is not really a VC game, it’s a big tech game, because you can afford the scale, the size, the CapEx, the continuous financing that you need, and you just generate cash. That’s a way to use that cash. Actually, like Mark Zuckerberg was saying, if you are a big tech, you cannot afford not to do it, because you don’t want to depend on your competitions, competitions’ model and data centre and the like. You have to do it anyway.

Bertrand Schmitt

The space left for startups, and I would say that OpenAI might be a special case. They started so early. They have been there for so long. They have made so many breakthroughs. So they might be the exception to the rule. But it will be a tough one to keep investing. I mean, we might see a Mistral, because they are EU-based, they get EU financing, and that is a special category. Maybe xAI can have a different approach, more focus on freedom of speech, and that generates some interest from that perspective. But I think it will be a tough one, because you need to be able to convince that you are going to spend billions while you are facing the biggest competitors it can be, and performance just seem to converge.

Nuno Goncalves Pedro

Yeah. Again, to our question, why the hell are all these models companies getting funded? No answer yet. We’ll soon find out.

Bertrand Schmitt

I would not bet on this. Going to that Sequoia article a few weeks ago, that $600 billion question. I like big questions. It was a nice blog post from David Kahn, and basically was simply running some metrics. Nvidia, there is a run rate for the data centre revenues, that is around $90 billion for Q1 2024, estimated to be $150 billion by end of year for Q4. When you consider that it’s only one half of the cost of running a data centre, that means that the implied data centre spend is $300 billion for AI data centre, for AI spend.

Bertrand Schmitt

Then you have a software margin of 50%. That means that if you build software on top of this, then it’s $600 billion that are required for payback. From $150 billion of run rate revenues from Nvidia, that’s real, we need to generate $600 billion of AI revenue for that payback, $600 billion revenues. The big issue is that we see billions today from OpenAI, from Microsoft, from a few others, but we don’t see hundreds. I’m not even sure we have reached tens of billions.

Bertrand Schmitt

That’s a big discrepancy that everyone is talking about. It’s not new. It’s been a year that some have raised the question. To be frank, it’s normal. You start to invest first, and you have to do this CapEx investment, and step by step, you generate revenues. I think here, maybe the question is that we don’t really know where it will come, when it will come, and if the guy who has spent all that money are going to reap the revenues.

Nuno Goncalves Pedro

Yeah, I think the points that are made, this is a revisiting. If you guys didn’t read the early articles from Sequoia, it’s a good read. I think it’s based on the Act 2 doc written by Sunyu Wang back in the day. I think he published something on AI’s $200 billion question, and now it’s $600 billion question. I agree with most of what he’s saying. I think there is a little bit of underpinning. When he talks about the infrastructural piece, maybe there’s a little bit conservativeness. There is this, for example, the notion that all data centres are going to be commoditised, that GPU computing, obviously, is turning into a commodity.

Nuno Goncalves Pedro

A lot of this is correct, but as things develop, there’s frames and things that come out of this that are not totally true. There’s pieces of this puzzle architecturally that don’t tend to commoditise immediately. I don’t know. I have some doubts that the notion of it is, “Oh, my God, this is all going to implode,” whatever. It’s, again, back to the Moore’s law, as I was saying, I think there’s pieces of what we’re building today that will be valuable in the future.

Nuno Goncalves Pedro

Now, obviously, there’s pieces of tech that will become obsolete, because as we know, tech becomes obsolete, and there’ll be new pieces of tech that will replace those pieces of tech. Chipsets, et cetera. But still, there’s a little bit of, I believe, the take it on the low side and, “Oh, this is not going to scale.” I’m not sure. There’s definitely still a lot of runway, and saying this is a tens of billions of dollars play. I can’t believe this is a tens of billions of dollars play. It has to be a hundreds of billions play. Now, the question is, are these the players that are going to dominate those spaces or not?

Bertrand Schmitt

I think that’s a big question. I agree with you that I also believe it would be hundreds of billions. The question is, is it in two years from now? Is it in 10 years from now? Do you need to spend even more to get there?

Nuno Goncalves Pedro

Maybe, yeah.

Bertrand Schmitt

Who will get the money ultimately? Because if you spend a lot of this money, but you are not yourself generating revenue, that will be definitely some issue.

Nuno Goncalves Pedro

There’s clearly a subsidisation right now of certain players in the market. Nvidia is definitely getting subsidised. It’s getting subsidised by the big players. It’s getting subsidised by VCs giving money to startups to give money to Nvidia. Definitely, there’s a huge amount of subsidisation going on. Now, well done by Nvidia, and it’s amazing what they’ve built, and we all count on them to be helpful to us and all that stuff.

Nuno Goncalves Pedro

But at some point, the money needs to ripple back to the other layers. If it doesn’t ripple back, this is not sustainable, therefore it implodes. The valuations don’t make sense, and all of this is write-off investment. I think that’s the question that in some ways David is asking. It’s like, “Are we sure, or are we going to have to write off 90% of all investments that we’re doing around some of this stuff?”

Bertrand Schmitt

It’s good to see a VC asking this question, because in some ways, you could argue they are part of the problem. Sequoia is one of the lead investors in a lot of AI runs. They put a lot of money to work there. I think it’s a good point in some way. I don’t know if it’s really raising the alarm, but definitely raising questions. Goldman Sachs also had a report recently raising similar questions. Are we spending too much money for too little benefit? I would say here that some that are writing that don’t seem to believe at all where AI is going. I think that’s a different issue and that does not make me afraid.

Nuno Goncalves Pedro

I read it thoroughly. It was more in an interview format, right? Talking to different specialists, some internal analysts and some external experts. There’s a little bit of naysaying there that I feel is more religious than truthful. It’s more like, “Oh, I’m not part of that religion.” I’m like, “Cool.” But it’s like, “This is happening like this.” If we’re asking someone who’s from a different religion, “Do you agree with this?” Well, of course, I don’t think it’s going to happen.

Nuno Goncalves Pedro

Some of the points I think that were made really around quantitative analysis and what’s happening are interesting to me. For example, around the energy lack that we have, the build-up of energy we need to have to develop these things and to get to that level. I think that analysis was quite interesting and strong. There’s a couple of things that are saying, “Look, even if you want to go really fast, guys, there’s a couple of other issues you need to solve first.” Like, “Oh, cool. Data centres, how do they get energy?” Right? “Oh, energy. Electricity.” I think there’s just this ripple domino of you touch one, and all of a sudden, you realise the problem’s down at the level that you thought was solved, but it’s not solved at all, right?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

I think that part was interesting. That part of the report was quite interesting from Goldman Sachs.

Bertrand Schmitt

Yeah, I agree with you. I felt that some interviewees, especially one MIT professor, were disappointing in the quality of their analysis, their understanding of AI. But I agree the energy piece was probably the most interesting in this report. Energy is interesting, because it’s not as if you can launch new power station that easily.

Bertrand Schmitt

Interestingly enough, one point that resonated with me was they were explaining quite clearly why we didn’t have an energy issue with cloud computing. Basically, it is because cloud computing was a replacement for private data centres. Cloud computing actually is inherently more efficient than these disparate corporate private data centres. In a way, the transition to cloud computing was a net benefit in terms of energy consumption. Even if cloud computing itself increase in volume, the gain in efficiency was a huge compensation for this. Therefore, we didn’t get a real energy issue.

Bertrand Schmitt

However, we’re at this stage where we are back to where we used be with private data centres, because now cloud computing has scaled so much that it has not simply replaced, but it’s beyond in energy consumption. We’re adding a new layer with AI that is clearly new and was not there before, and that is consuming enormous resources in some cases.

Bertrand Schmitt

If we start to plant 10 years ahead in terms of what could be the need, if we see that ongoing growth in AI build-up, then we actually have issues. We have issues, because unfortunately, in the West, our capacity to build new energy power source is not good. We don’t build that much. We don’t build that reliable. The most reliable of all, most efficient of all, nuclear, is not being built at scale these days, unfortunately. We really have an issue in terms of how we scale our computing for AI if basically we have a wall in front of us in terms of energy consumption.

Bertrand Schmitt

Reading a recent paper from Meta, actually, it was interesting to see that it’s not just the energy consumption itself, it’s a grid. Basically, when they are starting and stopping some training exercise they do, when you are managing thousands of Nvidia GPUs at scale, and they need to be synchronised. When they all stop and when they all start, we’re talking about megawatts of powers going immediately up and down and apparently straining the grid significantly. It’s not just how much capacity you have, it’s also how you use the energy and how you learn how to better use the energy grid in new ways.

Nuno Goncalves Pedro

Indeed. Moving to the positive side, assuming this is not a bubble. This is really just the beginning. The bubble is really not there. I mean, one point that can be made is the classic Gartner Hype Cycle, because we’re going so fast through these transformations. We’re already at the peak of inflated expectations, and we’re about to go into the trough of disillusionment or value of disillusionment, as I used to call it back in the day, in the next few months, even a few years, because we’re just going faster.

Nuno Goncalves Pedro

Now, the good news is if we’re going very fast through the cycle, the next part is going to be the slope of enlightenment, and then we’ll have the plateau of productivity. Anyway, the cool stuff is maybe it’s just because we’re going so fast, we’re going to go thrust through the cycle as well. Therefore, all this money then doesn’t go to waste because of speed, right? The money doesn’t go to waste because of speed in some ways, and we go on the other end.

Nuno Goncalves Pedro

There is also a little bit of an argumentation that there’s other S-curves coming. That there’s a lot of tech that is and can be deployed and new methodologies that can be deployed today that will give us that next exponential acceleration of innovation in the space. Do you buy it, Bertrand?

Bertrand Schmitt

I certainly buy the fact that we are in a very, very, very typical hype cycle. It has been maybe the strongest hype cycle I have ever seen coming out of Silicon Valley. There have been many, and they try hard to make them very big, very fast all the time. But this one was insane, to be frank, totally insane in terms of scale, in terms of speed. I can see that we are past that peak of inflated expectations. I think we are getting soon to the trough of disillusionment.

Bertrand Schmitt

The question is, how fast will we go to that slope of enlightenment? That’s really the question. Is it 3 months, 6 months, 12 months, 24 months, 48 months? I don’t know. What is clear, however, is that if you look at the story of AI, there has always been some AI winters. Will it truly be a winter? I’m not sure. I think there is that belief that we have delivered something new. A new technology, a new layer of infrastructure has been put in place, that we will all benefit. In a way, you could argue it’s like laying down fibre in some ways. Now we have GPUs everywhere. We have put new tools to make them at scale.

Bertrand Schmitt

As you said before, definitely we have an issue that it’s not like fibre, that once it’s laid down, you can keep using it and improve it on both ends. Here, you have to replace the GPUs, and we know they improve very fast. An investment of $1 billion today might be worth $200 million in two years from now. There is that issue. But I feel we have laid down some very important foundations, and that is what is getting me probably quite excited for what’s coming soon.

Nuno Goncalves Pedro

Instead of a winter, which is three months, it might be like a Beijing autumn, which is like 1-2 weeks. It’s going through Beijing autumn. Best time of the year in Beijing. Very short, though.

Bertrand Schmitt

Very short, yes.

Nuno Goncalves Pedro

Very short. Other points that have been made is that there’s no bubble, because there isn’t a huge market in technical risk, that a lot of this is tagging along solutions set that are well known. They’re going to have immediate applications, et cetera. I have some view that maybe that is true for some of the stuff we’re seeing around consumer. Maybe that’s the reason of success for something like ChatGPT, because it really tapped into something that’s pretty core, that consumers are figure out, like question and answer chatbot interactions. I’m not sure that would be a great justification for why there isn’t an actual bubble. There still might be.

Bertrand Schmitt

Yeah, on this one that there is no tech risk and no market risk, I think it’s missing the point, because there is no tech risk, quote-unquote, yes, if you have billions to spend and if you just look at the current scaling law for foundation models, yes, you can keep improving by adding more data, adding more GPU. You will get better metrics. But as we discussed before, it’s still missing that piece around significant new change in algorithm in order to get to a totally different level. I believe that we don’t know, we don’t have a clue how to do the next significant jump.

Bertrand Schmitt

I think for me, it’s quite different if you compare to the history of computing. There is always some level of path to the next gen of CPU, the next gen of GPU, the next gen of modem. We know how to optimise the build-up, and we have passed to get there. Even if some people are pessimistic once in a while, there is always some new stuff coming up and some stuff that you see where it’s going, and it could help you in 2 or 3 years. I don’t think it’s true in AI. I think in AI, what we know is how to scale the current models approach, but we don’t know at this stage what could be next. That’s a layer of uncertainty in tech risk.

Nuno Goncalves Pedro

The product market fit part of the question depends on the product aligning well with the market need. I think there are areas where, again, we’ve already seen it, the channel is very obvious. I will use this because that’s just a different channel for me. It just gives me a better response and a different response. We’re talking about the consumer side and the ChatGPT use cases, for example, as just one of the examples on that. But then there’s other areas where it’s still very unclear, that business use level and where does it integrate and how does it use the data sets. Things are still moving very, very rapidly there.

Bertrand Schmitt

Yeah, I think the no market risk point makes no sense. I mean, it’s like saying that, “Yeah, because now everyone has a computer, everyone has a phone, there is no market risk. As long as it’s cloud AI, you can scale it to the world in a matter of months.” Yes, that’s true. ChatGPT demonstrated you can scale very quickly. At the same time, it’s clear they have retention issues. It’s clear they have usage issues.

Bertrand Schmitt

For me, it’s clear that there is still, as you say, a product market fit question for the foundation models as well as for apps on top of them, because it’s not as if we have seen thousands of them scaling. There is still a market risk, but yes, the underlying market is there for the taking.

Bertrand Schmitt

But it’s true of many things in tech today. It’s true of SaaS, it’s true of so many things. Yes, today you can assume that you have billions of smartphones, hundreds of millions of computers, and that they can be used to access your products, whether it be generative AI or something else.

Nuno Goncalves Pedro

I think also we’re potentially not in a bubble. We’ve mentioned this before in different ways. Obviously, we’re sharing some of our readings like the foundation Capital article and the Sequoia article, but it aligns well with some of the discussions we’ve had before at Tech Deciphered.

Nuno Goncalves Pedro

The build-up of this app economy, that’s how I would basically frame it. The fact that we have these foundational models that are more cheaply accessed today, but were sci-fi several years ago. The fact that as a startup, I can now figure out really more around what’s the application of the models. It can do a little bit of algos or algorithms on top of it, but I can really focus on the application of them and go after very specific use cases that generate value to customers in that space. For example, in B2B, to consumers in that space in the case of consumer, I think is a really good case.

Nuno Goncalves Pedro

I’ve mentioned several times. I do think there’s an app economy emerging. It’s an AI app economy. There’s good things about it and there’s bad things about it. Maybe we will get back to the bad things in a second.

Nuno Goncalves Pedro

But the good thing about it is there’s value. There’s value add there. There’s going to be SaaS companies that are going to emerge that are going to do well. There are going to be consumer apps that will emerge that will do well. There won’t be a lot, but there will be some. That’s one of the key pieces that I think is quite exciting about where we’re at. Now we have platforms that everyone can lever or leverage to take it to the next level.

Bertrand Schmitt

I totally agree with it. Myself, I’m very excited. In a way, I feel some of us are getting for free hundreds of billions of dollars of investment.

Nuno Goncalves Pedro

Well, some of us are investing as well, so it’s not totally free.

Bertrand Schmitt

To be clear, the models we’re having I mean, take that GPT-4, take Llama 3.1, I mean, it will have been sci-fi two years ago. Just two years ago, this will have been complete sci-fi. You will have asked people, When do we get this functionalities? People I’ve said maybe 10 years, maybe never. It’s clearly amazing what we managed to build. We have said a few times now that we don’t know where the next Leap in LLM is going to be in order to really improve the intelligence.

Bertrand Schmitt

At the same time, they Definitely, new features have been released that significantly change the game, like Multimodal models. Now you can combine not just text, but video, audio, presentations as input, and you can also generate that. It’s very exciting, and it certainly expands the type of products you can build as a result.

Bertrand Schmitt

Two, there are some new technologies like multi-agent systems, like new model architecture that are happening and that are being in place. I must say that there are stuff that feels next level. The question for me, if I’m putting my entrepreneurs at, my tech would be, today you have some new tools.

Bertrand Schmitt

If you had started a startup, let’s say, 15 years ago, your new tools in front of you would have been either cloud computing or mobile platforms. If you had started 20 years ago, your new tools would have been computing at scale, you would have new database capabilities.

Bertrand Schmitt

My point is that as an entrepreneur, you should consider some of these foundation models as new tools that you can leverage. I don’t think, personally, you should reinvent the wheel at this stage. You should let big tech spend hundreds of billions of hard-won dollars in building new foundation models at a relatively cheap cost for you and think about, “Okay, I have these foundation layers, there are customers in front of me. How do I bridge a gap between the two? How do I bridge a model that in itself has some value, some use?”

Bertrand Schmitt

But practically is very brutal. It’s very method in what it can do in terms of what it can truly solve today in the sense of stuff that is repeatable, that is useful, that can significantly increase human work or even replace human work and run with it. I think that’s the right approach, and I think that can generate actually a lot of returns.

Bertrand Schmitt

I mean, if you compare again with SaaS, at the end of the day, yes, the hyperscaler built a lot of value, generate value for themselves, but also the new class of SaaS companies to develop, to expand at a pace never seen before. I think that’s something similar that we’re going to see in the years to come. Companies that smartly bridge a gap between foundation models and real customer needs.

Nuno Goncalves Pedro

Totally in agreement. What’s our take, Bertrand? Do you want to go first? Do you want me to go first? Do we think we’re in a bubble or not?

Bertrand Schmitt

I guess I will say like you started, yes and no. I think we are in a bubble from a valuation perspective, amount-invested perspective, and expected return for the same actor perspective. At the same time, it might be the right thing to do. If you are the meta of the world, can you afford to stay on the side? Can you afford to depend on somebody else’s platform to run your business in the years to come?

Bertrand Schmitt

Probably not. You might have no other choice. You know what? Good news. You are printing a lot of money, so you have to use it. But it means also that your margins might decrease. On the bad news side, for sure, if you’re an investor who put a lot of money in some public companies or private companies, and the expectation that it might radically change our business? I don’t know.

Bertrand Schmitt

What I know is that there is a new business that is going to grow up. Is it OpenAI that will transform it business model? Is it some new actors that will, again, bridge that gap between foundation models and real customer needs? I don’t know, but personally, I would bet on some new startups, definitely.

Nuno Goncalves Pedro

My take is, again, I gave my take at the beginning, yes and no, we’re in a bubble. I think there are areas where we are in a bubble. Large language models, the guys who are going to disrupt the space around LLMs, et cetera. Not sure how are you going to make money out of that in particular, as you said, because the incumbents have a huge incentive of just putting the CapEx in and whatever. This is very interesting because it reminds me of telecom. It’s like when You launch 3G, and you launch 4G, you just have to do it because that’s the only way. That’s the only way.

Nuno Goncalves Pedro

These guys are doing the same. It’s like, “Okay, it’s Gen AI, we’re going to all do it. We’re all going to do Gen AI. It’s like the next platform for everyone to be served by us.”

Nuno Goncalves Pedro

In some ways, that’s the analogy. Pockets like, for example, large language models and the building of foundational models, I have a lot of skepticism around that. There maybe some areas that are less broad, that are more verticalized, that are interesting. I think in infrastructure, it’s badly distributed. The money is all going to NVIDIA, but we need more innovation in that space.

Nuno Goncalves Pedro

It’s clear that there will be stuff around FPGAs, ASICs, et cetera, that will emerge, that will in some ways address the methods of the future and will help us with things like inference and stuff like that. There are definitely a lot of things happening in the InfraSight that I believe it’s not in a that I believe it’s not in a bubble, but it’s just inadequately distributed.

Nuno Goncalves Pedro

It probably will still grow even more. There’s probably the need for more innovation there. On the app side, on the application side, I think there is a bubble. Again, it’s a bubble that is maybe unevenly distributed. There are companies that are raising a ton of money, and they are literally just apps. I’m not really sure. I don’t want to diss any specific investors, but I’m not really sure if their investors have figured it out yet.

Nuno Goncalves Pedro

If they’ve been confusing capital intensity due to actual development of platforms with the capital intensity of becoming a successful app, which are totally different things. One is a channel discussion, the latter, and the former one, it’s a channel discussion because it’s about getting users, customers, et cetera. Whereas the former, it’s a discussion around technology differentiation and moat.

Nuno Goncalves Pedro

If you’re in the ladder, and you’re putting a ton of money into a company, you should know. Because you might still not do well, and you don’t have a tech moat. Cool.

Bertrand Schmitt

Yeah, it’s actually dangerous because you might create really bad habits and stuff to come back. It might not be clear at all. It wasn’t a necessary investment.

Nuno Goncalves Pedro

That’s where the subsidization to NVIDIA happens It’s probably at the most significant level. It’s not just subsidization to NVIDIA, it’s going to be subsidization to NVIDIA. It’s going to be subsidization to whatever cloud provider they have, to Microsoft, to Amazon or to Google. It’s going to be subsidization for the models that you’re using. You’re basically passing all your money as an investor to the startup so that they can pass it along to the entire value chain of big tech. It’s a waste of money.

Bertrand Schmitt

To be clear, I believe NVIDIA is a really fantastic company. I mean, it’s a company I follow for decades. It’s an amazing company. I mean, they made the whole AI revolution possible with invention of the GPU and leveraging the GPU as an AI computing unit. But yeah, a lot of money is going their way because everyone has to spend. But in some ways we are lucky they are there, and they enable all of this. I don’t know, to be frank, if it would be easy for anyone to compete against them because they have been at the game for a long time.

Nuno Goncalves Pedro

No, but people can… Again, the big guys, the apples of the world, not unknown for doing their own Silicon. At some point, might start doing their own Silicon. Why not?

Bertrand Schmitt

They are already doing their own Silicon.

Nuno Goncalves Pedro

That’s begs to say, I mean, I’d be shocked if Google is not looking into it. They’ve been doing a lot of stuff around ASICs for many years now.

Bertrand Schmitt

They have their own TPUs, Google.

Nuno Goncalves Pedro

At some point, these players, let’s see what comes out of it. In conclusion, this is episode 57 of Tech Deciphered. Are we in a Gen AI bubble? The conclusion, as you guys just heard, is we are and we aren’t. Great conclusion, but a nuanced conclusion nonetheless.

Nuno Goncalves Pedro

We went through the state of AI and generative AI. We discussed the case for the bubble, so the negative case. We discussed the positive case, the case that we are not in a bubble. This is just business as usual. It makes eminent sense. Maybe there should be even more investment. Finally, we shared our take on the bubble, whether we believe that we are in a bubble or not. Thank you for listening to us today. Thank you, Bertrand.

Bertrand Schmitt

Thank you, Nuno.

View Details

AI is literally everywhere… in our mobile phones, laptops, their chipsets, etc. As integrations increase, what are the implications for everyone? Why are all the announcements from Microsoft, Google, Apple, Open AI and others, important? One of those episodes that you really need to listen to, as this IMPACTS YOU and all of us

Navigation:

Intro (01:34)
Getting us all on the same page
This matters TO YOU!!!
Open AI launching 4o
The responses
So… What?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Hi, welcome to episode 55 of Tech Deciphered. In this episode, we will talk about open versus closed and proprietary. What does it mean in technology to be an open or closed application? You have all heard about open-source, I guess. There is a saying in Silicon Valley, if you are first, you close it. If you come late, you open it.

Bertrand Schmitt

Basically, it means that you might have an advantage being the first player on the field. You might afford to be able to close-source your product, your software, your application. But if you are late to the game, late to the party, and it’s difficult to fight the leading player in the marketplace, maybe an alternative strategy in order to gain distribution is to open-source your product. There have been many examples of this through Silicon Valley history. Today, we are going to talk more about all of this. Good to see you, Nuno, today.

Nuno Goncalves Pedro

Nice to see you as well. Shall we start with history—the history of open-source? It’s apparently the first known system that was supposedly open-source or in public domain was in the ’50s, the A2 system in 1953. Basically, it was a compiler. A compiler is what turns source code into binary code that gets run by a machine.

Nuno Goncalves Pedro

It’s what allows you to run apps on, for example, your phone and things like that, a compiler. I know some of you that are like, I’m a computer engineer. Is that a compiler really or is it an interpreter? Let’s forget that for a second. Let’s call it a compiler just to make life easier for everyone involved.

Nuno Goncalves Pedro

That was the first public domain open-source thing that we know. Then there isn’t much, ’50s, ’60s, ’70s, there isn’t much. Obviously, there was the summer of love at some point in the late ’60s, and maybe through the ’70s, people started thinking through, shouldn’t we be doing things that are more open? One of such people was a gentleman called Richard Stallman, who’s still alive, so you’d shout out to him. He was part of this “let’s call it hacker community” from those days and was doing some interesting things around it.

Nuno Goncalves Pedro

There was this belief that source code shouldn’t be closed, that if you were monetising something quite a lot, and you were putting even certain things in your code, that if, for example, you were using unlicensed applications, so unlicensed binary, that you would run into trouble and have other issues. So he manifested himself against it and came up with something that we’re still using till this day, the GNU or the GNU Project and GNU Manifesto. Now, GNU, this is the funny part—some of you will find it funny, others might not—stands for GNU’s Not Unix, which is a recursive acronym. You have to appreciate computer scientists and computer engineers coming up with things like that.

Nuno Goncalves Pedro

But its GNU is GNU’s not Unix, because at that time, Unix was a proprietary or had been made over time a proprietary platform by a couple of big companies in the market. There was this view that they wanted to, in some ways, get out of that space. The GNU project was born, and we, till this day, have what we call GNU general public licences, GPLs. You probably have heard about this. Now, it’s in the ’90s, early ’90s, that we have the biggest movement, I think, in the history of open-source with a gentleman called Linus Torvald.

Nuno Goncalves Pedro

I probably butchered his name. Linus Torvald, something like that, pushed a version of a kernel that he had. Actually, the first version he had was not open to the public, but then he released it to the public under a GNU licence. And that operating system was called Linux. And the rest is history. Linux has led to many other things after that. It’s a wildly used operating system globally, in particular on the server side, with many variations, and we’re off to the races.

Nuno Goncalves Pedro

That’s the shortened version of how we got here in some ways. Then there’s a lot of cool things that happen afterwards, but that’s like seminal moments are GNU and Linux. That’s the two things you need to remember.

Bertrand Schmitt

Yeah, and if I may say, Linux is really the kernel, and then you have by extension, Linux, the operating system are actually combining a kernel plus many tools from GNU or not GNU. Just to remind everyone, the Internet is running on Linux.

Nuno Goncalves Pedro

On Linux?

Bertrand Schmitt

We’ll talk later about a lot of our other open-source software. It’s not just Linux, but so many components of the Internet that are running on open-source software. Also, just to be clear, the first definition of open-source was coming from our friends at GNU, but ultimately, there has been competing initiatives to define or redefine what is open-source.

Bertrand Schmitt

One organisation in particular, the open-source Initiative, OSI, has tried to codify their own way and probably in a different way, what is considered open-source or not. They have this official definition they published in 2006, and they keep updating them for GNU, they keep generating new definitions and creating new or updating licences.

Bertrand Schmitt

We have multiple licences possible when we talk about open-source, which can create some misunderstanding about what is exactly open-source or not.

Nuno Goncalves Pedro

We’ll come back to the more bad use of open later in this episode where obviously there are people that use open, and it’s not open at all.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

But these are seven moments in real open-source. It created a movement, it created a way of doing things. It created a mindset on how people can share each other’s source code. At the very nature, open-source starts from there. It starts from the notion that source code, not the binary, not what’s created by the compilers that then is run as an application, but the source code itself can be shared for free.

Nuno Goncalves Pedro

That’s incredible. That’s like the religion of the time was a religion of we have all these big monolithic companies like IBM, Microsoft emerging, etc. It’s someone that’s saying, “No, we don’t accept the closed ecosystem play. We want to have code that is shared globally.” In some ways, that movement is now probably the dominating movement in the world in terms of source code sharing.

Nuno Goncalves Pedro

Obviously, as we know, there’s a lot of people profiting out of code today. There’s ways of keeping your code intact and keeping things in-house. But the open-source movement has changed how things are done. It is a quasi-religious movement. It’s this notion of you have… There’s copyright. I enforce my copyright, the entitlement I have to this thing that I developed.

Nuno Goncalves Pedro

There’s copyleft, which is a term that came from open-source, which you are obliged to share under certain licences all the stuff that you developed around it. To your point, there are coexistent pieces. We’ll come back to that later when we talk about Android and Google and the Android open-source project versus Android itself. What is closed? What is open, and how do some companies do well in maintaining these two aspects working really well, like the openness and the closeness piece?

Nuno Goncalves Pedro

I think Google does a decent job on Android. We’ll argue later if that’s the case or not. And yeah, it all started, similarly, with this gentleman Richard Stallman, and then with Linus just giving us Linux, and everything changed.

Bertrand Schmitt

Yeah, it’s really amazing when you think about what was happening at the time. If you think about the ’90s, it was the rise of Microsoft, from DOS to Windows, and Microsoft becoming at some point one of the most valued company and at the time certainly fighting tooth and nail against.

Bertrand Schmitt

Open-source was considered evil by some corporations when actually no, it was just a movement and a different approach to business and willingness to develop things in a different way and a way that was more open, transparent, collaborative, and especially important you could argue in the age of deploying applications everywhere, depending on these applications’ stability over time. It is a significant evolution of the history of computers and programming.

Nuno Goncalves Pedro

Microsoft will keep popping up in this episode. Just to be very clear, this is not their first rodeo. They’ve been having these fights or antitrust cases, etc. In some ways, a lot of the reactions we saw, even with Linux, Linux becoming such an important operating system, certainly server-side globally, has to do with a fight to Microsoft.

Nuno Goncalves Pedro

Because obviously, as you said, Microsoft went DOS to Windows, and then they were really managing a closed ecosystem. There was this view like an operating system is critical. An operating system for those who are listening to us who are not computer scientists or computer engineers is what makes a specific device work.

Nuno Goncalves Pedro

An operating system for your computer, for your laptop, let’s say you’re running Windows or macOS, is what makes the device work. Without it, there’s nothing else. It’s the core. It’s what makes it boot up, and it shows something in front of you and all that stuff. And then there’s things on top of it. As Bert talked about it earlier, even in the case of Linux, there’s device drivers. There are things that make other devices that connect to that device work. For example, if you have a keyboard or a mouse, et cetera, you need to have device drivers that support certain types of keyboards and certain types of mouses.

Nuno Goncalves Pedro

And then on top of that, you have user interface, which in general is extended by the operating system, so it’s part of the operating system these days. But you could argue it’s a different logical piece of it. Then you have all the apps, what you run on it. Microsoft Word, PowerPoint, your email client, all of that are apps. They run on top of the operating system. Operating systems are critical because without operating system, the device is a piece of hardware. Nothing happens. There’s nothing happening to it.

Bertrand Schmitt

Yes, totally. Operating systems are critical. Maybe we can go a bit quickly about what is open-source. What is the definition of open-source. If I take the OSI open-source initiative definition, open-source needs to meet multiple criteria in order to qualify as being open-source. One is free distribution. You should not restrict any party from selling or giving away the software. It has to be a free distribution, no royalty, no fee.

Bertrand Schmitt

Then the source code must be included, and you must allow the distribution source code as well as in compiled form. That’s another critical part. You need to be able to inspect that software as a developer, be able to inspect it if you want, so that it’s clearly understandable, and you can make sense of it and potentially do something about it. The third condition is about derived works. It must be authorised. So you must allow modifications and derived works.

Bertrand Schmitt

You must allow them to be distributed about similar terms. Fourth, it’s about integrity of the author source code. There are different ways you can authorise that, but basically creative-derived worked might need to carry a different name or version numbers.

Bertrand Schmitt

There is still a support to make sure that It’s clear what is the initial author source code and what is not. You can modify it, but you cannot mislead people about what is the original product or not. No discrimination against persons or groups. No discrimination against fields of endeavour. You cannot restrict a program to be used in a specific field or in a certain way. Distribution of licence. The rights must apply.

Bertrand Schmitt

There should not be a need for additional licence. So what you distribute has to be all included. Licence might not force you to use a program as part of another product. You might not restrict other software. And it must be technology-neutral. That’s the OSI definition. So if you want to say and claim that your product is open-source, it has to follow these criteria laid out by the OSI.

Bertrand Schmitt

Typically, what people do is that they will choose a specific licence that has already been developed. Basically, instead of recreating your licence, you will pick an existing open-source licence that has been fine-tuned to follow these criteria.

Nuno Goncalves Pedro

Yeah, so there you have it. If you want to do something open-source, that’s basically it. We’ve talked about the terms of licensing already, copyright versus copyleft. Open-source is copyleft. You have to pass it on and it’s free. This gets a little bit muddy because we’ll discuss a few companies later on where some elements of openness, and then there’s some elements of closeness. We’ll talk about Android and obviously Google’s stake in that ecosystem on Android. We’ll talk about actual lies around openness when things are not open at all.

Nuno Goncalves Pedro

Maybe we’ll start with one firm that has gotten quite a lot of heat that now seems to be changing their ways, we’ll see. But certainly many years ago was getting a lot of heat for taking advantage of open-source but not giving back, which was Amazon, and in particular, Amazon Web Services. The reuse of a lot of code that was seen as open-source code, taking it, playing with it, doing things to it, forking it, as we call it, forking is creating an alternative version to it that goes into the future. Think of it as if you watch science fiction, parallel universes. In another universe, something else happens. That’s the fork. It’s like a fork on the road.

Nuno Goncalves Pedro

They got a lot of heat for it, certainly back in 2018, on the fact that they were using but not contributing. Recently, it seems that that attitude has changed, that they’re now much more strongly contributing, but that led to a variety of things from the market, from to the Commons Clause, to the server side public licence SSPL from MongoDB, which tried to address some of the concerns and issues that were happening with some of these big giants just reusing a bunch of code that was out there and then appropriating it as themselves but not contributing back to those repositories.

Nuno Goncalves Pedro

One important piece to take into account is we talk repositories, think of it as containers, things that have the code in it, that makes over time that code to be compiled and then to be executed, so to run as binary code, to make something then work. The importance of this is in all these open-source projects, there are different roles in the open-source projects. Open-source projects themselves have their own governance. There are people that can commit to the open-source project.

Nuno Goncalves Pedro

There are people that can review stuff for the open-source project, and there are people that at the end can approve changes for new versions of the code. Even in these things, even though it’s all open, et cetera, for some of these big repositories where there’s a lot of code being maintained, there’s still governance. It’s not like there’s no governance. This is an anarchical system and people do whatever they want. There is still a governance system.

Nuno Goncalves Pedro

The issue with Amazon is they were appropriating all this code, using it for themselves, which is fine, but they’re not giving anything back in the shape of things that they might have evolved and improved in the code that might have been valuable for the open-source repositories that they were taking source code from.

Bertrand Schmitt

Yeah, I think also in a way, and we’ll talk more later about business models, but it was in some ways probably connected to open-source business models. When you make open-source software, like the Linux kernel, everyone around it is going to help contribute to that kernel because at some point, they will have no direct real benefit except contributing for it or because the development is sponsored partially by big corporations, we intend to use a Linux kernel in some of their other products. So they see a benefit to help contribute to that. Because it reduces dependence on third parties.

Bertrand Schmitt

So you end up having more control. But for some of the open-source projects, let’s say a database, for instance, and we can take the example of MongoDB, part of the business model of that company might be, you know what? We are going to provide the software for free, MongoDB. But at some point, if users want us to host the database in the cloud, that sort of stuff, we are going to simplify and streamline and host it for them and manage it for them. It will be easier for them. And that’s how we are going to make money.

Bertrand Schmitt

On one side, they build a software for free, available for free. But in exchange, if you have some specific use, it was expected that you might use them for that specific host use. But when Amazon comes, take over the source code and host it, it becomes very difficult competition. As a result, your business model is not working any more. So that’s what many open-source companies were facing, basically. It’s the end of their open-source project. Because if they have no more money to deliver on it and Amazon is not contributing, the project is going to die.

Bertrand Schmitt

They felt they had to make a decision. The decision led to new licences or new clause added to existing licence in order to prohibit the Amazon use of just hosting the open-source software and making money out of it and at the same time destroying the business model that have evolved from the open-source community.

Nuno Goncalves Pedro

I know. Just to maybe finalise this discussion on this, this is when then lawyers get involved. Heather Meeker is probably well known. She’s based in the Bay Area, I think still. That’s where lawyers get involved because at some point there has to be a legal framework around all of these things. You can’t just operate outside some line. There needs to be a line on the sand that can be enforceable, where people can take each other to court. We had huge fights in the past.

Nuno Goncalves Pedro

The Oracle fight with Google because of the Java situation after the Sun acquisition. These things matter. Who owns something obviously matters when it comes to code as much as it does to anything else, like a house. That’s why these new rules that were put in place, these new types of agreements, were there to try and frame a different perspective on how things were evolving. Things were getting extremely complex, and there was a need to clarify things and make them more explicit.

Bertrand Schmitt

At the same time, not everything is all good and well under the open-source sky and environment. There might be some issues. Typically, the one people know in a tech industry is a risk of using some copyleft-licensed software. So for instance, if we take a GNU software, many are using the GNU General Public Licence, the GPL licence for short. This one can be pretty dangerous because it’s a copyleft licence. But the problem with a copyleft licence is that you are forced to share everything you built with this software with everybody else.

Bertrand Schmitt

If you are a closed-source business, create new software that is leveraging GPL software, you might be in trouble and might end up being forced to open-source your product and provide it for free. Typically, that’s something you want to be very aware. The GPL is not the only licence that might cause trouble, but it’s certainly the most common one. When you are developing a software these days, typically what do developers, if they are working for a closed-source company, is making sure that they absolutely never used any GPL-licensed software in the process, unfortunately, given the restrictions.

Bertrand Schmitt

As you said, there has been fights in the past. There has been some pretty famous fights of companies who tried to basically leverage new licensed software, GPL software, and that didn’t end up well for them. They had to either settle like VMware or some others like Verizon to open-source their product.

Bertrand Schmitt

As a company, what you do typically would be to scan your source code for different type of licence in order to understand what licence is being used, because sometimes you don’t know when your developers have introduced some software, libraries, copy-paste even some stuff. This stuff could be really dangerous. It’s a big question you have when you do, for instance, financing of the business. When you exit a business, you need to make sure you understand your risk profile and potentially have an alternative to some software before you can go to the next stage.

Nuno Goncalves Pedro

This is a big deal because it’s human nature. Developers can be brilliant, but at the same time, they can be lazy. They just copy-paste something. They’re like, “I have no clue where this is coming from”, and they just use it. That piece of code might have come, to be honest from something that is under a licence that is not beneficial to the company that they’re developing it for. Again, it’s a little bit like, people are like, “Oh, but that’s silly.” It’s not so silly.

Nuno Goncalves Pedro

I mean, think of it, if I’m developing something, it’s like writing a book It happens to be a book that manifests itself in many weird ways. If I’m reusing lines from another book, I need to know what I’m using it from. I tend to understand what’s the right quotation, what’s the right source, what’s the right licence. This is the analogy for this.

Nuno Goncalves Pedro

I know it’s a little bit more complex than that, but it’s the analogy for this. If you’re using and borrowing code from somewhere else, you need to really make sure that you understand where that code is coming from, so that you’re not infringing on anyone’s licences or not embedding your own code with stuff that can come back to haunt you as Bertrand was mentioning.

Bertrand Schmitt

I think the book reference, Harvard lost its President on some copyright issues. It was not copyright, but it was-

Nuno Goncalves Pedro

Quotations.

Bertrand Schmitt

Quotations that were missing.

Nuno Goncalves Pedro

I don’t want to get into a fight with Bill Ackman because I think… No, this was afterwards, right? This was the post. It started with quotations on his wife, and then it extended to Harvard, and obviously, they kicked out.

Bertrand Schmitt

I think it started with Harvard. No, it started with Harvard.

Nuno Goncalves Pedro

No, I think it was the other way around. Eager then got… Then they went after, no? Anyway, we don’t want to go into political quotation issues and have Bill Ackman tweet on us. We’re okay, we’re good. Bill, we love you.

Bertrand Schmitt

I think it’s proving the importance of basically copying someone’s work. It can be a book, it can be an article, it can be a reference, it can be source code. Source code is written work. You want to be careful before doing that. If it has the right licence, it’s okay. If it has not the right licence, then it’s not okay.

Nuno Goncalves Pedro

The open-source projects, and as you mentioned, mindset and movement, this is a movement, open-source movement, has given us a lot more things than just code. It’s given us a lot more things than just software innovation. Given us, for example, very deep organizational shifts. We now talk about remote teams as if it’s, “Oh my God! We discovered remote teams.”

Nuno Goncalves Pedro

The first guys at scale to have remote teams were companies or organizations or projects that were open-source. Because of the nature of it, because there were thousands of contributors from around the world, they were not co-located. In many cases, they were doing this part-time. They were doing development part-time. Linux is a great example of that.

Nuno Goncalves Pedro

These teams were what in the open-source world have come to be known as fully liquid teams. Everyone’s around the world. There’s no real hubs. It’s a fully distributed team. Those projects, those companies that were focused on open-source projects were the real pioneers on fully distributed. That shifted in many ways, for example, on how engineering is done today.

Nuno Goncalves Pedro

Because if you think about it, it’s not just the organization’s different and everyone’s working from around the world. How do you coordinate people on code? How do you bring code pieces together into something that works? When do you compile? When do you launch into production? Who’s doing the testing before all of this happening? How are they doing the testing? It changed everything around software engineering and software development.

Bertrand Schmitt

I guess no surprise that Git was created by Linus Torvalds to help him better manage the development of the kernel. Git is a way to basically to synchronize and historize and a branch source code. We need that first because of that unique aspect of very remote distributed teams that is inherent to many open-source project.

Bertrand Schmitt

It was open-source that created the need and ultimately found solutions to solve these needs. A scale development globally at any time zone, anytime, definitely an innovation from open-source and not just an innovation itself, but they build the tools to get the job done and the processes to get the job done.

Nuno Goncalves Pedro

Git, if it’s familiar to you guys, because you’ve heard about a company called GitHub that was a massive acquisition, and a few other companies, is a source code management tool. It’s a way to basically verify which control version are you guys on in the repository. We’re not putting pieces of code in the wrong version, effectively. Think of it as many of you might not be developers, but if I’ve had this issue, you’re working on one document, which version of the document are you working on?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

It’s the same problem, right? You want to make sure that you’re working on the same version, and it’s properly maintained and sustained.

Bertrand Schmitt

If now we talk about open-source as innovative in business model, because again, as we discussed at some point, except some rare exception, there is a need for some business model. If you develop the Linux kernel, you might not do it directly for revenues, but indirectly you will sponsor developers, pay them, or they are employed by your company.

Bertrand Schmitt

They are working on the Linux kernel because your company benefit from the Linux kernel because maybe it’s building hardware that needs an operating system. You don’t want to pay fees to Microsoft. At the same time, you want this Linux kernel to leverage your new hardware. You need to have people who developed for that kernel. That’s one type of very indirect business model. There are other types. We talk briefly about companies like MongoDB that basically does a business model of hosting.

Bertrand Schmitt

Basically, we probably use a source code, but if you want to have a simplified hosting solution for it, we are here, and we are going to give you a subscription. Another typical business model has been around support, of course. The Red Hat probably innovated a lot in there, in terms of subscription model for what was at the source an open-source product, but ultimately became the Red Hat distribution, and they made you pay the subscription, mostly because they will provide you a high level of service and more advanced enterprise-class type of version of the products that were initially open-source.

Nuno Goncalves Pedro

Open-source is supposedly free, but there are hidden costs. If you have a release of something in open-source, the early releases of Linux were appalling, very difficult to maintain. How do you run, for example, a UI framework? UI framework is like you see windows in front of you instead of just text. On Linux initially, it was extremely difficult. You’d have to compile it, you’d have to attach things, et cetera. You need to decide which UI framework you’re using.

Nuno Goncalves Pedro

Then players like Red Hat with their distribution, simplify that greatly and created value for end users by making these things automated, more simplified for a regular user to be able to use at length and therefore charged for it, as Bertrand was saying, for the support of the ecosystem and support of their releases, et cetera.

Nuno Goncalves Pedro

In some cases, the other piece is enterprise-grade. You might have something that’s open-sourced, and it’s been compiled, and it works, but it’s like, does it have the right level of optimal security for you? That obviously generates some options for players to then make money on top of some of these stacks as they move along.

Nuno Goncalves Pedro

Buying large, as Bertrand said, people make money out of support or services, support services. Companies like Docker, for example, initially made a lot of money out of services. They make money out of other variations of the software as it scales and companies come into that ecosystem to create bundled versions of it that are more closed in nature.

Nuno Goncalves Pedro

There’s ways to make money, but the ultimate effect is this is for all mankind. The reason why it matters that there is open our software is, think about it, if it’s free at the point of consumption, it allows people that have less resources, companies that have less resources, countries that have less resources to be able to use software that is high-quality graded software. It allows for people to keep innovating on software without necessarily always having the objective of making money out of it. It’s because people want to contribute back in some ways, the hacker culture.

Nuno Goncalves Pedro

When I was in college, people had this strong objection to hackers, and we always used to distinguish between hackers and crackers. Cracker came from the term used for telephony systems. You tap into telephony systems and get free calls. Crackers were the bad guys. Hackers were not. Hackers, and today we use that white hat-black hat term. White-Hat hackers are the ones that identify issues and raise them and maybe get bounties out of it and do the proper thing. The Black Hat ones are the ones that make the news by taking over services, et cetera.

Bertrand Schmitt

Yes, totally. Going back to the business model, one that I found interesting was used by Databricks, where, for instance, you get the slow version of the software for free. If you want the fast version of the software that has been optimized for much higher speed, maybe 10X improvement, Then you have to pay for the Databricks version. It’s compatible. API is the same everything, but the engine itself is much faster, but you only get the fast engine if you pay your fees. I think that was another interesting innovation.

Bertrand Schmitt

To go back to your point about for all of mankind, that’s typically also one reason why you would pick open-source as a strategy, because as a distribution, open-source can be very strong because people get excited because it’s free, people get excited, they want to contribute, and you don’t even have to potentially pay the developers. It can be a very writer’s model if it finds its market and a very strong alternative to other business approach. Open-source can truly be not just a development approach, but really a go-to-market approach. It’s considered one of the very effective product-led growth strategy, open-source.

Nuno Goncalves Pedro

Indeed. Moving to open-source for the win. The big achievements of open-source. We already talked about one, so that’s pretty obvious. Let’s get the numbers in on Linux. Linux is one in servers. I mean, around 97% of the… Certainly in web servers, 97% of the top million web servers in the world run Linux, 97% of the top million. Top 90% of the cloud runs on Linux. That’s what I call a knockout win by open-source. There’s variations on the Linux that are deployed here. There might be some distributions, but we’ll take it as an open-source win. I mean, huge user open-source win.

Bertrand Schmitt

What’s amazing, we talk about Git that is also open-source and could be also a part of the internet infrastructure, or at least the world coding infrastructure. Let’s talk about some other tools that you might have earned that are open-source. Python, one of the most famous, most used development language is open-source. The Apache HTTP server, which is another part of the internet infrastructure. Nginx, the acceleration caching engine is also open-source. We have Node.js, which is another development language.

Bertrand Schmitt

In terms of database, we have MongoDB we talked about, but there’s also PostgreSQL, MySQL, as open-source version. Going back to coding or environment, we have Electron that is open-source. React as a front-end development language is open-source. And if we go to AI, it’s actually amazing to see how much is open-source. I mean, Python is a part of most AI projects, of course, but PyTorch, SensorFlow, Keras, all of this is open-source. In a way, AI was such a race that in order to participate, you better have to move very fast, convince others to use your product, and what better way than to open-source it.

Bertrand Schmitt

Obviously, it’s not the case of the CUDA language. That one is actually not open-source and has been developed over for a very long time by NVIDIA, and is still a key competitive advantage for NVIDIA.

Nuno Goncalves Pedro

On the consumer side, things that you use on a daily basis that are open-sourced, Firefox, if you use it as a browser, actually, it came from the Netscape opening of the world when the huge fights with Internet Explorer happened, and they decided to open it up. Chromium also came out of that, which is Google Chrome uses it, but Chromium is the open-source piece of it.

Nuno Goncalves Pedro

A signal on the messaging side, bring the fight back to WhatsApp and the big Facebook, which is funny because obviously it was largely funded by Brian Acton. After he made all that money within WhatsApp. It’s funny how these things happen, like Elon Musk with OpenAI and stuff. Anyway, we’ll get back to that later.

Nuno Goncalves Pedro

Open Office, obviously, was a potential alternative in a fight being brought to Microsoft Office, maybe less successful on that side of the fence. You have, I’m sure… Most of you today would have something open-source that you’re using on a regular basis. Again, even on the consumer side, It’s well noted. It’s not just a B2B tools or platforms discussion. It’s more broadly than that.

Bertrand Schmitt

We talked about Databricks, a closed-source company that is actually built on top of an open-source product that they initially built called Apache Spark. Docker was also part open-sourced.

Nuno Goncalves Pedro

Docker scaled on open-source, right? It was a company that was having tremendous difficulties. They scaled on open-source, and then obviously, they created a business model around it to make money themselves. They scaled on open-source. I mean, it’s incredible.

Bertrand Schmitt

Then we have some interesting stories. If we take AI, and we’ll go deeper in other situation, but one pretty famous model, Mistral, pretty new company actually, but already famous in term of models, I shared in an open-source way under Apache 2 licence, three different open-source models, Mistral 7B, 8X7B, 8X22B, that are usable and customizable for a lot of use cases. Again, we see open-source goes, of course, with the business model.

Bertrand Schmitt

If you want to use the optimized commercial models, then you have to pay. The commercial business models, them are not open-source, and you will buy them because they are more efficient, they have higher performance, they have extra capabilities, easily available, hosted. We can see that even with new LLMs, AI is trying to find its way. Open-source is trying to find its new definition in a way with AI and LLMs.

Nuno Goncalves Pedro

Exciting times. Obviously, open-source is one in many dimensions, and I think the world is better off because of it. Companies have been built on top of this notion of there’s an open-source component and ecosystem-building piece around it, but then there’s pieces that are maybe less well-framed. Maybe as a last example, Android. Now, Android, just to be clear, as a trademark, it’s owned by Google. If you put Android in your device, Google is saying this is Google-approved. Now, Android has a project behind it, which is the Android open-source project, a OSP, where you can pick up the kernel.

Nuno Goncalves Pedro

What makes it run effectively, and a variety of other pieces around it, and fork it, as we discussed before, create a new version of it and go your own separate route. There’s a couple of players who have done that. More recently, Huawei has had to go full fork because of the issues we know happened in the US, where Google was not allowed to give them a licence. Part of Android is open-source, clearly at its very core. And there are pieces of it, even some device drivers, et cetera, that are open-source as well.

Nuno Goncalves Pedro

There is an ecosystem around it. There are device manufacturers that make a living around variations, very strong variations on that project, on the AOSP. Now, there are pieces of Android that are absolutely closed. The way I think Google did it is, to be honest, for me, it’s clean. I think some people will probably disagree, but it’s clean. Google, when they launched Android, they launched, I think it was the Open Handset Alliance, OHA, right? Around Android to really make sure that it was going to be an open-source core operating system, etc.

Nuno Goncalves Pedro

Then obviously, Google is Google. There’s pieces that you guys that are using Android today on your mobile devices are running which are not open. Obviously, some of the apps clearly are not open, like the Snapshots of the World, etc. Even one level below, the Google Mobile Services and the Google Play Services piece.

Nuno Goncalves Pedro

The Google Play Services piece is what Google Play is implemented on the ability to develop your own apps on top of that framework is on Google, just shockingly enough. Google mobile services, which includes core services that you guys all properly use as well, like Google Play itself, the App Store, Google Chrome, et cetera, is owned by Google as well.

Nuno Goncalves Pedro

For you to run GMS, this is the issue that happened with Huawei, Google has to have a licensing agreement with you. That’s what allows you to then say, I’m running Android, because as I said before, Android is a trademark owned by Google. It’s open on certain extent. It’s closed on others, but it’s running the world now. It’s doing what Linux did on the server side. It’s doing the same in mobile devices. Obviously, the world is mostly running on Android today or a variation of it of the AOSP.

Bertrand Schmitt

Yes. Without going into too complex stuff, If you build, for instance, a handset on the base of Android. First, we just said that some services, Google services, might not be available if you don’t comply with some Google request, but also some Google apps might not be available. You might not be able to have YouTube, Gmail, and other stuff.

Bertrand Schmitt

That could be huge trouble. In a way, even if the operating system itself is free and available and the core libraries, if you want to be successful in the marketplace with device using Android, you better follow the different guidelines that Google is giving you in order to have their apps installed, to have Google Play, and even to have some apps compatible. If you don’t have these Google mobile services, that might be really big trouble for the success of your device.

Nuno Goncalves Pedro

I was on the other end of a couple of very significant negotiations with Google back in the day, early days, and it’s been always a little bit tricky. So It’s not totally clean, but I would still say for the most, it’s an interesting ecosystem that has worked relatively well for all involved, even when Google now is competing, obviously, through several acquisitions like the HTC smartphone team, and that sort of we want it, but we don’t really want it. Montreal acquisition where they got a bunch of patents. I think they’ve done a pretty good job, but maybe switching to Lies. Lies when open is not open, but it’s more of a [inaudible 00:39:59] or a bridge for a close, as I call it.

Bertrand Schmitt

Yes. I mean, not wanting to point fingers too hard. I mean, business is business.

Nuno Goncalves Pedro

Microsoft?

Bertrand Schmitt

Yeah. On this one, if you are old enough to remember the old Microsoft approach, embrace, extend, extinguish to open-source and open standards. That was in the late ’90s, early 2000s. At least it was alleged that Microsoft had this behaviour. If we’re on acronyms, there were many acronyms connected to Microsoft, fear, uncertainty, and doubt, presenting vaporware in order to block your competitors.

Bertrand Schmitt

At the time, there was a lot of approaches of Microsoft that were not so great, business-oriented, but definitely not very friendly. So at the end of the day, yes, Microsoft has been accused in the past by a lot of open-source promoters, companies to have a very negative approach to open-source. I think it has changed. I don’t think the new Microsoft is representative of the old.

Bertrand Schmitt

I mean, a great example, you talk about GitHub. GitHub was acquired by Microsoft a year ago. In a way, it was a litmus test for the open-source community because so many open-source projects were hosted on GitHub. And I would say it flourished. Microsoft, in a way, has proven that it’s very supportive of open-source project.

Bertrand Schmitt

Microsoft Visual Studio Code, for instance, is an open-source project and has taken the development world by storm. I’m still impressed how so many developers are using it, even people who might not have said good things about Microsoft years ago. It has been a revolution. The old Microsoft 20 years ago was not a friend of open-source, but now at least it’s not an enemy.

Nuno Goncalves Pedro

Just to explain to our listeners the Embrace, extend, and extinguish. It was based on a memo written internally at Microsoft, which said Embrace, extend, and innovate. The extinguish came as an adaptation for the trial.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Embrace is basically you go into a technology stack, open-source, you embrace it, you’re part of the community, you do commits, you involve your engineers, you do stuff back, et cetera. The extent is then you pick up from there, and you start extending functionality, creating your own functionality, the forking piece I was mentioning earlier. Creating your own functionality, added features, et cetera, that go well beyond the core capabilities of the initial repository’s code bases that you were using.

Nuno Goncalves Pedro

Then the experience goes without saying, what it is. Once you have the extra features, you’re like, “I close this, and now you have to pay.” I would allege, maybe I have a slight disagreement with… It’s nuanced, this agreement with Bertrand. I think they’ve changed their ways. They’re maybe slow-pacing us as well on GitHub.

Nuno Goncalves Pedro

I think what they’re doing with OpenAI right now is magically looking a lot like appropriation of something that initially was not an open-source project, but an open project for the benefit of humanity. Obviously, there’s the case in court that Elon has taken them to court because he obviously funded them originally, and he’s like, “This is not what I funded you guys for.”

Nuno Goncalves Pedro

Now, they’re acquiring a lot of stuff around the stack, inflexion, et cetera. I don’t know if they’re slow-pacing us or not. I’ll give Satya, a walk on that and suspension of disbelief. But I don’t know. It’s always the same name that we talk about from the late ’80s, well, even before, right? So ’80s, late ’70s, ’80s, ’90s. Microsoft keeps coming back, so I’m not sure if it’s in the ethos of the company or not.

Bertrand Schmitt

If I remember, actually long, long time ago, maybe was it in the ’80s, but Bill Gates was famous to write a letter explaining how bad was open-source. That was this lecture a long time ago. So, yeah, it’s a long debate.

Nuno Goncalves Pedro

The browser wars. There have been so many of these things that have happened, right? I mean, it’s incredible.

Bertrand Schmitt

It’s as long as a fight between Apple and Microsoft, I guess. The fight between Microsoft and open-source. I think there has been significant improvements, but it’s not as if Microsoft is fully embracing open-sources or built on open-source. Other certainly is being built more and more on open-source. Like a AWS. You were talking about OpenAI with Elon Musk. I mean, definitely, it’s a weird name for a company that is anything but open.

Nuno Goncalves Pedro

That’s not open.

Bertrand Schmitt

I don’t know. Your chips in a package like healthy good food. No, it’s on a healthy good to eat chips or drink Coke, but then they call themselves OpenAI. Personally, I don’t care, except that it feels very much like marketing that is, I mean, basically a lie.

Bertrand Schmitt

Obviously the first and the most important shoulder of OpenAI and the one who helped attract some of the best talent to OpenAI disagree as well with OpenAI and feels he has been cheated. So Elon Musk filed a lawsuit recently in March against OpenAI and actually even said that if you guys rename the company Closed AI, then I will stop my lawsuit.

Nuno Goncalves Pedro

We just call it Closed AI.

Bertrand Schmitt

We can see the power of a name. It can have in the public’s mind.

Nuno Goncalves Pedro

Just to be clear, OpenAI, to my knowledge, was not ever an open-source project. It was a non-profit. It still is actually. It’s a non-profit.

Bertrand Schmitt

It was a non-profit.

Nuno Goncalves Pedro

It’s always been a non-profit. It still is. Just happens that now the non-profit has a for-profit below it. That was created afterwards. As I said, I’ve been involved in something like this in the past. It’s not as shocking as it may seem. It sometimes happens, but it was never open-source. It’s open in the sense that it was a non-profit for the benefit of mankind kind of thing.

Bertrand Schmitt

When you accept donation in that context, I can imagine how it might be to see suddenly everyone trying to make huge money out of it. Actually, Sam Altman is not directly making any money, given he’s not a shareholder. But I understand that he has a way to leverage his OpenAI position to build all the stuff around, and then he directly benefit.

Bertrand Schmitt

What’s surprising is that a lot of general public, even developers or authors, might think that there is something open. But as far as I know, there is not much, if anything, open. There has been some tools that have been open-source, I believe, by OpenAI, but ultimately the core of the company is not open.

Bertrand Schmitt

Another company—and this time I would say that they are much, much closer to being open and being closed—is Meta with LLaMA 3, LLaMA 2. They have released the weights, so not the source code, but the weights of their LLMs. Basically, anyone can run it. They have put a few restrictions that limit you if you have hundreds of millions of users. There are some others for specific conditions.

Bertrand Schmitt

Ultimately, there are some constraints, so it cannot meet any definition of open-source. But I would argue that it can certainly claim some level of openness that is very valuable, especially in the face of OpenAI and other closed-source initiatives.

Nuno Goncalves Pedro

I was just at a session with Chris Messina, who obviously still credits with having invented the hashtag, and it’s like, yeah. When Meta talks about this, but then there’s a limit on how many users you have, is it really open? Then the stuff they’re doing around mixed reality and augmented reality now, I’m not sure I fully trust that this is an open-sourced endeavour.

Nuno Goncalves Pedro

It is for scalability purposes. I don’t know if it’s an embrace, extend, and extinguish playbook play, but it feels a bit like that. It feels a bit like let’s run the open-source gamut in the playbook and then see where we head. In the worst case, if it fails miserably, it fails miserably. If it works well, then I can’t possibly think that they won’t take over the ecosystem.

Bertrand Schmitt

It’s tough to say. Me, I’m just judging based on the licence of the current product. Apparently, there are rumours that they won’t share the weights of the new version with a huge number of parameters. So LLaMA 3 might be the last version, or maybe they will have different branch or pro-version. I don’t know. For me, I’m more judging them based on what they release.

Bertrand Schmitt

For sure, there is no source code, so again, it’s not open-source, but there is open weight. It’s huge because it means that a lot of use cases, 99.9% of use cases, you can use that and pay no licence for it. I would take it as a huge win.

Bertrand Schmitt

It’s definitely challenging the OpenAI of the world and others because when you see the investment from Meta to build this models, we’re talking about hundreds of millions and probably sooner in the billions. It’s not a small gift. It costs real money, so I cannot complain if Meta has a business strategy with that. As we have seen, most open-source companies have to have a business strategy to keep it sustainable.

Bertrand Schmitt

For the other piece, the mixed reality approach, Meta Horizon OS and Horizon Store. Here less clear about what’s really open. This one is certainly stretching it. There might be some openness in the sense that now you can access the store more easily as a developer. You are not relegated to a lab section of the app store for the Quest. That’s it. They are going to licence their operating system to other manufacturers. It’s open in the sense of windows is open. So this one you can laugh as much as you want about the openness, I guess.

Bertrand Schmitt

To be clear, I’m not judging. Every company has to have a business strategy. What you can, however, have an opinion like I have, I believe, is, what’s the marketing you use? To call it open when it’s fully closed in every way, but you are open to even third-party licensing your product? That’s a bit much on the openness.

Bertrand Schmitt

But I guess, you know what? Consumers, developers, companies just have to learn things through the marketing. But again, I will take what is really open and be happy about it. I think that on the mixed reality side, it’s a good strategy, to be frank, for Facebook to licence their product. It would be even better if they don’t push it too much on the marketing side.

Nuno Goncalves Pedro

Yeah, they keep talking about it like it’s open as well, and it’s not. I mean, it’s not their definition of open. It’s true already with LLaMA, right? I mean, with LLaMA 2, et cetera. There are special licences, there’s limits on what you can do, ton of limits, so it’s like…

Bertrand Schmitt

Not tons of limits. It’s not too much.

Nuno Goncalves Pedro

I mean, come on, prove it. It’s used for training other language models. Requires a special licence for deployment in app or service with more than 700 million daily users, which basically means the big competitors, right?

Bertrand Schmitt

Means Google cannot use it. But if you’re not Google, you can.

Nuno Goncalves Pedro

Then they can change the licence tomorrow. It’s not 700 million, it’s 100.

Bertrand Schmitt

No, they cannot change the licence. I mean, LLaMA 2, as is-

Nuno Goncalves Pedro

For future versions of LLaMA, they can.

Bertrand Schmitt

Sure, but that’s their prerogative. But that’s also because it’s not open-source. If it was open-source, it would be easier to-

Nuno Goncalves Pedro

But that’s why I’m saying they’re calling it all of these efforts open, Bertrand. They’re not open. They’re basically saying, “We’re investing a bunch of money into these things, and we’re making this super usable by you guys for free.” It’s like Facebook is open. Facebook is free to consumers, so they’re going to make money somewhere else. That’s the Facebook playbook, free at the point of consumption.

Bertrand Schmitt

But that’s fair. I think that the definition of most open-source businesses today, they have to find a business model.

Nuno Goncalves Pedro

But this is not even open-source, Bertrand. There’s no open-source here. Where’s the open-source of this?

Bertrand Schmitt

For me to have an LLM that I’m free to run in 99.99% of the use cases, as long as I’m not Google. I mean, it’s magic, to be frank. It’s a huge competition. That’s why we have probably some competition like Mistral, is going even more open-source. I’m all for it personally. Again, if you’re a developer, if you’re a company, what are your choices? To pay OpenAI, to spend a billion, to build your foundational model? You don’t have a lot of options, and this is super high quality. This is not trash what they are giving.

Nuno Goncalves Pedro

I don’t see how this doesn’t become an embrace, extend, distinguish play.

Bertrand Schmitt

Potentially, I cannot judge, and I can imagine that they have a strategy. Will it become that? I don’t know. For me, it’s tough to judge before something bad happens. Right now, I’m just, “You know what? Let’s use it, and if it changes, let’s not use it.” Or potentially, of course, let’s consider an alternative. You might say, “No, I’m going to use Mistral because I believe in their strategy, I believe in their approach, and I believe in years to come, they will keep doing that way.” But it’s a much smaller startup, so it’s also tough to know where it’s going.

Nuno Goncalves Pedro

There’s obviously the angle on geopolitics. You mentioned some of the tweets from Vinod Khosla recently on AI staying closed-source because of China, et cetera.

Bertrand Schmitt

It is obviously a famous investor, an extremely successful investor. Personally, I feel he’s defending too much his own investment. He has a big investment in OpenAI, and congrats on Vinod. By the way, I have nothing against OpenAI per se in their product, but is part of that regulatory push to even forbid open-source AI, which for me is insane. It’s like, “What? Are we serious? The world is built on Linux. Do you know the world is built on Android?”

Bertrand Schmitt

Open-source is part of our life. To suddenly say that you have to close AI for what reason? Sorry, can we repeat again? Because you fear the rise of CI robots or something? I’m pretty angry. I mean, it’s one thing to say, you forbid some exports, and you do some export control on some technologies. That’s one thing. But to say, “No, guys, because it’s AI, you cannot make it open anymore,” it’s pretty, for me, unacceptable. To see him with so much vested interest to lobby for this, it just doesn’t feel right to me.

Nuno Goncalves Pedro

I agree with your overall view. That obviously calling it with parochial interests at the table, et cetera, when there’s other things you can do, export controls. I think that’s true. I would also say that’s the advantage of closed. The advantage of closed is it’s closed. Nobody knows what is underneath it. Reverse engineering it is extremely difficult, et cetera.

Nuno Goncalves Pedro

Is there a geopolitical fight right now with China? Clearly. We’ve talked about it in previous episodes. Does that mean that there are areas of development in the US and other parts of the world, also in Europe, that need to be more cautious in how these instances are manifested to the rest of the world? Probably, yes.

Nuno Goncalves Pedro

Is it a matter of closed versus open? In some cases, it might be, actually. Obviously, it’s a little bit parochial. I feel it’s a little bit like a bit of a spin on the situation in terms of comms and communication. But honestly, some of it might be warranted. I think at some point people do need to have that notion and take into account.

Bertrand Schmitt

You’re right to have your opinion. Personally, I’m totally against it. I think it makes no sense. We accept what is next. Is he going to make sure that Linux is becoming closed-source and forbidden to export anywhere? I mean, it’s too late.

Nuno Goncalves Pedro

No, but because that cat is out of the bag. The AI cat is not out of the bag yet, right? I think that’s the difference.

Bertrand Schmitt

AI is similar. Chinese scientists are doing great work on AI. I mean, if you look at labs across the US, AI labs, how many from Chinese descent? It’s not fair for me at this stage to try to close it, to block some business model, and more important, this is based on total bullshit assumption.

Bertrand Schmitt

This is based on AI is going to take the world. AI is too dangerous. AI can be used by others. Others are going to invent and to invest, and I don’t see why forbidding open-source is going to help. What is going to help is going to entrench some corporate interest. That’s what we know for sure is going to happen. I don’t see that as good anyway.

Nuno Goncalves Pedro

The world goes around, Bertrand. That’s how the world goes around.

Bertrand Schmitt

No, the world had alternatives.

Nuno Goncalves Pedro

It is as it’s been around for the last many decades.

Bertrand Schmitt

No, that’s not true. The internet is running on Linux, not on Microsoft Windows. With initiative like this, it would have run on Microsoft Windows.

Nuno Goncalves Pedro

It’s running on Cisco routers and stuff like that, or people that have made a ton of money out of it.

Bertrand Schmitt

No, there are alternatives in terms of, and Cisco is a shadow of what it used to be.

Nuno Goncalves Pedro

Well, the Chinese also came into that market. That’s a different discussion. I feel it’s warranted, and it’s a decision of the company and the shareholders and who’s in there right now. I’m not here to opine whether OpenAI raised money under the wrong construct. It is the construct of the shareholders, and it is the definition of the shareholders.

Nuno Goncalves Pedro

They’re subject to regulations in the specific markets that they operate in, and they can get slapped if they break those regulations, but it is. The case of OpenAI, I think the situation is, I don’t know. I don’t know what was agreed and what is written down in terms of agreements between Elon and Sam and all these guys initially. What was the agreement they had? Is this a legally binding agreement or not? It’s as simple as that.

Nuno Goncalves Pedro

Are they now changing tech on OpenAI? The discussion is, can they now be fully closed or not? They were never really open. It was more of a non-profit or a for-profit.

Bertrand Schmitt

No, that was not my point. My point was about regulating and forbidding open-source AI. If you are talking about OpenAI, different story. I have no problem. They do what they want. But if they are pushing regulation to limit competition, that’s a different story.

Nuno Goncalves Pedro

But Bertrand, I agree with you. Regulation that makes it impossible for someone to have open-source AI in the US, I think is silly. Now, for many companies to close their stacks, it is what it is, right?

Bertrand Schmitt

I think we are not disagreeing. I don’t know what happened, but me, I have only been talking about open-source AI being forbidden by regulation and regulatory captures. That’s the only thing I talk about.

Nuno Goncalves Pedro

Should not be.

Bertrand Schmitt

OpenAI as a company, as long as they don’t cheat their shareholders, they do what they want and they follow regulation. But for me, what is critical is to let AI develop itself as it wants in a way so that we don’t add some level of interdiction by regulations. I’m very worried, to be clear.

Bertrand Schmitt

It’s not just that, it’s also regulations that are coming to AI. If you think about what happened recently in California, they are proposing some new regulations than are scary about blocking innovation in AI. I think we have to be very worried and careful and have our eyes open that a lot of regulatory capture is being prepared by some actors, and we have to push back, I believe.

Nuno Goncalves Pedro

I agree on that. But the option for specific companies and ecosystems to just say this is closed now, I think it is what it is.

Bertrand Schmitt

Companies, yes. I have no problem, so I’m not sure about that disagreement.

Nuno Goncalves Pedro

There’s going to be a point in time where I feel we’re going to have a discussion on more complex industrial policy, whether it is right for a country to nationalize the technology, for example, and say this tech is now owned by the country, or this tech is now forbidden to be taken by anyone else outside of the world. For example, we could have an argument also around imports and export laws. Is there a mandate that I could take on that? What I’m hearing from you is you’re okay with that, that within certain boundaries, they can do that.

Bertrand Schmitt

Yes, but again, it depends on what. I understand that there are some products you can limit, but to say I’m going to forbid open-source and forbid company to have an open-source approach is very shocking. After that, export regulation will say, “You know what? This product is open-source, but I’m trying to forbid some countries to access it.” Okay, sure. But again, the most successful open-source project is not American. It’s called Linux. What do you do about that?

Nuno Goncalves Pedro

I’ll solve the problem. Let’s charge $1. It’s not open-source. I’m sure there are lawyers working on a solution already if in case this ever happens, which I think will not, but yeah.

Bertrand Schmitt

I just think it’s important to not retroactively change the law, not retroactively change some business approach. But I understand some level of regulation and to consider that you regulate some use of some technologies, but I think you have to do it in a way that’s reasonable and achievable. I think that’s happening in some other sectors of the AI industry, not the software side. And that I’m fine.

Nuno Goncalves Pedro

On this violent agreement, maybe we conclude today’s episode, episode 55: What is Open versus Not Open in Tech? We went through history lane on open-source software. We defined it, we talked about some of the core innovations that happened in the space that were well beyond just software development, organizationally business model-wise.

Nuno Goncalves Pedro

We talked about lies when open is not open, but it may be a mode or breach for closed. I think a little bit more optimistic on Bertrand’s side, maybe a little bit less on my side in some areas. Then we got to some of the geopolitics of AI and what’s happening right now where we ended up on this violent agreement. Thank you, Bertrand.

Bertrand Schmitt

Thank you, Nuno.

View Details

When a company says they are launching a new product that is open, is it really? What does open even mean? The history behind open source, its successes and failures, and all the lies we are told all the time by some Tech players. The truth, unvarnished

Navigation:

Intro (01:34)
What is Open Source Software – history, definition and core innovations?
Open Source ftw (for the win)
Lies… when Open is not Open, but a Moat or the Bridge for Closed
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

On Linux?

Bertrand Schmitt

We have multiple licences possible when we talk about open-source, which can create some misunderstanding about what is exactly open-source or not.

Nuno Goncalves Pedro

We’ll come back to the more bad use of open later in this episode where obviously there are people that use open, and it’s not open at all.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

I think the book reference, Harvard lost its President on some copyright issues. It was not copyright, but it was-

Nuno Goncalves Pedro

Quotations.

Bertrand Schmitt

Quotations that were missing.

Nuno Goncalves Pedro

Bertrand Schmitt

I think it started with Harvard. No, it started with Harvard.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

It’s the same problem, right? You want to make sure that you’re working on the same version, and it’s properly maintained and sustained.

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

We talked about Databricks, a closed-source company that is actually built on top of an open-source product that they initially built called Apache Spark. Docker was also part open-sourced.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Yes. I mean, not wanting to point fingers too hard. I mean, business is business.

Nuno Goncalves Pedro

Microsoft?

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

The browser wars. There have been so many of these things that have happened, right? I mean, it’s incredible.

Bertrand Schmitt

Nuno Goncalves Pedro

That’s not open.

Bertrand Schmitt

Nuno Goncalves Pedro

We just call it Closed AI.

Bertrand Schmitt

We can see the power of a name. It can have in the public’s mind.

Nuno Goncalves Pedro

Just to be clear, OpenAI, to my knowledge, was not ever an open-source project. It was a non-profit. It still is actually. It’s a non-profit.

Bertrand Schmitt

It was a non-profit.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Not tons of limits. It’s not too much.

Nuno Goncalves Pedro

Bertrand Schmitt

Means Google cannot use it. But if you’re not Google, you can.

Nuno Goncalves Pedro

Then they can change the licence tomorrow. It’s not 700 million, it’s 100.

Bertrand Schmitt

No, they cannot change the licence. I mean, LLaMA 2, as is-

Nuno Goncalves Pedro

For future versions of LLaMA, they can.

Bertrand Schmitt

Sure, but that’s their prerogative. But that’s also because it’s not open-source. If it was open-source, it would be easier to-

Nuno Goncalves Pedro

Bertrand Schmitt

But that’s fair. I think that the definition of most open-source businesses today, they have to find a business model.

Nuno Goncalves Pedro

But this is not even open-source, Bertrand. There’s no open-source here. Where’s the open-source of this?

Bertrand Schmitt

Nuno Goncalves Pedro

I don’t see how this doesn’t become an embrace, extend, distinguish play.

Bertrand Schmitt

Nuno Goncalves Pedro

There’s obviously the angle on geopolitics. You mentioned some of the tweets from Vinod Khosla recently on AI staying closed-source because of China, et cetera.

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

No, but because that cat is out of the bag. The AI cat is not out of the bag yet, right? I think that’s the difference.

Bertrand Schmitt

Nuno Goncalves Pedro

The world goes around, Bertrand. That’s how the world goes around.

Bertrand Schmitt

No, the world had alternatives.

Nuno Goncalves Pedro

It is as it’s been around for the last many decades.

Bertrand Schmitt

No, that’s not true. The internet is running on Linux, not on Microsoft Windows. With initiative like this, it would have run on Microsoft Windows.

Nuno Goncalves Pedro

It’s running on Cisco routers and stuff like that, or people that have made a ton of money out of it.

Bertrand Schmitt

No, there are alternatives in terms of, and Cisco is a shadow of what it used to be.

Nuno Goncalves Pedro

Are they now changing tech on OpenAI? The discussion is, can they now be fully closed or not? They were never really open. It was more of a non-profit or a for-profit.

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

Should not be.

Bertrand Schmitt

Nuno Goncalves Pedro

I agree on that. But the option for specific companies and ecosystems to just say this is closed now, I think it is what it is.

Bertrand Schmitt

Companies, yes. I have no problem, so I’m not sure about that disagreement.

Nuno Goncalves Pedro

Bertrand Schmitt

Nuno Goncalves Pedro

I’ll solve the problem. Let’s charge $1. It’s not open-source. I’m sure there are lawyers working on a solution already if in case this ever happens, which I think will not, but yeah.

Bertrand Schmitt

Nuno Goncalves Pedro

Bertrand Schmitt

Thank you, Nuno.

View Details

The truth, the whole truth and nothing but the truth. Can you handle the truth? What is the future of news? Are we at a Spotify moment? Do we even care about the truth?

Navigation:

Intro (01:34)
Mainstream vs Niche News (02:09)
Are we Close to the Spotify/Netflix moment? (29:30)
State or Government Ownership and Influence of Media (46:06)
Polarization & The Truth (58:36)
Year of Election (1:05:10)
Conclusion (1:09:21)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno

In today’s episode of Tech Deciphered, we will be discussing the truth. Can you handle the truth and the whole truth? More specifically, we’re going to talk about the future of news, where we are today. Obviously, a lot of discussion around fake news, polarization of news.

Nuno

We will go into a conversation on whether we are close to the Spotify moment of the news space, and whether how we’re caring for the truth is still actually true. Do we still care for truth or do we just care about our own opinions and to reinforce them over time?

Bertrand

That’s a big question. I think to start about this topic, we probably want to start from this big debate that has gone pretty big over the past 10 years, but maybe even more the past five years. It’s maybe the mainstream versus niche news and all the dramatic changes that have happened in a way, thanks to internet.

Nuno

There’s the mainstream versus niche, there’s the mainstream versus speciality. Maybe let’s start with mainstream. What is mainstream news? Is it just news or do we get news through mechanisms that sometimes are not news anymore?

Bertrand

Is it still mainstream?

Nuno

Clearly, there has been a decrease in viewership of the newscasts, the news programs that we used to watch in our own countries, in the US. Now people can watch whatever they want whenever they want it. In some ways, there’s still maybe some flagship national news shows that people listen to. Obviously, there’s dedicated news channels like CNN, Fox News, of course, as well.

Nuno

Is it really where we consume our mainstream news? My view is obviously with the decreasing of viewership across the top channels, one would say maybe less so, but clearly still there is mainstream news. Fox News represents a specific side of the spectrum, but it is mainstream. CNN is as well. What’s your view, Bertrand?

Bertrand

I was asking this question only jokingly because I don’t know many people who still watch some of these mainstream news channels. My impression is that actually, first, the metrics are pretty clear. It’s a significant decline in viewership. You talk about TV, but the price is the same. A few managed to, I would say, stay somewhat relevant. Take a New York Times, take a Wall Street Journal, but even that definition of relevant is a very small viewership.

Bertrand

The numbers are extremely small in terms of who is paying for a subscription to these services. We are talking about millions at best, so that’s very small. One thing I noticed, I think that is pretty clear across the board is that, most of what we call mainstream media is more and more watched by the older generations, meaning people who have very long habits of watching their news that way from a TV channel. And two, who have not gone to the internet for their news because they were stuck in their old ways in some ways.

Bertrand

Obviously not everyone is like this, but my understanding is that they are all facing growing, older and older generations. Of course, there’s a question, what does it mean in term of advertising? Because if you’re not able to target 30, 40-year-old mom, that’s a problem. That’s really, for me, a big question. It’s not only becoming less and less relevant and mainstream because of the smaller and smaller viewership, but it’s also a different kind of viewership.

Bertrand

There’s, of course, a question of, is this viewership going to stick or actually just going to die? Sorry to be very abrupt, but if your target audience is mostly 70 plus and everyone younger doesn’t want or care or consume their news that way, that’s a huge trouble for these companies. Obviously, they know that.

Nuno

On the TV side, I think a couple of things. One, local news, in particular, if you look at the US, still has a bit of a role. If you want to know what’s happening, if there’s a storm coming, I think weather is a great example of why you check the news. In principle, it should have some directionality. Obviously, national news is a different ball game.

Nuno

I feel there’s many ways of consuming news today. In some ways, actually, news channels, the classic mainstream news programs, are competing with things, for example, like social media. A lot of people consume news, shockingly enough. We’ll talk about Twitter later, but a lot of people even consume news on TikTok. The latest thing that came out on TikTok, and people will share things, for example, on Instagram, on stories, et cetera.

Nuno

It’s just these tidbits that have very little context. I think TV is It’s a bit under attacked with low attention span. To your point, maybe, certain older generations, they have more the appetite to trust certain newscasters in what they say, the George Stephanopoulos at ABC, whoever else at Fox, et cetera. There’s this notion of maybe there’s a couple of generations that trust the newscaster for presenting news in a way that they think represents either some neutrality or whatever.

Nuno

If we step back on journalism, journalism was always supposed to be a counterpower. It was the fourth power, the counterpower. It was about keeping the powers in check, the judicial power, the legislative power, et cetera, in check. I think that’s changed. It’s changed because of the internet. It’s changed because of rapid access to information. Radio, for example, in some ways has been totally under attack. Podcasts have taken over on that side.

Nuno

Press has been under attack as well. Who are the publications that are still thriving? The publications that relatively thrive are the big guys, New York Times, Financial Times, The Wall Street Journal, The Economists, where there’s either a quality expectation in reading them, or there is a notion of the number of journalists that they can throw at specific articles.

Nuno

A little bit the opinion pieces and the investigative journalism piece of the puzzle is what I think still makes press work, because you have the time to put stuff together, the time to really go under the hood and generate newsworthy things out of it. In some ways, the clickbait thing has changed the world. It’s like, can you get my attention or not? If you can’t, I’m going to just tune out and go somewhere else, and I’ll consume my news in some other way.

Bertrand

Two good points. One, local versus national. The other one about the clickbait. Local versus national, that’s true. I register to my local newspaper to get the local news because I want to know what’s happening. Unfortunately, I find it biased, so I’m not always super happy reading that. The other piece that is clear is, I don’t care whatever they publish on national news.

Bertrand

For national news, I have my Wall Street Journal subscription, I have my Bloomberg subscription, and that’s what I will use for national or world news, actually. In the past, if we go back a long time ago, when you have to print newspaper and journals and stuff, there was some logic to combine national and local news because it’s not efficient to have different newspapers for everything.

Bertrand

I think now it’s quite clear that you won’t get the best quality, get national-wise, global-wise from your local newspaper. In a way, why bother? That has definitely been my approach. Clickbait, that’s a great point.

Bertrand

I also remember reading stories, not just stories, but data analysis about how the news in term of, not just what’s in the title, but once in the body of the news, how it has gone downhill in the past 50 years. The language has become worse and worse in terms of making it scary at every level, from car crash to the Earth is dying, the world is burning.

Bertrand

There was this famous comparison I think it was on German TV where they were showing a weather forecast basically on TV, it looked like everything was burning in Germany. If you take the same news report, weather forecast report five years back with similar temperature, there was certainly not this impression that was shared by making the graphics looks very dangerous.

Bertrand

There is definitely a change. My take is that, consumers are noticing. People are not as dumb as some of the people in the news seem to think. People might think by themselves, notice a change, notice when it doesn’t correlate with the reality they live. We might talk more about this, about the brainwashing that some news organization have been trying to do.

Bertrand

I think it’s also part of why mainstream media has been dying because that propaganda part is becoming more and more visible. It probably went overdrive and as a result has become more visible. I think that’s totally part of why people are looking for more, there niche source of information, or new internet platform to get access to consumer journalism.

Nuno

It’s a tale that is important. We define our own canons. We define what are the things that we trust and the journalists that we trust and the things that we don’t trust. I’m similar to you. I consume my per local news. Actually, I think it’s probably the only subscription I have. Obviously, we have some corporate subscriptions through our firm.

Nuno

My subscription that I subscribe to personally is a local review, which is the Half Moon Bay Review, which is the local newspaper. I consume it because I want to know news and what’s happening, et cetera. Then there’s canons that you build. You’re like, “What are the things that I trust?” If I want to read an in-depth analysis on macro, I can’t say The Economist is without flaw, but it’s pretty decent most of the time. There is actual research behind it. It’s well thought through, et cetera.

Nuno

Interestingly enough, if you’ve noticed on The Economist, those who have read, there’s no bylines. It’s like The Economist takes responsibility for articles posted. There’s a couple of exception on opinion pieces, but in general, The Economist, there’s no byline. It’s like I’m not saying it’s me or whatever. It’s basically assumed by the newspaper. The Economist looks like a magazine, but it’s a newspaper. That’s how they call themselves.

Nuno

Obviously, on Economic news, Financial Times, Wall Street Journal, in some aspects, I’ll look at New York Times, actually, for example, in arts, et cetera, I’ll go to New York Times. I will still consume breaking news as it shows up in my Google Now feature on my Android devices or whatever pops up on my Google Chrome first page, what’s the news of the day and whatever, just for breaking news.

Nuno

I do like to spend more time reading in-depth analysis, research, opinion pieces that are clearly put as such rather than the breaking news stuff, et cetera. Because to your point, it is there to make us feel a little bit more depressed overall. In some ways we’re all creating our little canons, our little things that we trust and the things that we don’t trust.

Nuno

There was this professor in Portugal. He wasn’t my professor, he was a humanities professor in university, quite well-known pundit as well on TV. He once came to a small group of university students. I was a university student back then, and I still remember this to this day, which is he said, “I always do this exercise at the beginning of my class.”

Nuno

It was on something, some critical evaluation of journalism, whatever the subject was that he was teaching. He said, “I always ask my students at the beginning of the course, have you ever been in a situation where there was news in a moment that you’re in? There was a situation that you’re in, a car crash, whatever, and there was news out of it that you saw later, either on radio, TV, press, whatever.”

Nuno

A very significant part of the class always raises their hand. Then I asked them to keep their hands up, and I said, “Do you think that the situation was accurately described by the journalist once you saw it later described?” Almost nobody keeps their hand up. I was a university student, so this conversation happened 20-something years ago. It didn’t happen in the time of Instagram and TikTok and fake news and all that stuff. It’s absolutely mind-boggling.

Bertrand

At the time when it was still somewhat trustworthy.

Nuno

Yeah, it’s absolutely mind-boggling, and this was back then.

Bertrand

That’s very interesting.

Nuno

Just to finish the story, his advice was, “If you want to have canonical views on things, doctrinal views on things, it is my doctrine that I believe in this versus that, read books. Read books, inform yourself. And anything that’s very short term, the last six months, the last three months, suspend this belief for a while. Create that doctrine over time in some ways.” I found it fascinating, but I think it’s really du jour. It works today. Today, that could be a good advice that we could give people.

Bertrand

To jump on that, actually, and I will go back on The Economist, but that’s one thing I notice more and more, and in a way, it’s obvious. The more you know a space, the more you know an industry, the more you realize that generalist journalists don’t know much at the end of the day. A specialized journalist might know more, but even then you see up to a point. It’s so much true of the generalist journalist, how bad it is at every level.

Bertrand

Still, they are designed to make you feel that they know a lot, and they spread stuff a lot. I think that’s part of the issue. Just to be clear, 20, 30 years ago, before Internet, you couldn’t spread one-to-one messages or one-to-few messages. You had to go one-to-many and broad, and so that might make some sense.

Bertrand

Today, I think the paradigm has changed. To go deeper on The Economist, actually, I stopped my subscription as The Economist, I forgot how long ago, but I actually disagree with what you say. I find them, first, late to the news. On any interesting topic, I will get better information on Twitter quicker.

Nuno

They’re not in that business, Bertrand. They’re in the business of investigative journalism, research-based stuff. They’ve never been in the breaking news business, The Economist.

Bertrand

No, because they will always have news that is relatively relevant to what happened a week ago, two weeks ago, three weeks ago. They do once in a while some deeper research, but it’s still timely news. They are not going to talk about stuff that happened some time ago. The most important point for me is that, as you say, there is no byline, and that’s something that they are known for.

Bertrand

I started to feel that actually I was certainly not in agreement with some of The Economist position and The Economist perspective. For me, they were just wrong in terms of perspective and analysis, and therefore more and more useless as a paper to follow what’s going on over the world because I certainly think they don’t represent basically the world and the economy and how it’s truly working, but they have this fancy perspective on how they think things works.

Bertrand

Personally, I’ve been disappointed over the years. I used to read that every week, 10 years ago. For me now, I don’t want to say it’s super bad, but it’s bad enough that, from my perspective, has become useless information.

Nuno

Slightly different perspectives, and maybe that is an actual thought to be had. At the end of the day, to your point, speciality journalism versus generalist journalism. But even in speciality journalism, there is more and more the tendency to create mythology. It’s mythology cells, in particular, negative mythology. We’ve talked about the myths of Silicon Valley in the past and myths of tech.

Nuno

I think tech journalism right now is going through this ‘tech is bad’ notion. Founders, in many cases, are bad. These people that were maybe five years ago idolised, and they were the best ever, and now they’re the worst ever. Why is that? Because it sells. Because people click through, and they go and listen to the last story about Elon Musk and the board still fighting his package. It’s like, cool, but it’s in some ways we know this as human beings. The reality, the truth is normally much more nuanced.

Nuno

It’s where we’ve gone. A lot of amazing tech entrepreneurs have been edified as the new people that are going to save us all just to be thrown down a couple of years later because maybe it sells more, maybe because there’s more clicks on it, and that’s the tendency of the market at that stage.

Bertrand

That’s really one of my issue is that, it’s not about long-term trend analysis. Most journalism that we see in the mainstream media, for instance, it’s always being sensational. It’s the news of the day, “This one was killed,” and, “Look at that big bad trend,” when actually there is no trend. Actually, typically, they will either show no metrics or they show metrics that have been manipulated so deeply that it’s totally untrustworthy.

Bertrand

I would advise anyone, obviously, who is looking at any stats shared by journalist, analyst, to truly take time to understand what it truly really means, and how it has been changed and tweaked over time. Actually, on this one, there was a very interesting tweet storm from the ex-Harvard President, Larry Summers, and he was showing a GDP metrics as they reported religiously from a Wall Street Journal to a Bloomberg to The Economist over the past 30, 40 years.

Bertrand

He treated that data by showing, you know what? Actually, there has been multiple change how GDP is calculated over the years. Obviously, it has been treated only one way. Sorry, I’m talking about GDP I wanted to talk about inflation rates. GDP also, by the way, is being manipulated over the years by changing definitions. Tricks of how GDP has been calculated for 70 years is also very interesting.

Bertrand

Going back to inflation and Larry Summers, he was showing how actually, if you were to use how inflation was calculated in the ’80s, and apply it to what happened the last few years, we will not have picked at 6%, we will have picked close to 20%. We were at 20% inflation rate based on previous definitions of inflation.

Bertrand

That’s pretty insane, because some experts will run this analysis, some hedge funds will run this type of analysis, but the mainstream journalists, even the specialized one in economy, they didn’t talk about that. They had no point about that. I don’t know if they didn’t care, they didn’t know, or if on purpose, they tried to play that game and keep misleading their readers about where we stand, really, by just publishing without thinking too much, government statistics, and without trying to make sense out of them.

Bertrand

That would be what I would call true journalism in my mind. I don’t think we get much of that anymore from this so-called journalist, to be frank. We need to get to the true experts who dare to share the truth.

Nuno

In some ways, and this is maybe a good segue for us to talk about niche journalism and niche news, et cetera, it was broken by the internet. Let’s be very honest. The internet broke everything. The digitization of how things get transmitted in a much more meaningful way, taking away the broadcasting aspect of it, which was radio and TV, changed everything.

Nuno

It changed it so dramatically that now we are looking for a couple of things. We’re looking for specialists or people that we perceive as potential specialists in a certain area to have an opinion on it. Sometimes maybe even misguided. Sometimes, to your point, you might be looking for something that is trying to reinforce a position that you have. It could be an educated position, or it could be an absolutely BS position. It depends on the person, I guess.

Nuno

That is where niche came in. Niche came in with speciality, with blogs, with people recording their own stuff on YouTube, with small channels that immerse to become relatively big channels. If you remember The Young Turks in the US. Guys that went after specific demographics in terms of news, shorter news, bites, et cetera.

Nuno

Everything changed there. Journalism changed because in some ways, to your point, we know the people that back in the day had the big scoops, that told us that Watergate had happened, people that changed how we saw government, and rightfully so. Now that’s not it. Now it’s like, how many followers do you have? How much click-through do you have? How much money do you make out of it? If you have a YouTube channel, how much are you making out of that advertising? That’s what matters.

Nuno

In that world, to be honest, being very truthful implies doing a lot of analysis and research, which implies a lot of time, which probably implies not putting as much content out. For example, just content cadence is a big deal. If you can’t put a lot of content out, you’re at the disadvantage. Monetising stuff, we’ll talk about business models later on, but monetising stuff, what are you monetising? Is what I’m seeing news? Or is what I’m seeing an advertisement for a brand or for something?

Nuno

What is your conflict of interest? Conflict of interest used to be a big deal around journalism. Are you trading stock on this company or whatever? It’s seemingly disappeared. We don’t talk much about it anymore. I’m like, “Surely now there’s more conflicts of interest than ever.” I might do a hatchet job on a founder of a company that I want to short, and I might actually be super supportive of a founder that I’m long on his stock or her stock.

Nuno

Honest, I feel we’ve lost the counterpower. News is no longer counterpower. News is another power, and it’s being exercised. We’ll talk about it later because some of these media platforms are very clearly an exercise of power, not a counterpower, an exercise of power.

Bertrand

I think that’s always the question when you say a counterpower is, who is the counterpower to this power of mainstream news organisation? There was no one actually until recently, where now you have what you could call citizen journalism or analyst experts sharing their opinions, either through their own newsletter or through Twitter, YouTube. That’s becoming the real counterpower. I agree with you. I feel that the mainstream media of today is not the one who would have investigated or published the Watergate. It feels the opposite. It feels the mainstream media that would have hidden the story.

Nuno

But I would push back on the niche thing is always a positive thing. Obviously, we have found people that are very thoughtful about their analysis and numbers and all that. There was this joke going on for a while that in some ways the comedians that decided to go and relate to news like Jon Stewart back in the day, well, he’s back now. John Oliver, et cetera. All of these guys, by making comedy out of news, are the new newscasters and investigative journalists.

Nuno

They have their own skews, and we know what their skews are and some of the stuff that they’ve portrayed. John Oliver, I used to be a huge fan of his program, but there have been a couple of shows that I’ve watched that I’m like, “This is a clear hatchet job, and it’s not comedy. This is not comedy either. He’s just gone after a company, or he’s gone after a person.” Sometimes he’s right, sometimes he’s not. You could see that in the way it’s translated if you have some information behind the scenes on what’s going on.

Nuno

But the citizen journalism thing, there’s pieces, again, of it that are good, like breaking new stuff, what’s happening, people doing a little bit more in depth, going behind the scenes, figuring out stuff that was said before. All of that, I think, is very, very powerful. But honestly, not everyone is a journalist, and not everyone should be.

Nuno

During COVID, we had this. Everyone was an expert on what was happening in COVID. Everyone was a virologist. Everyone was an expert on everything that’s just going. That’s not true. There should be a number of specialists that know what they’re talking about.

Nuno

I work in venture capital, I see these posts posted by people. Some of them are not even venture capitalists. They have no clue. They probably have never even made an investment in their life at scale. Some that post are very young VCs. They’re like, okay, this person has been doing this for six months. Why are we reading this?

Nuno

I call the attention to this because, for example, at Chamaeleon, we share news between the team members just to talk about strategy every week, et cetera, and sometimes one of the team members will share something. I’m like, “Who wrote this?” “It’s very well-written.” It’s like, “Understood, it’s very well-written, and it’s very compelling, but who wrote it?” I want to know. I want to attach credibility to the buy-line. Who wrote it? Who’s this person? What experience does this person have in this industry? What investments has this person made? Why are we listening to this person or reading this person?

Nuno

Even in mediums like ours, and just to be clear, the mediums that people right now are listening to are probably mediums like ours, people that are more educated, more thoughtful, that are willing to listen, that have a degree of openness that is a little bit superior to the mass market, so to speak.

Nuno

Even us, we’re being subjugated now because of noise, because there’s so much noise like, “You should read this. You should read this.” Sometimes I’m reading, I was like, “Why am I reading this thing? Who wrote this?” That generates fake news. That generates the worst of fake news. It generates things that are just fundamentally flawed in their analysis and their research. They’re just well communicated, but they’re flawed.

Bertrand

Of course. You could argue that the definition these days, more or less of mainstream media are well communicated, but not well thought and sometimes pure propaganda piece, I would say.

Nuno

You keep going back to mainstream. It’s niche as well, right?

Bertrand

It’s niche as well. But the big difference is about freedom. You have freedom of choice, freedom of information, freedom of speech. This platform, like Twitter, mostly a YouTube podcast, you are free to listen, you are free to read, you are free to watch from many sources. It’s not coming from the top, it’s coming from the bottom up.

Bertrand

Where I agree with you is that, of course, there is crap, but I much prefer to be able to filter out the noise by myself, find reliable sources of information, check over time how these guys are talking, explaining things, and does it match what I’m seeing from the world? Does it match my understanding of the world? Does it have some predictive power? If it has, then you know what? I’m going to listen and read more of this person.

Bertrand

We just talk about Larry Summers. He was one of the first to talk about inflation risk in the US, and he was right. I was certainly following his perspective, but at the time, he was widely ridiculed by his peers. I much prefer a situation where there are multiple choices, multiple voices, and I can use my brain to search, match and ultimately select, than the other old traditional approach where you had little choice. You were stuck with it, and you could potentially discover some issues, but it was harder because less voices to give you a different perspective.

Bertrand

But totally, there is total bullshit that can come up. For me, that was especially clear during COVID because you could see globally how things were changing very fast in terms of how news was spread, how stuff was explained. Let’s not forget how from one day to the next, COVID initially was not a problem. “Don’t worry, nothing will happen in your country, in your state.” The next day, everything changed in terms of story. Not just one journalist, one magazine, but every journalist, every mainstream media would change their mind and opinion in 48 hours. You would see that change because I’m reading news from multiple countries happening. That was pretty disturbing to see that level of control and manipulation from state entities at some point. That’s what it is.

Bertrand

To go back to your point, yes, of course, I want to hear from infectious disease expert when it was time of COVID, I was looking for this news from different experts and collecting on Twitter names of people who were interesting, trustworthy, and were sharing news before others.

Bertrand

I never become an expert, of course, but I learned to search for the truth in a way. It’s obviously not easy, but it was amazing how early you would get ahead of some news. How early you would get in terms of government perspective on, “You should do this, you should not do that.” It has been in a way, for me, a wake-up time to realise that the government was not right on so many topics in France, in China, in US, in multiple countries, in Australia. And at some point, you need competition for source of news in order to make your own opinion.

Bertrand

It has been proven time and time again that many things, many decision were actually not only wrong, but were pure propaganda in the sense of not based on science. At the time where we were told to trust science, decisions were not based on science, were based on misunderstanding, political calculations, many things, but certainly not always about science.

Bertrand

You don’t want to hear and listen from any crackpot out there, but at the same time, I learned that mainstream media, government sources, were not as reliable as you would thought they were.

Nuno

Maybe just as a bookend to this section, bundling of news has happened. It’s done. We went from maybe listening to that radio show in the morning that we really liked and the news of the day in the evening to the channel that we prefer to a world where we consume news whenever we want, however we want it, video, short form, articles, whatever.

Nuno

Maybe the biggest shift of them all has always been social because we share news with each other. We share things. If I agree with Bertrand on many things, I’m going to listen to Bertrand when he said, “You should read this.” That becomes our focal point, the trustworthiness of the person that sends us those news. But in a nutshell, We’ve gone from a very bundled world, very massage into broadcasting to us into a super unbundled world, super noisy, with the pluses and minus that we just discussed.

Nuno

Maybe switching to where we are today in terms of some of these new platforms, are we close to the Spotify-Netflix moment? Are we close to having news providers to us that find interesting business and business models and products that basically attract us in the same way that Spotify was able to revolutionise music or the Spotify model was able to revolutionise music, where we consume whatever we want, it’s not prepackaged, we know the cues that exist, and that’s it? Are we there yet, I guess, is the question?

Bertrand

It’s a good question. I’m fundamentally not so sure. Don’t get me wrong, YouTube is huge, for instance. Facebook is huge, but the news part of this organisation is actually quite small. If I pick Twitter, it has gone through some changes. Ultimately, in term of revenue generation, I don’t think it’s that big, that transformational at this stage. Even if for me personally, as a source of truth, X/Twitter is definitely a reference.

Bertrand

In term of business model, personally, I’m not so sure a true at-scale business model has been found. Of course, we have heard about other solutions like Substack to let writers monetise, but it’s still at a relatively small scale.

Nuno

The platform still owned today. We have obviously Apple with Apple News, which is almost like a loss-leader for them from a product standpoint. They just bundled it in. Either you want it or not, but it’s cool, and it’s not that pricey if you have a bundle. Google with Google News, obviously. Google News itself has a little bit disappeared from focal point, but they injected it into Google Chrome page, they injected into Google Now on the left side of your mobile phone on Android, so it’s there. They are serving you news that they think you want.

Nuno

I think those two experiences, honestly, you could argue they’re not great, they’re not fantastic, but they work. You’re being given news that they think you want to see. Obviously, we know there’s issues with that as well because they might be skewing towards your last searches and the last things you did, and they’re obviously mining your data. They’re doing a bunch of things. But those experiences in some ways have worked, but the platforms are using them as loss-leaders. They’re not really using them as the next Spotify. It’s another product that you get through a bundle that you consume. In the case of Google, it’s free because we then get other stuff from you, advertising, search revenue, whatever it is.

Bertrand

They want to be the gateway. I must say, personally, I used to use Google News back in the days quite a lot. Apple News as well at launch, but I’m definitely much more on Twitter or X, and specialised newsletter. I feel what they are distributing through Apple News and Google News is really one limited view of the world, not really providing wide perspectives.

Nuno

There is a new generation of players out there that are trying to bundle these subscriptions for things that you really want. Some of them are very creative. They give you credits and you can spend your credits. Whatever publications is attached to it, it’s a use of one credit if you want to read through one news, and you have a bundle of credits and that’s how you consume it, you just choose.

Nuno

There’s others that are trying subscription-based models with a baseline for certain publications. Then above that, you need to pay per article, or you need to maybe extend your subscription. It’s complex. The problem is why it’s complex is because of what we just talked about. It’s been unbundled. There’s a lot of news sources out there that you want to consume. Even on mainstream, we talked about a bunch, let alone on the niche ones.

Nuno

If I really want something that’s adequate for me, I might be interested in something that the Wall Street Journal published this month, but maybe not want to read anything by the Wall Street Journal for the next two months. Then I read New York Times every week, I don’t know. Maybe there’s this one economist article that I want to read every three months, I don’t know. How do I bundle for that as a product?

Nuno

In that experience, I’ve seen some interesting attempts at it, but I haven’t seen the untapping of that. One problem I see on this is when it’s product. It’s just generally product. How do you make the product seamless? How do I interact with the article? How do I make sure that I access the article under whichever browsing experience I’m having or every consumption experience I’m having?

Nuno

It’s complex because every provider has their own app, and then what browser are you on, and then how are you going through the paywall, and how is the paywall treating you, and how you register? It’s not easy to make a seamless experience work. I think that’s a product issue, and I haven’t really seen beautiful solutions to it. Maybe Apple News is one of the more elegant ones, but I haven’t seen any beautiful solutions.

Nuno

The second piece is actually business model. It’s like, “What do I charge for?” I charge a subscription, which people understand. That’s how news has always been working, even newspapers back in the day. Do I get money out of advertising? Again, very well understood, et cetera. Sponsored content, which for a while was tricking us all. They started making you have to put that little sponsored content down there. It’s like, “This is actually not news. Someone paid for this article.” Mysteriously, the company that they’re saying good things about.

Nuno

There’s all these business models. In my opinion, subscription probably is the way to go if we believe this will go the route of other content streaming, like video and audio, but it’s still not nailed because of the multifaceted nature of the providers, very unbundled.

Nuno

Every time we look at the space as a VC, we have this doubt around market size. How big is the total addressable market? How big is the serviceable addressable market? How easy is it to scale to that level? Everyone’s like, “This is huge.” I was like, “I understand it’s huge if you put everything together, but if you put everything together, how fragmented is everything you just put together?”

Bertrand

That’s a big question. Let’s not forget, one big issue with all these models is that you have a wealth of free information, free news, either reading Twitter or YouTube or just browsing the web. The Reuters of the world, the CNN, ABC of the world. I mean, it’s free content. You have to fight against that. Of course, you don’t just have to fight against that. You have to fight against other opportunities from watching a movie, watching a TV show, listening to music. Many sources are fighting for your attention. It’s a tough place to be.

Bertrand

Maybe going back to the business model, obviously, there has been some tentative from some governments. We can talk about Canada, Australia, trying to force Google News and other platform like them, Facebook, to do some revenue share or direct taxation of their news activity, which has led to some of these companies stopping their product in some markets.

Bertrand

California looks like if they can pick any bad idea somewhere, they will. They are looking into that as well. It has been somewhat a trend, but I have the impression it’s not going too far in that direction. What do you think of this one, that revenue share?

Nuno

If the music industry is anything to go buy, if some of these news providers do have some strength, which to be honest, some of them are relatively big, as I said, the market’s quite fragmented, there will be more and more legislation around those ways because you’re giving content that we developed that we are charging for, for free to your users. While that’s wonderful to your users, we’re getting nothing ourselves, and we develop the content, we own the content.

Nuno

Interestingly enough, the problem becomes even more difficult with AI and with ChatGPT-like functions like Gemini, et cetera, because then I’m searching for it, it could tell me the source, and then what happens? Does it send me the source? Then the source has a paywall, but I just saw the result synthesised for me. It defies the purpose. How do you deal with that? I think we’re going to have even a next wave of issues, which is with AI and summarisation, and you ingested this content, and you couldn’t have ingested this content, and whatever.

Nuno

I think this is going to happen more and more. The big search providers, et cetera, we’re going to have to figure out a way of compensating some of the content developers and content providers, not just, to be honest, news providers, but also people that do their Substacks or whatever. I think we’re going to have a little bit of that going forward. I think this is the beginning, not the end.

Nuno

It happened in music as well. Music was less fragmented. Obviously, the big record labels were the big record labels, and there was more power. Maybe it won’t go that direction. It was very person-to-person driven. The issue with music started when people were just able to share stuff between themselves, the Napsters of the world, et cetera. Here it’s different. It’s the big players in the middle that are acting as the hub.

Bertrand

I would disagree actually with that perspective because music is pretty obvious for me. When you share the full song, high quality, you have to find a way to make people pay for it.

Nuno

But why is that news not the same? Didn’t someone spend a ton of time developing an article, and it’s shown by someone?

Bertrand

I will tell you why, because they are linking to free news. If the news on cnn.com is free and available to anyone, it’s free. You are not paying for it. I don’t see the problem. Obviously, you don’t get The Economist news from Google News because they have put a paywall. If you want to read their news, you have to go through their paywall. Whether you are Google or you are directly a consumer trying to get access to The Economist, and the same for Wall Street Journal and other sources.

Bertrand

If they are pointing to free news sites, I don’t see why they should pay for anything. If these sites want to close themselves down and put a paywall, sure, go for it. I have no problem with that. But I don’t see the problem when the base source is free and freely accessible, what is the issue?

Nuno

I think there’s two problems. One is years ago, maybe before today, the crawlers and scrapers that these guys were to get their searches were going into information that was not supposed to be publicly available.

Bertrand

I don’t think so.

Nuno

They did. No, that’s true. You can go back in history and see it. Google was showing you news that were behind paywalls for certain players. You could say, “Maybe they didn’t define their paywall in the right way. Maybe their security wasn’t done in the right way.” I don’t know, but they did. There have been cases in court because of that.

Nuno

The second thing is now, and we’re seeing the same thing now with AI, the building of these large language models, where are the data sets coming from? We already saw this issue with things like Getty Images, where you have images that are Getty Images being used, and there are specific licensing agreements to it that are not being respected because AI doesn’t care. It’s just basically putting that forward.

Nuno

I think you’re oversimplifying the discussion. “There’s a paywall, whatever.” The data set is a data set, and it’s getting just worse because you’re getting underneath these data sets, and you’re getting information that probably you shouldn’t be able to share.

Bertrand

First, I don’t think as of today, you have any trouble to put a paywall that would block Google Crawler to scan your content and publish it on Google or Google News. All news maybe, but today it’s irrelevant. Two on AI, I think it’s an extremely different topic and happy to talk about it. I cannot say I have a firm opinion at this stage on the AI side, except that you have to remember there are two questions. Are you training a model and are you trying to get paid for feeding that model?

Bertrand

I think from my perspective, it’s the same story. Do you have a paywall or not? If you want to block from a scraper, you should be able to decide to block and the scraper should agree to follow this direction. If Google Scraper has a clear instruction to not scrape, it should not scrape, and it should not use that as a source for its training and the same for OpenAI and others. For me, it’s pretty basic. Obviously, you can have a bigger, more complex paywall, and that should be even more clear that you cannot access it. If you go around that, there is an issue.

Bertrand

After that, as an IP provider, you might decide to say, “You know what? I don’t care if these people are scraping, even if technically they are not right, I let them do so.” Apparently, that’s what YouTube is doing. OpenAI seems to ingest YouTube content. We saw a specific approval from Google, and I’m sure Google could block OpenAI from doing that.

Bertrand

The other question is output. What type of output are we talking about? If we have an AI system that’s going to replicate a song, for instance, or a book, we obviously have an issue. If it’s not replicating, but following some styles or some approach, I think it’s a different story because you could argue that’s how humans are creative. They are not creative out of nowhere. They are creative based on their histories, their culture, by listening, by reading, by somewhat copying.

Bertrand

Of course, if it’s go too far, you’re in trouble. But there is a lot of inspiration done by artists, so you could argue AI is the same. It’s taking inspiration. We could say, you know what? Even if it’s a similar process as an artist, we decide we want to treat that differently because it’s an AI, and that would be a fair discussion.

Nuno

Maybe at some point we should have the news being done by AI agents. They have video, they look at it, and they make a decision, and they summarize what happened.

Bertrand

It’s coming. We are talking about months, probably, before we have, and I’ve seen already, some prototypes, I mean, some AI broadcaster taking a piece of news, ingesting it, and showing you a virtual news anchor, reading the news, presenting it. I don’t know which form it will be, but it’s for sure 100% coming.

Nuno

Going to happen, yeah.

Bertrand

Is it a good thing? I don’t know.

Nuno

We shall soon find out.

Bertrand

Maybe it will be forbidden. But from a technical perspective, it’s becoming possible. For sure, we are talking of months, potentially.

Nuno

We shall soon find out if it’s good or not. Actually, the reason why we decided to do this episode in the first place was we saw this emergence of incredibly talent once in a generation, twice in a generation kind of entrepreneurs going into this space.

Nuno

The more obvious one is Elon with his acquisition of X and Twitter. We could have an argument whether it was for free speech or whatever, but it is a key media platform, and Elon went after it. Clearly that’s number one, and it cost him a bunch to go after it.

Nuno

Noam was the original CEO from Waze that then sold to Google, is doing post news. Unclear how much money is raised. I know he’s raised some money from Andreessen Horowitz and Scott Galloway. Unclear how successful they are today, but again, a great, great entrepreneur, a great executive, an amazing person.

Nuno

Kevin and Mike from Instagram did Artifact, which actually was just bought by Yahoo undisclosed. We suspect it wasn’t an amazing acquisition. Also, unclear how much money they raised in the first place. But I mean, Kevin and Mike that did Instagram going after news was a big deal.

Nuno

Back in the day, Eve Williams, obviously, of Twitter Fame, did Medium, which is obviously still out there, probably the biggest evolution after Blogger that we can think of, and a bunch of other things that have happened in the space that I feel are quite exciting. You have people like Kevin Systrom, Noam Bardin, Elon Musk, going after this space. Back to the point we made earlier, it is the power. It’s not a counterpart to the power.

Nuno

I would be a mess if I had forgotten to mention Jeff Bezos bought The Washington Post for a bunch of money, 250 million, or something like that. Clearly, news, there’s interest in this. There’s interest in big media and news platforms.

Nuno

We would expect a lot more innovation by now. We’ll see what Noam can come up with, what Apollo acquired, Yahoo will do with Artifact, how does Medium scale further, Substack, and all these guys. It still feels for all this talent that we haven’t had that seminal moment, the moment that changes everything, which is interesting.

Bertrand

Yeah. To jump on that, Elon Musk acquiring Twitter, from my perspective, there was a lot of uncertainty, but I feel at this stage, there’s definitely some stability from the platform. From my perspective, getting a lot of value from X, I should stop saying Twitter. But in a way, it was the biggest billion type acquisition by a billionaire of a media organisation when you think about it.

Bertrand

At the end of the day, it has been very typical of extremely wealthy individuals, at least some of them, to want to have some impact in politics. Let’s call it that way. The way to do that has been through acquisitions of magazine, newspapers, TV station, that, quite frankly, if it was just from a cash flow perspective, would not be such a good acquisition, such a good investment.

Bertrand

My point that it has been happening forever. I can tell you that in France, for instance, most of the press of a significant size is owned by specific family who have been very successful in their business life. I’m not saying that was a good thing or bad thing. I cannot say I have a strong opinion on this topic, actually. It has been very typical.

Bertrand

When people were surprised of Elon Musk acquiring Twitter, yes, it was a lot of money, but at the same time, as you say, Jeff Bezos acquired the Washington Post and so many other magazines, press, TV stations have been owned by billionaires as, I believe, a way to influence politics. Is it for personal gain or is it just because they care? I guess it depends, and you will have to ask them.

Nuno

There’s political notions. If it’s weaponized in a specific way, it’s propaganda. It just drives people’s opinion, it drives how they vote, it drives how they do things, it drives their mindset and how they think through things. Obviously, it’s very powerful. We’ll talk about state-owned and government-owned and government-linked news and how that’s been used, but it’s historically been that.

Nuno

There’s a couple of dimensions. There’s the dimension of ownership and these big players owning them, there’s the dimension of innovation, big entrepreneurs that go into the space and try to innovate the space and create new products that radically look different.

Nuno

There’s also the people that are the journalists that write things. I remember Ignacio Ramonet was the Chief Editor of the Le Monde Diplomatique. I think he was the guy who actually spun it out from the editorial Responsibility of Le Monde. He wrote a book called Geopolitics of Chaos, I think I’ve mentioned in a previous episode. This notion that because of historical reasons, certain parts of the world might have media that is skewed towards a specific political preference versus other parts of the world. He was talking about most parts of Europe.

Nuno

There was a strong left-leaning view by a lot of journalists in Europe. It had to do with Europe having been under Nazi rule and having had a World War II that was devastating to Europe. That was the counterpower. The counterpower was left. Therefore, he had this notion of the gatekeepers. I think he called it the worst thing that I’m going to say here. But the gatekeepers, they tended, at a certain point in time, that might not be true today, but when he wrote the book, it probably was, that it would be much more lenient on left-wing governments in specific countries than on right-leaning governments in specific countries.

Nuno

That still exists. If your country, for example, is coming out of a dictatorship, or it’s moving from a quasi-dictatorship to democracy, et cetera, it’s likely that the journalists that are writing these articles, that are writing these pieces, that are putting them together on TV, et cetera, will have their own skews. It’s not mutual. It probably never was, but that is the ultimate piece of it. It’s the person who wrote it or who put that piece together.

Bertrand

That’s pretty interesting. I would say the big counterargument on this is the US because there was no dictatorship, there was no war, but still, we have a very left-leaning mainstream media and journalist in general. I’m not sure how Europe has really gone through a different, I would say, exercise. I don’t know if it’s left-leaning people being attracted by media or vice versa. I’m not so sure.

Nuno

Maybe talking about the propaganda and the fact that we have had some recent news that are bombastic on programs and entities that we thought were amazing and walking on water in terms of their neutrality. We’re coming to a conclusion that they probably are not like NPR.

Bertrand

I think that a very interesting piece for me is I’ve always been surprised being originally from France, how much the state owns still some media organisation. You have many French TV stations that are owned by the state, France 2, France 3, you have radio station. It has always surprised me, and it’s quite significant. I don’t know the exact percentage, but it’s significant in term of viewership. One thing personally I like about the US is that there is no such thing except NPR and the Voice of America.

Nuno

There’s a couple of others, like the PBS stuff, et cetera. There’s a couple of other things that are owned.

Bertrand

Yeah, there might be. I think in term of viewership, it’s just dramatically different to what you would have in France and maybe some other European countries. The Voice of America, I believe, has been more targeted about outside the US, so news from America to the rest of the world in a way.

Bertrand

NPR has been more very local. I had some respect. I’ve known some people from that organisation long time ago. For this news organisation, it has been a bombshell a few days ago, and we’re already planning to make this episode, so it was timely.

Bertrand

A journalist, Yuri Berliner, published a bombshell report about his organisation, NPR, where he has been a senior journalist for 25 years. It’s really damning. When we say it’s left-leaning, it’s like 100% left-leaning in the sense that there is not a single Republican in the news organisation on the journalistic side.

Bertrand

It’s very clear that you don’t dare to question the leaning of the organisation and the diversity of thoughts and opinion of the organisation. If you dare to question, then obviously you are going to close about the dirty secret about how it’s functioning.

Bertrand

Obviously, there has been, following this report, some digging about Katherine Maher, the new CEO. It’s pretty horrible, to be frank, to discover that such a person will be leading what should be being state-owned, a relatively neutral news organisation. She’s incredibly clear about personal allegiance. She’s incredibly clear that the truth doesn’t really matter. It seems for her an old concept, so it’s pretty shocking.

Bertrand

In some ways, for me, it’s representative of a lot of mainstream media news that I’ve learned to basically not think too much about because there is no point reading it, given how biased it has become. But to see that so clearly exposed, so clearly expressed in term of opinion by a CEO, and to have all of this, from my perspective, paid by taxpayer dollar, it’s pretty shocking.

Bertrand

If it’s private, their choice, their decision, me as a citizen, as a listener, viewer, my choice to read it, not read it, I have as long as I have options. But in that situation where my tax dollar should pay for that, it was always a big question for me in France. It’s now a question in the US.

Nuno

Maybe because of the tax situation, obviously, I’m coming from Portugal originally, and there’s that type of commentary as well. That we have a relatively state-owned broadcasting company, et cetera. Obviously, there’s now a lot more diverse ecosystem, but back then there wasn’t.

Nuno

We’ll come back to this topic when we talk about polarisation and the truth. There is fundamental polarisation. Some would allege that what we’re seeing with some channels like CNN and others is a response to the Fox News effect of going fully to the right and turning news in some ways, maybe into too much entertainment, some cases, maybe too less facts. Others would say, like you said earlier, that maybe the US is always very left-leaning on news, and Fox News was the knee-jerk reaction to that.

Bertrand

It is potentially true, actually.

Nuno

Which could be true I’m not sure. I’m not a Fox News watcher. I have difficulty watching it for a variety of reasons. I can go into in a more informal context, I think what’s happened to the news is that notion, the notion that it’s difficult to watch neutral news. I couldn’t really point you to many newscast, news programs where I’d say there’s an intrinsic neutrality. If there’s no intrinsic neutrality news, you have to go either to the edges that you’re more comfortable in.

Nuno

If you’re looking for reinforcement, you’ll go to my right-leaning or left-leaning news in terms of public opinion, policy, etc. Or if you’re more moderate, and you want to stay more in the middle, you have to find things on both sides that you can still consume and then educate yourself as much as you can to figure out, where do I lean on this? What do I believe in? What do I don’t believe in? What is important to me? What is not?

Nuno

Or you stop watching the news altogether, which is also a possibility. I have to be honest, I did it for a while. I consumed very little news for a period of time. It’s great. Your happiness levels definitely go up. The world is like, fine.

Bertrand

That’s a great point. My big issue is a lot of news from the perspective that if it’s not based on historical perspective, data analysis, for me, it’s not really interesting because ultimately it’s just an opinion. That’s why I don’t especially watch more Fox News than CNN, for instance.

Bertrand

To your point, I think more about Murdoch being a smart businessman. He probably saw that not as a knee-jerk reaction, but more like, “Hey, there is a business opportunity. This space is wide open. They are all on the left, or they all move to the left or to the centre left. If I go full in on the right, there should be an opportunity for me.”

Bertrand

I think it was more very calculated as rational, in a way, business decision, whether you like it or not. But again, from my perspective, it’s a private organisation. You are free to watch or not watch. You can subscribe for it, not subscribe for it. It’s an easier perspective. But to your point, I personally go back way more into, I want to find experts that over days, weeks, months, become more and more credible because what they say ultimately connect well to reality. That has been my perspective.

Bertrand

I must admit that X has been a great source for me of finding experts. From there, potentially subscribing and paying for newsletter to find not just news, but stuff that help me understand what’s happening in the world, what happened in the world, and potentially give me insights into where the world is going.

Bertrand

I want from my perspective, at least as close to the reality, because I care about the reality where I live, and I care about being able to predict where the future is going in some ways. That sounds maybe arrogant, but as someone who has a foot on the VC side, a foot as an entrepreneur, understanding where the world is going, I believe, is pretty important.

Nuno

Just to qualify a little bit, obviously, when we talk about left and right, these things are not magical things that we are pundits on that we can identify, but I would say there’s always a nuance on how we describe it. Left in the US is not the same as left in Portugal or France. The US, you cannot have a Communist Party. Full stop, done. Portugal, there’s still a Communist Party. They’re not very big. They’re not super significant.

Bertrand

Is it still true, actually? Is it still true? I don’t know.

Nuno

We’re talking about things in a nuanced manner, based on the history that they are. Again, we’re not political pundits. We’re not the best guys in the world to give views on this, but we’re just trying to frame the discussion in our perspective based on that, based on those nuances between countries and how we see them evolving, having lived in a bunch of different places all over the world, including, as you guys know, in China, both Bertrand and myself have lived in China. Maybe that’s a good segue for our next thing around polarisation and censorship and all that stuff. I have to be honest, I forget the name of the newspaper. What’s the name of the English newspaper published in China?

Bertrand

China Daily.

Nuno

China Daily, yeah. Everyone’s like, “Why do you read China Daily?” It’s like, “Because I know what their perspective is.” The great thing is once you know what the editorial perspective is, and then everything you see has a skew. It’s like there’s always a skew.

Bertrand

It’s like the old truth about the Pravda, the official magazine of Communist Russia. It could not be further from the truth in term of journal. I still remember that joke where they apparently made this article, I guess, in the ’80s.

Bertrand

Of course, it was well known that in Russia at the time, good luck finding bread. People would line up in front of bakeries to try to get some bread if you had the money to get some. At some point, they run a story about, you know what? It’s the same in France. They picked a very trendy high-end bakery where actually, indeed, people were lining up because it was considered the best bread of Paris. All the crazy is about bread. We go there and wake up early and get bread. But the Pravda version was, “That’s the same in France. They’re also in trouble to find bread, so they have to line up.”

Nuno

Yes.

Bertrand

From my perspective, yeah, China Daily is probably quite similar, unfortunately. But you’re right, at least you probably know what to expect.

Nuno

I know what’s the perspective. I think it would be great if everyone just published. This is most of our editorial team. This is how we’re leaning. That’s how we lean. Maybe they don’t put names, but like an anonymised data so that we have a view.

Bertrand

I actually have some anecdote I want to share about. You talk about stories where you have seen the news, and you have I have seen how it’s reported. I have seen that on China Daily. It’s pretty interesting to say the least.

Nuno

Obviously, news can be censored, and in many markets, it is. It can be used as propaganda. It can be even used as brainwashing. Totally changing how reality seen in certain places in the world. I suspect there aren’t many people listening to us in North Korea. Hopefully, we’ll be safe on that. Clearly, there is a specific line of what is being said and how they’re living versus the rest of the world. It’s a hard core brainwashing at the end of the day that the news can provide.

Nuno

I feel the more nuanced thing that’s happening nowadays is news is being used as a polariser, as something that pushes you to an edge or the other because of what we discussed earlier, because of that incentive to make money out of news that pushes you to go two extremes, you either really hate it or you really love it in some ways. Normally hate is more powerful. Normally a negative is more powerful. That is aimed at reinforcing your own beliefs.

Nuno

In the case that I was making earlier, either you’re moderate, and you want to read stuff in the middle, or you don’t read news at all because you don’t trust it at all. Or the other two extremes, you go one way or the other in terms of your view and what you read and what you listen to and what you watch.

Nuno

I’d say the one that’s winning is clearly the latter. That’s why, for example, this country is becoming so polarised because people want to listen and read and watch things that reinforce their views of the world. The pundits, the podcasters, the newscasters that play to that tend to win because it’s easier. It’s a path of least resistance.

Nuno

We talk about it in startups and consumer investing all the time. It’s the path of least resistance. Is this the path of least resistance for the consumer? Is this user flow, as we call it, the path of least resistance? News has figured it out as well.

Nuno

I think right now there’s a lot of stuff that just reinforces people’s beliefs. That dialogue in the middle is very difficult to find it, very, very difficult to find. To Bertrand’s point, then you need to have the people you follow on Twitter, see what we call Twitter is X now, people that have agreements, disagreements, maybe some more interested and instructed panels and discussions out there where you put people with very significantly different views with an amazing moderator and see what comes out of it.

Nuno

I don’t know, but certainly that is less and less. What we have more is more and more the pedalling up of animosity, extreme views, polarisation.

Bertrand

Yeah, it’s a good point. It’s very tough to see some very good, intelligent questioning discussion with strong moderators who are smart enough to really understand both sides of the equation and to understand that sometimes actually each side could have a point. To be clear, I think there are some truth that in some ways are self-evident based on maths and physics, and it’s pretty tough if you start questioning that.

Nuno

Even science changes, though, but yes.

Bertrand

You’re right. The definition of science is that you have to keep questioning it. At the end of the day, if you stop questioning it, it’s probably not science anymore. To be clear, it cannot be just dumb questioning. It has to be with relevant arguments, relevant experiments, relevant data, making sure that all of this is right. Again, personally, I think that way because that’s who I am, but that’s also who I want to be, and that’s also the world I want to live.

Bertrand

From my perspective, the truth matter 100%, but there would be, obviously, some points where people have to disagree. If you take religion, for instance, some will have strong opinion based on religious belief or lack of religious belief, it’s very tough to argument at some point. You have your opinion on this. It might be tough to say that is an obvious truth.

Nuno

It’s not that people can’t have opinions and strong opinions at that, I think my hope is that there’s just more dialogue than we’ve had in the last maybe 8-10 years. It feels like there’s less and less capacity for people to just stop and say, I’ll listen to you. I currently don’t agree with you, but I’ll listen to you. Let’s have the conversation.

Nuno

There’s less appetite to do that, and it’s a shame because I agree with you, the truth does matter, and in some cases, there is a truth that you can get to. Either because you were there, you saw it, or because you have enough data points to make that call. Sometimes it’s a little bit more tricky to know what the truth is, but the truth does matter.

Bertrand

To this point, I think you want to strive to find the truth. Ultimately, you talk about dialogue, and I totally agree, but I think dialogue has to be informed as much as possible. Part of being informed means running experiments or talking about the results of experiments or having deep data series on some specific topics, trying to understand carefully the data, trying to make sure the data is as clean as possible, and base your discussion on that. Because it’s okay to disagree about what should be done about some topics, but if at the root, you don’t even have the same data to comprehend, to share, to discuss, it’s hard. It’s very hard.

Bertrand

I’m always surprised when some topics have actually data available, but it’s not going back on that. On the contrary, when there is very few data, where there is questionable data, but this data is constantly put in front as if it was the truth.

Nuno

Yeah, the manipulation of data, the cherry-picking of data. There’s the famous book, the How to Lie Using Charts. Just change the perspective on charts and how you present it-

Bertrand

Totally.

Nuno

-and numbers. There’s many ways to do it. It’s getting worse because now we have deep fakes. Now you’re like, what do I trust?

Bertrand

There is manipulation and there is a fake. But data series is a great example. You can tell a story if you pick data for the past 20 years, if you pick data for the past 50 years, if you pick data for past 100 years, and you will have another story for the past 200 or 2,000 years.

Bertrand

For me, this one is really amazing because it’s very interesting how right now, for instance, I’ve noticed, I won’t go into details, but a lot of instances of data manipulation just based on how far back are you looking at? I would strongly suggest people listening, look at how far back is the data going, try to go as far as possible. From going as far as possible, usually you will be quite shocked by what you discover.

Nuno

Maybe just to end, what is the new counterpower? What are the checks and balances to news that has been hijacked by clickbait and other things out there? I’m not sure. I’m not sure I have a great answer. I think it’s hopefully more educated people over time. I don’t know.

Bertrand

I think it’s certainly part, as I was going to say, it’s you using your judgment to do that. People have to be educated and want to be keen on looking for the truth. I also believe that some platforms, if they are free of censorship, can be a solution for that. Personally, I see X as a solution for that. YouTube, partially, but there has been more censorship on this. Facebook as well, I seem to have had more censorship. For me, it’s combined with freedom of speech. If you don’t have freedom of speech, ultimately, very quickly, it might take you don’t have freedom of thought either.

Nuno

Very interesting. Education seems to be the key to this, or a founder that comes up with the ultimate solution that shows us news in probably not its raw state, but probably showing the cues that news have, what’s the balance of opinion. I think there was an app trying to do that. I’m not sure they’ve done well. Hopefully, maybe there will be some technology solution to this as well. Year of election in the US is always a bit of a tricky thing.

Bertrand

I think every election seems to have some story related to the spread or actually the blocking of news, depending on where you look at. I guess this year will be somewhat the same. I think from my perspective, it goes back to freedom of speech as a solution for that. It goes back to you doing your own judgment and analysis about the news. I think these two parts are critical because as you say, there is a lot of stupid thoughts out there more than before, and you have to filter more.

Nuno

I just had a conversation with a very good friend of mine who was someone very connected to public administration, public sector throughout his career, and actually owned a couple of local publications. I was telling him, this year I’m so concerned about what’s going on. My only wish is there’s no violence, that nobody dies, I think was the exact words I said, that nobody dies because of these elections.

Nuno

It was interesting the way he put it because I was quite concerned up until the election. He was like, I’m quite concerned on the after the election. I’m less concerned on the up to the election. I’m very concerned after the election.

Nuno

Obviously, January 6th and what happened last time. We were discussing the scenarios. Trump wins, Trump loses. I’m like, “I don’t see a good scenario here at all.” I still keep my wish that I hope nobody dies because of this thing, because an exercise of a democracy that should be relatively mature. Again, young country, but relatively mature democracy, hopefully. I hope not. I hope certainly that the news and media don’t have special effect on that. Maybe it’s just wishful thinking.

Bertrand

I don’t know. I feel it’s definitely critical I agree with you. I don’t know if nobody dies. I expect the US to be a quite stable democracy. I think at the end of the day, there is also, obviously, it’s not just news. If you go further in term of election, a big question for a lot of people, obviously, is around, is the election safe from interference?

Bertrand

Talking about interference, you can interfere with the news, with the discussion and all of this, but you could also interfere directly with the election. From my perspective, there is always a question of how safe is it from this, from interference?

Bertrand

I’m always surprised you cannot vote in France. I don’t think any other European country or Japan without a state-issued ID. The fact that it’s even a discussion is really a big question mark for me here in the US. I don’t really understand.

Bertrand

Obviously, we have more and more technology, counting vote, machines to convert. Being a computer engineer, I know stuff can be manipulated. Unfortunately, hacker can do stuff. I hope we are careful enough as this is important enough, make sure that we don’t just trust machines, but we can have a separate counting on paper to confirm anything coming.

Bertrand

Maybe the last piece for me it’s also, again, always a question mark, why don’t I get the results? I’m clear and certain the next day. This is what happened in most democracies, Western democracies, so I’m not sure why we cannot get that in the US. It feels like each time it’s adding to an additional layer of uncertainty that, again, I don’t feel I’m having in Europe.

Nuno

Indeed, and hoping for the best in the elections, at least, that the news doesn’t influence it too dramatic. I’m sure it will influence it, but not too dramatically, hopefully.

Bertrand

Going back to election, I think news is one part of the story. News are always influencing. The question is, do we have a nefarious actor or not? I guess some will always try, but the vibrancy of a democracy is measured to how it can withstand attacks, so I’m certainly hopeful.

Bertrand

In term of news, for me, the mainstream media is, if not totally dead, certainly a former shadow of itself. But that’s okay. That’s life. That’s evolution. There is not a single reason why one industry should be preserved from technology.

Bertrand

Technology enable, as you say, it’s not just about broadcast anymore. We can go one to few, one to one. That’s what happened with technology. I think ultimately it’s for the better. I feel I’m a more informed person now, today in that situation. I have to put more work, but by putting more work, I’m better informed. Sometimes the truth might be harder to take, but I prefer that.

Nuno

Very good.

Bertrand

Thank you, Nuno.

Nuno

Thank you, Bertrand.

View Details

Is Technology intrinsically good, bad or neutral? In this episode, we will go into the depths of Technology Philosophy & Ethics, what it actually is, its historical developments, the current movements of the present and what the future likely holds. What is e/acc, what is EA? What is Degrowth? We will also discuss spiritual and religious elements, in as much as they relate to Science and Technology.

Navigation:

Intro (01:34)
What is Technology Philosophy & Ethics? (02:33)
Historical Developments (04:17)
The Present (23:44)
Our Views (49:06)
Conclusion (54:45)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Subscribe To Our Podcast

1. Intro

Bertrand Schmitt

Welcome to episode 53 of Tech Deciphered. This episode will be about technology philosophy and ethics. This is a bit far from our usual topics around investment and building companies, but we felt it was an interesting moment in time, especially with the development of AI, to talk about some of this, I would say what’s behind some of the reflection in tech around where we should move forward, how much we should accelerate, should we even consider a pause in some developments?

Bertrand Schmitt

Is technology intrinsically good, bad or neutral? We’ll try to go into the depths of some of these questions. We’ll also talk about e/acc, about EA, about degrowth, and we will also discuss some spiritual and religious elements in so far as to how they relate to science and technology.

2. What is Technology Philosophy & Ethics?

Nuno Goncalves Pedro,

Wonderful. Let’s start with what is technology, philosophy, and ethics? Basically, define the philosophy of technology as a subfield of philosophy. We have a good start there. It’s part of philosophy. Let’s start there.

Nuno Goncalves Pedro,

It actually studies the nature of technology and its social effects. It has several branches. Ethics is probably the one that’s been most published about recently. What are the ethics of AI, et cetera? Relations between science and technology, human-technology relations, there’s been some interesting debates as well around that, in particular in countries like Japan who always seem to be at the forefront of some of the stuff that happens around virtual and digital things and actual humans.

Bertrand Schmitt

Are you thinking about virtual girlfriends?

Nuno Goncalves Pedro,

Virtual girlfriends, virtual wives. You could get married to virtual wives. Obviously, the political dimensions of technology has also been hotly debated recently. Who owns semiconductors? Who owns AI? Is AI centralised or not? Is this an arms race? Is this going to be a source of geopolitical danger?

Nuno Goncalves Pedro,

Obviously, there’s different views around technology. There’s obviously the view that technology is autonomous, but it does determine society. It’s a human construct. It’s co-evolutionary, so it evolves at the same time as we should, and there should be boundary conditions around it and how we evolve.

Nuno Goncalves Pedro,

Basically, this leads to anything between technophobes, people that hate technology, people that are technophilia, I’m not sure that would be the right word, but that have technophilia, that love technology like you and I, Bertrand, we love technology in some ways. Then there’s people at the edges of this that go on different angles like technology anarchy and a bunch of other things.

3. Historical Developments

Nuno Goncalves Pedro,

That’s basically a very broad definition of technology philosophy. But maybe moving to a little bit of more of an understanding how we got here, let’s go through history, Bertrand.

Bertrand Schmitt

I must say, first of all, people who really hate technology, I guess they should go back to living in huts with no fire.

Nuno Goncalves Pedro,

Maybe even before huts, maybe before there were huts, there was fire, there wasn’t huts. There were caves.

Bertrand Schmitt

Go back to caves or go on trees, I guess, because at the end of the day, the story of humanity is connected with technology. Obviously, we will not be here talking on Zoom about technology and philosophy if we are not believer in some ways of technology. At least, we have to be the children of technology.

Nuno Goncalves Pedro,

If we go back, the history of technology philosophy actually goes back to the Greeks. Even the Greeks have been talking about this technology thing, about how there are these things that we create, technology, we human, that try to emulate nature. If we go back in time, just the beginnings of technology philosophy are really related to Greeks. The first notion is that technology should in some ways emulate nature, or it’s trying to emulate nature.

Nuno Goncalves Pedro,

Then at some point, I think this is around Aristotle, he starts saying, “Wait a second. No, that’s not quite accurate. Technology should not be trying to emulate nature. There should be a fundamental distinction.” They call it an ontological distinction between what is created by nature and what is created by human beings. Therefore, technology should be what is created by human beings.

Nuno Goncalves Pedro,

Out of that, there’s been this fundamental difference that we still have today, what was man-made versus what was not man-made. Today, it’s even more complex because there’s what’s nature-made, what’s man-made, and what’s machine-made. Just to make life even more complex, we have all these different ontological distinctions.

Bertrand Schmitt

What’s inspired by nature, what’s a copy of what nature could do, but done automatically by machine. In this [inaudible 00:04:44] from what could be done by nature. It’s not as easy as it used to be in some ways.

Nuno Goncalves Pedro,

For a long time, I think we’ve had this notion of history where technology in some ways, and I think this is related to something we’ll talk in later, which is medieval times and all these, we’ll talk about it later as well, the [inaudible 00:05:04] and these fake news from very, very far back of what happened in medieval times. But science and technology has always been alongside us.

Nuno Goncalves Pedro,

There’s this notion that around medieval times that religion and the church hampered the development of technology. That in some ways was promulgated by a late Renaissance. A lot of people that then came much later than that, such as Bertrand Russell and a few others, that in some ways, Catholicism, Christianity, later with Protestantism, hamper the development of science. And that in some ways, men were being held back from all their potential by developing tools that would increase, one, their productivity, but would also increase the classic utilitarian notion of the product itself that we were creating.

Nuno Goncalves Pedro,

Obviously, one of the most famous examples is the famous heresy Declaration on Galileo, that relates to science in particular, to the fact that at some point the church came against science. And this gentleman, Galileo, was wronged.

Nuno Goncalves Pedro,

We have even this famous sentence that he would have said after his condemnation to heresy. Even people think that he was condemned to heresy and he was killed, and that he would have said, “Eppur si muove”, which in Latin would mean, and still it moves.

Nuno Goncalves Pedro,

This is all related, obviously, to the theory of whether the Earth was the centre of what we now know to be our solar system or not. Obviously, now we know that it’s a solar system, so the sun was the centre.

Nuno Goncalves Pedro,

It relates to Copernicus, who had been one of the first guys to figure it out. I’ve now heard that actually there was someone before Copernicus who had put forward that theory. The interesting thing about all of this story is it’s bullshit. It’s all bullshit. He never said “Eppur si muove”, he wasn’t killed.

Nuno Goncalves Pedro,

He was actually sent to a farmland house that he had. Think of it as a domiciled prison thing. The reality is he wasn’t the guy who came up with it. Copernicus and many others before actually came up with it. Funnily enough, he was Catholic, and he was very close to the Curia at that point, to the Vatican at that point. He was very close to the Pope, effectively.

Nuno Goncalves Pedro,

The reason why he got condemned for heresy was he basically took up on the theory. This is a very funny story. You guys should look it up. He took up on the theory, and he took it upon himself to say it was his theory. Then he started doing analysis on it. Then he basically came and said, “I’ve come up with this logic that the sun is the centre. It’s not actually Earth. What’s happening on Earth is based actually on the movements of the moon and the waves, and there’s a relation in that.”

Nuno Goncalves Pedro,

Anyway, his theory was actually fundamentally totally wrong. He kept being asked by the church of the time, “Can you provide proof?” Because we’ve heard from… Copernicus, by the way, was religious as well. The guy who came before Copernicus as well was also religious. It was nothing against the church. The church at that point was willing to potentially believe that actually we were not the centre of the universe, as we assumed it at that point. But they were asking for proof. Could you prove it? It was a series of these political things and indrominations with the church that actually led Galileo to be, in the end, condemned by heresy.

Nuno Goncalves Pedro,

He actually did publish a document that was considered a reticle because he tried to go back to the Bible and prove there was something in this theory that was in the Bible as well, which is actually also BS.

Nuno Goncalves Pedro,

Then he wasn’t condemned for heresy for that article that he wrote. He continued pushing it, and the church kept asking him for proof. Finally, that hearing, he could not provide any proof that was seen as scientifically accurate. Therefore, some parts of the church was at that point so pissed off at him. He managed to even piss off the Pope who happened to be on this side when this whole thing started as well. He did get condemned at the end for heresy. The funny thing is, apparently, some of his best scientific stuff actually came out of that exile in the farmland, where he finally did do some science hardcore.

Nuno Goncalves Pedro,

Anyway, the psychotomy between church and religion, whatever, I just wanted to finalise on that point is actually inaccurate. There’s a really interesting book you guys should look at called Bearing False Witness, which shows this mythology that medieval times were the destruction of science.

Nuno Goncalves Pedro,

Actually, that book promulgates that actually it is incorrect. That certainly the last century of medieval times was a tremendous advancement into science. They were building a lot of universities, and there were a lot of scientists that actually evolved science dramatically. The shocking thing is most of them were either Christian or Catholic. They’re either Protestant, Christian, or Catholic.

Nuno Goncalves Pedro,

A lot of the money that went into it, the creation of universities that we actually know for a fact, came from the church. Churches created universities. Actually, they were some of the first that created universities.

Nuno Goncalves Pedro,

Anyway, the interesting thing all this story, this dichotomy between science and religion and this linked back to the philosophy of technology, et cetera, is fake news. It’s just, sadly, very old fake news promulgated by, as I said, people, in particular in the late 19th century, that had a vested interest in showing a secular attitude and an anti-religious attitude towards it. Again, not to defend that the church didn’t make many mistakes throughout the years, but that was not really one of them.

Bertrand Schmitt

Interesting, that’s the first time I’m hearing the fake news part around what happened to Galileo, Galilei. Obviously, I knew he was not killed, but just put under arrest. If I remember well, at the end of the day, it really started for him when he studied the moons of Jupiter.

Nuno Goncalves Pedro,

Correct.

Bertrand Schmitt

After building one of the first… I forgot if he built himself, or he bought one of the first telescopes, and instead of pointing to the horizon, basically, to look for a ship, he might have been one of the first to look at the stars and look at the planet and discover the moon of Jupiter. From there, obviously, that raise a lot of questions. Then suddenly the Earth is clearly not the centre of something, given that these moons of Jupiter were around Jupiter.

Nuno Goncalves Pedro,

He apparently flip-flopped. This is the interesting thing, again. During the hearing itself, he flip-flopped, and went back to saying, actually, then the Earth is the centre of the universe, et cetera.

Nuno Goncalves Pedro,

This was edified as religion in the church standing behind. He took his actual theory of tides, as you were mentioning it, to a new Pope at that point, who I think was Urban VIII. Basically, I think it was even the Pope himself who said, “I don’t think that makes sense.”

Nuno Goncalves Pedro,

It’s always this assumption that the Church, the popes, the clerical people at that point had no knowledge, when we know that is actually factual and correct. Monasteries developed a lot of knowledge.

Bertrand Schmitt

Yeah, of course.

Nuno Goncalves Pedro,

For a while, that was the problem, is they held the knowledge, and they were not sharing the knowledge with the rest of the world, that’s why universities were created, to open it up outside of clerical environments, monasteries, nunneries, et cetera.

Bertrand Schmitt

Yes. Some knowledge was obviously very important in terms of practical nature, understanding tides, understanding seasons. There was a lot of stuff that would be useful. I think the question was mostly… Ultimately, what people might remember from this was not that the church was not knowledgeable, but more is a church accepting some knowledge that might be against some official perspective or view.

Nuno Goncalves Pedro,

But even that was not true. I think that’s the point of… If you guys are up for it, read the book, read the Bearing False Witness. It was not true. There was significant resources put by the church behind these inventions, right?

Bertrand Schmitt

I certainly need to read the book. I have not read the book, so I cannot say. You could argue what’s interesting is, of course, even if it’s not clear what exactly happened, we have a lot of documents, materials, which is not typical in a lot situation when we’re talking about 500 years ago, so that makes things interesting.

Nuno Goncalves Pedro,

I will close there on this chapter of why there have been some misrepresentations. The guys and girls who are now listening to our podcast, to go and Google it. Who first came up with the Big Bang Theory? Bertrand. Do you know? Who first came up with a theory, if you Google it, literally Google it, was Georges Lemaître, who was a Catholic priest. He was a Catholic priest. He was made fun of. People were like, “That doesn’t make any sense.” It was just stupid. They made fun of him. Anyway, I’ll shut up now. We’ll go back to our regular technology discussion.

Bertrand Schmitt

One can argue the church of the 20th century is not the same as the 15, 16, 10th century.

Nuno Goncalves Pedro,

Yeah, but I feel there’s been a lot of mess representation through the time, and some stuff there was just an idea behind it that at some point got promulgated, and then we go back in time and if we actually do the analysis, we realise it’s fake news. It was just fake news back then. It just got promulgated over the centuries because it made sense to promulgate.

Nuno Goncalves Pedro,

Again, I’m not defending the church, Catholic or otherwise, from any wrongdoings. I’m just saying there are some wrongdoings that should not be attributed to the church.

Bertrand Schmitt

Going back, an interesting point in terms of historical development for me is probably the development of atomic weapons. Because for the first time, humanity has the ability to destroy itself. Even if originally it might not have been seen like this, but after one, two, three decades, it became obvious that, yes, you can officially destroy humanity with all the atomic weapons in existence if they were ever to be used. I think that has raised a new class of questions or put in front of us some possibilities that were too big to even consider in the past.

Bertrand Schmitt

Obviously Einstein, Oppenheimer, thought about this and maybe later changed their mind about what they have done or help introduce in terms of concept. That has also raised the stakes for a lot of scientists in terms of how they analyse their work, how they think about their work, how they think about the potential of destruction for their work.

Bertrand Schmitt

Not just destruction, but we are talking about the potential for total annulation of the human race. This is not anymore about killing some people, destroying a nation. It’s way beyond that. I guess, yes, it started in the ’50s, started in the US and expanded the more nations got weapons.

Nuno Goncalves Pedro,

I think it’s the notion that we could easily destroy ourselves. It’s when we start developing technology that started creating this notion, maybe we can actually easily destroy ourselves. Because to be honest, technology development was always linked to, at some point in time, also to military development. It was always about gaining terrain, going to a specific place, et cetera. To your point, this was a moment where we developed this technology that we weren’t even sure it wasn’t going to kill us all. Would we all die from the first nuclear bomb or atom bomb? I don’t know.

Nuno Goncalves Pedro,

I feel it’s that notion that we finally started creating technology that we couldn’t fundamentally fully grasp the implications of, which I think is a good maybe link to this discussion we’re having today in the present time around AI. It’s when we started understanding ethics at a different level.

Bertrand Schmitt

Maybe, if I may, it goes even a bit further. It’s for the first time in history, an individual can near directly send that signal to send thousands of atomic weapons in one go. My point is that, yes, there is a chain of command, yes, there are a few people involved in this, it’s not just pressing the button, but it’s very close to one individual leaving a button to press and being able to basically destroy the world as we know it. That’s also raising the stake. It’s not just you can destroy yourself, but one guy, one girl can really change the whole history of humankind very quickly.

Bertrand Schmitt

I think that’s something new, that part where you don’t need these people on the ground, you don’t need these tanks, you don’t need these planes. It’s remote, it’s through machines, it’s near instant. This is a command that can basically work its way in a matter of minutes and have an impact in a few more minutes. It has changed how you think about war in a way and humanity and its stability.

Nuno Goncalves Pedro,

Indeed. Be it atomic bombs, be it hydrogen bombs, be it nuclear fission, be it nuclear fusion, whatever it is, obviously, these are weapons of mass destruction, and there’s a lot more. Now we have chemical weapons. I think part of the concern is now we have other types of weaponry, like cyberattacks, electronic warfare, et cetera. I think that’s when we start also having the added complexity and concern, because if then there’s AI on top of that, how do we control this? How do we step away and control this?

Nuno Goncalves Pedro,

Let me just go back a second just to close the chapter on the history, because we’ve gone through many, many epics of history very quickly, but there’s one that I did want to talk about, which is the so-called First Industrial Revolution.

Nuno Goncalves Pedro,

The First Industrial Revolution, obviously, we always link it to these machines, to the machines that led us to where we are today, the trains, the steam engine, and where we are today in terms of manufacturing, in some ways came from that.

Nuno Goncalves Pedro,

There were a lot of strong reactions back then as well. We can’t forget that. Late 19th century into early 20th century, there’s a lot of reactions. The term Luddite that we still use till this day, actually, I just realised, actually comes from that group of people, the group of people back then that didn’t want new technologies to be used in the field and wanted to destroy them.

Bertrand Schmitt

Actually, Luddite were early 19th century in England, and it was around weaving.

Nuno Goncalves Pedro,

Even before the Industrial Revolution.

Bertrand Schmitt

Yeah. It was at the time of the automation of weaving and the first machines to help accelerate the weaving process. Yes, it was before the Industrial Revolution itself. You could argue it’s the very start of putting machine to work. And it was pretty violent. They killed people were owning some of these factories. Ultimately, the British government made an example and managed to, I think, ultimately kill 30 people or so that were demonstrated leaders. “After a due process,” but this was a pretty aggressive reaction to this movement.

Nuno Goncalves Pedro,

We always had this tension between advancements in technology and what’s right for society. Malthusianism, from Malthus, that was effectively defending that all of this stuff, we can’t have this population growth. Population growth is ultimately going to be exponential. Then obviously, the growth that we have in food supply and other resources is more linear, so we can’t possibly have so much population in the world. There’s still arguments around it today, actually, that we can’t keep growing population, that we need to control population in the world.

Bertrand Schmitt

Typically, it’s from people who told us we could never be 1 billion people on Earth, we could never be 2 billion, 3 billion, 5 billion. They will always find a new post that after that, it won’t work.

Nuno Goncalves Pedro,

Yeah, but then there’s the people on the other side that say the technology will solve all of the problems, which we also know that’s not true. Technology will increase productivity, et cetera.

Bertrand Schmitt

It has been true so far. We have never had so many billions people on Earth, and we never had people living in such better conditions as well.

Nuno Goncalves Pedro,

It has solved a lot of problems, and it has allowed for there to be a dramatic population growth in the world. But we have other problems because of technology as well. We have things like pollution. Clearly, we have pollution. There are side effects to progress. At least that’s my perspective. I don’t know if Bertrand agrees with me or not. There’s clearly side effects to progression. I think weapons of mass destruction we have today and the things we can do and kill each other globally, this is not a good thing. But we have those weapons. We have that technology to do that. I don’t think all technology is good. I don’t think technology is intrinsically good. We’ll have that discussion maybe in a bit.

Bertrand Schmitt

Yeah, I think technology can be used for good, can be used for bad. That’s probably true since the history of mankind. Your first stone that you managed to cut so that you can use it as a tool has also become a weapon. The same for fire. So talking about dual-use technology, it has always been the case since the dawn of mankind. And for me, humanity has shown a great capacity so far to focus on the good side of technology and benefit and profit from it. But yeah, unchecked use of technology can go pretty bad.

Nuno Goncalves Pedro,

I think it’s been, from my perspective, net positive. We have evolved very quickly, in particular in the last few centuries.

Bertrand Schmitt

Oh, totally.

4. The Present

Nuno Goncalves Pedro,

And it’s been net positive. I think throughout history, we’ve had to have this discussion around whether there need to be some more aggressive boundary conditions around its use. Maybe this is a good segue to talk about the present and the discussions that are happening on X today and on social media and different people, different things that are almost effectively the repatching of philosophies that have been around for many centuries. They’re not new.

Bertrand Schmitt

Yeah, that’s a good point. I think these days, there are three main categories of philosophy around technologies that have been formalised and have some level of following. The first one, e/acc, is very new. e/acc or EACC, depending on how you pronounce, it’s pretty new because it was maybe officially launched a year ago in 2023, but it managed to gather followers like Marc Andreessen, Garry Tan. I don’t think Yann LeCun is officially declared on this, but the way he talk and what he could talk about would make me think if he had to pick, he would be following this philosophy.

Bertrand Schmitt

Basically, it’s a philosophy that believes AI is mostly good in the development of technologies, therefore, accelerating technology is a good thing for everyone. We’ll share more of our views, but to be frank, that’s probably the philosophy I feel the closest aligned with.

Bertrand Schmitt

There is a second one called effective altruism, EA, that has been around for 10 plus years. This one has become controversial a bit thanks for a large sponsoring from Sam Bankman-Fried, SBF, who has made pretty controversial donations and also tried to align his philosophy of life with EA, at least officially. What happened with him has caused some issue for the philosophy at large.

Bertrand Schmitt

Here, it’s about thinking that you have to think about the long term and be careful about limiting risk to the long term because the long term is full of future human beings, and you have to wait any decision versus what could impact and how it could be impacted basically on descendants over not just centuries, but potentially thousands, if not millions of years. They try to compare everything to that, and their approach as a result can be quite special. It’s around decreasing risk, controlling risk.

Bertrand Schmitt

A third approach, I’m not sure it has officially a name, but you can call it anti-progress. Some call them degrowth and deceleration. Obviously, there have been multiple movements. You talk about Malthusianism. A more modern version was from Paul Ehrlich. It’s horrible, to be frank, to listen to him. You can see old interviews or newer interviews. There are people, you wonder how close they are to try to kill people, to reduce population on Earth. I’m myself very surprised that they have any publicity. Of course, all the recent fearmongering coming from the Green Movement is a version of this anti-technology.

Bertrand Schmitt

Obviously, another one has been all this movement connected to the Greens against nuclear technology, nuclear fission reactors that have been closed, unfortunately, all over the world, thanks to their fearmongering and lack of science and analysis. That’s basically the three movements, e/acc, EA, and degrowth.

Nuno Goncalves Pedro,

In a simplistic manner for those who are trying to understand what are the difference between e/acc, EA, and degrowth, and at the risk of getting totally flamed and attacked by people that say that what I’m about to say is incorrect. In my mind, e/acc is very much pro-technology. Technology will solve all the problems of the world. We have clear problems. We have clear problems with war, with poverty, with climate change, with a bunch of other things, but all problems will be solved by technology. There’s no other way to solve them, and therefore, we need to accelerate rather than put more and more binding conditions to technology.

Nuno Goncalves Pedro,

EA, effective altruism is… Some would defend it’s more moderate, others would say it’s not. In some ways, I think e/acc is a reaction to EA rather than a reaction to degrowth. But EA defends itself as relatively fact-based, evidence-based notion of, should we adopt these technologies or these systems of technologies for the advancement of men to make men, men and women, of course, but to make human beings better or not? Basically saying we should understand the impact of technology in the decisions we’re making and how it affects human beings. I think in principle, everything that we do, I think that’s what EA defence, should be for the betterment of human beings.

Nuno Goncalves Pedro,

Then degrowth is saying, “No way in hell we can continue growing. No way in hell that this notion of capitalism and growth, economic growth in particular, we can continue it. We need at some point to stop and step back and reassess what are the right metrics for us. Is it GDP growth? Maybe not. It’s something else. What’s the level of things that we need to do?”

Nuno Goncalves Pedro,

I wouldn’t say that degrowth movement is defining or defending that we need to go back to living in Hudson stuff, but it is saying we can’t continue just growing at the sake of growing. Maybe at some point we need to reassess what our primary notion is. In my mind, those are the three views that are presented here. If I were to be as neutral-positive as I can about each of the movements.

Nuno Goncalves Pedro,

Now, what people will defend is the following. I mean, with EA, when has history been very good at analysing a new technology? Never, ever. Never, ever. That’s how we got the atom bomb. Never, ever. We don’t know. We just don’t know. Some theoretical physicist comes up with something, and we don’t know what’s going to come out of that. We start experimenting. It’s effectively how science and technology advances. It’s through experimentation. We experiment and we discover new applications. If we’re going to do like hardcore EA, can we actually do hardcore EA? Because we never know the side effects of a new technology or a new scientific breakthrough until we’ve experimented, right?

Bertrand Schmitt

Maybe to add on this, a good example for me of EA was this anecdote of there was this debate, a public debate from one of the leading prominent speaker about EA was presented a scenario. You can either save a child from a burning building or save a Picasso painting and sell and donate the proceeds to charity. The question was, “What should you do as an effective altruist?” The answer was, “Of course, you should sell the Picasso, because in the long run, I’m going to sell it, make money, and can invest this money to create more good that will impact a lot of people. Of course, I don’t care about this dying child.”

Bertrand Schmitt

For me, that’s so shocking as an answer. There is no word to it. That’s my worry we see here. It feels like totally disconnected from reality, and you can manipulate numbers in so many ways to end up to what some people really want. It feels something designed to be manipulated, basically. That’s what my worry is with effective altruism.

Bertrand Schmitt

Another good example, long-termism is connected to EA. Some people like Nick Bostrom, infamous from my perspective.

Nuno Goncalves Pedro,

Infamous, right?

Bertrand Schmitt

Infamous, yes. From my perspective, at least. It’s basically connected to EA. Part of the long-termism view, again, look at our impact in thousands of years, which personally makes absolutely no sense because thousands of years, we have seen how 200 years of technology have changed the world as we know it. Good luck guessing the next thousands of years. It’s impossible.

Bertrand Schmitt

But he’s famous for this example about AI and the paper clip scare. Basically talking about one day in AI, we could ask it a question to, “Hey, I need a lot of paper clips.” The AI just keep making paper clips and ultimately consume all the Earth’s resource and destroy all of humanity in the process of making more paper clip because the AI was not grounded enough in common sense.

Bertrand Schmitt

That’s very worrisome for me because, from my perspective, a lot of stupid thinking around AI is coming actually from this type of fallacy. You are going to build a super smart machine, but it’s lacking so much common sense. It’s also awesome, powerful and controlling of everything that it cannot even understand what it’s doing is wrong and should not be done and no one is able to stop it.

Bertrand Schmitt

Basically, it makes no sense. But it does actually fuel a lot of the growth of EA, a lot of the issues, so-called issues, surrounding AI. That’s why I’m reacting to highlight some of the points behind EA because it’s one thing to talk about. Overall, the philosophy and from far, it looks okay, but when you go closer in the example they share, it starts to be worrisome from my perspective.

Nuno Goncalves Pedro,

Maybe just to finish my… I’ll attack each of them without being too personal about it, but just state what people say about each of them. Just to close on EA, I think one of the issues with EA is, even if you’re an amazing strategist, and I’ve I’ve said this before, what I call the strategist blind spot or the strategist dilemma, which is strategists always overestimate the speed we get to a revolution. They always underestimate impact. The problem with something like EA is even if we have the best minds thinking through the impact of technology, et cetera, they likely will under-represent the impact. And they will overestimate the speed at which we get the revolution. In both cases, it’s not ideal because we’re missing two really important angles, timing and impact on a specific technology.

Nuno Goncalves Pedro,

Again, leaving EA to the side, I’d say it attacks on degrowth. There are several visions of degrowth. There’s the notion that the working week should be basically reduced, that people should have less hours of work per day, potentially per week as well, that leads to more gender balancing by itself, et cetera. There’s a lot of elements of degrowth that are based on interesting facts that might actually apply.

Nuno Goncalves Pedro,

I don’t think, by the way, degrowth, EA and e/acc are all opposed to each other. They have moments of opposition and areas of opposition. I don’t think they are fundamentally all opposed on everything. Just to be clear, it is not a perfect distinction between these three movements.

Bertrand Schmitt

I will argue that there is very, very strong, deep opposition between e/acc and degrowth.

Nuno Goncalves Pedro,

Yeah, but then you go into the details, and you have argumentation around, “Well, really, shouldn’t you still think about some level of regulatory implementation for technology, even on technology?” I’m sure a lot of the e/acc guys would still define, “Yes, there needs to be something.” I feel it’s now put as a religious fight. Actually, the funny thing is religious fights shouldn’t be religious fights because actually, even between religions, there’s a lot of commonality. What I’m saying is I think everyone just says it’s an actual opposite view of the world. I don’t think it is. I think there’s stuff in between.

Bertrand Schmitt

Maybe we have to agree to disagree. I feel that that might be true with EA, what you are saying, but I don’t think so with degrowth. I think degrowth as a mindset is fundamentally against growing humanity around growth, economic, technological, everything. Wants to go back, God knows where. Is it 10 years ago, 20 years ago, 50 years ago, 200 years ago? I don’t know.

Bertrand Schmitt

If these people had any clue about what life was 200 years ago, I think they would probably not propose that. But I think it’s truly opposite. One is about being optimist about not just technology, but humanity, the future, building a better future and keep working like this. Another one is negative. I guess, to be quite frank, is probably being manipulated itself by, I’m not sure who, but ultimately, it’s going to bring us nowhere and brings only, from my perspective, a terrible, terrible world. Because at the end of the day, the world is working through growth. People want to be better than their parents, than their grandparents used to be. And if suddenly you inverse that equation, I think the world would be a very, very difficult place to live. I don’t see anything where e/acc or degrowth can agree to be franker.

Bertrand Schmitt

In term of EA, I think, yes, they might be the guys who propose regulations who are okay with technology but wanting control, manipulated, censored, managed by a central state. But I don’t think they are against per se technologies. They don’t want to take too much risk, existential risk, that’s for sure. But I don’t think the mindset is to grow negatively. I think the mindset might be more to decrease the risk. Yes, if it has an impact on growth rate, maybe. I don’t think it’s so opposite.

Nuno Goncalves Pedro,

You heard it from the horse’s mouth, someone who clearly has a strong view against degrowth, and he already shared it with all of us, so we don’t need to reshare it. I would add one thing to degrowth. There are some elements of this that resemble Marxism and resemble a lot of the notion of division of assets and all that stuff. One of the key issues with a methodology or with a system like this is what I call arbitrage. It’s because the likelihood that one player will play by these rules, but all the rest will not is 100%. It’s like game theory, right? It’s like, you guys do your degrowth thing, and we’ll continue growing, okay?

Bertrand Schmitt

Yes. That’s a great point because ultimately, that’s obviously the issue with all of this, is that you have to be pretty dumb to believe in some of this mindset. Degrowth is pretty obvious, but I would argue even yeah. Because at the end of the day, if only this country does EA, or if only Northern Europe does EA or whatever, then the rest of the world will not bother.

Nuno Goncalves Pedro,

Yeah, but the existential crisis part might prompt people to be a little bit more thoughtful about it, I guess. Even on a global basis, hopefully.

Bertrand Schmitt

Yeah. I would just say that humanity has learned to live and survive and manage a situation where, again, we have had for the past 70 years, whether we like it or not, whether we want to remember it or not, we have been living and are still living in the risk of total destruction of humanity through nuclear weapons. We don’t need a pathogen, we don’t need an AI, we don’t need anything. It’s very quick, unfortunately, one guy pressing a button, and it could be the end of humanity.

Bertrand Schmitt

I feel some of these fears are quite unreasonable versus something that has, unfortunately, much higher probability and risk and has absolutely no equivalent in term of violence.

Nuno Goncalves Pedro,

But I’ll throw something at you. I don’t know if you’ve been, but I’ve been to Bhutan, a country with 700,000 people. You’re going soon, right?

Bertrand Schmitt

I’m going there soon.

Nuno Goncalves Pedro,

You’ll tell me if I’m right after you. You go to Bhutan, it’s 700,000 people by the Himalayas, and it’s like, “My God, this is heaven.” It would be completely, I would say, a poster child for degrowth. After I went to Bhutan, I was thinking, Should we do this in the world? Should the world say, “There’s a couple of countries for a variety of reasons that we would like to explore the possibility that their development is different from the rest of the world.” Their development is different from the rest of the world because of historical reasons, so nothing was imposed on them.

Nuno Goncalves Pedro,

But could we A, be tested? Could we say, look, can we keep Bhutan, Bhutan, not growing at the speed of light, thinking through gross national happiness instead of dramatic GDP growth, et cetera. Could we see what happens? And are there other countries in the world where we could see that happen? Would the local citizens and governments be open to that experiment?'”

Nuno Goncalves Pedro,

I know this is profoundly against all freedom of anyone.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro,

But for me, that would be an interesting experiment. It’s like, I do feel Bhutan, certainly when I went there, which was now 15, probably years ago or something like that. No, it was maybe 2010, I think. So 14 years ago. Is there a case to be made that maybe as human beings, we would be happier in certain environments or not? And colour and contrast and understand in other places in the world, et cetera. I understand everything you just said. I’m not saying it’s wrong. I don’t think we can go back to 50 years ago. We can’t. It can’t happen because we’ve moved. But at the same time, I think it’s an interesting thing to think about. Would we all be fundamentally better?

Bertrand Schmitt

I think the two questions is first, I was reading about Bhutan, and I’m definitely keen to discover the place and how it’s working. One thing I was reading was, apparently, the young people leave the country in droves.

Nuno Goncalves Pedro,

Because they want to go where there’s this technology and the TikToks and all this crap, right?

Bertrand Schmitt

I don’t know. But going back to your experiment, yeah, if you lock people in.

Nuno Goncalves Pedro,

You can’t, right? You can’t lock people in.

Bertrand Schmitt

If you put barriers, maybe you can run your experiment, but then it will go against some other perspective on human’s life and respect.

Nuno Goncalves Pedro,

We can’t lock people in. That’s clear. Is there some experiment where we don’t lock people in that we could see if there are countries like that that could still thrive?

Bertrand Schmitt

There are some remote islands that still exist, that have blocked all communication with the modern world and stay where they are. And the local government, I forgot where it was exactly. I think it’s close to India. But there are these islands where basically the original people still live like before and no contact has been authorised with the outside world because they don’t want it. You try to go, you get killed. And the government has not done anything to change that. In a way, you could argue it’s-

Nuno Goncalves Pedro,

Dictatorship.

Bertrand Schmitt

Yeah, in some ways, to let them do that and not open, it’s taking a decision for them because people locally don’t know about the outside world. They’re just worrying, but they don’t know. They have no idea. I don’t know. I would feel horrible if one day you wake up, you discover there is a world around you, but you are put in a bubble and separate from the rest of humanity for decades. That’s a good question. I think what a lot of people would like is a simple life, less stress, less problems, living closer to nature, but at the same time have all the benefits from technology.

Bertrand Schmitt

You want your car, you want your video, you want your food.

Nuno Goncalves Pedro,

But you can’t.

Bertrand Schmitt

Exactly. Then my guess is that they end up with degrowth because they believe that degrowth will bring them that, when my take is that degrowth will bring just absolute chaos and misery, and none of this. In a way, you could argue the opposite is that more technology might make the technology more embed, more invisible, more automated.

Bertrand Schmitt

Could it bring actually a situation where, yes, you could have at some point the benefits of technology with less of the hard work to get there, maybe. But I think going back in time is not the solution, and people don’t fully realise what it truly means to go back in time.

Nuno Goncalves Pedro,

I’m doing the pros and cons of this, Bertrand, because I don’t belong to any of the three movements. I can just go pros and cons on all. Then let’s go for E/acc, see how you defend the E/acc. I think the biggest attacks on the E/acc is obviously that it tells, we don’t really think governments and industries should self-regulate or regulate, and who are governments to regulate technologies, et cetera, et cetera? That’s the point of governments in some ways, unless we eliminate governments.

Bertrand Schmitt

I don’t know.

Nuno Goncalves Pedro,

What’s the alternative? Let me finish. I know you’re the defender of this, so let me go through this. What’s the other side of this? The other side of this is what? Companies self-regulate, individuals self-regulate? That’s worked really well for us for the last many thousands of years, the self-regulation thing. We’re all very good at that, companies, businesses, people self-regulating? How does that work?

Nuno Goncalves Pedro,

For me, I understand why you’d say, get the government out of this, be more libertarian, all of that stuff. I understand it because there’s elements of it that I am in favour of. There shouldn’t be oppressing regulation. I would even say that actually the worst elements or the worst entities to regulate a technology are governments because they don’t understand shit about technology. But that’s what I’ve been saying for many years.

Nuno Goncalves Pedro,

Then governments should at least basically regulate, for example, use cases. There should be use case regulation. You should say, you’ll never do this with consumer stuff. You’ll never do this and have access to these systems. Why isn’t there a regulation like that? Technology, I understand. Ai is so new, how can governments regulate AI when even the companies producing it don’t sometimes understand what it’s doing fully? I understand that. But Surely there should be some regulatory oversight by some element in societal present.

Nuno Goncalves Pedro,

What element is that? I guess governments. What else would do it? Not companies, for sure. Because companies, their objective is profit. Their objective is that their stakeholders, in particular, their shareholders, make maximum profit. That’s the objective. That should be the objective for them.

Nuno Goncalves Pedro,

I don’t understand how Yack also can work. How can e/acc work, Bertrand? Before you tell me how E/acc can work, what elements of e/acc do you think others could still attack on, could still say bad things about?

Bertrand Schmitt

First, except if you have a degrowth mindset, effective altruism mindset, I don’t see what you can critique in e/acc. E/acc is just to say, okay, let’s use as much as-

Nuno Goncalves Pedro,

You have to be intellectually honest, and there should be things that could be criticisable about it.

Bertrand Schmitt

Give me a specific example.

Nuno Goncalves Pedro,

I just told you this whole regulatory thing.

Bertrand Schmitt

No, I think regulatory is just horrible. At the end of the day, regulatory capture is everywhere. Each time you have regulators, especially in the US, but in many other countries.

Nuno Goncalves Pedro,

There should be no regulation. Government shouldn’t intervene on anything. Google, OpenAI, guys, go do whatever you want.

Bertrand Schmitt

There should be, I believe, as little regulation as possible. At the end of the day, it just goes back to the origin of the Constitution, the US Constitution, if you live in the US. It’s not about wing-meeting shit. It’s letting people do their stuff and provide a minimum framework of justice, of domestic tranquillity, of common defence of promoting general welfare and securing the blessings of liberty. That’s what is the government and what it should be about.

Nuno Goncalves Pedro,

I can’t accept there is no one on my behalf that goes and tells fucking Facebook, pardon me for my English, because I do use Facebook, fucking Facebook, to stop using my data the way they did. Someone needs to go and tell them that. I can’t. I can’t. I can’t, so someone needs to go and tell them that, saying, “This is not okay. What you’re doing here is not okay.”

Bertrand Schmitt

But you are assuming the government is going to do that. The government is just going to try to get some money out of Facebook. That’s the game. They want to get money out of companies to claim a win. They don’t care about serving the needs of the people, just to be frank.

Nuno Goncalves Pedro,

But in a democracy, I get to elect them, right?

Bertrand Schmitt

For sure. One step further is that some of these constraints are actually making Facebook stronger. That’s what has been demonstrated again and again and again with these regulations is that they make running a business so much more difficult that good luck competing against Facebook, good luck about replacing Facebook with a better alternative.

Bertrand Schmitt

You haven’t changed Facebook so much in the system. Facebook, as thousands of lawyers, can fight government regulations in ways that benefit to them. Of course, they will advertise they made a win about regulations, Facebook that. At the end of the day, what you don’t see is what’s written in small letters in thousands of pages of documents that actually, no, Facebook got a win on the long term against their competition.

Nuno Goncalves Pedro,

Bertrand, you’re talking about the whole spiel around regulatory capture, which I agree. In the US, in particular, if you look at what happened in telecom-

Bertrand Schmitt

This is what happens again and again.

Nuno Goncalves Pedro,

Health care, etc, etc, the big guys basically used it for their own purposes, and therefore, they created a moat around regulation. I understand that, and I understand it’s been true.

Bertrand Schmitt

You get a short-term win for a long-term lost.

Nuno Goncalves Pedro,

No, but then needs to be a change in government. If we can’t promulgate that change in government, then what else can we do?

Bertrand Schmitt

You have to change countries if you believe another country is a better place.

Nuno Goncalves Pedro,

What I don’t trust, what e/acc is defending, and I do not trust, is what, companies self-govern? No. No way in hell they can self-govern.

Bertrand Schmitt

I don’t think they promote that.

Nuno Goncalves Pedro,

They do. They promote that.

Bertrand Schmitt

I think you are putting words in their mouth.

Nuno Goncalves Pedro,

They promote that.

Bertrand Schmitt

No, no, no, no. I don’t even think they are against regulation per se. I don’t think so, but for sure, they are more optimists, and they believe that many regulations are hurtful. The biggest joke right now is governments trying to regulate AI without any understanding of AI, of what AI can do, how AI can work, where AI is going. As you say, maybe to regulate some use cases at some point.

Nuno Goncalves Pedro,

Use cases and interfaces, it’s what I’ve been telling you everyone for a long time, that should be the focus.

Bertrand Schmitt

Yeah, and I don’t disagree if there is some needs of regulation, even if I’m not a big fan by default. But that’s not where they are starting. They are starting with the models, they are starting with the low-level stuff. It’s like trying to regulate physics instead of regulating atomic weapons.

Bertrand Schmitt

There is such a huge gap between both. Again, guess what? Everyone can assume that right now what’s happening is pure regulatory capture. It’s the OpenAI and Microsoft of the world that are trying to block the path for their competitors. That’s what is happening right now. That’s one more example of regulatory capture. It’s just much more early than we are used to. Usually, it takes 10 years after maturity of a tech to get there, but now they managed to get that from the starting block.

5. Our Views

Nuno Goncalves Pedro,

Understood. Maybe we switch to what you guys can already imagine, which is, what are our views? I guess Bertrand, very clearly is on the E/acc column, right?

Bertrand Schmitt

Yeah, I feel that most of the good today, most of our standards of living are coming from technology and the smart use of capital and supported by democracy. I think that trifecta has been key to less human suffering and more human happiness.

Bertrand Schmitt

People usually don’t like to think what was life just 200 years ago, but life was you’re a woman, you have a chance to die at giving childbirth. You are a child, one out of three doesn’t make it up to age of five. You are becoming old, your life is pure suffering if you managed to live old because we didn’t know how to do anything. We didn’t have antibiotics. We didn’t know how the human body was working. Life was truly dark, cold, horrible. Let’s not forget, 99% of the world was horribly poor.

Bertrand Schmitt

I see mostly benefits to technology. I think that if you slow down the growth of technology, and I feel that in some space, like in pharma and other spaces, yes, there has been abuse, but in some ways, the pace of technology has slowed down the past 20 or 30 years.

Bertrand Schmitt

I’m pretty scared because, again, if you want to live longer, if you want to live better, if you want to have better life, you need the pace of technology not to slow down at all. At the same time, I see what I would call in some ways, some forces of darkness that want to slow down technology.

Nuno Goncalves Pedro,

As you guys may have grasped by now, I’m not exactly an E/acc fan. I found a philosophical movement many years ago that fulfils me better than any of the movements we discussed today, which is Catholicism. I follow a religion, and that’s my philosophical view of the world.

Nuno Goncalves Pedro,

In terms of E/acc versus EA versus degrowth, I don’t think the solution is degrowth. It would be an interesting experiment to do it in certain countries. But as I said, the arbitrage of the play and the root of everything is a bit more complicated.

Nuno Goncalves Pedro,

I’m definitely pro-technology. Anyone that’s listened to all our podcasts or part of our podcast know that I’ve done a career in technology. I work in technology. I love technology. I love experimenting with technology. I think technology will get us to a better place.

Nuno Goncalves Pedro,

I do think technology has gone to a point where there needs to be a lot more investment in its understanding from the outside, in how it affects people in a social manner, in its ethics or lack thereof, in the way that people are used or misused for its purposes. That’s, I think, what concerns me right now. If we’re looking at philosophical movements around technology, maybe I’m between e/acc and EA, in between both.

Nuno Goncalves Pedro,

I see all the things you said, Bertrand. The world, our life lifespan, the discoveries we’ve made, our understanding of the world around us, and without going religious and saying we’re all under God’s one roof and all that stuff, which I could, I would say all of that has been extremely positive. The ability that people have to ascend and have mobility economically to get out of where they are, to get more means, to thrive in life, and to go to the next level, for me, all of that is extremely positive.

Nuno Goncalves Pedro,

But we systematically should understand the implications of technology and science. As I said, we won’t be able to understand it at its core. We’ll have to understand it at its interfaces, at its use cases, and how it affects businesses, and how it affects people.

Nuno Goncalves Pedro,

To be honest, there should be as much money, if not more spent on that than we spend on technology today, and that is not true. Today, we don’t spend much money on that. We have maybe one subchapter of IEEE that looks into technology philosophy, and we have some companies in AI looking at explainability, and we have some stuff going around understanding the ethics.

Nuno Goncalves Pedro,

I feel this should be discussed at the centre, and that concerns me. It concerns me when the top technologies of today don’t say, “Let’s spend a billion dollars in doing stuff that is really just assessing what’s happening with AI right now.” How is that going to change the world? Just understanding that, and then trying to get regulation out of that, and then trying to get understanding of boundary conditions on the technologies that are being developed.

Nuno Goncalves Pedro,

We need to spend that much amount of money because that’s the money that’s being spent on developing these technologies. It’s these orders of magnitudes, it’s in the billions. That’s the thing that concerns me, that we are saying, no, it’s fine. Technology will figure itself out. I think we’ve now hit points where at some point we don’t quite understand what technology will do to us.

Nuno Goncalves Pedro,

We’re not there yet. We will all agree that AGI is not going to happen tomorrow or probably in the next few years. But we should understand what’s happening, and we should spend money on it, and we should improve the ability that we have to understand how technology affects people’s lives globally. I don’t think there’s enough spent on that.

Nuno Goncalves Pedro,

That’s why I say, I’m clearly a technology-positive person. I believe technology will solve many problems that we have ahead, if nothing else, because nothing else will solve it, but we need to have more boundary conditions. We need to understand how things are being developed and why.

Nuno Goncalves Pedro,

It’s not about regulatory capture versus non-regulatory capture. It’s about this notion of we do all of these things—to your point—to have a better life down here. If we’re not doing that, then why the hell are we doing it? We should understand the implications. How is it affecting people? Deeply, deeply understand implications.

Bertrand Schmitt

Thank you for your perspective.

6. Conclusion

Nuno Goncalves Pedro,

In conclusion, we had a heated debate today on technology, philosophy, and ethics. Who would have known? Is technology intrinsically good, bad, or neutral? Is it whatever human beings want it to be? What is e/acc? Maybe you have heard talk about e/acc. What is EA? What is degrowth? Are there spiritual and religious elements that should be brought to this conversation? Thank you for listening to us today.

Bertrand Schmitt

Thank you, Nuno.

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The Apple Vision Pro is out and we each got ourselves one… Our first impressions on the early days of the Vision Pro. Will it change the world forever, like the iPhone?

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In-depth analysis
Competition with Meta Quest 3
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno G. Pedro

In this episode, episode 52 of Tech Deciphered, we will talk about the Apple Vision Pro. It’s now out, and both Bertrand and myself got ourselves one. So what are our first impressions on the early days of the Vision Pro? Will this revolutionise the future of input and output? Is this the new iPhone? Is this finally the product that Tim Cook has developed that shows us that he is the future of Apple? Let’s start with the overall impressions, Bertrand. What are your overall impressions?

Bertrand Schmitt

What are my overall impressions? It’s a mixed bag, that’s for sure. It’s a very impressive piece of tech. I think my worry is that it has been oversold by Apple, but also by a lot of YouTubers. When you keep looking at these YouTube videos of people using it for eight hours a day, I think it’s totally, utterly bullshit. There is no way in hell any normal human being will put that on their head eight hours a day unless forced to do it.

Nuno G. Pedro

Unless you’re working on your neck like you’re a Formula One driver or something.

Bertrand Schmitt

Exactly. You are working on your neck. Yes, it’s neck training. No, more seriously, overall, and we will go more in depth later on this episode, I feel it’s a great device for maybe two use cases. One is if you want to watch 3D content. To watch 3D content, 3D movies, potentially at some point 3D sports, when we get that, we don’t have that yet so far, 3D concert, then I think It’s awesome.

Bertrand Schmitt

Watching 90 minutes of 3D movies, it’s just an insane experience for me. It’s just amazing. It’s your best way to consume a Blade Runner 2049, a Dune. It’s actually maybe better than in a movie theatre if you combine it with a proper headset because the audio is quite good, the bass are pretty poor. For me today, as a mainstream consumer, that’s the best main use case. For businesses, there might be some reason to look at, if you are doing 3D design, to look at 3D objects in the middle of your room, I can see that as well.

Bertrand Schmitt

Beyond that, I think we’re talking about very stretch use cases. One of these could be to record a video of what you are doing and sharing that with other for training. I could see that probably for training purposes. But beyond that, at this stage, I’m not sure what’s the point to put 2D panels in the middle of a 3D vision with a headset that’s very heavy and very uncomfortable.

Bertrand Schmitt

I don’t know your experience, wearing the headset, but anyone telling you that this headset is nice to wear, do they have a metal head to wear that comfortably? I have no clue. I mean, I’m hopeful there will be better straps, but for me, it’s still a nightmare to wear it.

Nuno G. Pedro

Yeah, this has been tested by 007 villains, so they all can send away the thing on their head. Fully agree with your assessment. It’s impossible have it on your head, to be honest, even for more than an hour-and-a-half, two hours. An hour-and-a-half and two hours is already a lot. So even watching that movie, you might have to take a little break to watch that movie, in particular if it’s over two hours, which many of the Sci-Fi movies actually are, or at least the canonical ones.

Nuno G. Pedro

I agree that for the consumer side, I think the consumption of content will be great. Maybe I would say besides immersive content, immersive communication, we’ll get back to that later on the Zoom experience and the FaceTime experience, so I won’t unravel that whole discussion right now, but the immersive communication piece, I think, will get finally started at some point.

Nuno G. Pedro

For me, those two pieces are the pieces that are going to be core to the early use cases of the Vision Pro. Business, agree with you. Some collaboration tools, some consumption also of immersive content for business is quite powerful, but it’s $3,500, right? It’s so expensive. I mean, it’s more expensive than a really good laptop or an iMac.

Bertrand Schmitt

It’s a price range of your high-end MacBook Pro.

Nuno G. Pedro

Yeah, it’s the price range of the best-in-class laptop that you could use out there from Apple. It’s just expensive as hell. I feel, maybe giving it the other angle, I feel it’s a platform. The Vision Pro is a platform that they launched where they don’t have any killer apps yet, almost. Except maybe for the content, immersive content piece, they have no killer apps day one.

Nuno G. Pedro

As I said, I think they will have immersive communication day two, day 100, whenever a lot of these bugs are sorted out. But day one, that’s it. They launched a platform, which is the Vision Pro. It’s really exceptional. As you said at the beginning, it’s great technology. It’s really incredible. It does show us a glimpse of the future, but it’s not the future yet. I agree with you because of the size and how heavy the device is, I’m not sure as a platform, it would stand a test of time, even with software updates, et cetera.

Nuno G. Pedro

I have a bunch of things that I have issues with this on. We were just before recording this episode, trying to sort out My Persona, which is in beta trial, but it needs the optical ID thing, and the optical ID thing for some reason is not working for me, and I don’t know why, and maybe I need to clean it better. I’m not sure.

Nuno G. Pedro

It’s just there’s still all these little quirks at the core of the experience like optical ID piece that are just like, “Guys, why did you launch it?” Maybe you should have waited a little bit more and have that ecosystem a little bit more prepared.

Bertrand Schmitt

Yeah, I think the usual way to launch a product where we present you a bit in advance. We share with you a developer conference the details of the API, you can learn how to compile on your Mac, make it work, but you cannot access the device, and you have to wait so long before you can access the device.

Bertrand Schmitt

Basically, most developers who have developed any app for the Vision Pro probably didn’t have any access to the Vision Pro itself. You are guaranteed a few months of horrible bugs trying to just make it work. Surprisingly enough, even as you say, the Apple apps are actually not working so well. You’re having issues with Apple ID.

Bertrand Schmitt

Me, I’m facing a contact page that’s empty, and everything is actually properly linked on my account and everything, but it’s empty by default. I have to manually add everyone so that I can FaceTime them. It’s just pretty insane, so it’s not a bug per se, it’s just horrible design. It’s very weird out-of-the-box. I still want to say that out-of-the-box, that media consumption with Apple TV if you’re watching 3D content, it’s totally insane.

Bertrand Schmitt

For me, it has replaced my home cinema at home. I’m putting a big high-end headset. I have a really good bass as a result, and the Vision Pro, and it’s the best movie theatre experience I ever had. It beats a movie theatre because there is no one around blocking my view. I’m in the perfect spot, and it’s better 3D that you can have in a movie theatre. It’s better colour. You have an OLED screen versus a projection.

Bertrand Schmitt

For me, there is one use case, I’m very surprised that they have not pushed hard on it, because a lot of their other use case are simply not there. Another piece I see a lot, I mean, Apple is showing off, you are watching your Apple Vision Pro in a plane. Come on. I mean, this stuff is the size of a backpack. When the box to put your Vision Pro in, it’s on backpack. We’re seriously going to transport that in a plane? You don’t take any other luggage, it’s just your Vision Pro with you? I mean, this is nuts.

Bertrand Schmitt

People will say, “Oh, yeah, it’s great. It’s an external screen for my Mac.” Come on, you can get an external screen that’s a small, slim light and put in your backpack on top of your Mac and everything else. That’s not a realistic alternative. At home or at work, of course, you have an external screen if that’s what you need. Don’t tell me you need a Vision Pro for an external screen. I think this use case just makes zero sense.

Bertrand Schmitt

For me, at this stage today, makes zero sense. But that media consumption has really shocked me because I’m doing it only once every day at night. The other piece that has shocked me is the quality of the special 3D. If you start watching a 3D object in your home, it can be a Formula One car, it can be a human body, it just sits there perfectly at the right height with the right lighting in a very good pass-through environment in the middle of your living room, for instance, it’s awesome. I don’t have a real use case for it, but it’s super, super awesome. I’m sure some 3D professionals will have use case for it. That is also very, very well nailed. But everything else at this stage, it’s like whatever.

Nuno G. Pedro

There’s this video with the Apple Immersive video stuff that has all their nature videos that are available for free. Also the Alicia Keys.

Bertrand Schmitt

Yes, the Apple Immersive videos are awesome, awesome.

Nuno G. Pedro

The Alicia Keys recording thing, whatever. I had a friend of mine test it over the weekend, and she was afraid because there’s one where she’s doing some tight rope walking over a cliff, whatever. She was like, “I can’t watch anymore. I’m out.” I was watching, and I’m a huge fanboy of Alicia Keys. I know she’s well-married, but I’m a huge fanboy of hers.

Nuno G. Pedro

This was before, obviously, the Super Bowl, which was part of the performance as well with Usher. I was like, “This is so cool,” because I could literally see her. She’s talking to us, to the camera, or to the cameras. You’re like, “Wow, this is different ball game in terms of experience.” That was really amazing.

Bertrand Schmitt

I want to add on that because I believe that as of today, the best 3D content for the Vision Pro is actually what Apple calls the Apple Immersive Video, which is a rebranding for a standard that has been around for a while, which is VR 180, except that Apple did it in 8K, 90 FPS. It’s just absolutely awesome because this one compared to a 3D movie, it’s totally filling your field of view, horizontally and vertically and beyond.

Bertrand Schmitt

You can slightly turn your head, which you do normally. Your head doesn’t stay fixed like crazy watching something. It’s a very, very nice experience. Because it’s Apple, you can still see your hands. I don’t know if you notice, but the fact that you can move your head normally, see your hands normally as you would in a movie theatre, it doesn’t feel like an off-body experience. It feels normal and natural.

Nuno G. Pedro

The baby rhinos, we all want to touch the baby rhinos. When the baby rhinos come, it’s like everyone, my friend was also wanting to touch the baby rhinos.

Bertrand Schmitt

You didn’t want to touch the big dinosaur? I didn’t get to the big dinosaur yet. You will see it’s cute. Another type of cute. It was not a baby. But this one was also a very shocking experience and quite impressive because it’s mixing a AR passthrough. You can get a glimpse of what proper quality content will generate. I must say the Alicia Keys video, what was especially awesome is that you got really the impression to be with her and her team.

Nuno G. Pedro

She was there, yeah. We were there with her.

Bertrand Schmitt

Yeah, she was there, and it felt like for the first time, you are properly watching a normal humans in video. It’s so much more awesome in 3D than in 2D. That was really my take. It’s so much more awesome. I don’t know if you notice with all these immersive videos, it’s a very different game than recording 3D movies because there was no special effect.

Bertrand Schmitt

The camera is just sitting there watching at human-height. It’s very immersive because you are at the normal height, you are looking at her as if you were in the room. There is no special effects. It’s really enabling you to be immersive as if you were somewhere. It’s either with Alicia Keys or it’s watching baby rhinos, or it’s watching someone walking on a cliff.

Bertrand Schmitt

But that for me is very impressive that the proper 3D immersive experience does not require special effects. You could argue maybe it’s the end of special effects because now that you can be with someone in the middle of that movie, there is no need for special effects. You don’t need to zoom in, you don’t need to do anything.

Nuno G. Pedro

You still need it for Sci-Fi and stuff, right? You still need it for movies that require fundamental changes to environment.

Bertrand Schmitt

Yeah, sorry. You might need CGI, but you don’t need that out-of-focus, in-focus, sudden big zooms, that stuff. I feel movie making is totally different. Actually, that’s what the experts say. I used to do this type of video, is that it’s a totally different way of doing 3D movie making. I’m very excited when we see more of it because I think it might be the ultimate media consumption experience, actually. To be where you are without anything special beyond potentially CGI.

Nuno G. Pedro

To bring it all together and overall, maybe from my perspective, immersive, huge thumbs up. In the last two weeks, I’ve done the two most interesting immersive experiences, probably of my life recently, which was watching you two at the Sphere and now Apple Vision Pro. This is intimate. This is yourself. It’s individual. Obviously, the Sphere is you’re with a bunch of other people.

Nuno G. Pedro

But this is incredible. I think this is the first time, to your point, Bertrand is like, I was smiling at Alicia Keys. There’s no way in hell she was smiling at me because obviously, she’s just looking at a camera. That’s incredible. It’s like that level of intimacy, I think the Vision Pro is incredibly good at proposing. I still believe maybe the communication thing they’ll nail for intimacy as well and for immersion.

Nuno G. Pedro

I agree that, as a platform, this is maybe just the beginning. It’s going to be a V2 or a V3 that’s going to be the next thing. I’m relatively optimistic. I told you I felt the Vision Pro, the first version was going to be somehow a bit limited and clunky. It is really exceptional the way they did it.

Nuno G. Pedro

There’s pieces of the software that you could see if they sort out the edges, it might actually work really well. The price, I think, is the big showstopper of this thing. I mean, 3,500 bucks for this, it’s just silly. You have some very strong views that this might be one of the worst products in Apple’s history in terms of returns.

Bertrand Schmitt

Yeah. I think, again, I have some very strong, positive thoughts. As of today, it is the best way to experience any 3D movie or immersive video format. What about 2D, you could ask? Yeah, I think it’s a good way to experience 2D, but that special thing is with 3D content. Of course, you can still watch well on 2D content. I think there is a real use case to say, “I’m going to replace my home cinema,” or, “That’s when my spouse is using home cinema, I have my own, and we can watch two different stuff and no fight.” That might be the way to look at it.

Bertrand Schmitt

Again, if you’re a professional doing 3D design, I think that there is huge value. You might still be missing the tools. Just to be clear, you can watch stuff. Open 3D files with some additional apps, but I don’t think you have any creation app, but I’m sure it will be coming in one or two years. Again, for travel use case, forget it. I think another big piece is that it’s not a social experience at all at this stage. You need friends who have an Apple Vision Pro, have set on their personal well, and you can call them in FaceTime, and you can have somewhat of something social.

Bertrand Schmitt

But what is clear is that it’s not for something to enjoy with people around you. I mean, forget the height-side stuff. It’s useless. It’s really not social at this stage. For me, that’s also another issue I have with it. On the plus side, it’s very private. You want to do stuff privately, watch stuff privately. No one can watch above your shoulder. That’s a positive.

Nuno G. Pedro

Yeah, but they can see what’s being projected in your thing. It’s actually less private than other solutions out there, certainly the VR Immersive.

Bertrand Schmitt

How do they watch, sorry?

Nuno G. Pedro

I can watch in front of you and there’s things going on on the screen. I could see at least some stuff that’s going on on the screen from the other side.

Bertrand Schmitt

But if I don’t decide to share, you cannot see anything.

Nuno G. Pedro

No, no, no, no, no. If I on the other side of your lenses, I could see stuff that’s going on in your lenses.

Bertrand Schmitt

No, you can block. You see eyesight, but I don’t think you see anything. Eyesight is not showing what you see.

Nuno G. Pedro

Are you sure of that?

Bertrand Schmitt

Yes.

Nuno G. Pedro

Okay.

Bertrand Schmitt

You only see what Apple want you to see on the outside, and they want you to see that you are doing something, watching something, showing your eyes, but it’s not showing what you are seeing. It’s totally blocked.

Bertrand Schmitt

Overall, my take is that it might be the highest return rate of any Apple product, because, I think, you talk about price, people will be very critical. Is it worth $3.5K? I think there are some use case where, yes, it is.

Nuno G. Pedro

I don’t think it is today. I mean, for sure.

Bertrand Schmitt

But yeah, I think overall, a lot of people will be either, “I’m a huge fanboy, or, “I’m a VR developer,” or, “I love to watch 3D content and all that’s my best device. But beyond that, every other use case, I think It’s not there. Why keep it instead of returning it, waiting one year for a better version? Again, the whole environment, app ecosystem, it’s just not there.

Bertrand Schmitt

I think it was one question to say, you know what? Your first iPhone, it was expensive it was expensive, but only 600 bucks in comparison. It was working for the base use case, which was phone and Safari. You had these three use cases. With any of these use cases, email on mobility, Safari and mobility, and phone, it was… Like, yeah, all combined, it was a game-changer, and the UI was, of course, amazing.

Bertrand Schmitt

I think it’s a very, very different ball game. I’m a believer that Apple will improve hardware and software, don’t get me wrong. All the bugs we are talking about and stuff, even the weight and size and bulk will decrease. I’m more pessimistic that we will get in a reasonable price range quickly, but that in three years, we have removed most of the issues and the price is a bit better, yes.

Bertrand Schmitt

In five years, it’s quite game changer, probably. In 10 years, it gets to some scale similar to tablets, yes. That’s where I see this. I would say overall, cautiously optimistic on the mid-term. I think what they should have called it is not the Apple Vision Pro, but the Apple Vision Developer Edition. I think that would have been a more fair expectation. But right now, I think it’s an issue. I think YouTubers, for instance, are really too much spinning this stuff out.

Nuno G. Pedro

Yeah, this is a developer tool. This is not a ready, full-on consumer, let’s-go-do-stuff.

Bertrand Schmitt

Yeah.

Nuno G. Pedro

I think they’ve positioned it as a consumer thing, and that’s their fault.

Bertrand Schmitt

I think it’s a mistake.

Nuno G. Pedro

It was a mistake, agreed. Let’s go in-depth analysis.

Bertrand Schmitt

Let’s go about the pros first. Again, I think as a first pro, that’s really the best way to watch a 3D movie. You have a huge screen size, you have the 3D quality you have ever experienced. As long as you combine that with a proper high-quality headset for big bass, then you have something quite magical, I must say. Especially if you start with the Apple Immersive content, you have some 3D IMAX content as well, and you have your 4K Dolby Vision 3D. For this use case, it’s amazing.

Bertrand Schmitt

I think the big question is, is that enough for you to keep it? It’s that one killer feature right now.

Nuno G. Pedro

I think so. For me, the whole experience you get from movies is amazing. I agree with you, you need earphones. I started using my AirPods with it when I’m in it. The demos are incredible. We’ve already talked about a few of them, so we won’t belay too much on it. There will be, I believe, some interesting experience for basic gaming, I think, to start with. I’m not sure I would see mid-core coming anytime soon because of controllers.

Nuno G. Pedro

But I feel in gaming, we’re going to have some interesting casual things coming up as well that would be developed well for the Vision Pro. But overall, I was blown away with the immersive nature of the content, blown away. It is impressive.

Bertrand Schmitt

I don’t see anyone buying a Vision Pro for casual gaming.

Nuno G. Pedro

Yes, we already discussed nobody’s going to buy the Vision Pro for any reason whatsoever because it’s too expensive. But if you have a Vision Pro, I feel the experience of potentially starting to play with casual games is something that will come your way. That’s how I see it.

Bertrand Schmitt

I have tried a few casual games from one music game to some more traditional game improved or remastered for Vision Pro. I think it’s a nice addition. No one in his right mind should buy that for this use case at this stage. I would say, and we will talk later about this, that’s where the Quest 3 actually shines quite a bit. There is some proper high-quality VR game content that you don’t find in the Vision Pro and you might not find until they decide to add controllers.

Bertrand Schmitt

Again, in the pros, I think there is amazing stuff to watch in your living room or your office. Take that Dinosaur demo app, take that Jig app where you can watch any 3D design, basically from a car to an engine to a plane and human body. You can watch that in detail in your room. It’s amazing. This stuff is amazing. That’s where the passthrough is for me truly shining because there is a use for the passthrough.

Bertrand Schmitt

You can move around, watch around without tripping in your living room or in your office. That is amazing. I don’t have a use case for it, but I’m sure some have. The more we have tools to not just watch that content, but edit it, correct it, shape it, that would be amazing step by step. I see a future there if 3D design is one of your priorities. Or you have stuff to learn that benefit from 3D.

Nuno G. Pedro

The Nature, the episodes that we talked about earlier, the Nature series in 3D, the Alicia Keys, recording room thing, et cetera. There’s a couple of really cool things for you to do it. In any case, start with the Apple Immersive demo for content. It’s relatively short, and you’ll get a feel for some of the key scenes in all of these videos. Maybe audio. I think the audio is great. As I said, it’s just the headsets themselves are not, so you need to add headsets to it.

Bertrand Schmitt

Personally, I feel the audio is absolutely amazing. It’s just that it’s lacking pass. But if you forget the pass part, this audio is crystal clear. When you talk to someone else, we see it actually on FaceTime, it’s actually the best audio I’ve done remote with anyone. Out of the box, the audio of the other person was absolutely perfect. It was like being with him in the room. That I was quite shocked. A human voice doesn’t require too much pass, actually. That’s why it was great.

Bertrand Schmitt

Again, for movies, it’s not good enough, but for YouTube videos or talking to someone, it’s actually quite amazing. I have not tried, but apparently it’s extremely good at excluding any other audio but your own audio. Some people say that I’m in the middle of a train station and no one is hearing I’m in a train station.

Nuno G. Pedro

The audio is great, but what we’re saying is the speakers are great. If it’s just voice stuff that you want, if you want immersive, you need to put your earphones on or something like that. Yes so, it’s basically the speaker nature of the device rather than the audio itself. The audio is actually really good.

Bertrand Schmitt

I think hands are working really well. You see them, it’s always visible, even in the middle of the movie, theatre environment. You can use your hands in some apps to move objects, but the fact that they are always visible, you see your own hands, and it’s very different from a Quest 3 experience, for instance, where it’s fake hands. It’s pretty impressive. It’s well done.

Nuno G. Pedro

The hands are great. The sensitivity of them is okay. I think we’ll talk about keyboard later on, but the keyboard experience is not so great.

Bertrand Schmitt

Oh, yeah.

Nuno G. Pedro

But otherwise, the hand stuff is actually great. To your point, from a UX, UI perspective, it’s definitely ahead of the other things that are out there in the market. The ability that you have of moving stuff around, how intuitive it is to close windows and do things around it is pretty significant.

Bertrand Schmitt

The passthrough is overall also a great experience. It has virtually no lag. It’s good, not great image quality, but it’s good image quality. It’s difficult to see stuff close, just to be clear. Yes, you can read your watch, but forget about reading stuff on your iPhone. Yes, you can read a password on your iPhone, but you don’t want to read anything on your iPhone.

Bertrand Schmitt

It looks like the main issue is a lack of autofocus for the camera. I’m not clear I think they have a fixed focus, so they are not able to focus at something close. That’s the main reason. That’s something that can be corrected and is actually available on a high-end, it’s called the Varjo XR-4, where you have a special version with autofocus, and this one is only 10K.

Nuno G. Pedro

It’s slightly more expensive, I guess. I agree on the passthrough, very difficult to do things on your phone while you’re doing it. It needs to be minimal. It needs to be, as you said, a password or something you need to approve. A bit of a problem because your face ID is gone. You’re like, then you need to put the code again for the pin for the phone. I hope Apple at some point starts this out as well. I’m not always using my Apple Watch and all that stuff. I don’t know. It felt a little bit clunky the whole experience.

Bertrand Schmitt

That’s when having a Samsung phone with a fingerprint reading.

Nuno G. Pedro

Yes, I’m on a Samsung phone right now, actually today. We’re definitely giving value to that, but I fully agree with you. It’s a great experience, the passthrough experience. It feels like you’re seeing through, and effectively you’re just being given images of what’s on the other side. There’s no way you’re going to bump into someone when you’re doing it. Even if you’re in your home or against the wall, it’s very clear what you’re seeing.

Bertrand Schmitt

Yes, I would agree, but I would say to people, be careful because it’s not the same field of view. You are missing your normal real-life field of view. Because of that, there is stuff you might bump into that you might not have seen because vertically, horizontally, it’s not the same as human eyes. Be careful even at home and absolutely never use that outside your home. It’s crazy, just to be clear, it’s dangerous. If you are seated in a plane, that’s okay, but don’t use it walking anywhere outside. That’s a danger.

Nuno G. Pedro

On top of that, two things to put into context here. One is if you’re in full immersive mode, like we were talking about some of these videos, like the Alicia Keys one and some of the Nature ones, you are in full immersive mode, right?

Bertrand Schmitt

Yes.

Nuno G. Pedro

You can see your hands, but that’s really it. You’re not seeing through anything. That then obviously blocks your view. You’re more in a VR type of mode. Then the second piece is obviously the windows. If a window is stuck in front of you on your line of sight, you don’t see through those windows depending on the window, opacity, et cetera. It might be that you don’t see through the window either. Again, don’t use it while you’re walking outside. I guess that’s the message there.

Bertrand Schmitt

On this one, the only good news and downside of Apple special technology is that if you have a window, and you are walking, the window is to quickly disappear because it’s stuck in space where you put it. That’s the very odd part. I was expecting some experience where you walk with a window that stays in your field of view.

Bertrand Schmitt

For instance, let’s say you have a video. You move around your home or your office while the video stays in your headset. No, that’s not how it’s working. The video disappears step by step because it’s still where you put it. It’s amazing, you can come back, and the video is exactly where you left it. Their tech is insane versus anything that happened before. One thing that you truly get while calling it special technology is not a gimmick. It’s truly what they have achieved.

Nuno G. Pedro

It is truly special.

Bertrand Schmitt

It’s truly special. But at the same time, there are a lot of stuff I would like to keep in my field of view. Like, again, a video. I’m chatting with someone, I’m moving around my home. I want that person to still be there with me, not gone.

Nuno G. Pedro

They should have some lock mode, spatial lock mode where I lock my field of view. Yeah.

Bertrand Schmitt

Given that is purely software, I guess they can do it. There is no restriction. However, given it’s a change of UX, and it’s Apple, maybe they will refuse to change that for the next five years.

Nuno G. Pedro

I hope they don’t because, again, they’ve done the more difficult piece, which is the tracking and spatial recognition, the state of the art, as you said. Doing the lock is actually the easier part, which just stays in your view. Yeah. Hopefully, they won’t this fundamentalist religious fight with us again and say, “Oh, no, you can’t lock it.” It’s like, “Why?”

Bertrand Schmitt

But exactly that’s what I’m wondering, that it would be a philosophical fight.

Nuno G. Pedro

Maybe because of what you said earlier in the episode, because you should never use it walking in blah, blah, blah.

Bertrand Schmitt

Yes. Let’s go to image quality. I think, again, this stuff is amazing. That’s the first time, and I’ve used a lot of VR headsets over the years, that’s the first time that the resolution is perfect. You don’t see the pixels. The colours are great. The brightness is insane. Actually, there are some movies I’m watching. I have to close my eyes. It’s too much brightness for me. My eyes need time to adjust.

Bertrand Schmitt

For the FOV, I think it’s good enough. Of course, I wish a bigger FOV. I don’t know if it’s around 100 degrees. I wish bigger, but it’s big enough for the current experience you get from the Vision Pro. Give me more, no question, but good enough for everyone.

Nuno G. Pedro

Yeah, it’s the image quality is stellar. You can’t have a fully immersive experience if the image quality is not stellar. I think they’ve taken us to the next level. The bar now is at a different level altogether.

Bertrand Schmitt

For me, to that point, we got more and more used with our laptop screens external screens, 4K TVs, iPhone, to have a retina quality image in front of you. I would say in VR, in AI, it’s even more important because it’s always in front of you, this screen. Everywhere you look at, if you see pixel, it’s horrible. Especially that it’s been 5, 10 years in your normal life, you don’t see the pixel any more. I think they were absolutely right to wait to launch this device until they can achieve retina level quality. That was the right decision.

Bertrand Schmitt

Battery life, I don’t know for you, but for me, it’s really not an issue. People are complaining. I don’t see any normal human being watching more than three hours of content every day in this device. Maybe you are not a normal human being, and you want to use that more than three hours, but you get around three hours of battery life, more than two, definitely, two hours and a half maybe. It’s easy to plug it if you’re not moving too much while you are watching something. I think it’s a non-issue. Of course, I would prefer to have the battery on my headset, not in a pocket, but I think it’s no big deal and completely overblown at this stage.

Nuno G. Pedro

Yeah, I agree. But I think it’s more because of the limitation. The battery is not fine if you could wear it for 4 hours. It’s just because you can’t. The battery is fine.

Bertrand Schmitt

You’re right.

Nuno G. Pedro

It’s not a feature. It’s like the-

Bertrand Schmitt

It’s part of the-

Nuno G. Pedro

The negative, it’s a bug that then makes the other thing feel fine.

Bertrand Schmitt

True.

Nuno G. Pedro

It’s so heavy, it’s okay because you’re going to have to take it off anyway, so you might as well charge it.

Bertrand Schmitt

To this point, I think that that’s the realization that compared to an iPhone, an iPad, a laptop, a computer, it is not designed to be used eight hours a day. This is not designed for that as of today. You are a madman if you believe you buy that, you replace a Mac. That’s total madness.

Nuno G. Pedro

Moving on maybe to the cons. We’ve already mentioned a few because we couldn’t help ourselves. Well, head, weight, comfort. It is relatively comfort, but for a short period of time. Then it’s heavy as the crown, I guess, is what comes to mind. It’s fine if you have a little bit of some backing, like to your point, reclining chair. If there’s something behind our heads, it’s a little bit easier. If you’re on a sofa and there’s nothing behind, you still feel a bit the weight as well.

Nuno G. Pedro

You get tired quickly. I think my max right now, to be very honest with you, is maybe 30 something minutes. I’ve never gone past an hour. 30 something minutes, if you remember, is what everyone was saying for the quest in general because of VR and all that stuff. I’m yet to watch a full on movie on it. I realized the Dune movie you’re talking about is the first one.

Nuno G. Pedro

I want to watch the second one, so I want to wait until the second one is out.

Bertrand Schmitt

Yeah, that was episode one.

Nuno G. Pedro

Maybe I’ll try with the stuff It’s available for free and watch a few of them in a row. I didn’t have as much time this weekend as I expected to have because I had friends over for Super Bowl and all that stuff. I was on the road. There’s a lag here on the analysis between Bertrand and me because I was on the road for a little bit longer, so I got mine later. Bertrand was sending me all these tips and all these things, and I’m like, okay, but I still need to test a little bit more. Definitely, it’s a device that I see myself going back to unlike, to be honest, my Meta Quest 2. I haven’t used it in a long time.

Bertrand Schmitt

I think that the fact they nailed the media content is a big one, media content consumption. Me, to your point, I use it up to 90 minutes in a row. I would say for movies, it’s okay because if it’s a long movie, I would just split it in two, to be clear, because I rarely have three hours in a go available to watch something. But split into a long movie, that’s actually perfect. But yeah, three hours in a row, I’m not sure I would be ready for that in the current version.

Bertrand Schmitt

Another piece I want to be careful. If you’re doing basic media consumption, it’s fine. But if you’re trying to do more, it can be very tiring for the eyes because using your eyes to control a UI is actually very bad for your eyes. Your eye muscle are not used to do that. Your eyes are used to keep moving around and stuff, not to be locked in place, look fixately at a UI element in order to control it and then snap it with your fingers. I think if that UI is very well done, I’m actually I’m worried to use that UI on a regular basis, like for work, for instance, because I’m very worried your eye muscle are not designed for that, are not used to it.

Bertrand Schmitt

Another piece I was reading, people were saying you are blinking less in that type of environment, which is also an issue because your eyes should be blinking regularly. That’s something to be seen. Again, it goes back to if you are using it 90 minutes a day for media consumption, it’s not a If you are planning, again, to use it for eight hours a day, I’m not sure you really know what you are getting into.

Nuno G. Pedro

Yeah, there will be other side effects because of the weight and the sight and stuff.

Bertrand Schmitt

Yes.

Nuno G. Pedro

Definitely, I think this is going to be a little bit of a backlash at some point on that. Definitely tiring for the eyes. The hands, I feel, are interesting for you to do, obviously, the things in terms of user interface, but there’s very limited UI interactions, to be honest. There’s very few things. There’s three movements that matter. Then can you do other things with your hands? Is there any other thing that you could use it for? I don’t know if we’re getting this because it’s early days, and so Apple has ideas on what else they want to do with your hands. I hope so. Otherwise, right now, it’s pretty limited.

Bertrand Schmitt

Yes, that’s the part I feel odd because your hands are always visible and nicely so. It’s well done because it’s not easy in push through your hands, but they are barely used. Touching two fingers to click, okay. But we have hands, we have evolved with millions of years of evolution to use our hands to do stuff.

Nuno G. Pedro

To be honest, some of the stuff should be even better. They measure when you put your eyebrows up. You could say, I’m looking at something, it’s pointing at the thing, and the click is when my eyebrows go up. I’m not even sure you need hands for everything, but still, if you have your hands, what do you do with your hands?

Bertrand Schmitt

I just feel, yes, that your hands are underutilized.

Nuno G. Pedro

I think your eyebrows are underutilized as well.

Bertrand Schmitt

Yeah, maybe. I think it’s a big issue when you look at your computer, use your hands. When you use your iPad, your iPhone, you use your hands. It’s the first device where your hands are mostly useless, I would say. I don’t think it’s natural. It’s not natural.

Nuno G. Pedro

There are things that are funny, like the recentring, you need to go back to the button. Why can’t we do recentring with your hand? Why can’t I do some movement with a hand to re-center?

Bertrand Schmitt

Yeah, you could put your hands with a special movement to show, “Hey, this is where I want that position.”

Nuno G. Pedro

Yeah.

Bertrand Schmitt

Agreed. Another piece, again, we talk about it, but that situation where all your apps windows stays in place. I don’t follow you, that’s super, super odd in a lot of situations. I hope they will find a way to change that at some point. We talk about recentring, but I don’t think that’s enough. You cannot have a video or audio call and have this calls following you. For me, it’s very odd.

Nuno G. Pedro

It is super odd, and I think it would be easier for them to just do the lock position.

Bertrand Schmitt

I hope so.

Nuno G. Pedro

Hopefully, this is not a religious fight with Apple again because we are fed up of that. I think controllers in general, we’ll talk about controls and input and output. Some VR controllers, there’s also no proper VR games yet there. I think input and output in general, the ability for me to connect other things to it, like a keyboard, a mouse, whatever, that I could use it actually as a tool where I’m writing text on something, and I’m consuming content on the other side.

Nuno G. Pedro

I feel a lot of people when they saw the demo of the Apple Vision Pro felt this potentially could replace my computer or at the very least my iPad for certain productivity things. It can’t really, if you can’t connect a keyboard or a mouse or something, because the keyboard experience on the Vision Pro is relatively atrocious. It’s very much a view one experience. It’s very, very atrocious.

Bertrand Schmitt

It’s horrible. If you talk about the virtual keyboard, using your eyes to press on a key. Or using your finger and typing in that virtual keyboard, it’s just one of the worst UI experience I’ve had to type a keyboard. Yes, you can connect with Bluetooth a keyboard. Usually I’ve not done that. What I have done is connect my Mac to my Vision Pro and my Mac itself connected to a keyboard and to a mouse. That’s working. Usually that’s how I use a keyboard, maybe a Mac connected to my Vision Pro, but you can directly connect a keyboard. You cannot connect directly a mouse.

Bertrand Schmitt

You can connect a mouse to your Mac, but you can directly connect a mouse to your Vision Pro. You can connect on your trackpad for some reason. That It doesn’t seem to work well. There is always weird stuff with your virtual keyboard and stuff. For me today, if I want to type anything on a Vision Pro, I connect my Mac to the Vision Pro and then type as I would on my Mac, and that experience will work, and the same using my mouse.

Bertrand Schmitt

But excluding my Mac from that interaction, I don’t think I would bother connect a virtual keyboard. Because all of these apps and stuff are still buggy, not working correctly in terms of input. It just It doesn’t feel serious about it. This is not a device that will let you forget your Mac if you are serious about doing work. You will still connect your Mac to it if you are serious about doing work.

Nuno G. Pedro

It’s strange because I feel that was one of the key things that the iPhone did so well.

Bertrand Schmitt

Yes, I totally agree.

Nuno G. Pedro

The first iPhone, the keyboard experience was radical. That’s the problem we had with PDAs and other smartphone-like things that were in the market, the keyboards were crap. If it wasn’t a BlackBerry, if you didn’t have a physical keyboard, the virtual keyboards were all crap. Then Apple came in, it was like, “Oh my God, you could do a good keyboard.” This is the opposite, we’re going back. This is like a PDA experience on an Apple device. It’s like, “Why doesn’t this work well?”

Bertrand Schmitt

It’s worse than any PDA. It’s a level of a PDA before multi-touch, when you had to use a stylus and click one by one on keys on a keyboard. But even that experience might have been better than on a Vision Pro, and we will go back to this. Using a Quest 3 controller is a better experience to type on the keyboard. Can you believe it? I’m still in shock how bad is that keyboard, especially coming from Apple. A few other stuff, the Persona is still very much a work in progress. It’s odd-looking. At some point, you get used to FaceTiming someone with a Persona, it’s still very odd.

Bertrand Schmitt

What is very odd is, actually, the Persona is in 2D. It’s projected on a 2D plane. I understand the use of Persona as a camera. You are visible on the camera, as a result, it can work with any app even if it’s not really optimized; take Microsoft Teams, Zoom. But in FaceTime, I would have expected a Persona that is in 3D, and it’s not. Not only it’s kind of lifeless, it’s in that uncanny valley where it’s close enough, but not close enough.

Bertrand Schmitt

On top of it, you’re in a 3D environment, and it’s presented to you in 2D. I guess they will correct it, they showed a beta tag on it, so let’s not be too hard. I think it has potential to Persona. It has potential to get better.

Nuno G. Pedro

It’s still beta. I’m a little bit less negative on it. I feel it’s going to evolve, it says beta on the cover. I’m pissed off like hell that it still doesn’t work for me because of the optical ID thing. I’ve created, now, two Personas, but it looks virtual. It looks like an avatar, not fully three-dimensional, but it’s an avatar that is interesting. I’m a little bit less negative on that. I feel it will evolve and right now it’s fine. But I want the optical ID thing to work. I think that’s the only thing I want.

Bertrand Schmitt

For it to work. I will say, it still requires serious work, but in a V4, it’s probably going to be great. Again, it’s too big to transport. You can’t leave home or your office with it on a regular basis, just too big, and you don’t want it to get stolen. Forget about this use case, it will be my take. Hopefully, at some point, it changes.

Nuno G. Pedro

Apple being Apple didn’t give us an accessory to transport it because, obviously, they want us to pay for it.

Bertrand Schmitt

Yes.

Nuno G. Pedro

I mean, at $3,500 in such a developmental stage, it would be cool if they’d given us some bag to transport it on.

Bertrand Schmitt

Let’s not forget that base prices with the base storage, it can go up to more than that, and there is tax and stuff. Image quality, I want to say, I have one issue, it’s glare. There is glare, and especially visible when you have some bright image, and you are in that dark movie theater mode, you see that glare in media consumption, and that’s my biggest negative in image quality. I managed to get over it, but once in a while it goes back and you see it. So they still need to fix that. For me, that’s my biggest issue before limited field of view, which I think is acceptable. Please fix the glare.

Nuno G. Pedro

It’s grainy for the reasons I think you were already pointing to earlier, but the graininess is also a bit… I don’t know if they can ever sort that out.

Bertrand Schmitt

For the passthrough, you mean?

Nuno G. Pedro

Yeah.

Bertrand Schmitt

For the passthrough.

Nuno G. Pedro

For the passthrough.

Bertrand Schmitt

It’s not an easy one. I think it’s the worst when you have no natural lighting, when it’s at night, it becomes more grainy. That’s the negative of the passthrough. You can see some distortion. If you look at carefully the passthrough, you can see some distortion happening. I see that being relatively easy to fix with better tech, basically. What is an issue is really reading anything close because of that lack of autofocus. It becomes blurry, so they need to add autofocus. Hopefully, it’s going to come, because if you need to watch at any external screen or book or anything or passport, whatever, it’s trouble to see it close.

Nuno G. Pedro

We haven’t mentioned one important aspect of all of these things that relate to the passthrough and the image quality, which is the lenses. Both of us got lenses because we wear eyeglasses, that make the experience be seamless. We take our glasses off, we put the Apple Vision Pro on, and it’s just seamless. That part of the experience for me was particularly a pro. It was just so seamless to do the whole thing through Carl Zeiss. They sent it at the same time. In my case, they sent it at the same time, at least. I got it, put it on, it was just working. So very, very cool the way they did that.

Bertrand Schmitt

On that, I’m a yes and no, because, it forced me to remove my glasses, find a spot to put them; when I remove the headset, I have to find my glasses again. I realized that I have a Quest Pro where I’ve not bought the insert, it’s actually more painless because I truly take it on, take off without touching my glasses, finding a spot for them. I don’t know if it’s such a good idea. Obviously, it has additional cost.

Nuno G. Pedro

For me, I feel it’s a nicer experience. Having done the one with the Quest, I feel it’s a little bit more Mickey Mouse. The quality then of the experience with your glasses on is not as perfect.

Bertrand Schmitt

It might reduce quality.

Nuno G. Pedro

Everyone has different eyeglasses that have different formats. It will always fit in a funny way. I understand why they took this decision. That was sort of saying, “You can try and do it like that, but it won’t be very good.”

Bertrand Schmitt

I like the alternative because with Quest, you can also buy your inserts if you want, so you have a choice.

Nuno G. Pedro

Yeah.

Bertrand Schmitt

Video 3D recording, Apple has put that as a big thing. You can video record with your Apple Vision Pro, and actually, you can also do that with an Apple iPhone 15 Pro. This is bad, and I will tell you why it’s bad.

Bertrand Schmitt

You are used to this crazy immersive video recording from Apple. You can see glorious 4K, 3D movies. What you have recorded with your Vision Pro or your iPhone 15 Pro in 3D is just super small. I mean, it’s 1080p, I’m not joking. It’s 1080p at 30FPS. 30FPS in VR is actually too slow if you want that immersive, like the 8K Apple immersive video, forget it, it’s just too slow. But more important, that 1080p is just too small. If you watch it in your big 3D universe through your Apple Vision Pro, it’s like a tiny vignette. Yes, it’s in 3D, but it’s a tiny vignette. Why would you want to watch a photo or a video as a tiny vignette on your Apple Vision Pro? There is no point.

Nuno G. Pedro

Do you think this is a software thing that they’ll solve at some point or no?

Bertrand Schmitt

I mean, they need better cameras. It’s hardware. I mean, with better hardware, they will be able to achieve.

Nuno G. Pedro

It’s not software-solvable, you’re saying.

Bertrand Schmitt

No, it’s not. I think they went to the max they could do with the current hardware, and it might be just the hardware to record natively. Ultimately, I’m not saying it’s an easy one to do. You still need to do dual video recording with two different eyes, you need to merge them in real-time, there is work to be done to do that. But my point is that until they move to at least dual 4K, it will be quite a crap experience. Right now, it’s a crap experience.

Bertrand Schmitt

The iPhone Pro 15 is actually even worse because the two lens are not… To do proper video recording, you want the two lenses spaced like normal human eyes. That’s what they do with the Vision Pro, the two recording cameras are spaced properly. But on the iPhone Pro 15, they are not spaced properly, they are too close to each other. It’s actually a very poor 3D effect.

Bertrand Schmitt

It’s not only too small a window, too small a recording; but on top of it, it’s an improper recording. I think they can correct this in hardware, but it will come with Vision Pro 2 or 3. It will come with an iPhone Pro 16, 17, I don’t know. But for me, the need to change that for 3D video recording to be a real thing, and right now it’s not. It works, to be clear, but it’s just too poor.

Nuno G. Pedro

Maybe to finalize on the cons side, obviously, we’ve talked about the external pieces, input and output. It applies, also to-

Bertrand Schmitt

It’s missing USB. It’s missing one USB support.

Nuno G. Pedro

It’s missing support to get it in and out. We’ve already talked quite a bit about audio limitations. Maybe you want to elaborate a little bit, Bertrand?

Bertrand Schmitt

Yeah, maybe again, one point, we’re missing VR controllers, that’s a big thing. That for me is huge, I just want to insist on this one. Yes, you can use your PlayStation or Xbox controllers, but it’s not the same. They need VR controllers.

Bertrand Schmitt

Audio limitation. I mean, the audio is excellent, amazing, but we are missing bass from the speakers, so you need to connect something else. You are forced to connect in Bluetooth, which is a pain because it will be lossy; this is some level of lossless with AirPods too. But ultimately, just give me a wire. USB-C or 3.5 millimeter, or even better on higher end, 2.5, 4.4, but give me something high quality.

Bertrand Schmitt

Right now, I have to stream in Bluetooth to high-end wired headset, which is crazy to enjoy proper movie environment. Just give me a proper output, Apple, USB-C would be best. Also, right now, apparently the audio output is only stereo. There is no multichannel if you want to enjoy proper multichannel audio.

Nuno G. Pedro

Maybe we switch to apps, the apps that are currently available on the Vision Pro. I’ll open hostilities with the content apps because those are the ones where I spend most of the time, Netflix, YouTube, definitely the Apple TV app, Disney+, HBO Max. I’m a bit disappointed by almost all the apps. I think the Apple TV one is the cool one because you have all these things with the immersive content.

Nuno G. Pedro

I’m a bit surprised that there’s no content released, Disney+ and HBO Max, at least that I could find that it was fully immersive in 3D. So a little bit disappointed, I feel. Just day one apps that got quite a lot of attention and really the only one that seems to be doing well, shockingly enough, is the Apple TV one. That was my experience, at least on the content side.

Bertrand Schmitt

On the content side, it’s really a poor experience at this stage because you are looking for 3D content. If you look for 3D content on the Apple TV, you can find it. But actually, when you want to launch them, if you have that content on another app, it will launch it on the other app, and you don’t realize you don’t have the 3D version of the content.

Bertrand Schmitt

For instance, Max, you can watch Dune on Max app, but it won’t launch in 3D. If you want to watch Disney 3D movies, great. You have Disney+, you go to the 3D section, you watch the 3D movies, and then you realize, “Hey, there’s something wrong. Oh, yeah, what’s going on?” You don’t have the movie theater option that Apple TV has. It’s only with the movie theater option, you can watch 3D movies properly in big size.

Nuno G. Pedro

You’re seeing like it’s a TV at 3D. It’s a TV at 3D, you’re not seeing the whole immersive experience.

Bertrand Schmitt

Yes, exactly. It’s just not close enough, big enough. It’s as if a bug, and you’re like, “Okay, so it means that to properly, fully watch as intended these 3D Disney movies, I have to buy them one by want to watch them inside my Apple TV app.” I’m sure it will get corrected. Again, I’m just surprised of that quality at launch with partners. As you say, there is no new content. The IMAX app works great, but only three movies and two that you must rent. It’s limited, but it’s working.

Bertrand Schmitt

One big miss is YouTube because YouTube has a lot of VR content, but there is no YouTube app. There is some app called Juno to replace YouTube if you want, and you trust them. But it’s not doing VR, for what I know. We’re still waiting for YouTube to wake up. It looks like they’re working on it. They see it’s on their roadmap, but it’s YouTube. Roadmap means six months, two years. Who knows Yeah. I don’t know. But that’s a big piece of content missing. This is a huge piece. People don’t realize there is so much 3D content on YouTube.

Nuno G. Pedro

Also, Netflix, Spotify are not available, which is also interesting. I mean, with spatial sound and stuff.

Bertrand Schmitt

That is a big miss. I mean, you could argue that Netflix has no 3D content anyway, so you can watch it on the web, but you cannot download content, for instance. Spotify, it’s a big miss. I mean, why would I watch Spotify on the web? It’s just very odd.

Bertrand Schmitt

Of course, we know where it’s coming from. It’s a content developer war against Apple, and they want to hold their apps. At least that’s the assumption. The same for Facebook, WhatsApp, Instagram, it’s not there. A lot of apps are missing. Basically, communication apps are not there beyond FaceTime. Some will say Signal is there, but practically it doesn’t work. So sorry, Zoom.

Nuno G. Pedro

Yes, your pet peeve.

Bertrand Schmitt

An optimized one for the Apple Vision Pro. It’s a joke. The state of where it is. It’s cutting audio.

Nuno G. Pedro

Well, it is allowed to have the Persona. You can have the Persona on it, but it only lasts five minutes.

Bertrand Schmitt

But they have nothing to do that because the Persona is coming for free. It’s what is Apple pumping out as a camera connected to your device. There is no work to integrate it. First, the app is absolutely not optimized. You cannot move people around that you are talking to inside your VR environment, just one big window.

Bertrand Schmitt

It’s total let down. The biggest thing right now is that it’s totally unusable because the audio randomly cut every 10–20 minutes. So you are losing audio, and you have to restart the app, so it’s just horrible right now. But once it’s fixed, we’re still missing a proper app that take advantage of the 3D environment. I don’t know if it’s going to take months or years. It’s not clear to me.

Bertrand Schmitt

A big issue, to be clear, for app developers is a very small user base. At this price point, it’s guaranteed to be a very small user base. I think it goes back to that. For the next one to two years, you can expect this to be a playground for developers, a great playground for developers, a great playground for 3D video addicts. But beyond that, why as an app developer, we do develop apps for a user base that will be in millions at best in two years from now?

Nuno G. Pedro

We have the fundamental chicken-egg issue. The issue of take off of AR and VR, in particular, VR, has always been linked to the attach rates, to the number of devices available in the market that can allow you to have that experience. I think everyone in their mind, because we’re optimistic like that, thought, will Apple be different because they have an incredible ecosystem of players around them, etc.

Nuno G. Pedro

But still, the attach rates of the Vision Pro, specifically, which is the device that allows you to do this in, are going to be crapped for a long time. If I’m a developer, why would I develop for it? I mean, it’s Apple, cool, but it’s like, “I’m not going to have many users. Why would I develop?” That’s the same issue, same issue.

Bertrand Schmitt

That’s a big issue.

Nuno G. Pedro

We have the same chicken-egg issue.

Bertrand Schmitt

I think what might help Apple, and that was what they were careful for, is that any iPhone and iPad app is technically more or less compatible, except that a lot of developers are choosing not to make it compatible. Basically, even the iPad app or iPhone app, they unchecked so that it’s not available on the store. That’s what happened with Netflix, with Spotify, with Facebook, even Dropbox is missing.

Bertrand Schmitt

I was going crazy that I cannot use Dropbox on the Vision Pro. For me, that one Dropbox missing is like, “Okay, out as a proper device I can use because I’m using Dropbox quite a bit.” It was very frustrating. I think some will be fixed by developers, because in the next 12 months, they will say, “Okay, if I have to fix two or three things to make it compatible on the Vision Pro, I will do it.” But to really leverage that properly and make native apps, might be a gap.

Bertrand Schmitt

I think if you’re a media app, you should definitely do it. You don’t want to lose your brand. But again, my Netflix might decide to hold out for a while because they say, “Hey, Apple is not playing nice with me in some other environment, so I’m not going to help them launch their device. I’m going to create pain for them.” That’s an assumption, I don’t know for sure the logic.

Nuno G. Pedro

But it’s like, if I’m Disney, if I’m HBO, et cetera, why wouldn’t I just say, “You know what, guys, if I make it available, I’m going to charge for it because it’s a different screen and there’s so little take rate. Why would I do it for free and make that content available and render it for free like that?” I think that’s the problem. I mean, why would they want to have goodwill?

Bertrand Schmitt

I think it’s a subscription business. You want people to be able to attach to every screen.

Nuno G. Pedro

Yeah, but it’s not really…

Bertrand Schmitt

I think you might do like Netflix. You charge a higher rate if you want the higher quality. You want that 8K, you want that 3D option, it’s higher rate. I would be fine with that. I would be fine. It’s fair.

Nuno G. Pedro

But to my point, it’s going to be charged for. Either they’ll charge per movie or they’ll charge per subscription, or they’ll charge for both, which Disney has done in the past. It’s like, “Welcome to the new world. We’ll charge for both subscription, and we’ll charge per movie.”

Bertrand Schmitt

Yeah, maybe. I will say at this stage, if 3D content is there, I’m happy to buy a bit more per subscription. Just to be clear, actually, when you buy a movie on Apple TV, if you remember in the past, you got for free your 4K version. Here, it’s the same thing. You get for free your 3D version. So my movie library, I got surprised to actually get for free a lot of 3D content because I already bought a movie on Apple TV. That was a great surprise.

Bertrand Schmitt

I think Apple has shown the way to do it, and to keep me as a buyer of content on Apple TV, because I know I have that free upgrade coming at some point. That’s what I got here. I got free 3D content. But interestingly enough, I’m buying a few additional movies on Apple TV because I want this 3D experience.

Nuno G. Pedro

So they’re getting you both ways. At least for now, we’ll see what happens in the future.

Bertrand Schmitt

But at least I feel it’s relatively fair for me. If I’m buying—don’t always buy for sure—at least I’m getting my money worth. It works on every device, every content, and I’m not paying extra for 4K or for 3D, which make me feel great.

Bertrand Schmitt

Maybe to conclude, because some will consider the most obvious competitor to the Apple Vision Pro, the Meta Quest 3. Obviously, it’s a different price range, $500 for the Meta Quest 3 versus $3,500 for the base version of the Vision Pro without any accessory, beyond the second strap. What’s the difference? I put back my Meta Quest 3 to remember what it was. Oh my God, the UX is such a mess.

Bertrand Schmitt

It’s incredible how they managed to create such a bad UX. Where Apple UX is amazing, you put windows around you, it’s working, you have your passthrough. Here, it’s just like, you don’t know what’s going on. You have a beta version of using your hand. Use controllers and hands mixing things up. The worst piece, however, is the play area. The play area now works automatically, which is great, it automatically scan around, but you don’t need to do that with the Apple Vision Pro; there’s no need for this stuff.

Bertrand Schmitt

This concept is basically dated, and worse than that, it keeps displaying dots all around me. I’m in VR immersive, and I keep seeing this blue dot, red dot, telling me the area is clear. Be careful, beware, you are going to kill yourself stuff or destroy stuff around you. That’s a horrible, anti-immersive experience. The worst you can get. That for me was a big letdown. I was shocked how it’s destroying the immersiveness of the experience.

Nuno G. Pedro

Yes.

Bertrand Schmitt

The last piece is that it doesn’t line up stuff properly to the ground. There was so much content I was trying to consume and people are stuck halfway on the ground, either up or down. It was horrible. I wanted to cry. It was just so bad. You are like, this is a total joke. I was in shock. I must say. I’m talking about video consumption, to be clear, media consumption. There is a pass-through. It worked to type on a keyboard, take a drink, but that’s it.

Bertrand Schmitt

You don’t want to mix things up because it’s just sad. The pass-through is It’s technically working, but it’s so sad you don’t want to see it. You don’t want to see what’s outside unless you need it. I must say that’s also where the Apple Vision Pro is great. That crown to turn and hide content or unhide content, what you are seeing outside, very easily, quickly. It’s so nice. You don’t have that on the Meta Quest 3. If you want to hide content or not, you need to find some ways to do that. Maybe some other point. The screen is absolutely terrible.

Bertrand Schmitt

Once you have experience, the Vision Pro.

Nuno G. Pedro

You can’t go back to the Quests.

Bertrand Schmitt

You cannot go back to seeing pixels. Here that’s what it is. When you see pixels, so it’s low resolution, whatever they tell you it’s crap, it just you see pixels.

Nuno G. Pedro

Again, 500 bucks versus 3,500?

Bertrand Schmitt

Sure, but it goes back to use case. If it creates a situation where you buy it, you use it for a week, and you never put it again, that’s still 500 bucks you have totally, utterly wasted. It’s like, what’s the point? I prefer to spend 3,500, and I’m using it every day because I want to watch movie on this stuff. This is something I’m never going to use.

Bertrand Schmitt

The other piece is that it’s not OLED screen, it’s LED. Actually, I was shocked to realize if you watch content, and it’s all over you, you really want the blacks to look good. Having that grey colour is just horrible. Apple was so right to go with 4K or LED because it’s truly game changer for what you want to do with it, at least from my expectation, if you want to do media consumption. Maybe last piece, the audio is also bad compared to the Vision Pro. There is no comparison.

Bertrand Schmitt

As a result for me, for media consumption, forget the Meta Quest. It’s useless. Yes, it lets you experience 3D videos, 180 VR, but it’s just bad. However, I think there are really some positives.

Nuno G. Pedro

No, I think those are the main ones. It’s in a different league. It’s a very premium device versus a very consumer’s device. Then just with a comment, I don’t see a huge take-up of something like spatial computing, enriched reality, VR, AR at a price point that is wildly above 1K. I don’t see it. Either Apple finds a way to go down market or the Vision Pro will always be a very high-end device, and I don’t see how that becomes a mainstream device.

Nuno G. Pedro

Everyone will point me to the iPhone the most expensive smartphone out there, if we look at the features, et cetera, yes, but it’s around $1,000. It’s not around 3,500. Again, even people spending 3,500 on their TV is a big deal. I just feel this in terms of comparison, agree that definitely the Meta Quest 3 is definitely an inferior device and one that I would not buy either at this stage, but honestly, I’m not sure one would buy the Vision Pro either.

Bertrand Schmitt

To finish on the positives of the Quest 3, for me personally, it’s actually more comfortable, not out of the box, because out of the box, it was horrible, but with a cheap third-party strap, it became way more comfortable. I actually do not really enjoy wearing it. It’s a huge difference versus the Apple Vision Pro at this stage for me. I’m hopeful maybe some third-party straps will help improve the Apple Vision Pro experience in its current form.

Bertrand Schmitt

Another positive is that you can use your Quest 3 for PC VR, is also Wi-Fi or with a cable. There are some additional experience you can do with PC VR because you can have a lot more processing capacity on your PC. No external battery. That’s actually nice. Again, me with my glasses, I just take the headset, put on my head, it works. Remove it, it works.

Bertrand Schmitt

Again, surprisingly, the keyboard typing experience works better. Clicking with the controllers, they also make a bigger keyboard. The keyboard is wider. They put a keypad on the side. Why do you have to click a button to show numbers when you have all this space around you, and you can add a keypad?

Bertrand Schmitt

Actually there are some stuff they do that Apple should have learned from, and I think the physical controllers have a lot of benefits in some situations, especially in VR gaming. I think this stuff, the Quest 3 for VR gaming, even if it’s pixelated and less powerful, is actually quite good, so if you want to enjoy VR gaming, and some people do, this is a great option.

Bertrand Schmitt

However, experience tell us that most people buy Quest 3 or Quest 2 only to put it somewhere after two weeks of use and not use it again. I was reading recently that one very big game developer that launched a pretty big game, Assassin’s Creed on Quest 3, actually just acknowledged it was a disaster, and they were going to decrease their efforts on VR.

Bertrand Schmitt

That’s bad news because this game was quite impressive on Quest 3, I must say. That’s also telling us to your point, we go back to that conclusion, is there a spot for a $500 VR device or a spot for a $3,500 VR device? I think actually the answer is somewhere in the middle. Maybe your entry level is 1K because you need to spend 1K to provide a decent experience, provide some VR experience AR experience, or you need maybe to go up to 2K for that premium experience.

Bertrand Schmitt

At 500 bucks, maybe all you can build is ultimately crap no one would seriously use. At 3.5K, you are out of reach of the mainstream. To be frank, I think Apple overkill it. Why do you need stuff like eyesight? Do you really need to read all my face expression so that the persona works okay? Do I really need the persona? Maybe I don’t. Maybe I just do audio if I’m on my headset and I need to communicate with others.

Bertrand Schmitt

At least that’s okay for the next few years, to be frank. Because am I going to really enjoy doing that for hours? I’m not sure. I think for the Vision Pro, I need stuff I cannot do with other devices. I need that 3D media content. I need that object I put in the middle of my home or office that I can look in 3D from every detail because I have a real use for it because I’m a car engineer, I’m an architect. There are real reason I need that. If you give me that, and it’s really working well, maybe you don’t need the gimmicks, maybe you don’t need the stuff around that.

Bertrand Schmitt

That’s how you cut the price to 2K so that you have this high-end device. Maybe Meta gets to act together and propose a really good high-quality 1K device, more on three level. This concludes episode 52 on the Apple Vision Pro. Hopefully, we provide you another insight on what it is and not a fanboy perspective, but a more realistic appraisal of what is a device today and where it needs to go in order to get strong traction and become a true new alternative platform to what we already have. Thank you, Nuno.

Nuno G. Pedro

Thank you, Bertrand.

View Details

Do you remember that company that raised at $1 billion valuation and sold for $15 million? How about that one that was the “hottest thing” ever, is still around, but never really became huge. This episode is about these companies… and about why some founders and investors can make a lot of money, while their companies fail miserably.

Navigation:

Intro (01:34)
Why “ka-ching” isn’t necessarily related to success (or failure)?
The nasty ones
The ones that are still alive, but not doing great
The ones that did ok/well, but… should they have gotten that outcome?
Why don’t all companies exit?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Welcome to Tech DECIPHERED episode 51. We are going to talk about companies that ultimately became too big to succeed. What do we mean by too big? We mean that, in most situations, they probably raised too much to end up having some level of good success. The weight of their financing weighed on them, and what could be opportunities for the right exits.

Bertrand Schmitt

So, Nuno, let’s start about this and obviously we will talk about some pretty big companies that went under, some smaller ones that also didn’t go well, and some are still alive, just absolutely not where we would have expected them a few years ago, and not enough to make everyone happy in these companies. Maybe we start by explaining a bit more what is success or failure?

Nuno Goncalves Pedro

Let’s start with the punchline today instead of… Hopefully you guys will stay for the examples because they’re pretty cool. But let’s start with a punchline and why cashing isn’t necessarily related to success or failure. Why success sometimes on paper isn’t success in the end. It ain’t over until the fat lady sings. Probably not a very appropriate expression any more, but it really ain’t over until the company actually liquidates and everyone’s made their money, et cetera.

Nuno Goncalves Pedro

Let’s start with first principles: the first thing is a valuation on paper, a company is raising a private round of funding, a series B, a series C, a series D from venture capital investing, investors, even IPO ing, even going public into the stock market.

Nuno Goncalves Pedro

The valuation before any liquidation and an IPO would be an effective liquidation. Any valuation before a liquidation is on paper. It means what it means. It means that someone is willing to pay a certain price per share for the company at that valuation of the company. It doesn’t mean the company is actually worth that. It means there are certain actors that think that the company is worth that.

Nuno Goncalves Pedro

What it means is you can raise a ton of money, and in particular, you can raise a ton of money at a lot of valuation. You can be a unicorn on paper, so worth over a billion dollars. You can be a decacorn worth over $10 billion on paper. But that’s all on paper until there’s liquidation, be it an IPO, a full on trade sales where someone buys you out, et cetera, et cetera. Basically, it ain’t done yet.

Nuno Goncalves Pedro

Now, why isn’t cashing necessarily related to success? Why do people still make money? Well, people still make money because other things happen in the life of the company. When a company is raising, potentially series b or series c, it might be that certain investors or certain executives or founders of the company do what is called a secondary transaction.

Nuno Goncalves Pedro

What that means is they sell some of their stock to a third party that’s willing to buy their stock and gives them liquidity. It’s effectively a mini liquidation. They get some liquidity out of the stock that they have, and we’ll discuss some stories today of people that made a killing and their company failed miserably. People that made hundreds of million and their company failed in the end, investors that made a killing, that the company, in the end, also failed.

Nuno Goncalves Pedro

The correlation between the company failing or not, and you making no money is actually not necessarily there. You might have made money along the way. It might be, for example, that the company IPO’ed after your lock-up is done, which classically is after six months. Investors sold their stock, or they sold all of their stock. A lot of founders sold some of their stock, et cetera, et cetera, that they made a lot of money, and that the company dropped dramatically as a stock.

Nuno Goncalves Pedro

It might be the company’s nearly worthless now, but it was worth a lot at some point where people may have exited some of their positions. Again, money doesn’t correlate necessarily to success or failure. Success needs to be seen in a different light, which is the light of liquidation, not the light of “on paper valuation”.

Bertrand Schmitt

Yes. One thing I like to remind people, there is a big difference between the private and public markets. If you look at the private market, when we talk about valuation, valuation is set by really typically one lead investor. It’s not as if you’re in the public market. You have transactions every day happening, and you need a lot of investors to have a strong belief about the valuation of your business at the moment in time. Because if the valuation is too high, it will go down, the valuation is too low, it will gradually go up. There is some rationality in the market, at least step by step, and over the mid to long run.

Bertrand Schmitt

In the private market, it’s very different. As long as you keep finding that one investor that value your company where you want it to be, you are good enough. As long as this investor can bring the money or convince a few more to participate to that round, and that’s about it. We will see I guess, in many of these stories, you often end up having one investor that is willing to make a big leap in faith in term of valuation, in term of prospect for the company, in term of how much money to put to work.

Bertrand Schmitt

Basically, this has this ability to keep increasing price when technically a true market with multiple participants would not have come up with the same price. There is really a difference in pricing and therefore valuation. Another piece of the puzzle is a lot of private equity investors have to have a strategy to put a certain amount of money to work for each one of their investments. In some situations, that’s forcing a typical investment that might be too big versus what that company at this stage of the game should be really willing to take.

Bertrand Schmitt

Ultimately, valuations are connected to how much you put in a run. Typically it could be early on, 20%, later on, more 10% of your run, because you don’t fundraise for one or 2%, and you typically, hopefully don’t fundraise for 50% at once. It has also another impact. If you are a really big fund, you might force companies to fit your strategy by accepting big amount of money that might be too big for that company at this stage of the business. Let’s not forget, venture capital should be around investing step by step in a relatively, in some ways prudent manner, where at each level of new financing, you do that because you have reached new milestones and there is some agreement about what this milestone could be at different stage of different type of businesses.

Nuno Goncalves Pedro

We mentioned this in previous episodes. For those who haven’t listened to the those episodes, you should go back and listen to them. But valuation is a little bit like baggage. It’s like things that you’re carrying with you. It feels like, great, I’m worth a billion, you’re not worth a billion. Someone’s willing to give you money at a billion valuation, but there is an expectation that you’re going to reach at least that valuation and go well beyond it. That creates baggage. It creates like a bag of rocks that you’re carrying. You’re now carrying a whole lot of rocks. If you’re worth a billion, right, you really need to hit a lot more than a billion to be worthwhile for the last investor that valued you at a billion as a lead investor.

Nuno Goncalves Pedro

Shall we move to the nasty ones? Let’s go to examples. There are some fantastic examples here. I would make just one caveat before we go into the examples, which is there’s no investment advice in here. There never was in any of our podcasts. More importantly, we’re not dissing on anyone. I’m personally friends with some of the people we’re going to talk about today, so I just might flag some of them. I might not flag others. I don’t want to piss them off. It’s just things that happened, and we want to be showing you that.

Nuno Goncalves Pedro

The second piece is, we will mention a few things today that might be factually correct, but they are coming from different sources. It would be important at some point to put a grain of salt in some of the things we might say. We’ll try to qualify them when we say it, but just to put that in question, but let’s go with the first one. Quibi great, great company, huh?

Bertrand Schmitt

Quibi, I think everyone in tech is probably not want to say smiling when talking about Quibi, but I think this one is very odd company where a lot of people in tech, myself included, were expecting this company to fail from the get go. Let me explain to you why it was a company that was, and you might not know about it. It was a company started by Jeffrey Kastenberg and former HP CEO Meg Whitman.

Bertrand Schmitt

Both of them are really stars in their space. I think where people were suspicious were, okay, one knows how to make big movies, another one knows how to run an e-commerce business. But at the same time, what they were trying to do, launching a new streaming services where you build content and you launch streaming services itself and that is focused just for mobile consumption, and not just mobile in the sense of for the form factor of the phone, but also for a bite size consumption, was surprising in a day and age where you have big established streaming platforms already in place. Two, you have new native to the former platforms. What I mean is that you have the TikToks of the world and therefore the question was where are they fitting?

Bertrand Schmitt

It didn’t feel the typical startup approach where you start somewhat humble, you grow step by step, and then you deliver the good step by step here. In that situation, it was all in one go. I’m putting significant amount of money on the table before ever launching the service, and I believe they invested more than $1 billion.

Nuno Goncalves Pedro

They raised in total 1.75 billion. I think they raised 1 billion upfront.

Bertrand Schmitt

Yeah, 1 billion upfront. I’m not sure there is any other story of startups that raise so much in advance before even launching the service. Every other startups will talk about went step by step in term of I provide some service, I have some success, maybe I have too much too fast success, which give me the ability to raise too much, I’m not careful enough. But no one started so big with so much money, and I think that’s usually a sign that stuff might go very wrong, because you have huge expectation at the launch of the service and the minute these expectations are not met. You cannot go back. All your equity investors bought your story. If you are a few percentage wrong, that’s okay. But in their situation, I guess I’m not even sure they did 10% of their targets, you’re just dead.

Nuno Goncalves Pedro

They magically raised another 750,000,000 almost two years later. That’s why it was 1.75 billion in total. They got acquired by Roku, undisclosed amount. Which means it was like a wash in ways that cannot be described. But I think there are more fundamental issues to Quibi Kiwibi, to your point, they’re raising a lot of money up front, is always like huge amounts of red flags for me. Like, why would you raise so much money up front?

Nuno Goncalves Pedro

I know some of the best entrepreneurs in the world. I’ve been fortunate to meet some of them. They never raise this much money, to start. To your point, because they want to go in a staged way. They want to start building their team in a way that you start creating that culture, that initial thesis, understand if it works or not, put an MVP out for the product, see if they have to realign, pivot around, et cetera. You can’t pivot if you’ve made a big splash on a 1 billion product.

Nuno Goncalves Pedro

Their problem was actually fundamentally flawed, right? Because their bet was sort of twofold. One is that people obviously want to consume more and more on mobile, and they wanted to have shorter and shorter content to be consumed on mobile. They needed new content with a new tech. They had some tech around that content as well that allowed them to consume it, either landscape for portrait mode, et cetera, et cetera, blah, blah, blah.

Nuno Goncalves Pedro

Honestly, people just want to consume great content. I think in this case, and I know Jeff, he’s not a buddy, he’s not a friend. I know Jeff, I think he’s an amazing guy, but he should have been the one that should have figured that out. I mean, great content is just great content, right? People are going to consume it everywhere. If it’s like 15 minutes of an episode that takes 45 minutes, when I’m on my way to the work, I will do it on my mobile. It’s fine.

Nuno Goncalves Pedro

Why did we need a new format? More than that, it was tried in the past. You and I remember this because we’ve been in telecom world early on, and in the telecom world, they tried this. They tried, there were companies that were bet on this. There were companies by guys from Hollywood that tried this, that tried the short format stuff, and it never really stuck.

Nuno Goncalves Pedro

It’s not to say that short formats haven’t stuck. We knew that in user generated content, they have stuck. TikTok is stuck. The shorts on YouTube are sticking, but it’s a different type of content. It’s not this type of content. Again, some people might say they were too early. I don’t think they were too early. I think they got it wrong and they just raised stupid amounts of money. The raising of money, to your point, Betrand, got them stuck in a path where there was very little way back where they had to get and nail that V1.

Nuno Goncalves Pedro

I used the product, I still have it in some of my phones, and it was appalling. What would I consume? I mean, I watched a couple of things and even the content wasn’t amazing, right? Again, a total failure.

Bertrand Schmitt

The other piece of the puzzle is that when you bring these two-star ex CEOs, content creators, and you raise so much, everyone is waiting for you to fail.

Nuno Goncalves Pedro

[inaudible 00:12:45]

Bertrand Schmitt

My point is that it’s sad to say, but that means that every journalist was waiting to write a story about how their stuff was not working. My point is that there’s only one chance. Either you get it right from the first week or you’re dead.

Bertrand Schmitt

Because then you have a lot of negative buzz. How do you get out of a negative buzz? They became the joke of the week. Not immediately at launch, because people could see, as you say, it was empty, it was not quality, it was kind of useless versus your alternatives of either watching regular content on a smaller phone anytime, anywhere. Now you can. You can replay. Not a big deal.

Bertrand Schmitt

You have YouTube or you have TikTok for a different type of consumption. Again, a TikTok, a YouTube and Netflix, they all were started step by step. Netflix didn’t start to invest in production. They started step by step.

Bertrand Schmitt

I think that’s a key part of the puzzle. You cannot invent all the pieces at once. If you put too much money at once, typically it’s a big risk. Even if you have great people at the top, there is only so much you can do. There is a reason why typical investment go step by step and are synchronized to milestones that are representative of the success of the business.

Nuno Goncalves Pedro

Indeed. In this episode of Schadenfreude, and for those who don’t know what Schadenfreude is, it’s the pleasure derived by someone from another person’s misfortune. That’s the definition of it. If you guys remember the Simpsons, there was this sort of bigger kid on Simpsons that always laugh when someone else fell or did something stupid. The famous Aha. When someone did something wrong. That’s schadenfreude. We don’t derive pleasure from this. I mean, we obviously. I hope all of these guys. But anyway, it’s my little British joke today.

Nuno Goncalves Pedro

The second one is Katerra. A company that was going to revolutionize how construction was done and using a lot of methodologies and services and technology to improve construction at scale.

Nuno Goncalves Pedro

The numbers vary wildly. I mean, from 1.4 billion that they raised to 3 billion that they actually raised. Pitchbook is around 1.4 something billion. Maybe that’s what they raised in equity. Some other places say 2 billion. I’ve seen news, a Wall Street Journal news that said 3 billion in the end, I believe they filed for chapter 11. I don’t know what happened in the reorg and the restructuring of the debt. If there was some assignment then to creditors, I have no clue.

Nuno Goncalves Pedro

But that’s massive, it is a construction ish company. It was a tech construction company. They were going to do things differently. It’s another softbank. We don’t want to take a stab at them. I mean, it’s like you have to go big or go home. In this case, they went big and-

Bertrand Schmitt

They went home.

Nuno Goncalves Pedro

-did not get big, so they became home. They went big first, and then they went home, sadly enough. It’s a shame, because they were trying to revolutionize our construction zone. We know that we’ve had this promise of prefab for a long time. We’ve had this promise of new methodologies of construction for a long time. We are in dire need of more housing. It’s a shame it failed, but yes, what a massive failure. I mean, 1.4 billion raised, or 3 billion raised, maybe, with that and stuff. Incredible.

Bertrand Schmitt

It’s not just that, but it made more than 20 acquisitions. I mean, it’s a lot of acquisitions for any startup company to do, which is also, for me, raising some questions about, okay, what is the core of this business? I mean, if you end up doing 20 acquisitions, that’s, again, a lot.

Bertrand Schmitt

Especially for a company, if I remember well, and I was rechecking some articles that probably was not even having positive gross margins. I’m not even sure they had positive gross margin at any point.

Bertrand Schmitt

That’s super scary if you cannot reach that. I mean, who in their right mind keeps investing in such a business? That, for me, is very scary. Was there any technology or was it just all the process? My impression is that they were claiming they do end to end and prefab, but prefab okay, it’s nice, it’s good. I think there is some logic to it, but it looks like it has been tried before. Looks right. They try to do too much at once in term of trying to integrate too much of the construction industry in one company.

Bertrand Schmitt

But I think there is a lot to learn and another piece of the puzzle very quickly they brought some big name CEOs, like Michael Marks was the founder of the business, so definitely some big names. Another situation of celebrity founder/CEO, who thanks to his past, managed to raise a lot more than maybe anyone else would have been able to raise, given the situation of the business and the reality of the business.

Nuno Goncalves Pedro

A couple of insights here. They raised normally, I think the first two rounds, they raised 8.4 million in angel and seed round. I mean, large seed round, but obviously this is a construction tech company, and they wanted to build stuff.

Nuno Goncalves Pedro

Then they did a series b of 75 million, 160,000,000 series C. I think Softbank didn’t come into any of these rounds. Softbank came in at the billion dollar round, 900 and something million round with a few other investors, I would assume going a little bit more pearship, because then you have to grow very fast.

Nuno Goncalves Pedro

It’s a space that I’ve actually looked quite a bit at. Not the space specific that Katerra was on, because they were in a space of building larger buildings. I looked quite a lot of single family housing, et cetera, et cetera, and using for those types of houses, the prefab concepts and a lot of tech for it.

Nuno Goncalves Pedro

The issue is, as much as you can want to use tech and do manufacturing and pre-build stuff and do less things on site, you become a services company at scale, right? Because you still have to have builders, you still have to have people on site.

Nuno Goncalves Pedro

Regulations are funky. I’ve looked so much at the space. It’s funky by county, it’s funky by locality, and then you have licensing stuff. This is something that maybe they were onto something. I do not know. I can’t tell you if they had amazing tech or not. I was not an investor in the company. But certainly at some point you’re like, did they prove at some point that this was going to scale quickly? Were they ready to blitzcale from 75 to 100 and something million to 900 and something million in arrays? Maybe that was the point where it tipped over a bit too fast.

Bertrand Schmitt

We’ll talk more about WeWork, but it also feels it has some similarities with WeWork. We talk about gross margins that were extremely small. But there is also the question about the reality of the tech. Was there really any tech beyond I’m doing prefab somewhere else. I mean, what tech are we talking about when we talk about prefab?

Bertrand Schmitt

In a way there is that question around, was it just a construction company? This is fine. Constructions company are great. I have nothing against. The big issue becomes when you are trying to say you’re a tech company. Therefore I deserve tab valuation, therefore I deserve tech level of investment, when actually you are not at the core of the business, of how you do your business. That result in an horrible mismatch of investment expectation.

Bertrand Schmitt

One thing you talk about raising a billion dollar from some investor at some point, it comes with huge expectations of putting this money to work pretty fast. People rarely give you 1 billion to work, to use it sparingly over the next ten years. No, we give you a billion because we expect you at this point where you can scale very quickly, get good results, and maybe you need more in two years from now.

Bertrand Schmitt

The question is, if you use it very quickly and you use it wrongly, then it’s gone, and then it’s very hard to find anyone willing to provide another billion or 2 billion if it doesn’t go right.

Nuno Goncalves Pedro

The next one is Bird, Micromobility for the win.

Bertrand Schmitt

Yes, and I feel, Bird, we are going in that category that I respect a lot of companies that have truly reinvented a new industry in their situation, micromobility. They started in LA, they started with a few electric scooters. They started a revolution in how you use transportation in a different way, more efficient way. It was coming on the back of a few innovations. First is more electric motors being easier to manage and to charge. The other piece, of course, was your phone. The fact that these mopeds or scooters were easy to find through your phones, because this device themselves had a battery which can power up their gps location.

Bertrand Schmitt

Unfortunately, it came with a lot of issue. Where do you park them? How do you manage to charge them? What do you do about people who don’t leave them in a good spot? About the danger, obviously to others if people do crazy things with these devices. It came with a lot of issues, and I think ultimately the operational complexity might have been too much. Another piece of the puzzle is that America might not be ready for this type of devices at scale.

Bertrand Schmitt

If not America, maybe only a few cities in America are really designed for that college campus as well as some heavily dense downtowns. But you won’t have so many in America, obviously in Europe, in Asia, it’s a different story. But even there it was not a smooth ride. There were a lot of companies that tried micromobility and a lot of them failed. I don’t know the details of the inside stories. I’m sure there were some obvious mistakes and as usual, too much financing.

Bertrand Schmitt

Valuation went too fast. Too quickly. That’s part of the typical story. I don’t have the exact metrics in front of me, but I think it moved extremely fast. In maybe a year or so between the initial start of the service and insane level of investment, there was a race, if you remember, globally, among all of this type of business, there was a question of who will be first, would be first in all of these cities. Basically you need that money to move fast in a way, even before you could prove your model. Because if you take the time to prove your model, you will potentially end up being last. If you are last, it might be trouble.

Bertrand Schmitt

Especially that some municipalities didn’t want too many players. At some point they tried to limit how many players are operating. That logic to go first quickly was good, but at the end of the day, it means you cannot validate the model, optimize it, fine tune it.

Bertrand Schmitt

In a way, this is a different type of situation. These companies had some reason to have to move fast. Too much investment in the space by too many VCs, too much competition, and municipalities were giving pressure to be one of the first entrants at the end of the day.

Nuno Goncalves Pedro

I know the space really, really well. I was involved in a firm that had several investments in the space. I wasn’t involved in any of those investments. Bird was not one of their investments. But to be honest, they only made money out of one of their investments in the end and they didn’t make a huge amount. Question in my end is the space totally imploded? I’m friends with Brad Bauer, who did lime, and that obviously exited. Not a great exit either, but they exited.

Nuno Goncalves Pedro

I think it’s just a space. The E-scooter sharing piece, the bicycle sharing piece that the unicorn economics actually never quite worked. Then if you add hyper competition with a lot of well funded companies and then you put on top of it regulation, when time comes, you have the recipe for perfect disaster. I don’t think this is a stab at e scooters. It’s not a stab at ebicycles. There’s still market out there for people to own stuff and do stuff. But it is definitely a failure of right sharing.

Bertrand Schmitt

Maybe on that point it’s interesting to compare to Uber, because Uber definitely a successful company today. The difference is that they didn’t have to invent the technology. The car was already there. You could use Uber with an existing car. You didn’t have to manage the cars, you didn’t have to charge them, you didn’t have to do any of this. I think that was a big difference.

Bertrand Schmitt

In terms of regulations, yes, there were regulations around Uber, but different, I would say definitely less destructive with this micromobility services. You really had municipalities selecting which service would be the official service of the city or limiting to two or three. That was really a different situation versus an Uber where regulations were more general and there was not a numerous clauses, a maximum limited number of companies allowed to compete. For me, some interesting differences.

Nuno Goncalves Pedro

Moving to Fab.com, ecommerce play raised over 300 million. Jason, the founder, someone that I know very well as well, a lot of respect for him, know a couple of people that work there at scale, actually helped one of those people exit in a secondary transaction. Some of the stock that that person owned and that person made almost as much money as they made on the exit, which was rumoured to be 15 million.

Nuno Goncalves Pedro

They raised over 300 million. The exit is rumoured to have been around 15 million. We shall never know was definitely a unicorn back in the day. For those who don’t know the story, very, very quickly it was started as fabulous, which was not fabulous, but fabulous, which was a social network for gay men and their friends. Then it pivoted into an ecommerce play with daily designs and things like that. Grew fast, raised a lot of money, and then sort of imploded.

Nuno Goncalves Pedro

Would be interesting to sort of figure out what happened. It was one of the earlier plays around social commerce that got a lot of hype. Maybe that was why it raised so much money. In the end, the scalability of the business model wasn’t there, and then it failed, and it couldn’t raise more money, and so it sold for not much.

Bertrand Schmitt

Yes, and I think that’s also a company where it moved very fast. It raised a lot of money. I’m not clear that the unit economics justify any of this, because at the end of the day, if you have rational unit economics, you are still in a good situation, even if you raise too much. But if your unit economics are very wrong, you are kind of forced to keep fundraising. If you are forced to keep fundraising, and anything goes wrong. That’s when trouble usually comes.

Nuno Goncalves Pedro

The examples we’ve talked until now, the four examples, are all examples of blitzcaling failing miserably. You raise a ridiculous amount of money, and it just created all this stuff. Then the company couldn’t scale. Now, with Quibi, probably even. It wasn’t a blitzcaling example, just started with a blitz scale. There was nothing in it. There was a blitz scale.

Bertrand Schmitt

From zero to one in a day.

Nuno Goncalves Pedro

But the others are examples where blitzscale failed miserably. Probably none of a better example on blitzcaling failing miserable than our favourite, WeWork. We’ve mentioned it so many times now.

Bertrand Schmitt

Yes, WeWork is probably the poster child for some reason. It was more visible. I mean, it had a very visible funder. They raised a lot of money. If we look at valuation, it went up to 30 billion in valuation. That was private, just before the IPO. That’s when the CEO was forced to leave the business, just before IPO. If you remember all these articles before IPO about the funder.

Bertrand Schmitt

And then it went to 2 billion, then it went to 500 million, and now it went through chapter eleven in November 2023. Not a lot of news, actually, in term of its emergence out of chapter 11. I guess there might be a core business that might be more sustainable beyond chapter 11 once they’ve renegotiated the leases they had, if they can.

Bertrand Schmitt

It’s probably a story of company on any levels where you had gross margins that didn’t really make sense. You had long term investment like these leases, that were clearly wrong and done at the wrong time, when the market was very high, suddenly the market goes down, and you have the wrong lease, you are in trouble. That’s exactly what happened.

Bertrand Schmitt

There was the last piece of the puzzle, which is no technology. Trying to sell yourself as a tech company when you are not a tech company, therefore getting tech valuation, and ultimately there is nothing that make you a tech company. You should be valued like other players in the space, and there are some good ones, but there is no real reason to value you differently. But then when you have raised billions, it’s super hard, and you have a company that is not finely tuned, that’s very hard. Go back quickly enough.

Nuno Goncalves Pedro

They raised pre-IPO, I think, 9 billion. In total, if I believe these numbers, with pipes in it and debt and stuff, they raised close to 17,000,000,016.69 billion. I mean, it’s incredible. I think the key issue of this company is a company that was trying to trade with tech company multiples, that was always not a tech company.

Nuno Goncalves Pedro

To your point, not only they were not a tech company, as the real estate angle to what they were doing in some cases was just fundamentally and structurally incorrect. The leases that they had in place, the way they negotiated them in many cases, et cetera, et cetera, was just strong.

Nuno Goncalves Pedro

It was a big view. We’re going to create this huge community, a bunch of tech around it, underlying, to make people really interact as if they’re part of the same company, but they’re all part of different companies, just sharing a space. That is never the case. I mean, so totally overblown, massive, massive amount of spend into this.

Bertrand Schmitt

Yes. Lucky for the CEO, Adam Newman, it looks like he managed to do very well getting at least half a billion dollar, I believe, just before it imploded.

Nuno Goncalves Pedro

The secondary right?

Bertrand Schmitt

Yeah. Softbank was kind of locked in a transaction with him. Obviously it’s far from the valuation of paper he had given his shares in the business, but it was still, I remember, a very huge exit for him as a founder, while at the same time the business was totally imploding and every employee who was expecting to have a nice exit at IPO and change their life, got nothing.

Bertrand Schmitt

That was pretty stark contrast. It’s not a story of the CEO sold many years before. It’s totally independent. He’s not even running the business anymore. We’re talking about the guy who completely failed the IPO process, because during IPO, I think it became clear that the business was in trouble and was not a reasonable business, but still managed to get out of jail card just before the business imploding.

Nuno Goncalves Pedro

This is not a get out of jail free card. This is a please go to this resort card. I mean, with all due respect, I mean, you made 500 million or more.

Bertrand Schmitt

Yes. With your private jet and the new island you bought. It was very stark, and I would say for even a lot of hardcore capitalists like us, maybe too much to see, especially when it happens at the same time and looks like it was caused probably not just from the CEO. I think that a lot more were to blame, some execs, some investors. But still, it was kind of shocking for a lot of people who worked there and were hoping for a nice exit and believed all these stories.

Nuno Goncalves Pedro

For a more recent one, where the CEO did pretty well as well, Hopin, a virtual event play, where it basically recently sold what is seen as the key part of their business, which was the virtual event and webinar hosting product. They sold it to RingCentral, undisclosed. There’s rumors it was 15 million, nobody knows.

Nuno Goncalves Pedro

They raised more than 1 billion. Not the valuation, the valuation. The last round we know was 7.8 billion, that they raised more than 1 billion. The founder made a really nice cash out of 195 million is that correct?

Bertrand Schmitt

Yes, close to 200 million. What’s even more crazy is that this company was just started in 2020 or maybe 2019. It was really started just before the pandemic. Then suddenly everyone wants to go out of physical events, because the pandemic to virtual events makes sense.

Bertrand Schmitt

But then suddenly I remember his business really exploded in a positive way. I mean, everyone wanted to switch to something, and in a way, it was the only game in town. I understand that he was also trying to extract very crazy pricing. It created a lot of revenues quickly, but a lot of anger from potential clients.

Bertrand Schmitt

What looks like is that they definitely cashed in on that surge of business for maybe two years, or maybe at least a good year, and then it slowly died on and then quickly died on because we’re out of COVID and no one saw real value in virtual events. I don’t know, you know, but initially, personally, I had a positive mind around virtual events, but step by step, what I saw is that they just didn’t want to lose that on a regular basis. That approach of trying to translate to directly a physical to a virtual events was not really working.

Bertrand Schmitt

I’m not sure in the history of business, there was such a fast growth in valuation for any company from zero to 7.8 billion in two years.

Nuno Goncalves Pedro

This is a fat company. Everyone went on the fat. They had positive momentum through Covid when everyone was stuck at home. I think investors just wanted to propel it. Again, it’s a case of blitzcaling going wrong, right? Give me a lot of capital and I’ll scale it. Well, there was nothing to scale on. The company eventually couldn’t really make it work.

Nuno Goncalves Pedro

I do not know anything about the internals. Whether they had product issues or they had management issues, I have no clue. But basically it feels like a fat play, right? There was a fat play. They gave him too much capital, put to deploy too early, and they thought they probably had product market fit when they didn’t have it. Then when they were trying to scale it, it didn’t go to the next level. The CEO did. Well, I think is the conclusion, did better than the company I guess.

Bertrand Schmitt

But in a way it was smart to say, okay, there is a lot of investment on my disposal, maybe I don’t really know how to use all of this so quickly. I know I will get pressured to use a lot quickly in some ways make mistakes. Therefore, you know what? If you want me to accept so much investment, maybe I will just say yes, but in exchange of a big cash out, because I know I’m putting at risk my business doing so. That could have been a sort process, to be frank. What I also don’t know is how much others were allowed to cash out at the same time.

Bertrand Schmitt

To be fair, I believe they had pretty insane metrics in 2020, maybe up to early 2021. I think they went to zero to 100 plus million AR in six or eight months. From a pure metrics perspective, this was totally insane. Go back to your point. Ultimately it was a fat for sure. It’s easy to say that post Covid at the time we were all freaking, or most of us were freaking out. Definitely there was money coming because money was moving from physical events to virtual events.

Bertrand Schmitt

I remember in that space, the whole question at the time was how much will it stick? Is it something that will stay on because that’s a better way to run events or that’s an alternative way that people will see valuable and will keep using going forward. But ultimately it ended up being neither. It was just something that was not so useful the minute you can do physical events again.

Nuno Goncalves Pedro

Worst of all is now we have a bunch of companies going after that. There’s too many startups going after that, trying to raise money, which to be honest, I think is a bit of waste of resources for everyone involved. Maybe moving to the last example of those that failed miserably. Blue Apron.

Bertrand Schmitt

Yeah, I followed Blue Apron and like Bird, I feel they built a new type of business that ultimately might not have proven so successful, but at least they created a new category. That category of the meal you prepare at home, because you have received some ingredients and a recipe exactly tailored for these ingredients, and you have the step-by-step guide on how to do it. Basically you prepare your meat by yourself, but everything is there and it’s easy for you to manage. You are saving time while still doing it the old way, doing the right preparation.

Bertrand Schmitt

It created a new category. Some companies had some level of success there, but then they fundraise, they raised, they went IPO, and then everything went down, post IPO. They had issues running the business, execution issues, basic issues of safety, managing efficiently, running the business operationally tight enough in term of margins. Also, I believe they had too much user acquisition cost. It was ultimately costing them too much to acquire new users. When it moved from let’s go at all costs to let’s go efficiently, suddenly kind of discovered it was very near impossible to run this business efficiently enough.

Nuno Goncalves Pedro

It’s a space that, again, I looked extensively at this. Different types of plays, from pre-prepared to almost done, to plays where you just had the ingredients, et cetera. Blue Apron for a long time, was the poster child.

Nuno Goncalves Pedro

It is not a case of blitzscaling going wrong. They raised normal rounds, 3 million, 5 million, 50 million, 145 million for a series D. Then they had some debt in it, then they IPO-ed. Pre-IPO, they’d raised 256 million according to my numbers.

Nuno Goncalves Pedro

It’s more of an issue of fundamental product market fit, I think, on the one hand, which is, had they really found product market fit, or was it just they were paying to get in front of users to use them a couple of times, and then they had very little stickiness to the packages. I’ve always had this doubt. Do people at home want to cook themselves? Want to bring pre-prepared food, meals, delivery? Or will they go out for the right price? What’s the right combo? There’s a lot of competition. There’s a delivery place, there’s all this stuff going after you as a customer and a consumer at home, what would you prefer having?

Nuno Goncalves Pedro

It was a tough market, as you mentioned, there were operational execution issues as well. There were issues around unit’s economics, if I recall it correctly. Looking at the space, there was always a little bit of a challenge around that.

Nuno Goncalves Pedro

But in the end, it was product-market fit. Like, I mean, stickiness, people coming back, loving them, and scaling that to really become a very pervasive service. A shame they failed, as I said, they raised 256 million pre-IPO, and they sold for 100. A little bit over 100, right?

Bertrand Schmitt

Yes, 100 million.

Nuno Goncalves Pedro

A hundred and three million or something like that. A shame. I don’t think this was one of those where there was too much capital at the table. It was just something that, in the end, couldn’t scale.

Bertrand Schmitt

Yes, I agree. That’s the first. That was not really a blitz scaling type of play. Maybe let’s move to some that are still alive but not doing great. We will start with a company and product I really like, actually personally, Evernote, I think it’s a great product. I also have a love hate relationship because there are some bugs I really cannot stand. Years after years it’s still not corrected, but overall a very useful utility.

Bertrand Schmitt

A very old company actually we call it a startup, but it started in 2000. They really had their run with the launch of smartphones. When smartphone launched they did a great move which is to extend from the web to your smartphone. They were the first note taking app to appear on the market with a high quality of product, optimized for the different OS, optimized for not just phones but then tablets. A very multiplatform approach and very importantly synchronization between all your devices.

Bertrand Schmitt

That was really huge, but it didn’t work out as expected at some point they reached pretty early on, early on after this move to mobile at a valuation at a billion dollar in 2013. But from there it was probably more of a painful downhill. Probably one reason has been that all the platforms end up launching a notes App, Apple notes, Google notes, Microsoft notes with their different products.

Bertrand Schmitt

So suddenly it was pretty difficult for them to monetize and more important, most of these players launched free version of their products, so suddenly they had pressure that how do you justify a paid product, a paid version of the product when so much competition has free version? Multiplatform was probably the main reason you would pick Evernote, but it was probably not enough to get a big market and to keep revenues rolling. I certainly believe they had some technical difficulties. I remember some detailed blog post about the issues on a technical level with our platform that they still have issues so that they didn’t finally manage to get rid of and therefore justify some level of premium.

Nuno Goncalves Pedro

Evernote, just a couple of notes, pun intended, was a huge fan as well. I think they left pricing too late. They didn’t do experimentation with pricing until very late. Then, when they finally did experimentation with pricing, they totally messed it up. I was one of the people that stopped using them when they totally changed their pricing model. It’s like from now on you have to pay. I was like, I understand, but then I’m going to go somewhere else.

Nuno Goncalves Pedro

Two, it’s in a space that, in my opinion, still isn’t solved. There aren’t great note-taking apps out there still. I mean, we have Google Docs and stuff, but that’s more like a Word doc type replacement. Keep from Google is not great. It’s really not at the level of what Evernote allowed you. It’s a shame because it really never did well. Thirdly, they had some issues with syncing at some point, one of the things that bugged me about it a lot. Their syncing had huge amount of issues, multidevice. They sort of messed it up a little bit.

Nuno Goncalves Pedro

Last comment I would make is I met Stepan, who was one of the founders, and I met his son Alex, who was one of the executives at the company in 2006 before they raised, I believe, their first serious institutional round. They were amazing, lovely people. I fell in love with the product immediately, used it for a long time, as I said, became a friend with Alex and I think it’s really a shame.

Nuno Goncalves Pedro

I don’t think it’s a story of a company that did things significantly wrong.

Bertrand Schmitt

No.

Nuno Goncalves Pedro

It’s just a company that kept having maybe they did a pricing thing fundamentally wrong. Maybe they messed up at some point on new product launches. Maybe that was their downfall, I don’t know. But it’s a company that just kept chugging along, raising the money they should raise being of extreme utility to their users. That somehow ends up in a bad outcome. That somehow ends up in an outcome that is below probably the whatever 300 something million they raised between debt and equity.

Bertrand Schmitt

Yeah, I think at some point it’s a question of execution not being tight enough and at the same time ultimately having raised too much to satisfy the objectives of their investors, you raise 300 million, ultimately beyond their valuation. It’s tough to keep investor interested if your KPIs are not there, are not following up.

Bertrand Schmitt

I think what we have seen is that all these giants companies actually prefer not to acquire Evernote, but to build their own, thinking that there was little value for them to acquire Evernote, which in a way is a surprise. You would have expected potentially some exit. Microsoft has acquired so many businesses in that space.

Nuno Goncalves Pedro

I felt there were some rumours at some point that Google was going to buy them et cetera and that didn’t work out, I don’t know. Maybe there were maybe deals at the table at some point that didn’t go through.

Bertrand Schmitt

Maybe.

Nuno Goncalves Pedro

That would be my best guess. I don’t know why they didn’t go. True. Next one, Clubhouse. We all were mad about it. We all wanted our invite to get in and now nobody goes in. I’m exaggerating, I’m exaggerating, but nobody goes in. Obviously I tried using it recently. They’ve totally pivoted. It’s now more of a play that is around messaging and grouping and things around voice than it was at the beginning. They got copycatted pretty immediately by Twitter. With the Twitter rooms.

Bertrand Schmitt

That’s probably what killed them, actually.

Nuno Goncalves Pedro

I don’t know. I think Clubhouse. I always had a doubt whether… I had two doubts. I had a doubt whether this was a fad or it was a real market trend that was going to stay through time. We looked at this deal, just to be clear. The second thing was, obviously, competition was a big issue. Can everyone launch this? Well, we sort of were right. Everyone’s launched it. LinkedIn has it as well, et cetera, et cetera. Now you have group voice stuff almost everywhere.

Nuno Goncalves Pedro

The third thing, I think, that we had it out on was from a group perspective and group voice stuff. Is this a feature or an actual business? We didn’t really see it as an actual business. We did see what they were trying to build. They were trying to build a social voice network. Or a voice social network, so to speak. There were a couple of examples in China that had taken off. I don’t recall the name of the companies, but there were a couple of companies that in China that actually had taken off. I don’t think any of them is magnificently huge today, but they had taken off.

Nuno Goncalves Pedro

There was this assumption that voice needed its own place. In some ways, I think we all agreed. But again, it brought me back to this notion. Maybe it’s a feature, maybe it’s not really a business at scale. Maybe it will tie into other products. Maybe we don’t need another social network just for voice.

Bertrand Schmitt

Yeah, I think it might be that more that each social network has to rebuild itself in term of your friends, your connection, all of this. It takes a while to follow the right people. It’s a lot of pain to keep adding. If one of them, be it Facebook, Twitter, whatever, does that job well, like Clubhouse well enough, then why would you bother with Clubhouse? Why would you bother to go there once in a while if you anyway, go to Twitter every day? I think that has been the issue for the story.

Bertrand Schmitt

We did record one episode on Clubhouse, if you remember, or at least it was a series of Q&A that was at the height of the craze for Clubhouse. That’s another story of a company that went in a wave, I think was quite careful early on to develop itself step by step. But then suddenly, this influx of users, KPIs, actually, they were up and to the right. It’s not a Quibi story where they pay a lot of money to get users. They don’t get them.

Bertrand Schmitt

Here, they manage to get users at scale very quickly. KPIs are insane. Valuation goes from very little to 4 billion. 100 million infusion of cash and then nothing from there. I mean, it stayed on for maybe 12 months Max. Something of interest. Barely 12 months. Yeah, I’ve not been back.

Nuno Goncalves Pedro

Clear case of consumer fad. Just, it scaled and then people just like, okay, I’m good, I can go somewhere else. And people did.

Bertrand Schmitt

Yeah. I feel that Twitter was very fast to launch a competitive product for once, maybe. The result, probably a lot of users like myself, ultimately were able to basically get a similar product already from Twitter. No need to go somewhere else.

Nuno Goncalves Pedro

Last company in this gang of the ones that are still alive but not necessarily doing great is Citizen, which is a crime reporting app. Many of you may have used it if you’re based in the US. It tells you what’s going on around. You get videos of the latest incident because you have Citizens. That’s the name of the app, is Citizen, taking videos of whatever happened. It’s pretty cool in that standpoint because you can see all the crap that’s going around you, the stabbings, the killings, et cetera, where you shouldn’t go. It’s great to follow.

Nuno Goncalves Pedro

They started monetizing as well. To be honest, I think their wall transition piece is a bit too aggressive. Initially, I was like, are these guys forcing me to get into a trial? Then I realised, no, there’s ways around it. But it wasn’t very clear on their wall. There’s a couple of practices they had on the app that, to be very honest with you, I wasn’t a huge fan of. I live in a relatively uneventful place, thank God. Obviously, I might go back to San Francisco. That’s a good place to have an app like Citizen in.

Nuno Goncalves Pedro

The interesting thing here is the company has laid off people. Sequoia’s dropped out of their board, which I’m not sure means the company is doing badly. It might mean there was disagreements between Sequoia and other board members or Sequoia and the executives or something like that. Sometimes I would say the majority of cases where a large investor or a significant investor drops out of a board is because there’s significant disagreements at the table. There might be other reasons, but that’s certainly, in my experience, what normally happens.

Nuno Goncalves Pedro

But it seems like the company is not doing as well as it was in the past. I mean, they’ve made some revenue, so it’s not one of these consumer apps that doesn’t make any money. They were in the tens of millions of revenue, according to some sources, I don’t know. It doesn’t feel they’re doing great. They’ve been criticised a lot for obvious reasons. Vigilantism, over surveillance, maybe lending itself to racial profiling. It’s in the hands of people, so people do whatever they want with it. I don’t know.

Nuno Goncalves Pedro

Anyway, we’ll see what happens with the company. Maybe it’s a lighter still around but not doing great type of case. We’ll observe, but it’s one that definitely comes to mind, maybe switching to the ones that did okay, well, but should they have gotten that outcome? These are all transactions that were acquisitions in the end, interestingly enough, I would argue that a couple of them were acquihires, significant acquihires. The others may have been interesting deals that certain VCs may or may not have been significantly involved in making happen.

Nuno Goncalves Pedro

We start with Loopt. Loopt is how we sort of started knowing a gentleman named Sam Altman, who now everyone knows because obviously the CEO of OpenAI. He is still the CEO of OpenAI.

Bertrand Schmitt

Yeah, CEO of OpenAI as of January 17, 2024.

Nuno Goncalves Pedro

Again. Right?

Bertrand Schmitt

I don’t know what happens tomorrow, so.

Nuno Goncalves Pedro

Obviously he was CEO of a Y Combinator before that and he’s super well known. Loopt was his first big claim to fame. It was a company that allows you to share your location, was started in 2005. So a long time ago, almost 20 years. I used it very early on, I used it in feature phones. The company was around for seven years in total, six years and a bit. Seven years. I know a few people that were involved in the company. I do not know Sam, but I know people that work with him at Loopt.

Nuno Goncalves Pedro

I won’t go into too many details. The information I have was not given to me by the people that I know there. But it is interesting that the company sold, they raised, I think, 30 something million. They sold for 40 something million to Green Dot, which I believe at that point was already a public company. Magically or maybe not Green Dot had on its board Mike Moritz, obviously from Sequoia Capital. Magic, or maybe not, greenDot was an investment from Sequoia Capital. Magic, or maybe not: loopt was also an investment of Sequoia Capital. I will not say anything else, but it feels all very magical.

Nuno Goncalves Pedro

I heard from sources, again, not related to the company, so I can’t vouch for the veracity of this, that there was an offer maybe sometime before, maybe a year or so before, from a very large company in Silicon Valley, that should go unnamed, that’s irrelevant who they were, but a very large Silicon Valley company, that was significantly higher than 40 something million and that company had bad blood with one of the VC firms that was an investor with Loopt. And so that deal may or may not have been axed, and it may have been that then there was a way out for Loopt later on.

Nuno Goncalves Pedro

But again, this is the beginning, the origin story of Sam Altman, and it’s obviously an incredible story. A very high achieving individual that is now maybe controlling the destinies of a significant part of the world. But that’s how it started, with Loopt. Not an amazing outcome. I don’t think the play was an acquihire. It feels a little bit like a facilitated deal, which was, I’m sure, still a decent outcome for people involved.

Bertrand Schmitt

Which you could argue is a good thing for me, helping fundraise your next round, helping you in a final transaction to get a deal done and make an exit. I think that’s a core part of being a VC. I see that as a positive that they help for this transaction.

Nuno Goncalves Pedro

For me, that’s the dream, that VCs can have the ability to do these types of deals, and it’s great for founders, it’s great for the VCs. This is like ultimate gamersmanship, right? This is when you can create real value after investing in the company.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Kudos if it’s the case that value was created through the VC firm. Kudos to them. I mean, incredible, incredible. We all take our hats off, and we’re all very envious of that.

Bertrand Schmitt

Yes, for sure. In that situation, 30 million raise, 40 million outcome. It’s not a lot of value creation. As you say, there was a significant outcome a year before that was possible and that was not realised because of some VC firms. That’s another issue.

Nuno Goncalves Pedro

Maybe second example is Slide. Max Levchin, obviously part of the PayPal Mafia. Worked with Peter, with Elon and all those guys that you probably have heard about at PayPal. Slide was trying to do some interesting stuff around social, some really cool concepts. To my knowledge, it never really scaled. Ended up being acquired by Google. Transaction that was 180 something million plus an earn out of 40 something million.

Nuno Goncalves Pedro

A strange transaction because Slide was then deprecated, I believe, soon after or relatively soon after. I am not saying anyone made this deal happen. It was definitely down from the last valuation we know from Slide, which had been at half a billion, was a great outcome for Max. I think probably a decent outcome for Max, at the very least for a few other people there. Keith Rabois, I think at some point was the VP of strategy and development there.

Nuno Goncalves Pedro

I don’t know who facilitated that outcome, but it feels like an interesting outcome for a company that then lead to anything else after the acquisition. Not sure it was really an acquihire either. I don’t think Max stuck around very long, if I’m not mistaken at Google afterwards. Interesting. It’s one of these, do them if you can, if you can do these outcomes, great, go ahead and get it done.

Bertrand Schmitt

Maybe we can talk about another one. This one was a very interesting acquihire. It was Diane Greene’s startup, Bebop, which got acquired by Google Cloud. Ultimately it was acquired because they really wanted Diane, they wanted Diane to run their Cloud business. I’m not sure they cared at all about the startup in question, but for sure she made it clear that, hey, if you want me, you have to acquire my business.

Bertrand Schmitt

That was probably a positive outcome for the investors. I’m not sure if that startup was in the right trajectory in the first place, and maybe it was, it was just early. But ultimately that’s a very rare type of outcome where a big company will want well enough, an entrepreneur as the CEO, to bring them on board to run a big chunk of their business and therefore ready to spend what can be significant money in order to acquire the startup in question and bring them aboard without having a real interest in that startup in the first place.

Nuno Goncalves Pedro

If this is correct, the investors were Andreessen Horowitz, Sequoia. Who else was in there? Maybe I’m missing someone, but Andreessen Horowitz, Sequoia for sure. If this is also correct, they only raised the Series A, supposedly for 3 million in 2013 March, and they were bought by Google. It was 272 million. I think it was 380 million by Google in 2015. This might qualify as one of the largest acquihires in history.

Bertrand Schmitt

Yes, and a great return for the investors, for the entrepreneur. Let’s not forget, Diane Greene was one of the co-founder of VMware.

Nuno Goncalves Pedro

Oh, of course. She did this little company, in case you guys haven’t heard about, called VMware. I mean, she is incredible. They wanted a CEO for Google Cloud really, really badly.

Bertrand Schmitt

She was royalty in the Cloud space, especially in these days and age. That was great, I think, great for everyone involved, to be frank. A great story.

Nuno Goncalves Pedro

I’ve only met her once, separately heard from four people that have worked with her or have had very deep interactions with her. Everything I hear about her is incredibly positive. I’m sure the 380 million were more than worthwhile for Google, as an acquisition.

Nuno Goncalves Pedro

Moving forward another significant acquisition, and this is actually a friend of mine, Mårten Mickos, for those who don’t know, was at MySQL. He was not the founder of any of these companies. The CEO was brought in, turnaround company took them to the next level. MySQL sold to Sun Microsystems. He’s now the CEO of HackerOne and in between he was the CEO of Eucalyptus. Eucalyptus I think got acquired, if I’m not mistaken, for actually around 100 million.

Nuno Goncalves Pedro

To my knowledge, again, I’m not sharing anything that’s deeply confidential, Mårten will kick my butt if I do. But they really wanted Mårten. HP really, really wanted Martin and Martin was like, I’m running a company, guys, thank you. At some point they just bought the company. I’m sure strategically it made some sense in terms of stack for HP, but they really, really wanted Mårten. I’m not sure they wanted Mårten for a very long time, because all orgs change people and reorg and do all sorts of things. And so maybe he left after a few years, but they really, really wanted him.

Nuno Goncalves Pedro

So, again, a case of significant in my book acquihire. Obviously the company had a business, they were growing, so it’s not like from scratch, but definitely a significant amount of interest in one specific person to join ranks.

Bertrand Schmitt

Yes, congrats on Mårten. I met him a few times. I have really high opinion of him and his leadership and the different businesses he was in. Maybe to finish. Why don’t all companies exit? Have a successful exit? I think that, at the end of the day, obviously it’s not easy. As we have seen, you can have different approach to company building and blitz scaling can be one of them. But I cannot say it has had a great success so far. Moving too fast, too quickly, it’s a very, very, very dangerous game.

Bertrand Schmitt

Some entrepreneurs manage to get out, I would say on the positive side, thanks to some secondary transactions or equivalent, but typically that means that employees, most investors don’t get a great outcome. If you do an acquihire. Obviously it’s typically not a great exit. We have a few examples, but they are extremely rare. Typically, it’s talent hunting for a great CEO. But beyond that is not a typical good sign of exit.

Bertrand Schmitt

I would like to add that selling to a big M&A, a big transaction is becoming harder and harder, and I think that’s a big worry in Silicon Valley and beyond about, if we have a good business can we even sell it? That will be a big question going forward. I trust regulations have become more and more difficult, regulators have become more and more diligent and tech has been the centre of a lot of investigations.

Bertrand Schmitt

What happened with Adobe and Figma after 12, 15 months of diligence and an abundant transaction for what was to be one of the biggest return in transaction in the VC space, it’s sending a lot of shockwaves, I guess. Do you have an opinion on this?

Nuno Goncalves Pedro

Yeah, I would like to be on the fee side like a lawyer or whatever. I mean, can you imagine the amount of fees that were made and then there’s no transaction? Obviously I’m making a joke. It must have been very frustrating for everyone involved, for bankers, for lawyers, et cetera.

Nuno Goncalves Pedro

We are seeing more and more of it and I think that’s the movement. US, Europe, everyone’s getting more aggressive, tech companies merging with each other. If it’s adjacent spaces, same space, you’re like, if you’re going to have unfair advantage in this space, I’m sorry, we’re not allowing it. It takes a time, I mean, as you said, it takes over a year sometimes for regulators to finally after back and forth with the companies that the companies are like, you know what, this is not going to work. They’re not going to allow us to merge. This is going to hamper mega-mergers. Yes, I think it will. But as we know, a lot of this is also driven by politics.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

And appointments. And so it might change again in the future. I think it’s a bit cyclic. The way I look at it is, I think we’re going through a rough patch. If I had to make a guess, it’s going to be a cycle. At some point we’re going to go on the other end, and we’re going to have a more positive cycle towards mergers and high amount, high valuation mergers, which was the case. I mean, this was a tens of billion merger. So it’s a significant piece.

Nuno Goncalves Pedro

Maybe changing a little bit to other options that companies have and why don’t all companies actually exit. One’s a little bit the acquihire logic. Acquihires are an acquisition of a company for its team or certain members of its team, not really the acquisition of the company itself normally, it’s just I want those resources. I might have to buy the business to get the resources as we mentioned before.

Nuno Goncalves Pedro

Why doesn’t it always work? Well, there has to be an organisational fit into the new company that’s acquiring the interests of everyone involved, employees and founders on the company that’s getting acquired need to be aligned. I might not want to go to that company in the end.

Nuno Goncalves Pedro

Then can you make it worthwhile for these people? I mean, they had stock in the company, probably had a relatively poor salary unless it’s a very big acquihire, they probably would have a very poor salary. It might not be interesting for me to go to a larger company, not just because I don’t like the job, but because maybe they’re not going to pay me enough for me to go and do this, or maybe I want to go and do my next company. That’s one thing that I feel makes acquihires a little bit more complex than people think.

Nuno Goncalves Pedro

The other one is bankruptcy. A lot of people talk bankruptcy, in particular in the US, because there’s Chapter 11, which gives you protection from creditors. Chapter 11 is complex. It’s expensive. Small startups are not going to apply for Chapter 11. You sort of just go under and let it go. California, there’s something called assignment for the benefits of creditors, which is ABCs, which allow me to assign to a third party that is, in general, neutral. Not sure it’s always neutral to pick up the assets and try to get as much value out of those assets as possible.

Nuno Goncalves Pedro

Why don’t companies go that route? Well, it’s a little bit of a notice of failure. Even if you went Chapter 11, if you’re a large company, you only go there at the point where you have no other option. You’re just trying to keep the company alive. More than that, it’s very difficult to come back from Chapter 11 relatively successful because you’re going to have to basically clean up the team. You’re going to basically have to disperse assets. You need to renegotiate with your debtors. I mean, it’s a mess.

Nuno Goncalves Pedro

ABCs is the end of the road in California. It’s like you’ve given up. We’re closing the company. We’re just basically assigning these assets, see how much capital we still can get out of it. It’s not really, I mean, it’s sort of an exit. If there’s a lot of IP in the company, if there’s tangible assets you can still sell, maybe you can get quite a bit of money out of it. But apart from that, if you’re just a software company, it’s sometimes very complex to extract much value out of it.

Bertrand Schmitt

Certainly not much value for common shareholders, employees. I mean, at best you’ve got 10 cents on the dollar for investors, I guess. I would be careful. I mean, that’s definitely not an exit you want to think about. Maybe one more point on acquihire. I think there are probably less of them these days, given the ones doing them are the big tech companies that have been doing layoff or freezing recruiting. That’s probably bad optics in the first place, but on top of it, yeah, why would you do this type of acquihire?

Bertrand Schmitt

I mean, you really have to be in that hot space like AI, where you have this big level of talent that, okay, I’m seeing a team that is ready to do what I need, I’m acquiring it, and they’re going to do what I want them to do. But beyond very hot space, it will be a hard one.

Nuno Goncalves Pedro

Last but not the least, IPOs. People are like, oh, why can I? Well, no, you can’t, because those markets are even tougher than the markets for raising private capital as Bertrand said very well at the beginning, you have to have one investor at the very least, that’s super excited about you and willing to value at a certain level.

Nuno Goncalves Pedro

IPO markets are retail markets. You have to be underwritten. There’s a bunch of players that come into it, from institutional investors to you and me. Maybe there’s an option in some cases. I’ve seen some people try to play this one, which is I’ll IPO in a smaller market, like an Australian stock exchange, ASX, or in a local market if I’m not an American company. That might provide some liquidity. But then again, you’re stuck with being a public company, and you have more reporting. You have quarterly stuff normally in most stock exchanges, et cetera, et cetera. It doesn’t really solve for it.

Nuno Goncalves Pedro

IPOs are, sadly, rarely a solution for these sorts of problems. With a market in IPOs, that is even worse right now. It’s even worse for a company, even if I’m a very large company, and I was expecting to IPO route about now to raise some more money and more capital. It’s a really tough market to IPO in, as the last tech IPOs have shown us.

Bertrand Schmitt

Yeah. IPO, you have to be very careful because the IPO window right now is closed, but it might reopen. I’m sure it will reopen, but at the same time, you cannot really count on it because you don’t know when the market will be open for IPO. That’s a very dangerous game to plan specifically for a specific IPO in time because the market can change basically a quarter, and suddenly you cannot do IPO for two, three years.

Bertrand Schmitt

I mean, 2022, 2023. It’s already two year with very, very limited IPO. As we just discussed, you need to be at a significant valuation. You need to be underwritten and have, as a result, a really more clear business and retailers to buy, in a way, really your business model. It’s a tough one. And it costs a lot of money not just to go IPO, but to stay IPO. You really need to be able to afford it. But at some point, that’s, of course, as a good company, great company, that’s the best exit you can get.

Nuno Goncalves Pedro

To conclude today’s episode, Episode 51, our episode on Too Big to Succeed, we have gone through a little bit the underbelly of failures where you can still make a lot of money even if your company, in the end, fails miserably. We explain how that happens. We went into a couple of nasty examples of companies that failed miserably after raising a lot of money, most of them, sadly, because of too early blitz scaling or trying to blitz scale.

Nuno Goncalves Pedro

We also share some examples on the ones that are still alive and not doing great, and some examples on companies that did okay. Well, in the end, should have they gotten that outcome or not? Where we talked about a couple of gigantic acquihires or very large acquihires, as well as a few deals that were maybe articulated or helped by some interesting VCs. Finally, last but not least, we ended on a note with, why don’t all companies exit? Thank you, Bertrand.

Bertrand Schmitt

Thank you, Nuno. See you next time.

Nuno Goncalves Pedro

See you.

View Details

That episode… the 50th, the big 50. We go back to the past and look into the future: was 2023 as bad as it gets? Is there some good or silver lining in front of us in 2024? These and more questions answered in our recap and looking forward episode.

Navigation:

Intro (01:34)
Looking Back to 2023 (02:00)
Looking Ahead into 2024 (32:05)
Conclusion (48:20)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno

Welcome to episode 50 of Tech DECIPHERED, the big 50, 5-0. Today, we will do a recap of 2023 and what to look forward to in 2024. Although this is actually not really our 50th episode, because of how we’ve done the numbering scheme over time and we’ve changed it back and forth. Let’s just call it our 50th episode and celebrate and take advantage of that. 2023, what a hell of a year, Bertrand.

Bertrand

Yes, indeed. What a hell of a year. Maybe we can start about the positives of 2023.

Nuno

Yes, that would be fast. No, I’m kidding.

Bertrand

Good news is that I’m not sure if it’s fully behind us, but definitely COVID-19 is mostly under control. It feels less in the news these days, either mainstream media or Twitter. It looks like people are back to a more normal life, back to getting the flu or whatever cold you might get, but at least it feels like a cancer-distant memory, but less impacting our daily lives.

Nuno

We put COVID-19 behind us. I was just watching or catching up on a TV series, The Good Fight. They did this funky thing starting, it’s season five maybe, which is literally the whole episode is like a previously on, but we never saw that. They basically did a whole year into 50 minutes of an episode, and they presented it as previously on, as if we’d watched it before, which we have never watched it, which is very funny. It was actually scary. We were scared for our lives and what was going to happen next. That was 2020.

Nuno

Then 2021, we started rebalancing and things started looking a bit better. Last year was like, “Oh, let’s just go back to the normal world.” This year, we’re full throttle. It’s the big vindication. Everyone’s travelling a lot. I’m sure it’s going to be a mess over Thanksgiving. We’re close to Thanksgiving right now. Everyone’s back to travelling. COVID is a little bit behind us. Some people are taking booster shots. Have you taken your booster shot yet, Bertrand?

Bertrand

I have.

Nuno

I have as well.

Bertrand

Flu shot.

Nuno

Flu as well. Yes, cool stuff. Some may have not, I’m pretty sure. Some people are getting COVID again, but things do seem to be under control. That’s a big, heavy burden that we’re not really inside anymore. We’ll see what happens in the next few years. Fingers crossed. I’m knock-on-wood type stuff because honestly, we can’t declare victory.

Nuno

The second very positive thing is, besides we did talk about recession. We talked about economy imploding. It really did not. It’s been an up-and-down year, but the economy did not implode. If something economic activity has now picked up again and there’s no signals of recession, and again, fingers crossed on that, which I guess is good and bad. We’ll come back to the bad in a bit, but it’s mostly good.

Bertrand

Yeah, it’s good news. The question is why, obviously, and can it still happen? Definitely, I came in this year with a more negative outlook, at least for the US. Because if we talk about some other countries, some other countries might have a pretty bad year, actually. At least in the US, it has been surprisingly good so far, at least on the surface.

Nuno

Overall, pretty positive. We’ll see the numbers by the time this is launched. You guys will know the numbers for Black Friday. We don’t know them yet, but I’m assuming they’ll be great. In some ways, we’re back to consumer is one-on-one. We’ll see if inflation is really under control or not into the new year. Definitely, it was a positive year in that respect. We didn’t really have a huge crisis. Us, as consumers, have come back to the table, travelling, consuming like the good old American way. The rest of the world is following suit. Everyone’s doing that.

Nuno

Then maybe the last third big thing is, it’s been the year of AI. Obviously, we’ve had a couple of episodes on generative AI, and we’ve demystified a bit, so we won’t spend a ton of time on it today. Recently, we’ve also had the whole OpenAI debacle. As you were saying, Bertrand, the whole Steve Jobs done in five days instead of years. [crosstalk 00:04:01]. The Gen Z version or millennial version of, “I’m out, I’m not out, I’m out, I’m not out.”

Bertrand

It’s definitely raising a very strong question of governance. What went wrong in a surprising way, given the talent of the people involved, and maybe in an unsurprising way when you know that trying very untested new type of structure that didn’t really make sense in the first place indeed don’t really make sense in the first place.

Nuno

Yeah, I’ve been in a structure like that before, like a non-profit on top that owns a for-profit that is significant. It’s very difficult. You have high dependencies on a very well-functioning board on top. If that doesn’t work out, it’s not great. I’m sure there’s other reasons behind it. We don’t know probably the story or the whole story yet, if it’s just the board, if there were other dynamics around it that we’re not fully aware of. It seemed amateur hour throughout the five days of social media back and forth, and it was live news. They might have well streamed it. I saw someone making the comment on Twitter, on X saying, You should have just streamed it on Twitch. It would have been easier. We could have just followed it. It would have probably been the most watched show recently.

Bertrand

You could do a TV show where every season is one day.

Nuno

Exactly.

Bertrand

Of what happened in real life. A new version of 24, I guess.

Nuno

A new version of 24, like a real-life version of 24. Back to the positive AI has changed everything. It’s been the year of AI. Despite the market in general around startups having cooled down quite a bit, the AI market is still continue going through the roof. A lot of interesting things happening, a lot of noise as well, a lot of things that are maybe not as great as all of that, but certainly very, very positive. We’ve hit our first year of AI is here. It’s here to stay and there’s going to be a tremendous amount of innovation going forward. Incredibly positive.

Bertrand

We just saw, the results from Nvidia and it’s clearly amazing. They are firing on all cylinders. I’ve never seen a company that size exploding like this in terms of revenues year on year. We’re talking about 200%. It’s just amazing.

Nuno

Overall, may be the last positive in our world of startups and venture capital. Obviously, it’s been a cooler year dramatically in terms of fundraising for funds, startups as well. It’s not fully imploded. It’s not nuclear winter. It doesn’t feel like end of 2000, 2001, 2002, 2003, there’s still activity. You guys are investing and startups are still raising money. It’s been overall positive. It really hasn’t been nuclear winter.

Bertrand

I think that if 2022 might have been more a nuclear winter, it didn’t feel that way in 2023. I don’t know if I would call it positive or maybe it’s more neutral that business is done.

Nuno

It’s positive versus what we expected. Certainly, I expected, for example, valuations to come down a lot more. Maybe it’s negative to us as investors. Maybe valuations should have come down a lot more. Maybe they still will. It wasn’t that bad, certainly for entrepreneurs and startups, and that’s great.

Bertrand

Yes, in a surprising way. Maybe should we go to the negatives or the neutral next?

Nuno

Yes, we’re going to spend a bit of time there.

Bertrand

If we go on the negatives, maybe we go from the bigger picture, some of our macro picture as well. We still have a war in Ukraine, in Europe, and a new one in Israel. It’s pretty scary to have this. If you are pretty young, you might feel the world coming to an end. The older you are, the more you feel back to what you used to know. A world more full of uncertainty from a macro perspective and some lack of control.

Bertrand

Obviously, very sad just to be clear what happened. It’s beyond belief that you could have terrorist activities of that level. From Hamas, I am in full support of Israel about what’s happening. We hope and pray for the best possible outcome for everyone involved. Israel, of course, with the right to defend and people of Qatar.

Nuno

A war of the scale of Ukraine, obviously with the Russian invasion or attempted invasion, we’ll see where that ends up, was already a total tragedy and the loss of lives. What’s happening in Israel has even taken this to the next level and it’s just tremendously sad. I do think the situation with Israel, Palestine, Hamas, the way you position it and everything that’s happening is much more complex. The good guys, the bad guys. Who are the good guys at what point in time? Who are the bad guys at what point in time?

Nuno

It’s certainly much more complex, much more nuanced. A lot of fake information as well being circulated, a lot of things that are not accurate being circulated. The only comment I would make on it at this stage is, that we do hope that this comes to a peaceful resolution that is sustainable, at least for the immediate future. This would be my wish. We didn’t need a second large kill war for sure.

Bertrand

To your point on Ukraine, I feel so sad that hundreds of thousands of people died in a brutal conflict. It feels like the last year has been more of a stalemate. I hope that it comes to somewhat a conclusion.

Nuno

The current numbers showed tens of thousands died in the Ukraine in Russian war or around 14,000 to 15,000 people. Anyway, we don’t know the exact. It’s always a tragedy, obviously, Israel and Palestine as well. Post that, we just wish for the best that things… We’re not geopolitical experts. We don’t pretend to be. We hope we get sustainable peace. That’s what we hope for. China.

Nuno

Obviously, it’s become an increasingly frosty relationship between China and the rest of the world and US and China. We just had APAC in the Bay Area. Maybe a little bit less frosty than I expected.

Bertrand

San Francisco was finally cleaned up, but just for a few days.

Nuno

San Francisco was cleaned up for a few days. The relationship seemed a little bit less frosty than I expected it between President Xi and President Biden. Maybe there’s some hope there. We’ll see. Do you want to go more into the CHIPS Act and everything that’s going on?

Bertrand

The US definitely has up somewhat the economic fight with the CHIPS Act. We just saw, actually, that it is impacting Nvidia in term of revenues and maybe other players.

Nuno

Can you tell people what the CHIPS Act is, in case they don’t know?

Bertrand

Basically, the CHIPS Act is trying to limit the amount of technology transfer in term of product, in term of IP to China that could be considered dangerous from a military perspective. It’s limiting what you can sell to Chinese companies in term of chips. That’s mostly what it is about.

Nuno

It’s also putting a bunch of money to the market, right? 280 billion of new funding into everything.

Bertrand

Yes, there is a positive side to that where it’s about building in the US or in other places some alternatives, some new factories. Not everything is depending on the current factories from TSMC. In Taiwan, in term of most up-to-date and most advanced factories, obviously, Intel’s and others are pretty advanced factories, but is considered state-of-the-art today is done by TSMC in Taiwan.

Nuno

Then very poor economic numbers from China, right?

Bertrand

Yeah, it’s pretty catastrophic. You could argue the numbers are very bad. Interestingly enough, I read that the number of economic indicators in China have started to decrease significantly for the past few years. We used to know more about China, now we know less. It’s never a good sign, usually you want to remove numbers when it’s not when things are going well.

Bertrand

There was a recent article on the Wall Street Journal where they were looking at Chinese GDP relative to the US, and it’s clear that it has been stalling. Stalling of 2023, it looks like we are not far from actually six years ago in 2017. It’s pretty surprising what’s happening. I’m not sure we have seen that. There is some flattening of the curve, significant decrease of the past few years. Overall, it looks like we are going back, and if not 2017, actually maybe even 2015.

Bertrand

On one side, obviously, the US is doing better than they expected, so it’s great news. China is definitely doing worse. Maybe the latest policies finally caught up with the economic strengths of China. In some ways, maybe some policies should have come sooner in term of cleaning up the Chinese economic system. We see real estate after real estate companies going under. Definitely, there was an approach in China. If you keep building and you hope they will come, but at some point it’s not needed anymore.

Bertrand

There is no point in having multiple homes for one person, for one family. There is no point to reach to nowhere. The economic value of the Chinese model of building, building, building has a limit. There is no need for more high-speed train rail lines. Some of the easy stuff, quote-unquote, because it’s not so easy, but I would say what has been the approach of China in most developed countries, becoming developed countries in terms of economic approach has been done basically. What do you do next from here? It’s a big question.

Nuno

When we lived in China, we were talking around high 7% GPU growth, and it started slowing down into the high 6s. Obviously, let’s forget a bit COVID around the middle 2021 was a bumpback year. 2020 was obviously an awful year. 2022 was again a relatively awful year. This year, the expectations, many expected it to be in the high 5s. Maybe 5.7%, 5.6%, then it was revised down. Now people are expecting it’s going to be below five, maybe 4. something %. We don’t know yet where we’re going to end up.

Nuno

We obviously, when the numbers come out, we will also need to unbundle what is official statistics versus the expectations certainly of analysts around the world as well and triangulate that and figure out where the number lies. Certainly there’s a slowdown. Now you don’t have the whole… Oh, we still have COVID going on thing. Now the numbers are looking a little bit more real. If we go on this trajectory where 2012 it was around 7.85% the GDP growth, this is looking very linear. It’s not a very nice trajectory on that line. China needs to grow. We’re not talking about, “Oh, but 3% is great.” I’m not sure it’s great for China.

Bertrand

It’s pretty hard because GDP is what? It’s productivity times population growth. China has zero growth in population and is going negative soon. That will make life very hard in term of trying to generate growth when your population is contracting. That’s really a tough place to be. Some regulations like the CHIPS Acts have impact on the China GDP growth. It might be a tough place. Let’s not forget some indicators.

Bertrand

I was reading 25% unemployment for some young graduates. Some people say, “No, no, no, no. The real numbers are probably closer to 40%.” That’s super scary. This is not some things China has known in the past 40 years at any point in time. The whole contract with the population is really, “Hey, I’m giving you growth. I’m giving you opportunities. Your kids will get a better life. Now it’s looking like the kids are going to get a worse life.” It’s pretty scary for parents, for the population, and what it means in terms of stability for China.

Nuno

Maybe moving to interest rates around the world, they’ve gone higher than anyone expected to control, obviously, inflation. Now certain Central Banks are starting cutting those rates. The Fed really hasn’t yet. We’ll see what happens next year. We’ll talk about it in a bit, but definitely very high-interest rates in general. That affects the whole market because with high-interest rates, then you start having discussions around, What else should I invest in? I should just basically ride this, put money and cash, run on some saving accounts, treasury bonds, whatever thing, and just see what happens.

Bertrand

Yes, it’s high rates changed dramatically how you rationally value companies. That’s probably really the big point. How you rush, especially rationally value fast growth companies are the one impacted most, and even more fast growth money-losing companies are being impacted. It’s a tough place to be, especially for tech, because of high interest rate. It has come very fast, very high, at least for the US.

Nuno

Again, hope that that will get reestablished, maybe realigned next year and things will come a bit more normalized and clear for everyone involved in these markets. Switching maybe to market caps and to the valuation environment, certainly public markets seem to be a little bit more normal valued. We expected the private markets to have gone down probably a lot more, but they really haven’t in some ways.

Nuno

I was just looking at some numbers. It was from the Cooley numbers. Cooley, obviously the law firm that does this analysis on the deals that are involved in. This was for Series C, if I’m not mistaken, but we see a lot more down rounds and a lot more flat rounds than we saw before, but still nothing silly.

Nuno

At the same time, the market still feels a bit frothy. It still feels that the balance of power we kept talking about that it will go back to investors, that investors will have a lot more command on what are the clauses we put in, what are the things we’re going to go with. It hasn’t actually happened in some ways. It’s a bit in the middle still.

Nuno

I don’t know if it’s because we still have great companies. I don’t know if the worst is still to come. A lot of people believe that the worst will come next year. That will be the year of debt companies. I don’t know. Maybe it’s a negative that the market caps haven’t come down more for us investors. Maybe it’s a positive for entrepreneurs that they hasn’t. Maybe it’s a negative in the sense that actually is a signal for us to observe something that will come next year that will be more severe and more significant. Let’s keep it monitored and see what happens. Definitely, it’s been a bit of a weird year in that sense.

Bertrand

Yes. One thing that is seemed to be quite clear is that there is a real recession in the commercial real estate market. I’m not sure we are experts on this, but the news are everywhere that buildings are selling 50, 60, 40 cents on the dollar right now. It’s a very bad place to be. Obviously, banks are going to be impacted significantly. It looks like a lot of medium-sized banks are going to suffer from this. It’s not clear how they are going to be helped. Are they going to be able to just renegotiate some deals? Taking back the building is not going to help if there is no buyer, or if the buyers are willing to provide very low price.

Bertrand

It’s coming from the fact that people are working more remote. It’s just a dramatic change, especially in some cities, especially West Coast. If people are not going back at the office, and if your downtown is scary and not properly policed, definitely you have an issue to try to convince businesses to come back.

Nuno

The market, on the other hand, has become a little bit more exciting on the secondary side. We’ve discussed it at one of our previous episodes, a lot more secondary transactions. You can listen to our episode on exits and liquidation and all that thing. As I said, still a very ambivalent market.

Nuno

Media advertising also going through its own recession, some of it. Natural because people are spending probably less time looking at their screens in some ways now that they can go out again. Part of it is also driven by the polarization that we see globally around the variety of topics. We talked about the war, obviously in Israel and Palestine. We’ve talked about people maybe saying the wrong things on platforms that they own and pissing off advertisers.

Nuno

Anyway, also a complex market. It felt in the past that we were at peak streaming, Peak TV, it still feels like that. Now with movie theaters back open, et cetera, there’s still some discombobulation around that. How does this work? When can I watch the movie? When is it coming out? There’s definitely a lot of interesting stuff happening around that.

Bertrand

Another recession that happened, the freight recession, we have seen some companies actually go belly-up or some companies going through a big turnaround exercise. It’s definitely a tough space because prices in freight went up like crazy during COVID. Now that there is less demand, it’s a different story. Price are going back to where in some ways where they used to be. It’s not yet totally at crash recession level term of economics, but it is definitely a recession if you compare to a year ago or two years ago.

Nuno

One of our favourite ones, the Silicon Valley Bank crisis, those exciting moments earlier this year where we’re all like, “Oh, my God.”

Bertrand

Yes.

Nuno

Silicon Valley Bank still exists. It’s now owned by First Citizens. We obviously had First Republic also being taken over by JPMorgan Chase. We’ve talked about it in previous episodes, but that was exciting in a really dramatic way.

Bertrand

In a very bad way, by the way. That’s not a fun drama.

Nuno

It was not fun. It was a tough couple of days until that famous Sunday announcement from Janet Yellen and the Fed. Everyone was like, “Thank God for that.”

Nuno

Then obviously, we had the Credit Suisse thing in UBS piece, and everyone thought, “Oh, we’re going to have more of this. We’re going to have more banks.” Nothing then happened. I guess that was good news that should go in our positive column. Once that whole UBS thing happened with CSFB, or they were just called Credit Suisse by the end, everything stopped, which was good. We haven’t had any other bank runs. The world doesn’t seem to be dying on the financial services side. That was good.

Bertrand

Saas, B2B SaaS, Software as a Service, it has been tough for most companies in SaaS since 2022. 2023 was also a tough year. Definitely, there is consolidation happening from companies buying from vendors. That means that if you are just a nice-to-have product, life is probably very hard.

Bertrand

The more necessary you are, the better your position, especially if you are not easily displaced. It has been now two tough years for or B2B SaaS. I would say investors, entrepreneurs are reviewing valuation and target in term of growth. It’s a different world.

Nuno

There was definitely a huge bubble there. We talked about it in the past, and now it’s less of a bubble. Now it’s obviously a little bit more neutral. Maybe some assets are still too downmarked. We’ll see how it evolves into next year. Honestly, I feel it’s now more… Valuations now are evolving more naturally. There was definitely a bubble there that needed to pop. Now we will go hopefully back to a state where valuations, a little bit over time, go back to normal.

Nuno

Crypto winter is not coming. Winter has been here for a while. From the drama of obviously FTX, SBF, and at least he’s been convicted, we’ll see what happens next year on a sentencing.

Nuno

We just saw the SEC situation with Binance and CZ. That’s a huge settlement for Binance. Obviously, CZ not involved anymore in the company, but it’s more than that. It’s been a rough year. It’s been a year where very visibly, everyone was very, very bullish on crypto, on blockchain, et cetera. In most cases, has had to step back a bit.

Nuno

At the same time, we have seen, finally, things coming out that are interesting and some interesting applications. Again, it’s definitely almost like now a scarlet letter, and you have to be a bit thoughtful on how you mention it and thoughtful about it. It’s natural. It’s the cycle that we know happens with all these big shifts in technology or in technological trends. It’s natural that this happened. I’m pretty sure next year will be better. Well, fingers crossed, at least on it, that we don’t have any more fraud or any more significant issues that involve SECs and stuff like that. We’ll see.

Bertrand

It’s not clear. Just to clarify, I’m not sure it’s fraud versus anti-money laundering, violations of sanction.

Nuno

No, fraud was SBF. He was convicted of fraud.

Bertrand

Oh, okay. Yeah, SBF, yes. Sorry.

Nuno

CZ, I was saying it’s related to other aspects of what happened at Binance. It was around KYC and it was around AML, et cetera.

Bertrand

Yeah, KYC. Right now, it’s a deal with the DOJ, but my understanding is that there are still some pending other lawsuits, including from the SEC. It’s not yet fully over yet.

Nuno

Understood. Okay, so it’s DOJ that they did the settlement with?

Bertrand

Yes. Maybe another point is that it looks like they’re in good shape, at least from far. It’s not great what happened, but at the same time, it feels like it’s not like an FTX where it’s a house of cards and the next few weeks, this is over. I don’t have this impression from Binance, at least at this stage from what I read.

Nuno

Interesting. Okay, so it might not be over on that side. Fascinating stuff. Regulators also doing their job, hopefully. More regulation, more deregulation.

Bertrand

Yes, more regulations coming. It looks like, especially in AI, there has been an executive order on AI in the US a few weeks ago. There has been a new responsible AI association started by some VCs.

Nuno

Which, by the way, is done to avoid that the actual regulation is significant because the executive order seems to behave or else type executive order. They’re like, “Then let’s be responsible.” I feel it’s like a pre-emptive move.

Bertrand

I’m not so sure because regulation require an act of Congress, real regulation. That executive order could be rescinded in a day by a new president. It’s a very weak type of regulation.

Nuno

That’s exactly my point. The whole association that’s created by VCs, et cetera, is a pre-emptive move. That the industry starts getting its act together around how it behaves.

Bertrand

Yeah, my point is more that I was not seeing Congress doing anything because it’s gridlock. It’s a pre-emptive move against what? Something that would not have happened anyway. It’s a question mark for me. I don’t have the impression that Congress will legislate anything in 2024. I could be wrong. On the AI topic, it might not have gone through at all anyway. You’re right, it might have pre-empted that. It’s tough to say.

Bertrand

What is clear is that in the EU, it looks like it has been derailed because there was an AI Act in preparation, but it looks like it was derailed. It’s not clear when it will go back on track. Interestingly enough, the US has more regulations now on AI than the EU, which might be a first.

Nuno

Surprising, yeah.

Bertrand

It might be a first. EU still passed the EU Digital Service Act, DSA, in 2022 with enforcement starting in 2023. A lot of people in the US have raised question around, “Is it stiffening free speech?” I would be shocked if it really impacts how American users of any service would be impacted. I could be wrong. It would be clear that in Europe, it might be a different story at this stage. At the same time, pure free speech is not as a clear given right in Europe versus the US.

Nuno

The Digital Services Act, Digital Markets Act, we’ll see what’s the impact of that and how that ripples, for example, in the US as well. Because we know that sometimes the US, certainly some states like California, tend to go and look at what the EU has done and see, “Oh, maybe is there something there we can do.” We’ve seen that, for example, with privacy laws in the past.

Bertrand

Indeed, California is so big as an economy, and it’s so hard to make an exception for California when we use such services or when you propose products online that you might be forced to basically be regulated by the first state ready to regulate until Congress comes with more federal-level regulations.

Nuno

Maybe to finalise the recap on 2023, on the neutral side, we’ve already alluded to a couple of these points, but public markets have been up and down, but overall they’ve been okay. Then valuations have come down in public markets. Less down on the private market side, in particular in early stage, and I expected it. As I said, I’m not sure there’s a delay here or if it just will not happen at all, but we haven’t seen really the dramatic decreases in valuation.

Nuno

As I said, there’s been definitely more down rounds and flat rounds this year for sure. The data is showing that. At the same time, the deaths of companies have been not as much as I would expect it. I know I’m probably just wishing for the worst, but I’m not. I just expected that to be a little bit more companies failing that would have difficulty in raising, that really hasn’t happened at the scale that maybe, at least, I predicted.

Bertrand

Yeah. Valuations went down in late stage. It went down more strongly. What has also probably helped is that there has been a lot of investors willing to provide bridge financing, trying to bridge the gap if valuations would have been too harsh for a new run led by new investors. That has helped buffer, but it’s not clear it will be there for next year.

Nuno

Overall, Bertrand, what’s your verdict? Was this a positive year, neutral year, a negative year, something in between, slightly negative, slightly positive? What’s your view?

Bertrand

I would like to say I was in a way positively surprised that it didn’t go worse, but definitely the new war in Israel, the bad economic situation in China, that’s tough ones. I would say overall was probably slightly positive on 2023. AI is definitely, at least Generative AI, LLMs have been very game-changing, and it’s always amazing to see so much innovation happening all at once.

Nuno

I agree with you. For me, it’s a slightly positive year. It’s been a super weird year. Super weird. A lot of different signals coming from our very noisy, very complex. Slightly positive, definitely above my expectations for 2023. In some ways, on the more micro side, a lot driven by AI and the fact that that has probably pulled the private market and the early-stage private market up in terms of funding unduly so and also in valuation. That might have been the pushing of the boats up that we didn’t quite anticipate for this year.

Nuno

On the macro side, in general, it’s been okay. No real significant recession. Obviously, we’ve seen recessions in some specific industries, but not like an overall macroeconomic stage.

Nuno

The war in Israel and Palestine is not just a tragedy, a human tragedy, which is the biggest of all tragedies, but also it’s just but coming at the time that it did, it’s just… We’ll see what happens next year. This was not good. It will not be good for a long time. Besides, as I said, the most important piece, which is the human tragedy.

Bertrand

Sometimes I have the impression that the macro side of the world was on pause for a decade or so, and these big natural disasters were on pause. No, the real world is coming back with a vengeance in some ways.

Nuno

It’s not Black Swan anymore. If they are happening all the time, they’re not Black Swans anymore. It’s like we’ve had three years and a bit of things that we would say are Black Swans. We’re just like, “They’re not now happening all the time.” A Black Swan now would be a time of prosperity and peace? Would that be a Black Swan? I guess. I don’t know. It’s just very sad to see where we are when it comes to wars. Obviously, we had the pandemic. Wishing for the best, wishing that we get out of this.

Bertrand

Let’s not forget also that these wars are the ones on our radar because of where we live, who we are. At the same time, there has been some wars killing lots of people, happening for years. We should not forget about that either, even if they were not on the first page of most newspapers.

Nuno

We do not wish to underplay any wars or military conflicts that are happening all over the world, some of them, as you said, for quite a long time. Moving to 2024, what do we expect? Let’s start at macro level, election year in the US. This is going to be fun.

Bertrand

The fun is back. It will be this year, this election year, 2024. I don’t know how it’s possible to imagine even more big titles in the press, on Twitter. Next, I don’t know how more divisive it can even become, but I guess it would be all the time. It’s for people in the US, we will keep hearing about it. It will have, just to be clear, a very significant impact on end of year 2025 because as we just discussed, every executive orders can be rescinded in a day.

Bertrand

Typically, new president means, “Let’s rescind as fast as possible what my predecessor did.” Where he can do it easily. There will be the question of what will this new Congress look like? There will be a lot of question marks or a lot of bets waiting to see what’s going to happen. Maybe some decision will wait this year until end of year.

Nuno

We have everything happening for the nominations for the Democrats and for the Republicans beginning of the year, right up to mid of the year. Then we have election in November 5th, 2024. We’re going to have a lot of media cycles and all of this stuff. We’ll see what happens.

Bertrand

Then weeks of opening the ballots.

Nuno

Then weeks of opening the ballots. Then when the election happens, we know something is going to happen. We know that something is going to happen because last time something happened, and we know that something is going to happen. Something’s going to happen. There’s going to be fights on both sides. There’s going to be questioning the votes and fraud. Was there fraud? There wasn’t fraud. Close election. It’s going to be, again, a mess of epic proportions. We are interested in seeing what happens.

Bertrand

Yes. Let’s hope for a good election. As good as it could be.

Nuno

Let’s hope for no violence. Let’s hope at least its words this time around, there isn’t actual violence and stuff happening. I laugh not because this is funny, I laugh because I hope for the best.

Bertrand

Let’s hope for the best. Of course, there is a question, can China go back to growth and growing faster than the US? That would be a big question. I certainly hope for China that it grows better and find a better path. I cannot say I’m very confident at this stage. Looks like some problems are pretty endemic. It’s been maybe two decades and decades we talk about the level of bad debt that has been issued in China. That has been rolled over for years. It looks like it might be the time where all of this is not working anymore. I would say some policies in China have not been business-friendly at all to say the least. I’m not super positive economically. I hope it changed the action, but I’m not positive.

Nuno

At least let’s hope that the discussions we have about China are around economy. That we have no other discussions around China around something else. Like military stuff. Let’s hope it’s economic discussions around China and what’s happening around China economically and how the relationship with the rest of world is going, et cetera. That would be a good year, 2024.

Bertrand

Yes, that would be the question. It’s probably more and more clear that the world is becoming more multipolar. It’s not just the US leading the world, but China as well. What does it mean? Does it mean that we have more conflicts happening over the years? Azerbaijan seems to be pretty restless. Serbia could be restless. Hopefully, nothing happens around Taiwan. It’s not clear where the next one might come from, and hopefully nothing comes. It feels like there are quite a few possible hotspots for next year and beyond.

Nuno

As I said, we’re not experts in geopolitics or military advancements or wars. We are definitely not your source of truth on that. The strategist in me says, I mean, if we’re having a hotspot in the Middle East, if we have the hotspot around Eastern Europe into Central Europe, I just hope there isn’t anything funky that happens more around those regions because at some point this becomes propagated and everyone keeps saying, “Hopefully no world war. No world war, no allies versus whatever.” Let’s hope that we get to peace. As I said, sustainable peace in these places. That’s the wish that we don’t have more conflicts next year. Obviously, there’s a significant amount of risks there.

Bertrand

Yes. Of course, all of this has an impact on the business world. That’s why we talk about it. Rates, higher, longer? That’s the big question?

Nuno

Hopefully not. Hopefully, there will be cuts. Hopefully, we’ll see cuts in rates and things will go back to normal a little bit. It’s a bit silly. No?

Bertrand

I don’t know. I’m definitely worried that there is still some price pressure on salaries, on rent. We have seen bargaining from unions. We have unions who sign 40% salary increase over four years. That’s what happened in Detroit. They were even higher increase of salaries negotiated within airlines.

Bertrand

This is going to hit and I don’t think they will be the only one to realise they can collectively bargain. We got Hollywood also going on strike. I’m pretty worried that there are some elements that are not going to make it easy to go back to 2% inflation, which used to be the target. I don’t know. It’s tough for me to say for sure. There will probably be less demand. That should help. At the same time, it’s not clear that some root cause of inflations will really be taken care of. And are not already deeply embedded for the next few years.

Nuno

We’ve had the discussion around recession for a while, as I said in one of the previous episodes that I’ve now given it away because it’s been over a year that we’ve been talking about it and it hasn’t happened. There’s still some doubts whether it will happen next year. Overall, actually, we’ll have economic recession in countries like the West or other parts of the world. It doesn’t look like it.

Nuno

Growth is still really nice and healthy. Will there be recession, for example, in retail? The big reckoning. People went back out, they started buying things, they started doing things. Now everyone’s like, “Oh, wait a bit. Maybe we need to save a bit now. We’re not all going to die. There isn’t going to be a pandemic, hopefully, anytime soon.” That’s still areas of great risk. Will we see recession in specific spaces or not? This economic stability, will it start to propagate into 2024 and we’ll have a nice uplift through the year?

Bertrand

Yeah, there are some ominous sign in terms of credit card default. Of course, credit card rates depend on the overall rates from the Fed. They are higher than ever, which just in itself increase risk of default. It seems clear there is some economic weakness, at least from some groups, and that might trigger a retail recession. Obviously, we know pretty soon because Thanksgiving is coming, Black Friday is coming, end of year is coming. We’d have a big visibility on Q4, which is a huge indicator that every retailer is following. In a way, we will know very soon.

Nuno

My belief is this year was going to be strong. I have questions about next year. We’ll see what happens next year. I believe this year is going to be strong. It’s a year of people going back out. To your point, default has increased. We see that with businesses as well. I don’t mean businesses having a bad debt, increase in tax liens, and a couple of other things that are happening in the market.

Nuno

Things are not as rosy as they may seem. There is a lot of propagation here of economic growth that is really induced by leverage. By people borrowing or using their credit card. Businesses borrowing as well and using their credit card. I don’t think the reckoning is going to happen anytime soon, but there might be reckoning next year. Let’s keep fingers crossed on that.

Bertrand

I was reading that car loans were very bad. That car repossessions were at all-time high. People have trouble to pay some of these big loans, pay them back. It’s a bad indicator. Let’s see.

Nuno

In terms of tech, hopefully, we’ll have public markets coming back and so there will be more IPOs next year and certainly more successful IPOs next year. Probably not early in the year we’ll see. That first quarter into second quarter is always a good proxy, but maybe later in the year.

Nuno

We think likely there’s going to be certainly more M&A, maybe even more mid-market and high-market cap M&A, so big deals. Although it wasn’t a bad year. I mean, it was a bad year in terms of volume and obviously overall scale. Certainly, we had some big blockbuster deals as well, as we discussed in the last episode.

Nuno

I hope the valuations will realign a little bit more that we go to a market where the norm is now a little bit different, that the norm is not, “You’re coming out for a CFC, you have to be at least worth 20 million plus money.” That’s not normal. Hopefully, there will be a further realignment there. I also do hope that there isn’t a full implosion of valuations, because if there is a full implosion of valuation, it means that the market has just gone nuclear for a bit. Certainly the early-stage market.

Nuno

Something in between we think would be good. The current signals we have lead us to believe that’s a possibility at the very least. I won’t make any prognosis in it. Those two markets for me are interesting. What happens to public markets, IPOs, M&A, and then what happens early-stage valuations is pretty important and pretty vital for the health of equities in general.

Bertrand

Yes. I don’t have anything to add here.

Nuno

Cool stuff. Regulation and tech, we think there’s going to be more, right?

Bertrand

Whether you like it or not, whether you want it or not, there might be more.

Nuno

It’s likely going to be more. You’re going to have more stuff next year and more enforcement. Fingers crossed on that. Let’s see if we don’t destroy innovation through it all. At the same time, both of us have manifested that in the past. I’m speaking for Bertrand, he can speak for himself as well. Certainly, I do believe that there was more regulation warranted in technology, and certainly in consumer protection, privacy, and all that stuff. There’s definitely a few areas where we definitely need more protection.

Bertrand

There is somewhere we need and somewhere it feels like really way too early. Pick AI, for instance. AI is doing some great stuff, but SQL database were great 40 years ago. Did we started to regulate SQL database once they started? No. Actually, that’s raising a lot of questions. Do you regulate the core technology or do you regulate the application of the technology? If you need any regulation at all, I would definitely go in the later camp of regulating the application, not some core technologies.

Bertrand

That gets me really worried that that bright, shiny spot in the US and maybe around in the world has been tech. Because tech is basically today, it’s not as if there is population that keeps growing. If you want to keep growing GDP, you need to keep increasing efficiency and productivity. How is it going to happen? Mostly through technology development. If you destroy that pillar of growth and it’s really that one pillar of growth, then it’s going to go bad. I’m very worried we are regulating before it make any real sense because it’s just too early, too young. You don’t know where it’s going.

Nuno

It’s a good segue to precisely AI. We’re trying to regulate AI. We’re trying to regulate the technologies and not their application or interfaces, et cetera. We’ve talked about that in the past as well. Shouldn’t you focus on the interfaces and the apps? Shouldn’t you focus on what can AI do rather than what is AI?

Nuno

We know regulators are not well-educated in technology understanding. I mean, they can’t be. That’s not their role. Just applying it to technology is not the way to go. Understanding what the implications are, understanding what the use cases are, understanding what the interfaces are, and then having some regulation and boundary conditions around that, I do feel is necessary. Hopefully, better thoughts will prevail.

Bertrand

I certainly think it’s way too early. It’s going to hurt the economy, it’s going to hurt innovation. My take, some winners will be the countries who are regulating less, not more. That’s a danger because it means it won’t be innovation in the US or in Europe, but it might be in other places.

Bertrand

Maybe one point I personally think at this stage, regulating AGI before it even happens is crazy. I’m very, very sad to see some people creating fear, uncertainty, and doubt. It’s not a new thing. It’s way too early. It makes strictly no sense. We have some really, really more scary things that could happen before we think about AGI.

Nuno

We’ll have the Vision Pro next year, which we discussed in the previous episodes as well, and special computing. Do you think it’s going to be the rise of special computing next year? Or it’s going to be just, we’re all going to be marvelled, but still not at scale?

Bertrand

It’s clearly not at scale. I mean, the price is very expensive at 3.5K USD before taxes. It’s super expensive for something it’s not clear there is value for most people. There is value, just to be clear. I believe there will be some value. The question is how much? For how many people? Which segment? It will have to be very significant value given that price point.

Bertrand

It’s more, in some ways, some baby steps towards a bigger role for special computing and VR in general. I mean, special computing is a word used by Apple to not say VR. They probably believe for maybe good reason that it has some bad connotation, VR, AR. At the end of the day, it doesn’t truly change what it means.

Bertrand

I’m excited. There will be more competition. There will be more innovation in the space once Apple is a clear player and you see what you can do with it. I would call it more a developer year maybe, but I have some hopes that in the next three, five years, it will have more significant impact. As big an impact as mobile? I don’t think so, but a significant impact, at least for some geographies and some use cases at some point.

Bertrand

Another point, we just got the second flight of SpaceX Starship. Pretty exciting, but it’s sad, honestly, to see how the mainstream press treated that like, “Oh, yeah, it just exploded after a few minutes.” Showing either a click-bait approach or a lack of understanding of what’s going on. You have to make trial and error. There’s never a big new rocket working without that. If it was not a pass you have to go through then everybody would already be there, I guess.

Bertrand

It’s impossible to simulate perfectly everything that happened in these extreme conditions. We simply don’t have enough data to model that properly. It’s normal. It’s a cost of doing business. I would say you have more to congratulate each time it’s going better. The second flight seemed to have done way better than before because it went to separation between the launcher and the Starship itself.

Bertrand

I would say exciting times. Maybe 2024 might be the year where the cost of space has been transformed dramatically. We are talking about that 10X range. We will see exactly where it lands. If you have a 10X difference in the cost of space, many things will be different.

Bertrand

It will be new startups, new venture, new opportunities. It’s going back to the Moon, it’s going back to Mars at some point. Personally, I’m pretty excited and looking forward to see sometime probably in ’24, a successful Starship. From there, I guess improvements will be swift.

Nuno

Absolutely exciting times. I mean, space exploration, et cetera. If all else sadly goes to hell and we mess up the whole AGI thing, then hopefully we won’t take the AI agents with us.

Bertrand

Don’t take the AGI above the Starships, but given the AI inside every Tesla car, maybe that would be big AI.

Nuno

Maybe we will just stick it with us.

Bertrand

Maybe they would just leave us and who knows?

Nuno

Same question for 2024. What’s your expectation? Is it going to be positive, marginally positive, negative, neutral? Versus this year?

Bertrand

I would say I’m quite hopeful that from a pure technology perspective, we will see more and more progress. More progress in AI, more progress in access to space, to Starships, and the Vision Pro really changing the landscape, and its competitors changing the landscape in visual, spatial computing, and VIR. On the macro side, I’m probably more concerned about where it goes.

Nuno

Agreed with you. On the tech side, in terms of core technologies, in terms of the venture capital, entrepreneurs, startup landscape, public markets in general very hopeful and looking forward to a positive year. On the macro side, who the hell knows what’s coming next? I just hope nothing. I just hope nothing and that the current conflicts get sorted. Just that nothing would be great.

Bertrand

At the end of the day, what it means is let’s keep building and focus on building cool stuff because this is working as long as it’s not over-regulated. Let’s hope for the best for the rest.

Bertrand

This concludes our Episode 50 around what happened in 2023. We talk about the positives and negatives and what we would expect to happen in 2024 from a macro perspective and from a tech perspective. Overall, 2023 may be better than expected. 2024, certainly big hopes in term of technology evolution, but big questions on the macro side. Thank you, Nuno.

Nuno

Thank you, Bertrand.

View Details

What is an exit? You need to sell your company or sell some of your shares? How is the market for that, right now? All things M&A, IPO, Secondaries, etc.

Navigation:

Intro (01:34)
What is an exit? (02:17)
Stats on M&A and IPOs (17:50)
What’s ahead? (42:02)
Conclusion (59:48)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show:

Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news

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Bertrand Schmitt

Welcome to Tech DECIPHERED Episode 49. This will be our Exit episode. What do we mean by exit? Exit, it’s really when you need to provide liquidity to your shareholders. It’s when you sell your company as a whole. You sell some shares in a public market, meaning that ultimately that will provide not as fast liquidity as getting acquired, but will provide liquidity for those that want to leave the business as shareholders in a gradual way. In this episode, we are going to talk about all things M&A, IPO, secondaries. But let’s start with more details about what is an exit.

Nuno Goncalves Pedro

More generically, an exit is on the eye of the beholder. An exit for a company, as you mentioned rightfully so, is the sale of normally most of its stock. It could be not all of the stock; sometimes it is all of the stock. It could be a sale of most of its stock or the taking that stock public in some way.

Nuno Goncalves Pedro

We’ll come back to this notion of what selling stock means, but in general, selling stock, even when you go IPO, there is a selling of stock. There is a transformation of stock in some way. But it could be for an investor. What is an exit for an investor? Or what is an exit for a founder of a company? In that case, I would say an exit is, again, when you sell the majority of your stock that you have for that specific entity.

Nuno Goncalves Pedro

For a founder, it would be, “I’m selling most of my stock in that company.” For an investor, “I’m selling most of my stock in that company.” We could then basically say, is it a full exit or not? But it’s an active element of liquidation at scale. For me, takes into account majority. It takes into account that the majority of what you put or that you have, you’ve sold. A liquidation means you’ve liquidated part of your position. It could be actually a very small amount of stock. That is the definition of exit and the definition of liquidation.

Nuno Goncalves Pedro

There’s different types of exits and elements of liquidation. There’s mergers and acquisitions whereby two companies—normally it’s two companies—come together as a merger. We always talk about this notion of mergers of equals. There is rarely mergers of equals. There is always one party that is slightly bigger than the other. Even in the case of a merger, there is one party that in some ways is acquiring the other. Then there’s straight-up acquisitions, the ability for a company to acquire another company and take over that company. That’s M&A.

Nuno Goncalves Pedro

In M&A, normally the majority of stock is taken by the acquirer or by the entity that is merging that is slightly larger than the other one. There’s what we call a change of control. The entity that got sold is now taken by the new entity or by the entity that bought it. That’s a change of control. A lot of people know the sexier type of exits, which is IPOs.

Nuno Goncalves Pedro

An IPO stands for initial public offering. It’s an offering of stock to the retail market, to the public market. Why it’s the public market? Because people like you and me and people that necessarily are not accredited investors can actually invest in public markets. It’s what we call retail markets. Anyone can invest in it in effect. There is no limitation for me to invest in that market. Whereas in private markets, we have the notion of accredited investors. We won’t go a lot into that, but we can explain that at some later episode.

Nuno Goncalves Pedro

In public markets, it’s retail, so the public can buy. What that means is there’s a portion of the company that is so-called floated onto the public market so that the retail investors—anyone really—can buy stock in those companies. It ends up happening when there is an IPO that there are large players that take large amounts of stock in the companies, institutional investors, for example, other types of players in the market, hedge funds, and other such entities. But it’s again, a market that is open to the public. Anyone in the public can buy stock in that market and in what is floated.

Nuno Goncalves Pedro

Maybe one or nuance, and we can go back and forth on different types of approaches to the exit, is secondary transactions. This is particularly true in private market. Secondary transactions as opposed to primary transactions. A primary transaction is when, for example, a venture capital firm is leading a new round in the company. What ends up happening is there’s issuance of new stock in that company. There’s issuance of stock that gets purchased at a certain price by these new investors that come onto the company. That’s a primary transaction. I’m getting stock in the company, but that the stock is effectively being issued.

Nuno Goncalves Pedro

A secondary transaction is that there’s stock that’s already been in the hands of someone. It could be an investor, it could be a founder, it could be someone inside the company, and that person or that entity decides to sell that stock to a third party. That person or that entity owns stock and decides to sell that stock to a third party.

Nuno Goncalves Pedro

We normally mention secondaries only, again, in private markets. It’s basically, let’s say, I have 5% in this startup, I’m a founder, an early founder, maybe not the founder-CEO, but one of the early founders and I want to sell 1% of my stock or 1% out of the 5%, so basically 20% of my stock holdings to a third party, and I’m allowed to do that. There’s a party that comes in and acquires that stock for me. They take that percentage from me and they take the rights that I have in that stock with that. That’s called a secondary transaction.

Nuno Goncalves Pedro

Why is secondary transaction is becoming more interesting? Because of what I just said. Because entities or individuals at a certain point in time want to generate liquidity, but they don’t want to necessarily generate liquidity on all of their stock. Or if you are a venture capital investor, by definition, normally you’re a minority investor in the company, you want to sell a part or all of your stock but the company is not necessarily entering into a M&A transaction or IPO-ing or getting into public market. It’s another vehicle for you to actually effectively sell your stock, liquidate it, get money in return without necessarily the company having to go through a change of control type scenario, be it an IPO or be it an M&A transaction.

Nuno Goncalves Pedro

That’s why secondaries are so popular. They’re popular for investors. They’re very popular, obviously, for founders who get some liquidity for them to buy their homes or buy a car or get married or do whatever they need and they need cash. Because in many cases, founders are very badly paid. They don’t want to sell all their stock holdings in the company. They want to ride that wave, but they do want to have a little bit extra liquidity to live a daily life. Secondaries have become quite popular.

Bertrand Schmitt

Maybe to add to this, one reason secondaries became popular is because it has been taking longer and longer to go public. We have seen that the average age of a business to become a public company is around 10-12 years to IPO from funding the business. It means it can take a while that you get some liquidity for your shares. Again, once you’re IPOed, it’s easy to just sell a portion. You might not want to sell everything as a founder, but if it takes a long time before you get to this liquidity option, then secondaries can be a great stop bit not just for founders. It can be a great stop bit for execs, for team members, for employees.

Bertrand Schmitt

The bigger the business, the more everybody could end up being involved in a secondary. Each time a private company is a huge success, you will see actually pretty significant secondary offering programs because the need is there to sell and there is also market to buy if you are already successful company.

Bertrand Schmitt

Maybe another point to touch quickly as well is concerning IPO. It’s considered the graph for a lot of companies, founders to go through that because it’s a way to provide liquidity to your investors. Typically in a startup, VC business, you have to provide that liquidity. You get money in exchange of, at some point, the ability to get your money back and hopefully more than what you put.

Bertrand Schmitt

But with an IPO, it’s a way to provide liquidity to your investors. But it doesn’t mean that you end up being forced to yourself, liquidate your investment and sell to somebody else. With IPO, you can keep going your own way, your own path. Usually, that’s also typically the most rewarding path if you are a great company. Most of the great technologies companies end up being public companies and went through an IPO process.

Bertrand Schmitt

Maybe one more step is that at the same time, the IPO process has become more and more complex, more and more expensive, probably more difficult to go through, especially during this period, 2022, 2023. It’s a pretty highly random process. Sometimes the IPO window itself is closed and might be closed for two, three years plus, not easy to time.

Bertrand Schmitt

The other piece is that it costs a lot. It costs a lot of legal fees, finance, diligence. You don’t start selling to retail investors so easily. They have to be protected. You have to follow a lot more regulations because you have to assume your new shareholders are not just going to be accredited investors like business managers or VCs, they’re going to be retail.

Bertrand Schmitt

There is a lot more regulations. One could argue it might have become actually too onerous. Maybe that’s why we have less and less actually IPO and public company as a whole. That means that for many founders, actually, IPO might not be considered the best exit, or at least it’s delayed until it’s becoming more and more inevitable because you have too many shareholders in your cap table because it’s been too long since you got investment and that’s the best way to find liquidity. It’s not an easy path.

Bertrand Schmitt

Maybe last point, you have to be big enough in order to do an IPO. The old rule for an IPO is to really target to be at least a billion-dollar company at IPO. Why a billion-dollar company market cap? It’s because you want enough float, you want enough liquidity. And in case of a downturn, either a downturn in the general market sentiment or because you don’t deliver good results, there is some slack you have before going to a $500 million threshold, more or less, where below that it’s becoming very difficult to justify being a public company.

Nuno Goncalves Pedro

Let’s unbundle this a little bit. Some of what you said is absolutely applicable to any type of IPOs in the world. The regulatory environment, the fact that you have to have reporting back to investors in general to public markets, so you have to divulge information in a public manner that anyone has access to. There’s obviously a lot of different elements that are true when you become a public stock, as you mentioned quite correctly, Bertrand.

Nuno Goncalves Pedro

When you start talking about valuation, you need to be aiming at it because you’re a billion-dollar company, etc. We’re talking more about the American Stock Exchange market, New York Stock Exchange, Nasdaq. Nasdaq is obviously normally more linked to high tech. New York Stock Exchange was historically more linked to industrials, but it’s not true anymore. New York Stock Exchange also has tech companies today as well in there. There’s other stock exchange in the US that are a little bit smaller, but these are the big ones. You want to be a New York Stock Exchange company or you want to be on the Nasdaq. That’s basically it.

Nuno Goncalves Pedro

Obviously, there are other stock exchanges around the world. The London Stock Exchange, the bar is different. Within the London Stock Exchange, there’s always aim to serve for smaller vehicles and smaller plays in the market. The Tokyo Stock Exchange is the median and average valuation of a company when the IPO is actually not very high in general. There are some really large companies, but in general, the IPOs in the Tokyo Stock Exchange are much smaller. We have ASX, which has done a lot of movement—that’s the Australian Stock Exchange—in recent years, which obviously much smaller IPOs.

Nuno Goncalves Pedro

Although it holds true that obviously the onus reporting to public investors and retail investors, etc, is much higher, it also very much depends on which stock exchange are you going to go for. And we have seen people and companies that IPOed in specific stock markets, and you’re like, “Well, but it wasn’t a very significant IPO.” Again, Nasdaq, New York Stock Exchange, even within Nasdaq and New York Stock, depends on the reg that you’re coming on under. But obviously, Nasdaq and New York Stock Exchange are the holy grail, to your comment earlier.

Nuno Goncalves Pedro

Then there’s other stock exchanges around the world where it might be that you’re a large-cap play in that market. We have a large capitalization and you’re a very large company in that stock exchange, but those stock exchanges normally are smaller. They have less volume, they have less transactions, there’s less depth in it, etc. Again, you can IPO and still not be a huge success. We’ve seen companies IPO very early in their history and not be a huge success. At the same time, you could have a case where you IPO with a small valuation and it doesn’t appear to be a great valuation, but it might be a great outcome for your investors.

Nuno Goncalves Pedro

My first investment was in a company that IPOed on the Tokyo Stock Exchange, more specifically on the mother side of that. It was a very small valuation when they IPOed, but it was a great return for everyone involved. It provided liquidity—to your point—to all of those that wanted to have liquidity, which is great. Again, a little bit of nuance around that.

Nuno Goncalves Pedro

One final piece on the secondaries. I didn’t want to lose this point. It’s a really hot market for secondaries right now. The reason for that is when you start having realignments and valuation in the market, what ends up happening is you have a lot of private investors in particular who hold stock in companies that are not worth what…

Nuno Goncalves Pedro

In some cases, they paid for it or that are in need of liquidating their positions or part of their positions to move their cash elsewhere to compensate, for example, for public equity losses, etc. This right now is a great market if you’re in secondaries because there’s a lot of activity. There’s a lot of players that want to buy stock actively that want to get into the market and think they can get great discounts because people just need to liquidate and get cash out. Very, very interesting market.

Nuno Goncalves Pedro

It’s a market that happens… The secondary market has developed a lot over the last 10 years, and this is probably the first bump on the road in markets that is dramatic where there’s a lot of arbitrage. Very exciting market to watch right now.

Bertrand Schmitt

You’re absolutely right that it depends on the market in terms of valuation you’re looking for. I was more thinking, in general, of what are the expectation of your typical big tech VC investor in Silicon Valley and what type of clothes they would put in your investment. Typically, they would only recognize and agree to some IPO by default. If you reach a threshold in terms of market cap, they would only recognize some stock markets, not all of them. They put some constraints typically on you.

Bertrand Schmitt

Maybe another type of exit we didn’t really touch yet is the acqui-hire type of exit. This one is very, quite different. Typically, you’re still a very small company, 10, 20, 30 employees. You never managed to get to good product market fit and a real acquisition is not really on the table. However, some big tech companies, especially when times are hot and they are looking to hire quickly, they might believe that hiring a team that is focused on a topic of interest for them might be a shorter path to success for them.

Bertrand Schmitt

Obviously, in markets like this, when big tech is firing people like it has been for the past 18 months, this is probably not the best season for acqui-hires. But this is the type of opportunity that might come along and might be an acceptable outcome, even if it will not provide a great return or even a return to investors.

Nuno Goncalves Pedro

It’s still an acquisition. It’s still normally the business gets purchased or part of the business or the IP gets purchased. But to your point, the mindset is not the acquisition of the business or the IP. It’s the mindset of acquiring resources, normally specific resources. It might be engineering talent, it might be the founders of the company. Although most acqui-hires are very small—to your point, a couple of million dollars, maybe 10, 15 would be already a very nice acqui-hire—we’ve had some incredible acqui-hires in my point of view.

Bertrand Schmitt

Which one?

Nuno Goncalves Pedro

Yes, we had Marten Mickos with Eucalyptus for HP. We had—I forget the name of the company—Diane Greene’s company to Google so that she would become the CEO of Google Cloud. That was a huge acqui-hire. Probably Diane wouldn’t agree.

Bertrand Schmitt

Very rare.

Nuno Goncalves Pedro

But I feel that was the play. The play was, “Let’s acquire this company so we get our next CEO or we get our next EVP or we get whatever.”

Bertrand Schmitt

Probably right.

Nuno Goncalves Pedro

You pay a lot for that. But in general, to the point that Bertrand was making earlier, acqui-hires are much smaller and investors in some cases don’t even make their money back. It might be they only clear their principal or even get cents on the dollar, but it’s the exit of the company. It’s a path forward for the founders, for the team.

Bertrand Schmitt

Yes. Let’s provide some stats about all of this. Let’s talk about some more recent acquisitions and IPO. First, there was a number that was pretty dramatic early this year, the year-over-year. If we look at Q4 2021 versus Q4 2022, there was a 94% decrease of M&A. Basically, it has been a pretty damn catastrophic M&A market since some time mid-2022. That’s when the market started to turn and to go very negative. I’m talking about the startup M&A market, not existing big tech companies, but more recent tech startups. This was a pretty bad number.

Bertrand Schmitt

2023, I don’t have the latest number, but it’s just focused on startups. It’s probably a bit better, but I don’t think it has been great either.

Nuno Goncalves Pedro

This is a bit anecdotal. We don’t have all the data behind it. But from everything I’ve been hearing, it has picked up midyear into quarter three, but it’s still very much the low-cap market, the small-cap market, smaller acquisitions, etc. We’ve had a couple of big ones, which we’ll talk about in a second, a big headline M&A, but certainly it’s been the small size of the market that is picked up.

Bertrand Schmitt

Yeah. If we talk about some of the startup M&A, the biggest one, and it was last year actually in 2022, was the acquisition of Figma by Adobe. This one was a $20 billion acquisition while Figma was still relatively small, highlighting how desperate probably was Adobe to do this acquisition. You don’t typically do that if you believe you can get away with this competitor or you can outbuild them. This one is not yet over. Obviously, there is some regulatory approval needed and the bigger the acquisition, the more time it takes, the more risky it is. Again, not yet approved and this was initiated in 2022. Do you have more comments on Figma?

Nuno Goncalves Pedro

I think it was a great exit for everyone involved. We’ll see how that will pan out in Adobe’s landscape. The word desperation is maybe well-founded, I don’t know, but it allows them to really get into the creators environment at scale, which I think Figma was incredibly well-positioned in. You could argue it was overpayment. These things you only know after a long time.

Nuno Goncalves Pedro

We all said back in the day that WhatsApp was usually overpaid, and now you’d probably argue that it wasn’t for Facebook. So who knows? It feels a little bit like overpaid. The granddaddy of them all was the Microsoft one, right? That was started beginning of last year, the acquisition of Activision.

Bertrand Schmitt

Yeah, I was focused more on startups, but yes.

Nuno Goncalves Pedro

Yes, that was not a startup. That is correct. Activision was not a startup. But that was $68 billion, I believe, and it just closed last month, was that it? So it took almost two years to close.

Bertrand Schmitt

A good year and some level of fight to go through.

Nuno Goncalves Pedro

And a lot of fighting. Back to the startup’s point. Figma, I think, was a very interesting acquisition. I feel there’s a little bit of overvaluation there. Let’s see how it pans out. The acquisition of MosaicML by Databricks is another significant one at $1.3 billion. Obviously, the shoring up of AI capabilities by Databricks and taking it to the next level, amazing exit. I know some of the investors there on the Mosaic side. Pretty amazing exit there.

Bertrand Schmitt

They just raised $64 million. I guess it was not too long before selling the business. It’s an amazing outcome. One of the first, I would say, new edge AI type of acquisition to go through.

Nuno Goncalves Pedro

Exactly. Great returns, I’m sure, all around for all the core investors across the board. Then Loom by Atlassian for, I believe, $800 million?

Bertrand Schmitt

Interestingly enough, there was some level of controversy by some journalists, especially TechCrunch. I think it was more like 975 million sales actually. It was crazy how it was looked negatively by some journalists. Basically, the point of the journalists, that’s where you see that they didn’t understand why the tech business, that they say it was bad because the last valuation was at 1.5 billion.

Bertrand Schmitt

Basically, they saw less at the last valuation at which they raised their last financing, which was for 130 million financing. But at the end of the day, it doesn’t really matter as long as you are selling way beyond everything you raised.

Nuno Goncalves Pedro

They raised what, 200 million? They had raised, I believe, a bit over 200.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

That’s what they needed to clear on the principal side from investors. They cleared well above that to your point, 975 million.

Bertrand Schmitt

Exactly. That’s my point is that if you sell way beyond 2, 3, 4X more than what you raised, everyone would be happy. Yes, there might be anti-dilution clause, there might be that and stuff because it was below the last valuation. But ultimately, most investors will make great returns.

Nuno Goncalves Pedro

Well, the early-stage guys will likely make silly returns.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

The late-stage guys, not so much.

Bertrand Schmitt

Not so much. But you could argue not so much, but they would have done probably worse in the public market as well. It’s also a question of what is your benchmark. It’s too easy to talk about returns in absolute. It’s always relative to your other opportunities and your sector of expertise.

Nuno Goncalves Pedro

If the $130 million, the guys put in, I think, the last $130 million in clear 2, 3X, that’s actually probably not a bad outcome. That’s pretty good. Obviously, the early-stage guys could probably a lot more than that, even after dilution.

Bertrand Schmitt

The funders probably had an amazing return, an amazing exit. Most employees got great returns. I would say another group that probably didn’t get what they wanted was probably the late employees. Late employees, their stock options were probably at a discount of the last valuation, but still how much of a discount? We don’t know. So maybe for them, it might have been a wash and not a special exciting outlook.

Bertrand Schmitt

But again, what is your alternative? What would have been the other business you would have been in? I would say on and all, given the market circumstances, it was an amazing outcome for everyone involved. I think the lesson for everyone is to be careful when reading some analysis from journalist. I guess you have seen these days as are pretty hard on tech for, in some cases like this one, absolutely no good reason.

Nuno Goncalves Pedro

Maybe moving to the big blockbuster non-startup acquisition, to your point, I’m not sure Figma was a full-on startup, but anyway, let’s say they were. Loom will probably wasn’t either. But we talked about the Microsoft one. The other big one obviously is Splunk. It’s a huge acquisition, a public company already 28 billion by Cisco. Announced, not closed yet to be clear, but huge.

Bertrand Schmitt

It’s huge. I would say that Cisco has probably a mixed track record of acquisitions. They did some that were turned amazing and some that were a total flop. I think you might remember that camera company that got acquired a year before the success of the iPhone or something and became a total absolute flop for Cisco. They have a mixed track record and it’s not easy for Cisco. They are more and more in the mature business, so they need to reinvent themselves.

Nuno Goncalves Pedro

Was that flip video?

Bertrand Schmitt

I think so, yes.

Nuno Goncalves Pedro

Cisco are the… I mean, just to be very clear here, they’re the grandaddies of two things at scale, M&A.

Bertrand Schmitt

Tech M&A.

Nuno Goncalves Pedro

They, for a long time, had the best playbook in tech M&A around. If you go back to the ’90s, early “naughties,” when you were thinking about tech M&A, you’d look at guys like Microsoft and them.

Bertrand Schmitt

Indeed.

Nuno Goncalves Pedro

This is before Google scaled, and now obviously Google has become a great case study or has a lot of great case studies around M&A. But they were the granddaddies, and they were also the grandaddies of corporate venture capital. Maybe after Intel Capital, but certainly relatively early on.

Nuno Goncalves Pedro

A lot of the people that led corporate venture capital at Cisco and had significant roles there went on to become some of the top investors in today’s world, like Mike Volpe at Index. He was a Cisco guy, if I’m not mistaken. It’s pretty amazing track record. To your point, not all of their M&A has been amazing recently. We’ll see if these new playbooks work. We’ll give them the benefit of the doubt, but let’s see if it works.

Bertrand Schmitt

I agree with you. 20, 30 years ago, they were considered amazing, best in class. The reference on how you acquire, I mean, the playbook integrating businesses, from what I’ve heard, are nothing short of amazing. They really not only built a machine to buy, but a machine to integrate and to get value out of these acquisitions. The past 10, 15 years, I think it was more mixed, but definitely wishing them the best.

Bertrand Schmitt

Going back to Microsoft, it’s a pretty interesting one because you could argue that in some situation, it’s becoming harder and harder for some of the biggest tech companies, especially the Microsoft, Google, Apple, Amazon, Facebook of the world, NVIDIA as well. The fact that Microsoft managed to get away with a huge acquisition was pretty interesting.

Bertrand Schmitt

I guess the case was probably that in that situation, Microsoft is not the big dog. If you look at video consoles, video gaming, Sony has been doing very well. PlayStation 5 doing much better than Xbox. I think that was the fair point that Microsoft needs to do something to stay in the loop, to stay relevant, and they gave some significant concession in terms of support of Sony PlayStation for Activision going forward.

Bertrand Schmitt

You could argue it makes also business sense because an acquisition at this price point without supporting PlayStation 5 anymore might be a tough one in terms of returns.

Nuno Goncalves Pedro

Microsoft, I would say, has been quite acquisitive, right?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

On the gaming side, for example, Bethesda, I think Zenimax is the name of the company, Zenimax Media. They obviously did the Activision deal, which, as you said, wasn’t without its complexities, but it’s like a big bet on it. I mean, it’s 68 billion of a big bet. They’ve been quite active. Obviously,

Nuno Goncalves Pedro

Google keeps having probably one of the best playbooks in tech M&A. They’ve really benefited a lot from tech M&A. We’ve discussed it one of our past episodes. Now, YouTube, Android, part of what became Google Maps. I mean, they have actual, maybe they flopped it a bit on Nest, but they’ve done really well with this relatively arm’s length, which by the way, was Microsoft’s playbook.

Nuno Goncalves Pedro

The old Microsoft, Bill Gates, Steve Ballmer play, well, it was really more Bill Gates, was the whole discussion on we don’t fully integrate them, we just let them be. And we keep this bridge between both of us with a very senior person in between. Think of it as a senior mega program person that connects both sides, the new mothership and the company that got acquired.

Nuno Goncalves Pedro

It’s worked really well, and Google did that. I was just a session with meeting up with Steve Chen in Taipei a couple of weeks ago. This is public information, he’s shared it a couple of times. But YouTube was about to go on a rampage. I don’t know if they’ve gone on there pretty quickly or not, but they were going on a rampage of being taken to court by everyone and their mother. They got acquired by Google for a really good price.

Nuno Goncalves Pedro

If you talk to Steve and to other people, they speak very highly of the Google guys. They allowed us to run stuff, to have access to resources, to scale up, et cetera. Again, M&A, there’s this unfortunate thing, which is the transaction is everything. People look at the transaction and then it’s all about return and whatever.

Nuno Goncalves Pedro

M&A only starts the day after the M&A is actually complete and closed. It’s like when the entities get integrated. That’s when you can see if there’s something coming on. That’s when you can see if the synergies are going to be realized or not. That’s what you can see if the people are going to work well together or not.

Nuno Goncalves Pedro

A lot of people forget that. The transaction is interesting, but it’s like everything is dependent on post-merger integration, on how do you operate a company afterwards, how much does it scale, et cetera. That’s why we always have total dudds of M&A that we just referred to a couple of them. But then you have some amazing blockbuster M&As. Google’s acquisition of YouTube, I’m pretty sure, was a great return on investment. Very good return on investment.

Bertrand Schmitt

YouTube and Android were amazing. I mean, that’s a business type of acquisition. I mean, not really bad because they could afford it, but definitely in terms of changing the trajectory of the business were amazing. There was also this acquisition by Google of this company to manage our advertisement.

Nuno Goncalves Pedro

AdMob was one of them.

Bertrand Schmitt

AdMob was acquired and was really a good success story for Google because it became the backbone for their mobile advertising, thinking about their core advertising business.

Nuno Goncalves Pedro

Was it DoubleClick?

Bertrand Schmitt

Yes, I think it was DoubleClick. There were a few that were significant as well. But I think of lately, it doesn’t feel the same in terms of Google acquisition, in terms of success.

Nuno Goncalves Pedro

Motorola was awful, but Waze was great.

Bertrand Schmitt

It was a time where Microsoft bought Nokia. That’s why when you talk about Steve Ballmer acquisition, I was like, Okay, Nokia. That was not the best one. But yeah, there is definitely a history of amazing acquisition, usually when the companies are more up-and-coming. But I would say Microsoft, we talk about Activision, but they made the acquisition of LinkedIn, of GitHub.

Bertrand Schmitt

I guess these are really good acquisition for Microsoft in terms of how good this business have become, but also how synergistic they have been probably with the business, and also how in terms of branding, it has changed Microsoft. I’ve seen in a different light, not opposed to open source, for instance, in the case of GitHub, actually an enabler of open source.

Bertrand Schmitt

You could have been worried that they would not succeed much with this acquisition, but it went very well. They managed it very well, probably thanks to their project to keep the business somewhat independent. I think that’s, for me, very impressive to see how Microsoft has been of late in terms of running successfully some acquisitions of this size and scale. But how much can they do going forward, especially the closer it is to their core business, would be interesting to see.

Nuno Goncalves Pedro

I feel that these players have just, I mean… As I said, Microsoft was one of the granddaddies. They were very good at M&A very early on. If you have a track record of… I think they have acquisitions going back to the ’80s. So if you have a track record of 40 years, almost of acquisitions where you have quite a lot of successes along the way, they’ll probably be fine.

Bertrand Schmitt

We have seen with Cisco, at some point, you can lose it.

Nuno Goncalves Pedro

But it’s 40 years, Bertrand.

Bertrand Schmitt

There was a Nokia episode. I think there were some low points.

Nuno Goncalves Pedro

They do low points like Google as well, but you have to risk it, right?

Bertrand Schmitt

You have to agree that Satya Nadella, all of the latest good, successful acquisition from Microsoft were under Satya Nadella. You could argue some would not have sold to Steve Ballmer, actually. It would have been impossible for him to acquire a GitHub.

Nuno Goncalves Pedro

Agreed. I’m not sure I would use the word impossible, but I think it would be extremely complex and difficult.

Bertrand Schmitt

Extremely unlikely.

Nuno Goncalves Pedro

Unlikely, yeah. That also matters, who the person is on the other side and what they put at the table. But looking maybe at recent IPOs this year, it’s not been fantastic. We’ve had the Instacart one. We’ve had a few interesting IPOs this year, and they’ve not done great.

Bertrand Schmitt

It’s also not easy when we look at which ones weren’t IPO. We have Arm, it’s a cheap company. We had NVIDIA, unsuccessfully tried to acquire. We have Instacart, we have Klaviyo, and there is even another one. This one is a tech company, but a shoe company, Birkenstock got one IPO.

Bertrand Schmitt

When you look at the numbers, and I saw that some journalist was also trying to put that in not a great light, but if you look at some of these IPOs, it’s pretty recent. I mean, it was started mid-September to mid-October. I mean, what happened during that time? We got a war in the Middle East. Starting, we got the Fed. Indirectly, the outlook coming from the Fed has been pretty, has been somewhat scary.

Bertrand Schmitt

Basically, investors understanding that it’s going to stay longer, to stay higher for longer in terms of rates. These companies have, as of today, and were recording November 8th, has been plus or minus 5%, 8%. You could argue, actually, they have been priced to perfection. You don’t have the usual 40% pop.

Bertrand Schmitt

But at the same time, if you are running these businesses, are you ready to leave 40% pop on the table when your valuation at IPO is probably way lower than your previous private market valuation? I mean, if I take Instacart, they were probably worth three or four times that at some point during the pandemic.

Nuno Goncalves Pedro

A couple of notes. I mean, Instacart as in today’s valid is 27 or 28 bucks. They’ve down 20% from IPO price, which was around $34. It’s just close to 34. To your point, they went down much more than that, actually, in October, but they’ve now gone up a bit. Let’s say they’ve lost 20% overall in valuation since they IPO. That’s not dramatic. It could be worse, I would say.

Nuno Goncalves Pedro

But let’s not forget an important piece of some of these elements. Again, IPO as an exit, and this episode is really around exits. Investors that want to exit their position, I am pretty sure they’re locked up. The lockups normally are six months. Investors will only be able to get their stock out and get money in return once their six months from the IPO, which was in September, to your point, I think mid-September. That’s next year into March.

Bertrand Schmitt

Investors and employees.

Nuno Goncalves Pedro

Yeah, investors and employees. Let’s see what the value is around that time. Clearly, the stock didn’t really pop. Clearly, the stock has gone down. It went down for a bit. It’s now seemingly going a little bit up. We’ll see where it will end up. But that’s the real risk.

Nuno Goncalves Pedro

Markets are very fickle. We know from the times of our bubble in ’99, 2000, that bubble. We know from those times that some investors made a lot of money because some of the lockups were there and they did exit and they did things and they made a ton of money and then the companies collapsed afterwards. In some ways, to your point, they’ve right price. Maybe there’s now appetite for an upsurge on the valuation. We’ll see where we end up.

Bertrand Schmitt

But yeah, in the case of Arm, Instacart, for me, Arm is definitely a blue chip. Their products are core to a lot of industries. I don’t see a collapse for Arm anytime soon. Instacart as well, I think has been more stable. Definitely, they had too good of a run during COVID. So that in some ways has been unfortunate for them. The reality has been harder post-COVID. But I think we’re probably in a more stable situation in terms of their demand for their services and their own competitive environment. I’m somewhat hopeful.

Nuno Goncalves Pedro

One of my investments, DraftKings, their public company has been public for a while. During COVID, they went through the roof. I think they were as close as 30 billion. I’m not even sure they got 30 billion. Then it was slaughter. I don’t remember what their lowest was, maybe five, and they’re now at 16. These things pop again if there’s intrinsics in the business. If there’s no intrinsics, that’s a different matter. Maybe we should talk about WeWork.

Nuno Goncalves Pedro

But certainly, these things go up and down. That’s the fickleness of public markets. Public markets, there’s reaction. There’s reaction to earnings announcements. You need to start managing your company in a very different way. I remember there was a… I believe it was Porsche at some point that got delisted or they decide to get delisted. I may have gotten the automotive OEM incorrect, but the point is still true.

Nuno Goncalves Pedro

When they asked the CEO at that point, why was that the decision? They said, we just can’t deal with this whole monthly results, quarterly earnings, et cetera, because it drives a lot of short-term decision-making. It drives the next earnings announcement. The problem with that is that’s not necessarily always good for the future of the company long term. In some ways, you’re mortgaging the long-term success of the company by putting your assets at the table.

Bertrand Schmitt

For sure, that’s a big question. It’s how do you manage your reporting, your growth under Wall Street. A watchful eye, definitely, Wall Street can be very fecal. A change in projection of where you’re going to land by a bit can have a dramatic impact on your stock price. At some point, you can argue this situation is true of very highly valued, very perfectly valued companies, so that’s always the risk. It’s tough not to talk about WeWork because they just went bankrupt, actually, not exactly two years after going IPO. It was a pretty poor IPO in the first place who was back.

Nuno Goncalves Pedro

This is Chapter 11, just to be clear. We should clarify they filed for bankruptcy under Chapter 11 in the US, which, in some markets, is a different type of bankruptcy. They’re protecting themselves from creditors, et cetera.

Bertrand Schmitt

You’re totally right. It’s not a liquidation of the business in the sense the business will stop to exist. It’s more reorganization of the business. In terms of one side, it’s reorganization with our creditors because they had to manage that better. But also, I understand that they’re going to definitely renegotiate all their lease.

Bertrand Schmitt

That’s probably the biggest issue for them is that they paid crazy prices for these leases at top of market, in some cases, way beyond everybody else. Now, we are facing the worst possible situation ever in terms of business real estate.

Bertrand Schmitt

Obviously, there is a total mismatch between what they are paying in terms of rent versus what should be because they didn’t negotiate well to be clear this rent. They should have a different type of clothes. They didn’t negotiate well. They put a lot of effort to make this office great. To be fair, it’s an enjoyable experience, but there is a mismatch for them. The business is not viable in the current situation.

Nuno Goncalves Pedro

It’s a bit strange that the height of it said that we work. I think they were still private back then, but at the peak of it, they were 47 billion in valuation. As of right now, they’re 44.49 million. It’s just a couple of orders of magnitude. It’s not a lot. It’s just a couple of zeros.

Bertrand Schmitt

A couple of zeros.

Nuno Goncalves Pedro

That went away. Just three zero. It’s not much, really. It’s just three zeros.

Bertrand Schmitt

Yeah, that’s four years from their failure. Their peak was probably around four years ago. That’s a proof that private or public, you can go from 50 to zero in a few years, unfortunately. It’s a very sad story. No one can find happiness in that.

Nuno Goncalves Pedro

I’m sure some investors made a lot of money still. It’s irrelevant, right? They made a lot of money.

Bertrand Schmitt

I think the one that managed to make some good money was the one who sold at pre-IPO times, or let’s say, who sold at SoftBank times. When SoftBank came, if you took the opportunity to do a secondary, as you explained, as an investor and maybe saved 30%, 40%, 50% of your investment that way, you might have indeed had amazing returns.

Bertrand Schmitt

But I think WeWork is also raising more the question of, can any company be a tech company, in a way, can marketing go too far. I think WeWork is a great example of a company that was not a tech company, that was a real estate play, and that was real estate play actually badly executed from a real estate play perspective, amazingly executed from the perspective of marketing it as a tech business.

Bertrand Schmitt

But ultimately, reality find its way. There is only so much you can, in a way, bullshit your way about what you really are as a business. I think that’s a lesson for a lot of funders that you want to be real. You want to be realistic about your business. It’s good to dream, to have aspiration, to have vision, but vision has to match reality of what you can achieve, your industry, your business.

Bertrand Schmitt

If it’s too disconnected, then at some point, it doesn’t work. The magic of being a great salesman like the CEO of WeWork was, Adam Neumann, at some point, it just stop working. It cannot be only just that sales pitch. It has to be connected to reality and especially a tech reality if you want to benefit from tech valuations.

Nuno Goncalves Pedro

Before we start, this is not fraud. This is before we talk about fraud is because FTX just found guilty of that. This is not fraud. If you exaggerate a lot and there’s no story behind it, it will catch up with you at some point. In a nutshell, IPO is not great this year. Maybe the next year will be better, we’ll see. M&A is picking up, but still very, very low. Secondary is at all time high as we know. A bit of a mixed bag as it’s normally the case, we’ll see what next year holds.

Nuno Goncalves Pedro

We’ve seen actually in the last six months or so, and this actually is not super connected to the burst of the bubble. We’ve seen that in the past, even on bubble times. A lot of window shopping and a few deals that don’t go through, at least the feedback I get from a lot of bankers. Some companies are still assessing how their stock is doing. If you’re a public company trying to acquire something on the cheap and you’re figuring through is this cash or is this stock, how should we do it? Normally, stock is nicer and easier. But there’s a lot of debate right now around companies that really have lost quite a lot of value as public equities and don’t really have the capacity to go after deals in the way that they did in the past.

Nuno Goncalves Pedro

There’s a little bit of that, and that is a little bit problematic for companies that want to be acquired because you can spend months on these transactions and then nothing happens. There’s costs included in these transactions with lawyers and with bankers, and everyone who’s at the table wants to get paid. I feel that we’re going to have more aggressive clauses in the future of, “I get paid no matter what.” Or “You pay for the cost of the lawyers if the transaction doesn’t go through.” People are getting a little bit smarter about this.

Nuno Goncalves Pedro

Breaking clauses. We have to have a breaking clause like, “If you stop the transaction at a certain point in time, you have to pay us something, or at least you need to cover all our cost plus, plus.” It’s a huge amount of attention that gets taken away from management of a company because the company goes into a mode of we’re going to be acquired.

Nuno Goncalves Pedro

That’s obviously extremely impactful, I would say in some cases, more impactful even than the cash consideration on paying service providers, et cetera.

Bertrand Schmitt

Yes, and we’ll talk more about it, but especially in a world where regulatory approval is becoming more and more complex to get. You cannot afford to try to do a transaction, go through it, wait for a year to get regulatory approval and it doesn’t go through. This can be catastrophic for the business, how it’s run, how you manage it, how employees feel during that time. It’s something that you absolutely have. I think it’s becoming a great friction now for acquisitions by big players because you have a need for these closers. Where even if it doesn’t work out, you still have to pay sometimes very significant fees if the transaction doesn’t go through.

Bertrand Schmitt

We have seen also how other players, like the case of Twitter, when they agreed to transaction, when the price was high, they tried to get away from it, but it didn’t work out. You really have to negotiate extremely well. Some technically small negotiation point can have a huge dramatic impact.

Bertrand Schmitt

Another piece is that you might get an LOI, but once you sign an LOI, you are really tied up. My advice here is to be extremely careful about how you negotiate your LOI because the probability that there is a revision of the price, of the terms, of the clause during the later on agreements can be quite significant, especially in these markets where many companies are saying, “You know what? I might walk away. It’s not such a big deal.”

Bertrand Schmitt

But then it’s definitely a lot of trouble to renegotiate back as you know, and find another buyer. It’s something to keep in mind. How do you negotiate the best? I would say probably you want a detailed LOI, make sure that there is not so much to agree on later on. Especially during that clause of you are going to go through exclusivity post LOI and you are really tied up. Your ability to negotiate a better outcome is near impossible as a seller, while as a buyer, your ability to negotiate a lower outcome might go stronger.

Bertrand Schmitt

You need to be extremely, I think, clear and detailed in your LOI to basically remove the probability of that fate. As you say, put some closers to make sure that there is not an easy walkout when you’re selling your business.

Nuno Goncalves Pedro

This is not like a VC term sheet where there’s a lot of trust implied in it, et cetera. Term sheet, sets of terms, LOIs are, in principle, mostly non-binding. To your point, you talked about exclusivity, clauses, and confidentiality clauses. Those normally are the key binding clauses. They’re binding legally.

Nuno Goncalves Pedro

In an environment of M&A, you need to put more stuff in the binding side. It’s like breakup clauses like, you’re going to pay our fees if this gets thrown away for reasons that do not relate to some issue on the due diligence, but you need to find what an issue in due diligence is. You need to specify what is the process. You need to specify certain expectations.

Nuno Goncalves Pedro

As detailed as you can be on an LOI and term sheets and heads of terms, ultimately it’s actually what pieces become part of the binding side versus the non-binding side. Because if it’s still mostly non-binding, cool, but it’s just a gentleman’s agreement. It doesn’t really lead anywhere. I think in M&A, we’re going to start seeing more aggressive terms that are binding under the LOI or heads of terms or term sheets. I think we’re going to see more of that.

Bertrand Schmitt

I agree. That will be my expectation too. It’s too easy to do window shopping or to do offers in order to win the bidding and then negotiate, I mean, renege on your offer step by step and go to a lower price point. Maybe the price point you want to go to early on, but you knew you would not win the bidding with a lower price point, so you bid higher, but you were organising yourself and preparing yourself to go lower.

Bertrand Schmitt

Unfortunately, especially in tough market, you might start to see some pretty poor behaviours from acquirers trying to take advantage of the situation.

Nuno Goncalves Pedro

I have gone into being board member of some of my companies, I’ve gone into some potential M&A transactions in the past. As a board member, not requiring breakup clauses, those times are done. I’m sorry. You come to the table, you put something at the table as a term sheet or LOI, in that term sheet or LOI, there needs to be a breakup clause. How much are you going to pay us if this doesn’t go through? It has to be clearly defined. I’m sorry. Because in particular, these are companies acquiring startups. We’re making jokes out of it, but this can actually kill a startup. I can go for an acquisition transaction that doesn’t go through and just the cost of the acquisition transaction kills the company. It’s not impossible.

Nuno Goncalves Pedro

Again, right now as a board member, this is a manifestation for whoever’s hearing that is on the other side, the larger corporations doing corporate dev, et cetera. I feel we figured out this game. It’s a startup, but you have to put money at the table. I’m sorry. If it doesn’t go through, it doesn’t go through. It’s life, but you have to pay something.

Bertrand Schmitt

Yeah, I agree with you. I think this is a very wise perspective as a board member of startups. I think in the mind of many people and all the transactions we talk about were actually strategic acquisitions. You get acquired by a strategic acquirer, and they are considered strategic because they are another operational business. They see synergy with our business. It’s our cost synergy, a portfolio of product synergy, a broader platform strategy. But it’s not the only acquirer to be around.

Bertrand Schmitt

Actually, there are a lot of PE firms, private equity firms that might be interested to either directly acquire or to finance indirectly some acquisitions. You could be a public company, for instance, get financing from PE firms. What’s your take? I guess the players are there, but are they willing to pay a premium?

Nuno Goncalves Pedro

I feel this is a buyer’s market right now. If you’re a PE firm, a particular buyout firm and you’re like, I just see this asset, it’s super undervalued. I can just take it at a discount and immediately make money first year, two years in, why wouldn’t you? Honestly, I see actually even more than this. It’s not just long-term focused PE firms that are thinking through holding periods of, I don’t know, three, five years. There’s even rapid flipping. I could just take this, do nice things to it, and then do M&A in one year and a half or an IPO in one year half or two years. Because the market will eventually pick up. This is not going to be forever and ever like this.

Bertrand Schmitt

Indeed.

Nuno Goncalves Pedro

I’ll take the discount right now. I’ll buy out at the discount and then I’ll build it up. I don’t even need to build up a lot. Obviously, this is not what a good PE firm would do, but it can be done. You can do this type of flipping. If you get 2X, 3X in one and a half years, two years, that’s incredible return. Just the IRR on that is silly.

Bertrand Schmitt

At this scale, for this stage, yes.

Nuno Goncalves Pedro

Yeah. I feel we’re going to have more of that. The issue with the buyout firms, it’s a two-edged sword. The buyout firms, on the one hand, this is a buyer’s market because they are undervalued assets. On the other hand, if you’re a buyout firm that uses significant leverage for your transactions, you’re based on that, this is a bad time to do that. There is a couple of private equity firms that only do it with equity or that have very low levels of leverage. For those, it’s probably a great buyer’s market. For those who have huge amounts of leverage that they always put at the table, this is a really tough market because of interest rates, et cetera.

Bertrand Schmitt

I guess also PE firms are definitely looking at public-to-private type of situations as well. We talk about valuation on some market. At some point, if your valuation becomes low enough, that might be a real trouble to stay a public company. It has a cost, inherently, to stay public. A significant cost, unfortunately, these days because of regulations. That means that you might actually be looking forward to exit the public market because your valuation doesn’t sustain your presence as a public company.

Nuno Goncalves Pedro

There might be some highway robbery situations where I take you private and you have more cash than I’m paying for you magically, or I’m taking you private and there’s a bunch of assets that you have that I can just sell quickly and make money quickly. I think we’ll see some of these transactions and we won’t see the results immediately, but probably one, two years out there will be articles on Wall Street Journal, on New York Times, whatever saying, “Oh, these companies have been ripped off all their assets. All the employees have been fired and laid off, and these PE guys ran across with cash.”

Nuno Goncalves Pedro

Well, that’s what the industry does. It is a financial industry focused on returns, and whatever the returns are, I’ll get them. Sadly, not all of them are ethical. It is what it is. But I see a lot of news around that a couple of years out after this wave of transactions over this year and next year. There’s definitely going to be a bit of that.

Bertrand Schmitt

Maybe to finish on the topic, there is a big one we briefly touched, which is regulations, especially antitrust type of regulations. In the US, it’s led by the FTC. But as a big global tech business who is interested to do acquisitions, you probably have to not just face the FTC in the US led by Lina Khan, but also the UK, the EU, China. If we look at NVIDIA failed acquisition, it was definitely not a US issue. That’s something new and scary, I would say. Scary because it doesn’t sound, in many situations, very reasonable in term of the regulator side, the arguments.

Bertrand Schmitt

And scary because it wasn’t [inaudible 00:50:50] exit for investors, for VCs, in term of selling to these big tech companies. If you cannot sell your startup to one of these big 5, big 10, or even in the case of Adobe, I don’t know if they are big 20 tech companies, because there is that risk of antitrust blocking your acquisition after a year of negotiation and work, it could change dramatically the profile of returns. If it changed dramatically the profile of returns, then suddenly the whole equation, the whole VC equation could change dramatically. What’s your take, Nuno?

Nuno Goncalves Pedro

One clarification, there are two big enforcers of antitrust in the US. FTC is obviously one of the key ones, the other one is the Department of Justice. They have an antitrust division as well.

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Those are the two guys, the two agencies that are responsible for enforcing antitrust laws et cetera.

Bertrand Schmitt

Why not just one agency when you can have two?

Nuno Goncalves Pedro

Because it’s the United States of America. United, I guess, there’s several.

Bertrand Schmitt

You have to feed the lawyers, government lawyers.

Nuno Goncalves Pedro

We were recently talking about USDA versus FDA. There’s agencies looking after food as well, and they have different remits. Someone created them and they exist and they have different remits and they do what they do. I understand some of the differences between both of them. I can’t understand all of them. I’m sure they overlap. It is what it is.

Nuno Goncalves Pedro

But to your question, I don’t know, I feel we’re going to have an environment of more aggressive regulation and antitrust in certain areas for sure. If we all agree with Bill Gurley in his statesman speech of late that regulation always favors those who lead the industries, then whoever gets regulated next, that’s going to be an industry that’s going to be subject to decreasing innovation. I hope it’s not tech. I hope it’s not some of the key areas of tech because that would be destructive for all the actors involved. That’s a clear agent of innovation as an industry in the world.

Bertrand Schmitt

I would be so worried because in a way, we can talk about the world at large, but that’s a bright spot in the economy. It’s tech and it’s innovation, how it has changed life for the better. If it becomes over-regulated especially in industries where it’s still new, and I guess we’ll talk more about, in a later episode, what’s happening for artificial intelligence and the regulatory capture happening there. It would be a very scary place.

Bertrand Schmitt

Personally, I definitely agree and thank Bill Gurley for his interventions on regulatory capture because he’s really touching a very important point and issues that most regulators either don’t understand or ignore or conveniently ignore.

Nuno Goncalves Pedro

It goes against the ethos of what regulation was in the US versus Europe, which is regulation in Europe is always around market share and HHI and effect in general on the market. Whereas in the US, it was always about impact on consumer.

Nuno Goncalves Pedro

In some ways, we’ve seen regulatory capture or regulatory interventions in the US that I’m not sure are always in the benefit of consumer. Certainly, the measurements taken after the regulatory action are actually not positive for the consumer. Maybe it’s coming from a good positive angle, but what ends up being the settlement or the decision is worse off for the end consumer.

Nuno Goncalves Pedro

I mean, the telco world, which is one of the examples Bill gives, is a clear example. I don’t want to bad mouth AT&T just for the sake of it or Verizon, all these guys that are just doing whatever they need to do in the market they’re in. But this market in the US is really not a great value for money market. It’s behind on so many dimensions as a telecom market, both in fixed and wireless that it’s really unacceptable. How one of the leading countries, if not the leading country in the world in terms of technology innovation, is standing behind on value for money for telecommunications. How does that work? Things like that I don’t believe are acceptable.

Bertrand Schmitt

I think that’s really the big question for me is antitrust going to destroy many opportunities. That would be a very, very negative outcome. I guess some of this is pretty connected to which party is in power, at least in the US. All of this overreach in term of regulators has been happening since the Biden administration. Change within power in Washington could dramatically change what’s happening, how it’s written.

Bertrand Schmitt

I can imagine 100% how some big tech acquirers are hopeful and preparing for a change of administration in a year from now, thinking, “You know what? No need to bother trying to do some acquisition. It’s too painful, too risky, too difficult to just go through and to convince someone to get acquired, where maybe in a year from now, everything change.”

Nuno Goncalves Pedro

We will have more interventions, not just the US, but all over the world. In China, Europe, UK, and other parts of the world. I believe regulatory intervention is here to stay. It’s part of this world that we’ve described in the past that is more siloed, that is apparently less globalised. The world is not fully flat anymore. In some ways, it’s become siloed.

Nuno Goncalves Pedro

One of the key ways to make that world siloed is regulatory intervention, it’s changing of laws, it’s application and exercise of those laws over companies. In many cases, there are companies that actually are not local companies, so external companies to those markets or are not domesticated on those markets.

Nuno Goncalves Pedro

In other cases where there’s other special interests at play where you want to basically have some control of some position of the market that you’re not willing to allow these companies to go into, even if they’re local companies, and it’s here to stay.

Bertrand Schmitt

I would say that one, again, it might depend on who is in power in different market. I think geographically, I would expect that the Chinese regulators will have less influence, the more the Western and Chinese economies, unfortunately, step-by-step, keep disconnecting and distantiating from each other. When you have no more market in China, you don’t really care about the opinion of the Chinese regulator, for instance.

Bertrand Schmitt

The other piece is that some regulators might just be in charge of a too small market. I mean, take the UK market, and right now they have influence. We have seen that they had influence on Microsoft Activision acquisition, but somewhere floating as well that you know what? That UK market, 5% of our revenues? Do we really care? That would be a big question for a lot of companies and regulators. Are you big enough for a market to really have an influence? Or will you be bulldosed on your way by some of the players?

Nuno Goncalves Pedro

I agree with the comment, and not to just thump on China, but China has huge impact globally on many companies that might not be super-exposed to China in terms of its consumers, but they are exposed to China on manufacturing and a variety of other things. So huge impact if there’s any type of regulatory activity. It could be something that is not regulatory activity. That could be just economic activity with taxation and a variety of other things, which it’s not regulation it’s just, taxation is taxation.

Nuno Goncalves Pedro

There’s other mechanisms for you to implement barriers to entry, barriers to exit, and all sorts of things. Movements of capital and some of it is regulation, some of it is not. But yes, I feel the next few years will be about more and more siloed world rather than this globalised world.

Bertrand Schmitt

It’s clear that governments all over the world have taken notice about its importance and wants to rein in for different reason in different countries what’s happening in tech. Antitrust and blocking M&A is just one weapon, one tool at their disposal.

Nuno Goncalves Pedro

Absolutely. This concludes our episode 49 on exits. We discussed what an exit actually is, not as simple as it seems. We discussed stats on M&A, IPOs. Finally, we looked ahead. We looked at what’s the future holding in particular in the next few years. Thank you, Bertrand.

Bertrand Schmitt

Thank you, Nuno.

View Details

So you’re starting a company? You’re now officially a founder. What should you do first? In episode 48, we will share our views on culture and why it “eats strategy for breakfast”, our thoughts on structure and legal framework for your new baby/start-up and on what 2nd+ time founders do differently.

Navigation:

Intro (01:34)
“Culture eats Strategy for Breakfast” (01:54)
Structure / Legal (16:27)
2nd time founders, what do they do differently? (29:37)
Conclusion (35:35)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 48, the second and last episode on day zero as a founder. What should I do? In this episode, we’ll discuss how culture eats strategy for breakfast, how you should think through the structure of your entity and the legality of your entity. And finally, we’ll land on second-time founders. What do they do differently?

Nuno Goncalves Pedro

Let us start with culture eats strategy for breakfast. This is actually a quote that has to be attributed to one of my professors at Stanford, Robert Pilgarman, one of the great professors of strategy in academia. He always used to say it. I’m probably paraphrasing him wrong but, “Culture eats strategy for breakfast.” And his point was you can define the best strategy ever, but your company culture, if it’s going in a very different direction that doesn’t allow you to align the execution with a strategy you have set forth, that culture will win and the strategy will never work.

Bertrand Schmitt

I totally agree. I don’t see it either way. You have to build your strategy in the constraints of what your team can achieve. Obviously, you can always arrange things a bit. You can hire more people, you can bring different types of people on board. But culture is typically very hard to change, and hopefully you have the right culture. If it’s way beyond what your culture is able to achieve, that will be a problem. Let’s take some examples. If you have a culture of being very careful about your spend, think about Amazon in the early days.

Nuno Goncalves Pedro

Still today?

Bertrand Schmitt

Still today. I remember earlier, I don’t think they still do it today, but they would use, I think, some doors that they buy on the cheap and that they use as a desk, as a surface for your desk. That’s a very distinct type of culture where you try to optimize cost everywhere.

Bertrand Schmitt

There are other ways to optimize cost, by the way. If you look at how they pay employees, stock options the first two years, for instance, they won’t invest much. It will be on year three, year four. That’s not typical, to be clear. But the analysis was most people stay two years or less. We better don’t give too much in term of stock because it’s valuable. We will only give stock to people who are staying for the long run with us.

Bertrand Schmitt

My point here is if you have that culture, you won’t be going, for instance, in the luxury business. Good luck trying to go to sell luxury products with a culture of optimizing cost to the bones. My point is you have to align the two together. You have to understand what type of products we’re willing to deliver, and you have to have a culture that match it. Hopefully, early on, you need to have a good instinct about your type of product, your type of market, and therefore, the type of culture that’s necessary and hire the people who would be a good match with this culture. Step by step, be more clear, be more transparent about what is this culture so that people can self-select in it or not.

Nuno Goncalves Pedro

There’s a couple of exercises that I recommend founders do. The top-down exercise is define your values, define what’s your value system. Values are a very good way of edifying and effectively creating the notion of culture. This is what we stand for. They’re not enough. We’ll come back to that in a second, but they are definitely a good way to start. If you can’t articulate it early on, articulate a few principles. Maybe it’s not a big value system. Chameleon, we actually wrote down a value system. Some people might not want to do that. They might just edify a few principles. There are a couple of principles they start edifying and then start editing it like it’s almost a laundry list of things. Then over time, maybe at some point, you get some consultants or someone particularly talented in the team to restructure it and put it under a couple of buckets, and that’s your value system.

Nuno Goncalves Pedro

One thing I always recommend, think through that. Think through value systems. It’s not a McKinsey engagement. It’s not something you should spend three months doing. But sit down. Sit down with your co-founder. Sit down, what’s your stand for? Write it down as principles, write it down as values.

Nuno Goncalves Pedro

The second part is culture is always manifested in action. It’s not manifested in ideas. It’s manifested in how people behave and do. I’m always reminded of this by my team. As good writer as I can be, it’s like, “Well, are you really living by your values?” You need to. You need to live by your values and everyone will be looking at you. This is manifested in big decisions and big execution, big operations, but also, and more importantly, on small things.

Nuno Goncalves Pedro

Where do you spend your money as a firm? If you’re the CEO, where are you deciding to spend the money? And what are you not spending the money on? How do you acknowledge the rest of the team in terms of seniority? Is your door open or not? How are you actually including people in your decision-making process? How are you making decisions? Everything leads to culture. This is the shocking piece. It’s literally everything. It might be on how you react to bad news on something. It might be how you react to good news on something. Everything defines culture.

Nuno Goncalves Pedro

The part that’s very complex about this is in the early days, it is really the founder, CEO that sets the stage. There’s nowhere to hide. You don’t have 200 people. You have 10 at max, 15 maybe.

Bertrand Schmitt

The founder, the co-founder, the first exec, they definitely set the tone. Some stuff that are very clear in terms of tone-setting, obviously, are hiring, firing, and promoting. If you hire, fire, promote based on the values of your business, then things will be very clear. If you don’t, then your values are just bullshit at the end of the day.

Bertrand Schmitt

Just to be clear, that’s pretty bad because when you have bullshit values, there is a lack of trust. There is a lack of insight of the company. It’s very important to get this right. I totally agree with you on the small things. I think the small things have to be representative if also it would create a bad atmosphere. Oh, these guys, he’s saying this on one side, but he’s doing this on the other side, and everyone knows about it and no one does a thing. It’s really important to really make sure that you enforce that. Yourself, as a founder, you are the embodiment of this approach.

Nuno Goncalves Pedro

Very specifically, if you are a founder, CEO, that says, “I want speed, I want everyone to work fast,” for example, and you start becoming the bottleneck, acknowledge it. Discuss with the team how you can solve it, how you can become better at that. This will have a huge impact on the culture of the company. Huge impact. Because people will be like, “This is the CEO, and he’s apologizing for being the bottleneck. This is how he wants us to behave. He wants us to actually stand for stuff, but at the same time, acknowledge when we have flaws and we need help and we need to go to the next level.”

Nuno Goncalves Pedro

For example, that’s great for teamwork. It might be that you’re actually really fast and you want to manifest that speed, you reply to emails whenever you need to reply to emails. It might be on weekends you’re replying to emails because you said everyone is going to work really fast and everyone is everyone. That also sets the stage. People are like, “Okay, it’s not acceptable then that I don’t reply to emails within 24 hours of me receiving the email. Maybe weekends is an exception, we’ll figure it out. Maybe it’s only for emergencies, but maybe that’s the rule.” Everything defines it.

Nuno Goncalves Pedro

If you have a problem with someone on the team and you take them to the side, and this again could be the CEO, could be another co-founder, and have a one-on-one discussion with that person and try and illustrate what’s the problem, it’s very different than you call them out in front of everyone else. That sets culture as well because guess what? This is going to keep happening. Managers are going to continue doing that to other people on their team if they see that from their leader, from their CEO. You always have to be careful. We always have impetus.

Nuno Goncalves Pedro

I’ll put my mea culpa here. Everyone thinks that… Doesn’t think, actually, that I’m really good at this thing. I’m super flawed like everyone else. I’m an emotional guy. Emotional people sometimes are great because they can get others to believe in things that are still not proven at all. That’s incredible. They can get the most out of people sometimes because they excite them. They want to work with that exciting other person. But emotional people sometimes can be emotional. When they are emotional, they can sometimes overreact to small things and manifest themselves not in an ideal way.

Nuno Goncalves Pedro

It’s my role to work on that. It’s not the role of my team to work on me. It’s my role to work on that. It’s my flaws. Because if I want to create a culture that is totally respectful, emotional, but in a positive manner, a company that is actually trying to go to the next level very fast, breaking some stuff along the way, but at the same time having fun. It is my responsibility to create that culture through the decisions and through the way I act. Every time I don’t do it, I set a bad example for the rest of my team.

Bertrand Schmitt

That’s a key part of the game. There is no question. Sometimes what is not easy is to define values early on. You did that. Me, when I built App Annie, it was more step-by-step process. Actually, it worked great because we asked execs, but also people lower in the ranks to try to come up with the values that embody what they knew and what they lived every day with App Annie. And that was great because it was a real match between what we wrote as values and the reality of the business.Again, if there is a mismatch, that’s a terrible place to be.

Bertrand Schmitt

The positive of defining values early on is transparency with new team members because you can explain clearly in the recruiting process. It’s valuable because it’s a self-selecting system because it means that if people don’t like the type of values you try to push on the bodies. And hopefully, if they have maturity and if they’re honest with themselves, they will know if it’s a match or if it would be a poor match. And if it’s a poor match, hopefully, they will not proceed then.

Nuno Goncalves Pedro

That’s a good segue on culture, not cult, your words, Bertrand, right? It’s a culture, not a cult. Getting that right is complex. Sometimes culture is so pervasive, so strong. I remember working at McKinsey, I always used to give the example. It’s almost like a sect, which doesn’t maybe…

Bertrand Schmitt

It’s my personal opinion. I want to build a great culture everywhere I work with, but at the same time, I want to be careful and not go too deep into people’s life and make sure that it’s not too encompassing and people have their own… I respect everyone’s freedom. For me, that’s quite important. To be frank, I’ve seen quite a few startups where it felt more like a cult than anything else and it has never end well because it was hiding some deeper problems. Typically, with a cult, it also means you don’t question. That’s always wrong. I cannot see a successful startup that is not questioning how things work and that is not ready to change how things work, and that is not ready to question even everyone, including up to the CEO and founder.

Nuno Goncalves Pedro

Agreed on everything that you said. A bit of nuance. I do believe that people don’t need to be friends in working the same company and be great at working together. Absolutely not. They don’t need to be friends. They don’t need to share anything about their personal lives. They should be free to live their lives in whichever way they can, hopefully in a legal manner that doesn’t affect in any way the company, but still. The cultish nature of not questioning, etc., I feel is something that should be avoided at all costs that destroys companies.

Nuno Goncalves Pedro

At the same time, the notion that people like to work together, that they like hunting together, they like to do actual stuff together is something that I quite like. It does happen in many of the organizations that I founded, many of the organizations that I’ve worked in. Again, it’s not an obligation. It’s not we all need to get along, we all need to go out and do things together. But if we want to, we should. We should be able to do. And that does create a little bit of cohesiveness that is powerful as well. This cult of infallibility, I mean, no. Founders, CEOs, CXOs, anyone, we’re all super fallible. And creating that transparency towards teams, I believe, is very powerful. I believe that’s one of the most powerful things that we can do.

Nuno Goncalves Pedro

One thing we hear quite a lot about, and I think Bertrand, you were going to share more with us about Jeff Bezos’s always day one mentality, we have a little bit of this mentality as well. This mentality of we’re always running, we’re always being a startup, we’re always starting somewhere. I would say there’s some nuances around that. You have to be a bit thoughtful on not burning out yourself or burning your team out. But that mentality of being a startup, if you want to be fast, nimble, flexible, if you want to scale, you have to have this mentality. You have to have this mentality of you’re always day one. You’re always a startup. You’re always starting.

Bertrand Schmitt

Yeah, I think it’s a great mentality at Amazon to think that you want to always be day one, not day two. Obviously, today we talk about day zero. Maybe we are fast-forwarding a bit, talking about day one. But in all seriousness, this is a very important concept. You want to stay nimble. You want to keep the mindset that made you great early on in terms of adjusting to the market, understanding the market, being nimble, being ready to change and adapt.

Bertrand Schmitt

Day two means you already made it. You don’t want to question yourself anymore. As a result, you start a stasis. Step by step from stasis, you lack growth. From lacking growth, you go to die, basically. Keeping that day one mentality might not be easy, but because it keeps you on your toes always. Some might argue that, “Were you so right on day one?” I don’t know. But ultimately, that forces you to readjust based on change in the market, change in competition, changes in your industry, and that push you to keep re-evaluating things and keep a fresh eye. I think it’s a great perspective on running a business.

Nuno Goncalves Pedro

I think it’s a great perspective on running a business and that everyone adopts this mentality. As I mentioned before, getting it right in terms of nuancing with when do you step back? When do you celebrate achievements? For example, you have to celebrate achievements. I think that’s an important part of the culture of a company. Otherwise, how do you know that you’ve achieved the milestone? That you’ve passed a certain stage?

Nuno Goncalves Pedro

I agree with everything that defines this mentality, but the tonality of how do we step back a bit is quite important. Always being on, I don’t think works. I’ll tell you why always being on doesn’t work. Because always being on means you’re normally doing something. You’re always in an execution mode. The mode by which you need to rethink things does require that sometimes you establish peace. A peaceful moment is a moment where you have clarity, where you see things normally in the future. Having that balance is difficult to hit. I feel being always there, one, is important, but you need to create these spaces for celebrating achievements, for thinking through things and how the things should evolve going forward in a very thoughtful manner, for being at peace as well.

Nuno Goncalves Pedro

It’s a little bit of this notion. I call it the notion of you live in the present all the time would be what we want, like the power of now, like Eckhart Tolle’s Power of Now. Manifesting that in a work environment is extremely difficult, but that’s the ultimate objective, right? That you’re always present, that you’re always pushing, that you’re always getting to the next level, but at the same time that you create the spaces to be peaceful in that same moment.

Nuno Goncalves Pedro

Maybe this is a good segue for things that are less metaphysical, which is the structure of your company, the legal structure of your company. Well, we’re in the US, we could talk about different structures as well. But the US, if we’re talking about startups, Delaware C-corps seem to be, vis-a-vis the startup world, what has won the day. Because of Delaware, because of the laws that Delaware has, we’ve discussed it in the past as well, being a C corporation and not being an S-corp or other types of structures, LLCs, etc.

Nuno Goncalves Pedro

Again, Delaware C-corps are the norm for most startups in the US. They work well. Nobody will question you creating a Delaware C-corp. If you’re building a company that wants to withstand the test of time, that’s great. If you’re in a different space that has different regulatory requirements, obviously, a Delaware C-corp might not work at all.

Nuno Goncalves Pedro

Obviously, we’re in venture capital. Both Bertrand and I and our structures are not Delaware C-corps for a variety of reasons you guys can Google about. There’s partnerships out there, LPs, limited liability partnerships. There’s LLCs, limited liability corporations. There’s a lot of different formats. You’ll need to choose whichever is right for you.

Nuno Goncalves Pedro

If you’re doing a classic tech startup, it’s very likely that Delaware C-corp is the way to go. And if you don’t go that… Delaware C-corp is the right way to go if you’re in the US. And if that’s not the case, then if you decide to go somewhere else, it might create some issues for you later on. Why did you create an S-Corp and serve as C-corp, etc.

Nuno Goncalves Pedro

The other piece that is quite important is to understand that this is the US. Obviously, you guys are listening to us. You might be in Portugal, France, other parts of the world. You have different structures. Choose the company structure that you think is going to be the best structure for your aims in terms of fundraising.

Nuno Goncalves Pedro

If your aims on fundraising is that you’re going to raise from venture capital firms, choose structures that VC firms easily invest in. Either in your specific market or if you then at some point want to raise money from, for example, the US, maybe you start thinking about actually having a Delaware C-corp structure earlier on rather than later on, even though you’re probably domesticated in another country.

Nuno Goncalves Pedro

Again, thinking through these things early on is important. Have good lawyers, good legal team that gives you good advice. Explain to them clearly what your objectives are for the company. If you’re going to raise money, who are you going to raise it from, how are you going to raise it, etc. How are you going to use the company for the purposes of developing and deploying its own products and services? Have that discussion early on and clarify exactly any doubts you might have. No question is too stupid. I have been learning this for many years. No question is too stupid around structuring your entity, your legal entities.

Bertrand Schmitt

I totally agree. I would just add that, one, always try to work with good lawyers. That can save you a lot of time and a lot of money on the long run because mistakes are very painful. Again, if you are in the startup game, you want to work with people who have true experience there. You have a few firms that have a wealth of experience in the startup industry, just work with them. Don’t waste time with the wrong ones because they will give you poor advice, and poor advice is always very dangerous.

Bertrand Schmitt

Another piece of the puzzle, especially early on, if your needs are relatively simple, I think there has to be more and more solutions that are very well packaged to help you register documents, create documents in a semi-automated way, in a very clean way. I think that some of the stuff that you might want to look into that you don’t spend too much time or money on stuff that is relatively typical.

Bertrand Schmitt

On this topic, I may add that I’m always surprised when some people are raising financing and you are discovering they have all the wrong parameters on setting up the right structure, that sort of stuff. It’s really not a great sign to arrive and showing that some of the basics that obviously everyone knows how to do, you are not able to do.

Bertrand Schmitt

And why is it a bad thing? Because after that, as an investor, you are using this type of weak signal to think, “You know what? If they cannot get the [inaudible 00:18:49] requirement right, then what about the rest? What about their contracts with customers? Their contracts with employees?” I mean, all of this. So yeah, please invest in that. A mistake is painful and can cost money and you might look like a fool.

Nuno Goncalves Pedro

If you give yourself too low equity and someone else too much equity, and if you have all sorts of funky structures going on now, and founders’ shares very early on with nothing yet, all of these things, everyone will start asking questions. Now, it might be I have a really good reason to defend it. It might be defensible, but it might not. If we’re looking at the cap table, let’s say we’re doing a series seed, so the company will have raised anywhere from 2 to 5 million, maybe 7 million max before we come in. If you, at that point in time, only own, I don’t know, 10% of the company, and it’s a two-founder company or something like that, it’s like, why? What valuation did you do these deals on? If, for example, your preferred share investors are significantly larger than you, the co-founding team, early on, why?

Nuno Goncalves Pedro

There’s all these things that some of them are yellow flags, some of them are just straight-up red flags, just to be clear. Because if you have very little incentive to build a company very early on at its development, and I’m looking at your cap table, I’m like, “Maybe I shouldn’t invest in these guys. They’re not motivated enough. Or then maybe the guys are going to ask for a ton of stock options in the future and that’s going to dilute this all, etc.”

Nuno Goncalves Pedro

Again, get these things right early on. Don’t get too fancy or smart unless you’ve done it before and you know you can get too smart or fancy. Get good legal representation, which is not always the most expensive one. Get very good accounting representation as well, which is, again, not always the most expensive one. It’s people that work well with you, that present what you need, that are clear and their explanations to you, that have a little bit of a business mindset, both for accountants and legal support. They have to have a bit of a business mindset.

Nuno Goncalves Pedro

If they can’t help you with scenarios, in particular, if you’re a first-time founder, they’re not the right partners for you. If they’re a law firm and they’ll tell you, “Oh, this is not the market, you shouldn’t accept this,” but they can’t explain to you the corollary of that, if you can still live with it by just changing slightly the clause. If actually, in no scenarios this clause will activate… We see that, by the way, a lot. There’s clauses and agreements that there’s no way in hell this will happen. I would say we have a problem. We have a fundamental problem. Get the right partners for you and iterate them. Partners are service providers. They are great. You pay them for their work. Over time, you expect to develop a relationship that’s long-standing. But at the same time, if it doesn’t work out, it doesn’t work out. These businesses are very based on people.

Bertrand Schmitt

Yeah, going back on your point around equity, I think it’s definitely a perspective that a lot of investors will share is that if early on, the co-founders have already very little shares in the business, that’s a very big red warning sign. It means probably a few things. Either there is a complex history in this business. Maybe there were other founders, there were other CEOs, there were different people before, and it’s not always a great sign. Or you basically gave up way too much equity for too little check. This is sending a bad signal. Why did you need to raise so much? Or why were you ready to dilute yourself so much?

Bertrand Schmitt

Because ultimately, your business life will be made on a lot of business decision. If you are proving that maybe the most important business decision, your own equity as a founder, you are a bad negotiator, that’s not a good sign. Ultimately, and as you said, there would be a question at some point or even pretty quickly about how do you stay motivated if you have little equity in the business? I think it’s a really important point, and not just for you as a founder, but for your co-founders, for your early employees.

Bertrand Schmitt

I would say I urge people to be really thoughtful about having a proper way to assess how to distribute equity very early on, to also have a way to remove equity with cliff, for instance. One-year cliff for yourself and maybe your co-founders and other employees, as well as a vesting program to make sure that if one co-founder leaves early on and is an issue then they are not leaving away with too much equity. You want it to be fair for the rest of the team.

Bertrand Schmitt

I think there are standards for that, how you vest, how you cliff. There are standards for how much you are going to give to different co-founders, early employees. I really urge teams to really be careful about that. You want to give not too much, but also not too little to everyone involved early on. Try to benchmark yourself as early as possible and to keep benchmarking how you do it versus other companies at different stage.

Bertrand Schmitt

It’s really important because every employee, for instance, will benchmark your offer versus other offers. If your offer is too good to be true, you have an issue in the long run, you cannot do that all the time. If it’s too bad, below market, then no one would join you. Again, if there are some weird situation in your cap table, it would make investors not invest. I’ve seen so many situation where red flag, not enough for founders, try to get understanding of why, and can’t be changed. Ultimately, very quickly, you stop the discussion because it’s just going to be one of these very difficult scenario where you have nothing to do but not invest.

Nuno Goncalves Pedro

Keep good, solid, healthy stock option pools from early on. Create them and keep them healthy. Think through them as you’re raising new money. Founders like, “Oh, I don’t want to dilute more. I don’t want to give more away.” Well, you need to reload sometimes these stock option pools because of hiring and how you’re going to the next level. Get pay, well thought through. Be very clear on pay. I think one of the issues we see is people don’t pay anything to anyone at some point. You will always have to pay someone something at some point.

Nuno Goncalves Pedro

If you’re a founder and you say, “Look, I can afford to not get paid and I don’t want to get paid,” or, “I’ll get minimum pay,” or whatever, that’s fine. It’s your choice. It’s your decision. Be thoughtful about your team members and how they are. It should be maybe enough that it hurts a bit so that everyone has a little bit of a pinch of hurt, but it can’t hurt too much.

Nuno Goncalves Pedro

At some point, your salaries need to scale. We know that salaries for entrepreneurs, in particular in the Bay Area where there are silly salaries really moving around, are not great. If a founder comes to you… This has happened to me recently. A founder comes to you, says, “I want to pay X.” Are you sure X is enough? I don’t know what life you have, but are you sure that’s enough? Maybe you pay that person a bit more.

Nuno Goncalves Pedro

As an investor, you say, “Look, as a company, I’m an investor in this company. As a board member, I’m telling you, I think the company should pay you more,” because we want this to be sustainable. We don’t want you to be living in huge difficulty, people that were in Section 8s and stuff like that to make ends meet. I understand that’s needed for a period of time. At some period of time, you need to pay yourself okay. Because we know as a startup entrepreneur, you won’t be paid great for a very long time. At least okay, you should be paid. Enough to live okay.

Bertrand Schmitt

Yeah, totally agree. You cannot live on ramen forever in a dormitory. That’s not an option. You have to be realistic. At some point, you need to do better and the same for your team. But at the same time, as you said, you have to find the team numbers that are adjusted to your stage as a business. You cannot just afford to pay everyone 500K. You simply don’t have the money and you don’t want to bring people who cannot adjust to your business stage.

Nuno Goncalves Pedro

Bertrand, it’s self-defining. If you’re trying to hire someone who says, “I’m willing to go into a startup mode, I’ve made a bunch of money, I think I can bring a lot of value to a startup,” whatever, and that person says, “I need to be paid 500K a year,” that person is not ready to go to a startup. There’s no way. That’s also self-defining as well. It’s self-defining as well.

Bertrand Schmitt

I really don’t understand these people.

Nuno Goncalves Pedro

No, I understand them. They have this image of entrepreneurship and startup life and whatever, which is beautiful because they’ve always been in larger companies, maybe. It’s not our duty to fulfil their image by paying them 500K a year. They can’t earn that.

Bertrand Schmitt

It’s just that it’s a distorted image of startup because you don’t make sense of what is really the business model and what is the capital structure. It’s a lack of understanding that is dangerous. That is very dangerous for startups. Don’t try to bring stars that are totally unable to match your reality. That’s never going to end well.

Nuno Goncalves Pedro

Maybe just to finish on structure and legal, two final elements. Obviously, regulatory environment, you need to take that into account, depending on what area are you in. IPA compliance. If you’re, for example, in the healthcare space, you might need some approvals. You need to understand this well. If you don’t understand your regulatory environment well from the perspective of the legal structure you need to create, but also from the perspective of how you need to operate the firm, you need to certainly hire someone to do that very early on or have the advice of a third party to do that very early on.

Bertrand Schmitt

It’s critical.

Nuno Goncalves Pedro

The final piece is governance. Your board of directors. Even if you don’t have investors, do you have a board of directors? You don’t. Sometimes board of directors don’t exist until there is an actual institutional investor on board. Quite literally, pun intended. I wouldn’t worry dramatically about it. But again, this is something where your lawyers can definitely help you.

Bertrand Schmitt

Governance will still be, even without the board of director, if you have co-founders, for instance, you need to really understand how you are going to run the business. Second-time founders, what do they do differently? If we talk about, in general terms, what people say, and we can share our own experience, one is that they might be faster in some things like fundraising, bringing a team together because been there, done that. But they might be slower in others. I think in only experience, they know that not everything is easy, that some markets can be terrible, takes time to build product. They might spend a lot of time trying to understand markets, trying to find the right idea. Their bar is probably higher than a lot of other entrepreneurs. And of course, there is always a trace that markets always win. Second-time entrepreneurs might spend way more time finding the right product’s idea and market.

Nuno Goncalves Pedro

Yes, it’s slower and faster. If I reflect on my experience, for example, I’m much slower at hiring people, in particular, people that I don’t know. I’m much faster at hiring people that I’ve worked with before. I’m much slower at making big systems decisions for the firm and process. I’m much faster at making the one-off, let’s try that out, see what works, even if it involves a little bit of money, but let’s just try it out. I’m much faster on hacks. Much faster on certain decisions, much slower on others.

Nuno Goncalves Pedro

It’s a bit of a balance thing. It is literally like you’re balancing. It’s like you’re on top of a surfboard and trying to figure out what the balance looks like, and you’re better at it. You’ve been doing it for a while. If you’ve been done two, three, four startups, it’s not your first rodeo. There’s a lot more clarity, I feel, for second-plus-time founders. There’s clarity and intent. There is also a much higher bar on certain aspects. It might be on the markets that they’re going after, on changing the world, doing something that maybe is a little bit more like a real painkiller. It might maybe have solved the pain in the past, but you want to solve a pain that’s going to change the world and that notion of mission.

Bertrand Schmitt

Your ambitions might be different. Let’s say you had a successful outcome your first startup. You made 10, 20 million. Are you doing a new startup to make 10, 20 million again? Or this time are you trying to make 200 million, 2 billion? A very different approach in terms of how you assess the market, how you assess the product, because suddenly you are becoming maybe even more venture capitalist yourself in a way trying to make sure that your investment in time and maybe your own money will be very worth it.

Nuno Goncalves Pedro

Yeah, it’s one of these things that at the end of the day, probably second, third, fourth time founders, they have stronger opinions. They’re probably faster at moving, though, and they’re probably faster at moving in terms of pivoting or moving stuff around as well, which is interesting. It’s all a little bit more nuanced, I feel, at the end of the day. They have stronger opinions, they’re faster, but at the same time, they also take their time to make decisions on the market they’re going into. They talk to more people. They really get their self sure they go into something. I don’t know, maybe they become more like panzers or like ships.

Bertrand Schmitt

They might spend more also. I’ve seen many were spending more in term of building a more top-heavy team. I’m not sure this is always a great idea, to be frank. It goes back to the amount of funding and going step-by-step. It’s great to be able to bring top people from all over the place and sometimes you want to do that and it could make sense. But I think you might want to be careful before you have found a product-market fit. Are you overhiring versus when you are as a business? And if you are overhiring, it’s not just it’s costing you more money, but it raised a lot of questions internally. People will wonder, “Why do you need these guys? What are they really doing?” That’s something you want to be mindful. And sometimes I have seen that with second-time founder and they go maybe a bit too heavy on the exec team side.

Nuno Goncalves Pedro

We’re talking about good founders. People that have done good companies who are going to the next level and want to do even better companies next. And they’ll be thoughtful. They’ll be very thoughtful. And normally, they have very significant growth mindset. They want to learn. They want to get to next level. They’re always in that mindset. There’s also second, third-time founders, and even excluding second, third-time founders where their first exits were awful, that they were failed miserably.

Nuno Goncalves Pedro

But even talking about people that had actually very good exits or exceptional exits, that does not necessarily make them great entrepreneurs. It might have been, honest to God, sheer luck. Right moment at the right time and someone wanted to buy you out. It might have been that they had the right trajectory in the market. The market was there for them, and the market did 80% of the job. In their mind, they were amazing, but actually, the market pushed them. It was that tailwind that we were talking about earlier was fully there.

Nuno Goncalves Pedro

Some of these might actually make the wrong decisions. We’ve seen this. We’ve seen some founders that were in one reason or another, acclaimed for maybe their first, even in their second exit. All of a sudden, they’re going for their third round, and hubris. They’re like, “We’re the best. We can raise 30 million first-round, friends and family. We don’t… It’s an uncapped note. We don’t give any notice to anyone. We just do our thing.” And some of these failed misery. Some of these will end up failing misery because either, again, the founder wasn’t a great founder in the first place, we just got lucky, or the founder was a great founder, but at some point became thought that they were godlike and forgot that maybe they were not God.

Nuno Goncalves Pedro

All of these can happen. Just be thoughtful. When you see people, don’t take it as an extrapolation of that’s what you do when you’re a second or third-time founder. The more nuance you see, the more likely the founder you’re seeing is a good founder. That would be my test. My test is if you see more nuance and thoughtfulness, it’s likely that that person is the real deal. They are a good founder and they’re just going to their next thing.

Bertrand Schmitt

Yes, hubris is never a good sign. Overspending is never a good sign. I think that it’s important to spot this as a future employee, co-founder, or investor.

Nuno Goncalves Pedro

Very good.

Bertrand Schmitt

This concludes episode 48, our second episode on day zero. As a founder, what should I do? We spend in this episode some time talking about how culture eats strategy for breakfast. We spend time on how to structure your organization, your startup, as well as what’s the perspective and how you do things differently if you’re a second-time founder. Hopefully, this was useful for you. Thank you very much for listening. Bye-bye, Nuno.

Nuno Goncalves Pedro

Bye-bye. Thank you.

View Details

So you’re starting a company? You’re now officially a founder. What should you do first? In episode 47, we will frame the landscape, share when it is a good time to start a company, how validate your start-up idea and the 3 key things to take into account: product, market and team.

Navigation:

Intro
First Things, First
When is a good time to start?
How to validate a startup idea – vitamin vs painkiller
The 3 key things: product, market, team
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Bertrand Schmitt

Welcome to Episode 47 of Tech DECIPHERED. This will be the first episode in a series of two episodes about Day zero as a founder. Basically, we will talk in Episode 47 about what is Day zero as a founder? We will talk about when is it a good time to start a business, how to validate? Your startup IDs. Of course, we’ll go around three key things: product, market, and team. That will be all for episode 47. You will hear more in our episode 48 about culture, about structure, legal, and about second-time funders. Nuno.

Nuno Gonçalves Pedro

First things first.

Bertrand Schmitt

First things first.

Nuno Gonçalves Pedro

First things first, what is day zero? Day zero is basically to us when you’re really starting your company. You have an idea, you may have done a little bit of market research. You’ve sought through a few things, but you’re about to go and embark on this journey of having a startup or a company of some sort.

Nuno Gonçalves Pedro

The first important thing is, what are you doing? What is it you’re going to do the company on? Is it a services company? Is it a product company? Is it something that you’ve done before? We’re going to start a little bit today in this episode talking about first-time founders. Later on, we’ll talk about the differences between second-time founders and first-time founders. Most of the episode today and then part of the episode next time will focus a lot on first time founders.

Nuno Gonçalves Pedro

But at least you have to have a notion of product or service. What is it that I’m supplying to the market? Second, what is the market? What market am I going to operate in? Third, what is the team? Normally, the team at day zero is you and potentially co-founders. It might be you by yourself, if you’re a single founder or a solopreneur, as we call it.

Nuno Gonçalves Pedro

What do you do first? The first things you need to do is to understand what markets are you going to act on, what products or services are you going to manifest in that market, and what’s the ongoing team into this problem, into this company? That’s your effective day zero start. If you don’t have these things and you’re like, “Oh, I just have an idea for a startup,” that’s cool, but it’s not something you can go and raise money on. It’s not something you can go and do anything on. You have to at least go to a stage where you have a plan, where you have a potential co-founding team, where you have a market that you’re going to operate on.

Bertrand Schmitt

By the way, not all businesses are venture-backable or not, and that might be something we come back to. I would say another point is also around, are you still working another job? Are you doing this part-time during your nights and weekends? Or have you resigned from your previous job and moved full-time on this idea? That’s always a big question.

Bertrand Schmitt

I would say a lot of people, you wonder if they are serious enough when they have been something for many, many months or years and they are still not full-time on it. They still have their previous job. Day zero for me often come when you have made that real-life decision to stop what you are doing and be really focused on this new venture. What’s your take? Do you need to have taken a career break?

Nuno Gonçalves Pedro

I understand what you mean by it. If you aren’t about to create a company itself, an entity will come back to structure later on. If you’re not really putting any resources at the table that are significant, that for me is the bar. Day zero, you have to put some resources at the table, some cash, your time allocation, about to create that entity or you are creating that entity. I’m not so strong about the full-time or not, but there has to be a significant part of your time focused on this.

Nuno Gonçalves Pedro

To your point, if you’re not just full-time, then if that’s been going for a while, if you’ve been not full-time for a long time, then there’s something wrong. Either you think you’re doing a venture backable business, but actually nobody’s giving you money, or you’re not fully in and you’re not all hands on the project and people don’t recognise that type of focus on the startup. There’s something then fundamentally wrong.

Nuno Gonçalves Pedro

In general, it would be good that people are full-time. In general, it’s good that at least the main founder of the firm says, “I am full-time. I am working on this full-time.” The other co-founders might not all be full-time, but at least one person, the CEO ideally, would be full-time. As I said, I’m not as specific on that for the day zero definition, but probably would be a good manifestation at least a couple of months in, that the person is full-time.

Bertrand Schmitt

I think because we all might have ideas, we all might try some stuff on the side, look into something. But I just feel that’s pre-day zero, and the day zero is more clear mark that something different is happening right now. I think even at this one person that is either full-time or spending an incredible amount of time is a clear necessity. Starting an entity is another one, and starting to have a clear idea about the product on the market.

Bertrand Schmitt

You might change over time, just to be clear. That is always true. You might decide to pivot three months, six months, 12 months to three years, four years after the fact, that happens. But having a clear starting point helps you clarify things and try to move toward this goal. I think another thing I like to see is a clear timetable. I think in the past, it has helped me when I started businesses to give myself clear timetable.

Bertrand Schmitt

I give myself six months, 12 months, 18 months to reach specific milestones so that I can reassess. I think it’s quite critical because you can get lost pretty easily in your ideas and exploring stuff and never-ending quest of digging some market or optimising a product and never launching it. I think having a clear timetable is a very important thing. Probably also starting to get visibility on, are you going to do this alone or are you bringing co-founders for the ride?

Nuno Gonçalves Pedro

What is it not? I think if you’re at the idea stage, very high level, you haven’t done much research in any specific market or product, if you don’t have at least this notion that you’re going to create an entity and that you’re going to create a growing concern, a company, then I don’t think it’s day zero. This could apply not only to first-time founders, but also to second or third-time founders.

Nuno Gonçalves Pedro

Some people, when they’re about to go on their second or third journey, they take some time to look at a bunch of things, talk to people, pick their brains, etc. They’re not the day zero of anything. They’ll only be at day zero the day they say, “I’m going to do this. Now I’m going to do this. I’ve decided this is the space I want to act in.” There still might be some pieces to flesh out, but that decision of, “This is now going to be my pursuit,” is for me, a core characteristic of the day zero.

Nuno Gonçalves Pedro

We see a lot of people that prepare pitch decks and they’re like, “Oh, I’m a first-time founder. I’ve prepared this pitch deck. This is an idea I have.” That’s also not day zero. It’s like, “Okay, do you have an entity you’re about to create? Do you have a clarity? Have you done proper research on the market sizing, or is this just a very high-level pitch deck with some bullet points that you put together because you so fancy?”

Nuno Gonçalves Pedro

To the final point I would say on what is it and what it’s not, not everything is venture-backable. Not everything is tech. Not everything is a company that necessarily scales and is product-led. You could have an idea for a restaurant or you could have an idea for a services company, which by the way, normally are not super mega venture-investable businesses, but the process is still the same. The process of defining what is my market, what is the product I’m going to offer to that market, or what is the service line that I’m going to offer to this market? What am I supplying for? What is the team that’s going to be involved in building this up? It’s exactly the same. It just happens to happen in a world that may not be a fundamentally tech-enabled product.

Bertrand Schmitt

Yeah. One of the big difference would be how much money you need to start the business and you need to keep investing from especially external sources to keep the business growing, that would be a big difference, obviously, between the service business as well as a product business. Now, of course, you can also have product businesses that are not VC-backable or yourself make a decision that you don’t want to keep looking for additional external financing during the journey of your business.

Bertrand Schmitt

Typically, one thing I’ve learnt is that it really depends on your market and industry. If it’s extremely fast-moving, if there is a lot of global competition, at some point, just being on your own might not be enough and you might need to accelerate through external backing or you will get left behind, basically.

Nuno Gonçalves Pedro

Moving maybe to, when is it a good time to start? Is it top of the market or bottom of the market? Is it in a good market that you should start a company or on a really poor market you should start a company?

Bertrand Schmitt

That’s always the question. I would say historically, it looks like that extremely, extremely good business have been started at bottom of market. There might be a lot of explanations for that. If you’re at bottom of market, you have to scrap by, you have to be efficient. You might also be forced into the opportunity of starting a business because you couldn’t find a job, you have been let go. It has happened to a lot of very good founders. In a way, that’s the most awful opportunities when you are forced to do something by yourself because you cannot find a job. That’s all the positive for starting in the bottom of market. Let’s remember, Microsoft, Apple were not started in very good markets time. Some of our big BMOs were not started at great times.

Nuno Gonçalves Pedro

Airbnb, I think the whole of BAT, Baidu, Alibaba, and Tencent also were not started at a particularly amazing time. Or they started around the end of the bubble, when they actually need to raise money. They were in the middle of a nuclear war-type thing or a nuclear situation for most investors. Yeah, it’s to your point, it’s the mother of all opportunities.

Nuno Gonçalves Pedro

But it’s very difficult to raise money as well during those times. It’s a little bit like a two-edged sword. If you’re raising on a high, it’s maybe easier for you to raise money. But then to your point, you won’t have to make very difficult strategic decisions because it will be easier for you to raise money. You won’t make the tough calls.

Bertrand Schmitt

But also in bad times, things cost less. It might be easier to get access to compute capacity. It might be easier to hire people cheaply or people you would never have been able to hire before. Supply chain might be easier. You might get some advertising on the cheap. It might come with less money, but you might need less money as well.

Bertrand Schmitt

On the top of the market, I believe it can be dangerous for sure because if you raise a lot, good for you. But if you spend a lot, there would be a payback time if it was not necessary to run the business. Is there a payback in term of dilution or an issue in terms of next financing where your valuation needs to increase significantly and it’s becoming suddenly hard to do, especially if you raise on the high and have to raise again 18 months, 2 years after, and suddenly the markets are not in the same situation? That’s probably the most difficult situation.

Bertrand Schmitt

That’s why I’m always trying to advise people to not push too hard on valuation, get some things at the market that’s reasonable. Even that would be difficult if you are on top of market in terms of valuations that you have to live for. But if you push for the highest valuation and sometimes you might get it, get lucky, it can be a very dangerous place.

Nuno Gonçalves Pedro

In terms of age, when should you start a company? There’s a lot of debate around that as well. Everyone says it seems like consumer companies should be started as young as you can. B2B companies should be started as old as you have the energy to go and do a startup. I’m not quite sure that’s fully true, although we do see a pattern that B2B companies seem to do better when founded by older founders. We’ve discussed some of this research in the past in one of the previous episodes. Sometimes, consumer seems to be done better by younger founders. Actually, sometimes actually even the first-time founders rather than a second-time founder doing that.

Nuno Gonçalves Pedro

That said, to be honest, I’m not sure. I feel when you’re younger in your career, you have less to lose, and so you can probably live on ramen a little bit more easily than if you have a family and you’ve been working for Google and getting paid a million dollars a year. It’s more difficult for you to make that transition to getting underpaid as a founder. But at the same time, sometimes the arc that you have professionally in the career that you’ve had from when you were young until that moment where you decide to finally do that startup, is actually what will allow you to be a better entrepreneur and allow you to do less mistakes even if you’re a first-time founder. I don’t have a very strong view. Maybe enterprise software is a place where older is maybe better. But again, there’s exceptions to everything we just talked about.

Bertrand Schmitt

Personally, I started my first B2B business before graduating from my engineering school in France, so I must have been around 21. It was not easy to start like this. I had to learn quite a bit on the go. I must say it was an amazing learning experience. It was not successful as a first startup, but it was a huge learning and gave me the taste and the love for entrepreneurship.

Bertrand Schmitt

Even if I might not work out, it might still be a huge valuable learning opportunity. But of course, if it doesn’t work, it has a cost. It’s only in your career. You are not getting paid much as a startup entrepreneur. You might actually put the little money you have in the business like I did. It might not be easy financially to be able to afford to do that. There are stuff you might be able to learn in some other business or so early on.

Bertrand Schmitt

I would tend to agree from the perspective that B2C, you might want to go early because you yourself might see trends nobody else is seeing because you are quite young. It’s a new trend affecting new younger generation.

Bertrand Schmitt

For a lot of B2C stuff, it’s often starting with younger people and then building its way up to older generations. I can certainly see some logic. In B2B, you can learn some ropes of businesses and then go on your own after a few years.

Nuno Gonçalves Pedro

Chamaeleon is my fourth company. I’ve done two VC firms and I’ve done two tech companies. The first tech company that I did was actually, think of it as a business process outsourcing play for IT in effect. It was a services company at its base. The idea was to at some point develop product. But I started that just out of college. But I’d been working for three years when I got out of college. I had been working for three years, got out of college, decided to this company.

Nuno Gonçalves Pedro

Honestly, a lot of lessons learnt there, I’ve mentioned it in other podcasts, so I probably won’t belate on it. But it was too early for me. I was still a bit obsessed about learning and learning rapidly. I had the feeling that although I was learning as a founder, I wasn’t learning in a very structured manner. I wasn’t learning with people that could mentor me in the right way. A couple of other realities around the company led us to close down the company. Actually, the company became profitable, which is a bit shocking. The company was profitable, and then we could have continued scaling it, but we decide to close it down.

Nuno Gonçalves Pedro

My second was Drive Capital, which is a VC firm and was a very non-scalable. VC is always rarely scalable. It takes a lot for you to scale a VC firm beyond 10 people, 20 people, etc, as an activity. But I feel that was a work of love. I started Strive around… I must have been 33 when I started Strive. I’d been working for a long time. As I said, I started working when I was very young.

Nuno Gonçalves Pedro

For me, it felt like I was easily halfway through my career. For others, it would feel like I was very early still in my career, but I knew a lot. There was a lot of things to learn. There was a little bit of this jump into the abyss that characterises being an entrepreneur that was particularly true about Strive. I don’t think it was as true about Dreamlink, which was my first company.

Nuno Gonçalves Pedro

In Strive, it was the fact that I was giving up a salary. I was a McKinsey partner before then. I was earning well, I was doing well. I have to leave that behind. I have to go earn very little money. I did do that choice. I did do that choice of moving from really well-paying, very stable, you have assistants, you have nice offices, and all of a sudden you’re starting everything from scratch.

Nuno Gonçalves Pedro

If I knew what I know today, I’m not sure I would have gone through that because it was a very painful process, but it changed my life. Now I wouldn’t want it any other way, so it changed my life. Posteriorly, it defined my life. I did start a tech company in between where I was non-exec. The company pivoted eventually, and I ended up stopping involved fully with the company. It went into a very different direction than the one I wanted to potentially take it on, so I stopped being involved. That one I won’t even count. It was almost like a side gig. It was like Peter Thiel in one of his 10th side gig-type thing.

Nuno Gonçalves Pedro

Then the last one is Chamaeleon, which is the evolution of Strive. It’s the next level of Strive. Again, it was a very thoughtful decision. It was like, “Am I really going to do this again?” A new VC firm, another fund. It was clear that this is what I needed to do, so there was no doubt in my mind.

Nuno Gonçalves Pedro

I learnt a lot from Strive. I learnt a lot on things that we should have done differently on how to create differentiation in the market and how to best serve entrepreneurs, how to fundraise better. Still learning a lot on the fundraising side, to be very honest with you, it’s a very difficult activity of a venture capitalist. But that, I think, it’s a little bit my, I call it hopefully my opus Dei or my magnum opus. Opus Dei, work of God, or my magnum opus, my best work of all time.

Nuno Gonçalves Pedro

Hopefully, it will be the case. We will see. But it’s certainly applying everything that I know from before. From the work I’ve done, from the startups I started before. It was a very distinct decision to the point where I’m now saying, “I’m not sure I’m employable anymore and I’m not sure I care.” We’ll see. Hopefully, I won’t have to care because that will be a good sign.

Bertrand Schmitt

That’s always the question. Once you start to be entrepreneur, your employability might be quite different whether you even want it in the first place. Me, on my last entrepreneurial experience as a founder building App Annie, now Data.ai in 2010, 13 years ago now, it was different.

Bertrand Schmitt

It was at a stage of my life where I had built up more experience, very relevant for my business, B2B SaaS. It was very early in SaaS, but I had this experience, in some experience in mobile as well in my industry. I had experience in the business model, in the industry, in companies that were also of smaller size, 50-300 people companies, which I think is very valuable.

Bertrand Schmitt

People who have experience in huge corporation, as you have experience, it’s not easy coming from a bigger corporate. It might not train you at all. It might train you in a lot of good, interesting stuff, but it might not train you at all in practicality of running a smaller business. So for me, actually, it was very good training ground. I felt spending time in smaller startups, successful startups.

Bertrand Schmitt

That’s something I would advise people who are serious about the founder journey, I think that working in fast-growing startups in a field of interest to you, that can bring a lot in terms of network, business practices, understanding of passion realities, learning how to deal with some segments of potential customers, learning some tricks of the business.

Bertrand Schmitt

I could see when I build a penny that I could leverage all of this. I believe that made a lot of difference with some other entrepreneurs and competitors who didn’t have similar experience, but wealth of experience in the space and were discovering bit by bit what it means to do B2B, what it means to do global scale, what it means to compete in mobile industry. I think that was very helpful.

Bertrand Schmitt

That’s also always a question. Do you stick to what you know in terms of industry? Do you focus on problems you clearly understand? I believe that it can have real value, actually, to do that. At the same time, of course, there are exceptions. If you take an Elon Musk starting a rocket company or car company, obviously, he didn’t have a significant experience there, but he had a deep interest and spent quite a lot of time digging this space before committing.

Nuno Gonçalves Pedro

Maybe to finalize this section, a lot of people think about employability and, “Well, if I do a startup, will I be more employable?” I found there’s very little pattern recognition. There’s people that do startups that end up in jobs that they would have never attained by just going through normal career progression, right? Because their company gets acquired or because they have a huge skill that they develop around a specific area, or they get acqui-hired or something else.

Nuno Gonçalves Pedro

At the same time, it might be that you become two of a generalist in scaling companies, etc, and then it will be difficult for you to join, for example, a large corporation. I personally wouldn’t think too much about employability. I think it’s more of a do you have the passion to pursue the company? That is the positive. Employability, that discussion would come later.

Nuno Gonçalves Pedro

But maybe in a nutshell just to end and put together this section. When is a good time to start a company? I guess any time. Any time is a good time to start a company. Is that the conclusion?

Bertrand Schmitt

There have been many examples of people starting very early, being extremely successful, starting very late, and being extremely successful. So in B2C, in B2B, I think that as long as you are able and willing, there is ability to start a business.

Nuno Gonçalves Pedro

Switching to our next section, which is around how to validate a startup idea. How do you think through your startup idea? You have this startup idea, you’ve maybe looked at the market a little bit, etc, but how do you actually validate it?

Bertrand Schmitt

I think that always a big question in a very simplistic manner as there has always been this debate about are you a painkiller or a vitamin? Typically, especially if you take typical investors, there is probably a preference for your business being a painkiller. Because a painkiller, you are solving something clear, acute that people are willing to buy and to buy immediately.

Bertrand Schmitt

If you have a headache, if it’s painful, you want it solved. If you are proposing a vitamin type of product, it’s a different story. Your market might be smaller, you need people who are thinking long term about something potential and being careful about how they plan the future. It might be a much longer tough for sales. There is no urgency.

Bertrand Schmitt

That’s a very typical question. Personally, I believe painkiller is a good approach because it’s a good focus, because again, there is clarity of urgency and there is clarity of need. Obviously, you want something that is once taken, you still need more. You want to be careful about one-off type of product. But I think there is some value to think with that framework in mind. It’s obviously a very simplified framework.

Bertrand Schmitt

I saw someone adding candy on top of the choice, so painkiller, vitamin or candy. Candy, obviously, would be more for fun, for entertainment type of product. Probably more typically what you could find in B2C type of environment. Of course, you have way more detailed frameworks to validate your ID.

Nuno Gonçalves Pedro

The problem with the painkiller, vitamin and now candy framework is most of the founders don’t know, or they get it fundamentally wrong. Because what happens very often is they do a market assessment and they look at the market. It might be actually even a market that they’re coming from. As we were just discussing that they would have subject matter expertise on, they said, “There’s clearly this problem. I believe this is the right solution for this problem,” but they don’t take into account a variety of things.

Nuno Gonçalves Pedro

They don’t take into account whether it’s the path of least resistance for user flows. They don’t take into account actual competition in the market. They grossly overestimate the size of the market, which is very common. All entrepreneurs normally overestimate the size of the market they’re going in. They basically don’t assess the forces of the market that they’re going in properly enough. Because of that, they might end up with a vitamin, although they thought they had a painkiller. It’s a nice to have. It’s not really something I absolutely need.

Nuno Gonçalves Pedro

My experience tells me this happens actually a lot. If you’re doing a company and you’re a first-time entrepreneur, and if you think you’ve nailed that, if you think you’ve nailed the market and the product assessment, go back to seeing it again because you probably haven’t. The odds that you will have nailed it in design mode are almost zero.

Nuno Gonçalves Pedro

How do you nail it? Well, you nail it by, shockingly enough, talking to potential users. This is true of both consumer and B2B. You go and talk to potential users, you go and talk to potential customers. I’m differentiating users from customers because users are people that use your software. A customer is someone who pays for your software. They’re not necessarily the same. You understand that also in B2B.

Nuno Gonçalves Pedro

It might be your customer is the head of IT of a company, whereas your users, it might be is DevOps team, but the guy might actually not use your product. So figure that out. Figure out the different angles around what are the user flows that have attached to them that are not being addressed by products today? What would be potential solutions that you think you can come up with that would be actually distinctive in that market?

Nuno Gonçalves Pedro

Finally, how could that create a trajectory towards product market fit? We’re still in design mode, to be clear. You haven’t engaged with anyone beyond just figuring out market and assessment, etc, we’re not in development yet. But you should figure this out before you go into that development cycle because you do need to design the product, the service, the experience, and you have to start there.

Nuno Gonçalves Pedro

A lot of user feedback, a lot of conversations. In B2B, it’s particularly important because those are more likely going to be your pilot test cases. They’re going to likely be your first customers or your customers that will define how the product will evolve in the first place.

Bertrand Schmitt

Talking to users, potential customers is super helpful. I think sometimes there is value to just jump in the market as long as you can build some minimum viable product. As a result, you can get even more clear feedback because a lot of people have trouble to give you feedback if they cannot touch or try the product, be it physical or digital and sometimes slides or roadmap, or just doesn’t cut it.

Bertrand Schmitt

So there might be value in that to jump straight in with some hopefully good ideas. Of course, you can talk around, but doing the more detailed advanced user understanding once you have something and iterate pretty quickly. But you have to be ready for that, that’s for sure. I think speed all around is a big criteria when you are a startup. How do you organize yourself to move fast?

Nuno Gonçalves Pedro

Creating that speed early on, creating that speed to do the assessments, but also not cutting corners dramatically without actually figuring out. It’s all 80-20. To be very clear, this is not a McKinsey project. You’re not going to try and figure out a market size to the Nth degree. You’re not trying to figure out a waterfall way of deploying a project. You are going to be very agile still as you’re developing stuff.

Nuno Gonçalves Pedro

It’s 80-20. It’s about getting that 80% right with 20% of your effort. That’s basically it. That said, I’ve seen very shoddy work on assessment around competitive intelligence, which you can do very early on; market sizing, which you can also do very early on; understanding if it’s a good or bad market, the dynamics around the market. We’ve already mentioned that before, you can’t win in a market that’s crap. You just can’t.

Nuno Gonçalves Pedro

You can be the best entrepreneur ever, but you can’t. So having that assessment pretty well done early on is very, very, very important. The opposite is also true. If you’re riding on a market that has tremendous amount of momentum where there are some positive dynamics around competition, that’s a plus, right? Then you have a great, great tailwind.

Nuno Gonçalves Pedro

It’s not just a market that’s cool. I think people sometimes get confused on this. Even, to be honest, Venture Capitalists get confused on this sometimes. It’s not like, “Oh, it’s GenAI. It’s cool. Everyone’s doing GenAI.” It’s like, yeah, everyone’s doing GenAI.” That’s the key part of that sentence. Or at least everyone’s saying they’re doing GenAI

Nuno Gonçalves Pedro

If that’s the case, maybe that market is a little bit too occupied or you have to figure out what’s your lane in that market, what is going to be distinctive in that market. But really framing that, framing why is it a tailwind or not is quite important.

Bertrand Schmitt

I think people don’t understand enough how important is surfing on a big trend, big underlying trend that’s gathering momentum and growing up and having a positive impact. Ideally, you sit before others, before everyone comes. So that you are there early. Ideally, you do that not too early either, because if you are 10 years early, that’s very painful road in the wilderness. But I’m a big believer of trying to track these big underlying trends in your industry and try to surf on them. The bigger, the better.

Bertrand Schmitt

We have seen some very big trends happening. In the past, we saw the move to PCs, the move to the web, the move to mobile, the move to SaaS, to cloud computing. Now we see a move to AI. So there are some very big underlying trends that if you are smart enough to position yourself enough, you can benefit tremendously for it. Because suddenly, even in a tight economy, you might have pocket of investments just because companies believe, “Yeah, I have to be positioned on AI. I have to have something there.”

Bertrand Schmitt

So money will still be there while it might not be there for other products. I think it’s critical, at the same time, again, you want to be there early enough that you are not just there when everyone else is there. But if you are too early and we can pick VR, for instance, we had a recent episode on VR, if you are there too early like VR in 2010, that’s not fun. It can be very painful, except if you are Oculus. Beyond that, nobody has really profited from being there in the 2010s in VR, while at the same time you could see on the other side a SaaS moving full speed, mobile moving full speed.

Bertrand Schmitt

You want to be very careful. Personally, I have experienced mobile before the iPhone. Before the iPhone, if you were Carrier, that’s great. If you were Nokia or BlackBerry, that was great. If you were anything else trying to focus on content, on gaming, on mobile web, that was a nightmare. Nothing was happening. Data plants were simply too expensive. There was no app stores. You had to deal with thousands of carriers across the globe to have a chance to distribute your product, and they would take the lion’s share of the revenues.

Bertrand Schmitt

It was a horrible, horrible times. I can tell you you will not feel a lot of tailwinds in your back if you were in mobile. Again, not being a Nokia, BlackBerry, or Carrier in the early 2000s. But then what a difference when the iPhone came about. Suddenly everyone started to care. There was an ability to distribute apps easily, cheaply in a central way. Data plants were suddenly cheaper.

Bertrand Schmitt

I think since both of the coin in that industry, in the mobile industry, I can tell you that being there early can be very painful. At the same time, being already there when stuff start to accelerate was like magic because suddenly everything become easy, at least early on. I mean easy in the sense of things can accelerate pretty quickly if you have the right offer.

Nuno Gonçalves Pedro

I agree with everything that you just said. I would just add that this assessment of market is actually generally complex. Market definition is something that people spend quite a bit of time on. Really, I’m a big believer that you have to do the top-down exercise of market definition, but also the bottom-up exercise of user flows, what users are being served, how does it work. From there, because it’s a very bottom-up exercise, figure out if actually the market definition is still correct, because it might not be.

Nuno Gonçalves Pedro

It might be that you realize as you’re looking at the user flow that it might actually not be the market that you think it’s in. For example, if it’s B2B, the purchaser of your system is not exactly who you thought it would be, and the user might not be who you thought you would be either. I’ll give you an example of the consumerized enterprise space.

Nuno Gonçalves Pedro

For a long time, everyone’s like, “Oh, this thing about giving people the ability to… For example, scan receipts and send to do expense reports, etc, is stupid, right? Because you’re selling this as a consumer thing.” Actually, no, it’s brilliant because if you use it and you use it in your company, at some point, you go back to your head of IT or whoever is on your corporation and say, “Well, I’m using the system. Can you guys just buy this for the entire company instead of me paying this and then expensing it to the company?”

Nuno Gonçalves Pedro

From a sales perspective, it’s also much easier because if it’s a lead gen, I can go to you and say, “Well, Mr. Head of IT, you’re saying we need to go through a trial? No, we don’t. We’ve been in production with your company for six months. We have 10 users on your company that they’re paying out of pocket for this service.” That’s how companies now like Expensify and a lot of other playbooks that we’re seeing today around consumerized enterprise, Superhuman, Expensify. That’s how the playbook was created.

Nuno Gonçalves Pedro

Partially, was by accident. It wasn’t someone that sat down and had a brilliant idea. Later on, they figured out the brilliant idea. But initially, it was this notion, they started realizing these people are bringing these services onto the company in live production. So the easier we make it for them to integrate with the existing systems in their company out of the box, the better for us. That’s how some of these guys have done so well.

Bertrand Schmitt

Yes, absolutely. Maybe to talk about mission statement, vision statement, I think that’s always a useful exercise. Some people do it right from the start, some wait a bit more. To clarify, so what is a mission statement? A mission statement is trying to describe, typically in a single sentence, the purpose of your company’s existence. It’s talking about your business intention.

Bertrand Schmitt

It’s hopefully quite clear cut for vendors, customers, investors. Where a vision statement will be more about what is your long-term view of the world and how you fit into that, what you hope to impact… How you hope to impact the world. I think there is some volume to start to think carefully early on about this because that let to talk and sell and explain what you are going on to others.

Bertrand Schmitt

I like that duality between mission and vision because the mission is more practical, more short-term typically, and the vision typically would be more long-term and share some perspective about your true long-term goal.

Nuno Gonçalves Pedro

Exactly. These things need to be adapted in time. It’s very rare that you have a very amazing, clear vision day one, and somehow that doesn’t change. It’s also very clear that you might define the mission of your company day one and it doesn’t change. I think things change. I’ve seen very few examples where they don’t. But have a little bit of the… Rather than going to distinction, the strategy is distinction on what is mission, vision, strategic objectives, and all that nomenclature, I would say have a clear big picture is what I would call.

Nuno Gonçalves Pedro

What is the big picture? If this goes wildly successful, what are you trying to build? This is very important, not just because of pitching and trying to get people to give you their money, be it VCs or Angels or whatever, but it’s very important because it allows you to calibrate what the core objectives are and the core values of what you’re going to develop. We’ll talk about values in our next episode, but it will allow you to figure out how does that evolve. How do I make this team evolve? What value system do I want to create?

Nuno Gonçalves Pedro

What culture do I want to create in the end for this? If you don’t have that final post, this is what I would like to get to, it will be very difficult because you’re just doing a lot of stuff at the same time very tactically. You can’t see the end picture or you don’t have a vision on the end picture, it will be very difficult to achieve it. I do think it’s important to have these discussions early on.

Nuno Gonçalves Pedro

The broader, big discussions on what does this become, what options would we have if it scales really well, but also if it doesn’t scale? If it doesn’t scale, what would we think we can do? I don’t think you should have these discussions all the time. It’s like in some ways then you’re never really executing, you’re always thinking. But you should do it on a regular basis.

Nuno Gonçalves Pedro

Maybe it’s every six months, maybe it’s every year, maybe it’s when something really worked poorly, launch of a product or launch of an app or something, and that triggers that discussion. But you should have those discussions on a regular basis.

Bertrand Schmitt

Totally makes sense. Maybe we can focus on three key things. When you have a business, you want to be clear about your product, your market, your team. Three key area focus early on. Let’s talk about modes, distinctiveness, what’s your take on this? My perspective is that I always try to think about, what can you build that is unique and that is not easily copied by others?

Nuno Gonçalves Pedro

Can you come up with this on day zero? It’s tricky in many cases. It might be just engaging in it, just actually starting to develop a product, going through an MVP, you start having some inklings of what might be very different from what exists in the market out there. That said, having that always in the top of your head or top of your mind is essential. If you can’t articulate what is unique about your company or your products or your services, it will be very, very difficult for anyone to understand it. Investors in your company, potential customers or users of your company.

Nuno Gonçalves Pedro

If you can’t articulate it yourself, how will others perceive it? For me, that’s pretty much why moat matters so much. It’s not just we venture capital. It’s like, “Oh, if you don’t have a moat, we don’t invest because then it doesn’t make sense. If you don’t have any sources of this things and why would we invest?” It’s more than that. It’s this notion internally of the founder, CEO of the company that you understand clearly what you’re developing that is very unique in the market. Now, this is not uniqueness for the sake of uniqueness.

Nuno Gonçalves Pedro

This is very, very important because moats come under very different forms. This is not unique for the sake of uniqueness. A moat could come as far-fetched as user experience could be a moat. The user experience is so clean that people just prefer your product to anyone else in the market.

Nuno Gonçalves Pedro

It might be technologically it’s not better. It might be the product itself is actually not better at the core of U2 utility. But just because of user experience, it might win. It might be that people really want to work with you because your customer support and customer success, if you’re in the B2B space, is amazing. It’s top-notch for the space you’re in.

Nuno Gonçalves Pedro

When we talk about moat, we’re not always talking about product and technology moats, which are the classic moats that people would identify. A product moat, being that your product is clearly distinctive and the utility that it supplies to its users, clearly distinctive, clearly different from anything that’s out there. It just provides a different type of utility or a much better utility. Or a technology moat where there’s pieces of your technology stack that is so significantly different from anything that exists out there that, by itself, it constitutes, again, a source of distinctiveness.

Nuno Gonçalves Pedro

Again, most people think about moats as product or technology moats, but actually, there’s all sorts of moats. There’s UX, there’s customer service, customer support. There might be client moats. There might be clients that they were never going to switch because their process to adopt, for example, a new system is so complex that their ability to just switch out of that company is very, very low. That’s a moat.

Nuno Gonçalves Pedro

Again, think through that. Be clear on what is unique about what’s happening with your company as you’re building it. Because anyone that wants to give you money that is half-smart will ask you at some point, “What’s unique about you guys? Why do your clients buy you or pay for your service? Why do your users use you?”

Nuno Gonçalves Pedro

If you don’t have that answer, chances are you’re not going to get a good answer from the other side either. Because you’re navigating without having any clarity on where you’re heading to.

Bertrand Schmitt

It’s not easy because sometimes you might trick yourself or you may be having differentiation when you don’t really have. Ultimately, it would be proof in the pudding on how you keep users and how users don’t leave your product or service. I think, obviously, a big source of moat is user virality. If you can make a product that is very viral, that’s a big difference.

Bertrand Schmitt

Another one, to keep on laying some examples, some companies are very good at dealing with government. Basically, they know how to sell to governments. It’s a very specific type of buyer. There is an opportunity there, because typically, startups are not great at selling to governments.

Bertrand Schmitt

If you have a focus on that, like few tech companies have been doing, I think some of them managed to be very successful, because the competition might not have been so strong as you could think. Even some companies might have been lazy working with government.

Bertrand Schmitt

A great example could be SpaceX, obviously, in terms of being very good at dealing with very few customers on NASA at first, and then growing from there, and being there at a pivotal time when NASA was ready to work with startups.

Nuno Gonçalves Pedro

The pivotal piece here that is often mistaken is we’ve been talking about these elements of moat. It’s new language, but we’ve been talking about it for a long time. If you go back to Porter and his work on strategy and the Forces, he talks about competitive advantage.

Nuno Gonçalves Pedro

Competitive advantage is a moat. It’s the same thing because competitive advantage assumes sustainability. It’s in the definition of Porter’s competitive advantage that it’s sustainable for a period of time, or until such dramatic market conditions, et cetera, et cetera, would change, or until some of the forces would dramatically change, like regulation, market, et cetera.

Nuno Gonçalves Pedro

Again, you’re looking for a competitive advantage. If you do not have it, you cannot compete. It’s the proof, literally, in the pudding, as I said. When people ask you moat and you’re wondering what you mean by that, it’s like, if you don’t understand it, then how are you competing? How do you compete if you don’t have a competitive advantage?

Nuno Gonçalves Pedro

We know a lot of companies that shouldn’t be competing and don’t have competitive advantages and all that. Cool. But still, it should be pretty central to the leitmotif of your company, what defines your company. If you don’t think too much about it, then chances are you’re going in the wrong direction.

Bertrand Schmitt

Other proof will be early because you will know if you are winning or not winning in the marketplace. Are you getting new clients? Are you fighting to get a deal? Do you get the deal all the time or some of the time? Why are you losing the deal?

Bertrand Schmitt

On the medium term, once you have clients, you will see, are clients staying? Are they spending more money with you? On the contrary, are they leaving? You can start understanding it early, and you have to keep trying to learn from it because what might get you the first deal might not get you the second deal, so you have to be very careful.

Bertrand Schmitt

Obviously, when you are dealing with consumers, it might be a bit different on understanding exactly what you miss, but you have different ways to understand why customers are buying or not buying your product.

Nuno Gonçalves Pedro

Exactly. We talked about moat and what are the sources of the instinctiveness. As Bertrand mentioned, we normally look at product, market, and team. The reason why we look at product, market, and team is likely that the sources of moat and distinctiveness or competitive advantage will be coming from there.

Nuno Gonçalves Pedro

We’ve also talked about this in the past. Sometimes when we discuss product, there’s an underlying technology that gets linked to it, when we talk products like product and tech. At the end of the day, market, we’ve already talked quite a bit about around market definition and what market constitutes. Is this a tailwind market or a headwind market? Doing competition analysis, all of that stuff, we’ve talked quite a bit about.

Nuno Gonçalves Pedro

On the product side, we’ve also talked quite a bit about, it might be that you’re a services company. If that’s the case, all the same principles apply, the principles of how do you provide distinctive services. If you’re a consulting firm, what’s unique about your service proposition?

Nuno Gonçalves Pedro

Last but not the least is team. Team is also a little bit like a product. You’re also selling yourselves. It’s always fascinating to me when I see a founder that comes and pitches to me, even in very early stages of a company and underpitches. What I mean by underpitches is they have an amazing experience and they’re selling very, very superficially that experience.

Nuno Gonçalves Pedro

You need to be very good at selling yourself. You need to be very good at selling yourself. Because actually, if you’re raising, let’s say, money from friends and family because you need that money to get to the next level, whatever, it’s very likely you won’t have a full launch product. It’s very likely that we can’t observe that. It’s also very likely that the market definition is still emerging. You’re in a market, but it’s still emerging.

Nuno Gonçalves Pedro

But the one thing for sure is you exist and you’re the founder and CEO of this company. If you do not know how to sell yourself, chances are you’ll have a lot of difficulty selling your company, and selling the product in your company to your customers, and selling yourself when you go to fundraise when you need to raise a lot more money, and selling yourself to any stakeholders that you interact in the business. That matters dramatically. That ability for you to pitch yourself, to actually say, “This is what’s unique about me and what makes me be particularly well-positioned to do this company.”

Nuno Gonçalves Pedro

If you can’t answer that question really, really well, you have a problem. If someone says, you’re going to do a company that’s going to address deep learning in this specific industry, let’s say, oil and gas, and you can’t articulate why you and your team are better equipped than most out there in the market, as the least common denominator, then you’re not going to get the money. Not at scale, for sure.

Nuno Gonçalves Pedro

Because why would I give you that money? Why are you the right person to do this? Obviously, with traction and as you move along the company and as you go to the next level, there might be things that show up and that might make that more interesting. You might need not to pitch yourself as much as you would at the beginning.

Nuno Gonçalves Pedro

But at the beginning, you need to be very, very articulate. What’s your superpower? It can also, as I mentioned before, be a moat, be a source of distinctiveness, the one-out-of-one person that knows that space. That’s a pretty significant, distinctive aspect about you.

Bertrand Schmitt

I would say it’s ABS always be selling. I think when you run a business, you need to attract not just money, investors, not just customers, but employees, partners, work with others. It’s a constant. You have to sell who you are because initially, as a founder, you are identified with a company. What is your business doing? You end up having to keep selling it.

Bertrand Schmitt

If you are not doing it in a good way else, you don’t want to do too much where it’s not necessary. You have to adapt to your audience, obviously. But you have to be able to do it and to do it well and to do it constantly, and I would say relentlessly. It’s definitely a big part of the game if you want to do anything.

Nuno Gonçalves Pedro

A good segue of that is, who do you need to have on board early on? You need to have on board people that are core constituents of your team that you can afford. That you can afford is very important. That you can afford. Because they’re willing to go there for mostly stock, a little bit of pay, or you have enough cash that you’ve raised for them to come on board, that can constitute the kernel of what’s going to be that moat or that set of moats for your company.

Nuno Gonçalves Pedro

If it’s really deeply around technology that your moat will subside, then with all due respect, you can’t just outsource your entire technology team. That doesn’t quite work. Because obviously, you could own it and have invention rights, but if it’s not your engineering team, then it’s some other engineering team doing it.

Nuno Gonçalves Pedro

If, for example, a core characteristic of your moat is the fact that you have very deep subject matter expertise and you do not have it as a founder and CEO, you need to hire for that or bring in a potential co-founder that, again, gets that gap taken care of. Very, very important.

Nuno Gonçalves Pedro

It’s not to say that you need to have everyone in-house. You don’t have the resources to have everyone in-house. You need to pick and choose. You need to pick and choose what is core to your kernel as a company and what is not core.

Nuno Gonçalves Pedro

If that means, for example, you’re doing a mobile app and actually you think you can outsource easily a lot of, for example, the frontend, because what’s distinctive about your mobile app is really the backend, no problem. No problem whatsoever. You can outsource your frontend. At some point, you’ll probably need to bring it in-house when you have the resources to do it. No problem.

Nuno Gonçalves Pedro

What doesn’t work, and I’ve seen some companies in the last six months, is two or three people, core people, they get handsomely paid because they’ve raised a little bit of money, they get paid or handsomely paid, and then everything is outsourced to some guys in the middle of nowhere somewhere. No problem with some guys somewhere in the middle of nowhere, but the quality of what they produce might not be necessarily amazing. If the quality

Nuno Gonçalves Pedro

of what they produce is amazing, then the guys that are out there somewhere might, at some point, decide to do a product that will compete with yours, even though you probably have invention rights and all that stuff. Not unheard of. Again, pick your battles on outsourcing versus what you need to have in-house.

Bertrand Schmitt

It’s a key point. I agree with you. I’ve seen so many founders outsourcing the key part of their business, not running it tight, and ultimately, it goes nowhere, because they are not able to deliver a product, or they are not able to deliver great product, at least what could be defined as great early on, or they don’t iterate fast enough. You need to be very careful about that early part of the game.

Bertrand Schmitt

If you decide to be in technology, and guess what? You need to have technologist, you need to have people who understand technology, who live on brand technology, and you need that early on versus too late in the game. For sure, there are some function you cannot have early on simply because the people you would need, you need them for a week, you need them for a very part-time.

Bertrand Schmitt

You have to find a balance, not everything is full-time. Usually, it means that early on, you might also over-index on generalist, people you can touch different things. You don’t want to start just with a deep database expert, and you have very little need just for that early on. You need people who can touch a bit of everything. That would be probably your initial approach.

Bertrand Schmitt

The first 10, 20 people, people who can do a lot of different things, backend, but even frontend as well. You might want marketer who can do different things from some planning to execution to emails to social networks. Are they the best at everything they do? Probably not, but at least they can do a bit of everything and have the right attitude and mentality and focus on stuff that work better. Once you discover stuff that work better, you can invest more in that direction.

Bertrand Schmitt

I think it’s a game of finding the right generalist usually early on, and then moving on to specialist experts the more you grow the business and the more you professionalise even more the business. But that outsourcing is a key part of the game—what do you outsource, what you don’t outsource, what you build in-house.

Bertrand Schmitt

When you need more money in order to get financing, that would be obviously a big question. People will try to understand, how is it done? Do I trust these guys when they say they are deep tech companies, but actually everything was outsourced? That’s not coming to an [inaudible 00:52:02].

Nuno Gonçalves Pedro

I will reframe. I think we’re probably agreeing. I don’t think it’s generalists-generalists. We’re talking about people that have broader set of skills within a specific domain. That’s why we saw full stack engineers. Everyone wants to do full stack engineers because a full stack engineer, by definition, can do frontend, backend, and a bunch of other things.

Nuno Gonçalves Pedro

We’re not saying generalists then, as in the guy can do engineering and can do sales. We’re talking about broader set of skills within a domain.

Bertrand Schmitt

Within a function, yeah.

Nuno Gonçalves Pedro

Within a function. Just to make that clarification there. I would just say one minor point. There are functions that normally come later in the history of companies. I always get a little bit startled when I see, for example, people hiring HR very early, sometimes there might be good reasons for it, but I always get a bit startled. I’m like, “That’s surprising. Why are you hiring HR people so early?”

Nuno Gonçalves Pedro

First 10 employees, you have an HR person or a recruitment person. No problem with HR people. I think they’re amazing. They create a ton of value, but it seems very early.

Nuno Gonçalves Pedro

The same with marketing in some areas of SaaS. You have marketing. At some point, you might have more marketing in sales. I also don’t understand that. Unless your product-led growth motion is clean and really works well at scale, it surprises me a bit as well.

Nuno Gonçalves Pedro

I think there are some functions that you’ll see surprises. People will be like, “Why do you have this?” Again, if there’s an elephant in the room that you perceive that people that are talking to you, et cetera, perceive that there’s something strange about, explain why that person is the right person for that.

Nuno Gonçalves Pedro

It might be what Bertrand was just saying that person is a little bit broader in terms of their skill sets and therefore fits that stage of the company a lot better.

Bertrand Schmitt

Maybe just to add to your point, that’s always something that surprised me early on, let’s say, less than 50 people, you see some companies who present themselves as tech companies, but they have way, way more sales and marketing people than engineers, for instance. Like, what? Seriously? Below 50 people, and you have way more in sales and marketing than people developing the product? I think it’s typically a mistake.

Bertrand Schmitt

I’ve seen very few exceptions. Usually, it ends up being a product that are barely products that are barely differentiated. I would say maybe even service companies that are hiding as product companies, but ultimately, you keep opening more to see what’s going on inside and you discover a bunch of professional services people, for instance. That’s a clear sign there is product issues. It’s very tough to go back.

Bertrand Schmitt

I’ve seen some companies being smart about trying to use professional services to understand more their clients, to understand more what to automate. But typically, it’s a culture very hard to change. If you are really a product company, you want to be very careful from the get-go to keep putting your resource to improve the product directly itself versus setting people to hide the issues or correct the issues all the time.

Nuno Gonçalves Pedro

Exactly. Maybe this leads us to our last topic, which is funding. I don’t know if this needs to be funded. There needs to be money to pay for resources. You need to use cloud infrastructure. You need money for that.

Nuno Gonçalves Pedro

One of the typical conversations is around self-financing, bootstrapping versus VC financing or third-party financing. My advice is very simple. It’s whatever money you can raise with the least possible strings attached.

Nuno Gonçalves Pedro

If you need capital to proceed, you should raise it. If someone is willing to give you that money with the least possible amount of strings attached, you should take it. Post the simplistic approach to something that’s actually naturally complex.

Nuno Gonçalves Pedro

Bootstrapping can work really well. I think bootstrapping works really well until you have a very clear view of what product you want to develop, et cetera. To be honest, the cost of development these days is so low that it might even lead you through an early version of the MVP.

Nuno Gonçalves Pedro

Given the bull days that we had in the last 10 years, we’ve seen a lot of founders now coming to the market like, “Oh, I want to go and do this company unless I can find funding to get to MVP.” I’m like, “Why?” If you can put in 25K and it gets you through MVP, which in some cases, it might, 25k might get you through an MVP, why wouldn’t you do it yourself? Why wouldn’t you derisk that part to investors and therefore also get less diluted once you start getting funding from investors?

Nuno Gonçalves Pedro

There’s definitely a lot of discussion around, when should I go and raise, how much money should I raise, et cetera. If you can raise a bunch of money with a really nice valuation that’s very non-dilutive to everyone involved in the company, the founders, in particular, when you start, go ahead. That’s great. As we’ve discussed also before, you’re now carrying a larger valuation than you’re worth. You also have to be careful about that.

Nuno Gonçalves Pedro

But right-sizing rounds is difficult. You can do the bottom-up exercise of, “This is the cost I’m going to incur,” all of that that gives you already a view of what’s the minimum you should absolutely raise at a certain point in time. But very, very honestly, this is all deeply connected to where you want to get in terms of your go-to-market.

Nuno Gonçalves Pedro

It’s like, “Where do I want to get with my product, therefore, where would I want to get with my product in the market, which is the go-to-market?” Where does 500K take you? Where does 250K take you? Where does $500 million take you if you’re raising a huge series, whatever, EFG, or whatever?

Nuno Gonçalves Pedro

Again, having that clarity on what does that cash give you, how does it support your budget, for me, it’s pretty structural planning. It’s pretty structural strategic planning. I know it’s difficult when you’re starting a company to figure out what your top line is going to look like, no clue, but you should have a very clear view on what your bottom line looks like, in particular, your expense line looks like, and what do you need from it, the ability to deliver. That would be my advice to founders at this stage.

Nuno Gonçalves Pedro

Really spend the time doing even some detailed budgeting on your expenses and what you need the money for. Take into account plan Bs and plan Cs and think a little bit through plan A of creating top line and where should you create revenue and how, but just nail that cost moat, first and foremost.

Bertrand Schmitt

What I’ve seen as a clear tale that there is something wrong is to raise a shitload of money, millions of dollars when you don’t even have a product, you just have a business plan. I think it’s bad practice. I’m not sure I’ve seen any success stories on that moat. Maybe you have seen, I don’t know.

Bertrand Schmitt

But I think that’s something to be quite careful. Sometimes it might work, but I’ve rarely seen that. I think it’s quite critical to make sure that you build step-by-step your valuation, the amount you raised. There is not such a big disconnect between the two.

Bertrand Schmitt

There have been many known stories of companies, where because the founder was very famous, he got 10, 20, 30 million all at once. No product, no nothing actually. Ultimately, all the money was wasted. I feel it’s pretty sad when you work like this.

Bertrand Schmitt

Sometimes there might be pressure, “Oh, this is a very hot entrepreneur, very hot industry.” But I think it’s wrong for everyone involved, honestly. I don’t see what’s worse than putting those tons of millions into something that doesn’t deliver anything.

Nuno Gonçalves Pedro

Rightsize it, but rightsize it for the moment of time that you’re in. Rightsizing two or three years back would have set probably 18 months runway. Rightsizing it for now might be 24-30 months runway.

Nuno Gonçalves Pedro

If you can raise that much amount of money, then you should. But I agreed with you, absolutely, you shouldn’t over-raise. In some cases, sometimes it happens where companies do a hard pivot, but it’s a hard pivot to nothing very clear. It’s like, “I am pivoting away from my business.” “What’s your next business?” “I don’t know.” I’m like, “If you don’t know, how about you send us the money back until you do know?”

Bertrand Schmitt

I agree with that. I think that I would be quite shocked to hear that. I think if there is a clear plan and if the founder and the team are very strongly believer in it, I think they should probably have the opportunity to do that change. At the same time, you could argue potentially. It could be the time to say, “Hey, by the way, we are going to do that. I’m ready to send back the money if investors are not believing enough into the new plan.” That would be a clean approach.

Bertrand Schmitt

But I would say at day zero, your financing would be typically from your own money, friends and family money. Yes, you want to bring enough money on the table, so you have a good chance to achieve some milestones. That’s always the question. You have to be realistic about your milestones and add some buffer so that you know what could be next.

Bertrand Schmitt

Obviously, friends and family, you might want to be careful about how you are dealing with them. I’m a big believer to try also to use standardised agreements. If you take the Y-combinator agreement, for instance, that helps everyone not to abuse the party in some ways but leverage some existing market-standard contracts.

Nuno Gonçalves Pedro

We love the MVCA template for Series A. We use it actually starting on Series C, which sometimes pisses off our founders early on. But then they realise the value of that. Because once they’ve done it with MVCA, Series A docs, any other round that comes after either is within that or a custom thing, so you know if it’s out. I fully agree with that.

Nuno Gonçalves Pedro

This concludes our Episode 47, our first of two episodes on Day Zero as a Founder, What Should I Do?

Bertrand Schmitt

Thank you, Nuno.

Nuno Gonçalves Pedro

Thank you, Bertrand.

View Details

Is work-life balance attainable or is it a “mythical creature”? What can one do to extract top professional performance while not endangering one’s personal life and hers/his/theirs physical and mental health? We will discuss how much is too much, the big axes of “life”, whether work-life balance is possible, differences between geographies and will, as always, share our own “hacks” and key “systems”.

Navigation:

Intro (01:34)
How much is too much? (01:59)
The big axis: family (21:35)
The other axis: friends, hobbies, spirituality, etc (30:27)
Is work-life balance possible? (39:05)
Differences between geographies (56:24)
Bring it all together (61:57)
Conclusion (63:43)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Nuno Goncalves Pedro

Welcome to Episode 46 of Tech DECIPHERED. In this episode, we will discuss the lifelong exercise of work-life balance and whether it is possible. We will discuss mental health, physical health, how much is too much, whether it’s actually possible to attain work-life balance, and as always, we will share some of our own hacks and principles. Bertrand, how much is too much?

Bertrand Schmitt

That’s the question. I’m a serious believer that it depends also of which stage are you in your life. Which period in your life are you? Are you still quite young with a lot of energy? Are you a single parent with kids? I think depending on the stage in life, you won’t physically have the same time available to devote to work. That will have an impact on your ability to work and how much you can execute and that can put pressure, obviously, to your capacity to endure.

Bertrand Schmitt

At the same time, obviously, if you’re in your 20s, you should probably have way more time to do a lot, to learn a lot, to try to achieve a lot. You might be able to endure it much more easily than if you were in your 40s, for instance.

Nuno Goncalves Pedro

Maybe we start with a disclaimer. Obviously, all opinions we’re going to share today—we’re not psychologists, we’re not trained psychiatrists, we’re not MDs—it’s our views and based on experience we’ve had from managing people, our own lives, interacting with many different players at various different levels of seniority. Hopefully, it is not just anecdotal, but again, we are not trained physicians, MDs, et cetera, so take this obviously with a grain of salt.

Nuno Goncalves Pedro

To your point, I fully agree. There is a stage of life, and it’s a bit more granular, I believe, than that. It might be that once you’re joining a specific company, specific organisation at a specific time, you’re going very aggressively to fit into the organisation, to understand how everything works, to balance yourself and how you interact with other people and learn a new set of skills. It might be two years in that your role and job might be a bit different if you’re more in corporate life.

Nuno Goncalves Pedro

In startup life, as you know, it doesn’t seem to go away, certainly in the first four or five years of the company. Venture capital is also an activity that classically, I think, if done properly, if done with love and with gusto and with passion, it’s an activity that is very encompassing. I always make the joke, I don’t suffer from ADHD, I enjoy every minute of it, which probably makes sense.

Nuno Goncalves Pedro

I fully agree with you. How much is too much? How do you know? There’s the obvious warning signs, and normally the obvious warning signs are actually not internal. We’re very poor at taking our own internal signals; sleeping badly and a few other things that we’ll come back in a second.

Nuno Goncalves Pedro

Pay attention to people around you, in particular people that you respect and that have your best interests at heart. It might be family members, might be friends, it might be colleagues, it might be your boss.

Nuno Goncalves Pedro

If you have a boss that is thoughtful about your time, listen to them. If they’re saying, “It seems that you’re not taking enough vacation. It seems like you’re not really taking time during the week to do other things. It seems like you have no other hobbies. You seem a bit glum, or a little bit depressed, or a little bit sad,” take it to heart. If someone has told you that, always remember they’ve probably been thinking about it for a long time. For them to tell you this, it’s already served something that’s been going on. Then meditate on it, think about it, and step a little bit back. The external warning signs for me would be the first way to start.

Bertrand Schmitt

Yes, that’s a fair point. What you can see from outside typically could be sign of being tired. People can see you are tired, you are barely awake, or you are too stressed out and you might be lashing out at people as a result. There are a lot of signs that others can see that you might not see that are signs that something is going wrong.

Nuno Goncalves Pedro

Yes. Then to your point, Bertrand, there are some internal signals. If you’re tired, you know you’re tired. If you’re sighing during the day in the middle of a meeting that should otherwise be hopefully fun… Maybe not all meetings are fun, we know that for a fact. But if you’re sighing at the wrong moment of the day, maybe you should get more sleep. It might be a one-off, it might be it happened that week and you’re on a business trip and you’re just very tired. But take those signals to heart if they start happening very, very repeatedly.

Nuno Goncalves Pedro

Sleep deprivation is a big, big thing. Sleeping well, making sure that you align yourself with your own clocks. I know some magical human beings who can sleep 4-5 hours a day. I’m not that person. I need 7-8 hours. Every single time that I’m a long period of time sleeping below 7 hours, I notice it and I can withstand it. I could do a week of 4-5 hours, but immediately I know by the end of the week I’m really, really tired. I’ve really not been able to create the space for my brain to fully rest, et cetera.

Nuno Goncalves Pedro

Although this will depend from person to person, take attention to your sleep. That’s the beginning and end of almost everything. If you sleep poorly, we’ll share some hacks later on. But maybe it’s time to do a sleep study to think through how do you get better sleep, go to bed earlier, eliminate all these inputs from things around you. Again, we’ll go back to hacks later. I don’t want to dive too much into it right now, but there’s definitely a lot of things around it. When we talked about being tired, not sleeping enough, you mentioned being snappy and aggressive.

Bertrand Schmitt

Maybe on the sleeping part, I noticed clearly, at least these days, less than 6 hours in a row, it’s definitely not good for me. I know that 7 hours, safe bet, but less than six, definitely danger zone.

Bertrand Schmitt

I always point back people to a study from the US Navy a long time ago. Basically, they were trying to assess how pilots were effective and how much sleep they needed to be effective. In that study, there was a very clear line that 4 hours and a half of sleep was the absolute bare minimum for a human being to basically be able to do his activity in a proper way. I’m always highlighting that to people. Never go there. Never go there because you cannot sustain it and it’s proven.

Nuno Goncalves Pedro

We’ve had all these experiences probably in college when we were doing all-nighters to study for stuff, et cetera. Your brain isn’t quite as capable afterwards. I remember when I was at McKinsey, I think I was relatively beloved as a leader because of that, because I always made a point of making sure that people…

Nuno Goncalves Pedro

We work very hard, we work very long hours. But working 90-100-hour weeks, the whole banking thing, some of the top-end management consulting when projects are very short or engagements are very short, doesn’t work. We all know this for a fact. Your brain isn’t as capable. Halfway through the week, your brain isn’t as capable the next day. Creating space for people to actually rest and do other things that are not work is vital. It’s actually a characteristic of performance. Ninety to 100 hours generates worse performance.

Bertrand Schmitt

Yes, you can do so much with just only 80 hours a week.

Nuno Goncalves Pedro

You’re joking, but some people think like that.

Bertrand Schmitt

I’m joking. But I know I had period in my life where I had to be 80 to potentially 90 plus hours a week. I think it can be sustainable over a one month period if you really have no other choice. But my point would be that it better be worth it. I would say a lot of engagements from my perspective don’t qualify. It has to be for more important reason, and I think at 80 should probably be the limit.

Nuno Goncalves Pedro

My extreme, this was back in my days at Deloitte Consulting, I think we pulled… There was one particular project where we were probably three to three months-and-a-half in hardcore 90-100 hours modes-

Bertrand Schmitt

Oh wow.

Nuno Goncalves Pedro

-and that was just very telling. It was telling to me. It was telling about the whole team. There were stupid mistakes happening all the time, issues in the modeling. The project, in the end, went extremely well and it turned into a project that was a little bit calmer after that. This ended up being a one-year project. But those first three to three-and-a-half months just illustrated to me how incompetent we may become once we really don’t have sleep, rest, good food, meet with friends and family, go out of it for a bit. I think that’s informed my whole career.

Nuno Goncalves Pedro

It was very early in my career—to your point you were making earlier—I wanted to become better, faster, quicker so the 90-100 hours didn’t make a difference to me and my colleagues. We were all doing the same. We’re all in the same boat. But honest to God, I can’t ever do this again. This doesn’t work. This actually just doesn’t work.

Bertrand Schmitt

What I believe for me though is that, especially early on in your career, if you don’t put in the hours, at some point there is no way you’re going to break out from the back in a way. I certainly believe you have to put some hours, especially in your 20s.

Bertrand Schmitt

But there is a fine line. At some point that line, you end up doing so much that you could just end up in burnout and you might get sick of it. I’ve heard stories of people who collapse in the subway, for instance. You really want to make sure you don’t cross that line. I would feel that the 90-plus hours a week for three months is definitely crossing a line. I think you probably want to adjust to the situation. Are we talking about the survival of your company, of your firm, of your country? Are we talking about doing some accounting exercise? I think it’s important to understand where we stand.

Nuno Goncalves Pedro

I think actually most US presidents at some point, I don’t know if it’s optional or not, but go through sleep training so they can sleep less hours. It is true that if you have different responsibilities… I heard this in the past, I don’t know if it’s an obligatory thing or if it’s optional. How can you withstand sleeping less hours? I am pretty sure it should involve some use of other things because I can’t see just the human body magically adapting to it.

Nuno Goncalves Pedro

I had a professor in college that would sleep 4 hours a day every time. He was a professor of physics and he seemed like a normal human being when we interacted with him. He was a very kind guy, not snappy at all, so maybe it does work. But my theory is actually it works better for… It depends heavily on your metabolism, and with certain metabolisms it works better. In certain people it will work better.

Bertrand Schmitt

I think it’s heavily specific on a few individuals. It might be biology.

Nuno Goncalves Pedro

To your point, horses for courses, depends on the time you’re at. We’ll come back to this concept later on. The quality of time, the quality of hours piece. One hour is not worth the same irrespective of what you’re doing and how you’re doing it. One hour can be worth as much as three or 4 hours of someone else or something done in a different way. I’ve long been an apologist of that, that we need to be better and smarter.

Nuno Goncalves Pedro

In some ways, what we do at Chamaeleon is also very entrenched in this and the use of systems and augmentation that allows us to hopefully be more productive and better. If we’re not, then we need to revisit processes and we need to revisit how we’re applying our time. I’m saying this with a huge mea culpa. I’m the worst offender. I’m checking emails on weekends, I’m doing other stuff.

Nuno Goncalves Pedro

To your point, if we’re entrepreneurs and we’re running our own businesses, that’s natural. But then creating the space, so how do you deal with it? Creating the space to go out and not do it? It might be the weekend or it might be a day of the weekend. Sundays I’m disconnected. It could be vacation. I’m extremely poor at taking vacation over the last few years. I used to be very good at this back in my life, but over the last years, I’ve become extremely poor at this. I’ve been thankful because some of my colleagues, people that I work with, say, “You have to go. Just go do one week out or whatever and do it properly.” If doing it properly encompasses, for example, not checking your email.

Nuno Goncalves Pedro

I did this a couple of weeks ago. I didn’t want to fly. That’s the thing. I was like, “I fly enough as it is,” so I didn’t want to go and fly. I said, “I’m going to just drive.” I drove to Mendocino, spent a couple of days with a few friends inland and went to the coast a couple of days later. The rule I had is no email. No email, no Slack, no messaging. Everyone on the team knew, “We can reach Nuno, we can just call him or text him.”

Nuno Goncalves Pedro

Obviously, nobody did. Thank God. Thank you for that. I appreciate everyone on the team for that. But they always had access to me. If something dramatic was happening, nothing dramatic fortunately happened. Obviously, when I came back, it took me 3 hours and a half to go through all my emails from that week. That was the cost.

Nuno Goncalves Pedro

But to be very honest, the ability to disconnect. Again, it might be different from person to person, but in my experience, you absolutely need to really disconnect. Just go fully offline and say, “I’m going to be away from all these things,” because otherwise you’re not fully present there.

Nuno Goncalves Pedro

In my case, I was by myself. Many people, if they go with their significant others, their loved ones, with their families, with their kids… We’ll talk about kids in a second. If you’re always checking your phone, you’re not fully present there. Not only you’re not fully working as you’re also not fully there, so it’s a bit of a stupid thing. You’re not getting rest, you’re not spending time with your loved ones, and you’re not fully working. Think of it like that. It’s a use of your time that is very, very profitable because that will allow you to recharge your batteries. It will allow you to think through things in a different way.

Nuno Goncalves Pedro

One idea always comes to mind, I won’t say who this is, this was a very senior person, CEO of a very large organisation, who once told me this as I was a consultant and it hit me. He said, “I’m very envious of you guys.” I was like, “Why would you be envious of us? We’re consultants, right? You’re the CEO of a massive company.” He said, “Because you guys have time to think about my business.”

Nuno Goncalves Pedro

For a second I was staggering. This is a CEO of a large organisation, public company and he’s like, “We have time to think about your business and you don’t? You’re the CEO.” And it’s true. It’s right. At the end of the day, it’s true. If you basically back up your entire week with stuff, back-to-back meetings, calls, et cetera, you have firefighting in the middle of it, you don’t have time to think.

Nuno Goncalves Pedro

You also have to create time to think. Even in your regular schedule, create a couple of hours to think about your business. Create a couple of hours to think about your people and how you’re working through things. Create a couple of hours to think about yourself. It might be 1 hour a week, it might be 30 minutes a week, it might be 2 hours a week. It depends on your schedule. But create that space, put it in your calendar and don’t abstain from doing it. It’s important, not just for your mental health, but it’s important for your productivity. Otherwise you’ll end up doing stuff always the same way. You won’t do stuff better. Then an hour is an hour. An hour is not 3 hours because you’re not improving your efficiency during that time.

Bertrand Schmitt

Yes, Nuno. In agreement, everything you are saying, there is definitely a question of learn how to manage yourself. How much sleep do you need? How much work can you sustain being overly tired without becoming overly aggressive? I think it’s key to learn that.

Bertrand Schmitt

At the same time, I think it’s also key to keep the foot on the pedal, especially early on in your career, in order to make a difference, to go to the next level. It’s near impossible without that to go to the next level. We talk already about how it depends on your situation, but it will also go back to, are you doing stuff that you love, you are interestingly passionate about? Is it the industry, is it your function? That are questions that will, of course, have an impact on how you can sustain that or not.

Nuno Goncalves Pedro

There’s this saying in Portuguese, I’m just paraphrasing, but it’s like, that person who runs for passion never gets tired, and I think that is true. Again, if you are very tired and disappointed and sad, it might not be that you are having necessarily a hardcore mental health issue or you’re depressed or whatever. It might be just you’re in the wrong place at the wrong time, that you are doing the wrong job for yourself, that you’re in the wrong environment with the wrong people.

Nuno Goncalves Pedro

Don’t take everything we’re saying as everything is a mental health issue. It’s not necessarily. It might be just your externality is the wrong one. At that point in time the reassessment has to be a little bit more substantial.

Bertrand Schmitt

Yeah. Being able to recognise that it’s not the right industry, the right function and maybe that requires a change because you are lacking the interest or you feel that it’s not the skill set you want to keep building on, actually the skill sets you don’t want to acquire at some point. That’s quite critical to realise and to learn. I think that’s part of an overall analysis of knowing yourself. I think it’s quite key to know yourself, else you won’t be able to help yourself and to get the best out of yourself.

Nuno Goncalves Pedro

To finish on this topic of a little bit when should you stop, when should you go, agreed on depends on the time of the life you’re in, the role where you are within that role. Also very important for you to set yourself in that decision itself. What I mean by that is some people go, go or stop, stop. But there isn’t clarity on why they’re going and there isn’t clarity why they’re stopping. If you’re saying, “I’m going, going, going,” you’re going towards what? What’s the ultimate objective? We all know that you can have as many goals as you want and it might be that you might not attain them.

Nuno Goncalves Pedro

Again, I’ll go back to something I’ve probably said before. The value is in the journey rather than necessarily the end game and outcome. The outcome and the game, once you get there, you probably just have another one that you want to go for. But do have objectives. Do have goals in mind. Do have things that you want to withdraw or take out of it.

Nuno Goncalves Pedro

I had this really fundamental interesting piece. I won’t say at which company, but it was many, many moons ago, many years ago. I remembered every time that I would work the 80, 90, 100 hours a week, I would be more snappy, I would be more aggressive, et cetera, somehow magically, and this is in the same organisation.

Nuno Goncalves Pedro

My evaluations were systematically worse when I worked more hours. I’m not saying this is true of everyone and this is true of whatever, but I noticed that was my pattern. I would work more hours, I’d piss more people off, and I would be more judgmental. I’d be like, “I’m working all these hours and you’re not, and I’m pulling all this weight,” and whatever.

Nuno Goncalves Pedro

Systematically, my evaluations were worse than when I stepped back a little bit, worked less hours. But I had the frame of mind to be, for example, kinder to my colleagues, which seems like an obvious thing, but if you’re working 90-100-hour weeks, kinder to your colleagues might not always be top of mind. You’re in survival mode. Just thinking through that, thinking through why are you doing what you’re doing? What is the goal? What would get you closer to that goal, and being very strategic about that is helpful. Always knowing, as I mentioned before, that the value is in the journey, then the outcome is what it is.

Bertrand Schmitt

To be clear, we’re not talking about how you should manage people. I’m not saying you should force people to work these extremely long hours. It’s a question of what is it that you want to achieve in your life? How much efforts are you willing to put into it, and are you putting too much efforts into it?

Bertrand Schmitt

Maybe to talk about support systems. Obviously, you can talk to some professionals. You can talk to advisors, team members, family. I don’t know how much you want to talk to board members about some issues, so that’s always a question.

Nuno Goncalves Pedro

Talk to people you trust, fundamentally. It could be professionals. We’ll talk about coaches later on. Advisors, family, obviously, some team members. Again, you have to be a little bit cautious. Colleagues, et cetera. Really be sure that there is trust implied and that both parties are aligned.

Nuno Goncalves Pedro

I’ve been very blessed. I’ve been a board member in companies where people shared with me precisely this, precisely. I remember a founder, again, won’t go into names, but the founder called me on a Friday saying, “I’m depressed.” Okay, then we need to have a conversation. I was a board member to core. There wasn’t some funky relationship in any way. I was just a board member. An investor just, I think, confided me enough to have that conversation.

Nuno Goncalves Pedro

We had a conversation. I listened mostly to him. At the end of that conversation, I told him, “Look, don’t take this the wrong way, but this weekend, you’re not going to check any emails, any message.” “Oh?” “No, nothing. Zero. It’s an obligatory thing. No emails. I’m going to check on you. I’m going to check in the team if you’ve sent anything out. If you checked anything out, I will check on you.” Obviously, made a bit of a joke out of it. “You need to rest. That’s the first thing you need to do. Once you rest, you need to think a little bit and figure out if this is depression or something else.”

Nuno Goncalves Pedro

Actually, it was interesting because in this case it wasn’t really depression in the sense we’d give it to him. He was getting frustrated at his co-founder. He felt again to that point that he was pulling the 80, 90 hours weeks, but his co-founder wasn’t, et cetera. Actually, this was a good ending. He ended up actually having a good discussion with his co-founder. His co-founder admitted that he wasn’t as focused on the business as he was in terms of time allocation. He ended up leaving the company over time, stayed on the board for a few years. It was actually the right solution.

Nuno Goncalves Pedro

But again, very uncommon that people will have these discussions with your board members. I felt very blessed when that’s the case. I’ve had a few of these in my career. They’re more uncommon than common. But just mostly make sure that you can trust the person you’re talking to, and that that person then go and talk to another board member or say, “This might be not the right CEO,” or that person might be talking to one of your colleagues or talking to your boss or affecting your evaluation or how you’re seen by others around you. Obviously, you have to be relatively cautious on how you do this.

Bertrand Schmitt

Obviously, there is a big axis: your family, your family life. How do you manage your spouse? How do you manage your kids? That’s really a big question because it’s not just managing yourself, obviously, it’s managing expectations of others.

Bertrand Schmitt

Your kids might not understand. Your spouse might understand, or might not. She might know what it is to be in a high-stress environment. She might be herself, or himself, in a high-stress environment. That’s a big part of the discussion. Do people understand where you are? Are they trying to help you in that situation? Or are they dragging you in the opposite direction? It’s even more stressful for you, putting long hours on one side but not in agreement with your spouse. Do you have time for your kids? Do you see your kids? Do they see you? Do they miss you? That’s a big question.

Bertrand Schmitt

I believe quite a few folks, especially with COVID, realised that how much travel was taking a toll on them suddenly being stuck at home for 12 months, 24 months. I think quite a lot of people realise that maybe there is better ways to do your job, more efficient ways to do your job, where you can see more your family. I remember some friends telling me how careful they were not to travel as much as possible during the weekend to have time with their family.

Bertrand Schmitt

I think that’s really key. You need to have a supportive spouse and you need to make time for your spouse as well as for your kids. If you don’t do that, at some point, you are going to miss a big thing in life.

Nuno Goncalves Pedro

First things first. Kids always win. I have no kids, but kids always win. We just had this magical moment a few minutes ago in our recording, which I hope actually Bertrand puts part of the outtake in. If not, you listeners, you send us messages and tell us that he needs to get the outtake of his daughter interrupting our recording. She’s the coolest. Basically, kids always win. I think that’s what we realised with COVID because we’re at home and then kids are like, “I do not care about what you’re doing. I will interrupt you whenever I want and I will just do whatever needs to be done.”

Nuno Goncalves Pedro

I would add, rightfully so—and this is where we get to the gist of the discussion around the axis of family—with family, you should be present and you should be aware and you should be there. Sadly, I don’t have kids. Also, very sadly, I am no longer married, and I’m Catholic. I’m a big believer in the sacrament of marriage. For me, this is particularly painful. But be present.

Nuno Goncalves Pedro

I felt, in particular when I was married, and in the relationships that I’ve been in, that it’s actually crucial to be present, to be there. It might be the dinner once you arrive from a very tiring day. It might be that weekend that’s a bit messy because you have something you need to do, even for work. It might be something altogether, but just being present and aware, disconnecting from your phone, trying to really engage with your family, trying to listen to what they have to say, and being part of that piece is it.

Nuno Goncalves Pedro

This is the part that’s fascinating to me because you’ll ask a lot of people, and I think the large majority of people, you’ll ask, “Why are you working so hard?” They’ll probably say something like, “I want to be successful,” or, “I want to make money,” or, “I want to be better at what I do.” But at some point in that conversation, the majority of people will tell you, “I want to do this so that I can have a better life for myself and for those around me or for my loved ones. It might be my spouse, it might be my kids.”

Nuno Goncalves Pedro

What’s the point of working like hell and then not dedicating that time to the kids and to your spouse and being present, et cetera? It defies the purpose because the outcome is already there. The outcome is already the time you’re spending with your family. If you’re not spending quality time with your family because you’re working on something magical that will make your family much happier, guess what? That’s not probably going to happen. So spend that time thoughtfully.

Nuno Goncalves Pedro

It’s not big things. It’s not about going to do trips and changing the world. It might be for some, but normally it’s not. It might be those 5 minutes or those 15 minutes that you get out of your laptop or your phone and your kid is bugging you and you’re like, “You know what? Okay, I’m going to spend time with you. Let’s go do some stuff.” It might be having some rules. It might be, “I’ll always…” I am super respectful of that when we have team members or people that work with us that tell us, “Look, need to take care of my kid. We have dinner together. Put him or her to bed.” Absolutely. That’s priority number one.

Nuno Goncalves Pedro

I used to have the joke with my clients when I was back at McKinsey, when their spouses would call, be it wives or be it husbands. I always used to say, “Real boss, right?” They’re like, “Yes.” We would laugh, but it’s true. It is the real boss, and that’s how it should be.

Nuno Goncalves Pedro

Again, axis of family for me is vital. It also includes blood family, brothers and sisters and mother and father. It is very important that this is taken care of properly. This is not coming from a place of someone who knows it all. I’ve lived outside of my country for 20 years. I haven’t lived close to my blood family for 20 years of my life. But when you are with them, try and be there. Try and be present. No excuses. Try and be there and try your best.

Bertrand Schmitt

Yes, I’m like you. I’ve been living far from my blood family for many years now. Trying to count. Maybe not 20, but not too far from 20. It’s a long time. It’s not the most easy part of living life somewhere else from where you come from. It’s the most difficult. Probably made even more difficult during COVID when you couldn’t even travel to see them.

Bertrand Schmitt

But you have to manage that. You have to listen to them and you have to find the support you need, given your situation. As you say, you cannot just be working for a magical ending at some point in your life. At some point, you have to be there for the moment, for the present because that’s what your family, your kids are looking for. It would be too late at some point. That’s a key point of the game.

Nuno Goncalves Pedro

There’s a part where it gets even more complicated, which is, what if your co-worker or co-founder or the person you work with is actually your family? Your spouse, brother, sister, mother, father, et cetera. We just invest in a company that’s led by the daughter, and the father is the co-founder. That’s the first for us. We’ve invested obviously in spouses where the co-founders are spouses.

Nuno Goncalves Pedro

In my experience, things work well if there are boundary conditions. If you establish either rules or some alignment on what constitutes personal time versus professional time, what boundaries can you not cross and you still treat each other as a spouse or as siblings or whatever in a different way than you would within that work environment?

Nuno Goncalves Pedro

This is art rather than science. I’ve never seen perfectly how this works. I’ve seen some people that do this really well and create those spaces and create that ability to, “Okay, we go to work, and now it’s not work.” In particular, it’s a co-founder situation, it’s a startup. It’s all-encompassing all the time and it’s too much. I can say that we’ve invested in several… I’ve invested in several founding teams that were spouses and nobody divorced or broke up during the time that we were investors in the company or while the company existed. I only know of one couple that broke up years later.

Nuno Goncalves Pedro

I think that’s a good track record and that’s what’s meant to be, that for some reason, we think that’s the right person to do this business with us. There might be some incredibly valid reasons in terms of skill sets, ability, accomplishments, et cetera, but that we have that ability to, a little bit, create these boundaries, the ability to do then something else that is outside of the work realm.

Bertrand Schmitt

Yeah, if it’s truly co-founders and you build on each other’s strengths and you are on similar levels of expertise, maybe different expertise, but at similar level, it might be definitely easier. What I’ve not seen working so well is a situation where you bring some family members down the line and they might not be to the same level that’s needed, and it might not work. Some people in the team might be resentful, it might be visible at board level that there is an issue, and it creates some tough discussion.

Bertrand Schmitt

I will say in general, I’ve seen situation where it seems to work really well when both parties are really equal and really co-founder. But if that’s not the case, coming later down the line and not the same level, I think that can be an issue if you don’t carefully drive this. But I’ve seen a situation where people overestimate the ability of their family member and create issues, unfortunately.

Nuno Goncalves Pedro

It’s difficult to make it work. If you can make it work, it might be magical, but it’s difficult to make it work. Do it thoughtfully. Obviously, again, if you’re separating the realms like we’re blood family or we’re family versus we’re co-founders or co-workers, at some point, the co-worker-co-founder relationship might not work. If you’re a blood family, then it is what it is. Again, having that ability to have honest conversations and saying, “This is not working. How can we sort it out?” is also pretty important. Otherwise, you’ll end up becoming the next succession series on TV, or at least an element that can be fictionalised into that.

Nuno Goncalves Pedro

Moving into other axes, obviously, maybe we can go a little bit more rapid fire. Friends and having time for friends and doing things with friends. Hobby is what I call time normally for yourself. It might be that in your hobbies, you involve your family or you involve friends.

Nuno Goncalves Pedro

Actually, the sports I do, one is a little bit individualistic because I’m inside a car driving. There’s really nobody else with me. Maybe I could have friends who go racing with me as well. Now, I have friends at the track that became friends after I started racing, I guess. Table tennis is also a sport that’s one against one or two against two. Obviously, time for yourself, but it could be times for you to connect with others.

Nuno Goncalves Pedro

The immediate thing that comes to mind that is last but definitely not the least is spirituality and religion. Obviously, if you’re a spiritual person or if you’re religious and you have religious practices, that takes an important part of your time. I am, as I mentioned before, Catholic.

Nuno Goncalves Pedro

I am not only a practising Catholic, but I do have daily norms and routines that I follow in my life, like going to mass, for example, on a daily basis, which is a little bit uncommon. We see some people doing it, but it’s a little bit uncommon. For me, that’s very important. It’s a very important routine of my day and how I do things. I know for other people, it might be something else, it might be their meditation in a broader sense of what meditation is and spirituality.

Nuno Goncalves Pedro

There’s a lot of other axes that you should think about as ways to get a little bit back onto your work-life balance. They’re also flag posts. They’re also posts that tell you how well you’re doing. If you have no time for anything, if you have no hobbies, if the last time you met your friends was three months ago, you could be not spiritual, who knows? But if all of that is your work, then maybe there’s something there that needs to be corrected. There may be something there that doesn’t quite work out.

Bertrand Schmitt

You want to be careful because work might disappear, the work might change, the team might change. If you put absolutely too much into it, it might be at some point a very rude awakening. You want to be careful the day you wake up. That’s why I agree with you. You need to cultivate these other axes. France, it’s easy to catch up even remotely if that’s your best option.

Bertrand Schmitt

I’m a big believer in hobbies. Either hobbies that are potentially connected to what you do for work or not so that you have something else totally different, focus on. Personally, myself, learning to fly. That’s my hobby for the past 12 months. I think that’s very helpful to have something else, another rock in your life that you focus on that gives you some stability in case anything happened. I think there is real value to invest in these directions and you have to pick what feels important to you and what you connect the most to.

Nuno Goncalves Pedro

Sometimes these hobbies or the conversations with friends or your spirituality is what gives you perspective, the ability to think higher level, to look at your life more broadly than just the work. I think the point you were making, Bertrand, is pretty vital. Work can’t be everything because it is not an even relationship. In some ways, at some point, it becomes parasitic. There’s a parasite. In most cases, it becomes parasitic towards the employer. The company, if that’s an entity, where you’re giving maybe too much of you.

Nuno Goncalves Pedro

But it might be the other way around. It might be that it becomes too parasitic towards the employee because the person is not doing a lot of work and they’re doing whatever and they’re just chilling, et cetera. This episode is obviously, clearly not for those people. But it could be that it’s the other way around.

Nuno Goncalves Pedro

I think once a relationship with your work, with your company, with your work environment becomes parasitic one way or the other way, it’s time to probably leave or time to think through what else is there for you, because there’s something wrong. There’s something wrong about that relationship.

Nuno Goncalves Pedro

Again, we are made to work. We are told we’re made to work, even spiritual and religiously. We’ve read that. It’s not like, “Work is all this hassle thing. I prefer not to work.” I think most of us are in this field of we actually want to work. We want to gain something out of it. Some of us love it, some of us might like it. But at the end of the day, work can’t be it. There is something around it that is more important in some ways, which is your arch or your arc of life.

Bertrand Schmitt

I believe strongly in one thing is that work, the company is not your family. I personally cannot stand companies that talk being a family for employees. For me, that’s sad. That’s wrong. If you’re a company, you want to have a team. It’s a team because you want to bring the best people to the team. You want them to work well towards a common goal. At some point, maybe at different company stage, company growth, change of strategy, potentially you have to reorganise. You might have to let some people go. You don’t let people go from your family. I don’t think that’s how it’s working. But in a company, that’s what might happen.

Bertrand Schmitt

I feel that maybe in tech in 2022, people started to realise that was a lot of bullshit from a lot of companies who were talking about being a family and this and that to the point where the shit hits a fan and suddenly there is no family anymore. There is layoff after layoff, and that’s really unfair. That’s a bad environment to make people believe in something that does not exist, is not real. But unfortunately, I saw a lot of companies playing that game and people willingly embracing that story.

Nuno Goncalves Pedro

Bertrand knows I have a slightly different view on this, maybe in the nuance, the difference. I agree with this notion that your company is not your family. Most companies are organisations where you spend a lot of time, and obviously, they can’t be your family.

Nuno Goncalves Pedro

It might be—and it happens in certain cases—there are relationships that are formed within your work environment that are certainly friendship relationships, and in some cases, it might be almost like family relationships. The way I work, and certainly in the organisations that I’ve been a founder of rather than I just joined. I used to work at McKinsey, but I joined McKinsey, but the organisations that I’ve helped co-found and that I’ve been working on, there is a notion of us, we really try and take care of each other.

Nuno Goncalves Pedro

Now, is it clear that we’re not family? Most of the time, it’s clear we’re not family. But we will do things that are a little bit familial in how things get done. It’s a bit of a two-edged sword. On the one hand, it’s very positive because people can be a little bit more open about the issues they’re going through. On the negative side, obviously, there’s also a lot of expectations from everyone involved that you’ll do right by them.

Nuno Goncalves Pedro

It depends on the size of your organisation, I believe. It depends on the scalability of the organisation. It depends on the people, ultimately. I have been in organisations that had very strong family-like ties. At worst, I’d say friendship ties.

Nuno Goncalves Pedro

I’ll give an example, and this was not even my organisation. I joined an organisation as the second person in the team. The person who led that department, that team, is still someone that I consider almost like a second father, not just a mentor, but someone like… I went to his 50th birthday. Flew over just to go to his 50th birthday in a different continent, because, of course, if he ever asked for anything relating to his kids or his wife or himself or whatever, I would do it. It’s more nuanced. It depends, is how I would say it. I wouldn’t be saying, “Oh, it’s tough. It doesn’t work.”

Bertrand Schmitt

I don’t think it’s opposite at all. What you are describing is not a relationship with a company. You didn’t go to the 50th of this company. You went to an individual, and this is different. I’m not saying you cannot have friendship and build friendship, you cannot have a strong spirit of camaraderie, of friendship. Of course you can. Of course the best companies generate that. I’m talking about when companies are purposefully trying to position themselves as being your alternate family. I think it’s the wrong word and the wrong approach to it.

Bertrand Schmitt

Another extreme. Sometimes I feel some companies are trying so hard to obligate you that it starts to feel a bit like a cult. That’s also something I would be personally worried when companies try to take all your life and potentially trying to take place of your spiritual life in some ways by being close to a cult, and we all know some startups that were run close to that.

Bertrand Schmitt

I always believe that people have to be careful. There needs to be some limit on how strong you push things forward, especially the younger people. They might be more easily impressionable and might believe a bit too much some stuff, so I think it’s important to put some limits. But of course, personal friendship between people, it’s a very different story from something that is too organised, choreographed by a company.

Nuno Goncalves Pedro

In shocking news, we fully agree then. There’s no disagreement and agree with everything you said. Obviously, you have to be thoughtful about the more junior team members, the younger, the less experienced and how do you influence them and how do you work with them. Knowing this isn’t a very exact science. I mean, obviously you try your best and sometimes you don’t do greatly, but hopefully over time, you get better at it.

Nuno Goncalves Pedro

Moving to the key question maybe on many of your minds, those listening to us, is work-life balance possible? Stake on the ground as always, I think it is. There’s a few levers and elements that are very valid and that are very important. We discussed some of them already. Horses for courses. The time and period of your life that you’re in, the stage at which you’re in, within the realm of the company that you’re in, and the job that you’re doing, all of those things have importance and all those things define how your boundaries change and how they can change one way or the other.

Nuno Goncalves Pedro

Maybe it’s more time to work and much less time to life. Maybe at some point, you start balancing it a little bit more. It’s taking time off, it’s acknowledging that you need to take time off. Weekends, ideally at the very least. Vacation. Time during the week outside of your working hours to meet with people or to do something that you like or a hobby. All of that is pretty important.

Nuno Goncalves Pedro

I’ll go back to a topic I’ve mentioned before, which is the key, in my opinion, to how you get the most out of your performance and job. Quality of time. This is incredibly difficult. The ability to do in one hour the work that would take otherwise someone else or yourself more hours to do is essential.

Nuno Goncalves Pedro

I’ve always been someone who believes that FaceTime is absolutely not the right thing. It’s great that people meet once in a while. It’s great that they interact in person. But just being there for 12 or 14 hours just to show you’re working is a stupid, idiotic thing. People should be measured on their accomplishments, on what they deliver, and on the quality of what they deliver. Then the time, you’ll start figuring out, “Okay, that person’s a bit faster. That person’s a little bit slower. Is this higher quality, lower quality?” Et cetera. But measuring your professional life in that sense, “Have I executed the way I wanted?” is vital.

Nuno Goncalves Pedro

This is not easy. It’s something that you systematically need to iterate. I’ve been working for 27 years. For example, I believe right now, I’m at a stage where there’s pieces of my calendar that are very inefficient that I’m not really delivering the value I should in those times. There’s others where I’m super efficient. That’s hopefully a good news.

Nuno Goncalves Pedro

But at the end of the day, going back to the drawing board, reassessing, how do you improve those times? Are there processes that you can get better at? Are there people that you can leverage better? For example, if you’re a manager, are you managing in the right way? Are you empowering people to do stuff or are you getting micromanagerial on everything?

Nuno Goncalves Pedro

I tend to be a bit helicopter in how I manage sometimes. I’m very high level and then I go very deep. I try to sometimes stop myself from that. It’s like, “Okay, no, this is yours, you do it, okay? If there’s some quality assurance that needs to be done, we’ll get to that.” But ultimately the ability to use an hour in a manner that is efficient for high-quality outcomes is the essence of this game. That’s how you get work-life balance over time.

Bertrand Schmitt

Yes, that’s a huge point. Myself, I remember hiring people, and what you are targeting to achieve is a better use of your time. If you hire people and after a few months of ramp-up you get a better life because stuff is done better, faster, more efficiently, and you have to spend less time on it, then it’s success. If you are just spending more time managing, or I would call it nano managing people and going too much in the weeds, then that’s a huge problem. You are probably not saving time.

Bertrand Schmitt

A big part of the game is improve your process or hire the right people, but you need step-by-step to improve how you work. That’s a critical part of the game. Hiring the right people, and firing if they are not the right people, as well as optimising your process is a key part of the game.

Bertrand Schmitt

I want to stress again as well, you really have to match your period in life with the type of company and the stage they are at, as well as the position you are taking. You want to be really careful that the two are well aligned.

Bertrand Schmitt

I remember how many times I had to tell people, “Hey, maybe this is not the right thing for you because of the stage we are at and because the stage you are at in your life.” Different stage in your life, different stage for us as a business or this entity would be a perfect match, but this is not the case so either you change and you switch. But maybe there is no reason for you to change because this is your stage in your life and you cannot change it and you don’t want to change it. But the company also has some obligations to other team members, to your clients, to your shareholders, so you really have to match the two. Unfortunately, so many issues are because you are matching the wrong time in your life with the wrong stage for the company.

Nuno Goncalves Pedro

It is important to make this distinction around… You’ll often listen from your friends, your colleagues, or others this notion of work-life balance. There’s the case for yes and there’s the case for no. The case for yes is many times done by people that have created very clear boundaries in their career and how they work, et cetera. But it might also be made by people like myself, where there’s sometimes a tenuous line like work and life where I’m checking emails on weekends and stuff, but it doesn’t affect me naturally. I still believe I’m resting on a Sunday, although I might check a couple of emails.

Nuno Goncalves Pedro

The case for yes and for no, I believe is actually, shockingly enough, in the eye of the beholder. I’m going to be extreme here, but it’s like you could literally just switch to “I actually have work-life balance without doing tons of changes.” I know people like some of you that might be listening, like, “Mate, I’m doing 80 to 90-hour weeks right now.” It might be tweaks, it might be little things that you’re doing. It might be that you fully accept that this is the time, to Bertrand’s point, that you are doing the 80 to 90 hours, and maybe in three months’ time or in six months’ time, it will not be the time for you to be doing that. Accepting that is very, very vital.

Nuno Goncalves Pedro

I’ve seen people that come to me with what I call the Kumbaya answers of, “Oh yeah, of course, work-life balance. I live in Bali and I go all around the world.” I’m like, “Great for you, it’s wonderful that you can do that and that you still feel you’re efficient.” I know people who actually are efficient doing this. There’s nothing wrong about it. But when you listen to these stories, never forget it’s in the eye of the beholder. It’s like the empty glass, half full mindset. If you frame it in a way that works for you, the case for yes and no is really your mindset choice. It’s shocking, but it is.

Nuno Goncalves Pedro

I did something. It was a bit of a strange exercise when I was back at McKinsey. Not the easiest place to have a discussion on work-life balance, I can tell you. But I used to do this exercise, I may have mentioned it in the past, where I would absolutely disconnect my BlackBerry. We had BlackBerry and mobile phone. I would absolutely disconnect my BlackBerry on Friday evenings. I think, normally, 8:00 PM, that was my cutoff. I would turn it back normally late Sunday or Monday morning, depending on my week and what was happening. Everyone had my phone number, and I told everyone everywhere, “If you need anything, if it’s urgent, just call me.”

Nuno Goncalves Pedro

In six years I was at the firm, zero calls during the weekend. If you then ripple that back to your teams or the people that you work for, if you create a system by which people understand how you work, it sort of works.

Nuno Goncalves Pedro

Again, back to the point Bertrand has made throughout today’s episode. Fully, it depends which stage of your life you’re in. I would do this and you’re like, “Well, you didn’t work for two days.” Well, most of the year I wouldn’t work for two days, which I was entitled to, or a day and a half. But then I wouldn’t make my teams work for two days. This applied to everyone.

Nuno Goncalves Pedro

Part of my life at that point in time—and Bertrand knows this because that’s when we probably met—I was on a plane all the time. I was all over the world. For example, I might be on a project in Korea or an engagement in Tokyo. Guess what? I would go until 1:00 AM or 2:00 AM many nights working with a team. There would be nobody in the room. We’d leave together. I would pull in still 60, 70 hours, sometimes even more, but I had a boundary condition. I had the rule.

Nuno Goncalves Pedro

Again, that rule, in the eye of the beholder meant I had work-life balance. It created some other sorts of issues. Then people thought I had a good life. I was like, “I don’t think so.” But if you create those rules for yourself, for your teams, for the people that you report to as well, if you create these boundary conditions…

Nuno Goncalves Pedro

I remember having this discussion vividly. She’s still a very good friend of mine. She was someone who worked for me as an engagement manager in a project. She was overworking. Clearly overworking. At a certain point in time, what we had to do was not just tell her you can’t work these hours, we need to leave at this time as we, as partners on the team, actually had a rule. I remember I wasn’t the only partner there was another co-partner, we call it engagement director at McKinsey back then. I was the other co-engagement director.

Nuno Goncalves Pedro

I told the other co-engagement director, “You do not send any emails to her during the weekend. Zero.” He’s like, “What do you mean?” It’s like, “Whatever. Schedule send, do whatever you need to do, put it in your draft, send it on Monday morning. No.” Truthfully, I think it changed how this person worked.

Nuno Goncalves Pedro

Back to our point that we made at the beginning, it made this person more efficient. It made this person even more thoughtful by actually working less hours. Shockingly enough, that’s the type of stuff we need to do more and more I think in today’s work environment. Just FaceTime is BS. It’s a really bad metric.

Bertrand Schmitt

Yes. Obviously, there are different type of businesses. If you take professional services business, at the end of the day, you are billing hours. The more hours you do, the more you can achieve as a business. If you are a product company, it’s a very different story. You can optimise time very differently. It’s a very different game, I believe, as a product company versus a professional services type of business.

Nuno Goncalves Pedro

But you have a limit of billings as well. I don’t know any professional services firm that can charge more than 40 hours per person. McKinsey wasn’t even 40 hours. I think it was 35 the hours that we could charge. I can tell you, we didn’t work 35 hours a week. We were not French. I don’t know, it was some funky number, it was not 40. We work more hours than the hours we can bill.

Nuno Goncalves Pedro

Do some firms do funky things around double billing? I don’t know, maybe some do, where a professional might be charging 80 hours a week but to different organisations. Who knows? But in principle, you shouldn’t do that type of stuff. That’s just not kosher at all. So you’re still always working more than the 40 hours, I have no doubt about that.

Nuno Goncalves Pedro

Unfortunately, professional services is probably one of the worst offenders, I think. Together with very early-stage startups in that environment, they’re top of the list for me where you work really nasty hours. Maybe, obviously, within professional service I would put investment banking just to be clear, not just consulting. Law firms work stupid hours.

Bertrand Schmitt

Yeah, I guess startups, the difference is that there might be light at the end of the tunnel for people involved, but that’s probably the big difference. It’s not by design. I think at the end of the day—we talk briefly about it—but if you do what you love, it’s much easier on you. Of course, the risk of if you do what you love until you do even more of it, but it’s for sure more sustainable when it’s fully aligned with what you are doing.

Bertrand Schmitt

That’s why it’s key to basically pick a company, a business where you feel very aligned. Because either it’s the right industry for you, because it’s the right company mission, because it’s a vision that’s exciting you, because you can go in a function you were dreaming to get into. But I think that part is really critical. Do what you love should make your life balance much easier.

Nuno Goncalves Pedro

I agree with that. I believe the biggest risk when you’re doing that—this is I think John Doerr used to mention—this as the missionary founder versus the mercenary founder. The danger is that you go too far off the deep end where you’re working too many hours, doing too many things. For those who love what they do—and I think Bertrand you love what you do, I love what I do—the challenge is always, when is it a bit too much? Back to our question earlier, should we step back now? Should we do stuff and do something else? But it is, honest to God, a blessing when you get to do what you actually love, when there is fulfillment.

Nuno Goncalves Pedro

I often ask this from my friends. What percentage of your work time, if you put all your work time checking emails, calls, whatever, are you happy in? Just to measure level of happiness. It’s very rare, in particular when I’m talking to people in corporate life, to see people that are above 50%.

Bertrand Schmitt

Yeah, that’s a very good metric actually.

Nuno Goncalves Pedro

Above 50% is very rare. People above 70, 80% is extremely rare. In startup life, it’s a bit more mixed. You’ll find all sorts of types. Even—and it’s irrespective of founders and team members and stuff—you’ll see very high and very low and anything in between. But you should be aiming at least at about 50%. If your work is not making you happy 60, 70% of your time, there’s something wrong with it. If you have a chance to change it, if you have a chance to change what it is, work on it, change it. If you’re doing a lot of things you shouldn’t, or your team is, change it.

Bertrand Schmitt

That’s a game. Either change it because you have the direct authority to change it, hire the right people, change processes or because you are going to try to change position or to adjust your responsibilities or because you are going to change company. You need to make sense of it. I like this metric, the percentage of hours, your work hours that you enjoy or not. I think that’s a key point.

Bertrand Schmitt

I will say that you talk… Even founders. I think sometimes founders have to do a lot of stuff that either they don’t like or they are not skilled for because you are the founder and you have to do stuff that no one else can do or is willing to do sometimes. So I can see that. But again, if you’re the founder, you should have the ability to change the process, to change the people, and as a result, get quickly out of a bad situation. But that’s, I think, a key metric. You absolutely need to check on that, get that pulse. I don’t see how anyone will not feel worse and worse if you’re in a situation where you are below 50% of enjoyment of what you do.

Nuno Goncalves Pedro

I was 90% a year, year and a half ago. I’m no longer at 90%. I’m working on it now, but I’m certainly well above 50% so that I’m still happy. Who do you go to? How do you decide these things? We’ve already talked about the family, friends, potentially, colleagues. Very difficult, but also not impossible, board members, coaches. Obviously, the world is now filled with life coaches, executive coaches, and a bunch of people around you will have had great experiences with this. Some may have had less good experiences.

Nuno Goncalves Pedro

Again, be very thoughtful on the person you choose to work with. You’re going to share a lot of very personal things. Be careful on how you frame the relationship, what you expect from that relationship as well. I’ve been very, very blessed to have been not only a mentor and an investor and all of those things, but also a coach in my career where I just literally supported entrepreneurs. It is incredibly fulfilling. We have the case of Bill Campbell, who passed away a few years back, who was known as the coach and who was so vital into so many of the big companies of Silicon Valley.

Nuno Goncalves Pedro

It is a blessing when people share with you their most intimate pieces. Choose coaches that are appropriate to you. It might be someone that you want that is really more focused on your ability to manage your company and the day-to-day of your business. And that’s a specific type of coach. What we usually used to address as executive coaches, now it seems like the term has been a little bit bastardised. There’s more of the full-on holistic life coaching, which is about all your life, all-encompassing, also focusing on your personal aspects, almost ending up in ful- on therapy.

Nuno Goncalves Pedro

There are actually people that are therapists, so don’t forget that. If you need psychiatric help, there are psychiatrists. But if you need someone that is certified as a therapist, go after those types of talents, not just people like myself, who obviously can be helpful, but I am not certified in anything. I’m not an MD for sure, and I’m definitely not certified in therapy. Again, choose the right people for you. The final piece of the puzzle here is for those who have obviously some spiritual notions or religious notions, there’s other types of people that you obviously can talk to.

Nuno Goncalves Pedro

In the Catholic Church, for example, we talk about, assuming other Christian religions as well, spiritual direction. A spiritual director in Catholic Church is normally a priest who can help. It’s not just for confession, but someone that you basically share what’s going on in your life. You talk about, in this case, other things like supernatural life and other things that are a little bit more esoteric for some of you that might be listening to us today.

Nuno Goncalves Pedro

At the end of the day, really find the right people that can help you in the several dimensions of your life and create that vulnerability, obviously thoughtfully, not with the first person you meet, but create that vulnerability over time. Create that connection, that dialogue over time. It can be extremely, extremely helpful, but be very cautious.

Nuno Goncalves Pedro

This is the last thing I will say on this topic which is, it can be used in the wrong way. It can affect you in the wrong way and it can throw you off a tangent. You could be in a case of having over-therapy or getting wrong advice, so just be thoughtful. As everything in life, listen, triangulate. You’ll have friends, you’ll have family, you have other people that you can talk to, and make your own decision. Don’t just trust what people are doing for you. All these gurus out there, just be thoughtful on what you listen to and what decisions you take out of it. That would be my last point.

Bertrand Schmitt

I totally agree. I think that at some point to get help and to find the right type of help, depending on what is the issue at stake. Personally, I’ve seen definitely some value from executive coaches for myself, but also for some team members of the team. If they are not executive, you have coaches as well that you can deploy for managers, for instance.

Nuno Goncalves Pedro

All of this is not true across different geographical regions. Obviously, the US is different from Europe, and parts of Europe are different from each other, and parts of Asia are different from each other. The US, when I first moved here, two-week vacation seemed to be the norm. Three-week vacation, 15 days. China, when I moved there, I think it was 15 days, if I’m not mistaken as well. The US is funny. We work in tech. Now I’m in Silicon Valley. We’re a little bit like there’s a Netflix model where you have unlimited vacation, whatever that means.

Bertrand Schmitt

Yes, I was going to say, you have unlimited vacations in the US.

Nuno Goncalves Pedro

We have unlimited vacation at Chamaeleon. If my Chamaeleon colleagues are listening to me, it’s like, “What the hell?” The US is still one of the worst. They feel very bad when they take one-week vacation. Two, three, some do. That said, as we work in tech and venture capital, it’s becoming more of a thing that people take more time off. I’ve heard of a VC firm, that shall go unnamed, that gives eight weeks a year.

Bertrand Schmitt

Oh, wow.

Nuno Goncalves Pedro

Eight weeks. I will not say their name. They have some fixed vacation time. There are times where they just shut off a couple of weeks a year.

Bertrand Schmitt

Wow.

Nuno Goncalves Pedro

I remember firms that did this in Europe as well around summer and around winter, around Christmas and Thanksgiving, et cetera. But in general, the norm is still that US takes tax vacation. People are very thoughtful about taking vacation. That said, I believe August is becoming a thing. It wasn’t, definitely, when I first moved here 11, 12 years ago. August, now it’s difficult to do business in certain parts of August, certainly in Silicon Valley.

Bertrand Schmitt

It’s slower, definitely. It feels getting slower in August in the US. It’s not dead like in Western Europe. But yeah, it’s definitely a thing. In Europe, everyone knows there’s quite a lot of vacations. August typically is quite dead. July will be more for the Nordics. I will say typically mid-July to mid-August in Europe, if you want to take a bet, it will be very slow going.

Bertrand Schmitt

Of course, as a French person, I have to talk about the 35-hour work week that was established a long time ago now, maybe 25 years ago. I believe it has been a catastrophe. I believe it really poisoned the well. It happened when I was just graduating from engineering school. I was very surprised to notice, step by step, in just a few years’ time, how many friends were pretty ambitious, wanted to do great things. Step by step, they were just focused on how they organise their four-day weekend. Next four-day weekend, their two weeks vacation, their four weeks vacation.

Bertrand Schmitt

It was very shocking how vacation was just becoming the goal in itself versus achieving something. That’s been very shocking. I think it has been really a bad thing. There can be too much of a good thing, basically. I think that France has been going there. It’s really an issue, a mindset. Of course, when you have to deal with France from outside, it might be a culture shock in some ways. I feel pretty sad about what happened and the fact that it has not been changed after all these years.

Bertrand Schmitt

There have been tweaks in the system, of course. It’s getting probably a bit better, a bit less crazy, but it’s really a difference of mindset and it’s pretty tough. I believe if you are focused on achieving great things and if you want to, in a way, as we say, change the world, you don’t do that with weeks and weeks of vacations.

Nuno Goncalves Pedro

It’s a mix of a couple of things. It’s a mix of work intensity, time of vacation you can take a year. Like Germany, I believe is 30 days, which is a lot. I was shocked. Holidays, Europe I think is clearly the winner on this. Certainly Europe, in particular, in terms of number of holidays a year. US has done better, I think, in last years of adding more holidays, I guess.

Nuno Goncalves Pedro

Then the worst are obviously Asia. There’s some huge holidays in particular if we look at China, Korea, and other countries around Lunar New Year, around other parts of the year. But the work ethic is also very different. China, many companies, certainly in tech, still do the 996, which I believe we may have talked already in a previous episode. It’s 9:00 AM-9:00 PM six days a week. 9:00 AM-9:00 PM, six days a week. It’s incredible. Korea-

Bertrand Schmitt

As a base, right?

Nuno Goncalves Pedro

As a base. They only unlock your WeChat ability for you to pay for with WePay or drive home after 9:00 PM then the weekends. In Korea, Korea, I think went to five days a week already in the Noughties, 2004, 2005, if my memory doesn’t totally fool me on that. These countries have a work ethic, certainly the Far East in particular, I’d say China and Korea. I’m not badmouthing Japan, but I think Japan is in a little bit different echelon in terms of work intensity.

Nuno Goncalves Pedro

Then Southeast Asia varies quite a bit, South and Southeast Asia. If we look at India, Bangladesh, and other countries, the work intensity could be as severe as in the Far East. There’s parts, I think, of Southeast Asia where things are a little bit more Europeanised, not fully European, but Europeanised, where you can take some time off vacation. There are holidays, et cetera.

Nuno Goncalves Pedro

But I would say if I had to say work intensity—and I’m really over-generalising here—Asia still has a little bit of a play on us in particular, as I said, China and Korea, I think. Just countries where people just work super, super long hours and taking a vacation, holidays, et cetera is sometimes even frowned upon.

Bertrand Schmitt

One thing I want to say is that when you ask a lot from yourself or from others, you also want to be flexible. For instance, for me, there is nothing worse than expecting a lot of work from people, but at the same time being totally inflexible, like requiring FaceTime, like not letting people work remotely or even work from another country for one month because that’s where is their family. I think there are a lot of ways where I think you should be flexible the more you ask from people.

Nuno Goncalves Pedro

I agree. It’s something, to be very honest, that I’ve long thought in my life. There have been moments, and not for myself, but for the people that work with me, should we give more flexibility? Less flexibility? You have to be thoughtful and question when is the right timing for things, but in general, over time, going to a more flexible environment is the way to go.

Nuno Goncalves Pedro

Maybe we bring it all together. We bring all of this episode together around work-life balance, mental health, even physical health. We didn’t talk about sports much except in hobbies, but physical health is important. What you eat, how much you sleep. We also mentioned the sleeping piece.

Bertrand Schmitt

What you eat is important.

Nuno Goncalves Pedro

Essential.

Bertrand Schmitt

It’s very important.

Nuno Goncalves Pedro

Essential. It changes everything. Your weight, your metabolism. Essential. Maybe I’ll start, when in doubt, stop. I think just stop and take some time off. If you’re hesitant, like, “Maybe I should take some time off,” just take it. It’s probably a good time to do it.

Bertrand Schmitt

Yeah, stop. Take time off. Go to people you trust and that can help you. It’s really critical that you go to people you can trust.

Nuno Goncalves Pedro

Figure out through time what works and what doesn’t. Horses for courses. Different times, different roles, different positions, different organisation, different companies will demand different time allocations from you.

Bertrand Schmitt

I would say really recognise the stage you are in your life. Know yourself and adjust based on that.

Nuno Goncalves Pedro

Last but not the least, we haven’t gone too much in detail on this, but learn how to communicate this to everyone around you. Your bosses, the people that work for you, people work around you, your family. Be explicit in some of these conversations. I’m not saying on everything, I’m not saying you need to be fully transparent on everything. But if it is a meaningful structural issue, be clear.

Nuno Goncalves Pedro

Like, “I’m about to have a kid. I believe I will need at least a month where I’ll be a little bit stepping back, but I want to continue working because it’s pretty critical in the time that we’re in. Can I do that? How can I do that?” With your family, say, “I’m going to go through a push right now. Is this okay? Is this a good time for me to do this push for the next month?” Or, “I’m going to do two weeks of travel internationally, but then I’ll be back for a month.” Have these conversations as openly as you can, as transparently as you can. They will benefit in how you interact with others around you.

Bertrand Schmitt

I think it makes sense. As this concludes our Episode 46, we are all in high-intensity jobs, and it’s really important to get the performance right at the same time balancing with your other stuff, your family, your friends, your hobbies, so that you can maintain a good balance, and that you have take good care of your physical and mental health. Thank you, Nuno.

Nuno Goncalves Pedro

Thank you, Bertrand.

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Augmented Reality, VR, XR… what is all this? Shouldn’t we all be using these devices by now? Is Apple going to change everything? Or is it Meta? In this episode, we go in into the arenas of AR, VR and MR, explain what these different technologies are, the developments thus far, whether (or not) we are an inflection point on devices, software, applications and content, as well as on what the (hopefully non sci-fi) future holds.Navigation:Intro (01:34)What is it and how does it work? (02:09)The last (lost?) decade (11:15)The inflection point for devices? (19:10)The inflection point for Software and Applications? Developer is king… (36:47)A non sci-fi future? (49:04)Conclusion (56:09) Our co-hosts:Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmittNuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast

IntroBertrand SchmittHello. Welcome to episode 45 of Tech Deciphered. Today, we are going to talk about VR, AR, MR; mixed reality, in the context of the announcement of the Apple Vision Pro, their first spatial computer. Obviously, already talking about VR, AR, MR is old school, we should be talking about spatial computer. Apple has been very careful about not employing the world VR or AR. Maybe let's start about what is all of this and how do they work?Section 1 - What is it and how does it work?Nuno G. PedroLet's start with an easy one, which is extended reality. Extended reality is everything. Extended reality encompasses augmented reality, mixed reality, and virtual reality. When you see XR, that means extended reality. It's the encompassing word for all these forms that we're going to talk about today. Nuno G. PedroAugmented reality is probably the simplest form. It's a view of the real world with some pieces of digital. But normally the definition for augmented reality is it's a non interactive domain. We'll come back to that when we talked about mixed reality. It's you basically seeing things that are on a plane, for example, using your mobile phone, your iPhone, an android device, and looking around you and seeing things that appear that are digital, but they appear in the real world. That would be augmented reality. There's almost no interaction involved, etc, etc. Nuno G. PedroMixed reality brings in the element of interaction. You still see the real world, but you also see these digital objects and these virtual objects and you can interact and make them interact and you can interact with that world. To be very honest with you guys, I'm still an old-school guy. So for me, augmented reality and mixed reality are effectively the same. Nuno G. PedroI think at some point, someone decided to do this distinction, maybe because of the devices that are linked to it and to really separate in particular what was happening in mobile augmented reality, what was happening with mobile phones. But ultimately, for me, they're very similar. Obviously, for me they're almost indistinguishable anyway. The people out there, that like distinguishing them, that's the difference between AR and MR; mixed reality. Nuno G. PedroFinally, there's virtual reality, which is a fully immersive virtual world experience, the one that normally uses things like in the past look like helmets, things that basically take over most of your head because you want to be fully immersed. It can't be just full, a simple goggle experience. It needs to be a more immersive experience. That's basically what defines virtual reality or VR. Nuno G. PedroAgain, XR; extended reality, AR and MR,

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Final episode on AI and generative AI, including start-up and VC landscape, regulatory & privacy environment and what does the future hold, with answers to such important questions as, can AI kill us? (spoiler alert: yes, it can).

Navigation:

Intro (01:33) Start-up and VC Landscape (02:13) Open-Source (08:31) Regulatory & Privacy Environment (14:31) The Future (21:18) Conclusion (31:17)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Intro (01:34)

-- Introduction --

Nuno

Welcome to Episode 44 of Tech DECIPHERED. This is our second and last episode on Artificial Intelligence and generative AI.

Nuno

In the last episode, we introduced AI. We talked about what's happening around generative AI as well as verticals and what the big guys are doing. In this episode, we will go further into what's happening in the startup and venture capital landscape, the open source landscape, the regulatory and privacy environment, and we'll end by talking about whether AI will save all our lives and save the world, or whether it will kill us all.

-- Start-up and VC Landscape --

Nuno

Maybe moving to startups, obviously, there's been a lot of funding into companies that are now at the forefront of some of these big shifts. We talked about stability AI that had raised over 100 million from players like Lightspeed and others. KOTO, I believe as well, that are responsible for stable diffusion. We've seen in the past very well funded startups in the AI space not necessarily then scaling or doing very well. But at the end of the day, there's definitely been a lot of funding. What is the current crux of the matter if you're a venture capital firm and you're looking at this landscape?

Nuno

The crux of the matter is noise. You see all these, "Okay, I'm chat GPT for something, or I'm an app that's going to run on top of existing platforms using generative AI."

Nuno

Generative AI is the new blockchain. It's a new Web3. It used to be in all pitches two or three years back, Web3, tokenization, token economics, et cetera. Now everyone's like, "It has generative AI." My, again, relatively simplistic view of looking at this is I think of it as an app economy. In the same way that we had the launch of the app store in 2008 and we had mobile apps, initially everyone said, "Oh, that's not an app economy. This thing is never going to amount to an economy." It did. We now know that mobile first and mobile app is an economy. We have two proofs of that in this podcast.

Nuno

It is also true that I believe what we're seeing right now is a similar thing to an app economy. This doesn't mean that we're not going to have some significant revolutions around AI and new platforms emerging that everything is going to be based on. I think we will have that as well.

Nuno

But at the same time, when we start seeing people saying, I'm going to use the tools and platforms that exist today to do an application specifically around this, which will be really cool and will take productivity to the next level, most of these will fail, like most apps failed. Some will potentially win.

Nuno

The notion of generative AI first is how I look at it, is for me a bit analogous to app economy like we saw with mobile. Some will rise to the top, very few. Most will fail dramatically. There will be a tons of noise. For us as investors, as venture capitalists, the complexity is to understand how can I reduce the noise level?

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The truth about Artificial Intelligence and Generative AI. This is the first of two episodes on AI.

Navigation:

Intro (01:33) What is AI and AGI? Why now? (02:07) Setting the Record Straight (08:55) Verticals (20:30) Other AIs (28:48) The Big Guys (31:20) Conclusion (38:38)

Our co-hosts:

Intro (01:34)

Bertrand Schmitt

Welcome to Tech DECIPHERED Episode 43. This would be the first of a series of two episodes on AI, AGI, generative AI. A lot has been happening in the past six months and we felt it was a great time where not everything is clear yet. The fog of war is still intense. There is probably a little bit more visibility into where things are going. It would be with pleasure that we'll talk about this deeply fascinating topic and for sure one of the topics most discussed today in tech.

What is AI? What is AGI? Why now? (02:07)

Bertrand Schmitt

Nuno, maybe we should start with trying to define what is AI, what is AGI, what is generative AI?

Nuno G. Pedro

Easy task. AI is what is in the name. It's artificial intelligence. It's typically seen as a branch of computer science that is looking at creating mechanisms within machines that, in some ways, are similar to human intelligence or practically speaking, would refer to human intellect.

Nuno G. Pedro

Now, as we know, machines can't think. That's still true today. So they do this through very complex mathematical models that get implemented normally through software and hardware combinations. Then within artificial intelligence there are different fields of artificial intelligence.

Nuno G. Pedro

In the good old days, people used to talk about weak AI versus strong AI, which is more general intelligence, where weak AI is normally more focused within a specific field of solution set. General AI and strong AI will eventually become our overlord and think better than us. Nowadays you will hear a lot of different things around artificial intelligence. You'll hear machine learning, you'll hear deep learning, you'll hear about natural language processing, computer vision, et cetera.

Nuno G. Pedro

All of these fields are fields of artificial intelligence that intend to emulate what we as human beings do. So computer vision basically would look at the automatic analysis of things that get processed through vision. Could be video, could be pictures.

Nuno G. Pedro

Natural language processing is looking at the interaction of machines and computers with natural languages and human languages, the language that we have. Deep learning, I would allege, is a subfield of machine learning. There's still a huge argument on that or whether deep learning is a different field or not.

Nuno G. Pedro

I normally see it as a subfield of machine learning where deep learning normally uses things like neural networks—we'll talk about neural networks later on—which are trying to emulate how our brain structures thinking effectively. In a nutshell, AI is a field of computer science. It's an evolution of computer science. Machines can't think for themselves, so they do this through very complex algorithms and techniques that normally use a lot of mathematics and quite a bit of data.

Nuno G. Pedro

Although we'll also have a discussion today on how much data do you really need. Are we past the times where you need massive amounts of data or not? In some cases, these techniques and algorithms also need to be trained.

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In this episode, we deep dive into the process of Venture Capital – how does it actually all work? – and what the future of VC holds. The end of our 2 part episode on the Evolution of Venture Capital.

Navigation:

Intro (01:33)
Section 1: The Process of VC (01:59)
Section 2: Stats on VC (19:03)
Section 3: The Future of VC (27:31)
Conclusion (38:40)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Subscribe To Our Podcast

Intro (01:34)

Bertrand

Welcome to Tech DECIPHERED episode 42. After our first episode, episode 41, sharing the history of venture capital as well as the business of VC, and we are starting episode 42 with the process of VC, as well as some statistics around VC and we will finish with the future of venture capital. Nuno, good to see you again.

Section 1: The Process of VC – (01:59)

Nuno

Nice to see you, and let’s start with the process of venture capital. At its essence, the process of venture capital is we’re funnel managers. We’re not just fund managers, we’re funnel managers. We manage a funnel. It’s about how healthy that funnel is that a fund can return a lot of capital or not.

Nuno

So it’s all about really two extreme positions in the funnel, the beginning of the end being deal sourcing, the quality of the deals you see in the market and the market is essentially—we’ll come back to that later—has been very inbound driven. It’s about people that come to you. That’s why you needed to create a brand, people need to know that you existed, et cetera. I suggest that’s about to change and that’s we’ll talk about in the future of venture capital.

Nuno

But it’s about the quality of the deal flow that you have, your proprietary networks, your access to key entrepreneurs that bring you other entrepreneurs, your access to scouts, your access to the market and the quality of those deals.

Nuno

And then at the other extreme is selling the asset at the right time. And really normally you sell an asset either because the company is bought by someone else, or the company IPOs, and at some point you can sell it as public equity or the company fails miserably.

Nuno

I think in the last few years it’s very obvious there is maybe a fourth mechanism for you to exit, which is secondary. Someone wants to buy your participation in that company and you can sell it to that other entity, be it an investor, be it a company, be it someone else. But maybe minority sale or selling just your stock rather than anything else.

Nuno

Also important to highlight in the business of venture capital, venture capital firms are minority shareholders. They’re not majority shareholders, they’re minority shareholders. They’re just protected by special provisions because when they buy into the company, they buy into preferred shares. Their shares are paid higher than they should be, but then they get special rights. And then if that VC gets someone on the board, the board member also gets special rights in terms of approval, minority protections, et cetera.

Nuno

So it’s not that VCs are dumbasses or stupid and they only want to have minority protection, no, we don’t run your businesses, we don’t want to own it. But we do want to have protections on your businesses to make sure that we are well represented, either because we’re on the board or because we’re a lead investor or we’re a significant investor in the company.

Nuno

Two pieces of the funnel are top-end deal sourcing, top of funnel, bottom end of the funnel, end of the funnel, you liquidate the asset in some way or the other. There is a loss ratio. Companies will fail. This is high risk. Loss ratios vary a lot, the industry seems to have different mechanisms to figure out what the loss ratio is.

Nuno

Some people a loss ratio is below 1X, so you get cents on the dollar on a company is already a loss. Some say would be 50, 60, 70% of a portfolio, others would say maybe a little bit less. In this day and age, you can always get some money back. So maybe the loss ratio is a little bit lower than that.

Nuno

You will hear a lot about power law, that most of your returns will come from 2 or 3 companies in a portfolio that might be 25 to 35. There’s this magic number of 20 to 30 companies per fund, which seems to be around. It has to do also with a number of partners and the positions you’re in. It could vary a bit more. Obviously, if you’re an incubator and accelerator, you will do hundreds of companies. But if you’re like a classic VC firm, you might do 20, 30, 25 to 35 and all of that.

Nuno

But just to go back to the funnel, these two elements of top of funnel and bottom of a funnel are the essential ones. And then there’s one, that I would add as a corollary, is you need to get into the deal. You can do due diligence or not, you can do whatever, but you need to get in the deal. That’s pretty critical as well. So you can identify the company, but if you don’t get into the deal, well, great, you identify the company and then what?

Bertrand

You spend a lot of manpower to work and the thing happened, that’s not good.

Nuno

And getting it to the deal is more art and science. You need to be well known, you need to have a reputation, people need to want to give you an allocation, even if you’re not the lead investor, even if they want to go with someone else to be the lead investment in that round. So getting into the deal is pretty critical here. The two extremes of liquidation and deal sourcing, which in the middle the dealmaking piece, that creates that added value.

Bertrand

Yeah, and as you say also, it’s definitely a poor law at work. Some investments are going to generate outsized return, I mean, you could argue that the very definition of being a VC is outsized return on a few investment. The model for most funds of having a fund returner, I mean, one investment might return the whole fund, if not more. And then you have others that are bringing back 5X, 3X, and then you have quite a few 1X and ultimately you have the one who don’t return anything.

Bertrand

Another term that I’ve seen used is a J-curve, where you talk about from deal sourcing to liquidation, that’s what happened. You have to start investing money from your fund and usually you have your first four years of investment that are focused on investing in new companies, and the remaining of the term of the fund, as you said, a total of 12 years. So the rest of the duration of the fund is around, potentially some follow-on investment, but also quite a bit of exits, hopefully. And that’s where the J-curve come back. Initially, you decrease the amount you have in your fund and step by step you get it back through the exit.

Nuno

Exactly. You can recycle capital and do a variety of things without necessarily always calling capital from your limited partners.

Bertrand

Potentially, yes.

Nuno

The funnel, just to be very clear, this is at least my taxonomy, is about deal sourcing screening. Deal sourcing is really sourcing deals, and screening is really that first conversation that you would have with the company. Then there’s a piece around analysis which might be relatively high level and then the deep dive more into hardcore due diligence, data room analysis, looking at a bunch of data, doing outside analysis.

Nuno

If the VC firms normally, if they’re hopefully any good, they will do their own analysis. For example, on market, they won’t just trust your numbers on market sizing. Then there’s dealmaking, negotiation, getting the deal, putting a term sheet in front of someone or getting into a term sheet that’s already been signed, getting to an agreement, managing the lawyers as we we’re talking before, then portfolio impact and management.

Nuno

So we’ve already invested in a company, now we need to create impact for our portfolio, help them manage it, be on boards, the ones that we got board seats or board observer rights and really create value to the company through our own selves, through our teams, through our institutional value and the operations that we’ve created in-house—we’ll talk about that in a second—and then finally liquidate.

Nuno

So again, the two edges are sourcing and liquidation, but at the end you need to liquidate. The company needs to go somewhere. It’s either it’s gone or it’s rebought by its partners or it’s sold to someone for a lot of money or not a lot of money or IPOs, et cetera, that’s the end of the funnel. Well, that’s basically what we manage.

Nuno

This funnel is a complex funnel because if you look at it, it requires a lot of different skills, a lot of different elements of skills for you to be really good at. The skills that it takes to negotiate a deal are not the same skills that it takes to assess whether a market is amazing for a specific company or the skills that it takes to assess whether the team is exceptional and is gritty and can take it to the next level. All of these skills are super different. I always call it, it’s the ultimate generalist activity that you have a huge unfair advantage if you have some deep spikes where you’re really good at.

Bertrand

Yes, it’s a complex process. I’m not sure if we have time to go deeper in every one of these steps. But for instance, deal sourcing that has been a lot of change, as you say, from an old boy network, proprietary network, to applying data science at scale and finding companies automatically with automated scraping databases, API access and filtering these machine learning, deep learning in place to score different elements in order to find the best opportunities for your type of fund, depending on your stage, your strategy, and basically a new approach that lets you scale volumes in a very different way, but also scale geographically in a world that is even more connected than where an investment is a zoom call away.

Nuno

Indeed. It’s a playbook that’s been followed by hedge funds, private equity funds, late stage funds, maybe some growth funds as well. For a while. The use of data, having data scientists in house mined a lot of data, et cetera. But shockingly enough, it’s not been used that much in early stage VC… Actually, in classic VC in general.

Nuno

The use of technology and quantitative methodologies in venture capital. And, you’re laughing because you know where I’m going with this, there is obviously parochial interest. That’s the whole ethos of Chamaeleon, my latest VC firm. But it’s shocking that we invest so much in technology and we don’t use technology ourselves.

Nuno

That’s about to change, we’ll talk about it in the future venture capital. We certainly believe deeply in it at Chamaeleon, that the use of quantitative methodologies, AI methodologies around machine learning and deep learning and the use of technology is the next wave of fund management augmentation for venture capital and early stage in particular. It is difficult because data is noisy, it’s very, very spread out, but it is possible and that’s the endeavor that we’re on.

Bertrand

Maybe to go on on this being an entrepreneur in residence at Red River West, French-American VC, that’s something we have also invested in some of technology and in some ways it’s way too rare, what you know has been doing with Chamaeleon, with what we have been doing at Red River West, it’s still early stage of VC. Most VCs have known don’t do that, and probably especially in Europe as well where it’s very new.

Nuno

They’re using Affinity. I think that’s what it means, that they use technology is Affinity or something like that. Or Pipedrive, they have a CRM.

Bertrand

Yes, it will use some pre-made solutions, and that’s not the same.

Nuno

It’s not the same, not the same thing, and I don’t think it will be. It is horses for courses. Obviously, in the process of venture capital, there are operations. A venture capital firm is also is managing one or more funds, but it’s also an entity in of itself that has its own areas and domains. It has to acquire talent, talent acquisition, HR, it has to market itself, be present in the market, develop thought leadership. It has to have maybe some shared services that it makes available to its portfolio companies. So there’s obviously a complication on operations, but just to make this very precise, VC firms are small things.

Nuno

This is way back when… I think I’ve probably quoted this stat to the Nth degree, it was 2018 numbers, 95% of all VC firms in the Bay Area have less than ten people. 95% of all VC firms, not funds, firms, have less than ten people. Which means if you have then assistants and community managers and maybe you have someone for IT, and then it’s like your deal team is tiny, so it’s not magic. It has to be magic. If you’re doing like 20, 30 deals per fund and helping the companies and whatever, I mean, how do you make it work? So you have to figure out how you make it work.

Nuno

Obviously, there are exceptions to this, we’ve talked about some of them already. The NEAs, the Andreessen Horowitz’ of the world, the Sequoias of the world, that are much larger in size, and in what do they do for their portfolio companies, because of the assets they have under management, they are obviously much more significant. But by and large it’s a startup. It’s how do you make operations work with a small, tiny team and how would you take it to that next level.

Nuno

The final thing I would say about the process of venture capital is probably the most essential part of the process of venture capital is raising money. You need to raise money from the LPs we talked before. These are not magical beings that come to you and give you money because they like you, right? You have to go to them, you have to do roadshows, you have to fundraise like a startup would, but as I always say, it’s 10X more difficult.

Nuno

Because you’re not raising normally on a product, you’re raising on a team that has a track record, that has maybe a methodology that maybe has a core, a couple of distinctive aspects to their angle, either thesis or operating model. The life cycles of raising are two years plus, right? You could be having discussions with LPs for 3, 4 years until they give you their first capital commitment.

Nuno

You don’t get a check, the check you get is a capital call. So when a fund says, I’m managing 100 million, they don’t have 100 million in the bank. They call the capital as they need it, for their management fees and for the investments they need to make. So it’s a very different animal. It’s a very complex…

Nuno

I think entrepreneurs normally don’t understand this, but this is very important for entrepreneurs to understand. Our cycles of fundraising are not 3 to 6 months. You could be talking to someone today and they’re like, “Love you guys. Your track record is amazing. We’ve spent weeks looking at your data room or whatever. Yeah, we won’t come into this fund.” And that means they’ll come into the next one, which is probably 3, 4 years down the road when we’ll raise the next fund.

Nuno

And so that’s it. It’s not like a VC tells you, “Oh, come back to us in the next round, which might be a year away, eight months in the good times and be 18 months in the bad times.” No, no, no. This is like, we could be talking like five years, six years at a time, a couple of funds. So very different ballgame.

Nuno

There’s many ways to do fundraising. If I knew the silver bullet, I wouldn’t tell you. I still don’t, I’m still figuring it out. I’ve been doing this for 12 years. It’s about connection, it’s about value add to LPs, it’s about being distinctive and very clear about what you are as a VC firm, what stands out in your team, your thesis, your operating model, what is unique in particular for more evolved LPs, it’s about track record. That’s the chicken and egg issue. If you don’t have a track record as an angel or you’ve done a micro fund or other funds before, it’s super difficult to raise a first fund. Very, very difficult.

Nuno

So there’s all these things that are around it. And then there’s an ecosystem, there’s private placement agents and there’s banks and there’s all sorts of things that can or maybe not sometimes help with your fundraising, but it is complex. The type of actors we see are a lot more diverse than the type of actors normally a startup would see to raise for their own company. Because again, it could be a family office, a pension plan, an endowment, a corporation of any size, et cetera. So it’s very, very different as a landscape.

Bertrand

Yes. I think especially entrepreneurs might not realize how much time and effort is spent by VCs on that side of the puzzle. Obviously, the bigger names have an easier time in terms of fundraising, but doesn’t mean that they don’t have to spend time on this as well. They certainly have.

Bertrand

But if you are a newer fund, it’s definitely harder and it’s a very entrepreneurial experience in a way, because you are definitely starting this relationship with SLPs. You have to build a brand, you have to build your metrics. And a lot of LPs are only going to invest once this metric. So it means it will be your fund three, because your fund one will be too early after just a few years to provide the results for your fund two. So it’s already a long time because fund three will typically be after eight years, so it will be a long time before you you get access to some LPs.

Nuno

There’s this famous thing, I think it was Arthur Rock with Kate Mitchell, who was the first woman chair of the NVCA, the National Venture Capital Association for the US, and she tells the story—I’m probably butchering it—but she always says that she met him when she was an associate, so she was very early into her career in venture capital, and Arthur was already sort of a celebrity having invested in Apple in a bunch of other companies.

Nuno

And she asked him, “When did you know that you had made it, that you were the real deal as a VC?” And he said, “It must have been 25 years into it.” That’s not the punchline, she’s like, “And when was that?” And he’s like, “No, it hasn’t happened yet, it’s next year. I’m 24 years doing this, so it must be next year, right? 25, I’ll know if I’m good, right?”

Nuno

And that, I think, is the thing about the profession of venture capital. The feedback loop is tremendous. Your fund could be looking like the best thing since sliced bread and then not be, could be the opposite, your fund could be a dud and then it’s amazing. The cycles are literally decades and keep doing it, and improving, and learning, and getting to the next level, and getting pushed with all these short term things.

Nuno

I always say we suffer from ADHD because we have to suffer from ADHD. We have to think like 10 years, 15 years out, strategy stuff. And then we need to think back to today, I have an entrepreneur who has a problem and is depressed or SVP is collapsing, and I need to get the money out, so our world is a world where you need to make decisions to the minute. You’re never really off the job at any point in time, even on weekends. Something can happen, anything can happen really.

Nuno

But at the same time, you only know how good you are, like 10 years down the road or seven years down the road for this fund. How silly is that as a profession? It’s a profession that has totally misaligned timelines. You have to be doing everything you can on a daily basis and then the reap benefits thing is literally years. I mean, it’s cool.

Bertrand

I think it’s very true and it makes this profession extremely difficult to get into because of that lack of clear feedback loop and KPIs. People always joke about marketing.` You don’t know where your investment dollars go in the sense that it might take you a while to understand which part of your marketing dollars get you return.

Bertrand

But if you think about a VC, it might take them five years plus to know where some returns are going to come from and potentially even longer than that. So it’s a very tough place to be as an entrepreneur. It’s much easier to understand where you are in terms of success for your business. You have a lot of metrics from revenues, to profit, to number of clients, to pricing, to competition, that give you a sense of where you stand and where it’s going and might be disagreement there, but a lot of pretty obvious metrics. As a VC until you have made your exit, [inaudible 00:16:39] of place to be.

Nuno

It is not done until it’s done. Until you have the money in the bank account, it is not done. One thing that is even worse than startups, if you think about it, is we manage funds, which is let’s say you’re building a franchise like I’m now building Chamaeleon with my partners and the whole team. As we’re building the franchise, maybe we have a first fund and it’s amazing, we still need to have amazing fund two, and a fund three, and a fund four. It’s not like an entrepreneur’s.

Nuno

My first startup was an amazing the second one wasn’t so good. You never hear this from VCs. VCs don’t come out and say, “Well, my first fund was great, my second wasn’t so great. The third, we’ll see.” it’s always about the franchise and the franchise is all your funds that you’ve done underneath it. This is really, really tough. Again, very long cycles, various funds, that’s what builds a franchise. It is an asset managers world just happens to be in startup plan, but it’s an asset managers world. So maybe just sharing some stats around venture capital.

Section 2: Stats on VC (19:03)

Bertrand

Yes. Do you want to start with the global stats, Nuno?

Nuno

Yeah. There seems to be a wide disparity on the numbers we read globally on many VCs are there globally. I believe there is a Crunchbase number that states around 20,000, a 2021 number. I suspect actually in 2022, there were even a lot more micro funds being created. So they mentioned, I believe, 19,000 active VC firms globally as of 2021, of which more than half would be in the US. I can buy that number, I think more than half will be in the US.

Nuno

That said, if you check PitchBook for the same year, 2021, they’re talking about 4,500 active venture capital firms, which obviously is not 54% of 19,000, so they seem to have a difference of opinions on what the numbers are. The PitchBook numbers do include traditional VC firms and corporate venture capital firms.

Nuno

If I had to go closer to a number, I believe the PitchBook number more, maybe around 5,000 VC firms in the US, active VC firms in the US, that sounds about right, and likely that the US is the majority of global. So if the US is the majority of global and it’s around 5,000, then global would be maybe 8 or 9,000 VC firms that are active.

Nuno

This would probably exclude angel syndicates that are not really structured as a VC firm or fund, probably exclude some of the bigger private equity guys who are not necessarily doing venture capital per se in earlier stages. But that number is palatable to me. I don’t know, what do you think, Bertrand?

Bertrand

Yeah, it’s big numbers. 5,000 VC firms in the US, I can buy that. It’s definitely a big number, but I’m not surprised. Double that, I don’t know, I’m not sure. If we look at on a more global basis, US 50%, I definitely buy this number, and I think a big chunk in Asia you are saying.

Nuno

Yeah, the belief from Crunchbase was that 24% was Asian, then Europe was 17%, so Europe actually was smaller in terms of the number of VC firms that are active that it has, I can also buy that. I think China in particular skews those numbers dramatically. It’s such a huge market that I could buy that maybe around 25%. So a quarter of the world, around half, a little bit more than half US, a quarter of the world Asia, then less than a quarter in Europe and then the rest of the world, Africa, Latin America and other parts of the world.

Bertrand

If we zoom on the US market, the US VC market, what are the top regions? We have the Bay Area number 1, I have metrics around deal value at 75 billion for just the Bay Area alone. If I look at then it will be New York. Number 2 at 31 billion invested, and then we will have Los Angeles actually with 23 billion investment, and finally, Boston at $21 billion investment. I feel Boston has been the big loser of the past two decades, because it used to be the very clear number 2 place for venture capital, but it’s now number 4 in the US.

Nuno

Yeah, New York boomed, LA boomed for obviously different reasons. For some reason, Boston has stopped the limit. If I had to make a guess, I think there’s been a lot of inflow in California from Boston. I don’t know if it’s a weather related thing or something, but certainly I see a lot of MIT undergrads and grads moving to California, Harvard.

Bertrand

It’s cold in Boston in winter. It’s cold.

Nuno

It is very cold in winter, sadly. But it was the bastion of deep tech and frontier tech in the US. It still has a lot of stuff going on there, but I agree with you. It was, for a while, discussed as this next Silicon Valley. It’s going to, at some point, match order… Its matched order of magnitude, but at some point it’s going to be closer to the Bay Area. In reality, what we’re seeing is not that, it’s that New York has scaled, LA is scaling really fast, but somehow Boston isn’t really going to the next level.

Nuno

If we look at the migration or the exodus that has been portrayed certainly by the media or part exodus of people going away from the Bay Area in California, it’s not to Boston, it’s to Miami, to Austin, Texas. So the movements are certainly not aligned with Boston recovering anytime soon that second spot.

Bertrand

Yeah, Boston has this bad reputation in terms of, especially early stage business angel investing, where investment conditions are pretty poor, you would get very poor deal terms. That’s what it is. And in terms of numbers, fifth market is Chicago with 10 billion invested. We have Seattle, where I’m based, at 7.8 billion. And surprisingly, Miami and Austin are still pretty small in the $5 billion range of deal value.

Nuno

Could you tell us these numbers are for the whole of 2022 or?

Bertrand

Whole of 2022, and this is based on PitchBook NVCA venture monitor.

Nuno

I’d be surprised if Austin and Miami don’t grow up quite a bit on the list. 10 billion is a lot. 10 billion in investing in a market is a lot. It means that probably you have a lot of early stage investments or you probably have a lot of mid to late stage companies growing. And so the build up of that bulk of capital might take a while even in markets like Austin and Miami, but I would see them going quickly through the ranks, to be honest.

Bertrand

That’s true. When a new market is starting, it starts from the bottom up. So definitely it’s a possibility that keeps going strongly.

Nuno

We also want to talk a little bit about loss ratio. We talked about it earlier in our previous episode, where we discussed loss ratio is where a specific investments, so a portfolio company that a venture capital firm invested it in, out of one of its funds, doesn’t return at least its principal. So it’s not a positive return, it’s not above the amount I put into it.

Nuno

And we discussed actually in the last episode loss ratios and stuff. And so the loss ratio seems to be a bit of a mythic number. People say 50, 60% is okay, there seems to be a stat from the National Bureau of Economic Research that mentions and I don’t know exactly the year this is for, but actually mentions that the average loss ratio for a VC fund is around 23%, maybe a little bit surprisingly on the low side for me, I would expect it to be a little bit higher, maybe not 50%, but a little bit higher, maybe 35, 40%, something like that.

Nuno

But in any case, it might mean that sometimes people do recoup their money. They just get 1X back or something like that. Or maybe this is a stat of a market that has been relatively bullish, where there’s been acquisitions, acqui-hires, and so there’s positive exits, maybe that’s it. It seems to me loss ratio may be a little bit lower than I would have expected to see as a number.

Bertrand

Yes. Obviously, it’s a mix of different investments, and the more money you put, usually you would put money in the winners. So from a dollar basis, it could definitely make sense, but more early stage, you might not get these metrics.

Bertrand

For me and other metrics, and this is going back, we have a focus today on venture capital, but if we look at capital as part of a bigger environment of private investment, for me, and therefore we compare it to private equity, real estate investment, private debt, fund of funds.

Bertrand

For me, what’s interesting is that venture capital both provide the highest range of return, and also the lowest range of return of the whole private investment, so definitely it means that it’s high risk. It means that you have to extremely well pick your funds in which you are going to invest, because you are going to be there for the long run, and if you have always stories of insane returns, people talk about those stories of poor returns.

Nuno

Indeed. Talking about the influence of venture capital in the broader markets like the labor market, these are numbers that I would take with a grain of salt, but we’ve seen numbers from NVCA and PitchBook from 2019 that talked about 40 million jobs that are held by and supported by the US VC industry. So venture backed companies that drive 4 million jobs, not the VC industry itself. So just to be clear, venture backed companies, 4 million jobs.

Nuno

And then there was a similar analysis done by Atomic in Dealroom that mentions 2.6 million employees in VC backed companies in Europe as 2019, I would expect the number to be higher. I don’t know if they start discounting or taking out the numbers of companies that were VC back, but they are no longer VC backed, because they’re public or whatever.

Bertrand

I would guess so.

Nuno

Yeah, I would expect this to be much higher. In any case, there’s an interesting analysis, this was done, just to be clear, I actually have some of the context. Back then I was participant in some of the discussions around this, so there’s a little bit of a skew towards these numbers because it was related to visas, and getting visas for venture backed companies, et cetera, et cetera.

Nuno

But I can believe that employment of VC backed companies grew almost 1,000% between 1919 and 2020s, so three decades. Whereas the market in general for private companies grew 40% in terms of employment, and that’s pretty silly. Obviously, it’s startups, it’s the heyday of startups, the 90s and then going forward. But it’s still incredible, the growth is really very much fueled by startup companies and how they go to the next level.

Section 3: The Future of VC (27:31)

Bertrand

So moving maybe to the future of VC, Nuno?

Nuno

Yes, I love talking about the future of VC, you know that. I love talking about it because I think we are… I rarely do sales pitches on Chamaeleon, but this is my sales pitch on Chamaeleon. I think we are creating the future right now. That’s the theme of that fascinates us all in this team, which is really the first piece of that future is the use of quantitative and technology methodologies and systems and platforms, the use of AI in particular machine learning and deep learning on certain parts of our data sets to really help us with the core processes of venture capital.

Nuno

As I mentioned in the previous episode, it’s an industry that hasn’t really been innovated that dramatically and its operating model certainly doesn’t use much tech. The odd CRM system here and there, Pipedrive, Affinity, et cetera, but certainly not its own quant team and its own technology team and its own software developers. Maybe a few data scientists here and there, but certainly not their own development stack. And we believe dramatically that is the future, we need to use it, we need to be more fact based.

Nuno

There’s a variety of reasons why that is in the future. We have biases, we have geographic biases, we have biases in terms of the founders that we’re looking for. Our networks intrinsically have biases because they’re very limited. It’s the places where we work, the places we got access to.

Nuno

And in some ways it’s been exciting to go on this journey because you see a lot less biases, you see a lot more distribution, diversity, also diversity in the types of companies we can see in particular for more of a generalist fund with a spiked approach around the partners, but still a generalist fund. And it’s really, really exciting that you can really innovate around the core pieces of the funnel. Deal sourcing, due diligence, and portfolio management and how do you scale that. And I think that’s the future.

Nuno

Just to give a few examples, it would be difficult for you to go to a VC firm, or it would be actually easy for you to go to a VC firm and ask what their risk profiles look like for their portfolio companies. So if they have 30 portfolio companies in the fund, what sort of risk profiles do they have? What’s the correlation and cohorts on that risk profile? Who fits what?

Nuno

You can also ask them, if you add a company in this space, this specific type of company, how would that change your risk and which cohort would they belong into? So the question would be very easy, the answer would be impossible. Nobody would give you an answer. Nobody does Portfolio management at scale, not even some of the top VC firms in the world are known to do that at scale. What they do is a little bit more Mickey Mouse.

Nuno

They do look at their returns, they look at optimizing the returns of not the top three, but below the top three, how do you optimize that those returns and how do you get stuff into it? But for example, risk analysis in venture capital is quasi nonexistent. If you think how vital it is to liquidate a company at the right time to make those returns, it’s shocking that there hasn’t been more work done, more things done around it.

Nuno

So again, I think that’s the first piece that I would put on the table. Again, it’s parochial. It was a bit of a sales pitch, I apologize in advance, but it’s what we’re thinking through at Chamaeleon. We think that the use of quantitative methodologies, technology platforms and AI is vital to the development of the category. It’s what I call the Renaissance capital moment for venture capital. Renaissance capital was actually the granddaddy of quant hedge funds. I think it’s now the moment to do this for early stage venture capital and venture capital in general.

Bertrand

Yeah, Renaissance Capital has amazing return. There is a book about Renaissance Capital, it’s an amazing with how they started this quantitative approach, I believe in the 90s or actually maybe even 80s. So it’s been a while and strangely it was not applied to to venture capital until very recently.

Bertrand

And I can say that, I mean, having started a firm, App Annie, now called data.ai, that has among its clients, a big chunk of the VC industry. You know, you are one of the very first, one of my very first client in the VC industry space. You were definitely one of the pioneers in that space. If many are trying, not so many are definitely succeeding or even really a machine that is organized around that quantitative approach.

Nuno

And there’s a problem, which is if you haven’t tried it and you have, you haven’t done it to scale, how do you know if it works or not? Once you’re given assets under management and you have management fees, where are you going to spend it? Well, you’re going to spend it in the classic things deal team support staff. Maybe if you have a lot of assets under management in portfolio management and impact stuff, but you will not spend a ton on tech because you have not pattern recognition. You haven’t done it before, you haven’t tried it before, you don’t know if it works or not, so it’s a huge risk.

Nuno

And I think there’s other issues in the industry. It’s an industry that has been driven a lot by—I’ll exaggerate—by ego, I’ll probably say ego in a different way. It’s been driven a lot by personalities, by relationships, by the way people interact. And that’s the legacy, that’s the legacy that we’re combating. So that’s definitely one of the forces that we’re seeing for the future of venture capital. Again, this was my parochial thing, I’ll apologize and move on.

Nuno

There’s definitely been a movement of mega funds with the VisionFund. We’ve talked about it in previous episodes about really occupying space and writing very large checks very early on in the development of the company, almost the blitzscaling theory of Reid Hoffman, and Chris Yeh, who are…Chris is a good friend, but taking it like to the nth degree very quickly. I’m not sure it’s worked really well. What do you think, Bertrand?

Bertrand

I mean, it does not work very well, at least right now. The metrics are clear for VisionFund as well as some others, like cross-over funds, who have had a lot of troubles. They went to scale big time. The investment approach, especially at the later stage of the game. The problem is that more money doesn’t mean better business, and capital as a moat does not exist. You don’t have capital as a moat. You can always find more capital somewhere. So it does definitely increase the capital needs of startups, but it does not increase the returns.

Bertrand

And what we have seen is that in a higher interest world, it’s a very difficult game to play, because some of this capital was actually loaned. Let’s not forget that VisionFund is mostly backed at this VisionFund, one, by loans. That’s a very difficult model if you have very high interest rate. And the other piece of high interest rate is a decrease in valuation of more risky business like high tech business. So pushing a lot of capital in companies that are less and less valuable is a difficult game to play.

Bertrand

And the other piece, I remember someone telling me some time ago and I think he’s right, it’s not because there is more money that there are more good entrepreneurs. I believe you have a certain limit to the numbers of true entrepreneurs, and that’s true that entrepreneurship has become a bit more sexy of late, more people interested to go into entrepreneurship.

Bertrand

But that doesn’t mean we have more talented people. That’s always been a worry. With more capital coming, it might be wasted on entrepreneurs that are the wrong ones. It might be wasted on industries that are the wrong ones, so that’s something that’s a worry to me.

Nuno

Yeah, I mean it’s… Also of course, it’s right cross-over funds like, “Oh, I have this advantage and I can put more money later, cool.” But what’s your edge in early. Mega funds is like… It’s a mess. Then, that’s a very complex risk profile. You’re coming in at Series C for some company, Series B for others, maybe Series A for others, and then Series D, almost IPO… I mean, it’s a mess of risk profiles.

Nuno

And for a while, the world looked it was going super well, super positive, and then it wasn’t. And even before all this collapse that we’ve had recently with dramatically increasing interest rates, let’s not forget the whole vision fund strategy start getting put into question way before this whole increase in interest rates, whatever. Maybe it was a great play, maybe it was this big bet on just occupying and creating moats around capital, because you have so much capital, you create a moat around it, but it probably didn’t scale and it didn’t really go to the next level.

Bertrand

Yeah, it created an arms race where suddenly every VC firm had to have billions and billions of dollars under management. So okay, they started it, but many others followed because they realized that they cannot lose to the VisionFund. But I think many stayed more careful, closer to their roots in terms of analyzing business, analyzing opportunities.

Bertrand

And to be frank, we also have to be careful because all of this money, if you are an entrepreneur, if you raise too much, it’s going to be trouble at some point, because you are more lazy the way you run your business as well as when it’s time to exit the business. You have a big cap table and it’s creating a huge threshold in terms of how much you have to sell in order to profit from the sell of the business.

Bertrand

And not just the entrepreneurs, the employees who have been promised stock options and the like suddenly might wake up with a hangover. And that’s certainly what has been happening in 2022, by the way.

Nuno

Maybe moving to other layers of augmentation. Obviously, we’ve already talked a little bit about, if you have a lot of assets under management, you have a lot of management fees, you can hire a lot of people and a lot of these people can really be used as a significant value add for your portfolio companies, market developing, helping them with sales, helping them getting to companies, business development, even M&A. If you want to push some companies to potentially exit and get out of it down to acquisition.

Nuno

For me, it’s more interesting the hacks that you have into people augmentation, and I would take my hat off to Chris, set at SignalFire and the whole team there in the model they created around their advisors, some of them are also their LPs, and how they support their portfolio companies, and how do you create the graph to get people to really connect with each other. Obviously a lot of it comes from the origins of the firm. There was a lot of background in the firm of people that were in the executive recruiting space, but that’s definitely super hacks, super well done, super well thought through.

Nuno

We had Chamaeleon do that with #KIN, which is our network of advisers, scouts, operators, et cetera. It’s a smaller network, but it’s probably a more deep network in some ways in terms of involvement, and we quite like the way that that works well in our ecosystem, building with our portfolio companies, their LPs, et cetera.

Nuno

There’s people that are doing other types of elements in terms of how do you put Rolodexes at the disposal, we also use technology to do that internally, but how do you put your Rolodex at disposal of your portfolio companies? How do you help them scale? How do you help them get help from the right people?

Nuno

Because sometimes you hire someone for your organization as a VC firm because you have all these management fees, but maybe this is not the person that really can help the portfolio company. In some ways, having maybe a looser advisory and operator network and creating some prioritization around that might actually be, in some cases, even more valuable, I would argue. But there’s definitely a lot happening around what I would call the people augmentation layer of venture capital.

Bertrand

I think it’s quite important to be able, as a VC, to provide support to your portfolio companies. For me, the first report I’ve always looked into is how do you help me recruit more and better, so that part is definitely critical. I think the other piece of the puzzle is how do you help me make better strategic decision, I think that’s really key not to miss a big strategic decision.

Bertrand

Maybe by intros to smart people in the industry, it might be to introduction to independent board members, maybe a lot of things. But I think that strategic box not missing something is key. I think, obviously, there’s a lot of value there and it’s always a fine balance about how much you can invest as a VC firm versus other ways to invest to run your VC business.

Nuno

And then finally, in terms of the future of venture capital to extreme angles, the impact investing piece and a refocus back into deep tech and frontier tech and big disruption, some of it actually intersects, a lot of clean tech is deep tech in many cases. Not all of it, of course. But yeah, certainly a lot of exciting things happening.

Bertrand

Yeah, I think it would be an episode in itself to focus on what’s next in terms of VC investment, in terms of industries. Luckily tech is there, VC investment is there, as you say, deep tech, frontier tech, there is a lot of disruptions coming, of course, AI, quantum computing, there is a lot of stuff.

Conclusion (38:40)

Nuno

Very good. In with this we conclude episode 42. In episode 41, we talked about the history of venture capital and the business of venture capital, and in this episode we went into the process of venture capital, its operating model, we talked a lot about funnel, and then we share some stats around venture capital to show the importance of the industry and where it’s at. And finally, we ended with a couple of notes on the future of venture capital, which we all believe is bright despite the turmoil of recent months. Thank you, Bertrand.

Bertrand

Thank you, Nuno.

View Details

In this episode, we will go in-depth into the evolution of Venture Capital, including its History, the business model, process and operating model, and what its future holds.

Navigation:

Intro (01:34)
Section 1: History of Venture Capital (01:59)
Section 2: The Business of VC (15:27)
Conclusion (19:54)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Subscribe To Our Podcast

Intro (01:34)

Nuno Goncalves Pedro

Welcome to Episode 41 of Tech DECIPHERED. In this episode, we will talk about the evolution of venture capital. We will start it with its history. We will discuss the business of venture capital, what is it all about, and we will go into the process of venture capital. How do venture capital firms and funds actually operate? Finally, we will talk about the future of venture capital, the immediate future and the more long term one. How will it change?

Section 1 – History of Venture Capital (01:59)

Nuno Goncalves Pedro

Maybe starting with history. Venture capital actually goes back a long way. Obviously, we always like to go back to Second World War, the military complex in the US going full throttle, a lot of IP being generated, a lot of really useful things for defense that could be applied to the mainstream markets. In some ways, that’s the beginning of the history of Silicon Valley and the beginning of the history of venture capital at scale with public-private partnerships, grants and money from government, technology transfer into areas that were ultimately areas that went fully outside of defence and into normal markets, so to speak.

Nuno Goncalves Pedro

But actually, venture capital goes back even further. Venture capital and high risk projects go back to, for example, the time of discoveries, the time of trading by boat. Actually, that is where the term carried interest comes from. It is carried interest. What happened was the boat owners were going to take merchandise from one place to the other. Because a lot of these missions and projects had a lot of risk to them, not only they got paid to do it, but they also got paid in kind to do it with carried interest. They would keep some of their carried interest. That’s how the term carried interest really comes into these high risk profile projects.

Nuno Goncalves Pedro

Venture Capital is a very high-risk endeavor, or a higher risk endeavor than normal. Its history starts around World War II with private-public partnerships.

Bertrand Schmitt

I feel that between the age of discovery and World War II, there might have been the age of whaling in the US, from what I understand. Nuno, you want to say a few words on this?

Nuno Goncalves Pedro

Yeah. It goes back to whaling. It goes back to all these endeavors and projects and shipping. The military complex really expands it into private markets, so public-private partnerships, getting money into it. We started having, in venture capital, actually, early days, there was a lot of East Coast players in the market, which were more coming from the banking angle to it, just pushing into it.

Nuno Goncalves Pedro

Then we started having, because of a lot of aerospace defense projects happening around California and in California, there was a migration to players that were more, I would say, businessy, less banking. Some of the early VCs in this market, people like Pitch Johnson, Bill Draper, the granddaddies of us all. Bill was involved in a firm with Pitch. I think that was one of the original firms, if I recall correctly.

Nuno Goncalves Pedro

Bill went on, I think, to found Sutter Hill, which is still one of the oldest in continuity. Pitch went to found Asset Management, which if I’m not totally incorrect, is the oldest VC firm in Silicon Valley into continuity. A shout-out to the Asset Management guys, very good friends there. Obviously, from Bill, we had Tim’s son. Now we have his grandchildren, so that’s a bit of a dynasty. Sutter Hill is still around and doing very well, thank you. There’s definitely all these roots that go back to it.

Nuno Goncalves Pedro

Then in the late ’80s into the early ’90s, when we started having some really innovative companies that came into the market, Fairchild, Intel. There was a little bit of a search for the next wave of venture capitalist. And out of that search of the next wave of venture capitalist, we have people like Mike Moritz, who used to be a journalist, actually. John Doerr used to be a senior executive at Intel, coming into the market and really being some of the most known VCs of all time at Sequoia and Kleiner Perkins, call for them buyers.

Nuno Goncalves Pedro

Through those times, just to define epochs in venture capital, I think the epoch in venture capital that we move from was the very IP-driven, postwar epoch to an epoch that was all about what I call the country club proprietary networks.

Nuno Goncalves Pedro

I knew people that had done well. They were about to start their next company, an idea. I was willing to really feed them. Relatively low risk. I know they were successful. They had built stuff before, they had a great track record. It was almost like real risk. I was incubating the idea, giving you money and letting you go with it. Then for a long, long time, to be very honest, until probably the late ’90s, until really the Internet 1.0 movement happened, that was about it. That was the playbook in venture capital, country club, networks, etc.

Bertrand Schmitt

Another legend we might want to talk about, Don Valentine, who started Sequoia. I believe he was a very famous salesperson, head of sales at a big firm before funding Sequoia, if I’m not wrong. He was very successful in that endeavor. A lot of big guesses from these guys who started funds in the ’80s.

Nuno Goncalves Pedro

Yes, he was, I believe, at National Semiconductor?

Bertrand Schmitt

Yes.

Nuno Goncalves Pedro

Then it’s a little bit unclear how big was Sequoia when they started. I’ve heard that they started with five million. By a single LP, I’m not sure this is totally accurate and that capital may have been their first LP. I’m not sure again. But it certainly started in the early ’70s, I believe, 1972.

Bertrand Schmitt

Yes, you’re right, ’70s.

Nuno Goncalves Pedro

Everyone talks about Sequoia like it’s a brand new firm and they’ve been around for a long while. They’ve had obviously an amazing track record. They’ve gone through this. Mike Martz is a continuation of that route. But the playbook was really this playbook. It’s people that I knew, people that I knew were talented. I call it the country club thing is I’m not saying it in a nasty way, but it was direct access to people that otherwise it would be difficult to access. There was no Internet, there was nothing at scale.

Nuno Goncalves Pedro

Then the Internet happened and many things happened around that time. In some ways Sequoia, Kleiner, I believe, were at that time the guys. Benchmark started existing around then in the ’90s, but they were probably not as amazing and famous as they are today. Although, to be honest, I would say they’re probably the first big riders of the Internet movement. They made a lot of money in those early funds. But the playbook was still more or less the same. We started going from the country club into universities, into young entrepreneurs. That may have moved a little bit, but in effect it was a similar play.

Nuno Goncalves Pedro

It was proprietary networks. I have access to those people when they’re starting their next company. I have access to those professors when they’re starting. Vmware was started by Diane and her husband who were professors. There was a lot of this linkage to academia that filled very well with the whole country club, proprietary network, ethos of it and caught a lot of the early Internet plays because Google was at Stanford and Sergey and Larry were there, etc. That’s the first real big epoch of the professional VC. The postwar IP thing, that’s the first big epoch.

Nuno Goncalves Pedro

Then no innovation for a long, long time. I would allege that until probably mid-noughties, late noughties, there was almost no innovation in playbook. VCs were mostly inbound-driven proprietary networks in the sense of who do I know, what companies are they at, et cetera.

Nuno Goncalves Pedro

Then all of a sudden, something happened. The something that happened, I will credit it to two people, but I don’t think they’re the only two people or the only two firms that really did this. But I always credit Mark’s sister and what he did. Up front, it used to be called something else. I forgot the name. Mark will forgive me, I’m pretty sure. But Mark Suster, with both sides of the table and really answering these questions, was a very opaque space. People didn’t understand legal documents and he started demystifying and being the friendly VC. Brad Feld for sure was also part of that movement. Certainly, Union Square Ventures with Fred Wilson were part of that early movement. They started blogging about it. I’ve already said three names.

Nuno Goncalves Pedro

Then the guys we institutionalized it in some ways and said, “No, we need to have a brand and we need to have media and we need to reach out there,” because by and large, a lot of the VC firms were very stealthy or they were very much in their corner on Sand Hill and they did their thing. Benchmark had-

Bertrand Schmitt

No website.

Nuno Goncalves Pedro

Still does have a very poor… No website, like a splash page. If you know us, you know us. If you don’t know us, you shouldn’t be here type thing. But basically in recent or with Ben and Mark were the guys who shifted their own set and said, “No, we need to be known. We need to be known. People know who we are.” They launched, I think their first vintage fund is 2008. I might be wrong, but it’s around that time. The rest is history.

Nuno Goncalves Pedro

That playbook changed. Vc firms started branding themselves. They started really being out there having thought leadership. Now it’s almost a given that each associate principal, even partner at the VC firm is posting blogs every month about something that they know, something about whatever. People are very active on Quora. They speak publicly a lot. They get interviewed by journalists. It’s become a profession that is clearly more visible.

Nuno Goncalves Pedro

Then I would say the final shift we see in the history of VC in terms of epochs and playbook is probably also best described by Andrii Sonorowicz, or maybe by larger AUM players like NEA and others, which is the whole notion of shared services. Once we invest in the company, we’ll not only back the company with capital, but we’ll back the company with market development, recruiting, PR, and all these things, and we’ll make that available to our portfolio companies.

Bertrand Schmitt

Yes, that has been a dramatic change. I agree with you. Having been on the other side of the tech industry, I have seen a drastic change in term of information available on how it works, how this industry works, how does it work. On the VC side, from the entrepreneur side, I’ve seen that change over the past 25 years, where it has become way more open, way more transparent.

Bertrand Schmitt

Another actor that helped was Y Combinator. Standardizing term sheet, for instance, has been very helpful. Definitely significant trends.

Bertrand Schmitt

Anyone can become somewhat knowledgeable. Some great books, by the way, Secrets of Saint Hill Road by Scott Kupor, for instance, another one around deal terms. There’s been quite a few good books about this so that you can read books, you can read blogs, you can follow Twitter and get a good sense about how this stuff is working. I think that’s very helpful for everyone. As a VC, you want to understand how entrepreneurs are working, and as an entrepreneur, you want to understand how VC are working because it’s always important to be aligned when you are working together to try to achieve something bigger than just yourself.

Nuno Goncalves Pedro

In a correction, Don Valentine started Sequoia with three million from Capital. It was from Capital. It was Capital was excited because he was doing this angel investing on the side and they started paying attention to it and they decide to give him money. Capital, obviously, is a huge asset manager, one of the largest in the world. That’s how incredible things start with small amounts of capital, sometimes three million.

Nuno Goncalves Pedro

I think that’s the last epoch that we’re in. We’re still probably in that epoch. I think asymmetries of information to the point you were making are part of the past. In some ways, I as a venture capitalist, I believe it’s also my duty to actually educate even as we are negotiating because we’re going to be in a relationship for at least 5-7 years, maybe even longer. So if that realizes we screw them on the deal on some obscure clause or whatever, it’s sort of not very helpful. You can get away with it maybe once or twice in your career as a VC, but if you do it systemically, and we know a few players out there that sometimes do these funky things, if you do it systemically, everyone in the market knows. I think those asymmetries are slightly disappearing.

Nuno Goncalves Pedro

Obviously, it is still true that a VC will do a lot more deals than an entrepreneur. Of course, even if you’re still entrepreneur, you’ve raised money, I don’t know, 10 times in your life. If I’m a VC and I’ve invested in 50 portfolio companies, I’ve done 50 deals. I’m already ahead. I’ve done more deals. I have more experience. It’s part of my bread and butter. It’s core to my business in some ways because it’s where I do my returns.

Bertrand Schmitt

Maybe just on that point as an entrepreneur, that’s why it’s important to get very knowledgeable lawyers. That’s the one thing I’ve seen as a mistake from many entrepreneurs is to pick lawyers who don’t know VC, who don’t know how a term scheme is built, how it’s negotiated when you go to final document. And on the VC side, it’s horrible because you have to work with someone who has no clue and focus on the wrong points or even doesn’t understand the whole concept. So please, it’s as expensive to get a lawyer who knows VC as it is to get a lawyer who doesn’t know VC, but on the long run, the one who doesn’t know VC will have put you in trouble.

Nuno Goncalves Pedro

There’s definitely that. There’s the 10 or 15 law firms that everyone knows that are active in the startup world. You guys can ask your friends and your colleagues if you’re an entrepreneur, they all know who they are by no specific order. The Morgan Lewis’s of the world, the Wilson Sonsini’s, the Goodwin Procter’s.

Bertrand Schmitt

Gunderson.

Nuno Goncalves Pedro

The Cooleys, the Gunderson Detmers. I’m probably missing a bunch that will be pissed off. The DLA Pipers. There’s a bunch of them out there that just do a lot of VC deals. They’re experienced in doing it. They know how to deal with it. There’s an advantage to that as well because the likelihood is your VC will have another VC, another law firm that is in that list of 10 or 15. When both are talking to each other, they know each other’s draft. It’s actually much easier for them to do business. They won’t be looking for funky clauses, they won’t be having stupid discussions, et cetera.

Nuno Goncalves Pedro

That said, two other elements that I would highlight on the legal side. One is there are some law firms or lawyers that are exceptional at this and that’s the only business they do. There’s a couple of them that come to mind right now. They’re also exceptional. Those guys are still, although they’re not part of the top law firms, they’re exceptional at what they do. They also do it all the time, et cetera. They may be a lot cheaper, et cetera. Which is helpful.

Nuno Goncalves Pedro

Then finally, the last element is you have to manage your lawyers.

Bertrand Schmitt

Never forget that.

Nuno Goncalves Pedro

That’s the opposite error. I have Goodwin, I have Morgan Lewis, I have DLA Piper, they’re representing me. No. And entrepreneurs make this mistake all the time where at some point they’re being run by their lawyers. I’m like, “Sorry, is this our deal or is this a deal that I’m doing with your law firm?” Because my law firm is representing me and my VC firm. They don’t have a blank sheet to go and negotiate with your lawyers or with you. I don’t appreciate the opposite either.

Nuno Goncalves Pedro

And many times there’s just business decisions that need to be made. I find most of the stuff between lawyers, if there’s someone on at least one of the sides that is assertive around managing lawyers gets done. Again, they’re amazing, they’re great. Using the top ones is important. Managing their cost is important as well, but you have to be thoughtful how to manage them.

Nuno Goncalves Pedro

Obviously, with experience as an entrepreneur, you’ll get better at it. It is part of our core job as VCs, certainly, to manage our lawyers and to make sure that we get exactly what we want out of the deal and the dynamics of the deal. These are funky deals, as I mentioned before, because they’re long term deals. We’re going to be together for a long time. If we screwed you on the deal and it becomes very evident on the next round that you raise because some lawyers are going to look at it again, they’re like, “What is this thing here?” There’s seniority on the waterfall to these guys, whatever. You’re going to get in trouble. It’s really you have to be a good actor.

Section 2: The Business of VC (15:27)

Nuno Goncalves Pedro

Maybe even switching to the business of venture capital. What is the business of venture capital, Bertrand?

Bertrand Schmitt

That’s a big topic. Ultimately, as a VC, you get money from other people. It’s not your own money. There would be your own money, but just a small piece of it, maybe 1-2 %. Ultimately, you are getting money from other investors, limited partners, as they are called. These limited partners, they are pension fund, they are family offices, wealthy individuals. So they might be of different types. Your goal as a VC is to give them returns. They give you money so that you give them money back and that you give them money back, obviously, while beating some measure of success.

Bertrand Schmitt

This measure of success would be probably returns on the S&P 500. And this measure of success will have to take into account the fact that their investment is not liquid so that it’s money that they will only get back after 5, 7, 10, 12 years. So they have to beat returns from an S&P 500, for instance, because this one is liquid. You can take your money out whenever you want. So your business is to make money for other institutions.

Bertrand Schmitt

Obviously, in order to achieve that, you have to do something with that money and so you are going to invest. You are going to invest in entrepreneurs, in startups. And for that, you have to find the best ones. You have to convince the best ones to work with you. And ultimately, once you have convinced them and signed a deal and obviously a good deal, and a good deal means win-win, as we just said, there has to be win-win between the VC firm and the entrepreneurs because this is a repeat game. You will invest multiple times in that entrepreneur, in that startup, and you will have to make multiple investments in multiple startups, and the word get out quickly if you are not fair.

Bertrand Schmitt

Then once you have invested, you need to support your investment. As we say, some firms have different levels of support. Some have literally teams of people that you can get access for free. Some have teams of people you get access for a fee, and some don’t have teams of people. It’s just the partners and the analysts supporting you as part of their job.

Bertrand Schmitt

From there, ultimately, you have to exit the investment you have made. Obviously, you need to exit with some level of success. When you say you have to exit, you have to find opportunities, or the startups you invested will find opportunities themselves so that there is liquidity for everyone involved.

Nuno Goncalves Pedro

Although there are different structures out there, the normal structure of venture capital is a fund. We venture capitalists are fund managers. To all the points that Bertrand said, we are about returning that capital to the investors in that fund. The majority of that capital normally is put in the funds by the limited partners, by the investors, could be corporations, family offices, endowments, pension funds, high net worth individuals. There’s a variety of different players that could be limited partners.

Nuno Goncalves Pedro

To your point, there’s a GP contribution. GP contributions vary quite a bit. One to 5 % seems to be the magic number of the size of the fund, the 1-5 % number. But there are, for example, funds that have a significantly more of GP contribution because they’ve been around for a long time. There’s different structures. We were talking about Sutter Hill earlier that goes all the way back. Sutter Hill operates as a capped organization. They’re not really a fund in that sense. You are in it and then you can leave, but it’s almost like you’re in a cap table rather than you’re in a fund. Whereas we’re managing normally funds that are 10 years plus 1 plus 1, so maximum 12 years and it’s like that fund needs to return at some point. To your point, relatively illiquid, unless there’s exits and liquidations and there’s all these strange and funky dynamics around it.

Nuno Goncalves Pedro

The main objective is clearly the returns. If you can’t return the fund above a certain amount, you’ll lose the right to exist as fund managers going forward. The value piece of what you bring to entrepreneurs has become more crucial in this last epoch of the Andreessen Horowitz, et cetera, of the world. It is pretty vital. The elements of distinctiveness, am I a super well-known person in the market that’s just starting a VC firm? It’s like the celebrity VC fund or the person who was an entrepreneur who’s done really well is now starting a new thing.

Nuno Goncalves Pedro

Normally, the business of VC gets basically scaled through time. Even if you’re a superstar, you’ve done very well in your past life, the odds that you’ll start with a stupidly large fund are very small. Don Valentine started with his three million. Founders Fund, I believe, started with 40 to 50 million their first fund. Peter was already super well-known by then and he was already doing a variety of other things beyond well past PayPal, so things grow. They start, they grow, and then with your track record, you can grow them more. That’s how fund management really changes in venture capital.

Conclusion (19:54)

Bertrand Schmitt

Thank you for listening Tech DECIPHERED, Episode 41. As a conclusion, this was our first episode in a series of two episodes about the evolution of venture capital. We just concluded Episode 41 talking about the history of venture capital as well as the business of venture capital. In the next episode, Episode 42, we are going to talk about the process of VC. We are going to share some stats around venture capital, and we will also share our perspective about the future of venture capital. See you next time. Thank you, Nuno.

Nuno Goncalves Pedro

Thank you, Bertrand.

View Details

SVB goes down, and the Fed and Treasury react. The latest on the financial crisis: What actually happened? What was done to stave off the crisis? What are the next steps and what’s further on the horizon? As always, our “no bs” views and analysis.

Navigation:

Intro (01:34)
Section 1: What happened?
Section 2: What was done to stave off the crisis?
Section 3: What are the next steps?
Section 4: What’s on the horizon?
Conclusion

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Subscribe To Our Podcast

Intro (01:34)

Bertrand

Welcome to Episode 40 of Tech DECIPHERED. An episode, of course, focused on what happened this past week with Silicon Valley Bank and the overall financial crisis around it. We are recording this as of Wednesday, March 15, Pacific Time. Between the recording and the release of this episode, it might take a few days, so things might have changed. Bear with us. What a week in Silicon Valley. That was pretty insane. I think we have a black swan type of crisis every year now happening.

Nuno

If it’s once a year, is it still a black swan?

Bertrand

Of course not. Sorry if my joke was not explicit enough.

Nuno

You’re being facetious, understood. Okay, clear.

Bertrand

I’m definitely being facetious about this. Definitely, in the past, I don’t know, three, four years have forced us to run businesses in a different way. We will try to do a short episode this time focusing on what happened, what was done to stave off this crisis, as well as what’s the next steps, what’s on the horizon.

Nuno

Let’s start with the obvious big picture thing. Rate increases by the Fed is one of the engines of all the issue around SVB. We’ll come back to what actually happened later on, but let’s go through fundamentals first. The Fed has been increasing interest rates dramatically for the last less than a year. It’s going to be a year, I think, this week, from starting at 0.25-0.5 range to now being at 4.5%-4.75% range, if I got that right, for the Fed rate in one year, less than a year, which is incredible. That has created, obviously, a situation where there’s a lot of strain on various financial products that banks, for example, may be over exposed to.

Nuno

But it all started, in all honesty, for a valid reason, which was really containing and reducing inflation. If we remember, inflation started around the one point something percent mark, so well below the 2% magical number, which we’re now questioning is 2% really the right number or not. But it went through the roof by 2021 into 2022 to 9%, and the Fed had to do something. They’ve been pushing it down. Obviously, I think the last number of inflation is around 6.0%, very close to 6.0%. Clearly, the interest rate increases have been working in really containing and reducing inflation, but this is the side effect.

Bertrand

Yes, it’s definitely a side effect. Why is it a side effect? It’s because when you increase rates, especially so fast as a bank, especially banks who have seen continuous increase in deposits, thanks to the monetary inflation over the past few years. If you have bought assets, long-term bonds at low rates, suddenly with the rate increase, the value of your bonds is decreasing.

Bertrand

For me, what’s also interesting in all of this, and we keep learning more and more in the coming few days, but if I look at regulators, it looks like as well, they were asleep at the wheel. I was reading that a very recent FDIC stress test was not including any chance of rate increase in 2022. That proof for me is that banks officials were not doing what they were supposed to do in terms of diversifying risk, preparing to different situations. But the regulators were absolutely of the same mind. Apparently we talk more into the specifics of SVB, but several banks that went bankrupt actually just got their auditing released and done and stamped by KPMG in the past few days. We’re talking about two weeks and everything was supposedly all right.

Nuno

Just to clarify, they went bankrupt or they went under this systemic approach, either at FDIC or the Janet Yellen announcement? Because formally, I don’t think they’re bankrupt.

Bertrand

FDIC took them over, but took SVB over Friday morning. Let’s not forget we had another bank, Silvergate. The day before all this maelstrom on Wednesday I believe last week, didn’t technically went bankrupt but was ceasing operation. We got another bank, Signature Bank, also that was taken over by the FDIC. I don’t know if technically it was a bankruptcy, but I’m pretty sure it is because ultimately it’s taken over by a new entity. Senior management was fired. Technically, you are not banking with the same entity.

Nuno

Yeah, you’re banking with a bridge bank now.

Bertrand

I guess it’s as close as you can be for bankruptcy for a bank. Let’s put it that way. Banks have a special system in place to manage them when it is believed that it’s not running well anymore. From what I’m reading about Signature Bank, there was a belief from officials, apparently, that they were not close enough to the action at this bank to know what’s really going on, and that started to spook the FDIC officials. This one might be an even more different situation where technically they might have been in a better shape, but they were not able to share numbers at a fast enough pace with the regulators that the regulators believed that they have to take them over.

Bertrand

We talk about regulators and auditors, potentially a slip at the wheel. Maybe another piece, Jerome Powell was testifying last week in front of Congress that the banking system was all right. We are talking about days before all of this happened, and not just these guys went bankrupt, but we’ll talk more about this, but that actually there was a significant change in regulation to stave off a bigger disaster.

Nuno

Yes. Obviously, there’s a couple of other important elements here that we should maybe also talk about, the low returns on deposits that were around, the ability for people to move capital around and put their money into other accounts that obviously were giving them a lot better returns at that point in time. There was already some movements in terms of deposits in certain banks, in particular in SVB.

Bertrand

But to insist on this one, I have been following for a few weeks. There was definitely a lot of noise on this specific topic that not just SVB, but every bank in the US, because they have been so used to provide depositors with 0% interest rates on their savings account, didn’t want to raise them when it should have been appropriate to raise them in order to match the treasury.

Bertrand

There is here a very clear greed on the part of the banks not to provide returns to their depositors, and in exchange, take a big risk that depositors are going to leave. If they are going to leave, you have to compensate by either cashing out your bonds or other assets as a bank or having to raise equity. They all took a big chance by not increasing savings rates that people would not leave even when they have the opportunity to have very safe risk-free higher return from treasuries.

Nuno

What we had effectively on Thursday was a bank run 42 billion in initiated transfers. I’m not sure if all of them were completed, but 42 billion in initiated transfers, which is a world record, I’m pretty sure.

Bertrand

It is.

Nuno

We’re talking and discussing a lot of things around the bank that were very specific around this bank. A high concentration in some of the deposits, 42 billion would have been around 25%, very close to 25% of all the deposits in the bank. It would actually be 20% of all assets of the bank. A bank that had high concentration on certain accounts. From what I was told, there were certainly very large accounts with the bank, which is if one of those accounts got the money out, that significant hole immediately. All of this is true. I would go back a little bit because I actually disagree with all this discussion that’s happening around, “Oh, no, it was FDIC’s fault.” Of course, it was in some ways the Fed’s fault on increase of interest rates.

Bertrand

That I cannot fault the Fed to increase rates. I mean, that’s their job. The rest of the institutions should know that they have to do something.

Nuno

But maybe they increased it too fast.

Bertrand

I think they started too slow. That’s the issue. That’s why they had to go too fast.

Nuno

Yeah, maybe they started too late, and that’s the case, I don’t know. Maybe it is that the FDIC stress tests weren’t updated to include all these things. There may have been some regulatory mishaps that wouldn’t have happened otherwise. There may have been some mishaps where the bank had some issue that came up.

Nuno

My ongoing theory, and I cannot say for a fact this is true, but I’ve now talked to enough people that seem to agree that this is likely what happened, was there were definitely some discussions with Moody’s in the bank around their debt rate and a potential to actually downgrade them on their debt rating.

Nuno

There was actually a very quick knee jerk reaction to sell assets that they had at a loss. There was actually a push to recapitalize the bank, and we now know that magical number to be 2.25 billion, because it got announced in a press release on Thursday morning. In that recapitalization, it is clear that they started talking to a number of actors in the market, including General Atlantic, which is mentioned in the press release as already having committed 500 million for that press release.

Nuno

It is very, very clear that they talked to other actors. I’ve been told they talked to a couple of very large substantial venture capital firms. There were some news that came up and popped up very early on Thursday about a few well-known VCs having told their portfolio companies to take the money out and their own accounts to take their money out.

Nuno

It is also clear that the CEO of a bank at that point in time jumped on a Zoom call, I believe, at 11:30 AM Pacific Time on Thursday to [inaudible 00:09:10] and to calm down the markets. In that conversation, he used the word panic. I’m probably paraphrasing. I’m not sure exactly that he said this, but he said something. The worst possible case scenario that could happen right now is panicking. I’m paraphrasing. I’m sure it’s not exactly what he said, but he did use the word, and the rest is history.

Nuno

I actually think what happened in this case… I’ve had a bunch of conversations with people that told me that, for example, the financial situation of SVB was actually very good. Obviously, they need to be capitalized and there’s sometimes liquidity issues potentially. But the reason why this failed was because of the bank run. It was not because the bank had a structural issue where they were going to die.

Nuno

The truth is, and I’ve had a bunch of discussions with a few other people that tell me there’s a lot of banks around the world that are in a much worse situation and nobody’s calling for, “Oh, they’re going to go bankrupt.” What happened here was a perfect storm of the worst possible communication by the leadership of a specific bank, SVB, and I’m going to call them out on this. I don’t know them personally. I may know one or two people, but I don’t know their former CEO personally, et cetera. I’m going to call them out.

Nuno

Poor communication, poor press release. They hadn’t closed the process yet of recapitalization. Maybe they should have waited and a bunch of knee jerk reactions and maybe talking to the wrong actors. When you talk to venture capital firms, you need to know this is the most connected community probably on earth, and they have portfolio companies, so they have to think not only of their own fiduciary duty to their own accounts, et cetera, but also the money that they’ve invested in others. That was, in my opinion, in very high likelihood, the match to this.

Nuno

Because if I look at my tableau de board, on Thursday morning, we were having our partner meeting. We normally like to just focus on the partner meeting, but my messages were popping left and right, WhatsApp messages, Signal, whatever, with different groups saying, “Are you guys hearing about SVB? You need to take your money out. You as a VC, you need to take your money out. You need to tell your portfolio companies to take your money out.” This was literally the morning.

Nuno

Clearly, there was a lot of communication happening. I’m not saying there were bad actors on the side of this bank run, but when this information starts getting propagated, it’s done. Because at that point in time, it’s game theory. What am I going to do? Am I going to be the last stupid person who just has money at SVB and I might not get it back? No, hell no. I’m going to take it out. If I can, I’ll take it out. I think that’s what actually happened. It was a piss poor communication, a bank that really didn’t need to go under FDIC or go under, a bank that actually just needed to get their act together.

Nuno

We’ve seen announcement, for example, First Republic Bank got kicked in the butt as well, immediately at opening on Monday. Immediately as well, they had this announcement saying, “We’ve recapitalized, we have this money, et cetera,” and it seems to be a flow. They’ve downgraded on one of their sides right now. But actually at the end of the day, they’re still around. There doesn’t seem to be a lot of noise around whether they’re going under or not.

Nuno

Clearly, I think their process was wrong. Their communication was piss poor, just to be very honest. Piss poor, it was crap. Then they may have talked to the wrong actors that are just the propagators of this information. What would they do with the information? They have to move on and be conservative. They have to move their capital outside and they have to tell their portfolio companies to move their money outside. That’s as simple as it is. This was the most classic of bank runs on the worst possible scenario. Highly networked bunch of actors that had capital there, high concentration of deposits, et cetera. It’s the perfect storm.

Bertrand

I certainly agree that the approach that they seemed to have had to reach out to PE firms, VC firms was the most crazy one as a banking actor to take because these guys talk and these guys have portfolio companies at scale.

Nuno

Why would you do that?

Bertrand

They should have gone to other big actors. You talk about First Republic, I believe they got this line of credit from JPM. But in some ways it was easier for them because it was after the facts and after the new rules. But I would still slightly disagree. This is a bank, and I’m not a banking expert, but I heard a few and they were all saying that the way that SVB didn’t hedge the interest risk was insane. Was textbook what you should never have ever been doing, ever as a bank. For me, that’s a pretty big one.

Bertrand

Basically, you go all in in the wrong direction, betting on the market without hedging your actions, and we were talking about, I believe it was $90 billion worth of bonds. It’s a bank that had no chief risk officer for the past 12 months. It’s the 16th bank in the US.

Bertrand

For me, there are a few elements that make me believe that, yes, definitely they did the wrong decision in terms of capitalizing, in terms of everything. But at the same time, to say they were structurally sound, I’m not so sure when your deposits are leaving by the day because you have better alternative in terms of treasures, or because your clients don’t get more financing but keep burning. At some point, you have to manage that process of building up the equity when you have made incredibly bad financial decisions running your bank. At some point, yes, maybe they could have stave off this disaster once or twice, but disaster was still coming. But yeah, it’s a bad situation.

Nuno

It’s very easy to go back and say, “Oh, they could have done this and done that.” They probably made a ridiculous amount of mistakes. I’m sure they made mistakes. As to be honest, I am pretty sure that today, on this Wednesday, March 15, there are a bunch of really big banks still making stupid mistakes. I’m sure about that.

Nuno

Pointing the finger on is I can’t be sure. I’m not part of SVB, I wasn’t there in the middle, I wasn’t a part of the discussions, et cetera. With a very high degree of probability, I don’t think that’s why they failed. I don’t think that’s why FDIC had to intervene. I don’t think that’s why the bank run started. It started because it started with hysteria. Hysteria comes from communication, again, to the wrong actors, wrong process, in the wrong way. And it’s life. It’s literally life. It’s just unfortunate. It’s just a bunch of people, to your point, that have access to online mobile banking with a lot of money.

Bertrand

In some ways, it was one of the most risky deposit or base you could get as a bank in terms of potential for bank run. That’s for sure. But at the same time, let’s not forget, we had two other banks, Silvergate and Signature Bank. What I was reading is that many other banks were at insane risk, and that’s why they did that bigger approach to solving the problem. Maybe we can go there. What was done to stave off this crisis?

Bertrand

On Sunday evening, was announced not a bailout, but shareholders and bond holders being wiped out. On the other end, depositors made fool, and that’s really the big part. What we should not forget because I’m seeing people complaining that it’s saving the rich or whatever, this is nonsense because if you have many banks that are going under and many more in the process of going under, if nothing is done, this is not just saving some people holding bank accounts at Silicon Valley Bank.

Bertrand

Again, shareholders and bond holders are not being saved. More important, people keep money at Silicon Valley Bank because you have to pay wages, you have to pay suppliers, you have to do basic bank operations, and the limits of the system at 250,000 are simply not enough to do some of this activity.

Bertrand

For me, raising a bigger question on the financial system itself. Why do we have this insurance limit? Why have they not increased actually over the years? Because I forgot when they were set up, but it’s been a while that they were at this level, and we all know that inflation has been big the past few years. Whatever was right years ago is probably not right today. It’s raising obviously question about why banks are playing with our money. Some will argue that the design of the banking system, yes, but you could argue the banking system could be organized very differently.

Bertrand

What else was done to stave off this crisis? A new process to make banks more solid in face of that current bond situation. Basically, bonds are going to be valued at par going forward in order to basically recognize a better position for the banks and also give them access to liquidity, valuing bonds at this par value, which is in some ways good and bad. It’s good because it’s saving the situation, saving the day. Bad because it makes no sense. This is a bad investment. It should be recognized as such. But as we have seen, if it’s recognized as such, the whole banking system is at risk and no one wants that.

Bertrand

Maybe one last piece of the puzzle, at least Silicon Valley Bank, UK branch, was acquired by HSBC in the UK, one of the biggest British bank. That’s a good thing because depositor were not only made whole, but operations are going forward in a perfect transition, removing any level of uncertainty like we have today in the US about where is SVB going ultimately.

Nuno

My opinion is the Fed was spot on. Treasury and Fed were spot on. They reacted at the right time. They stepped in. The formal time, I think, was Friday, but everyone is now saying that actually there’s a bunch of wires that were put forward after the wire cut off, which would have been 2:30 PM on Pacific Time for USD international and domestic wires on Thursday.

Nuno

There were a bunch of wires that were put forward that should have gone through first thing in the morning, because the FDIC only announced it later in the morning, that didn’t go through. I have the impression that actually FDIC on Friday was already in control of the bank, or at least there was no operations happening. I think that action was important.

Nuno

The announcement, obviously, portrayed by in this case, Janet Yellen, from treasury, on Sunday was essential to your point so that there wasn’t any contingent. To be very honest, the way I see this is not only it’s not a bailout as it’s really an advance. They will get and recoup whatever capital they need to deploy more upfront, because I do think actually the bank has enough assets to, over time, basically make its depositors.

Bertrand

On the long run, yes.

Nuno

It’s not very long. Maybe even if the FDIC went through the process, if I had to make a bet, I think depositors would get their money back. That’s been my view. I don’t know if it would take 90 days to 180 days to get all of that back.

Bertrand

If it’s 10-year bond, I’m not sure you’d make your money back in 90 days.

Nuno

But there’s ways of basically selling this in secondary, let’s say. It’s not out of the question that they would.

Bertrand

Yes, but at a discount.

Nuno

Yes, of course. Long story short, I see it then as an advance. I don’t see it as a bailout. To your point, shareholders and bond holders got stuck. There’s this notion in my mind that a lot of these players and actors that were in the market had invested in a bank that they thought were okay, and the stock just went to hell. I’m not sure all of them deserve…

Nuno

The people that put money in on Thursday itself because they were like, “There’s no way this is going to go further down,” that’s speculative. That’s life. I know people that lost, for example, a lot of money with Lemon because of that, because there’s no way this bank can fail. That’s you just being speculative and there’s high risk in that decision and then that operation. They lost their money, it’s life. They made a bet. It’s like going to a casino. You made a bet on red, the fuck, it was black. There’s nothing we can do about those guys. But I do think there’s some long-term stockholders, et cetera, that might have been kicked in the butt for no reason, they were bond holders.

Bertrand

I agree that some might have been misled, and that could be the question. That’s where law suits will go. Have they been misled by management? I don’t know. That would be a very interesting topic. Maybe we will ultimately discover that no, actually these guys have been misled, and yes, they ultimately are being wiped out, but it was technically not their fault.

Nuno

Yeah, correct. But anyway, it was not a bailout. I think we all agree on that. To your question, I believe the 250,000 was established magically enough in 2008.

Bertrand

Fourteen years of-

Nuno

As one would assume, it went up from 100,000.

Bertrand

Fifteen years of inflation.

Nuno

It went up from 100,000. It hadn’t been increased in 28 years when it was increased in 2008.

Bertrand

Interesting. Now it’s just 15 years.

Nuno

Now it’s just 15, not too bad.

Bertrand

But there is actually a lot of discussions of increasing this limit because why this amount? Anyway, in terms of next steps, there were a few questions. First, we know as of today, SVB is operating as a going concern. They are not trying to liquidate it. They are trying to find a bank to acquire it. Saying a bank because they seem to not want anything else than a bank acquiring SVB.

Bertrand

One issue here is that it looks like the biggest banks were potentially interested, but they were forbidden to participate and bid. I agree with you, the process was not too bad. The bigger disaster was staved off. But I don’t see a reason why in such situation you would not have let a big bank take over SVB so that there is even less disruption in the operation of this bank.

Nuno

I think there’s some rules around this definition of systemically important banks, the SIBs, which we now know all everything about. There’s tierages around it. From tier five, I don’t think there’s any tier five. There’s tier four, tier three, tier two, tier one. They have certain expectations in terms of their ratios, et cetera. Some of these banks, from what I’ve heard, are actually forbidden to buy. I heard something around Wells Fargo, I don’t know if that’s true or not, that they cannot further buy in the US for some degree of concentration issue or whatever. That might be related to that.

Nuno

I don’t think this was a decision post hoc because of what happened that they went back to these banks and say, “You cannot buy SVB.” I think there were already some limitations that I was told when the incident happened, so previously to the incident happening, that would actually impede some banks from doing this type of acquisition. It’s more likely that it’s a midsize bank or a regional bank that would buy them rather than a large bank. That is clear.

Nuno

I think the second thing, if we believe, obviously all the communication has been going out from the new CEO of the bank, the bridge bank, to be clear, as you mentioned before, it’s no longer SVB per se, it’s the Silicon Valley Bridge Bank.

Nuno

The CEO has come out and said there are really three options. There’s an option which is very unlikely of liquidation, and then there’s an option of having an acquirer come in. Many people say this week is the magical week. I don’t know if it’s true or not. There is an option in the middle, which is the option of actually Silicon Valley Bank continue operating as an independent bank.

Nuno

He’s come forward and said that. I don’t know, again, what that would look like. I guess they would need a new set of shareholders. How would that work? They were a public company, they would have to go private. I don’t actually understand how they would need to deal with it. But there seems to be an option where they would continue of their own accord with minority shareholders that maybe would help them recapitalize, et cetera.

Bertrand

Interesting. I didn’t know that this plan was really on the table. In terms of next steps for companies and investors, of course, you want to find another partner bank to replace or complement Silicon Valley Bank. I say complement because they might not disappear and they provide useful service. If they don’t disappear and keep providing useful service, there might be value to keep using them as a banking partner, especially that, as of today, SVB might be the safest bank in the US being fully insured 100% for existing and new deposit by the FDIC.

Nuno

Right now, this is a little bit of a whac-a-mole discussion. You definitely need to have other banking partners, there’s no doubt. If you’re a VC firm, a startup, a company that was banking with SVB, you’re like, “I need to have other options at the table.” We’ve been having this discussion internally quite a bit. I know the market is now thinking through should we have a dual structure where you have for all your entities at least two bank accounts? Because part of the issue when there’s a bank run like this is you need to transfer the money relatively quickly.

Bertrand

Indeed.

Nuno

You need to have another account. I heard some people now talking about triple layer where you have three banks. You have to think through the profile of risk of the three banks in any region that you’re in. You’re US, you have three banks for the US for all your entities. In my little brain, I’m like, maybe you go with two SIBs. One is more investment banky, the other one is more retail banky. Then you go with the regional one in the middle and you have three very different profiles of risk, and you’re like, “Man, if this all fails we die, the world is finished.”

Nuno

There are some guys who are like, “No, you should go like one SIB, one large domestic top 20, and one regional.” There is no right answers or wrong, but I do think a couple of things that are really important. One, you have to have your core account somewhere. A lot of these banks, unless you really have a ridiculous amount of money, don’t allow you to have several accounts at the same time. You have to be a little bit thoughtful about minimums and fees and stuff like that. You can’t just have a ton of accounts. Someone’s going to say, “Well, for you to have your money with us and bank with us, you need to have your core accounts with us.”

Bertrand

That’s a big issue actually, this one.

Nuno

It’s a big issue. It is actually one of the reasons why SVB existed in the first place. It’s because startups have a very high volatility on their bank accounts. They consume their cash, their money, and then they come back to market and they raise more and it’s lumpy and it’s difficult to serve them.

Nuno

For example, I had a journalist reaching out to me today asking, “Are your portfolio companies able to open bank accounts?” It’s a very valid question because they’re getting not only processes that are taking much longer, because there’s now a huge pipeline of startups applying for new bank accounts, but they actually have an added issue, which is their startups. They’re asking them, “Show me the things for the last three months. Show me who your investors are.” The DD has actually gotten different, more aggressive as well. That actually was one of the purposes that SVB served in the market, right?

Bertrand

Yeah, totally. I see a lot of reports that people are feeling that working with these social banks is actually not very easy, not very friendly, very time consuming. Some banks are actually telling them, “We don’t want your business. You are too small, you are too startupy.” To go back to one of your point, a lot of startups were having all their accounts at SVB because that’s one condition you have when you get a line of credit, is you have to bank with us and with us only. You can argue that’s one rational way to play the game for SVB.

Bertrand

But my point is that’s raising a big question because if you’re a startup and you plan to have line of credit and usually you want to have line of credit, there is non-dilutive access to capital, then it will become an issue and it will be a very big broad discussion. Do we agree to… In order to have a line of credit with a new bank, whatever it is, to have all our accounts in that bank, or how do we get around that? I think that would be a big question and might raise long-term questions around the efficiency of the startup system going forward.

Nuno

That’s the thing that everyone now, I think, is discussing, which is, are people going to come back to SVB, those that got the money out? Those that have the money in, as you said, it’s the safest money in the market right now, so you might as well just leave it there.

Bertrand

You can send it back.

Nuno

But the sending back piece, I think we will have a little by little of this reaffirmation. We’ve had a lot of venture capital firms, some well known entrepreneurs saying that they are sending money back into their SVB accounts. I think what we will stop having is…

Nuno

There were a bunch of VC firms and VC funds that had all their accounts with SVB for a variety of reasons; because they had a great relationship with them, because they had a bunch of products that they used for them anyway. I think that will stop existing. People will have at least a backup structure somewhere because we won’t go into this anymore. In some ways, we were forced to become pandemic experts over the last three years, and now we’re forced to become banking experts and look at the ratios and just to decide to open an account.

Bertrand

Yes. I feel bad because ultimately, if you look at the advice of financial analysts that were following SVB, it was buy, buy, buy advice, not even hold. We are saying that not only we need to become bank analysts, but we need to become very quickly better bank analysts than the guys who are supposedly bank analysts following big banks on Wall Street. This is not a small order.

Nuno

We’re regulators now. We’re mini regulators. It’s going to be a world of regulators.

Bertrand

We will have to think about, “Okay, but if this go bad, what will be the regulator reaction to this?”

Nuno

Not only experts in banking, but we need to be experts in game theory. Political and geopolitical stage.

Bertrand

Yes. How’s it backed by the Democrats? How we’ll react to Republicans on this?

Nuno

It’s incredible.

Bertrand

That will be a very interesting one. But for sure, me, what I see from that, we’ll have to be more careful about all of this. We’ll have to have backup system in place. We’ll have to have some money somewhere else stashed. But on top of this, I can see a slowdown going forward in activity financing for a few weeks until this is better understood.

Bertrand

I can see a drag on efficiency on business on the long run because all of that, what we are discussing, line of credits that are more difficult to get. There might be less competition, worse terms. I mean, Silicon Valley Bank was typically very friendly in terms of terms for line of credits. That’s not the case of many other banks. We’ll see a decrease in competition and no one will agree to stashing all their accounts with the same bank in exchange of a line of credit. What will be the trade off?

Bertrand

Another question for me is will we see regional banks slowly disappear? That’s the question. We have more than 4,000 banks in the US. In some ways, that sounds insane. Do we need so many banks? That’s for me, a real question. We know that some other countries are not structured like this. If you take Canada, it’s just a few big banks, a few regional banks, and that’s it. I think ultimately that we probably force startups to run even more lean. That shock that just happened, again, that black swan shock happening every year, what will be the next one? I think you will have to think differently and I guess your investors will push you to think differently going forward.

Nuno

There’s clearly an adaptation of the world in general, not just the US. Maybe switching gears a little bit to Europe, we’re now having these signals from Credit Suisse and the regulators stepping in saying, “We’ll backstop it,” et cetera. There is clearly a contagion going on. I mean, if we looked at Monday, everyone was getting kicked. Some were getting more kicked than others, but everyone was getting kicked in the US. Then there was an improvement on Tuesday, and now people and analysts are starting looking at the numbers again, and we might have that kicking into gear again, a bit of a bank run in some markets, et cetera, which is honestly not great.

Nuno

In some ways, this was a banking market that since 2008, for the most, has had very low interest rates. Obviously, in the last few years, in particular, and with COVID, it was even more ridiculous, very low interest rates.

Bertrand

Negative in Europe.

Nuno

Now it’s a banking industry that needs to get used to the fact that that’s not going to be the case for a while until certainly inflation is fully under control. How do they work in that market? I remember the very wise words of one of the most incredible and giant telecom industry guys that I’ve ever met, Mauro Sentinelli, who is credited with having invented prepaid. He always made fun of me because I said the first guys who implemented the word TMN in Portugal, but he invented it. He did win a lifetime achievement for that. How much has that changed the world?

Nuno

He always used to say, “The problem with some of these crises is you need to make sure that the people who are leading these things were there the crisis before.” Because if they’re not, pattern recognition, muscle memory, it’s not there. The reality is I’m not sure if all the leaders of the big banks globally right now have any pattern recognition around crisis. We always think about these CEOs, “Yeah, of course, they were there 10 years ago.” It’s like, yeah, but they were there 10 years ago or 15 years ago doing what? What were they doing? In which area of the bank were they at?

Nuno

Because people normally get kicked out after these dramas. If a bank goes to hell, as we’ve just seen with SVB, they get kicked out. Maybe the CEO of SVB was doing an amazing job until a certain point in time. Now he’s been kicked out. Where is he going? I don’t know.

Nuno

Again, for me, that’s one key concern of what’s happening right now. Do they know what they’re doing? Can they adapt to this new world of higher interest rates or very high interest rates in some cases? Can they figure out how to evolve their portfolio relatively quickly? Because they’ve been going at this for a while with a playbook that works really well, but now there’s actual dynamics in the market and there’s actual competition.

Nuno

To your point, you mentioned this earlier, Bertrand, you can offer deposits with higher rates. You can offer CDs with higher rates to your clients and compete in the market like that. The bank next door is offering at four, I offer 4.5, and we have again that competition. The competition is already happening. It’s happening in Europe, it’s happening in the US. There’s no doubt that the competition is happening.

Nuno

It’s not just the regulator and the interest rates and all this stuff, it’s other competitors and players in the market now have another lever they can play with for deposits and they’re using it to get market share to scale. Again, I don’t think we’ll be done on banking contagions for a while. I had a very wise friend of mine who yesterday told me, “If I were you, I’d put a lot of alerts on Google and stuff.” I’d go triple structure, as I just mentioned before, by geography, three banks in each place, whatever, and in a couple of months, maybe you can scale it down to two.

Bertrand

Yes, that sounds operationally painful but smart. Maybe, yes, the last piece of the puzzle, obviously, is how will the Fed and other regulators react in terms of rates? Are they going to say, “You know what? Given what’s happening, it’s too risky, we didn’t see it coming.”

Bertrand

Again, obviously, just a week ago, they were saying everything is fine. Does it mean they are going to say, “You know what, even what’s happened and what might still be happening, we are going to slow the increase of rates. Maybe we even pause the rate increase, but then we’ll get more inflation.”

Bertrand

Or will regulators believe that, “You know what? Now that the US system is safe or safer, thanks to new regulations, maybe we can keep increasing rates as we were planning to.” That would be a big question and I guess regulators across the world would be wondering and pondering this question. In some ways, SVB was probably a canary in the coal mine. The US system is probably another canary in the coal mine for the rest of the world.

Nuno

Indeed. With that note of canary in coal mines and hopefully by the time that you guys listen to this episode, all of this will have looked like, “Oh, my God. These guys were exaggerating so much. Nothing happened. We’re all great.” Hopefully, there wouldn’t have been the end of the world as we know it. But with that, we close our episode on Silicon Valley Bank, where we discussed what happened, what was done to stave off the crisis, next steps, and what’s on the horizon longer-term. Thank you, Bertrand.

View Details

In this final episode on Boards of Directors, we will share tips for successful board meetings, how to manage them, how to be a value-add board member and insights on advisors and advisory boards.

Navigation:

Intro (01:34)
Section 1: Tips for Successful Board meetings (02:11)
Section 2: How to manage your Board (18:24)
Section 3: For Board members (25:52)
Section 4: Advisory Board / Advisors (33:09)
Conclusion (49:19)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Our show:

Subscribe To Our Podcast

Intro (01:34)

Nuno

Welcome to Episode 39 of Tech DECIPHERED, where we continue our discussion around how to best manage your board and get the most out of it, as well as how to be a great and hopefully non-dysfunctional board member.

Nuno

In this episode, we will talk about tips for successful board meetings, how to manage your board, and we’ll go into details on anything from agendas to how to organize the cadence of it, KPIs, et cetera. How to think through advisory board members and advisors and how they’re different from consultants and contractors, and also on how to be a fully functional board member and bring value to the company that you’re a board member of.

Section 1: Tips for Successful Board meetings (02:11)

Nuno

Maybe we go to tips for successful board meetings and door calls. Maybe we go to the first one, which I know is one of your favorites.

Bertrand

I think it’s quite key to be prepared for your board meeting, and it works for both sides, the execs, the CEO, and on the other side, investors, people who receive the communication from the company. That part is quite critical.

Bertrand

Myself, not initially, but at some point when I was running my previous business, App Annie, Data.ai now, one thing I did after ending up sending a board deck and board back instead of the usual two days before a board meeting to send it a few hours before. I was not feeling very good about how it worked out. I ended up approaching that to share stuff at least a week in advance.

Bertrand

That might sound crazy from a lot of perspective, but at the end of the day, it’s a question of just organization. There is no reason you cannot do a week in advance. You can do two days in advance, but you would have more time. If it slips, it’s no big deal. If it slips by a day.

Bertrand

What it also gives you is the opportunity to potentially reach out to different board members between the moment where you send your board materials and the moment where you have your board meetings. It gives you more time to set up some calls, to answer some questions, highlight some points.

Bertrand

If you have time to do that between sending your board back and having a board meeting, you will have a much more streamlined board meeting itself because if the big questions have been discussed in one-to-one, if some controversies have been addressed in one-to-one, things will go a lot smoother.

Bertrand

Surprisingly enough, some board member might prefer more challenging confrontational type of board discussion. Personally, I don’t if it’s not needed, but working that way gives you definitely some more efficient board meetings.

Nuno

To your point, manage this thoughtfully. Again, when you’re sending board materials, you send it to observers as well, et cetera. If you have some lead board directors, in particular from investors, that are material to you and you know there’s going to be a complex conversation at the board meeting, have that conversation even before you send those materials because you might not want to have some of this material sent out.

Nuno

Again, be very thoughtful how this done. I think Bertrand, you alluded to a best practice. Sadly, I have very few boards that I sit on that send their decks and their information and financials a week before. I would love to have more. I’ve had people sending the day of and I’m like, “I don’t know what you want me to say.”

Bertrand

That’s clearly unacceptable.

Nuno

In that case, you need to say, “It can’t happen again.” In particular, if we have quarterly board meetings, which has become, again, the norm during these bullish times of the last three or four years. And if it’s quarterly, honestly, a week, you should have enough time to prepare and send a week before. Worst case, you send three or four days before, but again, you should send them well in advance.

Nuno

Be very thoughtful, again, what you put on the board materials versus what you don’t put. There’s elements around legality and stuff like that and materials being discoverable. There’s elements around you having potentially people on the board or that you’re sending the deck to that are not board members that might be board observers, or that might be privy to information or have connections to other people where the information you’re sharing might be taken in the wrong way.

Nuno

A lot of inside information cases that we’ve seen in large public companies have happened because of that. Either it was discussed at the board meeting or because there were materials shared that shouldn’t have been shared, then further on to people that were not privy to the companies.

Nuno

Again, just be thoughtful on what you write in the materials, how it’s written. Focus, first and foremost, the discussion on what absolutely needs board approval. Normally, stock option grants, increases in salaries, stuff like that. What should have board approval and what you should discuss, like strategic direction of the company, significant allocations of resources.

Nuno

I always put this “cover my ass” section of risks that have emerged internally or externally. Many founders that I know like to do the tops and flops of the last quarter. Address risks pretty early on. If it’s a huge risk, even before the board meeting, just put it in front of people. Don’t wait for the board meeting, just put it in front of people. It’s better to do that than to… If you’re being sued by Google or Google has stopped you from having access to their advertising stuff… These are true stories, by the way, raise that early on rather than late.

Bertrand

One thing I noticed is that some CEO might be a bit too positive on everything doing great and not acknowledging enough what’s potentially not working require more improvement. I think it’s key to have a balanced perspective of the business because at the end of the day, you are ultimately being judged by the facts. What happened, cold hard numbers. How are you ending the year in term of sales, in terms of EBITDA, in term of cash flow?

Bertrand

My point is that there is only so much that everything is looking great at each presentation, but ultimately you don’t make the numbers or you achieve not-so-exciting targets. I think it’s quite important to show and demonstrate that you understand what’s going on, you understand the positive as well as the negatives of the business. Because at the end of the day, that’s the only way to propose a plan and discuss how we can do things better.

Nuno

Also, take credit to your point. The achievements that you’ve gotten to.

Bertrand

Of course.

Nuno

I know some founders who are like this, they only talk about the crap stuff and risks and whatever. If you’re just parachuting into the board meeting, you’re like, “Oh, my God.” But the company is doing incredibly well.

Nuno

Again, also give credit for achievements. Give credit for achievements if you have a senior executive presenting to the board and that person is doing particularly well. Or even if the person is not there that you can convey to that person, the board, “I mentioned to the board your performance and they’re aware of it,” and all of that.

Nuno

A couple of things on form. I don’t think you should spend too much time on beautiful presentations, but really focus on content. “I have the core content there.” If a board member, in particular, an investor asks you for something, make sure it’s there on the next board meeting. If they ask you for North Star metrics on a certain aspect, make sure it’s there in the next board meeting. If they ask you for an analysis of sales pipeline or something else, make sure it’s there on the next board meeting.

Nuno

Just pay attention to what people are telling you. These are important things because these are quarterly. If you miss two, it’s like half a year. The person that is in front of you will only get the level of update they want nine months down the road and that’s not cool. Again, be very thoughtful about that.

Bertrand

Yeah, and on that point, I think you can standardize board meetings presentation quite a lot. That should simplify your life. If it’s always the same framework, your life would be much easier.

Bertrand

Typically, I think you can reuse maybe 70% of your board deck quite easily and you just have some new section to talk about some stuff in product, some legal matters, some different stuff. But all the finance, sales, even quite a bit of marketing can really be quite repeatable and product metrics.

Bertrand

You don’t need to reinvent the wheel for every board meeting. Also, it makes life of everyone easier, not just the life of the people building the decks, but also the life of board members who are reviewing these documents. If they have a different format every board meeting, that’s painful.

Nuno

That’s absolutely spot on because it makes it easier for us to also read if we’re not executives. For example, I have one board where the founder CEO always does it in a memo and then has financials and minutes, unless there’s a very specific discussion around strategy or product or whatever where there might be a slide deck around it. But in general, it’s a memo, financials, minutes, and you know the sequence.

Nuno

Again, one thing to be cautious of is if there is a huge issue happening, highlight the hell out of it. Don’t just put it somewhere hidden somewhere in the middle of the memo of the presentation. Highlight that you want to discuss it.

Nuno

Again, you might even not want to have it in the board materials in some cases, because it’s too sensitive of a discussion. For example, you’ve been approached for M&A or something like that, you might not want some of the stuff in board materials.

Nuno

But again, highlight it, certainly, when you’re preparing your board members, to your point, I think it is a best practice to talk to your core board members. If the chairperson is not yourself as the CEO, obviously, in some cases chairperson or chairpeople don’t exist until pretty late in the company or they don’t get properly defined.

Nuno

But if there is a chairperson and it’s not you, the CEO, prepare that person for the board meeting. It’s likely that that person, if they’re doing it properly, will lead the meeting and will lead the agenda. The material is being shared before, we’d already talked about prepare members individually.

Nuno

In my opinion, only board members should attend the entire meeting. All the rest can come in. Observers normally stay the entire time, but with observers, one should reserve the ability to tell observers to leave and we would do what is called, I don’t know where this term came from, but it’s called an executive session, which is really just with the board members. I haven’t felt the need for it much in my career, but sometimes it might be needed, so just take that into account.

Nuno

On observers, I think one thing I always put at the table is the observer should be there to represent specific investors, VCs, et cetera. They shouldn’t be just putting some associates on the middle of it. One of the things that pisses me off the most is that we have observers in some cases that at some point in time, last minute, they’re like, “Oh, my associate’s going to join.” That’s not how it works.

Nuno

You need to tell and ask the board if they’re okay with your associate joining instead of you, and then the board will say yes or no. But if you systematically do that, I think the company, in particular, the CEO should have a conversation with that investor saying, “Look, you have an observer seat as a partner of the front, not your associate.”

Nuno

Again, if you want to use your observer seat to join, great. If you don’t want to use it, then you’re not joining at all as a VC firm. It shouldn’t be your associates just taking notes of it because you didn’t want to join the meeting. That’s something that I would be thoughtful about, again, as you think about, in particular, board observers.

Bertrand

Ultimately, it requires quite some preparation. It requires a process that you do regularly. That’s true, in my mind, I was more thinking about quarterly board meetings, but early on in the life of the business, you might have more board meetings, maybe once a month even.

Bertrand

If you have once a month, obviously, there are some steps and processes. You cannot do that easily. One week in advance doesn’t work. It’s once a month, but once a quarter, definitely, you can achieve that.

Nuno

Moving normally to once a month is because there’s something with the company. It doesn’t necessarily need to be negative. There’s something happening to the company that requires the attention of the board in a more systemic way that a quarter doesn’t really allow for.

Nuno

It might be some decisions, it might be an investment round that’s coming in, M&A discussions, a new client. It might be things that for some reason you need your board to be there. Or it might be actually an investor saying, “You know what? I need to have the monthly cost because I think we need to be more present in what’s happening.”

Nuno

They should not, in my opinion, be sustained for very long periods of time. At that point in time, becomes almost like an executive committee meeting, and I’m not sure that’s warranted.

Bertrand

Yes, I totally agree. I think your good example was around asking some stuff from the company in terms of reporting, in term of follow-through. Sometimes if you just meet once a quarter, you cannot move fast enough to see things going. That’s where the once-a-month can help.

Bertrand

But it doesn’t need to be a full board meeting. You can also have the approach of a full board meeting every quarter and every month you have something in between, which is a shorter one-hour call focused on a specific topic, for instance.

Nuno

With some of my startups, I have to be honest, I don’t do with all of them. It depends on the stage the company is at and the specific strategic elements that they have at that point in time to push for a one-on-one with the CEO, potentially with the executive team to discuss very specific topics.

Nuno

Normally it’s one or two levels below what would be a classic board discussion. It might be very focused on operational matters or marketing matters or fundraising matters. And it’s a two-way street. It’s not just me asking the founder and his executive team to give me an update and reporting on a monthly basis. That’s not really the point.

Nuno

It’s more me trying to help them and problem solve and offering my practical help. Because at the end of the day, we as partners of VC firms, we also suffer a little bit from ADHD. We have a lot of balls running at the same time, and it’s sometimes difficult to pay attention if someone doesn’t lock you in for that one hour and says, “By the way, you gave me some really good comments on this operational issue.” “By the way, I need introductions to three experts in this. Can you provide them to me, Mr. VC?”

Nuno

I think it’s a win-win if it’s nicely done. To your point, it allows us not to have board meetings on a monthly basis to give a little bit more space to team, and for you to be really more part of the key discussions that you can be helpful as a VC on rather than just show up every quarter and give “Amen” and move on.

Nuno

On a typical board agenda, there’s many ways to do this. If you’re not bringing a lot of people into your board meeting, like other senior executives who are not board members, other external parties, I always recommend that you start with the stuff that needs to be approved by the board first, that you get the financials, the capital needs, the option grants, deals and partnerships, minutes from the last meeting.

Nuno

People forget to do minutes, by the way. One rule for minutes, we might talk about it later, but for me, minutes should say the least possible amount of information.

Bertrand

I totally agree. Yes, you have to be careful about what you put in it.

Nuno

You have to be very careful about what was discussed and how it was discussed and how it was put forward. Just core items. If there’s obviously formal approvals from the board, they can be minuted. They can also be put in other board documents that require board approval, but they can be minuted as well.

Nuno

Then you move to strategic discussions. You’ve done your classic stuff on board approval and oversight on core things. Minutes, strategic discussion, update from last meeting, you share metrics, you talk about team, you talk about product evolution, sales strategy, any strategic discussion.

Nuno

Again, I would focus on discussions where you want the input of the board, or you want to highlight a risk or an achievement. But in particular, if you want input of the board, board shouldn’t have input on everything. Just to be clear. Even if you have someone on the board and he’s a VC and he’s a product expert, he or she is a product expert, you shouldn’t bring very detailed product discussions to the board, but you should bring the high-level product evolution roadmap, classic things around that.

Nuno

Then obviously final part, any other business, there should be this discussion on when is the next board meeting, call, I think the best practice is that you do a doodle at the beginning of the year and you get your board calls and meetings organized for the full year so that everyone can have them on their agendas.

Nuno

Because if you have a bunch of board seats, in particular, if you’re an investor, it is helpful to know when these are taking place. It doesn’t mean that there won’t be changes, but it gives clarity. Also now in these times of COVID, to clarify on whether there’s a bit of an expectation at some point that people will meet in person.

Nuno

I’m now pushing my startups post-COVID that we go to at least once a year in person. It’s effectively twice a year because we invite all our portfolio companies also to our AGM session. In some ways I think it’s a practice that is good. Just book everything in ahead, get it in front of people. There might be some minor tweaks on the dates later on, but at least that gives you the clarity on when do you need to prepare for board meetings and when people need to show up.

Bertrand

I think that’s a very good list. Totally in agreement with how deep or not you should go on some of these items. Again, I think that’s something that can be the same process. Every board meeting, you organize it, it’s smooth. People expect the same stuff, board-after-board meetings, and your life would be easier as CEO or as an exec, as investor.

Bertrand

I think that’s quite critical to find your process that works. For that, you need to listen to your board members who will give you feedback about stuff they are expecting. At the end of the day, things change. When you’re a smaller company to a bigger company, you don’t need to provide the same stuff. Early on might be more operational, later on might be more strategic.

Nuno

It’s also worthwhile noting that, as I said, if you have other people in the meeting that are not board members and you need them at different times of the discussions, you might actually start with strategic discussion and leave all the approval stuff for financials, option grants, et cetera, to the end and use that as so-called executive session.

Nuno

Again, it depends a little bit on your board. There’s a couple of my boards that run it like that. Most of my boards start with approvals at the top, which is a little bit easier. But again, if you run it the other way around, there’s no problem. You just need to make sure there’s time.

Bertrand

Yes, same here. That’s why I like to start with basic stuff early on and to keep the end for, personally, I didn’t use to call it executive session, more like director-only session where we just focus maybe first director with CEO and then director without CEO, if it’s needed.

Nuno

Just to be clear, and I think if you’re a CEO and the board asked to have a discussion at the board meeting without you in it, it doesn’t necessarily mean something bad. It might be, for example, a compensation issue or some element that the board wants to actually address positively towards you.

Nuno

I’ve had board-only non-executive board sessions where in this case, two of the founders were not in it because we were discussing their compensation without them asking for it. We just thought the compensation was actually pretty low and we wanted to raise it and we wanted to make them incentivize.

Nuno

It’s not always necessarily a bad thing. It just means that the non-execs want to have a conversation. That’s a good time for us to have a conversation because we’re all there anyway. It’s difficult then for us to actually convene outside of that.

Bertrand

Of course, if you meet physically, another thing you can do after that board meeting is to organize drinks, is to organize a dinner or a lunch. I think finding a way for people to get together, to know each other can be pretty useful.

Section 2: How to manage your Board (18:24)

Nuno

That’s a very good segue on how to manage your board. Again, socializing beyond the boardroom is what you were alluding to. Get to know your board members, get them to know you, understand what their aspirations and what they’re doing, understand how their firms are doing, understand how decisions are being made.

Nuno

It’s very important, even if it’s with the professional need to understand whether the investors will stand by you in the next round or not, if they have the capital to put into it. But in general, just get to know people. I think you get the most out of people when you’re fully engaged beyond just the professional realm and into the socialization realm. Obviously, not doing anything silly, but socialization is a very good thing.

Nuno

The board members are not your buddies. Normally, they’re not necessarily your friends. They might become your friends. They might be very friendly to you, but they’re not necessarily your buddies. Actually, that’s a good thing. It’s good to have board members that will not always agree with you, that will tell you and call you out on stuff that you’re doing that’s bullshit or that doesn’t work.

Nuno

You might disagree with their opinions. You might actually as a CEO say, “You know what? I appreciate your candid and feedback, and it was given in the right way, hopefully, but I disagree with you and I’m going in a different direction.” But that discussion is very valuable.

Nuno

To the point we were making earlier, you don’t want cheerleaders, you want the coaches. The coaches will tell you when there’s something that they’re seeing that’s a blind spot. Sometimes it’s very small things. Sometimes they’re bigger things. Again, listen. You can decide what you’re going to run with or not, but listen, always listen.

Nuno

Don’t forget that actually, their time is valuable. A lot of these board members, if they’re a VC, they have other portfolio companies, other boards, they’re working on deals, they’re managing their own firm. They do need to hobnob, we’ve talked about it in the past, and speak at events and do the shows and talk in the press and whatever. That’s also part of their job, shockingly enough.

Nuno

Again, make sure that the time is valuable for yourself, but also is valuable for them. Prepare them for the conversations you have. Share context before those conversations. Tell them what it’s going to be about so that the person comes to the call or the conversation, even if it’s relatively informal, slightly prepared.

Nuno

Engage them on areas that you see are areas where they can provide value add. Access their networks as much as you can. Again, it’s not just Rolodex. It’s Rolodex in a meaningful, proper way.

Nuno

Then customize your approach to each board member. All board members are very different. You might have a board where you have three board members that are non-executive and you have one who has deep expertise in product, you have someone who’s very strategic and very high-level, and you might have a third one who’s just a hub. They’ll introduce to everyone their mother that you need to make.

Nuno

Again, figure out within that board situation if your board member is more well-equipped for one thing or the others, customize your approach to them and go through that.

Nuno

We already talked about independent board members. Obviously, they are a great buffer. You can use them in the right way, not just through their expertise, but also as they can simply and informally talk to investors and figure out where they are. Basic things like, “Can you figure out if the other investors are going to put money in our next round?” Sometimes between investors, we won’t tell each other because we don’t want to talk about follow on capital and stuff like that.

Nuno

It might be that we’re more amenable to share at least at a high level with an independent board member and tell them, “You know what? We might not have the capacity to do that. Our fund is coming to an end. We don’t want to put more capital right now. We don’t have a lot more capital or raising our next fund,” whatever that is. In some cases, the CEO can ask this question directly and should. In some cases, the independent board member can facilitate it.

Bertrand

Personally, maybe I feel a bit different in the sense that independent board member is not putting money. A good discussion between investors, and most of them might be on the board, some might not be or might be just board observer. An investor-only discussion, I think, can be useful to answer this question. I get your point around not everyone want to share enough, but I think that at some point you need to push stuff around and provide clarity.

Bertrand

I think a CEO is quite critical that you push your investors to make some level of decision when there is time because you need to plan. Should I plan for an external round of financing? Should I plan instead for internal round of financing? How much are we talking about that could be on the table? What is the backup plan? I think there is a need of feasibilities that needs to be provided to the CEO. It’s important there is a fine discussion that happened between investors during this moment.

Nuno

I have a couple of cautionary tales on when investors came together.

Bertrand

Yeah, there might be some risk.

Nuno

I think there’s something about the psyche of investors, which is there’s probably more pride between us than when we’re having the discussion, and I’m talking about pride in a negative way, than when we’re having the discussion. For example, even with the CEO, forget the independent board member for a second, and it generates really funky dynamics.

Nuno

I’ve had dynamics of the CEO thought that the investors were all going to pony up for a bridge round and because there was an ill-equipped conversation between investors at some point in time, nobody was. Because there was one on the investor that misbehaved and then it escalated. Fortunately, things saw an end to it and they were properly done.

Nuno

But I would be very thoughtful on how that gets facilitated. I mean, if you have a highly functioning board where you think your investor board members are very thoughtful people, they are acting in the best interests of the company, they are up to date on what’s really happening, at least at a high level, then yes, you can get away with, let the investors talk about this and figure it out and whatever. But again, I’d be very, very thoughtful about it.

Nuno

If I was a CEO, I would be very thoughtful about it. It’s not that investors don’t talk to each other. We all talk to each other. But just be careful on how you orchestrate the conversation. If it’s a particularly vital strategic conversation. If it’s about the next bridge that I need, otherwise, I’m going to run out of cash, be thoughtful on how you orchestrate it. If I was a CEO, I’d probably talk individually with the lead investors first who are on my board and then go from there. Really assess that.

Bertrand

That I totally agree. As a CEO, if you are properly running the show, you should have this one-to-one discussion as we discuss before every board meeting, between board meetings as well. If you have a quarterly board meeting, between two board meetings, you do an additional one-to-one. Nothing should come as a surprise. You should prepare, you should get feedback. If you are considering a fund raise, internal, external, asking question, asking advice, go one-to-one with a lot of people.

Bertrand

My point is that sometimes, I’ve seen CEO who don’t do the job so well or who try to mislead. Oh, yeah, this and that, I’m sure they are going to put money. Then you realize that actually, no. For a definite amount, at some point, you might need investors coming together to basically provide clarity between themselves and then to the CEO. Unfortunately, sometimes this has to happen.

Nuno

But the VCs do need to do that as their job. We should connect to other board members and talk to them, even if they’re just observers.

Bertrand

That’s part of the game anyway. On the other side, it’s not just CEO with others, it’s board members between each other.

Nuno

I was just involved in a transaction. I won’t go into a lot of details. There was another board member, we were having this discussion. I took it offline, talked to the person one-on-one and was like, “Are you willing to pony up some capital?” The person was like, “I’m tapped out.” To your point, he was honest in this case, then maybe he wouldn’t have been with the CEO. There might be cases where there’s more amenability, but just my point that I wanted to make is never leave stuff fully in the hands of your investors, or you might get an answer that it’s not very good answer.

Bertrand

For me, it’s more that unfortunately, these days I’ve seen a few situation where there is a dream vision of the CEO that is not much to the reality of the investors.

Nuno

There are poor investors as well. There are poor investors and there are poor CEOs. That’s clear.

Bertrand

My point that you need to end up with structural visibility into what’s really doable or not. Hopefully, the CEO, the chairperson do their job, manage that properly. But if not, at some point, you need investors coming together to provide a clear perspective.

Section 3: For Board members (25:52)

Nuno

Maybe switching gears to what if you’re a board member? What should be your attitude and mindset? We’ve talked a lot from the perspective of the executive and the CEO. What if you are an investor? What if you are an independent board member? I think the first piece is the piece of attitude. We’ve talked about it over and over again.

Nuno

Again, fiduciary duty towards the company. Fiduciary duty towards the company. If you’re an investor, obviously, there is a notion of returns towards your own investors, and you need to be sometimes taking some tough decisions because of that. But again, they shouldn’t be necessarily fully against the decision of supporting the company.

Nuno

It might be in some cases that you have an opportunity to do a transaction, I don’t know. A secondary transaction, sell your stock. Because you want to make that return. Because of your fund and it’s coming to an end and all of that stuff. Again, it doesn’t necessarily need to hamper the future of the company. It is a transaction. You should obviously have the conversation with the CEO. You probably want to have the conversation with other investors. In some cases, there’s rights of first refusal involved.

Nuno

But again, that attitude and mindset is always towards, again, what’s the best thing for the company? Not for the CEO of the company, not for the founders of the company, not for the investors in the company, for the company. The second piece is the piece of value add. What is the value as a board member that I bring to the board? As an individual, and I might bring my VC firm all behind me and super well-organized and a bunch of shared services. Very uncommon, by the way, guys. That might be institutional value-add, as I call it.

Nuno

The institutional value-add piece of, for example, at Chameleon, the way we pitch it is our institutional value is clearly around the fact that we have very proprietary data that we create views on, that we massage, anonymize, and then we share with our portfolio companies.

Nuno

The fact that we are a quantum tech augmented VC firm allows us to do that. That we have something called #kin, which is our network of operators and advisors that support our portfolio companies and that work with a variety of our stakeholders. There’s institutional value that you can bring as a board member through the backing of your firm.

Nuno

There’s your non-institutionalized and process-driven value that can be brought by the firm as well, which is this notion of all hands on deck if we need to raise more money. Do we need introductions to venture that fund? How many can we get? That we jump on it, two or three people from the VC firm jump on it and we get those introductions in front of you.

Nuno

It’s more ad hoc, as I would call it, less systemic, but still institutional. Then there’s the individual value that I bring as a board member. What do I bring to the table as a board member myself? Is it just strategic thinking, good governance? Do I have areas of spike? Am I an expert again on marketing or operations or something else? Can I bring that value to the table?

Nuno

Obviously, the half life of some of this knowledge expires and so you shouldn’t expect VCs to still have tremendously valuable knowledge to you. If they did this job 20 years ago, if they were ops people 20 years ago, it’s unlikely that everything they knew will translate, but some of it might. Again, if I’m a board member, I can still bring that frame of mind to table.

Nuno

How do I create real value to the executives and therefore to the company and to my other board members? Then the final piece I would add on board members is the notion of observers. Observers are very tricky, as I said. They’re there, but they don’t get a vote, but in some case, they’re shareholders as well. If you’re an observer, just be thoughtful. Should you just be quiet?

Nuno

My view on observers is there’s two ways you can definitely bring value. Bring expertise and knowledge to the table, if it makes sense. There’s a discussion happening, you have that knowledge, you have that expertise, contribute. It will always be welcome. I have never seen a case where it wasn’t. Secondly, bring to the table your perspective in what constitutes your ability to further the capacity of the company in terms of introductions, in terms of fundraising, in terms of areas that need development.

Nuno

Again, I think observers and independent board members, to a certain extent, are more at the mercy of value-add. Sometimes I feel a lot of observers are just there listening in. As I said, some partners send in their associates, and they’re not really taking much value out of something where they could take a ton of value from.

Nuno

Not just for their own firms, but also for their own firms, because CEOs will value that a lot. I’ve had some CEOs of companies saying, “I appreciated the role of that observer a lot.” But also the value that you can bring to your investment, which in the end of the day, even if you’re not a board member, you’re going to reap the benefits anyway because you’re a shareholder, so it doesn’t matter.

Nuno

Sometimes I feel some observers just want to be there to listen in. Then there’s other cases where I see maybe the worst case of observers, which are the guys who are just there to give their opinions where they have very little to contribute. Or it wasn’t asked for and they just want to take that air time. Again, just stay in the middle, stay in your lane in some ways and be thoughtful. Again, as an observer on where you can bring that value-add.

Bertrand

Totally. That’s true that observer is sometimes pretty poorly defined position because there is no clear standard about how you should manage a board of observers. There are some practices. As you said, I’ve seen board observers totally silent during board meetings. I have seen some who talk as much as any other board member. I guess it really depends in term of practice.

Bertrand

Also, what’s the philosophy behind taking a board observer seat? Some firms, it’s because that was the best they could get. They couldn’t get a full board seat because the investment was too small. Some might be because much later stage type of investor and they don’t want to bother to have a full board seat. That might be very real difference about why, how they got this board seat, and what does it mean for them.

Nuno

In some cases, they want to be inside the loop. They want to justify to their LPs that they have inside information on what’s happening to the company. We have as a thesis that if we’re leading or co-leading around, we should get potentially board observer, depending on the situation. But board seat would be ideal. It has to do with this notion of we are active fund managers. We want to be inside the company. We want to know what’s going on, and we want to participate in core governance decisions and strategic decisions for the company.

Nuno

But honestly, there’s many investments where we will not lead or co-lead and we will not get board seat or even board observer rights, and we want to still be impactful. We want to still have these calls with the founders once in a while and see how we can be impactful.

Nuno

We had one just the other day. It was very funny. It was me and a colleague of mine jumped on a call. We’re on a company where we’re not leads, and we just reached out to the guy just saying, “What’s going on? Can we be of help?” The usual thing. He probably thought he just had to give us a reporting note. He spent the first 10 minutes giving us a reporting note.

Nuno

By the end of the first 10 minutes, we were like, “Yeah, cool, but do you need our help on something?” He’s like, “Oh, I have these three things.” He started talking through these things and it was supposed to be a quick call, like a 30, 45 minute call. It ended up being an hour because he actually just wanted to talk to us and ask for our opinion.

Nuno

I’m not sure if he’s going to do something with our opinion or not, but we gave our best opinion. I think that’s valuable even if you’re not a lead investor. Again, even if you’re not a board member or board observer, just an investor. That’s why I think our relationship is like that. I was never a board member or board observer of your company. We developed a relationship that had nothing to do with your board in some ways. It’s possible to do it. Sometimes it creates actually quite a lot of value. It’s not regrettable.

Bertrand

You definitely provided more values than some board members. That’s for the entrepreneur to manage his network of investors, business agents who are not on the board and think about them and keep them in the loop and basically be able to get additional value from that.

Bertrand

I think as an investor, there is obviously value to have information rights or to have board observer rights, because that also give you better perspective when it’s time to make the next financing. Should you put more money to work? Should you put less money to work? Should you not put money to work? Having seen how the business is run firsthand at board meetings, I can make a big difference in how you evaluate the next opportunity to participate to a new financing.

Section 4: Advisory Board / Advisors (33:09)

Nuno

Moving from board observers to and non-board members to an even less well defined category of people, advisors, in particular advisory boards. There’s this emergence of advisory boards and people for some reason on advisory boards. An advisory board is something that doesn’t really formally exist legally. You can call whatever it is. It’s a bunch of advisors on something that looks like a board.

Nuno

Then there’s a lot of confusion on what advisors or advisory board members are versus what they’re not. Let’s start with what they’re not. Maybe that’s a good way to start. They’re not consultants. They’re not consultants or contractors. Normally, consultants or contractors fulfil a role that is limited in time. It could be weeks, months, maybe a year, but it’s normally not a super long process.

Nuno

Obviously, if a consultant or contractor provides value for a very long period of time, it’s very likely that person at some point might become a full time or a full member of the team. Normally, consultants provide a very specialized domain knowledge or domain of operations, either in engineering or around communications or HR and recruiting and all of that. The engagement intensity of a consultant is normally relatively significant from a day a week to maybe even full time.

Nuno

That’s not an advisor. An advisor does not fulfil that role normally. An advisor is a different thing. An advisor is also not a board member. They’re not overseeing the whole company. They don’t have a say. Or if you do sherry duty, their advice is cool, but it’s not binding in any way. Normally, board members should have 2-3 year term, depending on the board seats and how they’re organized.

Nuno

Certainly if it’s more formalized, they should have a term at some point in time as the company becomes larger. Early on, probably it’s less important because you have different rounds of investing that will facilitate the terms and the discussion around the terms over time. Again, that’s not what an advisor is. Advisors normally are people that have a specific set of specialism or expertise either in a functional area.

Nuno

It could be data science or analytics or product management or sales ops or sales strategy or in a specific industry, as we mentioned before, within the industry that the company actually is in. Or wants to operate in in the future and where the company needs help. There might be advisors that you want to have on board to put on your pitch deck because they’re very famous people.

Nuno

I would say if they have very little role with the company, if they’re not really helping you with anything like Rolodex or help you fundraise, that could be a specialty. Someone can help you fundraise or can help you introduce you to their Rolodex. If there’s no specialty, et cetera, and you just put that name there, that’s negative from the perspective of any investor that looks at it. Because they’re like, “There’s no way that person is spending much time with you.” It’s very funny because now people have gotten to that.

Nuno

I see sometimes start-ups saying, “Hey, this advisor is very deeply involved with us. This advisor is a celebrity,” that she’ll go and named a famous whatever sports celebrity. I’m like, “How many hours a week does that person spend with you?” They’re like, “Oh, it varies.” It’s like, “No, on average, right?” It’s maybe an hour a month. It’s like, “Okay, cool.” An hour a month for that celebrity is a lot. It’s like, “What do you guys talk about?” Again, there’s been this thing of having advisors like logos of companies that you sell to. Advisors should give you some value-add. Either, again, it’s a specialty or an area of expertise or something else.

Bertrand

I remember early on having a board of advisor 25 years ago because I was told that doing a board of advisor, it was useful. But first thing is that we never met all together. It was just one-to-one. That notion of board of advisor makes a little sense. I think it’s good to talk about senior advisors. That’s probably the easiest way to talk about it.

Bertrand

As you said, people provide value. Sometimes it’s good for two years, three years. It really depends. But I’ve seen value in having some people connected early to the business if you need to learn more, if you need some connections. One hour a month in many cases, that can still be pretty useful. I’m not sure a lot of people have one or two hour a week available like this and really want to spend it with start-ups. I think it depends. It’s a balance for everyone to find out.

Nuno

I’ve done a variety of advisory roles. I think I still have one. I normally spend a couple of hours a month. To your notion, it’s like you distil the knowledge into those hours. That’s it. You get the top of me advice, specific, that’s it, and then you move on. Normally there are light intensity. It’s 1-2 year term things. You should define some term. Normally, you attach it to your vesting period.

Nuno

There is compensation normally for these roles. It might be just stock compensation or options. It might be that there’s some cash involved as well. Again, having this cadence of interacting with the individual, to your point, the one-on-ones is probably the most valuable piece, and it should be both ways. It should be that the advisor feels that the founder CEO or the senior executive who brought them in really wants to have her or his opinion on stuff. But it also needs to be the other way around.

Nuno

The CEO, founder of the company, needs to ping the person, have something organized. Make sure that there’s something on the calendar that they talk regularly. Otherwise, these things just stop working over time and there’s nothing wrong with it. Some advisory roles might expire over a period of time and they’re no longer super valuable to the company or to the advisor or to both. There’s nothing wrong with that. The person was still helpful, as you said, for a period of time.

Nuno

The advisory board dimension that they were talking about, I think it’s particularly valuable. It’s very difficult to orchestrate properly. It’s particularly valuable as a convener. It’s particularly valuable. If I’m an advisor, but you have five other advisors or three other advisors and I want to meet them. I’ve met very few people that are good at doing this.

Nuno

Larger corporations, because they have a lot of resources and a lot of people around them, have interesting advisory boards. I’m not sure they’re very meaningful or impactful into the company, but they do. Smaller companies rarely do this well.

Nuno

I’ve seen very few occasions I said. Normally, the best practice for me is it’s a convener. It links potentially to a board meeting where the advisory board can co-locate for part of the board meeting as well, where there’s some social activity around it. Because that’s the value. The value is I get at least to meet not just the people at the company, but I get to meet other advisors, maybe even board members, and there’s value in there.

Nuno

To your point, as an org by itself, the board is rarely a functioning thing. The board for me is more of a social construct rather than an execution or operations construct. You get most of the value normally from the one-on-ones. I would finalize just on how to best engage with advisors, that be very specific, very early on, even before you’ve signed that advisory agreement on what you want from this person. What you want from him or her.

Nuno

If what you expect from this person, like this is a mega senior person, normally what you expect from the mega senior person is the opening of doors. It’s rare that it’s very deep functional knowledge. Be very explicit with the person. Be very explicit with the potential advisor saying, “Is this something that you’re willing to do for us? If I ask you for five intros, what would be the limit of you doing those intros for us?”

Nuno

Because it’s shocking how often it happens that the expectation on one side is, “Oh, the founder and CEO wants me involved because I have great knowledge around area X.” The founder and CEO is like, “Oh, I’m involving this person because they can open a ton of doors for me.” The expectations are misaligned. It might be that the person doesn’t want to burn through their Rolodex, which, by the way, they’re entitled to. They’re not burned through their Rolodex just to serve this advisory role and these rarely work.

Nuno

Be very specific about what it is. If it’s more deep functional expertise, be specific around what it is about. Define some high-level objectives. You don’t need to do a consulting agreement to the end degree with very detailed milestones and whatever. But at least at a high level, define what you expect. Try to understand the motivations on why that person wants to collaborate with a company and with yourself. Normally it’s not just money, very rarely it is. Might be the upside, might be that they find you cool. It might be that they want to be hands-on.

Nuno

Even if you’re talking to a CEO or a former CEO of a company, like mega superstar, whatever, and they reach out to you or you reach out to them and they want to collaborate with you, don’t assume anything. Don’t assume that it’s just because they want to do the hobnobbing and open doors for you. It might be that they actually just want to be hands-on.

Nuno

They want to actually spend a couple of hours with you a month working on something at a different level that then worked in the last few years. Finally, a lot of people ask me if advisors should put money in the company or not. I don’t think it’s needed. It is a left pocket, right pocket type situation because if you’re compensating them in some way and then they’re giving you money, it’s like, are they an investor or not? I like to detach both relationships.

Nuno

My view is if this person gives you money, in that respect, they’re an angel investor of some sort. That’s it. They are an investor as other investors are. They have rights, they have preferences, they have a number of things that they’re willing to ask from you. If they are an advisor to you, there’s stuff you ask from them. There’s responsibilities on both sides on things you need to execute, operate on, et cetera. That person should get compensated for that.

Nuno

It might be that there’s a case that you’re an angel investor in the company and you’re also an advisor in the company and getting compensated for it. This has happened to me in one situation in my career, and it was very clear what was one situation, what was the other situation. When I was asking questions as an investor and when I was asking questions as an advisor and trying to bring value to the company.

Nuno

Now, obviously, things can get muddled pretty quickly, but having those two relationships well established, I think is a must. It’s not a nice-to-have, it’s a must. Because even legally, they’re not well-defined. They don’t get magically well-defined as you start operating and working together.

Bertrand

I think that the key point, it’s not like a business consultant, it’s not like a board member where things are actually quite more or less defined. As an advisor, it could be anything in term of time spent, in term of what you expect from them. That clear explicit alignment of interest is pretty key.

Nuno

Maybe a couple of final thoughts, at least from my end. Just be very thought about the contracts that you establish with everyone, independent board members, advisors, all of that stuff. Be very cautious on how these are drafted. Work with lawyers. I know people like, “Oh, I’ll just download some from the internet, a consulting agreement, and give it to the person.”

Nuno

Be very thoughtful on when is the stock option plan put forward, when is it defined, is there accelerate investing? Are things working out, et cetera, et cetera? How does that work and how does that manifest itself?

Nuno

Be very clear about things like IP assignation, invention rights, stuff like that, in particular with advisors, but also, for example, with independent board members, expenses. How does that… I mean, the devil’s in the detail, I know. It’s like, oh, we’re all friends. We’re all friends today, but some stuff might come in between. It’s not necessarily that the other person is being nefarious, but it’s a good thought to do it properly.

Nuno

Final thoughts from my end. No free lunches. Investor board members, executive board members don’t get anything to be on your board, but obviously, investors get the return so that’s why they’re on your board. They’re helping you govern the company, helping you define the strategic elements of the company and take you forward.

Nuno

Board members get compensated. We talked about it, at least options, maybe even cash, a bunch of other things, advisors and advisory board members.

Bertrand

Independent.

Nuno

Exactly. Independent board members outside directors get compensated and can get remuneration as well in cash. As you go through the history of the company, companies, in particular in the Bay Area, in the US, but in the Bay Area in particular, are very stingy about giving cash away even to board members. I think that’s a bit silly.

Nuno

Cash is actually a good incentive for both sides because it’s probably not much, but it’s coming out of my account every month as a company. Someone’s paying attention to it. For the person on the other side, although it’s not much, it shows that the company is giving them something as well.

Nuno

A lot of people are against cash. I’m actually for cash in many cases. Again, depending on the role, but certainly for the independent board member outside role, it could be valuable. Advisors, advisory board members, options could get remuneration as well. It could be cash-free, depends.

Nuno

Then finally, I call it garbage in, garbage out. If you don’t prepare your board members, don’t expect them to give you nuggets of wisdom. If you send stuff the day itself, don’t expect them to come back to you with something meaningful and positive and good.

Nuno

If you do not ask for specific things from them, be the outside directors or investor board members, you won’t get anything in return. If you don’t follow up, you won’t get anything in return. Again, most people in the VC industry have some form of ADHD, more controlled or less controlled. Make sure you ask for stuff and you follow up on it. Then don’t complain if we didn’t follow up on it.

Nuno

If someone asks you for something, an investor or an outside board member, it seems like a valid ask. If it’s not something silly like a change in the presentation, date on a specific topic, et cetera, et cetera. Provide it relatively quickly, be on top of your game. It’s an important illustration on how you do as a CEO of a company.

Nuno

If I ask for an analysis, it takes a month and it’s an afterthought or if you totally forgot it, it’s not cool. Again, if it’s positive or it’s not a ridiculous ask in terms of analysis. There’s always this notion of I want to do everything for no cash, I want to be very lean. Well, in the last four or five years, maybe we haven’t had enough of that, but certainly, I know some founders are like that.

Nuno

Being lean is important, but you’re getting a lot of value from people around you and in particular getting their time. Be thoughtful on how you use it, be thoughtful on how you personally commit to those people, and be thoughtful on how you commit the company to those people.

Nuno

There’s little details that are very, very stupid but are very, very meaningful. If your company does a special edition T-shirt or hoodie or whatever, share it with your board members. If you did some swag for an event you’re going to, share it with your board members. If there’s something cool happening and there’s a dinner and whatever, ask if one of your board members wants to come along and join. Again, go beyond this notion of it’s just governance and strategic and stuff.

Bertrand

Maybe another piece we don’t talk much, we talk in general. How much are we talking in term of stock compensation, for instance, for an independent board member? Me, what I’ve seen is that typically one level below VP. Does it make sense to you in term of equivalent stock compensation?

Nuno

It depends on the caliber and the stage of the company. I think the later that you’re in the company, probably that sounds about right. If the earlier you are, you’d probably be much higher than that. It depends on the caliber of the person and what the person can bring to the table.

Nuno

Independent board seats could go to percentage points of the company, 1, 2, 3% of the company early on. It’s not shocking to see that. It could be below that if it’s further on, the company has raised already quite a bit of money.

Nuno

They used to be served this litmus test for advisory roles, certainly in the early stages of a company, pre-Series A or just post-Series A. The old series A, the new series A, maybe it’s a bit of a stretch, where it was served 0.1%-0.5% for very senior advisors and very valuable people. Again, early, and then vest over one or two years and a bunch of other stuff.

Nuno

Again, there’s no hard rules. It’s really the value that you think the person brings to the table. Later on, obviously, below VP, director or senior director level might be more indicative of what some of these independent board members are taking.

Nuno

But also later on, independent board members do start getting cash comp. Even late-stage private companies start paying it, and then public companies pay significant amounts of compensation, either under the form of restricted stock units, plus cash, or just cash, or just our issues, but they pay well.

Nuno

Some of these are public. There are companies paying, I don’t know, anywhere from $250,000-$500,000 a year, and all in compensation for independent board members or outside directors. There’s companies that I think pay even more than that, which is incredible, plus expenses, of course.

Nuno

But there’s a different level then of liability there. There are subcommittees and subcommittees of activity at least once a month, if not more. It’s a different level of, I would say, anywhere from point something percent of the company to a couple of percentage points on the lower end of percentage points is normal for independent board members and then advisors, 0.1 to 0.5, again, early on in the company. Later on, obviously, these numbers would be much, much lower.

Bertrand

Obviously, you probably want to accommodate an investment from the independent, from the advisor, if he’s asking for this.

Nuno

If he or she asks for it, I think absolutely you should. But again, it’s a dual relationship at that point in time. Where I’m also an investor in the company, I think strictly speaking, an outside director should not be invested in the company. It can be that the outside director is invested in the company with a very small amount and it’s still permissible and it’s not seen as an issue.

Nuno

But the formal definition of inside versus outside is that you’re actually formally not an investor. That’s why you get compensation in the form of, for example, options, which are things that you can probably exercise in the future. Again, if this is an early-stage company.

Nuno

I’m not fundamentalist about it. I think if the guy or the girl wants to come on the board and they want to also put money in the company, great, that’s fine. I think the person should still be treated like an outside director for all intents and purposes. But there is that dual relationship at that point in time. I’m getting compensated on one hand, I’m also giving money to the company on the other, and how does that work?

Nuno

It’s fine. I’m not a fundamentalist on this. There’s many ways to solve issue. I always say in most cases, if there’s no clear conflict somewhere or conflict of interest, normally there’s no interest. Sometimes conflict of interest is a good thing. It just needs to be clear. It needs to be well taken care of legally and all parties need to know what they’re playing with.

Conclusion (49:19)

Nuno

In conclusion, today we went through how to make the most out of your board. Boards of directors are pretty crucial entities in the life of your company and we’ve taken an approach of mostly speaking to those out there that are startups, CEOs or just want to know how a board actually works and what you should be thoughtful about.

Nuno

We also introduced the concept of whether if you are actually a board member yourself, what should you take into account? Finally, we concluded by talking about advisory board members and advisors and how to make the most out of them. How are they different from consultants and contractors? How are they different from board members? How do you really reap the most benefits out of the advisory team that you bring on board?

Bertrand

Thank you, Nuno.

Nuno

Thank you, Bertrand.

View Details

In this episode, we will explain what a Board of Directors is and is not, its roles & responsibilities, and how it should evolve over time.

Navigation:

Intro (01:34)
Section 1: What is a Board of Directors (02:10)
Section 2: Taxonomy (06:20)
Section 3: Evolution of Board structure over time (12:08)
Section 4: Board Composition (18:38)
Conclusion (29:47)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder of App Annie / Data.ai, business angel, advisor to startups and VC funds, @bschmitt
Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

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Intro (01:34)

Bertrand

Welcome to Tech DECIPHERED, episode 38. This is the first of two episodes where we will discuss about how to manage your board from a CEO perspective, mostly. The idea here is to talk about why do you want a board, what’s the purpose of a board, what would be the taxonomy about running a board, the evolution of a board, its composition, how you should manage your board, as well as other board, like an advisory board, as well as sharing some perspective from a board member perspective or from an advisor perspective.

Section 1: What is a Board of Directors (2:10)

Nuno

Indeed. Maybe we start at the beginning. What is a board of directors? I think that might be a question that gets thrown quite a bit. I’ll read from a definition. Some of the stuff we’ll be doing today is based on a document I prepared a very long time ago and some other things that Bertrand dug out. But just to directly quote, a board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws. What is a board? A board represents, basically, normally actually shareholders. Shareholders and other stakeholders in a company. It depends on the country. We know, for example, in Germany, that boards of directors also have in many cases representation by unions. But in the case of what we will discuss today for the most, we’re going to talk about startups and tech companies. Normally, boards represent shareholders, and they represent the interests of shareholders. So the people that are on a board of directors are there to make decisions around a couple of areas that are vital to the well-being and growing of the company in representation of a larger group of shareholders.

Nuno

The typical duties of boards of directors obviously include the governance of the company, so all the key policies and objectives of the company. The selection, appointment, supporting, and reviewing of the performance of a chief executive. We’ll come back to that as well. It’s normally a contentious issue, but it is the responsibility of the board to do that. Making sure that the company has their adequate financial resources to sustain itself, to be a growing concern, proving annual budgets, strategic items, any accounting that is done to other stakeholders of the company, including shareholders. And last but not the least, and there’s many other things a board can do, but last but not the least, setting the salaries and compensations for company management. This should be interpreted under the logic of the senior people of the company, certainly the CEO, maybe founders, and other core people to the company. In a nutshell, what the board is responsible for is governance on the one hand, and on the other hand, what I would call mostly strategic decisions. Strategic decisions that link to the financial well-being of the company and that link to its organizational stand, that link to its strategic elements.

Nuno

What does a board not do? A board is not the executive committee of the company. It’s not responsible for day-to-day decisions or management of the company. We’ll talk about it later. And when we talk about composition, there might be members of the board of directors that are executives, but the board is not responsible for day-to-day. It’s not responsible for managing Johnny or Mary, or making sure that they’re doing a good job on their day-to-day basis, etc, etc. It might be that Johnny or Mary are strategic in some discussions that get brought to the board, but it’s definitely not the board’s responsibility to manage them on a day-to-day basis. It’s definitely not the board’s responsibility to manage the operations of the company on a day-to-day basis

Bertrand

Maybe one point to never forget as a board member is your fiduciary duty. You are not here to just represent yourself, your fund, your interest. You are actually here to make sure that the organization is overall well managed, that it stays in some financial situation. And to do that, you need to be objective, unselfish, responsible, honest, trustworthy, efficient, hopefully. And at the end of the day, you need to act for the good of the organization, the company, the business, rather than for the benefit of yourself or some of the shoulders you represent. Your work as a board member is for the good of the organization.

Nuno

This is a pretty vital point that you highlight here, often forgotten by both sides of the table, by the executives in the company, people that work on the day-to-day, the CEO, the chief operations officers if they’re board members, and in many cases, also forgotten by investors. Obviously, we are there to return the most money to our own investors, to limited partners if we’re a venture capital firm. But at the end of the day, we also have to represent the best interests of the company. If we do something that’s egregiously against the best interests of the company, although it might be in the good interests of us as shareholders, we might run into trouble. So again, it’s something to remember at the end of the day. I’ve been on many boards of directors, and sometimes people forget. Sometimes they forget very aggressively, sometimes they forget for a short period of time and someone needs to remind them that’s what they’re there to do. Maybe this is a good way to migrate the discussion into precisely what is the taxonomy for the people attending a board meeting. And obviously, we have executives, non-executives, independents, all this stuff.

Nuno

Bertrand, do you want to give us the lay of the land?

Section 2 – Taxonomy (06:20)

Bertrand

Yeah, sure. It’s quite typical to have some founders as well as some executives as part of the board. Obviously, some founders might be executive in the business, might be employees in the business, or actually might have left the business but still sit on the board. So these executives, when they are on the board, they should act as board members. They should wear board member hat. And executives, of course, can be a CEO, COO, CFO, chief product officer, chief revenue officers. So you might have different execs that are board members. And o- course, what might happen in a board meeting is that you will bring as needed, but that’s different from being an executive board member. If we go on the other side, non-executive board members, you have, of course, typically the investors. So if you raise money, you might have a seed investor, you might have a Series A, a Series B. Typically, you might have multiple investors in a round of financing. And there, typically, you might have only the lead or potentially the co-lead having a board seat. And what happens is to step by step end up with also some independent board members, one, maybe two that are more neutral and they do not represent investors as they do not represent executives.

Bertrand

They are just independent.

Bertrand

Obviously, some board members were introduced by the CEO, might be introduced by some VCs. So they might have some connections with one side of the table more than another. But at the end of the day, they are supposed to act independently. And you can also talk about inside investors, meaning execs and investors, and outside directors, meaning as independent. Inside versus outside directors is another way to talk about it. Sometimes some people might be surprised to see some co-founders who are no longer executives, no longer in the business, still on the board. They stay there because they have knowledge, they have expertise in the business, and sometimes they might have significant shares and control of the business but might not want to still be operational.

Nuno

Likely, if they’re still there, they are investors. They still have stock in the company of some sort. Normally common stock, but it is a significant amount of shares, right? So there’d be non-executive investors that just obviously happen to be co-founders of the company at the end of the day.

Bertrand

Yeah, and if we go about non-board members, you have different type of people who might still be joining the board. So you can have a company secretary, a company lawyer to make sure the minutes are taken properly and we’ll talk about it, to make sure the legal matters are respected. Typically, that can be an insider, a person working at the company, or it could be your external counsel, quite a lot of counsel. By the way, in Silicon Valley, specifically, provide that for free, so they don’t charge you for their time working at the board. That’s a good tip to know.

Nuno

I wonder why.

Bertrand

Yes. Definitely, they have an interest to know what’s happening and to propose additional services if they were needed. But there is good value to have a lawyer assisting at the board, end to end, potentially, except some director-only matters. Board observer, this is seen quite a bit in a lot of boards. Typically, board observer would represent either smaller investors or more passive investors. So investors who might want to know what’s happening but don’t want to have or cannot have a voice on the table of the company. Sometimes you might have funds that ask for two board seat, one board seat that is a full one and one that is an observer one. And that’s a way for them to have two people from their team participating. Sometimes, board observer might be a more junior person on the investment side, and that might be a way to train them. But that can also be a way to have someone who will spend a bit more time in the details, in the analytics, in the numbers, and crunch them more easily for the investors preparing better the meeting.

Nuno

A lot of people always say, Why would an investor ask for board seat and then board observer as well? I actually do it once in a while. And it’s exactly for the first reason you mentioned, you want to create bench. You want to have your associates, your principals, and maybe that have a little bit less exposure to boards and how board meetings are run, what you need to prepare, etc to do it, accompanying a partner. They’re not back carriers. They’re not there to just do our analysis and stuff like that. They’re there to really evolve in the role and take their own board seats in the future. And to your point, it’s a good thing because you have two people from the organization, from the VC firm that are up to date on what’s happening to the company. They can represent you within the VC firm. They can help you with connections, and it’s doubled. So instead of just having access to the role decks or the partner, you get access to the role decks of the principal and the associates. If that seems neglectable, it often is not. It often is that a lot of principals and a lot of associates have tremendous role decks themselves. And in particular, they’re very good at networking with other VC firms, which might be helpful, for example, if you’re about to raise another round, or if you want to create some opportunity for business development with other companies, etc.

Bertrand

Yes. At Red River West, where I am entrepreneur and resident, what we also typically do is to have one board seat and one board observer. But for another reason, we have a team that is half West Coast in the US, half in Europe. So here, the idea is also to provide a full-time, all-time coverage, time in the US, time in Europe. Someone who has more time to meet with the team, clients, prospects, investors in the US, and another team member who has more time for European side of things.

Nuno

Maybe just to finalize, obviously, you already mentioned other company executives that are called to the board to present and participate, but they’re not members of the board. Finally, there’s outsiders. There might be subject matter experts that are called in, consulting firms, all that stuff as the company becomes bigger…

Bertrand

Bankers.

Section 3 – Evolution of Board structure over time (12:08)

Nuno

Bankers. As the company becomes bigger, there might be more and more of these service providers or other players that are brought to the table, but they obviously are not members of the board. Maybe switching and you already started alluding to this, to what a board structure looks like, depending on the stage of the company that you’re in. Normally, when you start, you’re like, let’s say a classic technology startup. You don’t have a board of directors. You may have normally a board of directors who are the founders of the company, but you don’t have an actual board of directors that operates with minutes and does all the stuff properly. Lawyers will at this point wince or cringe when I say this, but the reality is that reality, even if it’s defined in the bylaws and they’re supposed to have board meetings and this, people won’t. In some ways, the stage of just being a non-board-led company actually is becoming longer and longer. It used to be that when the series seed comes in and series seed used to be smaller than they are right now, when the series seed comes in, it would be clear that there’s going to be a board of directors.

Nuno

Now there’s even companies who are raising Series A. Only at Series A they’re creating boards of directors.

Bertrand

Should we talk about more infamous situation like FTX, where there was no board until the very end?

Nuno

That’s an absolute bad…

Nuno

This is the opposite of a stellar case. It’s the absolute do not do that.

Nuno

The reality for this is very important. Board gives accountability of the executives, but it also brings accountability to investors. Because if investors are more involved in what’s happening to a company that participate in core governance decisions, core strategic decisions, as we mentioned before, it is also very likely that these board members will be more informed if the company needs a bridge round. If the company needs to hire talent, they can provide help. If the company’s actual hands-on help from someone at the VC firm, it is more likely that would come if you have a board rather than you don’t. So a lot of companies and startups think with this mindset of I’ll run faster if I don’t have a board of directors. I’m not sure you will. It really depends. So I always clarify, certainly to the companies we come in, we normally invest at Chameleon at Series C or Series A. If we are the lead, we take board seats and we prefer priced rounds to notes. I’ve explained this in past episodes, but there is this notion of, okay, you haven’t had a board, but you should have one.

Nuno

A gain, this is stage 1. Then stage 2 is, it used to be after the first institutional money, after the first VC comes in, as I said now, it’s a little bit later in some cases. But at some point, you move to a board which typically starts with three people. And magically, three people are two co-founders, one investor, which was the investor that led the round. It might be some variation on this. It might be that in some cases, the VC early on imposes an independent board member, or that the round was a more substantial round than was expected. And there’s two co-leads or two very similar size checks where you have one executive, likely the CEO and founder, and two investors taking board seats. But in general, I would say it’s three. It’s two executives, one investor.

Bertrand

On your point early on, do you run faster or not with the board? It’s tough to say because the board can support you, can help you accelerate things with our contacts, our knowledge, our know-how. So it really depends on who are the founders. There is real importance in structuring a business, structuring how things work. There are legal reasons to do this. It’s not just “good governance” to be careful about how decisions are taken, to be careful about making sure you understand what you should be doing or not. There is real value and mistakes can be painful. There is value to have a board once things start to get serious.

Nuno

There is value and it’s beyond that in the certain sense. It’s also a signal to other investors that might want to come later on on how the company is done. Let’s forget FTX for a second. It is a signal. It is a source of resources. To your point, though, and we’ll talk about it in just a bit, you have to be very cautious on how you structure the board. Even with your investors, you have to be very cautious. Board dynamics are fundamental and boards can kill companies. It’s rare that boards make companies amazing.

Bertrand

True.

Nuno

It does happen that boards can kill companies.

Nuno

In general, if the board is okay and creates a little bit of value, that’s already a huge win. That’s my experience. Maybe moving to the last step, obviously, as a company raises more and more money goes through Series B, Series C, mid stage, as I would call it, and then into larger growth rounds, it’s very likely the company will get to five to seven board members at some point in time with a variety of observers. It is also likely that if the company goes towards an IPO, a public offering, it restructures its board to have more outside directors because obviously independent outside directors are privileged at that point in time with certain levels of expertise.

Nuno

We’ll talk about a couple of other dimensions on board composition in a bit, but in general, that’s the state. It says it’s nothing, no board or no real board, three people, more or less, five to seven, and then at some point you’re huge and you’re public company and you might have nine, 11 board members, but that’s a different ball game altogether. I would highlight one important issue that often happens, which is boards are their own entities. I just mentioned before, they help or they discourage the growth of the company in some cases through their decisions. Their dynamics are very, very fluctuating depending on a variety of things. And so again, as you go through these cycles, it’s not guaranteed that a board member that invested in you in a series seed will still be with you when you get to an IPO or when you’re raising even your series D. The half life of a board member really depends on the series they came in, but also in the value that that person might be bringing into the board. So again, be very thoughtful about that. I know there are some people that like to have captive board seats.

Nuno

It really doesn’t exist anymore. If the company is doing really well, that becomes very apparent and very clear as you start switching through board members. But again, that’s one important dynamic. As you move through this, some of your board members will cycle in and out. And it’s likely, as I said, at a certain point in time, you’ll have more independents or even some independent board members or outside directors. Also at that point in time, it’s very important to figure out that path through IPO, right? So if you’re going for an IPO, you need to think through things like board committees, and you need to think through things like, do I have the right outside directors? And there’s now some responsibility in terms of minimum number of people that you have and thinking a little bit through, for example, gender diversity and racial diversity. There’s elements that will come much later on the life cycle of the company. But again, these are things that at some point, in particular, the company is doing extremely well, you’ll need to think through.

Bertrand

Yes, it’s a key part of the game. One reason investors leave right before IPO is because it lets them more easily sell their stock. If that’s their decision, being on the board create constraints actually about when and how you can sell stocks either yourself or for the people you represent, your fund. So that’s one big reason for investors to leave the board and that’s something to know.

Section 4 – Board Composition (18:38)

Nuno

If you think through board composition, first obvious thing and you alluded to that, Bertrand, the executives on the board normally are founders. Not all co-founders need to be on the board of directors. We’ve seen situations where there’s three or four co-founders and they’re like, we all want to be on the board. I’m like… That immediately pushes us to a dynamic that’s different because never forget, if you want to have three or four people on the board as executives, I as an investor will then say, well, then I want to have two or three on my side. So at least I balance a little bit the power of the board. And then there might be some another investor, I want to have some people on the board as well. So you’ll start with boards of five, seven people and you’re not even a big company. So it should be the people that have the right amount of contribution to the governance of the company. And for me, there’s this test, does this person really need to be on the board of directors or not? There’s ways around it. You can create observer seats for the co-founders.

Nuno

You can have all these elements that are there. But at the end of the day, I would be very thought on the executives that you put on a board of directors.

Bertrand

I would say one thing you can do is you can invite other people on a regular basis. If it’s one of your important co-founder, even if he’s not officially a board member, I can stay around for most of the board meetings. And that’s something you enable, at least for a while, as long as it makes sense. One, your other co-founder might provide value, and two, might keep him happy and involved and aware about how things are working at board level, giving some co-founders better perspective. It’s easy to get disconnected from how things are truly working if you are not part of the board.

Nuno

Yeah, but at the same time, I think there’s sometimes this question mark from some co-founders that then don’t get board. He’s like, I’m not participating in the key decisions. Honest to God, that’s not true. There are some strategic decisions and some elements of governance that are vitally contributed by the board. But in general, the companies are run by the executives, and an executive can influence the CEO directly. A co-founder that’s an executive, even if they’re not a board member, will definitely influence the strategy that the CEO will bring to the board.

Bertrand

Definitely.

Nuno

And honest to God, I’ve never seen a very hard-defined, defended strategy by a CEO that got totally killed by a board. There’s adjustments. There might be evolutions. There might be certain things that the board disagrees on, certain allocation of resources that the board might disagree on. But it’s not like I’ll just destroy the whole thing and let’s start from scratch because this is all wrong. That is very uncommon, very rare. If that happens, then there’s already a much bigger issue. There’s already an issue with the executive team and with the CEO.

Bertrand

I was going to say when you say that point around, if there is a well-thought analysis, yes, that’s the keyword. If it’s a well-thought analysis, then things should go well or should not be tweaked too much. The big question is, is it well thought? And as you say, if it’s not well thought, then there is a question about how the execs are working. But also another piece, and we might talk a bit more about it later, about how you communicate to the board. Typically, you don’t want to surprise the board, for instance.

Nuno

No surprises. We’ll talk about that later. That’s a big thing if you guys want to take from today’s episode, no surprises.

Nuno

Then the other part of the board is significant investors. You already mentioned it, normally the largest by round, I would say the rule of thumb is one or two rounds immediately before would have board seats. Obviously, there is an expectation that investors cycle in and out of board seats. I personally have very long half-lives in my boards, so I’m normally more of an exception. I think I’m literally on a board right now that I’ve been on that board for nine years, and I’m not really sure who I’m representing anymore. I’m definitely not representing my stock round anymore. I think I’m almost an outside investor. I’m still an investor, but an outside director. But definitely, you can ask previous round leads that are board members to leave the board and give way for others. That will happen naturally as rounds are being carved, as you have new investors coming on board and saying, you know what, I don’t want to have a board with seven people. This should be a board with five.

Nuno

There’s this old thing around even in odd numbers. We didn’t talk about it, but I’ve been on even-numbered boards, actually a couple. It’s really not that bad. I don’t see the point in it. It’s like, it should be odd. It’s not really a big deal. You can have even-numbered boards and it’s fine.

Bertrand

The logic behind it, of course, is to create a clear majority or not. I think one thing is that typically you have majority, if not actually, not all the time, full agreement of the board on all decisions. There might be debate, there might be questions, there might be, hey, come back in two weeks for a new call so that we can finalize this matter and come back with changes in the plan. But ultimately there is some level of full agreement on most topics. It’s very rare where odd members make it easier to get to a numerical majority. At the end of the day, the other piece of the puzzle is that if you have an even number of board members, you can have a special rights to the CEO. You can have different things that you put in place in term of voting to correct for this.

Nuno

When push comes to shove in you can go to shareholder’s level so it’s not always out of the question that that’s the case. Very important segue to, on the investor side, be very, very thoughtful about the person that’s running your board. They might be a partner for the VC firm and you want that VC firm on board, but make sure that that person is someone you want to work with for at least the next two to three years, probably even longer than that. As I said, I’ve been on this board for nine years. If the CEO of this company really didn’t like me at all, this would be a very painful experience. It’s a long time to be working with someone else. So again, choose the right person. And if you feel in some cases partnerships make the decision of investing, and if you feel there’s someone else on the partnership that you might prefer to have on your board, be honest about the conversation. Be thoughtful in having that conversation with the partner that’s leading the charge that has brought you to attention. But have that conversation, it’s like, maybe that person would be better suited for our board, etc.

Nuno

This functionality in boards, in my opinion, normally comes from two things. It comes from one person at the board that for some reason thinks they’re smarter than everyone else. They know all the truths. Normally, someone who’s pretty aggressive, could be a CEO, could be an investor. It happens both ways, but this functionality starts potentially there. The other great source of this functionality, and this is something for us to take into account, we’ll talk about what board members should think about later on, is the whole notion of are they sleeping at the wheel, which happens a lot. Actually, most of the big frauds that happen, etc, is the board was caught sleeping. They weren’t asking the right questions. They weren’t seeing the right reporting. They weren’t having the right discussions at the board level. So again, this functionality either comes from one member that for some reason becomes, sorry for my language, an asshole, and then pushes the whole thing into disagreement and fight and politics and all of that, or actually the other side of the table, which is really that people weren’t paying attention. Nobody was asking questions. Everyone was cheerleading and nobody saw what was happening.

Bertrand

On that topic, I feel that it might be connected to all that FOMO in Silicon Valley and not just there everywhere of fear of missing out. Because every entrepreneur talk to other entrepreneurs and you have to not just show a great term sheet, but your reputation has to be great. I think a lot of investors have taken the decision to actually not be controversial, to not be asking questions, to not be challenging, and ultimately being very close to what you say, being a sleep at the wheel, being a cheerleader. But that’s not the role of a board member. The role of board member is to help guide the business, make sure governance is respected, make sure the company is funded and financially sound. But my take is that the past few years, I’ve created a change in mindset of I have to be a yes-man board member so that I can get the next deal because I have great “reputation” of being easy with funders.

Nuno

I always say, and I apply this normally to venture capital firms and venture capital partners, but we can also apply to board members in general. There are three types of venture capitalists and there are three types of board members. There’s cheerleaders and that’s 90%. I think maybe in the last few years, because things have gone so much the way of entrepreneurs. Maybe it’s even gone higher than that. The unfortunate thing with cheerleaders is they’re cheerleading you with the pompons when everything’s going great. But when things are not going great, they lower the pompons, they don’t talk too much, and they start disappearing. They don’t show up for board meetings once in a while. They send in their principal. They make up some excuse, whatever, and they stop being helpful. Then there’s the worst-case scenario, if the analogy is a game or a game of basketball, for example. It’s the people in the crowd that throw stuff at you, right? Maybe more in soccer in Latin countries. And that’s maybe three, 5% of the market. There’s people that are so intelligent and so brilliant that they think they know more about your business than you and they’ll second guess you.

Nuno

And if they disagree with you at a certain point in time, they will throw you under the bus.

Nuno

And then there’s 3% to 5% that are what I would call coaches. They’re the people that stand by your side and they will tell you the tough stuff. Coaches are not nice people. They will tell you what you need to do, what you’re doing wrong, and how do you take it to the next level. If you’re a CEO of a company, that’s the people you want on your side. You want the coaches on your side. You want the people that can give you feedback in the right way that can give you help. But they can also be the first guys to say, you know what, what you’re doing right now, this is really bad, or this might be calamitous, or that shift there on strategy is actually quite dangerous. You need to think about it. It’s not that I’m going to force it upon you. Again, I’m not the guy who throw thing at you, but I’m going to raise it. I think that’s the people that you want on your side, the coaches.

Nuno

The final normal part of the board composition, as we mentioned, is independent members. Typically, they have some area of expertise that is valuable to the company. Either in an industry, let’s say you’re a SaaS company, you want to expand it to a new industry, you need someone who has deep expertise in that industry. Functional knowledge is very classical for independent board members, even in public companies. Either they have marketing knowledge or sales knowledge, or later on they have finance knowledge, so they might actually be able to lead one of your committees. There’s really two core committees that at some point you need to have. Relatively early on, and when I say relatively early on, maybe past the Series A or Series B, a compensation committee is important to have because it decides the composition of the CEO. I find actually having that committee earlier rather than later is important, but maybe the board is so small that it would be difficult to have a board committee just for that. It might be tricky, but it’s probably the first committee you’ll need to have at some point that can evaluate the performance of the CEO and can really define the compensation.

Nuno

Then the second one is the audit committee, which comes much later on, which is really the committee that looks at the audits of the company and make sure that there’s nothing going on that is funky and all of that. Independent members are normally very well equipped to be on those two committees later on because, again, they’re outside directors, right? They don’t probably have as much of a vested interest. Although as we have found, because outside directors and independent board members get compensated by the company, sometimes they might be a little bit too close to the CEO. But anyway, in principle, they are more independent than other parties involved.

Nuno

I would say independent board members are something that I’ve learned to value a lot. I’ve been blessed that I’ve been executive board member, non-executive board member. I’ve been representing VC firms or my own capital in boards, but I’ve also been an independent board member. I still am an independent board member on a couple of companies. I think independent board members can be very valuable as a buffer, as the party that can back channel between investors and executives, as a party that can assuage things when they need it to be assuaged, that can really clean up stuff when it needs to be cleaned and make sure that there’s still a conversation between both parties, in particular, more dramatic terms. I think independent board members actually can have a lot of value. Again, needs to be the right person, but they can have a lot of value.

Conclusion (29:47)

Bertrand

That will conclude episode 38, where we spent some time talking about why you need a board, what’s the purpose of a board, how you define a board, the evolution of the board over time, as well as its composition. We will go in episode 39 to how successfully run a board meeting, how to manage your board, how to deal with board advisors, with board observers, and overall what the right attitude and value add is expected from everyone around the table. Thank you.

Nuno

Thank you, Bertrand.

View Details

We sort of predicted the FTX and SBF debacle… seriously! How much are CEOs’ political and socio-economic views welcome publicly? How about employees’? How much is too much? In this episode of season 3 of Tech Deciphered, we talk about founders & CEOs activism, employee activism and share our tips on when to talk and when to just… keep your mouth shut.

Navigation:

Intro (01:34) Section 1: Founders & CEOs activism (02:13) Section 2: M&A changes everything (20:09) Section 3: Employee activism (27:38) Section 4: Bring it all together (39:24) Conclusion (44:57)

Our co-hosts:

Intro (01:34)

Nuno Goncalves Pedro

Welcome to Episode 37 of Tech Deciphered. In this episode, we will address CEO and employee activism. How much is too much? We will touch upon a few CEO-activism events that are recent. We will also talk about how M&A changes everything.

Nuno Goncalves Pedro

We will then address employee activism, which has become more exacerbated over the last three years. Finally, we'll bring it all together. How much is too much? Should you be in the media all the time? How much should your PR department control of what you say? How much should you listen to your employees? How much, as an employee, should you actually speak out?

Section 1: Founders & CEOs activism (02:13)

Bertrand Schmitt

I think Nuno that's a timely topic and it's something that, for the good or for the worse, has been changing, maybe quite dramatically, if you compare the last decade versus how businesses used to be run before. I guess, of course, it's thanks to change in technologies. You have your cell phone always available. You can talk to people. You can record, you can tweet, you can do video.

Bertrand Schmitt

I guess step by step, CEOs, employees discovers that they actually could have more of a voice, and there might be less need for a middleman to express your opinion. As a result, you communicate more easily. If you stop communicating publicly, challenges can start to increase. It's a brand-new world out there.

Nuno Goncalves Pedro

As Spiderman would say, or actually his uncle, "With great power comes great responsibility." Unfortunately, sometimes, people forget the responsibility piece and maybe they tweet at the wrong times of the day, or they say the wrong things without really checking themselves up. Part of it we'll discuss today. Sometimes when you share on social media, obviously, it lacks context, it's misinterpreted, or sometimes it's just plainly wrong, which is also the case.

Nuno Goncalves Pedro

Shall we start? How much should one have an opinion on specific topics, geopolitical topics that are important socially? How much should a CEO or founder have an opinion on? Maybe we'll talk about a few examples.

Bertrand Schmitt

I think traditionally, the approach was, if you're in the economic sphere, you are out of the public sphere, you are out of the political sphere, and you are very careful and measured about how you communicate. Usually, you have a big PR department, all focused on supporting you and the message you are supposed to convey, and you certainly don't go off the cuff.

Bertrand Schmitt

Obviously, things have changed since the past 10 years. It's not easy for a CEO to make that decision to do more, but sometimes you have no choice. I think some interesting examples, a few years back, maybe actually with COVID, we saw some tension about, basically,

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"I am leading or involved in a company… and we are in trouble. What should I do?” In this episode, we share what do when you are in trouble and what to do if everything else fails. This is the second and final episode on this topic. For more information, also listen to episode 35

Navigation:

Intro (01:34) Section 1: What to do, if the company is in trouble? (02:04) Section 2: What if all else fails? (34:46) Conclusion (47:21)

Our co-hosts:

Intro (01:34)

Bertrand Schmitt

Welcome to Tech Deciphered Episode 36. It's our second episode about, "My Company's in Trouble. What Should I Do?" In the previous episode, we talked about the context. We talked about how to determine if your company is in trouble. And we talked about what being relatively safe looks like. In this episode, we are going to talk about what to do if your company is in trouble, as well as what are your options if all else is failing.

Section 1: What to do, if the company is in trouble?

Nuno Goncalves Pedro

Let's say that actually, you are in trouble, that you've done the analysis, you're running out of cash quickly. Your economics are very poor. Your burn is difficult to turn around. What do you do? What is the first thing that you do?

Bertrand Schmitt

I think the first thing that you do is as management, as a board, to acknowledge you have an issue. That's really the first thing. Acknowledge you have an issue and then start working together, management and board of directors to get in agreement into what is, at the very least, what is our current situation, not even what we should do about it, but always a level of risk, level of tension. The analysis done of what's happening so that you can start smartly discussing about the option for the business.

But we saw an acknowledgement across a team of professionals, execs, and board of directors, it's very difficult to move forward. If one side believes a business is doing alright and there is no biggies, that's an issue. If one side believes that, hey, it's not that great in term of burn rate, but we would get financing easily. That's trouble if the other side doesn't believe that. And usually, that might be your board who doesn't believe it would be that easy to fundraise. I guess it depends.

But it's really key to be aligned about the analysis. I've seen companies, I think it's less true now, but if you look at in June or May that still we're not acknowledging what was happening in the market, it was crazy for me. It's like, guys, this has happened for six months now. You need to acknowledge it's a different economic condition and what was investable, and we go back to the default investable in November of 2021, is not default investable in September 2022. And the gap might be pretty big.

I can see that some people at the first bear markets really start to think, Oh, good times are back. No, no, they're not coming back. Not so easily. And you cannot build and bet your business just based on bet ready for a few weeks. Or both sides of the table need to come into agreement about the burn rate situation, the capacity of the company to deliver on its revenues and its projections of top line, specifically, but also about bottom line and get into agreement about what it means in terms of ability to fundraise.

Nuno Goncalves Pedro

And let's say we have agreement, so board, executives, everyone's like, we are in trouble.

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“I am leading or involved in a company… and we are in trouble. What should I do?” In this episode, the beginning of season 3 of Tech Deciphered, we firstly share how to know when you are in trouble (spoiler alert: getting this right is essential) or … if you are “relatively safe”.

Navigation:

Intro (01:34) Section 1: Context (03:28) Section 2: How to know the company is in trouble (04:58) Section 3: What does “being relatively safe” look like? (17:15) Conclusion (28:17)

Our co-hosts:

Intro (01:34)

Nuno G. Pedro

Welcome to season three of Tech Deciphered. We have many surprises in store for the season. But to start, we will have two episodes: Episode 35 and 36, on the topic of My Company is in Trouble. What should I do? In these two episodes, we will discuss context on what is happening currently in the market. But more importantly, we'll help you figure out if your company is in trouble or not, maybe the most important of the first questions that you should answer.

Secondly, we will talk about what to do if your company is indeed in trouble. And coming from different perspective, not just the perspective of the CEO, but also of people that are involved at the board level or relatively senior people that are involved in the future of the company.

And finally, we come to the "what if all fails" piece, right? If everything's failed, what should I do? It's going to be an interesting set of questions, and hopefully, our answers will be helpful to you all.

Section 1 - Context

Bertrand Schmitt

Thank you, Nuno. Yeah, it would be exciting to start this Episode 35. Maybe to share more context, we can start first with our last two episodes about the bubble bursting, winter coming. I guess winter is getting closer. A lot of great companies, tech companies today, they are valued at 50% of what they were worth last year. Fifty percent, five-zero.

And it's not just 50%; it's 50% versus a year ago. Imagine the company attempt to grow, to expand their business, to be more successful, but the market are still valuing it 50% lower. That's happening for a lot of great companies in tech. If I take some private market, this company in the buy-now-pay-later space that announced pretty recently, [inaudible 00:01:42], that they were moving from $46 billion valuation last year to 6 billion market cap this year for the last round of financing, which is a huge gap. We're not talking about 50% anymore. We are talking about 90%.

It probably happened because they had to mirror what happened in the public market with other competitors in that space who end up being in a similar situation of losing 90% market cap. Of course, the private market had to react and adjust to that new situation, and you cannot keep disconnecting yourself from the relatives of public markets, especially if you are at very late stage.

Nuno G. Pedro

You have Zoom that was close to 160 billion at the top of it in 2020. Top of COVID, I guess, and now at 25 billion or so. There's been some interesting... And this is a public company.

Bertrand Schmitt

We are not talking about Peloton.

Nuno G. Pedro

We're not talking about Peloton. The whole COVID effect also being felt very strongly in many industries.

Bertrand Schmitt

Yes, Peloton is actually on 15X.

Nuno G. Pedro

That's not too bad.

Bertrand Schmitt

It's in way more serious financial trouble than some of these companies we are talking about.

Nuno G. Pedro

Today,

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In this episode, the end of our 2nd Season, we close our discussion on the crisis that is upon us and deep dive on what will happen next. We finalize with a brief recap of our season 2 and on what we got right and wrong.

Navigation:

Intro (01:34) Section 1: What Will Happen Next Section 2: End of Season 2 - a Quick Recap Conclusion

Our co-hosts:

Intro (01:34)

Bertrand Welcome to Tech Deciphered episode 34. This is our second episode on the bubble that's finally burst winter that has arrived. We will talk more in this episode about what will happen next. If you want to listen to our episode 33, where we talk about what has happened, what is happening, go back to that episode. And for this one, we'll be focused on future, short-term, medium-term, where we believe this is going.

Nuno So what is happening next? There were some significant changes in the world that we're really not coming back from. And we've heard some amazing things and some well-written analysis, or at least some very pointed notes from people like Benedict Devin and many others that we have inspired ourselves with.

Nuno But in effect that the whole notion of digitization is true, I think we have had a forced digitization over the last two years, which has really brought us forward. Our ability to do ecommerce, our ability to actually use services that we legacy services and have ways of interacting with those services that are more virtual than they were ever before, our ability to get telemedicine and many other things.

Nuno So there's been a lot of moving forward that has been positive. There's a lot of things that, in our personal experiences, for example, in the home, we don't accept anymore. I think Benedict was the one saying no one is going back to cable. I'm not sure that holes in that sense, but obviously there's been a lot of court cutting streaming seems to have one day. Clearly, it was already relatively clear. Probably, it got accelerated through COVID.

Nuno We'll now see the reckoning of that in the next few years on who's going to be the big winners in that space, but certainly, I think that's moved forward. The ability for us to really communicate with each other at a distance is now a theme that needs to be addressed by everyone. So it's no longer an afterthought. It's not like, okay, oh, maybe we can get on a plane and go somewhere. No, no, no, no.

Nuno Do we have a good way for our team, for example, in a professional environment, to interact with each other at a distance? What are the tools we have to do that in? So all this notion of hybrid versus remote versus being in the office doesn't really matter. Remote work needs to work. And we've learned our lessons and there is a lot of tools missing. There's a lot of things that haven't been done properly.

Nuno We also know for a fact that there are pieces of the acceleration that we saw in biotech driven by COVID and the vaccines that ultimately are here to stay. So there's definitely not a going back on this either. Obviously, there's a lot of work still to be done in digitization, in particular, across different sectors of the economy.

Nuno But honestly, with all the tragedy that COVID has been and all the crap that we've been embedded in for the last two years as a global society, the silver lining is, guys, we've got the digitization we've been asking for. The whole digital transformation stuff we've been talking about,

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Winter Has Arrived - the Burst of the Bubble and the Crisis Upon Us… AND WE GOT IT RIGHT!

In this episode, we share … that we were right, all along. We were in a bubble and the crisis is upon us. We share context on the current crisis and what is happening, exactly at a macro level - inflation, recession, over-stimuli, etc - as well as in the start-up and VC world.

Navigation:

Intro (01:34) Section 1: First of All… We Told You So… Repeatedly (02:05) Section 2: What is Happening…Exactly (04:25) Conclusion (41:37)

Our co-hosts:

Intro (01:34)

Nuno Welcome to Episode 33 of Tech DECIPHERED. This will be the first of two episodes on the bubble bursting. We've called it very nicely. Winter has arrived when we're really in summer. Today's episode, we're going to go through what's happening exactly in this bursting of the bubble. But let's actually start with congratulating ourselves in having predicted the bubble. There was a dramatic bubble and that it was going to burst, which we did in our duology on the bubble a couple of episodes ago Bertrand.

Bertrand Yes, we released these two episode in October or November, about the bubble and how was supposed to burst at some point. I guess timing was perfect to talk about the bubble when it was at the top of the bubble, right before it start to explode. I think you could fit it in a lot of our discussion in the past two years on our podcasters, that we were on one side amazed to see the increase in transaction values, in VC financing and startup financing, and at the same time, constantly reminding that didn't feel right, and this was probably just a big bubble, and we call it right. It's not just about congratulating ourselves. At the end of the day, it's a pretty scary times for everyone, but obviously, it happened for a reasonw and [inaudible 00:01:19] reasons, and that will help us understand what happened and what's going to happen.

Nuno Maybe a parenthesis... I think we got it right in several ways because when COVID first hit, we were predicting that that mini-crash was going to lead to a fundamental crash, and it didn't. Part of what we're now going and suffering through was that, because there wasn't that crash, and the market continued to go bull market for another two years, thank you very much, because of governments giving money, incentives to consumption, a bunch of stuff that was really artificial now we know, we ended up actually having top of the market when we did launch the duology in 2021.

Nuno I know it's not a great signal. I certainly, I think, in my own professional activity as an investor, in looking at companies et cetera I've used it. I used it throughout to advise my companies, "Raise now when never knows when it's going to burst", "Make sure that you have a plan B". There was a lot of things that instructed me in how I behaved within my professional activity.

Nuno I'm sad to say that it didn't inform everything that I do. I probably could have avoided one or two things on that if I'd sort of followed my own advice on it. But in some ways, having been disciplined through the last year and a half, two years, and now we looked at investments. In some ways, I feel a bit vindicated. I don't want to do the "I told you so", but we told them so. Now, we have plenty of proof that we told them so. There's episodes, two episodes that talk about it in October, November, last year.

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In this episode, we end our discussion on Leadership and Management: we delve into how to execute; explore values systems, including our own; and share our core beliefs.

Navigation:

Intro (01:34) Section 1: How to Execute (02:08) Section 2: Culture & Values, Our Core Beliefs (20:11) Conclusion (34:57)

Our co-hosts:

Intro (01:34)

Bertrand Schmitt

Welcome to Episode 32 of Tech DECIPHERED, our second and last episode of this series on leadership and management. In our previous episode, Episode 31, we focus on defining leadership versus management. We spend time talking about the different styles of leadership management. In this episode, Episode 32, we are going to focus on how to execute and how to create and build the right culture through the right values.

Section 1 - How to Execute

Nuno Goncalves Pedro

How to execute, how to do this? What are the levers that you have to lead and to manage?

Bertrand Schmitt

I would like to share one perspective I've got, what the CEO's job? I'm talking about a company at some level of scale, obviously not five people, ten people team, but we're talking about 50 people plus type of company. What's your job at scale? I believe that you have to have on one side a deep vision, clear vision. You have to bring your team on board.

You have to either keep convincing your existing team, bring new members on board, evaluate existing ones, and you have to manage the cash, because if you run out of cash, that's a big problem. In a way, there is this metaphor of being like the bus driver. You have to view outside of you, you have to let people in, sometimes, unfortunately, let people out, and you have to keep the gas. If you don't do all these three, at the very least, that's big trouble for the business.

As we discussed, if you are a tech organization, specifically a tech company, you probably need to be as well a product CEO. But at the very core at minimum, you need these three vision, bringing a team, managing cash, as the key pieces of the game as a CEO.

Nuno Goncalves Pedro

Agreed. I would make a caveat here, which is my view on product CEOs in tech is they are the most dominant type. There are other types that work well, in particular in the B2B environment, in business-to-business. The more commercial-driven CEO, the person who has extreme experience in sales or in business development or corporate development. We've seen a few of those people doing very well in B2B.

Again, by nature, tech product CEOs do relatively well. But in B2B, certainly I think we've seen great examples of amazing CEOs that, honestly, are not that technical. But they are very good at selling and they're very good at doing a bunch of other things. There's a few people that come to mind, but again, not to get any hate mail, I will not go into details.

I agreed fully with your vision, Bertrand, and the metaphor is very accurate on the bus. The job of the CEO has several dimensions to it as well. Effectively, a CEO needs to manage for the long term and for the short term, and when managing for the long term, strategy comes into play. A set of integrated actions that leads to competitive advantage. Normally, you measure it in years, two to five years. It's something that is really far in the future.

You have tactics. Normally, tactics is something that you think through as more the one to two year things. It might be a big initiative, a big product launch,

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In this episode, we demystify Leadership and Management: we delve into what sets them apart; typify the different styles; explore values systems, including our own and share our core beliefs. As always, we go below the surface and deep dive into this topic, at a time when it matters more than ever. This episode, on the topic of leadership and management, will be concluded by episode 32.

Navigation:

Intro (01:34) Section 1: Definition (01:58) Section 2: Typifying Leaders (06:34) Conclusion (38:56)

Our co-hosts:

Intro (01:34)

Nuno

Welcome to our Episode 31, the first of two episodes on leadership and management. Bertrand and I will demystify leadership and management, define the difference between both, typify them, explore value systems, and also share our own core beliefs. As always, no BS. We will go below the surface and deep dive into this topic.

Section 1 - Definition

Nuno

From the ground up let's start with the actual definition of this and a bit of a caveat emptor. Buyer be aware, as they call it. Obviously we will share what we think are great practices of leadership and management, but by no means these are the only practices, and by no means we aim to be professorial about it.

Secondly, most importantly, probably by sharing our own views, we're not saying that we are amazing leaders or managers. Obviously, that's not for us to judge, but for people that have worked with us, for us, with us along the years. So that is not the assumption. Obviously, there is some assumption that we have something to say about this topic, otherwise you wouldn't be listening. But we don't aim to be arrogant enough to say that.

Maybe starting with the definition of leadership versus management, and this comes from someone I used to work with, a very good friend, but also someone I worked with for a very long period of time in two different roles. The way she would qualify the difference between leadership and management is, if the objective function is to get to hell, a leader is the person that can convey to people with amazing charisma and presence that we're going to go to hell and hopefully we'll come back for sure, hopefully we'll come back, etc. The leader will likely not define necessarily very much how one will get to hell and back, but they will convince people to go with them, certainly the first time around.

A great manager might lack the charisma, but the great manager will define the steps to get to hell and back, will be clear about what needs to be done to get to hell and back. They might have difficulty in convincing people to go to hell in that first time, but it will be easier for them to convince them to go or try to go to hell a second or third time, even if they fail the first time, because they have a clearer view of the process to get there.

So again, a leader normally, in my opinion, a little bit more linked to... In some ways great aspects of charisma and management is basically linked to great aspects of understanding steps that need to be done and things that need to be done. A great manager might not be a great leader. A great leader might not be a great manager. There are very few great leaders that are great managers. So that's maybe a little bit more flesh around the definition. Bertrand, do you agree with that definition?

Bertrand

That definition would be fit for Churchill, for instance, Churchill fighting the Germans, fighting Nazi Germany.

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In this, the final episode on the Metaverse - or is the Metaverses - we discuss what the Key Players are doing in the space, as well as the so-whats for entrepreneurs and investors. As you, our listeners are accustomed to, only straight talk and “straight shooting” in this duology on the Metaverse.

Navigation:

Intro (01:34) Section 1: Key players (02:02) Section 2: So-whats for entrepreneurs and investors (22:36) Conclusion (30:35)

Our co-hosts:

Intro (01:34)

Bertrand

Welcome to episode thirty, our second episode on the metaverse. In episode 29, we talk about our definition of the metaverse, we talk about the key enablers for the metaverse. This episode will have two section. One, first section around the key players. And we will have a section about what it means. The so what for entrepreneurs and VCs. Nuno, should we go into the key players?

Section 1: Key Players (02:02)

Nuno

And a very good segue to what the key players are doing around the metaverse or the metaverses and all these different technologies. And maybe sticking to Google again, not because we dislike them particular. I think we've shown them a lot of fondness in the past. But we're starting with another failure, Google Glass, which I already talked about earlier. I love those glasses. They were so cool. There was so much promise in it and then nothing. It was just like, nothing's gonna happen. Sorry guys.

Bertrand

For me, it was also an example of something that was hyped way too much, way too early, and totally out of context. When you have something for total geek that are only going to touch the most crazy early adopters of all, why do you start to brand it?

I remember they were showing off celebrities at modeling shows. It was like crazy. It was as if it was going to be mainstream next month. It's like, wow, a lesson of how to set expectations wrong, as if they did everything they could to make sure it was really going to fail. Because the expectations are so disconnected from the reality of how bad it was. Bad maybe is a strong word.

Nuno

It wasn't that bad for what it was. I think it's more the point of what you're making, yeah.

Bertrand

As we see today, it was at least 10 years too early. And you know there is something in history when people tell me, "Oh yeah, we're just 10 years too early." I'm like, "Oh yeah, that's not much, ten years, I guess." I don't like it when people make it wrong by 10 years. There are so many things you could do instead, especially in our world of tech, where in some ways I feel it could be predictable. Google Glass, total fiasco, because it was 10 years too early. But I said 10 or maybe 20.

Nuno

Maybe 20.

Bertrand

The jury still out for this until we have something really working. What was about this other company that was promising crazy shit and ultimately went nearly bankrupt?

Nuno

Magic leap, yeah. By the way, I don't know anyone there. I'm telling our friends just as a way to not throw them under the bus. Yeah, Magic Leap.

Bertrand

But Magic Leap is a fantastic company. I was from very far smelling a rat. I will call it a rat when you burn billions of dollars and you don't deliver at all anything of value, at least value connected to how much money was invested in the business. I wish them the best in their new version, just focused on enterprise. But there was so much bullshit.

And I'm frustrated because some of these companies are so much actively ...

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In this episode, we talk about the Metaverse - or is the metaverses? - specify what it is/will be, debunk myths around it and detail its/their key enablers. Everything you wanted to know and also … that you didn’t know you needed to know. This will be followed by episode 30, focusing on understanding what the key players are doing in this realm, as well as implications to entrepreneurs, investors and others.

Navigation:

Intro (01:34) Section 1: The Typical Silicon Valley hype machine?/ Definition of Metaverse (01:57) Section 2: Key enablers to the Metaverse (17:44) Conclusion (41:21)

Our co-hosts:

Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder at App Annie, business angel, advisor to startups and VC funds, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Intro (01:34)

Nuno

Welcome to episode 29. In this episode, we will go into the metaverse, not literally, but we will discuss the metaverse, its definitions, how people see it evolving, its core enablers, and some of the lessons learned that we believe entrepreneurs and venture capital firms should have. Bertrand, metaverse, what is the metaverse?

Bertrand

Big question. I guess that's a billion dollar question. There's been so many definition of what the metaverse is or is not. I like one definition from Matthew Ball—a well respected analyst—and I believe he has his own VC firm. By his definition, "Metaverse is a massively scaled and interoperable network of real time rendered 3D virtual worlds, which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data such as identity, history, entitlements, objects, communications, and payments."

Bertrand

That's the full definition. I like it, because you are not missing any piece of the puzzle, at the same time, by its very complexity, I feel it's showing us that it's not an easy definition. It might even be seen as a very contrive definition. If you think about the internet, how different is it really? The 3D part for sure. Beyond that, it's not very clear, actually, except that it's maybe more unified than the internet that we know. You could argue if you are just inside Facebook, how different it is about just being inside Facebook and just never leaving Facebook.

Of course it to be horrible, at least from my perspective, using Facebook less and less. That's one vision. Some will say, we'll talk about what it is, but also what it is not. I will quote again Mathew Ball. For him it's not just a virtual world. It's not just a virtual space. It's not just VR. It's not just a digital virtual economy. It's not just a game. It's not just a virtual theme park. It's not a new app store. It's not a New UGC platform. For sure, it's a big buzzword in Silicon Valley these days, especially thanks to meta rebranding itself. Just from that perspective, it was huge on Google trends. Since the renaming of Meta everyone has been Googling what the metaverse is, I guess. What you think, Nuno?

Nuno

A lot of respect for Matthew Ball as an analyst, and his definition, as sound as all the other definitions that are out there. I have a couple of objections to his definition. It starts with interoperable. It starts with, "The metaverse as a massively scaled and interoperable network of real-time render 3D virtual worlds." Interoperability is not a given in the metaverse. Nobody has told us that the metaverse will be an interoperable bunch of worlds working together.

Actually, if I had to make a bet, using my computer engineer hat and architect,

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In this episode, we talk about Strategic Investors, detail what they are, their underlying realities and structures of operation, and present the case For and Against them. We also share Lessons Learnt that can be of value to you, if you are an Entrepreneur, a Financial/Institutional VC or a Strategic Investor.

Navigation:

Intro (01:33) Section 1: Context Setting (02:44) Section 2: The Bad Examples (12:01) Seciton 3: The Good Examples (21:39) Section 4: Other Players Join the “Party” (36:30) Section 5: Lessons Learnt for Strategic Investors, Entrepreneurs and VCs (41:25) Conclusion (51:31)

Our co-hosts:

Intro (01:34)

Bertrand: Welcome to episode 28 of Tech DECIPHERED. This is a special episode on the topic of strategic investors. What are they, who are they, and are they helpful, how helpful can they be? I think it's one of the typical questions as an entrepreneur you would have to answer when you are considering getting financing. What type of investors, should I bring on board? And typically, early on, you might look at business angels. You might look at seed fund. And at some point, you would consider working with VCs. And you will probably discover that you have different type of VCs.

On one side the sides we typically hear about in the news, in the press we are talking about more financial VCs. And on the other side of the spectrum you have what is called strategic investors, strategic VCs. Strategic sometimes for short. And we are going to talk about them. Who are they, what are they helpful for, how useful they are, how bad could they be for your business, for your startup.

Welcome, Nuno, good to be with you to discuss this topic. How are you today?

Nuno: I am well, in sunny California, so very well.

Section 1 - Context Setting  (02:44)

Nuno: Maybe starting by defining what is strategic investors and where does that come from? The notion of they invest in, but they also contribute something that is more strategic. Maybe in the form of a partnership, or in the form of resources or other types of things that you put at the table. Normally, strategic investors are looked in the light, or as opposed to financial investors. So investors that are solely driven by the financial return and therefore, also solely driven by the capital that they put in.

The world has become a little bit muddy over the last decade or so. There's now, investors that are more what I would call operating investor. So operating investors that jump into the company, and spend a significant part of their time in the company, sometimes even taking a significant part of the company, not just the classic minority in the company. But in order to simplify our discussion today, let's stick to the financial investor side, and the strategic investor side. So a financial investor would be someone like Chameleon, Red River West other VC firms that are out there, Sequoia Capital. We are investors that invest in a company, the biggest upside we can get is really financial.

And obviously, we will produce value for the company under the form of helping the company scale, helping the company hire, helping the company get access to resources, and a variety of other things. So there is a little bit more operational minus in VC in general today, but the key objective of the whole thing is financial returns. A strategic investor, in many cases, when we talk about it, we use strategic investor as opposed to corpor...

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We deep-dive into the nuanced - and somewhat less than stellar - history of Tech in Europe and how start-ups and investors are making up for lost time, leading to an ever maturing ecosystem, with significant reasons for optimism. Finally, we discuss the increasingly intertwined destinies of US and European Tech.Navigation:Intro (01:33)Section 1: Framing the European start-up and investment landscape (02:20)Section 2: Investment Approach in Europe (17:18)Section 3: Movements from US to Europe (51:19)Section 4: Movements from Europe to US (59:02)Conclusion (1:05:39)Our co-hosts:Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder at App Annie, business angel, advisor to startups and VC funds, @bschmittNuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast

Intro (01:34) Nuno: Welcome to episode 27 of Tech Deciphered. We're going to address the tech landscape in Europe, focusing on the investment landscape, as well as the startup landscape, we will go into the typical entrepreneurial approaches as well as investment approaches in Europe, the mindsets, the tactics, the profiles, as well as the typical exits, we will then deep dive into the present state of Europe and how we see it evolve over time.   Bertrand: Thank you Nuno, good to be here today with you and to discuss this fascinating topic for us, we are both Europeans. Obviously I'm French, you're from Portugal. We have seen the European landscape changing dramatically over the past 20, 25 years. So that will be very exciting to talk about this.   Section 1 - Framing the European startup and investment landscape  (02:20) Bertrand: I guess maybe we can start about controversies that happened a few months ago in June when The Economist had a big cover on the state of the investment in Europe and how Europe was really not doing much in the tech industry. interestingly enough, there was a quick swift reply from the founder and CEO of Stripe Patrick Collison, who is not just running Stripe from the U S but he's also a European citizen being Irish   Nuno: Yeah. His comment was basically saying, all of the points that you raise are great, I think you haven't really shown the case for optimism right? Where there's a lot of great successful companies coming out of Europe. He was mentioning a few that, are obviously runaway successes, like Spotify, Klarna, N26, UIpath, wise and a few others.   And he also obviously talks about Stripe and its role, although Stripe is more of an American company, to be honest, but Stripe in its role in working with very innovative companies in Europe as a counter position to the economists headline and main articles in that edition.   So to be honest, I think he is onto something in saying there is a case for optimism that wasn't duly manifested in that edition of your magazine or newspaper as they call it. It's very funny cause they call the economists still the newspaper, although it's in my view of magazine.   Bertrand: Maybe you want to restate the position of the economist.   Nuno: Yeah. The position of the economist is that basically the U S has taken over, right? You have companies like apple that are worth more in their view than 30 firms in the German blue-chip Dax index combined. Obviously we have Amazon, we have Microsoft, we have Google all these are multi-trillion dollar companies now, actually.   And so their point is, in some ways, Europe has lagged behind. I think their point was very focused also on the old Europe and where, even the big emerging tech winners, like SAP took a long time to get to fruition,

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In our second and final episode on the Bubble, we share what is happening in Venture Capital, on the exit - IPO, M&A, etc - front, as well as share clear “so-whats” for entrepreneurs and VCs. For in-depth views on the status of the economy, listen to our previous episode, episode 25.

Navigation:

Section 1: What is happening in VC? (02:05) Section 2: Exits are great, though, right?! (17:52) Section 3: So-what? Implications for entrepreneurs and VCs (25:57) Conclusion (43:49)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedro

Intro (01:34)

Nuno: Welcome to episode 26 of tech deciphered. This episode will conclude our two-part series on the bubble and why we actually believe there is one going on. In this episode, we will discuss the VC landscape and how it is evolving. We will talk about exits, not just IPOs, but also other types of exits like mergers and acquisitions and how that landscape is looking like.

And finally, we will end up with something pragmatic, the "so what", the takeaways, the implications for both entrepreneurs and investors.

Section 1 - What is happening in Venture Capital?  (02:05)

Nuno: Moving to venture capital, there's a lot of interesting elements to talk about. Some really interesting analysis from our friend Tom Tunguz but also of what's happening in the macro space, some analysis of what we've seen from PitchBook and CB insights, it seems we're going to have an incredible year in venture capital. This is it. There's no crisis there's a ton of money, dry powder, there's new funds, I actually have a new fund going. So I'm very happy with that, but in some ways it's like, woh, this is all fantastic. Increasing everything, increasing everything, more deals, more money deployed.

We're all great. We're going to have, a flagship year in venture capital. And somehow I'm like I like being in the market. We just closed our first deal, which is great. Thank you. So what's going to happen? In our micro world of startups and entrepreneurs and venture capital firms, 2021 is going to be an amazing year, but what's going to happen?

Bertrand: Yeah. And to share some numbers it's pretty insane what we see. And for me, what's crazy is that it's at every range. So maybe it varies by country, by industry, but overall if I take Series A valuations, for instance, you have seen a jump from what? like more than 50% in two quarters this is the very definition of insanity.

I'm not sure if we have ever seen that, and it's happening. At every level in the stack. So maybe early on in the pandemic, it was less true that it was at every level of the stack. Maybe, initially it was more: you are only investing in people you already knew, in companies you already knew, the first quarter or two. And because you are not used to work like this, you didn't know how long it would be like this. So you had a different approach that maybe favored existing companies bigger rounds, insider the rounds. But now I believe that we're at a stage where it's not at all about that anymore.

Or not just that anymore. It cannot be: to stay competitive you have to stay in the market, you have to invest. And maybe on that point maybe not every fund agree. We have a wide range from Tiger Global investing I forgot how many deals a day, actually 1.3 deals a day from Tiger global these days.

But at the other extreme in a global ranking I have not seen Sequoia U S in the top 10 investors. So I wonder if there is less investment from them and they decided that right now is n...

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Is this a bubble? If so, what type of bubble? Where are we heading? We share our views on where the economy is going, the importance and effect of COVID, several key opinions on both sides of the spectrum and land on whether the current situation is sustainable or not.

Navigation:

Introduction (01:33) Section 1: The COVID effect (02:43) Section 2: The economy...stupid? (11:08) Conclusion (43:33)

Our co-hosts:

Intro (01:34)

Bertrand: Welcome to Tech Deciphered Episode 25. So this episode 25 is part of a 2-serie episodes: episode 25 and 26 that will be around the current bubble. We believe that at this stage from a big macro perspective there are a lot of questions around where's the economy going, and this would be the topic of episode 25, that big picture perspective on where is the economy going?

Of course, all of this being impacted big time by COVID. We'll talk a bit about that. We'll talk about inflation, prices where all of this is going from a macro perspective. In episode 26 we will talk more about, in more details, what does it mean for entrepreneurs, tech entrepreneurs, tech industry, VCs, where the VC landscape going, where are exits going, and what does it mean for me as an entrepreneur or me as a VC?

Nuno: And today we start with, where is the economy heading, all the macro conditions that are happening in the market and their implications. Bertrand?

Section 1 - COVID effect  (02:43)

Bertrand: We have to start with COVID it has so much impact, not just on our lives, but on the state of the economy, on some big decision on the financial market side, on additional government interventions, or not. So I would say it's a very mixed picture. I think I had a sense of optimism that day to day life was going in the right direction just maybe a month ago, even if I was, and we were being both realistic as we discussed in some previous episodes. Back to normal, like international travels and the like, as we used to do on a regular basis might just be for some time next year, maybe summer next year. I guess there are some serious concern that our basic everyday life might be back to some sort of war footings. In where I live in Seattle area, King county, we are back to mask mandates indoor.

It's not yet forced, but I guess it will be there soon. It's highly recommended we all heard about the CDC recent news also advising for masks mandates indoors for everyone. Vaccinated or not. It seems it's both because we cannot trust people who are not wearing their masks, that they have been vaccinated and because now there is also the risk that even if are vaccinated with delta, you might harbor the virus and share it with others.

And I guess, in your region in the bay, it's also back to mask mandates. This time it's mandatory actually indoor.

Nuno: From what I just saw. And, basically I got information from a club that I'm actually a member of that everyone now in San Francisco should wear a mask indoor, irrespective of being vaccinated or not. My understanding it's going to be mandatory at least for a period of time, but I'm not fully sure.

Certainly there is a step back. From what was promising to be very nice summer for everyone. If you're vaccinated, you don't need to wear anything, et cetera, et cetera. In some ways, leaving this to the criteria of people wasn't a wise idea in the first place, because how do I know that someone's vaccinated or not?

We saw a little bit of reverse engineering later on.

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Episode 24 ends our trilogy on Silicon Valley and our “no bs” contextualization: from its history, geography and its most common and core myths. In this episode, we deep dive on our Silicon Valley loves (and hates) and finally address the elephant in the room: is there an exodus going on or not? Has Silicon Valley’s downfall started or is it highly exaggerated? Listen to our most contentious podcast yet. Navigation:

Introduction (01:33) Section 1: Hates (02:19) Section 2: Loves (33:51) Section 3: The Future of Silicon Valley (54:41) Conclusion (1:13:09)

Our co-hosts:

Intro (01:34)Nuno: So today in episode 24 of tech deciphered, we'll be finalizing our trilogy on Silicon valley. Our non bullshit view on Silicon valley, which started in episode 22, talking about what Silicon valley is and what brought us here, then continues in episode 23, with an episode specifically on the mythology of Silicon valley and our sevent myths of Silicon valley. And today we will end with love, hate - our areas of love and our areas of hate of Silicon valley and the bay area. And we will finalize with Silicon valley in transition. Is there an Exodus? Is this a mindset? Is this a geography? What will happen to this region? Bertrand? Section 1 - Hates (02:19) Bertrand: Should we start with things we love or things we hate? Nuno: I started with hate let's start with hate. And then we go to love. Yes. Bertrand: Let's start with hate. That sounds very very harsh, but there are some reasons to be harsh about Silicon valley, not everything is the paradise you can read from far. Nuno: Yeah. So maybe starting with the most obvious of them all, with crime safety, homelessness, and here we have to be very specific because obviously there's this situation for example, of San Francisco and crime and homelessness in San Francisco, which is pretty pervasive. And in some ways it's been a little bit amped up also with COVID as a lot of people left town and certainly are working more remotely. But definitely there is a problem in San Francisco. There's a problem also elsewhere, Oakland, I think is having a little bit of what I would call a Renaissance. It's getting and becoming an exciting city and and solving a lot of its issues. But obviously we know the history of crime in Oakland is also a very serious one. And then you have places that have obviously no crime at all, like Atherton, the richest town in America or the wealthiest town in America where, finding crime is probably difficult. So really a tale of two bay areas, so to speak or to Silicon valleys Bertrand: Sorry let's not forget east Palo Alto Nuno: Yeah. You have these dichotomies exactly to your point Bertrand, where you have Palo Alto, which we know next to Stanford and where a lot of very wealthy people live like mark Zuckerberg and others which is in general, relatively safe here, and then just east Palo Alto, which is not as safe. Bertrand: The other side of the highway. Nuno: literally the other side of the 1 0 1. And so again, in some ways it's a little bit quintessential American, right? We know that from other cities like Chicago and in LA and other parts of the U S where you have certain areas that have for a variety of reasons a significant amount of lack of safety and crime and all of that. And then you have areas that are extremely safe and extremely controlled in terms of crime as well. So I think the first hate we probably both sha...

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In episode 23, we demystify 7 of the most common and core myths on Silicon Valley, from its laid-backness to “everyone is amazing”. Check out episode 22, where we explain what Silicon Valley actually is, talk about its history and geography. In episode 24, we will deep dive on our Silicon Valley loves (and hates) and finally address the elephant in the room: is there an exodus going on or not? Has Silicon Valley’s downfall started or is it highly exaggerated? Navigation:

Intro (01:34) Myth 1 - Laid Back (04:25) Myth 2 - Not Transactional (16:11) Myth 3 - Self-Confidence and Assertiveness (27:22) Myth 4 - Ton of Capital Available (37:29) Myth 5 - Everyone is Amazing (47:31) Myth 6 - Failure Always Rewarded (55:17) Myth 7 - “Changing the World…” (1:00:49) Conclusion (1:04:49)

Our co-hosts:

Intro (01:34) Bertrand: Welcome to episode 23 of tech deciphered. This would be our second episode of our trilogy around Silicon Valley. If you remember how previous episode, episode 22 was about what is Silicon valley, as well as what brought us there. For this episode, we're going to talk about the myth of Silicon Valley versus reality. And we are going to share with you seven myths that we have seen over these years, and we believe come a long way explaining how Silicon valley really work. Nuno: This started in some ways with an article I wrote, I think in 2016 and I have four myths in that article. So today we're going to expand on that. Bertrand has come up with a couple more and that whole story started with two things, one with an entrepreneur that reached out to me and I used to have a lot of requests on LinkedIn via email semi warm intros from friends about someone from another was coming to Silicon valley or was visiting, was going to come to Silicon valley to visit and meet with potential customers or investors. But this particular entrepreneur that shall go un-named reached out to me and we had several people in common. It was a relatively cold reach out. And then he just sent me a follow-up message saying, I'm going there for a visit. Can you introduce me to Google, Facebook, all these companies. And I was like, why am I bugged by this? And as I started thinking through it I started actually taking it one step further, which was, I am bugged by it because people have this understanding of Silicon valley that is fundamentally wrong. And that's where this whole mythology came from. In some ways we had people that we knew in common. We had acquaintances, not even really close friends, but I did not know this person. And that was one of the first things that bugged me. It's like, why is he asking me for things? I introduced him to people why? I don't know this guy. And so again, I started going through it, and the second trigger for me to write this article, the myths of the Bay area back in 2016 which is still on Medium if you want to take a look at it, I was about to be doing a keynote for an organization that I was a co-founder of called west to west, which was really linking Portugal to Silicon valley, the two west coast as we call them and really helping entrepreneurs figure out how to best go to market in the U S how to best connect with talents in US, customers, potential investors, et cetera. So I came up with four myths that really helped me frame in some ways, a little bit of my messaging back to entrepreneurs that are not classically from Silicon valley,

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In episode 22, we begin the second season of Tech Deciphered, by deep diving into what Silicon Valley is, what made us (and others) move here, its unabridged mythology and whether there is really an exodus (or not) going on. This episode is the beginning of a trilogy that is an ode to our love and hate relationship with the region. Navigation:

Intro (01:34) Section 1: What (exactly) is Silicon Valley? (02:23) Section 2: What brought us (and others) to Silicon Valley? (32:15) Conclusion (46:09)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, business angel, advisor to startups and VC funds, co-founder at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Intro (01:34)Nuno: Welcome to season two of Tech Deciphered. Today, because we like to do really long episodes, we will start our trilogy on Silicon Valley. This episode will focus on what Silicon Valley actually is. We'll go into the geography of Silicon Valley, the origins of Silicon Valley, the development of Silicon Valley. Then we will also talk about what brought us here, what brought Bertrand and myself to Silicon Valley. In the next few episodes, we will go into the mythology and reality of Silicon Valley as well as other areas of love and hate , and we will finalize with Silicon Valley in transition. Is it a mindset? Is there an Exodus? Is there a no exodus?Bertrand: Thank you Nuno, good to be here with you today. How are you?Nuno: I'm well, so let's start with what is Silicon Valley? Section 1 - What (exactly) is Silicon Valley?Today we start with what is Silicon Valley? And one could say Silicon Valley is a state of mind, but it's actually a region of the world with a long history behind it. Bertrand do you want to guide us a little bit through the long history of Silicon Valley and where we're at?Bertrand: Yeah, sure. So as you say, it's a long history, but that depends by which standard? Nuno: For someone from France and Portugal probably not very long, but yes.Bertrand: Or ChinaNuno: Long from a US perspective, I guess. Bertrand: It's one of these places where you don't have much standing that is more than a hundred years old, and one could argue, it might be because of earthquakes. But not just, I would say the modern California is probably and Northern California is probably 150 years old, started with the Gold rush.And maybe before I go to the gold rush, obviously California was in some ways discovered by the Europeans 500 years ago Nuno if we go back to the origins of California and Northern California, and it was a spaniard, a Portuguese? Nuno: We will not have that discussion. And obviously it's not questioned whether it was discovered, it was here, and there were native people here and then. The Spanish conquistadores arrived. There is some argumentation whether Cabrillo was actually Portuguese or Spanish, but he was definitely working for the Spaniards.So we'll let them do that. We'll let the Spanish people get that.Bertrand: Yes. So California was interspersed by a lot of missions and that connected the main roads. Actually historically the main road in Silicon Valley, El Camino Real, Nuno you want to say what it means.Nuno: Yeah, the Royal way. So it was a way that was put there to connect the different missions. And it was the Royal way because the Spaniards were here at the service of obviously the monarchy in Spain. And that's why it was called the Royal way or Camino Real. So now, you know. Bertrand: And so, that's for me interesting part of Silicon Valley to think that you are on the Royal way most of the time when you are ...

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In episode 21, we will end our first season of Tech Deciphered, by taking a look back at 2020 - spoiler alert: defined by something starting with a C and ending with a 9 - as well as what we expect to happen in 2021. We will share our answers on questions like: Will we finally get rid of this pandemic? Is there a bubble in the public equity market in the US? We will also share our own personal lessons-learnt. For a more in-depth look at the future and the 2020s, please listen to episodes 11, 12 and 13, and for a more detailed view on COVID-19, please also listen to episodes 9A and 9B. Navigation:

Introduction (01:24) Moment of Silence - In Memoriam (02:32) Section 1 - Recap on 2020 (03:00) Section 2 - Personal stories (26:11) Section 3 - COVID-19 and Macro Outlook for 2021 (32:10) Section 4 - Outlook for Tech in 2021 (42:42) Season 2 Preview & Conclusion (51:24)

Our co-hosts:

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In episode 20, the last of our trilogy on recruiting, we share advice to candidates, from ideas and processes on how to best be visible to recruiters, to how to get the job of your dreams. Also listen to our episodes 18 and 19, in which we share our core principles in recruiting and detailed advice to recruiters. Navigation:

Introduction (01:24) Section 1 - How to get found (02:10) Section 2 - How to get the first interview (04:08) Section 3 - Interview questions (07:13) Section 4 - How to get the offer (23:56) Section 5 - Remote world (29:00) Conclusion (39:59)

Our co-hosts:

Intro (01:24) Nuno: Welcome to episode 20. This episode, will conclude our trilogy on recruiting. In episodes 18 and 19. We've discussed a variety of topics. We introduced the element of recruiting. We shared our own core principles around recruiting, and in the last episode, episode 19, we gave advice to recruiters. Today, we will be discussing advice for candidates all the way from being found to how to be recruited in a changing remote world. Bertrand: Let's take the other side. Let's think from a candidate perspective. What could be our advice for candidates. And obviously there is probably a lot of advice we can give. Section 1 - How to get found (02:10) Nuno, do you want to start on maybe how to get found? Nuno: Yes, and just to reframe this, this is not just based on third-party knowledge in the last decade, because both of us, have not been candidates, cetera, . I certainly have been reached out by a number of organizations. I've explored things beyond my own realm. And there's obviously a lot of lessons learnt here that I think are still very fresh. The first piece is how do you get found, right? Who finds you and how do you make yourself visible in the market? definitely LinkedIn, your profile needs to be clean. It needs to be clear and sharp about what you're able to do or not. My LinkedIn profile is awful for that, just to be clear. So please don't look at my LinkedIn profile to get any great clues on that, having clarity in what you've done and what you're an expert on and what are your achievements have been Turning your LinkedIn into a richer type of resume is very powerful. If you're an engineer, Github Gitlab and other tools also convey a lot of these elements of being found in the market. so that's the beginning. It's almost like your advertising systems and services that you want to be present on for recruiting depending on the area you're in. Obviously you should explore. Having some warm relationships with recruiters. And particularly as you get more senior and you moved to a middle level ranks or senior level ranks. knowing your recruiters and having them, having your mind. I believe that recruiters in Europe and Asia, I've shared this with many of my friends, external recruiters in Europe and Asia are less transactional than in the US and because of that, they normally keep warmer relationships with candidates through the years. I certainly have warmer relationships. With some of the recruiters that I interacted with in Asia and in Europe and maybe in the us, this is again, a simplification obviously it varies very much with the recruiter and the individual, himself or herself. but definitely understand where the recruiters are, what's being done, et cetera. And then the final piece around being found is if you're looking for a specific type of job,

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In episode 19, we share detailed advice to recruiters, sharing views on job descriptions, finding talent, interview process, good and difficult interview questions, other hacks, as well as our own “pet peeves”. This is the second episode on recruiting. In episode 18, we framed the discussion and shared our core recruiting principles, including in compensation, and in the design and development of the recruiting organization. Episode 20 will end our trilogy, by focusing on detailed advice to candidates. Navigation:

Introduction (01:24) Section 1 - The Job Description (02:00) Section 2 - Hacks & Tools (10:19) Section 3 - Finding Talent (15:04) Section 4 - Interview Process (18:14) Section 5 - Other Hacks (31:52) Section 6 - Pet Peeves and Dislikes (39:17) Conclusion (41:27)

Our co-hosts:

Intro (01:24)Bertrand: Welcome to episode 19. This is the second episode in a trilogy of episodes on recruiting that started previously, with episode 18. In this new episode, we are going to focus on the recruiter side: writing a job description, the tools and approach to find talent, the interview process, global differences, the evergreen approach to recruiting, closing candidates. And we will conclude on our pet peeves and dislikes.Section 1 - The job description (02:00)Nuno: And maybe switching and going into the weeds a little bit on advice that we would specifically have for recruiters and starting with the job description. The job description is normally this painful thing that someone has to do that involves some copy pasting, hopefully if there's a template or some Googling in the middle, to define what the job looks like.I think this is absolutely the wrong approach, just to be clear. A job description, I think has two sides to it. There should be an external job description, which is manifested to the market. That can be used with external recruiters, that can be used with candidates directly. And that should be sharp and really conveying what hard skills are being looked for, what soft skills are being looked for, what is the value system of the organization, and obviously a brief description of the organization, and finally, a little bit on how that position would fit in terms of roles and responsibilities within the organization. Those four or five things need to at least be there.It should be sharp, it shouldn't be a three page job description. I've seen seven page job descriptions. I'm like, why?Bertrand: No way.Nuno: Is anyone gonna read that? And sharp should be one page, very clear, there should be a lot of attention to the words that you use and the clarity on it.And it should really be appealing. It is a marketing material. I'm not saying it's not, but it should also be clear in filtering people that have certain skills versus others, people that have a certain value system versus others, et cetera. Then there's a little bit the internal job description, which also should be very clear. Which is, who is this person going to report to, what are going to be the day to day of this person, the complexity of it, et cetera.I'm not sure that needs to be manifested in a very formal way. But there should be clear understanding around the table, from the hiring manager all the way, maybe to the CEO early on in the company, to the person that's managing the recruiting process so that there is clarity on what works and what doesn't.

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In episode 18, the first of our trilogy on recruiting, we start by sharing our core principles in this space. We delve into high-level principles, recruiting organization and compensation. In episodes 19 and 20, we will share detailed advice for recruiters and candidates, respectively. On the recruiter side, we share core principles that have worked for us, as well as hacks: anything from good and difficult interview questions to some of our “pet peeves”. On the candidate side, we will share ideas and processes from how to best be visible to recruiters, to how to get the job of your dreams.

Navigation:

Introduction (01:24) Section 1 - Core principles (04:59) Section 2 - Recruiting organization (18:34) Section 3 - Compensation (26:13) Conclusion (31:05)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Intro (01:24)

Nuno: So in this episode, 18, we focus on recruiting. We will discuss on the recruiter side, our core principles that have worked for us along the years, as well as some hacks and some advice for recruiters. On the candidate side, we share ideas and processes from how to best be visible to recruiters, all the way to how to get the job of your dreams. Looking forward to this episode.

Bertrand: Yes, and actually we have so much content on Recruiting, that we will have 3 episodes focused on this topic: this episode 18, as well as episode 19 and 20.

Bertrand: I'm very excited that we talk about recruiting, probably not much is more important than recruiting when you're starting a company, running a business, running a startup. And it's recruiting of everyone from your co-founders, to your execs, to your developers, to your sales people. So recruiting is literally the lifeblood of your organization and obviously not just recruiting but keeping people and having people happy and successful at your organization. But it starts at the end of the day with recruiting. So it's exciting to talk about this topic in this episode.

Nuno: Indeed. And let's start with framing our experience as recruiters, to give a little bit of credibility to whatever advice we give during this episode. I'll start with my side, I've recruited or help recruit hundreds of people, all the way from recruiting for my own teams as either a line manager, CEO, managing partner, helping recruit peers to myself in different organizations. Helping some of my clients as a consultant recruit their own people. That was also a lot of fun. And I participated in everything from, one-on-one interviews to panel interviews, to group interviews and everything under the sun. I would also add as a candidate, that my experience is still relatively fresh. A lot of people would look at my background and say, you haven't been a candidate for a long time. You did your own venture firm, et cetera. But in all honesty, I've joined boards of directors, both for profit companies and nonprofit companies. And that goes through its own recruiting process.

I've tried to be recruited by a bunch of companies in the industry along the years. And funnily enough, because I'm a bit of a nerd. I actually sometimes go into these processes, even though I'm not necessarily thinking of moving on. And I've had some really interesting processes with some of the best known companies in the industry. And hopefully we'll also share some of my lessons learned around it. Last but not the least, I've been very close to the recruiting space, through a bunch of people in my own network that are very close to me.

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In this, the third and final episode of our SaaS Primer - or “everything you wanted to know about SaaS” - we look into Financing/Fundraising, share findings on Benchmarking/KPIs, as well as end the discussion on Lessons Learnt and Predictions. Do listen to episodes 15 and 16, in which we had a SaaS Overview, looked at Business Models, as well as Sales and Pricing.

Navigation:

Introduction (01:24) Section 1 - Financing/Fundraising (02:01) Section 2 - Benchmarking/KPIs (16:08) Section 3 - Lessons Learnt (29:07) Section 4 - Predictions and Conclusion (46:19) Conclusion

Resources

Please check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Download Tech Deciphered SaaS Primer PDF Deck

Subscribe To Our Podcast

Intro (01:24)

Bertrand: Welcome to Episode 17 of Tech Deciphered . In this episode 17, our third and last episode of our SaaS Primer, we're going to talk about financing, benchmarking, lessons learned, and our predictions, to conclude, about where is going the SaaS Industry. For further reference, please have a listen to our previous episodes, episode 15 and episode 16, where we started this SaaS Primer . Nuno, let's start today with financing.

Section 1 - Financing / Fundraising (02:01)

Nuno: In financing, our first analysis is around equity capital raised by ARR. So Annual Recurring Revenue that has been achieved by the company. Not a huge amount of surprises, but maybe the sole surprise is that companies are raising more equity capital at earlier stages. Definitely, it seems pretty capital intensive that we have, for example, companies generating less than 1 million in ARR, 10% of those companies having raised $5 to $10 million. 6% of the company's raising 10 to $20 million. That seems like a very hefty bar to start generating such little ARR, in companies that are generating a lot more ARR, so above $50 million, 65% of companies unshockingly or not very shockingly will have raised more than $50 million by then.

And then very few, I'd say 12%, 12%, 12% will have just raised anywhere from below $5 million, $10 to $20 million, and $20 to $50 million. It seems to be no man's land for above 50 million, seems to be 5 to 10 million. So no companies that are raising more than 50 million will have raised only 5 to 10 million, which is again, an interesting counter-intuitive realization.

We will come back to the point around how much money do you need to raise, to actually generate significant ARR. The reality is, the later you are in the ARR curve, the more ARR you're generating, the likelier you are to be in the midst of basically blitz-scaling your organization in particular sales and marketing organization, we've talked about it in previous episodes. And if that's the case, then at that point, it's the time where you raise a lot of capital. So it seems a little bit counter intuitive. A lot of people would say, once I get to 2.5, 10 million in ARR, I need less to get to the next level. Actually that's, in many cases, when you need more to get the next level, cause you actually need to buy yourself into the next wave and that way to buy into the next wave is to hire a lot of people around sales and marketing.

Bertrand: Yeah, I think that, as we discussed in the previous episodes, there are big expectations from a lot of investors, in term of how fast you're growing the business. And definitely, one way to grow fast is to invest cash, so that you can grow faster.

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In this episode, the second part of our SaaS Primer trilogy, we deep dive into Sales and Pricing in the Software-as-a-service space. For further context, please listen to episode 15, in which we did an Overview of SaaS and its intrinsic Business Models. Please look out for our next episode that will conclude our Primer, with deep-dives on Financing/Fundraising, Benchmarking/KPIs, Lessons Learnt and Predictions. Navigation:

Introduction (01:24) Section 1 - Sales (01:52) Section 2 - Pricing (20:40) Conclusion (36:58)

Resources

Please check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Download Tech Deciphered SaaS Primer PDF Deck

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Intro (01:24)Nuno: Today in episode 16, we will have our second episode on our "software as a service" primer.For further reference, please also listen to our episode 15, where we started this discussion.Today, we will talk about sales and pricing, and we will go a little bit in depth into these topics. And we will see where the discussion heads. As always, we always get very verbose when we get excited, as you guys know.Section 1 - SalesBertrand: Exactly. Let's start today on the sales side. The sales motion, the sales process is obviously a critical part of any business. But, SaaS has its own approach to sales, and it's very tightly connected to the financing, obviously, we'll talk later about financing. What do we see as a benchmark of percentage spend of sales and marketing, as a percentage of ARR? What we can see, and we are leveraging some slides from Openview Partners, is that across the range, you are at the lowest, around 30 percent of spend in sales and marketing early on, below the $2.5 million ARR barrier. And then it goes up, 35, 40, potentially 45 percent of spend, on median. From $2.5 million, to 10, to 20, to 50, beyond 50. This is a median, so we see a pretty wide range, plus or minus, 15 percent of these numbers.So if I were to take a different stage, we can see that the wider range would be from 15 to 60 percent being spent in sales and marketing. So widely different range, and usually it depends on the business model. If you have a more product-led growth, you will spend less in sales and marketing. If you're a more traditional, I would call it old-school, SaaS approach, you will usually end up with higher sales and marketing spend. Nuno: And I would highlight two interesting pieces of this chart. One. It seems once you get to a certain critical mass of ARR, let's say about $15 million in this case that the costs will start reducing as a percentage of your ARR, which makes sense. You can start optimizing you have a certain scale and a certain brand, and there's a lot of things you can do.The second effect, which might actually correlate to that as well is in many cases, companies are growing really fast to get into the 50 million ARR or a hundred million ARR. So they are spending way into the market, and we discussed it in our previous episode, they're doing a land grab type strategy.And so there may be overspending on sales or on marketing overall for customer acquisition. And therefore, once they taper at 50 million or 100 million, they might actually then optimize their sales and marketing costs. Also underlines at some point, let's say the a hundred million mark, 120 million mark , would you want to go public as a company and therefore at that stage,

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In this episode, we start our Primer on SaaS - Software-as-a-Service - a trilogy on everything you need to know about SaaS. We will give an Overview of SaaS, as well as discuss the intrinsic Business Models. Please look out for our next episodes that will deep-dive into Sales, Pricing, Financing, Benchmarking/KIPs, Lessons Learnt and Predictions.Navigation:Introduction (01:24)Section 1 - Overview (04:39)Section 2 - Business Model (17:59)Conclusion (45:19)ResourcesPlease check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17Our co-hosts:Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmittNuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.

Download Tech Deciphered SaaS Primer PDF Deck

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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errorsIntro (01:24)Bertrand: Welcome to episode 15. In today's episode, we will talk about SaaS. What is SaaS?What does SaaS mean? SaaS means Software-as-a-Service. This is, and we will talk more about that later on, but this has become over the past decade, one of the most successful way to distribute and monetize software. Why is that? We'll talk more about that, but in a nutshell, SaaS is really a new philosophy and approach to software, that emerged around 20 years ago, as a way to deliver, a centrally-hosted application over the internet, as a service.In the past, you had to have your own server. You have to install your server. You have to upgrade and maintain your server, and you have to install software on every user laptop or desktop. It was very complex to maintain, to manage, but also on the pricing side, in the past, you would pay a very big license fee for your server, for your desktop license, and you would keep paying, a smaller amount, a maintenance fee, every year, usually for technical improvement. But you will have to keep managing your software server and clients side, for years. And it will become very difficult and complex, and you would have to keep up with improvements in the software. And it was difficult to keep up.What SaaS enabled, software-as-a-service, was, you don't have to manage the server side anymore. It was pioneered by companies like Salesforce, like Netsuite. So no more central IT costs to manage all of this, and the software would be distributed on the internet through your browser, so no need to install a specific software. And pricing was also changed as a result, no need for a big upfront license cost. You would pay every month, every quarter, every year. You could stop any time, or once a year, using the service, suddenly become much easier to consider trying a new service. It would become much easier to distribute that new service, and more important, much more alignment, between customers and supplier.Why? Because suddenly, the customer can leave anytime. Or at least once a year in most cases. And what this means is that it pushed suppliers to make sure their software was of really good quality. And on top of it, usually, much more focused on satisfying end user and consumers, not just making sure they check boxes with central IT.So it has been an evolution. It started 20 years ago. It started to ramp up with the last financial crisis in 2008, when companies decided it's time to give it a try. There was at the time, still some worries around storing your data somewhere else, not controlling your server equipment, infrastructure, and while there is still that worries, there is probably an acknowledgement today that these guys,

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In this episode, we will deep dive into the world of productivity tools, processes, habits and hacks. We will share our principles of productivity, calendaring, favorite communication, hardware and broader productivity tools (e.g. CRM). Finally, we will share what tools we are still missing and wish we had. As an “easter egg”, we will also share how to best get in touch with us, so do listen in.

Navigation:

Introduction (01:24) Section 1 - Principles of Productivity (02:20) Section 2 - Calendaring & Tasks (13:35) Section 3 - Communication Tools (28:30) Section 4 - Broader Productivity Tools (Note taking, CRM, LinkedIn, etc) (43:51) Section 5 - Hardware (51:54) Section 6 - Tools We Wish We Had (59:03) Conclusion (1:03:10)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Nuno: Episode 14. In this episode, we will deep dive into the world of productivity tools, processes, habits, and hacks. We will share our principles of productivity, calendaring, favorite communication, and broader productivity tools like CRM. Finally, we will share what tools we're still missing and wish we had.

We will also share some hardware and some gadgets. As an Easter egg, we will also share how to best get in touch with us. So do listen in

Bertrand: Hi Nuno, I think that's so very interesting topic for today. Definitely more tactical than usual coming out of a trilogy of the next decade but I think we got a lot of interest on this topic as well, and ultimately that's one topic that can make us better hopefully near immediately. I hope at least you will find some interesting habits and ideas.

Section 1 - Principles of Productivity (02:20)

Nuno: And the first section today is going to be around some principles of productivity. So just sharing the high level, how do we think through productivity for ourselves? How do we organize ourselves? What do we optimize for, you know, how do we think through things? And so maybe I'll start and we'll go from there.

The first thing for me is, productivity is everything, you know, the ability to optimize my time. To make the most out of my time, so that I have time for myself on a personal level, but I also have time to interact with people, have meetings, calls, time to work, time to actually do some works, do some thinking, write a memo, do a power point presentation, review actual work.

All of that's really, really important. So I spend a ton of time, literally, normally, actually on my Sundays planning my week, thinking through what are the flows of my week. We'll get to calendaring in a second, but really thinking through what sort of things am I trying to get out of this? And it's very easy to get sort of stuck into tactical stuff, the day to day, do I do 30 minutes conversations or do I do one hour conversations?

Do I do a coffee for this? And then I need to go for that. Under COVID, life is a bit easier because we're just back to back in zoom calls, but actually during normal life, we actually have to travel. So, you know, thinking through, do I want to go to that place that day to San Francisco, do you want to go to Menlo park?

Do I want to fly to somewhere else? And how many days would I stay there? So all of that, I spent an actual amount of time just around planning. Once in a while I have moments, I can't say they're very well established, but I have moments maybe a couple of times a year where I go back to the dr...

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In this, the third and final episode on the 2020s decade, we look forward, with our scenario planning methodology, into the late 2020s and specifically discuss Next Platforms & Structural Tech, Venture Capital & Start-ups and end with an overall framing of the decade ahead of us.

This concludes our 2020s “Time Travel Trilogy”, in which in episode 11, we deep-dived into what lies ahead on the Governmental/Geopolitical and Non-Governmental arenas, as well as shifts in User Paradigms around Work, Home and Mobility. In episode 12, we continued projecting forward in the decade, delving into the future of Energy & Climate Change, Healthcare, Education, Financial Services, Retail & Commerce, Leisure & Entertainment and Social & Communication. Please listen to these episodes, as well.

Navigation:

Introduction (01:24) Section 1 - Next Platforms & Structural Tech (02:30) Section 2 - Venture Capital & Start-ups (32:48) Section 3 - Overall framing of the 2020s (50:46) Conclusion (56:07)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Nuno: In this episode 13, on the decade of the 2020s, the decade ahead of us, we will be resuming our scenario planning exercise for a couple of other topics. We will be discussing next platforms, technology infrastructure, and the structural tech layers, VCs and startups and how that world will evolve, and we will then bring it all together in some overall framing of the 2020s and their scenarios. For further reference, please listen to our episode 11 and 12, where we talk a lot about a variety of things: the home, work and mobility use cases, we discuss various industries like healthcare, energy, climate change. So listen to our previous episodes that are concluded today in our trilogy of the 2020s. Let's start today with next platforms, the scenarios for what the world will look like in 2029, 2030, around next platforms

Section 1 - Next platforms & Structural Tech (02:30)

Next platforms - Deep tech

Bertrand: So let's talk about deep tech and deep tech is a fantastic topic to start, episode 13 today. There are of course, a lot of topics in deep tech and we cannot cover all of them, but let's start with space.

I think what has been amazing was just a few days ago, SpaceX, sent humans to the space station and it worked, they are in great shape. I believe it was nine years, since the last time astronauts have been sent to the ISS from the US, not needing a hitch from the Russians. I must say it has been amazing. The last 10 years, what SpaceX has achieved, moving from... I'm not sure they had a single rocket working 10 years ago, to sending now humans, and not just sending humans to the ISS, but sending humans through a very, very cost-effective rocket with a state-of-the-art shuttle. It's really amazing.

So when you think about 10 years from now, what could be there? Could we ready be on Mars? Nuno what's

Nuno: I don't know. everyone keeps saying it's the next frontier. There are certainly a lot of things that we can do in space, around low orbits, around communication, around infrastructure that helps us, for example, visualize what's happening earth, and making more powerful, our decision making processes here on earth. So there's certainly a lot of potential that I see in space.

I'm not sure we're gonna start colonizing things by the end of the decade, so I'm not sure we'll have people in the moon or we will get to M...

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In this episode, the second part of our discussion on the 2020s, we will use our scenario planning methodology to project forward into the latter part of the 2020 decade, so that we can deep-dive into the future of Energy & Climate Change, Healthcare, Education, Financial Services, Retail & Commerce, Leisure & Entertainment and Social & Communication.

Please also listen to our previous episode 11, where we started our time traveling and discussed the Macro landscape - both Governmental/Geopolitical and Non-Governmental, and also User Paradigms around Work, Home and Mobility.

Join us for our next episode, episode 13, which will conclude our “Time Travel Trilogy” of the 2020 decade, by delving into Next Platforms & Tech, Venture capital & Start-ups and an overall framing of the 2020s.

Navigation:

Introduction (01:24) Section 1 - Energy & Climate Change (02:03) Section 2 - Healthcare (06:30) Section 3 - Education (10:06) Section 4 - Financial Services (14:49) Section 5 - Retail & Commerce (18:13) Section 6 - Leisure & Entertainment (25:26) Section 7 - Social & Communication (41:18) Conclusion (47:13)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Bertrand: Welcome back to Tech Deciphered episode 12 on the 2020s.

If you remember our previous episode, episode 11, we started talking about the 2020s, our view about the next decade. Trying to do some scenario planning, trying to project what are the possible scenarios in 10 years from now of where the world will be. Where some technologies will be. Where some consumer habits will be, and try to walk back from that perspective and think carefully about what it means and how it could happen or not happen. And obviously, share our opinions of the most likely scenarios.

Section 1 - Energy & Climate Change (02:03)

Nuno: And we will start today with energy and climate change. I'm generally optimistic about the discussion around climate change coming out of this shelter in place and lockdowns that we've had around the world. Where people are seeing the effects that we actually have on the environment, and those effects are very obvious.

You know, we've taken a little bit of pause. There's a reduction in pollution, and we see the world changes around us. So the momentum, I believe for climate change after this will be a positive one. Just by the nature of what we're observing. There will be two negative levers to this. the first lever that will be negative is the fact that we need to have an economic recovery.

And at this moment in time, that economic recovery needs to be fast. So we need to start moving and we need to start moving even faster. In some ways, that will generate probably the impetus for certain governments and certain corporations to more aggressive about manufacturing, logistics and things that we know are implicitly creating pollution.

And then the second piece that is negative to this climate change agenda, and us obviously adopting more renewable energies, better technologies, and everything that would make this world that we're currently in, in lockdown, more sustainable into the future is the fact that obviously the price of oil has come down plummeting to levels never seen before. And so it's actually very, very cheap.

So those are the two forces that I believe we're having infighting on. There's many other forces we could have around this,

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In this episode, we will start discussing the 2020s. We will introduce a unique and novel framework that we will follow around scenario planning, frame when exactly the 2020s start (hint: starts with a C and ends with 19), debate the macro landscape - both governmental/geopolitical and non-governmental and finalize with the user paradigms around Work, Home and Mobility.

We will continue this discussion of the 2020s in the next episodes, including the second part of our analysis of the 2020s, in which we will delve into the future of Energy + Climate Change, Healthcare, Education, Financial, Retail & Commerce, Leisure & Entertainment and Social & Communication. Look out for episode 12.

Navigation:

Introduction (01:24) Section 1 - When did the 2020s start? (02:41) Section 2 - Macro, World Governance, Geopolitics and Non-Governmental (03:24) Section 3 - User Paradigms (28:08) Conclusion (53:49)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Nuno: In today's episode, episode 11 we will start talking about the 2020s, the decade that we have ahead of us. We will drive this into different episodes and we will choose a framework that's a little bit different than those normally followed by people that we normally listen to. We will choose a scenario planning framework.

The difference between a scenario planning framework and simply a forecast framework is in forecasting. We're trying to extrapolate the future from where we start today. In a scenario planning exercise, we really doing a little bit of time traveling to start with. We're moving ourselves into the future and to 2025, 2029 and we're trying to figure out, from there, what things would need to happen to give rise to those scenarios. In some cases, we will share very strong views, which we hope you're okay with, but in others we will really structure two or three potential scenarios for some of the elements that we will discuss. The objective is to start the discussion going and to the best of our knowledge, really frame what's ahead of us in the next five to 10 years.

Section 1 - When did the 2020s started? (02:41)

Bertrand: We will start with, where does it start? When did the 2020s started? And I guess everyone will agree that right now under shelter in place we have a pretty momentous event with us. We're in the middle of COVID-19 emergency, we are in a new world, a brave new world, I guess, and that's how the 2020s started. Obviously it will be more difficult to guess exactly when this decade will be over, beyond, the digits, but more based on inflection points.

Nuno: So we start with crisis.

Bertrand: We start with crisis. Hopefully we don't end with crisis

Nuno: It seems like every decade has been defined by crisis. So the likelihood of that we shall see.

Bertrand: Indeed

Section 2 - Macro, World Governance, Geopolitics, Non-Governmental (03:24)

Nuno: We are gonna talk about scenarios for what the world will look like in 2029, 2030, from what I call the outlandish, to the predictable. And we're going to start with the macro space, world governance, geopolitical, and non-governmental elements.

2.1 Covid-19 impact

So we'll start with coronavirus, which is obviously in our minds today, and we've already dedicated episode 9A and 9B to the discussion around coronavirus. So today we will not repeat what we discussed in that episode. So go back to episode 9A and 9B to really see our...

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We split this episode into two parts: in this, the second and final part (10B), we discuss the significant shifts in business models and the funding landscape that happened in the 2010s. We deep-dive into these business models, e.g. freemium, advertising/free at the point of consumption, subscription, and we give you the no-BS view on the fundraising landscape, what REALLY changed and what (mostly) stayed the same.

Please also listen to the first part of this episode (10A), in which we discussed the macro-trends of the 2010 decade and the underlying technological tectonic shifts, including analyses of the OS, platform and product & application spaces

Navigation:

Introduction (01:24) Section 1 - A brave new world ... of business models (01:56) Section 2 - The switch in funding landscape (27:59) Section 3 - The end ... of the world, as we know it?! (37:38)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Bertrand: Welcome back in this , the second part of Episode 10, Episode 10B, we're still focus on the 2010s, that incredible decade that we spent some time discussing in Episode 10A and now, we are going to be focus on the dramatic changes in business model that happened, as well as the switch in funding landscape. For further reference, listen to the first part of this Episode, Episode 10A. Let's start today with dramatic changes in business models.

Section 1 - A brave new world ... of business models

Nuno: So software is eating the world, Marc Andreessen famously wrote, I believe in 2011 and the world was going to be basically not only fully digitized as software was going to entrench itself and disrupt every single industry. Part of that promise, I believe, was realized in the last decade where we have the advent of a lot of things that we discussed in episode 10A, but also I believe that the whole thesis around software is eating the world is not the full story.

In some ways, the world got totally digitized, but the physical world didn't catch up. And one of the stupid examples I always give is in a world where, for example, we are going to have self driving cars, well, the cabin of a car needs to change because you don't need to drive anymore. So what is it going to become?

Is it going to become an office, a living room, a bedroom? Is it going to be a flexible space or not. So Mark's comment I think is well taken. The comment that digitalization is going to overrule many industries. There is not any other moment, but the current moment in which we're in the midst of COVID, that would make that point.

But I do think it missed part of the story. Part of the story is that the physical world will have to change as well. And it's very interesting that Marc just published a manifesto of sorts on how the world needs to change going forward. And he talks a lot about core infrastructure in that manifesto, which is, by the way, an exceptionally well written piece of text.

But as I said, I think software wasn't the only part of the story. There is also a hardware and physical part of the story.

Bertrand: Yes, totally. It's as you say, pretty interesting that he started the decade with this very famous article and is starting a new decade with a new article. I think he was definitely right on the first one. Software is indeed eating the world, but as you say, the physical world was not following up. The good news is that these days the physical world is...

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We split this episode into two parts: in this, the first part (10A), we argue the 2010 decade actually started with the 2008 crisis, the advent of the iPhone, the App Store and the move of the world to the cloud. We go in-depth into the macro-trends of the decade and the underlying technological tectonic shifts, including analyses of the OS, platform and product & application spaces.

Look out for the second part of this episode (10B), where we will discuss the shifts in business models and the funding landscape that happened in the 2010s.

Navigation:

Introduction (01:24) Section 1 - When did the 2010s really start? (02:24) Section 2 - The Backdrop: Macro-trends and overall context (03:41) Section 3 - The Tech Stack: Operating Systems, Devices & Platforms (19:09) Section 4 - Products & Applications (38:18)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Bertrand: Hi Nuno, how are you today?

Nuno: I'm well and you Bertrand, how are you?

Bertrand: I'm doing good. I'm doing good, enjoying shelter in place.

In today's episode we're going to discuss, the 2010s, the past decade. A lot happened in that past decade in tech. So it will be a pretty, pretty high density episode. We will talk first about a more higher level, macro view of what has been happening in tech. We will deep dive into the underlying of the technology industry, operating systems, devices, technologies, platforms, and then we will talk about the dramatic changes we also saw in business models.

It's actually pretty amazing when we think about everything that changed there. It's not just the technology. And finally, we will conclude around the switch in funding landscape and how much has changed as well. We will be splitting this episode in two. So that it's more digestible.

Section 1 - When did the 2010s really start?

So Nuno, I will start with a question. When can we say that the 2010s really started?

Nuno: Well in my opinion, the 2010s start with the 2008 crisis that prolonged itself well into 2009 and to the beginning of the 2010s. And in some ways that's a really good timing to choose because 2008 was also the year in which the Apple app store launched for the iPhone. It's also the year where, in effect, Android became a real threat to iOS and Apple, and it really defined a lot of what was going to come into 2010s so we start with a crisis, as we'll see, we might end with a crisis as well, which will be interesting. So maybe decades actually do get defined by crisis, but for the purposes of this episode, we will go back a little bit in 2007, 2008 to give us more context into what the decade really looked like.

Bertrand: Yes, it's might be sad to start and end with crisis, but at least it's pretty clearcut, and crises definitely generate very strong inflection points.

Nuno: And we had the 2000/2001 already with the bubble. So in effect, beware of end of decades.

Bertrand: Indeed, indeed. If we make a full comparison, the decades themselves are pretty good. It's the ending and the starting.

Section 2 - The backdrop: Macro-trends and overall context

So let's talk about the more macro trends that we saw in tech. And I feel the first big macro trend was really how in the 2010s, technology started to insert itself right in the middle of society, in the middle of us.

It has been pretty amazing, to see technology scope, enlarging, growing into our daily interactions.

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We split this episode into two parts: in this, the second and final part (9B), we discuss the implications of COVID-19 in the Venture Capital and the Start-up ecosystems. We share our no-BS view on how easy/how difficult it will be to fundraise, depending on the space you are in, on what will likely change when the “new normal” comes into play and what to focus on in order to make your business survive this, the biggest and most ruthless of all storms (recorded on April 16th).

Navigation:

Introduction (01:27) Section 1 - Impact on Venture Capital firms (01:44) Section 2 - Impact on Start-ups (14:37) Section 3 - Boards and Governance (31:02) Conclusion (38:23)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Nuno: In this, the 2nd part of episode 9, episode 9B, we will be discussing the impact of COVID-19 on VC firms and startups. For further reference, listen to the first part of this episode, episode 9A. Let’s start today with Venture Capital firms.

Section 1 - Impact on Venture Capital firms (01:44)

I recently shared with a number of you, on Twitter and a couple of other social networks my own views on what's happening in venture capital. And let's start from the bottom up.

Let's start with the individual impact. I know it's shocking, but we, VCs are people, and therefore as people, we have the same issues as everyone else. When we go into shelter in place, we might have families that we need to take care of. We might have kids that we need to take care of, spouses, and we need to articulate complexities.

Like, for example, all of a sudden, if you have two kids, if you have a spouse that's also working, you might have three or four zoom sessions at the same time. And you know, houses are not of unlimited space. So obviously people need to articulate. I was seeing a social media post from a well known general partner saying that he was taking his calls in his car because that seemed to be the only real quiet space in his house.

So again, we as individuals are dealing with the same complexities as any other individual. And one needs to take that into account. What that implies is, there's a lag. You have a latency right now, if you're a company fundraising, you have to deal with this latency. The first step to that latency is what I just talked about.

It's the fact that I as an individual, as a venture capitalist, need to deal with this new reality and this new complexity. I might not be more productive immediately. It might take me a while to get back to my productivity.

The second level of latency that I have to deal with, if I again, am a startup fundraising, and trying to fundraise from a venture capital firm, is the fact that VC firms have portfolio companies, and portfolio companies in some cases right now are going through complex times.

And the way I normally categorize portfolio companies for a venture capital firm is you either have counter cyclical portfolio companies or cyclical portfolio companies. If they're cyclical, they're aligned with the current economic cycle we're in. If they're counter-cyclical, they're not.

If they're counter-cyclical at this stage, you're probably doing fine, your companies are probably doing well. If the companies are cyclical, your portfolio companies are normally either positively correlated or negatively correlated to the cycle, and if they're positively correlated meaning they're doing really wel...

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We split this episode into two parts: in this, the first part (9A), we discuss the broad implications of COVID-19, the short-term and long-term implications, how this is the “end of the world, as we know it”, but why there are many reasons to be hopeful about the future to come (recorded on April 16th).

Look out for the second part of this episode (9B), where we will be focusing on the impact of COVID-19 in the Venture Capital and Start-up ecosystems.

Navigation:

Introduction (01:27) Section 1 - COVID-19 - “the end of the world, as we know it” (02:36) Section 2 - What the future holds (05:53) Section 3 - Economic impact (12:03) Section 4 - Long term impact of COVID-19 (18:41)

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Nuno: In today's episode, we will be discussing the impact of COVID-19 and the pandemic. Specifically, we will go through an introduction. We are recording this on April 16th so the numbers that we have today, we will also talk about what the future holds.

We will be sharing the opinions of several people that we've been reading as well as our own opinions. We will be discussing the core assumptions economically and how the world is supposed to recover from this. We will discuss the longterm impact of COVID-19 in our own view, and how do we expect to be exiting this pandemic?

We will talk about the impact to venture capital firms in their own fundraising, in their own operations. We will discuss the impact on startups, how and where they play, their markets, their operating models, the complexities that they're going through. And finally, we will finish with the impact on board of directors and governance in these companies. We will, be splitting this episode into two so that it is more digestible. We will not be talking about the scientific ramifications of COVID-19, we are not experts in that space and therefore we will stay away from those discussions.

Bertrand a difficult start to this episode, it is the end of the world as we know it. The REM song is a little bit happier than this, but in some ways it is the end of the world as we know it.

Bertrand: But it is not the end of the world. Hopefully, we are going to grow back. It's definitely tough times. As of today, we have more than 2 million cases, confirmed. Close to 150,000 dead. It's really, really, big numbers. It's amazing the change in society that have happened over the past few weeks, few months, since early January, since it was starting from Wuhan in China. Expanded to China, and then expanded step by step to the rest of the world. We saw Europe, we saw US, and many other countries are going to get even more impacted from South America to Africa.

It's an event like you have every 50 or 100 years. So, it's a very, specific moment in time and, a surprising timing for us launching our podcast. Nuno?

Nuno: It's been an interesting, and by interesting, obviously we can't really minimize the tragedy of what is going on. The stress that is basically affecting all our infrastructure hospitals, food supplies, the effect that we're having in our own lives as people are locked down, they're sheltered in place.

So in this episode, although we will talk about a lot of things that we hope to be hopeful about and more positive about, we did want to start in this more somber note of acknowledging all the deaths and all the people that have been affected dramatically by t...

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We demystify a whole lot in this episode of Tech DECIPHERED. We demystify Venture Capital and its nitty gritty decision-making processes and operating models. We demystify Private Equity vs Venture Capital and explain the differences between both. We discuss factors for Start-Up success and demystify entrepreneur “ageism”. Last but not least, we disagree … on the Tesla Cybertruck.

Navigation:

The other side of the table - Entrepreneurs who become VCs (02:31) Decision-making and the operating model of Venture Capital (05:10) VCs have to make lot of decisions with incomplete information (08:23) Are VCs much less ambitious that PEs? (23:39) Key reasons why start-ups succeed (31:27) What successful second time founders do differently? (43:59) Are older entrepreneurs more successful than younger ones? (56:08) Tesla's new Cyber-truck (59:28)

Resources:

Andreas Goeldi, What I Didn’t Understand About VCs When I Still Was a Founder - https://bit.ly/3bbf4UU Auren Hoffman, Venture Capitalists are MUCH LESS ambitious than their private equity siblings - https://bit.ly/2V5itin Alex Ponomarev, The Five Reasons Why Startups Succeed, According to a Legendary Investor - https://bit.ly/34wQuLy Feliks Eyser, What Successful Second-Time Founders Do Differently - https://bit.ly/3b86aYn Mark Travers, For Entrepreneurs, 45 Is The New 25 - https://bit.ly/3a3ypWz MotorTrend, Tesla Cybertruck - https://bit.ly/2V6jSoY

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Intro (01:24)

Bertrand: Welcome to Tech Deciphered Episode 8.

Hi, Nuno, how are you today?

Nuno: Hey, Bertrand, how are you? I'm well.

Bertrand: Pretty good, thank you, Nuno.

So, what are we going to discuss today?

Nuno: So we're gonna discuss a couple of different areas.

One, we're going to demystify VC: a couple of articles on the venture capital space and we'll agree with some of the points made, we will disagree with others, we'll again go in depth and try to demystify the discussion. Then some other articles on de-mystifying startups and founders in particular, and what it takes to be a successful entrepreneur.

And finally we'll talk about gadgets and we'll talk about cars today, which is really, really cool.

Bertrand: I know you are very excited.

Nuno: I am super excited. We only have one article on cars, but I think we can go on for some time.

Bertrand: And which car are we going to talk about?

Nuno: We are going to talk about the cyber truck, that thing that does Tesla announced.

And we're going to talk about other stuff that's cooler and what's happening in the space.

There was a recent announcement as well, of a couple of new electric cars, and so we'll go a little bit off piste on that one.

The other side of the table - Entrepreneurs who become VCs (02:31)

So, let's start with our first topic today , and we'll start with this good article, from Andreas Goeldi, titled "What I Didn't Understand About VCs When I Was Still a Founder". It's great that he's coming with his perspective having been a founder, an entrepreneur, now on the venture capital side, and being able to relate, in a way, more easily, from a founder perspective, entrepreneur perspective what it is to be a VC.

And let's go point by point on this one. So the first point that he makes, I agree actually with all of his points. I think there's some nuances around some of the explanations and rationale that he's giving ...

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We launch into why 100 Bn in value just evaporated from “Silicon Valley” and why that is a good thing for private companies and investors going forward. We discuss the rationality of public markets and go into the IPO landscape... B2B vs B2C, as well as hardware vs software. We analyse direct listings and why that may (or may not) matter. Finally, we discuss secret teams at Apple, the controversy around its Activation Lock and Amazon steadily making their role noticed in the Tablet market.

Navigation:

Silicon Valley bubble bursts? (02:18) Hardware IPOs continue to struggle, but public performance is not always bad (11:53) B2B vs. B2C IPOs (22:49) Direct listings (28:33) Apple’s (not so) secret satellite team (37:32) iFixit controversy (43:17) State of the Tablet market (47:20)

Resources:

WSJ, Silicon Valley adjusts to new reality as $100B evaporates - https://on.wsj.com/2TRGKYD Top Tier, B2B vs B2C IPOs - http://bit.ly/2INnoxz Tech Crunch, Hardware IPOs continue to struggle - https://tcrn.ch/2IQXZmJ CNBC, NYSE proposes allowing companies to raise fresh capital in direct listings - https://cnb.cx/39TjMWx Bloomberg, Apple Has Secret Team Working on Satellites to Beam Data to Devices - https://bloom.bg/39VjVsy Walt Mossberg, Apple has added the infamous "Activation Lock" to Macs, and it's going to cause tons of perfectly good laptops to go to waste - http://bit.ly/2wYuGMe iFixit, Apple’s Activation Lock Will Make It Very Difficult to Refurbish Macs - http://bit.ly/33mrCWr Business Wire, Strategy Analytics: Prime Day and Alexa Catapult Amazon to #2 Tablet Spot Globally - https://bwnews.pr/38U1Nyb

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Nuno: Episode 7.

In this episode, we're gonna discuss news around IPOs, initial public offerings, or exits, as we like to call them. We will be talking about , the de-mystification of venture capital and startups. And finally, we'll end up with some gadget news.

Bertrand: Excellent Nuno, thank you.

Let's start with IPOs and as you say, sometimes we talk about IPOs and we equate that with exit. I think that might be actually dangerous to think too much as an exit, at least from an entrepreneur perspective. Yes, from a VC perspective, but from an entrepreneur perspective, it's often a stepping stone, to getting bigger and getting, maybe out of your teenage years, but definitely an exciting time when it happens.

Nuno: Correct. And you get to ring bells and do all sorts of funny things that are interesting.

Silicon Valley bubble bursts? (02:18)

That said, sometimes reality sets in, which brings us to the first article today, which is the article on Silicon Valley, adjusting to the new reality as a $ 100 Billion evaporates, the Wall Street journal article.

This article goes into quite a lot of detail on the significant haircuts that have happened with companies that have IPOed in the last few years. So companies that have lost a lot of value from their initial public offering price, and also companies that almost IPOed and manage not to IPO and had significant hair cuts in their private market caps, with the case of WeWork being obviously, probably the most discussed one.

Bertrand: Exactly. I think today in this article, actually the most value lost has been by private companies moving from one private round to another private round instead of an IPO per se.

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We discuss whether you can figure out if your idea is worth 1 Bn or not in advance (spoiler alert: NO), analyse several frameworks that are still useful in that analyses, why not being a lemming makes sense in the investment space, and why founders and CEOs shouldn’t waste time arguing with VCs. We go into the more nit gritty elements of product management and product portfolio management, including what one can learn from dead Google projects. Finally, we go into the new Mac Pro, including its $400 (!!!) wheels, why YouTubers like MKBHD (Fanboy alert) and iJustine matter so much, and finally we nerd out on Graphics APIs… because, well, why not.Navigation:How much is your start-up idea worth? (02:23)Pain vs frequency of use framework (03:26)Howard Marks framework (06:35)Lemming mentality in venture capital (10:27)The case for critical thinking in VC (11:11)Introducing feedback loops in VC (15:28)Pitching VCs - do’s and dont’s (18:01)Product management: agile vs waterfall (24:19)A decade of dead Google projects (32:43)Mac Pro (39:48)Marketing through Youtube celebrities (42:44)Apple’s Metal graphics API (45:05)Resources:Ali Zahid, How to know if your startup idea is worth $1 or $1B - http://bit.ly/2U7UhKLTren Griffin, Andy Rachleff, 2×2 matrix If you’re wrong, you don’t generate attractive returns. If you’re right and consensus returns get arbitraged away. The goal is to be in the lower right quadrant - http://bit.ly/3d1Aoh6Eric Paley, Don't Waste a VC Pitch Arguing - http://bit.ly/2xGvllWHBR, The Kind of Creative Thinking That Fueled WeChat’s Success - http://bit.ly/2QgvTVYThe Verge, What we can learn from a decade of dead Google projects - http://bit.ly/2WgpBcEBloomberg, Apple’s New Mac Pro Can Cost $52,000. That’s Without the $400 Wheels - https://bloom.bg/2QjlcSvFortune, Why YouTubers MKBHD and iJustine Got the First Sneak Peek at the New Mac Pro - http://bit.ly/2WffmFCApple Insider, Editorial: Mac Pro puts the pedal to Metal in Apple's race with Nvidia - http://bit.ly/2U9PtEpOur co-hosts:Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmittNuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news. Subscribe To Our Podcast

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Bertrand: Episode 6 of "Tech Deciphered." How are you, Nuno, today? Nuno: I'm well, although today I'll be very grumpy throughout most of the episode. There's a couple of articles that we'll be discussing that I have some objections to. But overall I'm doing very well. How about yourself, Bertrand? Bertrand: I'm doing good, it's a good day. I'm not sure if I'm as grumpy as you on some of these articles, but we will see, we will see. Nuno: Maybe we'll get to get grumpy at each other as well? Bertrand: Oh, I hope not. So, we have a few articles today we will be talking about: 3 main topics. One around, how to help you in term of start-up idea: how to evaluate it, how to get a good sense as an entrepreneur, does it make sense? Talking as well about, product management - high level: what are different types of product management. And finally, we will talk as usual, we'll have a section around gadgets, and this time we'll have a focus, of course, on the new Mac Pro. How much is your startup idea worth? (02:23) Nuno: Yes. So let's start with VC and startups and we're going to be discussing two articles to start with: one is actually, how to know if your startup ideas worth a dollar or $1 billion. Bertrand: And I prefer a billion, personally. Nuno: I think most people do, but maybe it's difficult to get to a billion,

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We go in-depth on the ongoing media streaming wars touching upon Apple, Disney, Netflix, AT&T… and well, we spend a lot of time talking about Disney, our new Media overlord. We discuss whether we are at “Peak TV”, audio streaming and the Marvel Universe and how it changed the global movie landscape for all of us. Throughout this episode, we must warn our listeners that we will also share some strong opinions on specific movies and tv shows… don’t tell us we didn’t warn you! Navigation:

Apple TV Plus: why it’s not about what you think it is (01:59) Are we at “Peak TV”? (09:34) AT&T’s new media strategy (16:10) Disney Plus: a new giant of streaming emerges? (21:40) How the Marvel Universe changed the movie arena (33:05) Peak TV and peak Media (41:40)

Resources:

Bloomberg, Apple TV+ launch - https://bloom.bg/3cZHQsU Hollywood Reporter, Apple TV+ shows getting 2nd season - http://bit.ly/3aZ0W0x Cult of Mac, Apple TV+ pulls in ‘millions of users’ in its first week - http://bit.ly/3b9uVTJ iMore, Apple TV+ analysis predicts initial demand falls behind Netflix's top offerings - http://bit.ly/3d1ds1c Ars Technica, As DirecTV tanks, AT&T says it will “re-bundle” TV with HBO Max - http://bit.ly/2U7oJVg App Annie, Mobile Minute: Disney+ Poised to Shake Up Mobile Streaming Market - http://bit.ly/3b2elVp Seattle Times, Disney Plus hits 10M subscribers in 1 day - http://bit.ly/2QcVjUz What is the Endgame for Disney+ - https://econ.st/2We6rnW Matthew Ball, Marveliad, Cinematic Universes Aren't New; They're the Oldest Stories on Earth - http://bit.ly/3b1piXE Matthew Ball, Disney, IP and returns to "Marginal Affinity" - http://bit.ly/2Wi96wH WSJ, Roku Getting Splashed by Streaming Wars - https://on.wsj.com/2WeOuFH Hollywood Reporter, Studio Chief Summit: All 7 Top Film Executives, One Room, Nothing Off-Limits (and No Easy Answers) - http://bit.ly/3dbG5Jo Hollywood Reporter, Liberty Media CEO Forecasts "Circular Firing Squad" for Hollywood's Streaming Wars - http://bit.ly/3d3j7Ec Matthew Ball, The Mining of Media (or The "Streaming Wars" are Just a Battle) - http://bit.ly/2UdnYtE WSJ, Expect Fewer Big Media Deals Next Decade - https://on.wsj.com/2Qi9lEp Bloomberg, TV Industry Suffers Steepest Drop in Ad Sales Since Recession - https://bloom.bg/2QkucXL

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Nuno: Welcome to episode 5. Today we'll spend most of our time talking about media: the launch of Apple TV, Disney Plus, and a few other in-depth articles that we've had a chance to take a look at Bertrand: Hello Nuno, how are you? Nuno: I'm well, how about you Bertrand? Bertrand: I'm doing good, thank you. I'm pretty excited to talk about the media space today. A lot of action in that space in the few months, so glad we find the time to talk about what's happening and what is all this media streaming war all about. Apple TV Plus: why it's not about what you think it is (01:59) Nuno: So let's start with Apple TV. So, Apple TV Plus launched November 1st, we have a bunch of articles that we've been talking about for the last few weeks around and interesting. So what are your thoughts early on, on Apple TV Plus? Bertrand: If you look at Apple TV Plus alone by itself it's not a very interesting service would be my take, in the sense that what's coming and what's unique from this service in term of unique shows you cannot get anywhere else,

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We really get into a discussion on Apple’s, Google’s, Nike’s, Fitbit’s and Garmin’s strategies. We talk about the evolution of Direct-to-Consumer (DTC 2.0), the “Google Squeeze”, and we end up disagreeing a couple of times, although no co-hosts were harmed in the making of this episode. Finally, we talk about the new Macbook Pro (Bertrand is a real fan), Apple’s foray into AR and VR, the new Moto RAZR and the “General Magic” movie.

Navigation:

Apple’s Vertical integration strategy (01:57) Peak Google or the Google Squeeze (08:49) Nike (really) goes Direct-to-Consumer (15:35) Cracks in Amazon’s Armor (16:06) Fitbit & Garmin in opposite directions (25:37) Macbook Pro (34:30) Apple going into AR/VR (41:17) New foldable Moto RAZR (44:46) General Magic - The Movie (46:47)

Resources:

Apple Insider, A6: How Apple's custom silicon and iOS optimized each other - http://bit.ly/2Um4bsn WSJ, Nike to Stop Selling Directly to Amazon - https://on.wsj.com/3d76W9x Stratechery, The Google Squeeze - http://bit.ly/2xGnGUJ Business Insider, Google offer to buy Fitbit - http://bit.ly/2U9FMGg Fortune, Why Garmin’s Shares Are Hitting Record Highs As Rival Fitbit Sinks From View - http://bit.ly/2QeyiAw Daring Fireball, New MacBook Pro 16 - http://bit.ly/3d3qfjZ Monday Note, Apple AR/VR: Reality Bites Virtual Reality - http://bit.ly/2U1TTgw Yanko Design, 2019 MOTO RAZR foldable phone - http://bit.ly/2UdkZ4q General Magic, The Movie - http://bit.ly/2WcFocF

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Bertrand: Hello Nuno, how are you today?

Nuno: I am. Well, how are you Bertrand?

Bertrand: Pretty good, pretty good.

Nuno: Today we're going to talk quite a bit about strategy, and how some very significant players Apple, Nike, and Google are thinking through their integration in terms of business model. Also in terms of tech, we're going to leave some of the content discussion to another episode.

In particular around some of the movements that Google, Apple, Facebook and others are doing around content, around gaming, et cetera.

Apple Vertical Integration Strategy (01:57)

But maybe just start with a really fascinating article around the A6, and on how Apple has really innovated around the system on chip space, and how that really is linked to it's almost dominant position around the operating system stack as well.

Bertrand: Yes, I think there was this fantastic article on Apple Insider talking about how the A6, the Apple CPU that was launched in 2012 is representative of how Apple works differently from other tech companies. And myself, I remember one of the first time I was surprised by how Apple was working, is when I heard that story about how they cornered, the aluminum market for laptops: they will buy in advance most of the sources of aluminum to make sure nobody else could make a MacBook . And apparently that story was not just a wake up call for me, but a wake up call for execs at other tech companies, including Microsoft, when suddenly they fully realized what they were up against in term of vertical integration.

I think that the traditional PC space was not about this vertical integration. That's for sure. That was about Intel and Microsoft creating that ecosystem where everyone compete pretty aggressively and the profit goes to Microsoft and Intel at the end of the day.

Apple has a different approach. Apple is Apple,

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We do an in-depth episode on our “saviour generation” (as Nuno calls them), gen Z: who are they, what do they stand for, what are their aspirations and hopes, why does it matter so much, how entrepreneurial will they be, how will they engage, what products and services will they use - in commerce, social, entertainment, gaming, finance, how to reach and appeal to them. Navigation:

Definition of Gen Z (1:31) Aspirations & Hopes (4:13) Why should we care? (08:57) Openness & Consciousness (10:31) More or less entrepreneurial? (12:33) Growing up ‘mobile-first’ (16:55) Institutions and political engagement (20:49) What apps do gen Zers use? (23:26) How do they play mobile games? (28:00) What social apps do they use and how? (30:27) What entertainment apps do they consume and how? (32:59) How do they use shopping and financial service apps? (34:25) Gen Z at work and their career development (39:33) How to reach and appeal to Gen Z (47:13) Gen Z - Conclusion (48:37)

Resources:

App Annie, How To Win Gen Z on Mobile - http://bit.ly/2w8TvVJ Criteo, Gen Z Report Based on the Criteo Shopper Story - http://bit.ly/2IOv0Qr McKinsey, True Gen: Generation Z and its implications for companies - https://mck.co/39W0noe Morning Consult, Understanding Gen Z - http://bit.ly/33pbeV1 IBM, What brands should know about Generation Z shoppers - https://ibm.co/33qWXXZ Imagen, Switched on Superfans - http://bit.ly/3aRZahA Deloitte, Understanding Generation Z in the workplace - http://bit.ly/38TT6nx Google, Gen Z: A Look Inside Its Mobile-First Mindset - http://bit.ly/2TT65BK

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

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We discuss the future of direct to consumer brands and the long awaited reclaiming of end-consumer relationships by the L’Oreals and Philips of the world, and why Nuno won’t do “automatic toothbrush head re-ordering” any time soon. We talk about the importance of chicken (yes, CHICKEN!), why CostCo is locking in its production and the future of food delivery, including dark and cloud kitchens. In gadgets, we talk about the Apple Watch and Amazon Alexa. Navigation:

Digitally Native Brands - from Direct to Consumer 1.0 to DTC 2.0 (01:51) The case for product differentiation in DTC (04:11) Innovations in packaging (10:13) Gaining direct relationships with consumers (13:22) Theses in food delivery (16:38) Emergence of dark and cloud kitchens (17:45) Take-out still key in the US (21:52) The importance of the Costco $4.99 Chicken (24:46) Apple leader in smart watch (31:02) After 5 years, why is Alexa barely better? (37:47)

Resources:

Frederic Fernandez, FMCG CEOs: 10 Thoughts About The Future Of DTC - http://bit.ly/3cWe88a Times of India, Cooking food to become as rare as making own clothes - http://bit.ly/2WdndU9, CNN Business, It's only $4.99. But Costco's rotisserie chicken comes at a huge price - https://cnn.it/3aXuls4 9to5Mac, Strategy Analytics: Apple Watch sales grew 51% in Q3, still the ‘clear industry leader’ - http://bit.ly/2QiAmr8 The Verge, After 5 years of Alexa, why isn’it it better - http://bit.ly/2WacdqJ

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Bertrand: Hi Nuno, how are you today? Nuno: I am well, and how are you Bertrand ? Bertrand: I'm doing pretty good, so today we are going to talk about consumer, consumer goods, consumer tech and we have a few topics from consumer goods to food tech. Nuno: Yes, and that will make us hungry. So this is going to be an interesting show at the end of the day.

Digitally native brands - from DTC 1.0 to DTC 2.0 (01:51) Shall we go in? And to the direct to consumer analysis on digitally native brands. This really interesting article, by Frederick Fernandez, which really puts together a lot of research from ABI and a few other sources on the future of DTC, and he has 10 specific thoughts around it. And , to start with a non-controversial part, I think we will find it difficult to disagree tremendously with any of the 10 points. But maybe let's start at the beginning, right? So , let's start with definitions and what it is and what it's not. We're talking about, effectively the direct to consumer or, what we call digitally native brands. So brands that are F in the FMCG space, that are reaching out to consumers in their first instance, through mostly a digitally enabled value chain and also digitally enabled front office in front of the house. So, a lot of interesting analysis around it. I think let's start with sort of the obvious ones, and maybe go to the less obvious ones. The point that he makes pretty early on is that, what got some of these digitally native brands to be so unique and so advanced, and really to take significant market shares is probably not going to work for the next wave of DTC 2.0. So DTC 1.0 was really focused on price arbitrage, on optimization of marketing, on paid traffic, and effectively there weren't a lot of barriers created there. And , if we're looking at the future of DTC and,

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We get Tech DECIPHERED started by discussing the lessons learnt from the grandfather of Silicon Valley Venture Capital and founder of Sequoia Capital, Don Valentine… learn what the Don Valentine jacket was all about. We go behind the curtain on how the Venture Capital landscape has systematically changed in terms of stages of investment, risk taking and across consumer vs enterprise and software vs hardware … and why VCs have actually benefited from angel investors. We discuss common pitfalls in pricing your products & services and the importance of gross margin or “If you truly mispriced [your product or service] by 10X, you are probably a dead company or soon to be dead”. We share our “no bs” views on obvious and less obvious lessons on pitching to a VC firm and, in gadgets, we discuss the death of the Red Phone and the new Airpods Pro. Navigation:

Don Valentine’s Passing and his Jacket (01:29) The importance of targeting Big Markets (02:41) Example of a big market: the app Industry (04:16) How big is your market? (06:00) When Silicon Valley gets markets wrong (08:02) The new early stage landscape - from pre-seed to series A (09:31) The Gross Margin Problem (19:47) Non-obvious lessons on pitching (27:34) Airpods Pro (34:06)

Resources:

Jeff Morris Jr., Don Valentine, target big markets: http://bit.ly/2Q8cnL9 Pear VC, Navigating The New Seed Landscape: http://bit.ly/2TMoz6G Craft Ventures, The Gross margin Problem: Lessons for Tech-Enabled Startups: http://bit.ly/2vlLQ6a James Currier, Fundraising is not natural: http://bit.ly/2TMp14S The Verge, Airpods Pro launch: http://bit.ly/39OvOjY Inverse, Red Phone getting killed: http://bit.ly/2wVEh6k

Our co-hosts:

Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro

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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Bertrand: Hi Nuno, how are you? Nuno: I'm well. Don Valentine's passing and his jacket (01:29) So today we're going to start with some news, some sad news around venture capital with the passing of Don Valentine, the founder of Sequoia capital, obviously one of the household names in the venture capital community here in the Bay area and around the world. Sequoia capital having become one of the most significant players in the venture capital space. And Bertrand you actually met Don and Sequoia was an investor in your company? Some words around Don and around Sequoia? Bertrand: Yes, I met him a few years back at a private Sequoia event where he was, giving his jacket, the Don Valentine jacket to one exec who did a lot for a Sequoia family portfolio company. Nuno: And what is the Don Valentine jacket? Bertrand: It's a nice looking colorful jacket, if I remember well . Nuno: Does it have a specific meaning attached to it? Is it like someone that's helped Sequoia or the portfolio company? Bertrand: I think it's about someone who not only helped a portfolio company, but if I remember well, this person also helped quite a few other Sequoia portfolio companies, was available and open to meet with other fellow entrepreneurs, and that seemed to have been a tradition at Sequoia. The importance of targeting big markets (02:41) Nuno: In the news we're sharing this week is obviously, one of, his speeches at Stanford graduate school of business, around targeting big markets. You know, obviously there's a lot to be said about big markets. And I think in some ways there's been a lot of emphasis in recent times in particular,

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A short primer on what to expect of the new Tech Deciphered Show and why you should tune in.Learn more about what Tech Deciphered’s origin story, its format and tone, as well as an introduction and background of the 2 co-hosts: Nuno Goncalves Pedro, investor, co-founder and managing partner of Strive Capital, and Bertrand Schmitt, tech entrepreneur, co-founder & chairman at App Annie.Navigation:Origin Story (1:26)Format (2:55)Tone (3:16)Nuno Bio (3:39)Bertrand Bio (5:14)Our co-hosts:Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmittNuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro Our show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news. Subscribe To Our Podcast

Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Welcome to Episode 0 Origin story (1:26) Nuno: As it is always the case, there is an origin story to Tech Deciphered. Bertrand and I have had weekly discussions in different forms around the latest news, opinion pieces, and research for some time. We've also taken it to Twitter. As part of those discussions, in many cases, we've gone underneath the surface. And while doing that, we really tried to understand what goes beyond the snapshots that the journalists are portraying. What we are trying to bring is an entrepreneur, an investor view of big tech, VCs and startups, to help understand what's truly happening behind the surface. And it's usually pretty far from the caricatural view you can sometimes get, and both Nuno and I, we have spent quite some time living in Asia, living in the US, we are coming from Europe, and we believe we can have a more global best perspective versus what you usually get here in Silicon Valley. So our objective is to decipher the meaning of these news, to decipher the meanings of these announcements, opinion pieces, and to really bring the no BS view of what's really happening in the world, while adding our own inside knowledge and context that is, we think, very valuable. And also, also being both nerds, we couldn't resist discussing gadgets and sometimes pop culture news. Format (2:55) Bertrand: This is our first season. Typically, every episode will be split into two to four main segments on big tech VCs, and startups, and usually we're ending with gadgets because we love gadgets. Once in a while we will bring amazing guests on topics they are experts. Tone (3:16) Nuno: Our tone will be a little bit like us. Passionate, irreverent, nerdy. We will be strong, but convey informed opinions. We will always be trying to aim for the truth and that means there will be no BS allowed. We won't be afraid to disagree, but we will be having quite a lot of fun in the process. Nuno Bio (3:39) Nuno: I am your co-host, Nuno Goncalves Pedro, investor, co-founder and managing partner of Strive Capital. I have been in Tech for almost 25 years as a computer engineer, product manager, operator and investor. I have worked in over 35 countries spanning Europe, Asia and North America and have lived in Lisbon, London, Beijing and the San Francisco Bay area. I am an ex McKinsey senior expert and member of the Asia-Pacific Technology, Media and Telecom leadership team, as well as an operator , including senior roles with the GSM Association. I developed and product managed software products and custom systems at the beginning of my career and some of them are shockingly still in use today. More importantly, I have been an entrepreneur in Venture Capital, having co-founded Strive Capital and having had senior roles with other VC firms in Silicon Valley. I have been an executive,

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